Remarks Prepared for Delivery by Candy Lasher
2010 Regional Conference of MBAs, Atlantic City, NJ
It’s a treat to be back in Atlantic City. Congratulations to the NJ MBA for hosting this great event and for all the educational opportunities you offer. Fannie Mae is pleased to join you. We value our many relationships in this room and appreciate the opportunity to work with each of the MBA organizations represented here.
Today I’d like to talk about the challenges facing the housing and mortgage markets. I’ll focus on:
- Where we are today
- What we’ve learned to guide our path forward
- How can we apply what we’ve learned to strengthen the market
- And finally, why there are good reasons to believe in housing
Where we are – the market environment
Let me summarize what Fannie Mae’s economists are telling us about the market environment today and going forward. We know the challenges:
- Recession and unemployment are driving still more homeowners into serious delinquency and foreclosure. At the end of 2009, according to the MBA, the rate of serious delinquency for the nation rose to a record 9.7 percent. New Jersey’s serious delinquency rate was even higher: 10.4 percent, followed by Maryland with 9.2 percent, New York with 8.75 percent and Pennsylvania, which had 6.7 percent of loans that were seriously delinquent.
- Foreclosures are adding to the excess supply of homes, and that supply keeps a lid on home prices.
- And with stronger underwriting standards, which I’ll talk about in a minute, it can be harder to qualify for a mortgage, and that keeps some aspiring homeowners out of the market.
You know all this. You are living it. But let me note the upsides in today’s market:
- We’re seeing record-low and near-record low mortgage rates as a result of the Federal Reserve’s purchase of $1.25 trillion in GSE mortgage-backed securities over the past year. This has helped keep liquidity flowing into the market.
- Houses are affordable – and by some measures more affordable than they have been in a long time.
- Home sales are on an uptick. We see it here in New Jersey, where Realtors report that resale activity in the state ended 2009 more than 34 percent higher than the fourth quarter of 2008. For the Northeast region, year-over-year seasonally adjusted existing home sales rose 20 percent in 2009, far stronger than the increase nationwide of 8.6 percent.
So how do we at Fannie Mae look at the near-term future? I would describe our outlook as cautious because we have a ways to go to reach where we would like to be.
- The national unemployment rate could hit 10 percent this year, which would be the highest rate since 1948.
- More than one in four U.S. homeowners -- 10.7 million – have negative equity in their homes. And the wave of foreclosures will continue this year.
- Our economists estimate that currently vacant homes, available for sale or rent, combined with 4.6 million homes with seriously delinquent loans, add up to an excess supply and shadow inventory of 6 million to 7 million residential properties.
- But our economists also forecast strong home sales in the second quarter, as homebuyers rush to close on sales before the tax credit expires in June. By the end of the year, if the labor market improves, we could see an upward and sustainable trend in sales. For all of 2010, a 9 percent increase in total home sales is projected.
- And those stronger underwriting standards mean that today’s borrowers are better prepared and able to sustain homeownership for years to come. That is good news for the market going forward.
Over the long term, we see reason for optimism in our market. A growing nation will mean growing demand for homes.
Let’s be clear: We won’t be planting a flag on the mountaintop of recovery until we see a turnaround in the current foreclosure crisis. We are bracing for more foreclosures, driven mostly by unemployment and underemployment.
Let me take a moment to explain what Fannie Mae is doing to help families stay in their homes and help neighborhoods avoid the destabilizing impact of foreclosures.
Fannie Mae has assembled a sizable operation based in Dallas – our National Servicing Organization – to help servicers work out loans. That office also maintains and markets our foreclosed properties, which we work to put back into service as rapidly as possible. Last year, we sold more than 120,000 foreclosed properties.
Fannie Mae also administers the Administration’s year-old Home Affordable Modification Program. Servicers have started more than one million trial modifications through February and permanently modified loans for nearly 170,000 borrowers.
It’s also important to note that we continue to do modifications on our loans that are not eligible for HAMP. Fannie Mae completed more than 75,000 non-HAMP modifications in 2009.
The Administration’s parallel effort is the Home Affordable Refinance Program or HARP. More than 190,000 Fannie Mae and Freddie Mac borrowers had their loans refinanced under HARP last year. Overall, the two GSEs refinanced more than 4 million loans in 2009.
Treasury has made and continues to make adjustments to both HAMP and HARP, including extending HARP through June 30, 2011, to address borrower circumstances and servicer needs.
What We’ve Learned
Given that none of us has ever seen a market crisis like the one we are experiencing today, what have we learned to guide our way forward? Here are some important points:
- Housing declines happen. The models and assumptions on which lending, pricing and risk management were based did not contemplate a nationwide home-price decline because a downturn on this scale has never happened before.
- If there is return, there is risk. You can hedge it, hide it, slice it, sell it, put it off or spread it around, but you will never eliminate mortgage risk.
- Borrower attitudes matter. The actions, attitudes and behavior of people who take out loans are important drivers of the housing finance system.
- Finally, we understand more thoroughly and deeply than ever before, that our priorities must be loan quality and loan sustainability.
Strengthening the Market
As the housing crisis subsides and we look to a brighter future, how can we support sustainable homeownership and a stronger, more resilient housing market down the road?
Like most of the mortgage finance industry, Fannie Mae has returned to more traditional lending standards. All of us have shared in the consequences when too many borrowers got into loans they could not afford over the long run. By strengthening lending standards, we help protect borrowers, lenders, and the housing finance system.
Sustainability in all market cycles is also important for Fannie Mae’s business model. Our plan is to work with lenders to ensure that loans sold to us meet our credit, eligibility and pricing guidelines. To do this, Fannie Mae will implement policies and processes and offer tools and resources for lenders that will:
- Capture critical data earlier in the process,
- Help ensure loan data validation before, during, and immediately after purchase, and
- Provide feedback and training.
We’re calling this our Loan Quality Initiative, and it will help us build a safer, more sustainable business model that is transparent to our lender partners, mitigates lender risk, supports stability in all market cycles, and helps us to fight mortgage fraud.
The government has given Fannie Mae an important job to do and the support to do it. In 2009, we provided the liquidity for 600,000 people to purchase homes and 2.5 million homeowners get into better loans. We have kept liquidity flowing to multifamily lenders to finance and upgrade affordable rental housing. We are offering liquidity to small and mid-sized lenders in new ways so they can keep on making loans.
Although there are signs that the housing market is beginning to recover, we have a long way to go before this housing crisis is behind us. Until then, millions of borrowers are looking to your businesses for help.
Let us know what Fannie Mae can do to assist you. Our customer account teams are ready to support your business. Our teams from New Jersey, Delaware, Pennsylvania and New York will be here throughout the conference and in our Customer Service Center to hear your concerns, questions and ideas. I look forward to meeting you as well.