Remarks by Tim Mayopoulos, National Association of Realtors Conference, Orlando, FL
National Association of REALTORS Conference, Orlando, FL
Thank you to the NAR leadership, including Moe Veissi and Gary Thomas, for inviting me to speak today. It is a pleasure to be here.
One particularly important part of my first few months as CEO has been listening to your perspectives and sharing my own about how together we will support the housing recovery and lay the foundation for a better housing finance system.
I met with the NAR's senior leadership in August to discuss the key issues confronting the housing market. It was a positive and productive meeting and we committed to getting together at least quarterly. My hope is that we use these quarterly briefings to discuss top-of-mind issues and break down barriers that could impede the housing recovery. I believe we at Fannie Mae have a responsibility to engage with you to explain the actions we are taking, why we are making these decisions, and how we’re going to implement them. I believe our ongoing dialogue is critically important to our collective success.
I want to spend a few minutes this morning on Fannie Mae today and then provide more detail on our priorities and ask for your partnership in achieving our goals.
But first, let me update you on our response to Hurricane Sandy. Fannie Mae acted quickly to extend a forbearance option to homeowners affected by Sandy. While property count and damage estimates are not yet final, we are evaluating the impact through individual on-the-ground property inspections. Our process requires local real estate professionals to inspect the properties and report their condition to us. Finally, Fannie Mae employees have a proud heritage of contributing in our communities and this is no exception. We have partnered with the American Red Cross to help families who are hurting as a result of this terrible storm.
Now, let’s take a closer look at the company. Fannie Mae today is a different company with different leadership, different constituencies, and different priorities. More than 80 percent of the current senior management team was hired or promoted into their roles following conservatorship. Every member of Fannie Mae’s management committee has joined the company or been promoted into his or her current role since the housing crisis. And more than half of our 7,000 employees have been hired since conservatorship. At the same time, we have been able to retain many of the highly talented and experienced people who have been the core of Fannie Mae for a long time. Suffice to say, the people of Fannie Mae today are part of the solution, not part of the problem.
In addition to new leadership and new employees, Fannie Mae now serves different constituents. The company is no longer run for the benefit of private shareholders. Instead, it is managed in the overall interest of taxpayers, which is consistent with the substantial public investment in the company. Fannie Mae’s financial condition has improved significantly, and our expected ability to pay taxpayers for their investment in our company has grown markedly. In the first nine months of 2012, we reported $9.7 billion in net income, and to date the company has paid $28.5 billion in dividends to the Treasury. Moreover, we expect to report net income for the full year for the first time since 2006. You can learn more about our substantial progress on our website at www.fanniemae.com/progress.
Our current priorities also are well aligned with the public interest. We are committed to funding the mortgage market, assisting troubled borrowers, and building a strong new book of business. We have been the leading source of credit for the mortgage market, helped millions of homeowners through modifications and refinancing, and acquired a new book of business applying sensible credit standards.
Today, our two equally important priorities are first, to support the housing recovery, and second, to help lay the foundation for a better housing finance system going forward.
Supporting the Recovery
We are working hard to support the slow, but growing, housing recovery. We are acting as a counter-cyclical mechanism in this economy, and we have been the leading source of liquidity since the start of the economic crisis. Since 2009, we have funded the mortgage market with approximately $3 trillion in liquidity, which provided financing for single-family and multifamily loans. This enabled homeowners to refinance 8.9 million mortgages and helped households to complete 2.5 million home purchases. We have also provided financing for over 1.5 million units of multifamily rental housing.
Through the first three quarters of 2012, we have reported record business volumes and provided record liquidity. As of September 30, 63 percent of our total book of business has been acquired since conservatorship. In acquiring this new book of business, we have adopted enhanced underwriting standards for sensible lending, and we are enforcing these standards.
While gratified that we have been able to provide this level of liquidity to the market, we recognize that the GSEs are playing an outsized role. Fannie Mae’s single-family market share was approximately 41 percent at the end of 2011. In a properly functioning market, Fannie Mae should not have such a significant share. However, private capital is naturally opportunistic, leaning in when times are good, and moving to the sidelines when conditions are bad. More than four years after the onset of the financial crisis, we see little evidence of substantial private capital ready to meet the single-family market need.
In the multifamily market there is a different story, where a variety of factors have brought private capital back to the market. Fannie Mae’s market share hit a “high water” level of 49 percent during the housing crisis – we were there when others left. Now, there is more certainty in multifamily and, as a result, our share has declined to about one-fourth of the market.
We’ve taken steps to sustain critical liquidity for the market, but we continue to be concerned about market capacity. We’ve seen significant deconsolidation in the industry as major market participants have pulled back or left the market entirely. Moreover, we are hearing a lot about lenders being reluctant to extend credit. There are many potential reasons for this, such as regulatory concerns, repurchase risk, and lack of underwriting capacity.
With respect to repurchase requests, it is important to understand that we’ve made requests on less than one quarter of one percent (.25%) of the loans we have acquired since 2009. By contrast, on those loans written during the housing bubble (2005-2008), Fannie Mae has asked lenders to buy back 3 percent of the loans we acquired in that period. In the majority of cases, the lender agrees that the loan did not meet our requirements and buys back the loan.
However, repurchase risk and other uncertainties clearly need to be addressed by the industry, and we will continue to try to do our part. For example, we are working with FHFA to enhance our current representation and warranty model. We announced a new framework, and we are developing new tools, that will give us and our lender partners a much earlier and more comprehensive look into loan quality in an effort to improve the loan manufacturing process and reduce repurchase risk. Ultimately, our goal is that, when there are defects in that origination process, we and the lenders will have a set of remedies that makes the need for repurchases “a last resort.”
In addition to providing critical liquidity to the market, we are taking a leading role in helping homeowners avoid foreclosure.
We seek to have our servicers intervene earlier and to offer borrowers alternatives to foreclosure that require less documentation and easier implementation. Since 2009, we’ve helped approximately 1.3 million homeowners retain their homes or otherwise avoid foreclosure, which supports neighborhoods, home prices, and the housing market.
In addition to our work with servicers, we work directly with homeowners in distress through a network of 12 Fannie Mae Mortgage Help Centers in the hardest-hit communities across the country to supplement the work of our lenders. In September, we made it easier to contact the Help Centers, and as a result we increased the number of homeowners making an appointment online from around 50 to 500 per week. In 2012, approximately 7 out of 10 borrowers we’ve helped through the Centers have been able to stay in their homes. In addition to these brick-and-mortar efforts, we offer innovative online tools such as KnowYourOptions.com. The KnowYourOptions website has provided consumer education to more than 1.1 million unique visitors this year. I urge you to send your clients to KnowYourOptions for the facts about getting a mortgage or refinancing a mortgage. It’s also a terrific resource for borrowers in distress and provides the information they need to take action early.
There are, unfortunately, situations where borrowers simply cannot afford the mortgage payments on their homes. In that circumstance, we provide options for a graceful exit, such as a short sale or deed-in-lieu of foreclosure. We’ve heard a lot about your challenges with the short-sale process. As a result, we implemented a number of changes to make the process more efficient. For example, we now require servicers to make a decision on a short sale request within 60 days. We’ve also expanded our guidelines to make more borrowers eligible for a short sale earlier in the process – sometimes prior to delinquency. In some cases, we no longer require documentation of hardship. We’ve also signed agreements with all of our mortgage insurers so that servicers have the authority to approve short sales that meet Fannie Mae guidelines. We know there is more work to do, and we will continue to do our part to improve the process.
When we acquire a property through foreclosure, we work to sell it for the highest possible price – giving preference to owner-occupants. This is good for taxpayers, and for communities. In the first three quarters of 2012, we sold more than 140,000 foreclosed properties. The vast majority of these properties were sold with the help of local real estate professionals. Please accept my thanks for your critical role in making this happen. We know that using local real estate professionals is, and will continue to be, the best sales strategy for the great majority of our REO; however, this does not preclude us from pursuing additional sales strategies where it makes sense to do so. Let me spend a minute on the REO rental pilot, as I know it is top of mind for many of you.
We closed our third transaction in the pilot last week. As you know, this was a very small pilot; the three transactions included fewer than 2,000 properties. The majority of the properties were tenant-occupied, which made them ideal for the pilot as they wouldn’t generally be sold through our retail channel. While we expect most of our REO to continue to be sold through HomePath®, our retail channel, we were pleased with the results of the pilot and believe the results were good for taxpayers and for communities.
Building a Better System for the Future
Our second equally important priority is to lay the foundation for a better housing finance system that operates efficiently and effectively on a go-forward basis.
We believe a better system needs to be safer and more transparent for everyone – lenders, investors, and consumers. This better system should include a counter-cyclical mechanism that provides liquidity to the market and enforces strong credit, underwriting, and servicing standards. We have all experienced the devastating results of an industry that historically has periods where standards are allowed to erode. A mechanism to set and consistently uphold sensible standards is essential for a healthy housing finance system long term. This mechanism should not be too big to fail, but, to be effective, it does need to be big enough to matter.
At Fannie Mae, we are charged with being a responsible standard setter. We are working to establish and implement industry standards, develop better tools to price and manage credit risk, build new infrastructure to ensure a liquid and efficient market, and facilitate the collection and reporting of data for accurate financial reporting and risk management.
Let me give you a few examples of how we are doing this.
First, Fannie Mae and Freddie Mac are collaborating to develop a new securitization platform as a utility for the market. FHFA released a whitepaper last month, seeking industry input on our proposals as to how the utility will operate, how it will be built, and the business issues it will address.
Second, we’re investing in new technologies to create more consistency and efficiency in the system. One example is a technology called Servicing Management Default Underwriter™, or SMDU, which automates workout decisions and provides a borrower with the best workout options available based on their circumstance. SMDU broadens the mortgage products available to servicers and levels the playing field for borrowers in distress. Ultimately, this means better access to information for everyone.
Third, we continue to innovate to ensure loan quality and provide tools to help our lender partners improve the loan manufacturing process. These initiatives include:
- Developing and implementing the Uniform Mortgage Data Program;
- Collecting and reviewing electronic appraisal information;
- Starting in January, providing new messaging to lenders of potential appraisal defects; and
- Implementing our EarlyCheck™service to identify eligibility and data issues prior to origination and loan delivery.
These efforts will help lenders improve their processes, help us at Fannie Mae know what’s being delivered to our doorstep, reduce the potential for issues that can be challenging down the road, and, importantly, encourage sustainable lending.
These are some examples of the work we are doing to create a better system for the future. We are committed to being a leader and a good partner. I believe that together with the industry, including the National Association of REALTORS®, we can solve the nation’s housing issues today, and change the way people experience homeownership in America for generations to come.
Thank you for your partnership and support. I’d be happy to take questions.