Dennis' Mortgage Blog

Question of the week:  Why is my loan owned by Fannie Mae but I pay someone else?

Answer:  We get this question a lot, especially lately with the drop in interest rates and home owners calling to inquire if they can refinance.  It is important for many home owners to know if their loan is owned by Fannie Mae, or Freddie Mac, because loans delivered to them prior to June 2009 are eligible for the Making Home Affordable refinance program (note the key word is delivered, which means your loan probably needed to fund in March 2009 or sooner).

Called D/U Refi Plus for Fannie Mae and Open Access for Freddie Mac, the program allows home owners with either a Fannie or Freddie owned mortgage to refinance up to 125% of the current home value.  If you currently do not have mortgage insurance the new loan will not require it on the new loan; however if your loan to value exceeds 90% you will need to establish and impound account.

So how is it that you are paying a lender but Fannie or Freddie owns your mortgage? 

As I have discussed over the years in the Weekly Rate & Market Update mortgages are bundled together and sold to Fannie or Freddie who then issue bonds, or Mortgage Backed Securities (MBS) against the mortgages.  Investors bid on the MBS offerings and those bids are what determine interest rates. 

While Fannie or Freddie may own the loan, they do not service the mortgage, meaning they do not collect the monthly principal and interest payments due on the loan.  These are collected by a servicer, often the bank that originally funded the mortgage, but just as often another lender who purchased the servicing as an investment.

Servicing mortgages is a fairly cost heavy endeavor, especially in the current market when servicers must go through the default and foreclosure process on many loans, or work out short-sales, or work out loan pay-offs for those refinancing.  As a result many lenders sell of their servicing to cut costs rather than to make money, which was the case in the late 1980s when huge mortgage servicing companies competed for servicing portfolios.

The servicer collects your mortgage payment, keeps a portion as its fee for the servicing and then sends on the rest of the payment to Fannie or Freddie, who in turn retain a portion of the payment as a fee and then sends the rest of the payment to bond holders in the form of interest on their investment.

If your loan is a government insured loan by either FHA or VA the process is similar but instead of selling the loan to Fannie or Freddie the loan is sold to Ginnie Mae who runs the secondary mortgage market for government insured mortgages.

To find our if your loan is owned by Fannie or Freddie and possibly eligible for a Making Home Affordable refinance please contact me.

Have a question for me?  Ask me!

This week’s blog posts:

Government Suing Wrong Parties  I exam the lawsuit filed last week by the federal government against seventeen lenders for selling loans to Fannie Mae and Freddie Mac, it is my opinion that if a suit is filed it should be against Fannie and Freddie and their administrators.  Click on the link to read my reasoning.

My Plan For Economic and Job Growth Ahead of Wednesday night’s Republican debate and Thursday night’s speech by President Obama I put down what I would do if I had the power Washington does to use the government to stimulate the economy and create jobs.

Stocks and Bonds  A quick visual look at the relationship in recent days between stock prices and mortgage rates—they are inextricably linked.

The big news this week has been The Speech.  But other significant news regarding the economy came out as well, most importantly was Thursday mornings initial jobless claims number of 414,000 new applicants for unemployment insurance, much higher than expected and not the news the White House wanted on the morning of the President’s address to the Joint Session of Congress.  With yet another week of claims over 400,000 the lack of movement on creating employment after $4 trillion in deficit spending from Washington and approximately $3 trillion in money from the Fed for QE1 and QE2 is a strong message.  Do you think anyone is listening?

Speaking of the Fed.  Those who follow my Facebook page saw an article from the Wall Street Journal I posted examining some moves the Fed may try to make to generate some economic activity.  Click on the link above (or the icon below), when you get to my page “Like” it and my postings will appear on your Wall.

The Speech.  I will not discuss the President’s speech in political terms, depending on which side of the aisle you sit on it was either a great speech or a flop. In economic terms the speech was the latter.  As I write this at 9:30 a.m. Pacific the morning after the speech the Dow Jones is down over 300 points, almost 3%, and Mortgage Backed Securities are zooming.  This is good for those looking for mortgages.

Why the negative reaction from investors?  Several reasons have caused the reaction to Obama’s speech last evening.  First there was nothing new in the speech, more federal spending to keep local and state government workers on payrolls, same as the stimulus; continuing unemployment benefits for long term unemployed; another several hundred billion in infrastructure projects, we spent several hundred billion in February 2009 in the first stimulus bill for “shovel ready” projects that we discovered weren’t really shovel ready.  Second, the spending  request on the back of the debt ceiling debate confuses the markets who see that realistically there will probably be no spending as there is no room in the debt ceiling for the spending.  The markets are very wary of excessive government debt, the speech last night calls for more of it.

Gridlock and finger pointing are primary result.  Last evening President Obama delivered a speech but no plan, nothing in writing was presented to Congress with the message of “here is my plan and its details.”  Because of this he is asking Congress, both houses, to come up with details that fit within the ideas he stated last night.  Problem is that there is a solid and fundamental division between the Senate majority and the House majority on fiscal policy.  The Republicans will not enact over $400 billion in additional spending unless there are cuts to other parts of the federal budget.  The Democrats will not want cut other parts of the budget as they will no doubt fall on many social programs.  As a result there will likely be no agreement and no bill passed.  This will create the opportunity for both sides to blame the other for putting party before country and campaign on the them until November 2012.

Personally I am disappointed but not surprised.  Since before his family vacation in late August President Obama and the White House have stated he was working on a major jobs plans and speech that would generate economic growth and hiring across the country.  Daily updates were forth coming about the importance of his speech and his plan.  But he did not deliver a plan, he delivered ideas and “you should’s” to Congress so they could make a plan.  Knowing there is a fundamental divide in Congress, having participated in the debt ceiling negotiations that resulted in Congress and the White House abdicating power to a “super-committee” that is questionably Constitutional, the President has left the details of job creation legislation to a divided Congress allowing politics to gridlock the process as participants adhere to their fundamental principles that represent their constituents back home—constituents who vote in fourteen months on whether to keep their representatives or replace them. 

Very apt that on the same night the National Football League kicked off that President Obama’s plan was a punt.

Rates for Friday September 9, 2011: As mentioned MBS securities have jumped up today on the heels of last night’s speech.  If you look at the chart below you can see that conforming rates have not quite hit the low from October 2010, but the price of Fannie Mae MBS are well above the prices of October 2010, this means that lenders are not passing through to their rate sheets the price they are getting on the secondary market.  They are hedging for two reasons, one control volume and two to back fill for servicing costs, defaults, buybacks and other expenses that are higher in September 2011 than they were in October 2010.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS*

30 year conforming                               3.80%               Down 0.075

30 year high-balance conforming           3.956%             Down 0.0.44%

30 year FHA                                         3.75%**           Flat

30 year FHA jumbo                              3.75%**           Down 0.125

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. 

* Please note that rates quoted are based on average of several lenders for a purchase transaction with 20% down payment with an impound account for taxes and insurance and a minimum FICO score of 740; APR is not quoted as it is dependent upon specific loan amounts, lenders and services selected.  Numbers provided are for comparative purposes only.

** Call for pricing quote as FHA mortgages are at their lowest coupon rate and credits available to cover closing costs at these rates. Updated 9/9/11

Sunday is the 10^th Anniversary of the terrorist attacks on New York and Washington D.C. a morning that will equal that of Pearl Harbor in American history for remembering where we were when hearing and watching the horrible events of that morning.

The attacks and murder of thousands of Americans on that morning forever changed our nation and the world.  It was a statement from barbarians that they wish to eliminate those who do not wish to participate in the world and with each other as they believe we should participate.  Falsely claiming their murder that day, and in the years preceding and after 9/11, was in “God’s name” they succeeded in clearly defining what “liberty and justice for all” means to America, regardless of gender, religion, sexual orientation, race, or ethnicity.  We will not and cannot compromise our fundamental values, morals and beliefs as a nation because of the murderous and misplaced beliefs of others who seek to eliminate those very same values, morals and beliefs.

God Bless America and provide us the strength as a nation to resolve to continue our path as the leader shining the beacon of freedom and liberty for all mankind to see and follow.

Dennis