Bad as it is, the current market turmoil offers opportunities for major players in the mortgage business—including credit unions, the GSEs, and others who traditionally support affordable lending.
Admittedly, the challenges are daunting. According to industry and media reports:
• Industry losses since January include $900 billion-plus in origination capacity and 108,000 mortgage jobs.
• More than 4 million loans were past-due or foreclosed in Q4 2007. Delinquencies and foreclosures likely will trend upward in 2008.
• Due to price declines, it's hard for prime borrowers to refinance or sell their homes.
• The inventory of single-family homes for sale is the highest in 20 years.
Fannie Mae's forecasts, as of March 2008 unless otherwise noted, have included:
- a total peak-to-trough decline in home prices of 13-17 percent—bottoming in late 2009 (as of February 27, 2008),
- a total sales decline of 21 percent and a 32 percent drop in single-family starts this year (starts and sales could stabilize in the second half of 2008, but surplus unsold homes will push prices downward),
- a 28 percent decline in purchase originations to $0.9 trillion this year—the lowest level since 2001, and
- tighter credit standards that continue to keep some borrowers out of the market.
Rising to the challenge
Fannie Mae was created 70 years ago as a government agency to help stabilize a troubled housing market. Now a private company with a public mission, it's our obligation to strike a delicate financial balance—providing liquidity, stability, and affordability to the market while protecting our capital, managing risk, and mitigating losses.
What does this mean during the current crisis? We need to stay healthy so our lender partners can depend on us to keep affordable mortgage funds flowing into a parched market. To help maintain that flow, we've had to adjust product prices, tighten eligibility and underwriting standards, and require higher down payments and credit scores in the riskiest segments of our business.
It's also our mission to help stabilize borrowers and communities. So we've focused on preventing foreclosure through workouts, modifications, and counseling for borrowers in trouble.
For example, many homeowners (including credit union members) who need to refinance out of an unsustainable loan can benefit from products highlighted under our HomeStay™ Initiative. Last year, lenders and servicers used HomeStay Initiative resources to help 68,000 subprime borrowers refinance into prime loans. They also prevented 43,000 foreclosures by working out delinquent loans through long-term forbearance, repayment plans, and loan modifications. To date, workouts have continued at a pace of 840 a week.
This year, we've added a new loss mitigation option to streamline the workout process. Fannie Mae servicers now can offer HomeSaver Advance™ to eligible delinquent borrowers who have fallen behind due to a temporary life event or hardship. Through HomeSaver Advance, servicers can provide an unsecured personal loan up to $15,000 to cure arrearages.
In some cases, foreclosure can be avoided if delinquent borrowers know where to turn. That's why we've provided nearly $10 million in grants to help national, community- and faith-based nonprofits that offer counseling to at-risk borrowers (including credit union members whose delinquency on home loans could affect their car, boat, and other loans). For example, we joined others in the industry to support the HOPE NOW counseling hotline (1-888-995-HOPE) and Project Lifeline, which gives at-risk and delinquent borrowers more time to find foreclosure alternatives.
Returning to sustainable lending
In many areas, today's market turmoil is pushing down the price of homes. Lower prices are expected to bring buyers back to the market, creating demand for mortgages they can afford over the life of the loan. And during the next decade, immigration, economic expansion, and population growth are expected to add 15 million new households—driving up the demand for affordable housing and fueling home price growth at affordable levels.
So, as we face today's challenges and look forward to a healthier market, let's continue to share ideas and resources. The trust members have in you makes you a natural for consumer education—including home buying seminars and financial literacy classes, as well as programs that help members understand their existing mortgages—whether or not they got the loans from you.
Fannie Mae has information resources and customizable marketing and technology tools that can help you with these efforts and more. Contact your Fannie Mae Account Manager today to learn more.
This article contains forward-looking statements, including statements relating to Fannie Mae's expectations of future housing market conditions. Future results may differ materially from what is indicated in these statements, which are representative only as of the date noted or the date on which they were made.