Oct. 14: Notes & an interview on the CFPB; a primer on conforming loan limits; secondary market deals

“To be sure of hitting the target, shoot first and call whatever you hit the target.” Economists are sometimes accused of something similar. But today I head to Philadelphia (City of Brotherly Love) and hope to snag someone from the MBA’s economics team and ask about how food at home versus food away from home costs figure in to consumer prices. I believe that tips are included in the CPI. I will be sitting in on a few compliance and regulatory sessions during the MBA Annual. The CFPB recently announced it would be increasing its enforcement staff by 50 percent without explaining much about why that might be needed. There is a big concern that this means lenders and vendors will only find out why they were needed “the hard way” if you’re in the CFPB’s sights. Meanwhile, in the latest edition of his Mortgage Musings, attorney Brian Levy discusses that increase in staff in the context of how the King Kong of regulators is unlikely to be knocked out by the recent SCOTUS case challenging its funding appropriation. (You can subscribe for free to Levy’s blog here.) While’s we’re on the CFPB, yesterday’s podcast, as always directed and produced by Robbie Chrisman, can be found here and has an interview with attorney Jay Beitel on arguments in the Supreme Court case regarding the CFPB.

A primer on conventional conforming loan limits

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Traditionally, conventional conforming loan limits (think Freddie Mac and Fannie Mae, aka the GSEs, or Government Sponsored Enterprises) are announced right around Thanksgiving. So, we have another month for the official news. Recall that “Conventional Loans” are defined as any mortgage that isn’t insured by a government agency. “Conforming Loans” are simply a conventional loan program that conforms to criteria set forth by ‘Fannie Mae‘, ‘Freddie Mac‘, and the FHFA, which is their regulator.

Every year the loan limits are reviewed and adjusted according to the home values across the country. The FHFA adjusts the conforming loan limits to reflect changes in the housing market. This helps ensure the average homebuyer can still get a conventional mortgage, even as housing costs rise. The FHFA, which oversees Freddie & Fannie, determines the loan limits with its House Price Index report which tracks the average increase in home values over the year and then adjusts the loan limit accordingly. Since the creation of the conforming mortgage products in 1980 (with an original limit of $93,750) until 2006 there had never been a year without an increase in the loan limit (save for a $150 decline in 1990). From 2006 to 2016, the limit remained at $417,000. In 2008, as a reaction to the severe decline in real estate sales and values, FHFA created the “high-balance” or “conforming jumbo” products for the GSEs, which have slightly stricter underwriting guidelines, higher loan limits, and higher costs/rates.

A permanent formula was established under the Housing and Economic Recovery Act of 2008 (HERA). If you’re interested, look for Section 1124, pages 39-40.

Despite official word not expected for a month and a half, that hasn’t stopped some groups from pre-empting the FHFA’s calculations & announcement by coming out with their own 2024 loan limits. It is always best to check with the company itself, but a quick tally shows that Guild, Pennymac, CMG, Supreme, SWBC, United Wholesale (UWM), Rocket, Arch, Enact, Essent, and National MI have all raised their limits pretty much to the easy to remember $750k. Given the appreciation that we’ve seen in single family homes during the pandemic, limits have really shot up: in 2020 it was $548,250, went $625,000 for 2022, and for 2024 appears heading to $750,000 despite misleading headlines claiming falling real estate values.

Why all the hoopla? Loan limits determine the approval guidelines for mortgages within the loan limit range. “Conforming,” or “conventional,” mortgages are funded by lenders and sold to either Fannie Mae or Freddie Mac (the GSEs), which then pool mortgages and create MBS and sell them to investors. Lenders approve and fund conforming loans using guidelines established by either Fannie or Freddie (there are some slight variances). If a mortgage fits the guidelines, and is done in a compliant manner, it can be purchased by the GSE or by an aggregator who will in turn sell it to F&F. Investors purchase MBS from either Fannie or Freddie know that their investment meets the criteria required by the issuing GSE. Loan limits are set to ensure the GSEs are facilitating financing for families that can benefit the most from lower down payment, lower interest rate mortgages.

Limits are important because a family needing a mortgage for $750,000 can obtain a conforming mortgage at, say, 7.5 percent instead of a high-balance (jumbo) mortgage for 8 or above. The family needing a mortgage can benefit from easier underwriting standards and possibly a lower rate from a high-balance conforming mortgage instead of a “jumbo” mortgage. Higher loan limits enable families to afford a higher priced home, or the same priced home with a smaller down payment. This also has the effect of putting upward pressure on home prices or dampening any slowdown in prices.

Supply and demand in the secondary markets drive rates

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Deals in the secondary markets have a direct impact on the rates borrowers see in the primary markets. Who’s doing what?

Fannie Mae announced the results of its twenty-ninth reperforming loan sale transaction. The deal, announced on August 10, 2023, included the sale of approximately 2,016 loans totaling $412.3 million in unpaid principal balance (UPB), offered in one pool. The loan pool awarded includes 2,016 loans with an aggregate UPB of $412,321,655, average loan size of $204,525, weighted average note rate of 3.44 percent, and weighted average broker’s price opinion (BPO) loan-to-value ratio of 54 percent. The winning bidder was Pacific Investment Management Company LLC (PIMCO). The transaction is expected to close by October 20, 2023. Reperforming loans are loans that have been or are currently delinquent but have reperformed for a period of time. The terms of Fannie Mae’s reperforming loan sale require the buyer to offer loss mitigation options to any borrower who may re-default within five years following the closing of the reperforming loan sale. All purchasers are required to honor any approved or in-process loss mitigation efforts at the time of sale, including forbearance arrangements and loan modifications. In addition, purchasers must offer delinquent borrowers a waterfall of loss mitigation options, including loan modifications, which may include principal forgiveness or payment deferral, prior to initiating foreclosure on any loan. Interested bidders can register for ongoing announcements, training, and other information here. Fannie Mae will also post information about specific pools available for purchase on that page.

Fannie Mae priced Connecticut Avenue Securities (CAS) Series 2023-R06, an approximately $766 million note offering that represents Fannie Mae’s sixth CAS REMIC transaction of the year. CAS is Fannie Mae’s benchmark issuance program designed to share credit risk on its single-family conventional guaranty book of business. With the completion of this transaction, Fannie Mae will have brought 59 CAS deals to market, issued over $63 billion in notes, and transferred a portion of the credit risk to private investors on over $2.1 trillion in single-family mortgage loans, measured at the time of the transaction. The reference pool for CAS Series 2023-R06 consists of approximately 64,000 single-family mortgage loans with an outstanding unpaid principal balance of approximately $20.3 billion. The reference pool includes collateral with loan-to-value ratios of 60.01 percent to 80.00 percent, which were acquired between July 2022 and October 2022. The loans included in this transaction are fixed-rate, generally 30-year term, fully amortizing mortgages and were underwritten using rigorous credit standards and enhanced risk controls.  In addition to the flagship CAS program, Fannie Mae continues to transfer mortgage credit risk through its Credit Insurance Risk Transfer (CIRT) reinsurance program. Fannie is expected to enter the market with two additional deals later this year, subject to market conditions.

Fannie Mae began marketing its thirtieth sale of reperforming loans as part of the company’s ongoing effort to reduce the size of its retained mortgage portfolio. The sale consists of approximately 12,800 loans, having an unpaid principal balance of approximately $2.65 billion, and is available for purchase by qualified bidders. This sale of reperforming loans is being marketed in collaboration with Citigroup Global Markets, Inc. Bids are due on October 5, 2023. Reperforming loans are loans that have been or are currently delinquent but have reperformed for a period of time. The terms of Fannie Mae’s reperforming loan sale require the buyer to offer loss mitigation options to any borrower who may re-default within five years following the closing of the reperforming loan sale. All purchasers are required to honor any approved or in-process loss mitigation efforts at the time of sale, including forbearance arrangements and loan modifications. In addition, purchasers must offer delinquent borrowers a waterfall of loss mitigation options, including loan modifications, which may include principal forgiveness, prior to initiating foreclosure on any loan. Interested bidders can register for ongoing announcements, training, and other information here. Fannie Mae will also post information about specific pools available for purchase on that page.

Fannie Mae announced that it has executed its eighth Credit Insurance Risk Transfer (CIRT) transaction of 2023. CIRT 2023-8 transferred $344.3 million of mortgage credit risk to private insurers and reinsurers. The covered loan pool for CIRT 2023-8 consists of approximately 27,000 single-family mortgage loans with an outstanding unpaid principal balance of approximately $8.4 billion. The covered pool includes collateral with loan-to-value (LTV) ratios of 60.01 percent to 80.00 percent acquired between September 2022 and December 2022. The loans included in this transaction are fixed-rate, generally 30-year term, fully amortizing mortgages and were underwritten using rigorous credit standards and enhanced risk controls. With CIRT 2023-8, which became effective August 1, 2023, Fannie Mae will retain risk for the first 140 basis points of loss on the $8.4 billion covered loan pool. If the $117.6 million retention layer is exhausted, 24 reinsurers will cover the next 410 basis points of loss on the pool, up to a maximum coverage of $344.3 million. Since inception to date, Fannie Mae has acquired approximately $25.6 billion of insurance coverage on $858.7 billion of single-family loans through the CIRT program, measured at the time of issuance for both post-acquisition (bulk) and front-end transactions. As of June 30, 2023, approximately $1.27 trillion in outstanding unpaid principal balance of loans in our single-family conventional guaranty book of business were included in a reference pool for a credit risk transfer transaction. To promote transparency and to help insurers and reinsurers evaluate the CIRT program, Fannie Mae provides ongoing, robust disclosure data, as well as access to news, resources, and analytics through its credit risk transfer webpages.

Freddie Mac announced it sold via auction 3,564 non-performing residential first lien loans (NPLs) from its mortgage-related investments portfolio. The transaction, which includes loans with a balance of approximately $586 million, is expected to settle in November 2023. The sale is part of Freddie Mac’s Standard Pool Offerings (SPO). Bids for the upcoming Extended Timeline Pool Offering (EXPO), which is a smaller sized pool of loans, are due from qualified bidders by October 19, 2023.’s seasoned loan offerings focus on reducing less-liquid assets in the company’s mortgage-related investments portfolio in an economically sensible way. This includes sales of NPLs, securitizations of re-performing loans (RPLs) and structured RPL transactions. Since 2011, Freddie Mac has sold $9.7 billion of NPLs and securitized approximately $77.4 billion of RPLs consisting of $30.4 billion via fully guaranteed MBS, $34.9 billion via the Seasoned Credit Risk Transfer (SCRT) program, and $12.1 billion via the Seasoned Loans Structured Transaction (SLST) program. Requirements guiding the servicing of these transactions are focused on improving borrower outcomes and stabilizing communities. Additional information about Freddie Mac’s seasoned loan offerings is available at http://www.freddiemac.com/seasonedloanofferings/.

Fannie Mae announced the winning bidder for its twenty-first Community Impact Pool (CIP) of non-performing loans. The loans are geographically focused in the New York area, and the winning bidder was GITSIT Solutions, LLC (Tourmalet). The transaction is expected to close on November 17, 2023, and includes 25 loans with an aggregate UPB of $6,368,046, average loan size of $254,722, weighted average note rate of 4.54 percent, and weighted average broker’s price opinion (BPO) loan-to-value ratio of 31.46 percent. The cover bid, which was the second highest bid, for the CIP was 87.09% of UPB (27.40% of BPO).

Fannie Mae announced its latest sale of non-performing loans as part of the company’s ongoing effort to reduce the size of its retained mortgage portfolio, including the company’s twenty-second Community Impact Pool (CIP). CIPs are typically smaller pools of loans that are geographically focused and marketed to encourage participation by non-profit organizations, minority- and women-owned businesses (MWOBs), and smaller investors. The one large pool includes approximately 1,555 loans totaling $217.5 million in unpaid principal balance (UPB), and the CIP includes approximately 60 loans totaling $18.6 million in UPB. The CIP consists of loans geographically located in the New York area. All pools are available for purchase by qualified bidders and bids are due on the one large pool by October 31, 2023, and on the CIP by November 16, 2023. All buyers of non-performing loans are required to honor any approved or in-process loss mitigation efforts at the time of closing, including forbearance arrangements and loan modifications. In addition, non-performing loan buyers must offer delinquent borrowers a waterfall of loss mitigation options, including loan modifications, which may include principal forgiveness, prior to initiating foreclosure on any loan, not secured by property which is vacant or condemned at the time of closing.

Ginnie Mae’s mortgage-backed securities (MBS) portfolio outstanding grew to $2.477 trillion in September, including $36.6 billion of total MBS issuance, leading to $19 billion of net growth. Issuance for this month was less than $38.1 billion in August and $38.0 billion in July. New September MBS issuance supports the financing of nearly 120,000 households, including 56,000 first-time homebuyers. Approximately 75 percent of the September MBS issuance reflects new mortgages that support home purchases, because refinance activity remained low due to higher interest rates. For the 2023 calendar year to date, Ginnie Mae supported the pooling and securitization of more than 466,000 first-time homebuyer loans. The September issuance includes $35.6 billion of Ginnie Mae II MBS and more than $991 million of Ginnie Mae I MBS, including approximately $1,814 million in loans for multifamily housing.

Fannie Mae priced Connecticut Avenue Securities (CAS) Series 2023-R07, an approximately $536 million note offering that represents Fannie Mae’s seventh CAS REMIC transaction of the year. CAS is Fannie Mae’s benchmark issuance program designed to share credit risk on its single-family conventional guaranty book of business. The reference pool for CAS Series 2023-R07 consists of approximately 77,000 single-family mortgage loans with an outstanding unpaid principal balance of approximately $25.9 billion. The reference pool includes collateral with loan-to-value ratios of 80.01 percent to 97.00 percent, which were acquired between June 2022 and December 2022. The loans included in this transaction are fixed-rate, generally 30-year term, fully amortizing mortgages and were underwritten using rigorous credit standards and enhanced risk controls. With the completion of this transaction, Fannie Mae will have brought 60 CAS deals to market, issued over $63.9 billion in notes, and transferred a portion of the credit risk to private investors on over $2.1 trillion in single-family mortgage loans, measured at the time of the transaction.

 

 

I’m at that age where my mind still thinks I’m 29, my humor suggests I’m 12, while my body mostly keeps asking if I’m sure I’m not dead yet.

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Rob Chrisman