Shareholders of Fannie Mae and Freddie Mac got a mixed reception at the U.S. Supreme Court on a lawsuit that seeks billions of dollars and could affect the push to end government control of the mortgage giants, Bloomberg News reported. Hearing arguments by phone yesterday, the justices considered whether investors can challenge the 2012 agreements that let the federal government collect more than $300 billion in profits from Fannie and Freddie. A ruling in the investors’ favor in the case would give them a chance to collect a massive settlement. Most justices directed tough questions at lawyers for both sides. Chief Justice John Roberts asked a government attorney to respond to the investors’ contention that “their stock was completely wiped out in a unique way.” But later Chief Justice Roberts told a lawyer for the investors that “this was a lifeline thrown to your client.”
The mortgage-loan servicer Nationstar Mortgage LLC agreed to pay more than $74 million to settle complaints of deceptive practices brought by the U.S. government and a coalition of all 50 state attorneys general, Bloomberg News reported. In lawsuits filed in federal court in Washington, D.C., yesterday, the Consumer Financial Protection Bureau and the states said that Nationstar, owned by Mr. Cooper Group Inc., failed to properly oversee third-party vendors or respond to borrowers’ complaints, among other offenses. The CFPB said in a press release that Nationstar had agreed to pay about $73 million to more than 40,000 harmed borrowers and a $1.5 million penalty. The combined CFPB and state settlements will yield almost $85 million in recoveries for consumers and more than $6 million in fees and penalties, according to the statement. In a separate statement Monday, the U.S. Justice Department said that Nationstar and two other mortgage servicers, U.S. Bank National Association and PNC Bank, had agreed to pay more than $74 million to redress “servicing errors” that hurt borrowers in bankruptcy.
The federal government helped millions of Americans through the early months of the pandemic by allowing them to defer payments, with little negative effect, on mortgages and student loans, two markets in which it holds huge sway. But the government’s reach doesn’t extend to credit-card lending, auto loans or personal loans, and borrowers with those forms of debt ended up with much less relief, the Wall Street Journal reported. As a consequence, federal debt relief has been of greater benefit to homeowners and college graduates, many of whom entered the recession in relatively good financial shape. Lower-income workers, who are more likely to rent and to not have a college degree, saw less benefit. Other programs, including expanded unemployment insurance, were more helpful for lower-income workers. The deferral programs, unprecedented in scale, are credited with keeping the economy temporarily afloat. But the divergence in how the programs are playing out reflects that the tools used to restart an economy are usually blunt, and can have unexpected effects. Deferral programs for pausing mortgage or student-loan payments were set out by the CARES Act, the $2 trillion stimulus program passed in March, and shaped by further government involvement. That made them easier to get and more generous and flexible. For example, mortgage servicers were told to let borrowers pause payments for up to a year if their loans were government-backed, and there are rules to protect borrowers from being forced to make up all the missed payments at once. Deferrals on federal student loans are granted automatically, with no interest accruing, through Dec. 31. Deferral programs for credit cards, auto loans and personal loans, meanwhile, were left to lenders and often decided case by case. Many lenders granted customers two to three months of relief before requiring them to start paying again. Some are asking borrowers to pay back their skipped payments in a lump sum.
The Federal Housing Finance Agency announced a new baseline conforming loan limit for Fannie Mae and Freddie Mac in 2021: $548,250, HousingWire.com reported. This is a 7.5 percent increase from 2020’s limit of $510,400 and marks the fifth consecutive year of increases from the FHFA. In 2016, the FHFA increased the Fannie and Freddie conforming loan limits for the first time in 10 years, and since then, the baseline loan limit has gone up by $131,250. The conforming loan limits for Fannie and Freddie are determined by the Housing and Economic Recovery Act of 2008, which established the baseline loan limit at $417,000 and mandated that, after a period of price declines, the baseline loan limit cannot rise again until home prices return to pre-decline levels. For high-cost areas, where 115 percent of the local median home value exceeds the baseline conforming loan limit, the maximum loan limit is higher than the baseline loan limit. HERA establishes the maximum loan limit in those areas as a multiple of the area median home value, while setting a “ceiling” on that limit of 150 percent of the baseline loan limit. Median home values generally increased in high-cost areas in 2020, driving up the maximum loan limits in many areas. The new ceiling loan limit for one-unit properties in most high-cost areas will be $822,375 — or 150 percent of $548,250.
The federal regulator who oversees Fannie Mae and Freddie Mac is pushing to speed up the mortgage giants’ exit from 12 years of government control but has yet to reach an agreement he needs with Treasury Secretary Steven Mnuchin, the Wall Street Journal reported. Mark Calabria, a libertarian economist who heads the Federal Housing Finance Agency, has made it a priority to return Fannie and Freddie to private hands, a goal shared by Mnuchin. How that is done could affect the cost and availability of mortgages backed by the companies, which guarantee roughly half of the $11 trillion in existing home loans. Completing the complex process before President Trump’s term ends on Jan. 20 is a long shot, and President-elect Joe Biden is considered unlikely to continue the effort. But Calabria and Mnuchin could succeed in taking steps that would be difficult to reverse, such as significantly restructuring the government’s stakes in the firms. The Treasury secretary must agree to any move to alter the terms of either the companies’ bailout agreement or the government’s stakes. One person familiar with the effort said Mnuchin is supportive of locking in a path to private ownership but mindful of steps that could disrupt the housing-finance market. Calabria has met twice recently with Mnuchin to discuss an expedited exit of the companies from government control, most recently the week of Nov. 9. The government seized control of Fannie and Freddie to prevent their collapse during the 2008 financial crisis through a process known as conservatorship, eventually injecting $190 billion into the companies. In exchange, the Treasury received a new class of so-called senior preferred shares that originally paid a 10 percent dividend. It also received warrants to acquire about 80 percent of the firms’ common shares. One option under discussion would entail a complex capital restructuring that would eventually reduce the government’s stakes in the firms. Such a move would be aimed at opening the door to new, private investment. Still, it is a delicate issue because U.S. officials don’t want to cause investors to doubt the government’s backing of the firms, which have helped pin mortgage rates at record low levels during this year’s pandemic-induced economic slump.
Mortgage giants Fannie Mae and Freddie Mac will have to hold hundreds of billions of dollars of capital to absorb possible losses, their federal regulator decided yesterday, the Wall Street Journal reported. The decision by the Federal Housing Finance Agency is a key step in efforts to return the two companies to private ownership. They were taken over by the government during the 2008 financial crisis in a process known as conservatorship. “The final rule is another milestone necessary for responsibly ending the conservatorships,” FHFA Director Mark Calabria said in a statement. “FHFA is confident that the final rule puts Fannie Mae and Freddie Mac on a path toward a sound capital footing.” But the decision sets a high hurdle for the companies. Based on their combined size earlier this year, Fannie and Freddie would have to hold about $283 billion. At present, they hold roughly $35 billion and would need to make up the difference through a combination of retained earnings and possible future stock sales. The FHFA is seeking to put the companies — which guarantee about half the $11 trillion mortgage market — on a sound financial footing before returning them to private ownership. It is unclear if there is enough time to carry out those plans ahead of the Jan. 20 inauguration of President-elect Joe Biden, who is considered unlikely to continue the effort.
Another record low interest rate on the 30-year fixed mortgage last week did not help drag homebuyers out of their recent slump, CNBC reported. Declining demand from buyers caused mortgage application volume to fall 0.5 percent last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. Mortgage applications to purchase a home fell 3 percent for the week and were 16 percent higher than a year ago. The annual comparison is now shrinking steadily. Loan amounts have been reaching new highs in the last several weeks due to skyrocketing home prices and comparatively stronger activity on the upper end of the market. Low rates are no longer offsetting these higher prices; in fact they are partially causing them. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($510,400 or less) decreased to a survey low of 2.98 percent from 3.01 percent, with points decreasing to 0.35 from 0.38 (including the origination fee) for loans with a 20 percent down payment. That rate was more than a full percentage point higher than a year earlier. Low rates did help demand for refinances, which rose 1% for the week and were 67 percent higher annually. That is the highest level since August. Refinance demand may already be under pressure, however, as mortgage rates bounced decidedly higher since news organizations called the presidential election for Joe Biden.
