Fannie Mae Open to CUs and Others on Creative Loan Recovery Alliances
Lori Cockrell, senior business manager at Fannie Mae, admitted she could not help referring back to Florida during a session at the African American Credit Union Coalition's annual meeting. Loan losses in the Sunshine State have more than quadrupled since 2006. A home bought for $350,000 about five or six years ago would probably be worth half that today, she said.
"There was a seven year and growing supply of housing in Florida. Today, there's no demand for these vacant homes," Cockrell said. "Florida, California and Nevada have been tricky."
Nationwide, foreclosures jumped 57% between March 2007 and March of this year, Cockrell said. Fannie Mae suffered an astronomical $2.3 billion loss in the second quarter this year. Even more astounding, the lender has lost nearly $2.3 trillion in originating capacity since January 2007.
Even though some credit unions in Florida, California and other states are grappling with real estate loan descends, Cockrell said, for the most part, the industry's conservative lending record has provided a buffer. She believes there is still ample opportunity for credit unions citing a stat that 90% of members have their mortgages originated outside of their credit union.
"You may say, 'well, our members aren't experiencing foreclosures.' The truth is you really don't know because they don't have their mortgages with you," Cockrell said.
Fannie has already linked up with $302 million Self-Help CU in a program that would allow families in hard-hit communities to reside in foreclosed properties on a rent-to-own basis, Cockrell said. Fannie also continues to refinance underwater borrowers as well as provide up to $10 billion for state agencies and others to work with first-time home buyers.
During its Aug. 8 earnings call, Fannie Mae outlined a series of aggressive steps to pull out of what is considered to be the country's worst mortgage mire. The company plans to ramp up defaulted loans to pursue recoveries from lenders with an extra emphasis on its Alt-A loans, which account for about 50% of delinquencies. The risky loans had required no documentation verifying income or employment.
Fannie said it is increasing post foreclosure reviews from 900 a month in January to 4,000 a month by the end of the year. With the opening of offices in Florida and California, the aim is to assist in property disposition to ensure that there is adequate capacity to sell additional properties to come.
The company is also evaluating proposals from third parties, including possibly credit unions, involving the sale of properties in bulk transactions. One such arrangement has already occurred in Detroit, Cockrell said.
"We are open to any and every conversation" regarding real estate loan recovery, Cockrell answered in response to an attendee's question about how credit unions can be involved in some of the Fannie transactions.
The difference this time around, Cockrell emphasized, is "no more 'no money down' loans." More sound underwriting standards, loans with fewer risk layers going forward and a clamp down on appraisal fraud are a few of the changes. Appraisals will now reflect the value of the collateral, she added.
Fannie is also instituting a national down payment policy that has a 3% rate across the board regardless of where the property is located. As an alternative to the subprime loan, the company launched an "expanded approval" loan that offers a slightly higher rate but still not as high as those from subprime lenders, Cockrell said.
"We're seeing whole neighborhoods going into foreclosures. For Fannie, the keys to recovery are to provide liquidity stability and affordability for the long term. The emphasis here is on the long term."