Are record-low interest rates masking high-cost mortgage lending?

Are record-low interest rates masking high-cost mortgage lending?

Five leading economists weigh in and the answer may surprise you

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Close to 3% Delinquency in Fannie's SFM Portfolio

The total delinquency rate among conventional single-family mortgages at Fannie Mae (FNM) jumped to 2.96% in February from 2.77% a month earlier, and is up more than half from 1.1% seen in February 08, despite the agency's participation in the Administration's Home Affordable refinance program. The higher delinquency rate at the government-sponsored enterprise (GSE) came a month before the balance of its gross mortgage portfolio slipped $856m to $783.87bn in March, according to a monthly volume summary. The delinquency issues do not seem to go unnoticed at the GSE, which began purchasing refinance mortgage originations made under the Making Home Affordable Program (MHA Program) in April as part of an attempt to encourage servicers to pursue workout options with delinquent and at-risk borrowers. "We expect that the MHA Program will bolster refinance volumes over time as major lenders adopt necessary system changes and consumer awareness continues to build," Fannie officials said in the monthly summary report. Fannie reported issuing $87.8bn of mortgage-backed securities in the month while it's refinance volume increased to $77bn, nearly double from a month earlier. Over at Fannie's brother GSE, Freddie Mac (FRE), April's delinquency rate doesn't look much better. Freddie reported total mortgage-related purchases and issuance fell to $58.1bn in April from $86.1bn in March. At the same time, the total delinquency rate among Freddie’s single-family mortgages increased to 2.44% from 2.29% a month earlier. Freddie officials attributed the increase in delinquencies to the expiration of its temporary foreclosure freeze: “We are currently assessing the impact on our delinquency rates of the suspension of foreclosure transfers that began on March 7 for loans eligible for modification under the MHA Program.” Write to Diana Golobay. Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments.

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