Most GSE capital reductions due to single-family credit guarantee
Nontraditonal and high-risk mortgages originated in 2006 and 2007 continue to wreak havoc on the capital levels of Fannie Mae and Freddie Mac. The first Conservator’s Report on the Enterprises’ Financial Condition from the Federal Housing Finance Agency showed the single-family credit guarantee programs accounted for 73% of the capital reduction. Although declines in housing prices and prolonged economic weakness have hurt credit performance of traditional mortgages, as well, the FHFA said. The GSEs had $71 billion of combined capital at the end of 2007 and they've managed to fritter away another $226 billion since then, including hundreds of billions from the Treasury Department. But, since the FHFA put the GSEs in conservatorship in early September of 2008, agency purchases of "nontraditional and higher-risk mortgages are down dramatically and the average FICO credit score and loan-to-value ratio of new single-family business has improved." The FHFA also said the agencies "have enhanced their standard loss mitigation programs to address the needs of delinquent borrowers in this credit cycle," and the percentage of new business with LTVs greater than 90% increased in 2010, the bulk of which stems from the Home Affordable Refinance Program. The FHFA plans to release its conservators report quarterly, after the GSEs report results. Write to Jason Philyaw.