In its first full quarter under government conservatorship, Fannie Mae continued to focus its workout efforts on giving homeowners unsecured personal loans to cover past-due amounts.
The HomeSaver Advance Program in which a servicer makes a personal loan to a homeowner to bring the mortgage current and then sells the new debt to Fannie once again made up the biggest portion of the government-sponsored enterprises workouts in the fourth quarter.
In an annual report filed last week, Fannie said the number of HomeSaver Advance loans it purchased in the fourth quarter shrank 5% from the third quarter, to 25,783. The GSE purchased 71,000 of the advances in all of last year.
By comparison, Fannie modified just 6,276 mortgages last quarter by reducing the principal balance or the interest rate. Modifications rose 19% from the third quarter but were still dwarfed by advances and acquisitions of foreclosed property.
The workout mix could change this year, because of a streamlined modification program Fannie and Freddie Mac rolled out in December. (The government seized Fannie and Freddie in September.)
Initially, the HomeSaver program was available only to those who had missed at least three mortgage payments, but it was expanded to include more borrowers.
Fannie said 59% of such loans made in the first half of last year were more than 60 days past due on Dec. 31.
Given the economy and how it keeps deterioating, and the fact that it keeps getting worse, the success rate of HomeSaver advance is not out of line with those of other workout programs, said David McDonnell, a founder of Statebridge Co., a servicing start-up in Denver.
Andrew Jakabovics, an associate director at the Center for American Progress, said it was far cheaper for Fannie to spend roughly $15,000 to bring a mortgage current than to spend $50,000 on a mortgage that goes into foreclosure.
The fact that they can save 4 out of 10 loans at a relatively lower cost than the alternative makes it work, Jakabovics said. Its much cheaper for them to allow people to borrow this money earlier in the process, and the cure rate will probably get better, rather than worse, because the borrower owes less in arrears.
Fannie said the HomeSaver program reduced the number of delinquent loans it had to repurchase from securitization trusts last year by 40.9%, to roughly 25,000. (The program was not in place the previous year.)
The GSE cautioned that it takes up to two years to assess the reperformance of a problem loan that has been resolved through workout alternatives. As a result, it does not have sufficient history to fully assess the performance of the first-lien loans associated with the HomeSaver program.
Though the outstanding balance on the advances was $461 million as of Dec. 31, Fannie said it could only record $8 million of carrying value, partly because of the lack of underlying collateral.
Fannie also said the majority of modifications made last year either extended the term of a mortgage or reduced the rate. The proportion of such modifications jumped to 90% in the fourth quarter, the GSE said.
Because home prices tumbled, mortgages that were bigger than the home was worth accounted for roughly 22% of this type of modification last year, versus 8% in 2007.