Fannie Mae, Freddie Mac and Ginnie Mae have successfully completed tests that will ensure deal information transmittals to investors will occur without Y2K hang-ups.
However, the picture is less clear in the private-label sector.
At Fannie Mae, 99% of its single-family loans are handled by Y2K-compliant servicers, said John Baur, a senior manager. The remaining 1% are being dealt with on a case-by-case basis and represent a manageable risk, he added.
Fannie Mae servicers were required to calculate the split between interest and principal for investor reporting in a simulated Y2K environment. Also, default reporting was tested. Fannie Mae did its testing under guidelines put together by the Mortgage Bankers Association.
Freddie Mac, meanwhile, required all servicers that handle more than 1,000 loans to participate in the same MBA testing, and mandated that servicers complete investor-reporting and default-reporting transactions.
A Freddie Mac spokesman said 94.5% of Freddie Mac's servicers successfully completed the testing. For the remaining servicers unable to demonstrate readiness, Freddie Mac said it has started to develope a list of servicing alternatives and will take action. The Freddie Mac spokesman said at one time, Freddie Mac had 300 people working on the Y2K situation.
And Ginnie Mae too is said to have participated in the MBA's Year 2000 Readiness Test.
Further, Fannie Mae and Freddie Mac have participated in tests sponsored by the Mortgage-Backed Securities Clearing House, the Federal Reserve Bank and others.
But Y2K preparedness outside the agencies is less clear. Some 1,200 companies registered for the MBA's readiness test, said James Horne, an MBA director. Another 1,500 are said to have benefited by proxy. For instance, the customers of a servicing bureau would benefit if the bureau instituted the test.
Still, the test is said to have been voluntary in the private-label market, whereas Fannie Mae and Freddie Mac mandated it. Further, results of the testing were not reported to the MBA.
However, Wall Street mortgage analysts examining the Y2K issue have repeatedly said they expect minimal problems and no real disruptions throughout the housing securitization sector.
The Bond Market Association has developed contingency recommendations for unforeseen problems that can be obtained on the association's Web site, www.bondmarkets.com. - ES