Fannie Mae said Friday that many mortgage lenders are not complying with the most basic underwriting guidelines, such as confirming a borrower's identity or verifying a Social Security number.
Marianne Sullivan, a senior vice president and Fannie Mae's chief risk officer, sent a nine-page letter to lenders announcing a Loan Quality Initiative to ensure that loans meet the GSE's credit and eligibility guidelines.
Sullivan said Fannie analyzed the primary drivers of loan-repurchase requests and has launched the initiative to identify ways to improve compliance with its guidelines. "Many repurchase requests are driven by the fact that the delivered loan does not meet Fannie Mae's eligibility requirements," she wrote.
In the next few months, the GSE plans to add quality-control policies to monitor and assess the effectiveness of lenders' own quality-control plans. Lenders now will be required to obtain documentation to confirm the occupancy of a property.
They also must determine that a borrower's debts are not only evaluated as part of the qualification for a mortgage but also are disclosed on the final loan application signed by the borrower at the closing table.
Separately, Fannie Mae reported Friday that its net loss narrowed to $16.3 billion in the fourth quarter, from $25.2 billion a year earlier. The GSE also said it requested another $15.3 billion from the U.S. Treasury Department to help eliminate its net worth deficit. Fannie has not been able to maintain a positive net worth without government assistance since September 2008. The GSE expects to receive the additional funds from the Treasury by the end of March, bringing its total government support to $75.2 billion.
In other Fannie Mae, stung by continuing write downs on risky Alt-A, interest-only, and negative amortization loans, Fannie Mae posted a $16.3 billion loss in the fourth quarter, and said it would ask the Treasury for $15 billion in cash to keep its net worth above zero.
In supplementary documents filed with the Securities and Exchange Commission (SEC), the government controlled GSE revealed that a stunning 36% of loans it bought from 2005 to 2008 are in some category of delinquency. Its entire book-of-business($2.796 trillion) carries a 5.38% 'serious delinquent' rate. Its worst loans -- in terms of late payments — come from three states: Nevada (a 13% delinquency rate), Florida (12.8%) and Arizona (8.8%).
In the fourth quarter of 2008 the late payments for these three were: 4.74%, 6.4%, and 3.4%, respectively. The GSE lost $72 billion for all of 2009, compared to a $59 billion loss the prior year.
To date, the Treasury has pumped $75 billion into Fannie and $52 billion into Freddie Mac to keep them in the black. Government regulators — which placed the two into conservatorships in September 2008 — fear that MBS investors will not buy their securities if the GSEs are in a negative net worth position.
During the most recent quarter, Washington-based Fannie Mae suffered $11.9 billion in credit losses and a $5 billion write-down for low income tax credit investments.
"Through this prolonged stress in the housing market, we are helping homeowners across the country, supporting affordable housing, and providing financing to keep the residential markets functioning," said Fannie's CEO Mike Williams.
