Just a week after Freddie Mac, rival Fannie Mae last Thursday also released additional disclosure on original LTV, FICO, loan purpose, occupancy type, property type and seller/servicer data on its pools. Beginning April 1, 2003, FNMA had started providing the information for pools on Prospectus Supplements.
“As was the case with Freddie Mac data, our preliminary analysis indicates a fairly robust data set with very few blemishes,” said analysts at JPMorgan Securities in a report released last Friday.
The report said that new Fannie originations are like Freddie’s, only with slightly lower LTVs and FICOs. The biggest surprise was that new Fannie pools are averaging slightly lower LTVs than Golds (approximately 1% less). This is in contrast with the prepayment differentials between the two. However, the average FICOs on 2003 FNMAs are roughly two to five points lower than similar vintage Golds. About 25% of 2003 FNMA 5s and 5.5s were purchase originations. This suggests that 75% of all purchase originations are taking out 30-year mortgages.
Just 3% of new originations have LTVs of over 80% Not only is the average LTV for 2003 originations considerably lower than prior years, the percentage of loans with greater than 80% LTV has declined significantly. Nearly 3% of FNMA pools securitized in 2003 have original LTVs of lower than 80%. On the other hand, in 2000, with the low refinancing activity, almost 47% of pools had original LTVs of more than 80%. It is important to note, said analysts, that original LTVs in a strong refinancing environment could be misleading as a large share of these LTVs could be appraised LTVs. Nevertheless, the lower LTVs on new originations provide some comfort on credit and extension risk issues if rates back-up.
New FNMAs seem to have higher dispersion in LTV and FICO scores compared to Golds. For instance, FNMA 5.5s of 2003 have 33% of the mortgage in the 60% to 70% LTV level and 63% focused in the 70% to 80% LTV bucket. In contrast, the concentrations in Golds in these two ranges are 15% and 82%, respectively.
Fannie Mae also reported last week that its forward retained commitments jumped by 78% to $73.8 billion last month. This is the highest Fannie’s forward retained commitments ever recorded. The prior record was $67.3 billion, which was posted in October 2002. Kevin Jackson, a vice president at RBC Dain Rauscher,said that what is interesting is that record portfolio liquidations have put pressure on Fannie’s ability to grow its retained portfolio. Year-to-date, the GSE’s forward retained commitments have reached $231.1 billion. Compare this number to the $388.1 billion Fannie has committed to purchase in 2002.
However, Jackson said that GSE demand for MBS supply should still remain high. With political scrutiny affecting both agencies stock prices, increased earnings through retained portfolio activity might be the only way to bring back investor confidence in the status of GSE management. Fannie Mae also said that its retained portfolio shrunk by 3.4% in May. Its acquisitions have historically been correlated with MBA application volumes with a roughly two-month lag. Jackson said that this might explain the rise in forward retained commitments. This GSE will probably still buy MBS aggressively as it struggles to keep its duration gap within its targeted range and add MBS faster than they are currently running off their portfolio.