WASHINGTON, DC - Fannie Mae and Freddie Mac's 2008 affordable-housing goals mandated by the government were "infeasible" and will need to "come down a bit" in 2009, the regulator for the mortgage-finance companies said. Both companies missed their 2008 goal to set aside 56 percent of their loan purchases and mortgage guarantees for low-and moderate-income borrowers, Federal Housing Finance Agency Director James Lockhart said today at a real estate industry event in Washington. He didn't say what the new target would be. "One of the ways Fannie and Freddie made their goals in previous years was to buy those subprime mortgages in private- label securities and that wasn't a safe and sound practice," Lockhart told the Asian Real Estate Association of America and National Association of Hispanic Real Estate Professionals.
More than half of the $178 billion in private mortgage- backed securities held by Fannie and Freddie have been downgraded from top AAA credit ratings to below investment grade, Lockhart said. The companies, which posted a combined $109 billion in net losses for 2008 as the value of their assets deteriorated, will be directed to finance "sustainable mortgages," Lockhart said.
About 53.6 percent of Washington-based Fannie's business last year and 51.5 percent of Freddie's met the requirement to finance low- to moderate-income borrowers, according to data Lockhart provided alongside his speech. Both companies also fell short of their "special affordable" housing goals, which is targeted toward multifamily and mobile home projects.
Fannie did meet its requirement to direct at least 39 percent of its business to borrowers in economically distressed areas, while Freddie fell short with 37.7 percent.
Spokesmen for the companies weren't immediately able to say how much each spends on affordable-housing goals. A Freddie spokesman, Michael Cosgrove, said the company gave the government a preliminary performance assessment last year. Brian Faith, a Fannie spokesman, wasn't immediately available to comment.
Fannie and McLean, Virginia-based Freddie own or guarantee more than 40 percent of the $12 trillion U.S. home loan market. FHFA seized the companies on Sept. 6 and forced out management after examiners said the two may be at risk of failing.
Freddie and Fannie have since become part of President Barack Obama's plan to help 9 million Americans avoid foreclosure amid the worst housing slump since the Great Depression. Regulators have been pressuring the companies to offer low-cost mortgage refinancings, waive loan standards and take other steps to help boost the housing market.
The new affordable-financing goals will be announced "shortly" and will "have the right incentives in them so that they do have a relationship to the loan modifications and refinancings and they are doing that in the affordable space," Lockhart said.
Lockhart today also said that legislation being considered by Congress that would let judges revise the terms of mortgages for borrowers in bankruptcy "should be narrowed significantly." He said the legislation may hurt Fannie and Freddie.
Source: bloomberg.com