December 21, 2014

S&P Cites Fannie and Freddie as Grounds for Negative Outlook on U.S.

The headline business news Monday was Standard & Poor’s notice that its outlook for the United States has turned negative. The agency maintained its AAA sovereign rating on the U.S. but warned that there is at least a one-in-three likelihood the long-term rating could be lowered over the next two years.

The main culprit is the nation’s growing debt and discord in Washington over the budget, but nestled within S&P’s document explaining its rationale, the agency also cited outlays to mortgage giants Fannie Mae and Freddie Mac as a substantial risk.

S&P said, “Additional fiscal risks we see for the U.S. include the potential for further extraordinary official assistance to large players in the U.S. financial sector, along with outlays related to various federal credit programs. We

estimate that it could cost the U.S. government as much as 3.5 percent of GDP to appropriately capitalize and re-launch Fannie Mae and Freddie Mac, in addition to the 1 percent of GDP already invested.”

So far, Treasury has funneled $148 billion in taxpayer dollars to the two GSEs. S&P estimates that the government might have to inject up to $280 billion to cover losses at Fannie Mae and Freddie Mac; this includes the $148 billion already spent.

However, the agency suggests that financial support could ultimately swell to $685 billion if the government capitalizes Fannie and Freddie on a commercial basis.

Overall, S&P described the U.S. government’s monetary policies as “effective,” noting that measures taken in the wake of the financial crisis have supported output growth while containing inflationary pressures.

However, the credit ratings agency says relative to its ‘AAA’ peers, the United States has “what we consider to be very large budget deficits and rising government indebtedness and the path to addressing these is not clear to us.”

As a result S&P analysts have downgraded their outlook on the long-term rating of the nation from stable to negative.

S&P first rated the United States ‘AAA’ in 1941. Since that time, the U.S. government has maintained a ‘AAA’ credit rating and up until now, a stable outlook.


Waters Introduces Bill Calling for Mandatory Loss Mitigation

Mortgage servicing practices have taken center stage on Capitol Hill, with a flurry of bills being penned to make servicing reforms the law of the land.

Rep. Maxine Waters (D-California) has revised a bill she’s brought to the table several times before that would compel lenders to engage in what she says are “reasonable loss mitigation activities” for all delinquent homeowners.

Waters has long maintained that the servicing industry is “broken,” a view that has become the popular opinion in light of the robo-signing scandal last fall that brought illegal foreclosure filings to light and prompted widespread investigations into industry practices.

Those investigations resulted in cease and desist orders issued last week to a handful of residential mortgage servicers. Monetary penalties and separate settlements with state attorneys general are forthcoming.

“In light of the slap of the wrist our regulators are preparing to give 14 servicers who admitted to breaking the law, legislation to require loss mitigation prior to foreclosure is needed now more than ever before,” said Rep. Waters. “It’s the only way to protect homeowners and to prevent foreclosures.”

Waters has reintroduced an updated version of the Foreclosure Prevention and Sound Mortgage Servicing Act (H.R. 1567). It’s legislation she says could be a step in the right direction for ending the foreclosure crisis and holding servicers accountable.

Rep. Waters’ bill would require servicers to provide loss mitigation, including loan modifications, prior to initiating foreclosure actions.

The bill places one entity in charge of modifying primary and secondary liens and requires principal reduction for underwater mortgages.

A spokesperson from Waters’ office explained that this “one entity” refers to the servicers/mortgagee of the first lien. For example, if a borrower has two mortgages, with the second being a subordinate lien, under Waters’ legislation, the first lien holder would have primary responsibility for modifying both loans, with the second modified in proportion with the first.

According to Waters’ office, the current protocol is that when first liens are modified, generally nothing happens to seconds; or first-lien holders will refuse to modify unless subordinate lien holders modify as well, and seconds hardly ever modify.

Waters’ bill seeks to address this conflict of interest by ensuring both first and second mortgages are modified to create a more feasible debt situation for distressed homeowners.

The congresswoman says her bill would also address deep-seated problems in the mortgage servicing industry by prohibiting dual tracking, requiring a single point-of-contact, mandating referrals to housing counseling agencies, regulating fees, and prohibiting demand payments on short sales.

In introducing the bill, Congresswoman Waters acknowledged that the bill will be one of several in her push to tackle problems in the servicing industry.

“This bill is the first in a series of legislative proposals that I plan to introduce to further regulate the servicing industry and to protect homeowners,” she said.

[Editor’s note: A copy of Waters’ revised bill has not yet been logged in the congressional tracking system. Although her latest version has since been updated, a copy of the previously introduced legislation can be viewed here. ]



Most Short Sale Transactions Taking Four or More Months to Complete

Despite new rules for Home Affordable Foreclosure Alternatives (HAFA) short sales that went into effect on February 1, real estate agents responding to a survey said short sale transactions are still taking too long.

A survey published recently by Santa Barbara, California-based property valuations company Equi-Trax reveals the majority of short sales are taking four or more months to complete, and Realtors say lenders are to blame.

Of the survey’s 626 respondents, 53.6 percent said that in their experience, on average, short sale transactions take four to six months.