HFA Homeownership Program Trends and Developments

1
HFA Homeownership Program Trends and Developments

• Mark Spates
• Director Expanding Markets
• Freddie Mac
• January 18, 2008

2
Credit Quality Trends

• 2006 and 2007 subprime vintages have high early
  payment defaults
• More than half of foreclosure starts since 2006
  were subprime loans
• Banks have tightened underwriting even on prime

3
Subprime Credit Performance

• ARMs, interest-only ARMs, and low-doc/no-doc
  loans accounted for a rising share of subprime
  originations
• Early payment defaults and serious delinquencies
  are worse for recent vintages of subprime loans
• Subprime loans accounted for over half of
  foreclosures in 2006 and 2007
• More than 1.3 million loans began foreclosure in
  2007
• Credit problems are concentrated in economically
  depressed regions

4
Subprime ARM Defaults Are 12 Times Those on Prime
Loans 90 days or more delinquent or in
foreclosure (percent of number)
Subprime ARM
Subprime FRM
FHA VA
Prime Conventional
Source Mortgage Bankers Association (Quarterly
data not seasonally adjusted1998Q1-2007Q3)
5
Subprime Loans Accounted for Over Half of
Foreclosures since 2006
Number of Foreclosures Started (Annualized Rate
in Thousands)
Subprime 13 of Loans Serviced (September)
54
56
55
10
37
52
36
37
47
44
11
13
29
29
29
20
22
17
36
33
34
31
33
34
35
34
32
Source Mortgage Bankers Association National
Delinquency Survey (Data as of September 2007)
6
About 1.5 Million Subprime Loans Will Have First
Reset in 2008
Amount of ARMs Scheduled to Have a Reset (Number
of Loans in Thousands as of September 2007)
Regular Adjustment in 2008, in Default as of
September 2007
Regular Adjustment in 2008, Current as of
September 2007
First Adjustment in 2008, in Default as of
September 2007
First Adjustment in 2008, Current as of September
2007
Source LoanPerformance ABS Securities, Freddie
Mac. Default includes loans delinquent 30 or
more days or that are in foreclosure.
7
25 States Had Falling Prices in Third Quarter 2007
United States -2.2 (3rd Quarter Annualized
Growth)
New England -3.6
Pacific -5.8
Middle Atlantic -0.9
West North Central -0.8
Mountain 0.4
East North Central -3.8
DC
5 Quarterly Change
East South Central -0.1
0 5 Quarterly Change
South Atlantic -2.7
West South Central 4.9
Source Freddie Mac Purchase-Only Conventional
Mortgage Home Price Index (Annualized Quarterly
Rates for 3rd Quarter 2007)
8
Delinquency Rates Have Jumped In Markets With
Flat or Falling House Values
Percentage Point Difference
? 0.00
0.01 to 0.20
0.21 to 0.40
0.41 to 0.60
0.61 to 0.80
0.81 to 1.25
3Q 06 to 3Q 07 Change in Level of Serious
Delinquency Rate (90 days or in foreclosure,
Prime Conventional Loans) National Average Change
0.52 Data as of September 2007
Source Mortgage Bankers Association
9
Freddie Mac Policy Responses

• Reiterate requirements on appraisal standards and
  maximum financing in declining markets
• Discontinue purchase of certain negotiated
  products such as no income/no asset mortgages
• Establish new Indicator Score/ LTV based delivery
  fees for many products
• Establish a new market condition fee for all
  mortgages

10
2008 Opportunities

• Conventional conforming interest rates remain
  historically low
• Although home price declines are impacting
  existing homeowners they present an opportunity
  for new buyers
• Additional sourcing channels present
  opportunities for new relationships and new
  business
• First time buyers are sitting on the sidelines
  sometimes afraid or too confused to make a move
• Responsible high LTV lending products exist and
  down payment assistance is more important

11
Prime Conforming Mortgage Rates Remain Low By
Historical Standards
Weekly Mortgage Interest Rate (Percent)
Forecast
30-Year, Fixed Rate
1-Year, ARM Rate
Source Freddie Macs Primary Mortgage Market
Survey
12
2008 Opportunities

• Leverage additional/new sourcing channels
• Real Estate Professionals
• Counseling Agencies
• Employers
• Faith Based Organizations
• Support the first time homebuyer in order to
  stimulate demand at the entry level
• Low mortgage rates
• Down payment assistance
• Education and awareness
• Back to basics