Howard Sumner

FEDERAL HOUSING FINANCE AGENCY

NEWS RELEASE

FHFA EXPANDS REPORTING ON HOMEOWNER

ASSISTANCE

Washington, DC - Federal Housing Finance Agency (FHFA) Director James B. Lockhart submitted to Congress FHFA's latest report as a Federal Property Manager (FPM) detailing actions taken to prevent unnecessary foreclosures. The report includes metrics not previously reported; specifically, reasons for default, loans in bankruptcy, and types of modifications.

Since late November, the Enterprises had suspended foreclosure sales and evictions on owner-occupied properties. The suspensions, which ended on March 31, 2009, allowed servicers additional time to work with borrowers in foreclosure who were eligible for the Streamlined Modification Program (SMP). The impact of the suspensions caused completed foreclosure sales and third-party sales to decline 77 percent from the prior three-month average of 16,342 to 3,711 in December, and 79 percent to 3,391 in January. At the same time, loans that were 60+ and 90+ days delinquent increased. All loans 60+ days delinquent increased from 834,831 as of November 30 to 1,229,051 as of January 31, representing an increase of 47 percent over the period. However, prime loans 60+ days delinquent increased by 69.6 percent while nonprime loans increased by 23 percent.

The report, based on data from the Enterprises' 30.6 million residential mortgages, shows that during or at the end of January:

• The top five identified reasons for default were curtailment of income (34.1 percent), excessive obligations (19.8 percent), unemployment (8.1 percent), illness of the principal mortgagor or a family member (6.5 percent) or marital difficulties (3.5 percent). This is a new metric introduced this month.

• Loans 90+ days delinquent (including those in bankruptcy and foreclosure) as a percent of all loans, increased from 1.67 percent as of October 31 to 2.14 percent as of December 31 and 2.45 percent of January 31.

• Loans in bankruptcy proceedings represented 0.16 percent of all loans serviced. This is a new metric introduced this month.

• Loans for which the foreclosure process was started as a percent of loans 60+ days delinquent declined from 6.38 percent in December to 6.12 percent in January. During

2008, foreclosure starts as a percent of 60+ days delinquent loans ranged from a low of 5.25 percent in November to a high of 9.22 percent in February 2008 and averaged 7.33 percent.

• Loans for which a foreclosure or third party sale was completed as a percent of loans 60+ days delinquent decreased from 2.43 percent for October, 1.79 percent for November, 0.40 percent for December and 0.28 percent for January.

• In January 8,953 loan modifications were completed compared to 8,688 in December and the prior 3-month average of 7,926. This represents a 3 percent increase in loan modifications by Fannie Mae and Freddie Mac from December 2008 to January 2009. Of the modifications completed, 65.2 percent required an interest rate reduction and term extension, 19.5 percent a term extension only, and 5.3 percent an interest rate reduction only. Modification types were broken out in greater detail this month.

Link to Letter and FHFA Federal Property Managers Report No. 5 (includes monthly Foreclosure Prevention Report). (Identical letters sent to Chairmen Dodd and Frank and Ranking Members Shelby and Bachus.)

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The Federal Housing Finance Agency regulates Fannie Mae, Freddie Mac and the 12 Federal Home Loan Banks. These government-sponsored enterprises provide more than $6.3 trillion in funding for the U.S. mortgage markets and financial institutions.

Below is the rule from the U.S. Department of housing and urban Developement on what costs must be disclosed to a purchaser on a "Good Faith Estimate".

Appraisal Report Copies

1. What information are lenders required to provide to borrowers to comply with the Code?
   Lenders are required to provide the borrower with a copy of each appraisal report a minimum of three days prior to closing, unless the borrower waives this three-day requirement.

2. Is it acceptable for a lender to provide brokers and loan production staff a copy of the completed appraisal?
   The Code does not specify when or to whom a copy of the appraisal can be provided. The Code states that borrowers must receive a copy of the appraisal a minimum of three business days prior to closing unless they waive the three-day requirement.

3. Can an appraiser's information be omitted from the appraisal report prior to sending it to the borrower?
   No. A complete, unaltered copy of the appraisal report must be provided to the borrower.

4. If two appraisals are obtained as part of the underwriting process, does a lender have to provide copies of both appraisal reports to the borrower or only a copy of the appraisal used to determine value?
   Section II of the Code requires that the borrower be provided with a copy of "any" appraisal report; therefore, copies of all appraisal reports obtained must be provided to the borrower.

5. If the appraisal is not completed three days before closing, is it still necessary to obtain a waiver from the borrower for a copy of the appraisal report?
   Yes. The borrower must waive the three-day requirement or the loan closing must be postponed.

6. Can a lender create a form to document the borrower's waiver of the right to receive a copy of the appraisal report at least three days prior to the closing?
   A lender may choose to create a form to document the borrower's waiver. The borrower must acknowledge agreement of the waiver, but the lender can determine the method of agreement.

7. Does the borrower have to receive the appraisal report three business days or three calendar days before closing?
   The copy of the appraisal report must be received by the borrower three business days before closing.

8. Does the requirement that the lender provide a copy of the appraisal report three days before closing begin when the appraisal report is sent by the lender or upon receipt by the borrower?
   The borrower must receive a copy of the appraisal three business days before closing.

9. Please clarify the requirement that a completed appraisal report be provided promptly upon completion?
   The terms "promptly upon completion" and "completed appraisal" refer to when the lender has reviewed and accepted the appraisal.

10. If I am permitted to use an AVM such as Home Value Explorer (HVE) to estimate property value, am I required to meet the Code requirements in Section II and provide the borrower with a copy of the AVM result three days before closing?
    The Code does not require lenders to provide borrowers a copy of an AVM result.

Learn more about the Home Valuation Code of Conduct:

• Call (800) FREDDIE

• Visit www. FreddieMac.com/singlefamily/home_valuation.html

• Requires absolute independence within a lender's organization between the appraisal function and loan production and limits communication with the appraiser.

􀂃 A lender's loan production staff is prohibited from being involved in the selection of the appraiser, or having any substantive communications with an appraiser or appraisal management company about valuation.

􀂃 The loan production staff consists of those responsible for generating loan volume or approving loans, as well as their subordinates. This includes an employee whose compensation is based on loan volume or the closing of a loan transaction. Employees responsible for the credit administration function or credit risk management are not considered loan production staff.

• The lender's use of an appraisal report prepared by an in-house appraiser or an affiliate in underwriting a loan must meet certain conditions including:

􀂃 The appraiser, or the company for which the appraiser works, reports to a function of the lender independent of sales or loan production, and sales and loan production staff have no involvement in the operation of appraisal functions or selection of the appraiser.

􀂃 Sales and loan production staff are not allowed to have substantive communications with in-house appraisers relating to or having an impact on valuation and do not provide the appraiser any estimated or target value of the property or loan amount (except a copy of the purchase contract may be provided.)

􀂃 The appraiser's compensation does not depend on the final estimate of value or the closing of the loan.

• The lender has written policies and procedures implementing the Code and has mechanisms to report and discipline any violators.

• The lender's appraisal functions are either annually audited by an external auditor or are subject to federal or state regulatory examination, and the lender provides to Freddie Mac any adverse audit findings indicating Code non-compliance.

• Allows lenders to also use in-house staff appraisers to: 1) order appraisals; 2) conduct appraisal reviews and other quality control functions; 3) develop, deploy, or use internal automated valuation models; and 4) prepare appraisals in connection with transactions other than mortgage origination transactions, such as workouts, if the lender complies with the terms of the Code.

• Lenders may use appraisal reports prepared by other entities engaged by the lender to provide other settlement services for the same transaction, as long as certain conditions are met.

• Requires lenders to quality control test a randomly selected 10 percent (or other bona fide statistically significant percentage) sample of appraisal reports or valuations used by the lender, and report any adverse findings, including non-compliance of the Code, to Freddie Mac with respect to loans sold to us.

• Allows Sellers with an asset size of less than $250 million to be considered a small bank as defined in 12 U.S.C. Section 2908 and exempting them from the requirements in Section IV of the Code. Sellers that qualify for this exemption must represent and warrant that they have in place appropriate policies and procedures, as well as adequate controls to prevent undue appraiser influence.