Howard Sumner

C. 2009 Housing Goals

The Safety and Soundness Act, as amended, includes a transitional provision for the 2009

affordable housing goals. Specifically, section 1331(c) provides that the 2008 housing goals

shall remain in effect for 2009 and directs FHFA to review the goal levels for 2009 to determine

their feasibility given current market conditions, and after seeking public comment, make

appropriate adjustments consistent with the market conditions.9

After evaluating market conditions and seeking public comment, and in light of continued

deterioration in market conditions and an unexpectedly high volume of refinance mortgages

obtained by higher-income borrowers, FHFA determined that all of the goal and home purchase

subgoal levels and the housing goal and subgoal levels should be reduced for 2009. On May 1,

2009, FHFA published a proposed rule revising the overall 2009 housing goals and the 2009

home purchase subgoals.10 Following review of the comments on the proposed rule and an

updated analysis of mortgage market conditions, on August 10, 2009, FHFA published a final

rule establishing the 2009 housing goal levels as follows: 11

 Lowered the existing low- and moderate-income goal from 56 percent to 43 percent

 Lowered the existing underserved areas goal from 39 percent to 32 percent

 Lowered the existing special affordable goal from 27 percent to 18 percent

 Lowered the existing low- and moderate-income home purchase subgoal from 47

percent to 40 percent

 Lowered the existing underserved areas home purchase subgoal from 34 percent to 30

percent

 Lowered the existing special affordable home purchase subgoal from 18 percent to 14

percent

However, because of the severe curtailment of secondary market financing for multifamily

properties from other sources, FHFA modestly increased the existing special affordable

multifamily subgoals for the Enterprises-for Fannie Mae, from $5.49 billion to $6.56 billion,

and for Freddie Mac, from $3.92 billion to $4.60 billion. The 2009 special affordable

multifamily subgoals are well below the Enterprises' actual performance on these subgoals in

recent years. However, due to conditions in the multifamily market, the subgoals will be

challenging for the Enterprises to meet.

D. 2010 Housing Goals

Sections 1331 to 1333 of the Safety and Soundness Act, as amended, require the Director to

establish for 2010 and each year thereafter, four annual single-family housing goals and one

annual multifamily special affordable housing goal, as identified in those sections.12 This

represents a significant change in the structure of the housing goals in effect from 2004 to 2009.

FHFA is currently developing a regulation through the rulemaking process to implement these

statutory requirements.

Specifically, there are no longer any overall goals covering mortgages financed for all property

types (single-family and multifamily combined), property uses (owner- and renter-occupied

combined), and purposes (purchase and refinance combined). Rather, there are separate goals

for multifamily and single-family properties, and within the single-family category, separate

goals for home purchase and refinance mortgages. Further, Enterprise purchases of mortgages

on investor-owned single-family (1-4 unit) properties are excluded from all goals, although

FHFA intends to continue to monitor Enterprise purchases of such mortgages because these units

constitute an important source of affordable rental housing.

Single-Family Goals

. Under section 1332, there are three goal categories for Enterprise

acquisitions of single-family purchase money mortgages financing units for owner-occupied

housing. These are:

 Low-income families-defined as families with incomes no greater than 80 percent of

Area Median Income (AMI).

 Families in low-income areas-defined as families residing in census tracts or block

numbering areas in which the median income does not exceed 80 percent of AMI for the

area in which such census tract or block numbering area is located, and shall include

families with incomes not greater than 100 percent of AMI who reside in minority census

tracts (defined as tracts with a minority population of at least 30 percent in the 2000

Census and a median family income of less than 100 percent of the area family median

income), and shall include families with incomes not greater than 100 percent of AMI

who reside in designated disaster areas.

 Very low-income families-defined as families with incomes no greater than 50 percent

of AMI.

In addition, section 1332 requires the establishment of a refinance goal for low-income families.

Each purchase-money and refinance goal is required to be established as a percentage of total

acquisitions of purchase money or refinance mortgages for each Enterprise. There is a further

requirement for each Enterprise to report annually on its financing of low-income rental units in

2-4 unit properties containing at least one owner-occupied unit.

Multifamily Goal

. Section 1333 requires the establishment of a multifamily goal for Enterprise

purchases of mortgages on multifamily housing that finance dwelling units affordable to lowincome

families. The goal may be established in terms of minimum dollar volume (as was the

case for the special affordable multifamily subgoals set by HUD) or in terms of minimum

number of such units financed.

Section 1333 further requires FHFA to establish "additional requirements" for the purchase by

each Enterprise of mortgages on multifamily housing that finance units affordable to very lowincome

families.

In addition, section 1333 requires each Enterprise to report on its financing of low-income units

in small multifamily properties, which may be defined as properties with 5 to 50 units or with

loan amounts of up to $5 million.

FHFA expects to issue a proposed rule on the 2010 affordable housing goals by the end of the

fourth quarter of 2009.

Foreclosures Growing in Suburbs and Secondary, says RealtyTrac

By JON PRIOR
October 30, 2009 11:53 AM CST

Foreclosures are beginning to flare up in suburban and secondary metro markets for Q309, according to a report from RealtyTrac.

Dramatic increases in foreclosures from a year ago came in suburban areas previously believed to be more stable, such as Boise, Idaho, up nearly 22% from Q209. Another area, Provo, Utah, is located a distance of 45 miles outside Salt Lake City and rose nearly 11% in the same period. RealtyTrac provides an online marketplace for foreclosure properties with more than 1.5m default, auction and REO listings.

In several states, foreclosure activities drifted toward new focal points, such as smaller towns with previously self-sustaining industries. Chico, California in Sacramento Valley, and agricultural hub, had a 98% increase in foreclosures from Q308, according to the report.

The Las Vegas metro area had the highest percentage of foreclosures among its housing units with 5.13% in Q309. Merced, Calif. - west of San Jose - had a 3.72% foreclosure rate, and Cape Coral - Fort Meyers, Fla. came in third with 3.67% of homes sliding into foreclosures, according to the report.

"You're moving from Phoenix to Prescott, you're moving from Las Vegas to Reno," Rick Sharga, the vice president of marketing at RealtyTrac, told HousingWire. "You are seeing that migration into secondary markets. You're also seeing a migration into formerly stable areas and areas that have been wracked by unemployment."

Cities in California, Florida and Nevada accounted for the 10 highest foreclosure rates in Q309 among metro areas with more than 200,000 people. However, five of those cities reported decreasing foreclosure activity from Q308, offset by many other markets reporting spikes in foreclosures, according to the report.

Sharga sees the foreclosure crisis coming in three waves, and with this new data, the market is showing signs of the second one.

"That first wave of foreclosures cratered the economy, which created job losses, which created the second wave. Now, we're seeing prime rate loans affected by unemployment. And the third wave will be really a repeat of wave one, except this time we're going to see a switch of Option ARM and Alt-A loans out for the subprime loans. It will probably be as big but somewhat shorter lived," Sharga said.

Sharga said that he expects a peak in foreclosures in 2010, only a marginal improvement in 2011 and a return to normal monthly foreclosure activity sometime in 2012.

"Rising unemployment and a new variety of mortgage resets continued to gradually shift the nation's foreclosure epicenters in the third quarter away from the hot spots of the last two years and toward some metro areas that had avoided the brunt of the first foreclosure wave," said James J. Saccacio, chief executive officer of RealtyTrac. "While toxic subprime mortgages drove much of that first wave of foreclosures, high unemployment and exotic Alt-A Option ARMs are spreading the foreclosure flood to more metro areas in 2009."

NEW RESIDENTIAL SALES IN SEPTEMBER 2009

Sales of new one-family houses in September 2009 were at a seasonally adjusted annual rate of 402,000, according to

estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development.

This is 3.6 percent (±10.2%)* below the revised August rate of 417,000 and is 7.8 percent (±12.0%)* below the

September 2008 estimate of 436,000.

The median sales price of new houses sold in September 2009 was $204,800; the average sales price was $282,600. The

seasonally adjusted estimate of new houses for sale at the end of September was 251,000. This represents a supply of 7.5

months at the current sales rate.

Housing Overhang Problem = 7 Million Units

We first quantify housing overhang by looking at data provided by the Mortgage Bankers Association. Our rough estimate is that there almost 7 million units are destined to liquidate. That's a HUGE rise over the 1.27 million units in this bucket that existed in early 2005.

Let's look at the calculations, starting with the latest set of data. The Mortgage Bankers Association (MBA) Quarterly Delinquency Survey covers 44.7 million units, or approximately 80% of the total universe. Thus, about 55.9 million homes in the

United States have a mortgage. Exhibit 1 (below) shows that at the end of Q2 2009, a staggering 13.54% of mortgages in the MBA survey were in some stage of delinquency: 4.3% of units surveyed were in foreclosure, another 3.88% were 90+

Delinquent, 1.68% were 60 days delinquent, and 3.68% were 30 days delinquent.

Exhibit 1: Housing Overhang Calculations

Category mba probability of probability

Deliquencey liquidation weighted

Survey based on liquidations

Cure rates

Foreclosure 4.30% 0% 4.30%

90+ Days 3.88% .8% 3.85%

60 Days 1.68% 4.4% 1.61%

30 Days 3.68% 17.6% 2.66%

Total Distressed Inventory 13.54% 12.42%

Number of Affected Units (in million, based on 55.9million homes) 7,576,940

Source: Mortgage Bankers Association, Loan Performance, Amherst Securities

We now look to the private label universe to figure out the probability of eventual recovery. Whatever doesn't cure must eventually liquidate. We refer to this as the "housing overhang."

Using transition rates for the calculations, our Q2 numbers indicate that the cure rate is near "0" for loans in foreclosure, and it's 0.8% for 90+ days delinquent, 4.4% for 60 days delinquent, 26.5% for 30-day delinquent loans (thus, we assume 100% of

The foreclosure bucket, 99.2% of the 90+ delinquent bucket, 95.6% of the 60 day delinquent loans and 72.4% of 30 day delinquent loans will eventually liquidate).

This implies that of the 13.54% delinquent units, we expect 12.42% of units to eventually liquidate. If the MBA data is representative of the mortgage universe, it suggests that 12.42% of 55.9 million units (6.94 million units) are already in the delinquency pipeline and will eventually liquidate.