The popularity of the ballyhooed GE 97% loan-to-value program could now be in doubt after GE Capital Mortgage Insurance Corp. acknowledged Aug. 15 that Fannie Mae has given it no indication it intends to renew its commitment to that program.
Jim Lynn, GE Capital Mortgage Insurance's vice president of product management and development, told Mortgage Marketplace he "hasn't gotten the impression they [Fannie] are going to do any more [97% LTVs]." GE last spoke with Fannie in the first half of August, Lynn said.
A Fannie Mae spokesman said, however, the company is still receiving deliveries on the 97% product and wouldn't make any determinations until the pilot is completed. "It's unfair to characterize what we will or won't do based on an unfinished pilot," he said. The Fannie-GE pilot was announced Feb. 16, but Fannie said it won't know the results of those deliveries for some time. Freddie Mac has refused to purchase the 97% LTV product.
GE has been aggressive in marketing the program since the pilot was launched in February. Amid reports from $1 billion, GE secured a $1 billion commitment to provide liquidity for these loans through Goldman Sachs & Co., the New York-based brokerage firm. Those 97% loans, however, differ from Fannie's 97%-derived mortgage-backed securities in that they are considered nonconforming and have thus drawn higher interest rates for home buyers.
Todate, GE said it has registered 180 customers and has allocated $1.3 billion in insurance capacity. And with a new focus on portfolio lenders and state housing finance agencies, it expects to increase that volume. It also intends to continue marketing the program to other private-label securitizers--where it says there has been increased interest--as well as to Fannie and Freddie.
But the program's widespread support among lenders may never reach GE's expectations without the backing of the two government-sponsored enterprises. Freddie has maintained that it will not buy these loans and some mortgage industry analysts have said Fannie feels uneasy about them as well.
Without the liquidity provided by the GSEs, GE will be forced to market the product through private-label conduits, the secondary mortgage market equivalent of triple-A baseball. But while some lenders seemed open to the idea, there was a measure of trepidation.
"That would be something we'd look at," Herbert Wayne, senior vice president at Wachovia Bank of North Carolina, said of possibly working with private-label securitizers. But not having Fannie and Freddie "would certainly be a limiting factor."
Wayne said Wachovia, although not a participant in either the Fannie or Goldman programs, has nonetheless originated more than $100 million in its own 97% LTV loans for its own portfolio. Those loans, he said, have contributed greatly toward the two "outstanding" ratings it has received during its last two exams. He's also pulling for Fannie to renew the GE program.
"We'd love to see Fannie pick it back up," he said. "But if they don't, we'll stick with the 3/2 community home buyer program, and I suspect others will, too."
GE and Fannie Mae rolled out the program, which requires borrowers to put down only 3% equity in their home, with much fanfare. Corporate representatives from GE, Fannie, Mortgage Guaranty Insurance Co., PNC Mortgage Corp., Countrywide Funding, state housing agencies and a handful of home buyers who would benefit from the program were all on hand to launch it at a news conference at the National Press Club in Washington.
Some there touted the program as "revolutionary" and predicted it would become "the industry standard."
Such optimism seemed well placed, at least initially. Interest among lenders was high despite the limitations Fannie Mae placed on who could originate the product.
But GE said those lenders have used up their allotted Fannie-backed commitments and are either holding loans in portfolio or selling them through the Goldman conduit.
GE and Fannie also stressed that the program would benefit lenders in meeting affordable housing goals. To that end, the program has been a success, Lynn said, adding that under the 97% program, GE's volume has been "twice the volume we did under [Fannie's] Community Homebuyer program.
