Dealers in seasoned mortgages will bear a disproportionate share of the workload to meet requirements of Freddie Mac's proposed policy on seasoned mortgages.
Complaints of lenders who brought their concerns to the Eastern Secondary Mortgage Market Conference in Raleigh, N.C., on Sept. 28 were twofold: The proposed policy penalizes lenders for dealing with portfolio lenders and saddles them with major new requirements.
Freddie Mac announced Sept. 7 that it would only accept on a negotiated basis seasoned mortgages, which it defines as home mortgage loans that close more than 12 months before delivery to Freddie Mac. Freddie cited its decision on such factors as slow home appreciation, weaker employment situation and higher prepayment rates.
Essentially, it means that if a loan hasn't been refinanced, it may have become a problem loan and requires more attention-including more intensive credit checks and updated appraisals.
Fulfilling those requirements of the policy is what galled some lenders' representatives.
The Freddie requirement would unfairly burden small mortgage companies that securitize said Patt Greenlee, senior vice president of First Commercial Mortgage Co., a Little Rock, Ark., residential and commercial lender. Small lenders, she noted, can ill afford such a mandate.
"We look for healthy institutions and insurance companies with loan portfolios who want to capitalize," said Greenlee. "Those loans are good loans that we can purchase, then securitize. It's been a benefit to us because with all the run-off, it has helped us rebuild our the servicing product. Ultimately, that will help when we buy these bulk loads of seasoned products, it helps balance off what we lose in refis."
The bitter pill for First Commercial is that it recently purchased a portfolio of 54 seasoned mortgages, worth more than $300 million. Greenlee was dismayed at the prospect of recertifying each property. In the past. she said, First Commercial conducted spot appraisals but wouldn't have researched every loan in the portfolio.
With the new policy, it now must do so. "They all must still have good credit histories, they can only have one 30-day late over 12 months, and they must comply with Fannie and Freddie guidelines," she said.
As a result of Freddie's intended policy, she said, First Commercial and many other Freddie customers will look to sell those loans to Fannie Mae, whose restrictions on seasoned products are less stringent.
Freddie account executive Gillian Hahn-Arledge hinted that it may reconsider its policy later.
She also said that Freddie intended to continue with the decision and suggested attendees sell those loans before the Dec. 1 deadline.
Seasoned mortgages compose 2% to 3% of Freddie Mac's business roughly $3 billion so far this year. The agency may well lose some business as a result of the policy shift, said one secondary market source, but the agency believed the policy would provide greater assurity for investors.
Not everyone is crying foul. Secondary market officers at some large lending institutions believe the effect will be minimal. Most loans they originate are quickly sold into the secondary market-often, the next day.
"We've sold $25 million to $50 million-worth over the last 12 months," said Dave Boberg, vice president secondary marketing at Norwest Mortgage Corp., Des Moines, Iowa. "A lot [are] from the securitization of portfolios acquired from savings and loans and bank acquisitions-last year we sold about $21 billion.
"Ninety-nine percent of people who delivered seasoned mortgages to Freddie probably did so on a negotiated commitmment basis anyway," he said. "Because it's a way to get a better guarantor fee-it's in their best interest."