During the next several years, as the housing market crashed and then began to eke its way back, Fannie and Freddie drew $188 billion from the Treasury. They were in turn forced to pay 10 percent stock dividends back. Then in 2012, the Treasury announced that that agreement would be replaced by a quarterly sweep of every dollar of profit that each institution earned in the future.

(Read more: Map: Tracking the recovery)

The move was designed to, “help expedite the wind down of Fannie Mae and Freddie Mac, make sure that every dollar of earnings each firm generates is used to benefit taxpayers, and support the continued flow of mortgage credit during a responsible transition to a reformed housing finance market,” went the 2012 release.

By 2012, with the housing market rebounding and newly originated loans faring better than any in history, Fannie Mae and Freddie Mac began turning annual profits. By 2013, those profits were growing dynamically, and the two are now nearing the amount they originally drew from the Treasury, although the payments do not go to pay back the draw. The Treasury still owns the preferred stock. The money simply goes to the government.

Now, as individual investors in Fannie and Freddie stock cry foul, launching lawsuits against the government and demanding their share, lawmakers are under increased pressure to find a fitting end for the conservatorship and the entities. The question is whether or not to put a government backstop into the market yet again.

“The construct of a government-guaranteed, mortgage-backed security is absolutely going to be needed,” said David Stevens, CEO of the Mortgage Bankers Association. “You can’t have a functioning housing finance system where private capital just leaves it in the next recession. You need to have constant liquidity provided to the U.S. system, and that comes from the guaranteed mortgage-backed security.”

Confidence is key going forward, and investors are unlikely to pour money back into the mortgage market without a guarantee that in another catastrophic crash there won’t be some government backstop. One of the leading bipartisan proposals in Congress, introduced by Sens. Bob Corker, R-Tenn., and Mark Warner, D-Va., does create an investor and borrower-funded backstop. It will make loans slightly more costly, but the government guarantee on mortgage-backed securities would be there.

“The biggest problem is that Congress wants supercheap mortgages and they want to eliminate taxpayer risk for the housing market, and that’s just a holy grail to get,” said Guggenheim’s Seiberg. “Anything less than 100 percent government backstop is going to raise questions about whether fixed income investors are really going to be there to pick up the slack and to buy those securities.”

Federal regulators are already trying to shrink the portfolios of Fannie Mae and Freddie Mac, even as Congress still debates their future. They have layered on heavy fees to lenders, which have actually made conforming loans (those backed by Fannie and Freddie) more costly than jumbo loans funded by banks. There is also a move to lower the loan limits on conforming loans, which would push banks and investors to take on more of the markets.

(Read more: Jobs report tempers mortgage rates)

Article source: http://www.cnbc.com/id/101018586

Hanson is particularly concerned about cancellations among the home builders.

(Read More: Home Builder Sales at Risk Due to Rising Mortgage Rates)

Buyers of new construction often sign contracts for homes that will not be delivered for three to nine months, and therefore the buyers do not lock in mortgage rates at the time of purchase. A buyer who signed a deal the first week in May without a mortgage is now facing a far higher potential monthly payment, perhaps an unaffordable one.

The hangover effect could be much like the drop in home sales after the expiration of the home buyer tax credit. Prices dropped as well. This, as millions more borrowers were finally coming out from underwater on their loans, thanks to increased home equity. The number of borrowers owing more on their mortgages than their homes are currently worth fell by 47 percent in the first three months of this year from a year ago, according to Lender Processing Services. Some 7.2 million mortgages are still underwater, but that’s down from a high of 17 million in 2011.

Increased home equity has helped to push mortgage delinquencies down. They dropped 15 percent in May from Jan. 1, the biggest drop in 11 years, according to LPS. If home price gains stall or if prices turn lower, that trend will reverse. Rising home equity has allowed more borrowers to sell homes they don’t want or can’t afford.

(Read More: Map: Tracking the US Real Estate Recovery)

While home sales may surge in the short term on fears of rising rates and falling affordability, the longer term may be a different story. One telling sign from the Fannie Mae survey, 56 percent of respondents expect rents to rise. That’s up 8 percentage points in one month to a survey high.

—By CNBC’s Diana Olick. Follow her on Twitter @Diana_Olick or on Facebook at facebook.com/DianaOlickCNBC.

Questions? Comments? RealtyCheck@cnbc.com.

Article source: http://www.cnbc.com/id/100870112

Hanson is particularly concerned about cancellations among the home builders.

(Read More: Home Builder Sales at Risk Due to Rising Mortgage Rates)

Buyers of new construction often sign contracts for homes that will not be delivered for three to nine months, and therefore the buyers do not lock in mortgage rates at the time of purchase. A buyer who signed a deal the first week in May without a mortgage is now facing a far higher potential monthly payment, perhaps an unaffordable one.

The hangover effect could be much like the drop in home sales after the expiration of the home buyer tax credit. Prices dropped as well. This, as millions more borrowers were finally coming out from underwater on their loans, thanks to increased home equity. The number of borrowers owing more on their mortgages than their homes are currently worth fell by 47 percent in the first three months of this year from a year ago, according to Lender Processing Services. Some 7.2 million mortgages are still underwater, but that’s down from a high of 17 million in 2011.

Increased home equity has helped to push mortgage delinquencies down. They dropped 15 percent in May from Jan. 1, the biggest drop in 11 years, according to LPS. If home price gains stall or if prices turn lower, that trend will reverse. Rising home equity has allowed more borrowers to sell homes they don’t want or can’t afford.

(Read More: Map: Tracking the US Real Estate Recovery)

While home sales may surge in the short term on fears of rising rates and falling affordability, the longer term may be a different story. One telling sign from the Fannie Mae survey, 56 percent of respondents expect rents to rise. That’s up 8 percentage points in one month to a survey high.

—By CNBC’s Diana Olick. Follow her on Twitter @Diana_Olick or on Facebook at facebook.com/DianaOlickCNBC.

Questions? Comments? RealtyCheck@cnbc.com.

Article source: http://www.cnbc.com/id/100870112

In the first three months of this year, there were nearly 1.4 million refinances on Fannie Mae and Freddie Mac mortgages alone, according to the Federal Housing Finance Agency. Of those, 22 percent were through HARP, which was recently extended through 2015. More than 2.4 million borrowers so far have taken advantage of that program.

For borrowers who don’t have government-backed loans and therefore don’t qualify for that program, rising home prices have helped allow more of them to qualify for refinances. Among borrowers, 850,000 rose above water on their mortgages, moving into a positive equity position in the first three months of this year, according to a new report from CoreLogic. While nearly 10 million are still underwater, the more that rise above, the more refinances can happen.

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“We are still far below peak home price levels, but tight supplies in many areas coupled with continued demand for single family homes should help us close the gap,” said Anand Nallathambi, the CEO of CoreLogic.

Rising prices, however, are a double-edged sword, especially in a rising interest rate environment. Potential buyers are losing purchasing power every day, just as demand is surging.

—By CNBC’s Diana Olick. Follow her on Twitter @Diana_Olick or on Facebook at facebook.com/DianaOlickCNBC.

Questions? Comments? RealtyCheck@cnbc.com.

Article source: http://www.cnbc.com/id/100810389

“I think you’ve got to move away from a situation where when private shareholder gain and government taxpayer losses, and that is what this bill seeks to do, it really transforms how we doing housing finance hopefully we will be able to pass something that puts us on a better course than where we are,” said Sen. Corker in an interview Tuesday on CNBC.

(Read More: Big Banks Bet on Jumbo Mortgages Again)

Some analysts say the lawsuit could actually push Congress to act more quickly on winding down Fannie and Freddie.

“What we just a few days ago saw as only a remote possibility is now a 25 percent chance for action,” wrote Jaret Seiberg of Guggenheim Partners in a note to investors. “This is because we suspect this will anger many on Capitol Hill who believe Fannie and Freddie are only alive and kicking because taxpayers put $187 billion at risk. We see the suit reinforcing the view on Capitol Hill that Fannie and Freddie included too much upside for investors and too much risk for taxpayers.”

(Read More: Reverse Mortgages Backfiring on Seniors)

—By CNBC’s Diana Olick; Follow her on Twitter @Diana_Olick or on Facebook at facebook.com/DianaOlickCNBC

Questions? Comments? RealtyCheck@cnbc.com

Article source: http://www.cnbc.com/id/100806300

(Read More: Inside America’s Economic Crisis)

That is why their stocks initially plummeted in value in 2008 and were delisted from the New York Stock Exchange. The shares would only have value if Congress were to take them out of conservatorship and allow them to recapitalize. That, most analysts say, is a very long shot.

“This is a congress that needs and wants a lot of money. Why would they ever give up this revenue stream, especially if it’s going to speculative bets on Wall Street?” asked Ed Mills of FBR Capital Markets.

Mills said investors are weaving an exciting tale, but one unlikely to have a happy ending. At first it was small individual investors, but now larger hedge funds, like Paulson and Co and Perry Capital, are getting in, according to several published reports. While members of Congress have yet to pass any legislation toward dismantling Fannie and Freddie or returning them to private companies, with or without a government backstop, the idea that they would just give them back to shareholders is, again, unlikely.

(Read More: Paulson Raised Bet on Mortgage Insurers in First Quarter Filing)

Sen. Bob Corker, a Republican from Tennessee who is sponsoring legislation to reform Fannie Mae and Freddie Mac, has been clear that stockholders will get nothing in his plan, despite the recent profitability of the two:

“If Treasury were to decide to sell its preferred share investment without Congress having first reformed our housing sector, we would just be returning to a time where gains are for private shareholders and losses are for taxpayers. Neither of these is an acceptable outcome,” according to a recent release.

Still, it is enticing to think about.

“Fannie/Freddie is an extremely exciting story. This year, Fannie and Freddie are likely to post combined net income of over $100 Billion—more than the combined estimated earnings of both Exxonand Apple. Pretty good for two entities left for dead in the fall of 2008,” said James Fenkner, a California-based investor who has owned Fannie Mae shares. “I’m a long term believer in the eventual recovery of Fannie and Freddie, but also believe that the story of the commons and [less so] junior preferred are not yet ready for prime time. Should Fannie and Freddie recover to their pre 2008 highs, the common shares could rally eight times and the preferred five times their current prices. Yet, such gains assumes a fairly tale ending, and that is a probability asymptotically close to zero.”

As Fannie Mae’s dividend payments to Treasury, so far $95 billion, now approach the amount it drew, $116.1 billion, investors have a better case to make.

(Read More: Fannie Mae Should Be Abolished, Says Barney Frank)

Article source: http://www.cnbc.com/id/100754423

(Read More: Inside America’s Economic Crisis)

That is why their stocks initially plummeted in value in 2008 and were delisted from the New York Stock Exchange. The shares would only have value if Congress were to take them out of conservatorship and allow them to recapitalize. That, most analysts say, is a very long shot.

“This is a congress that needs and wants a lot of money. Why would they ever give up this revenue stream, especially if it’s going to speculative bets on Wall Street?” asked Ed Mills of FBR Capital Markets.

Mills said investors are weaving an exciting tale, but one unlikely to have a happy ending. At first it was small individual investors, but now larger hedge funds, like Paulson and Co and Perry Capital, are getting in, according to several published reports. While members of Congress have yet to pass any legislation toward dismantling Fannie and Freddie or returning them to private companies, with or without a government backstop, the idea that they would just give them back to shareholders is, again, unlikely.

(Read More: Paulson Raised Bet on Mortgage Insurers in First Quarter Filing)

Sen. Bob Corker, a Republican from Tennessee who is sponsoring legislation to reform Fannie Mae and Freddie Mac, has been clear that stockholders will get nothing in his plan, despite the recent profitability of the two:

“If Treasury were to decide to sell its preferred share investment without Congress having first reformed our housing sector, we would just be returning to a time where gains are for private shareholders and losses are for taxpayers. Neither of these is an acceptable outcome,” according to a recent release.

Still, it is enticing to think about.

“Fannie/Freddie is an extremely exciting story. This year, Fannie and Freddie are likely to post combined net income of over $100 Billion—more than the combined estimated earnings of both Exxonand Apple. Pretty good for two entities left for dead in the fall of 2008,” said James Fenkner, a California-based investor who has owned Fannie Mae shares. “I’m a long term believer in the eventual recovery of Fannie and Freddie, but also believe that the story of the commons and [less so] junior preferred are not yet ready for prime time. Should Fannie and Freddie recover to their pre 2008 highs, the common shares could rally eight times and the preferred five times their current prices. Yet, such gains assumes a fairly tale ending, and that is a probability asymptotically close to zero.”

As Fannie Mae’s dividend payments to Treasury, so far $95 billion, now approach the amount it drew, $116.1 billion, investors have a better case to make.

(Read More: Fannie Mae Should Be Abolished, Says Barney Frank)

Article source: http://www.cnbc.com/id/100754423

Although most respondents to the survey showed satisfaction with primary banks (81 percent), many expressed frustration that could push them to find a lending alternative. Top on the list of gripes: “slow execution.” More than half of consumers say the process needs to be faster. Others cited difficulty with communications, inability to track the status of the application and even untrustworthy advice.

“I think they trust good service, word of mouth and experience, and when they get those things, the survey shows, it’s less about them being a bank and more about reaching the values that are core to them. That’s trust, service and price,” adds Hautop.

Familiarity is also a driving factor.

Most banking is done online today, with many consumers rarely if ever going into a retail bank. These same consumers are making weekly trips to discount retailers. As the mortgage market now shifts from a largely refinance trade to purchase applications for a home, banks need to take that level of exposure and the information about a captive audience and translate that into increasing market share.

Read More:(Fannie, Freddie Place Evictions on Hold for the Holidays)

Warehouse giant Costco got that message last spring, announcing a new mortgage lending program with New Jersey-based First Choice Bank. Costco itself doesn’t lend but gathers quotes from other lenders, so that the customer can comparison shop, essentially a marketing service.

Bottom line, consumers want to trust their lenders again. Retail giants don’t have to deal with the legacy of lending ills uncovered after the housing and mortgage crash. Armed with new federal regulations designed to insure truth, clarity and transparency in lending, consumers now feel more protected when shopping for a mortgage and may be more willing to shop outside the bank.

Read More: Housing Next Year: Prices Will Rise – 2013 Predictions)

—By CNBC’s Diana Olick; Follow Her on Twitter @Diana_Olick and on Facebook.

Questions? Comments? RealtyCheck@cnbc.com

Article source: http://www.cnbc.com/id/100001629