Fannie Mae: Outlook for Home Prices Rises Again

By Mia Lamar

The consumer outlook for U.S. home prices improved again in January, extending a recent upward trend in housing market sentiment, according to mortgage market firm Fannie Mae.

For its monthly reading, Fannie Mae said respondents in its January survey predicted home prices will rise by 1% over the next year, up from the 0.8% gain forecast in December.

Views on the direction of the U.S. economy also continued to improve. According to the respondents, 30% said they believe the U.S. economy is on the right track, up from 22% with that view in December. The percentage who said the economy is headed in the wrong direction fell to 63% of respondents, marking a 6 percentage point decline from the previous month.

Fannie Mae Chief Economist Doug Duncan pointed to a slowly improving U.S. job market as one cause for rising confidence in the long-battered housing market. ”The strengthening employment picture last Friday provides encouragement that the improving trend in consumer confidence will continue and will at some point be reflected in a firming up of consumer spending,” Duncan said.

A report last week from the U.S. Labor Department showed nonfarm payrolls grew 243,000 last month, the largest gain since April. The jobless rate fell from 8.5% to 8.3%, the lowest it has been since February 2009.

Fannie Mae’s January survey also found 44% of respondents expect their personal financial situation to improve over the next year, up from 40% with that view in December.

The survey is based upon a monthly poll of roughly 1,000 adults and has a margin of error of plus or minus 3.1%.

Write to Mia Lamar at mia.lamar@dowjones.com

Industrial and Multi-family Loans Drive Annual CRE Increase

The Mortgage Bankers Association
(MBA) reports that commercial and multifamily loan originations were down 7
percent in the fourth quarter of 2011 compared to the third quarter but were 13
percent higher than originations in the fourth quarter a year earlier.  The year-over year change was driven by
originations for both industrial and multifamily properties which increased 43
percent and 31 percent respectively from Q4 2010.  On the negative side, retail loans were down
8 percent, loans for healthcare properties fell 24 percent, office properties
were down 29 percent and hotel originations decreased 44 percent.

Quarter over quarter results were
mixed.  There was a 153 percent jump in
originations for health care properties; industrial loans were up 51 percent
and multifamily properties increased 29 percent.  Originations for healthcare properties fell 52
percent, office properties were down 39 percent, and retail property loans
decreased 24 percent.

Looking at lending by investor groups,
commercial bank portfolios were up by 122 percent compared to the fourth
quarter of 2010 and Freddie Mac and Fannie Mae (the GSEs) increased lending 17
percent.  Life insurance companies and
conduits for commercial mortgage backed securities (CMBS) decreased lending by
23 percent and 50 percent respectively.

 On a quarter-over-quarter basis only the GSEs
increased their loans, which rose 34 percent to an all time high.  Conduits for CMBS were down 26 percent, life
insurance companies decreased lending by 23 percent, and commercial bank
portfolios declined by 16 percent.  

“MBA’s Commercial/Multifamily
Mortgage Bankers Origination Index hit record levels for life insurance
companies in the second and third quarters of 2011,” said Jamie Woodwell,
MBA’s Vice President of Commercial Real Estate Research. “In the fourth
quarter, multifamily originations for Fannie Mae and Freddie Mac hit a new
all-time high. While the CMBS market continued to be held back by broader
capital markets uncertainty during the past year, others – like the GSEs, life
companies and many bank portfolios – increased their appetite for commercial
and multifamily loans.”

Commercial/Multi-family
Originations by Investor Types

Investor
Type

Origination Volume Index*

% Chg

Q4-Q4

Average Loan Size ($millions)

Q3 2011

Q4 2011

Q3 2011

Q4 2011

Conduits

42

31

-50

30.5

23.9

Commercial
Banks

169

143

122

11.8

7.8

Life
Insurance

282

216

-13

20.5

14.0

GSEs

176

236

17

13.8

14.3

Total

138

129

13

14,9

11.6

*2001 Ave. Quarter = 100

Commercial/Multi-family
Originations by Property Types

Investor
Type

Origination Volume Index*

% Chg

Q4-Q4

Average Loan Size ($millions)

Q3 2011

Q4 2011

Q3 2011

Q4 2011

Multi-family

140

181

31

13.2

13.5

Office

91

56

-29

19.1

11.7

Retail

222

169

-8

20.9

12.3

Industrial

142

214

43

12.4

16.2

Hotel

231

110

-44

39.0

20.1

Health
Care

91

229

-24

7.2

12.4

*2001 Ave. Quarter = 100

…(read more)

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GSE Profitability to Test Conviction of Lawmakers

Yesterday
Freddie Mac announced net income
of $676 million for the quarter ended March 31, 2011, compared to a net loss of
$113 million for the quarter ended December 31, 2010. The company release
states Freddie had a positive net worth of $1.2 billion on March 31, 2011. As a
result, no additional funding from Treasury was required for the first quarter
of 2011.

Up
until now the notion that either GSE could be profitable in this housing market
and canoe-shaped recovery seemed unimaginable to even the most informed and
astute industry veterans. The likelihood was further hamstrung by required 10% dividend
payments which must be paid by the GSEs to Treasury each quarter.

Then
again, one has to remember that Fannie Mae and Freddie Mac can produce $35B+ a
year in net interest margin alone, standing on their head…

Both
firms now have substantial credit loss reserves thanks to Treasury infusions
during conservatorship.  Both organizations are also working diligently at
slashing their operational expenses through a combination of outsourcing,
system enhancements, and cutbacks. From that perspective, with positive
progress in motion,  the inevitable
question becomes – “how loud will
the cries from Capitol Hill be after the second or third quarter of
profitability by these organizations?”

One
thing I do know is that while it might take half a lifetime for the GSEs to pay
the Treasury back in full on their current course – wound down institutions
don’t write checks at all.

…(read more)

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On Foreclosures, Uncle Sam Courts Investors

On Wednesday, a U.S. housing regulator invited investors to submit initial applications to bid on pools of foreclosed properties owned by Fannie Mae, the government-controlled mortgage finance company, as part of a new pilot program.

The goal is to help stabilize the troubled housing market by turning properties into rental units. Similar programs are expected to be launched by Fannie Mae’s sibling company, Freddie Mac, and the Federal Housing Administration, the government-controlled mortgage insurer.

That pilot program would be limited to properties that Fannie has already leased through a program that allows tenants to rent homes when their landlords go into foreclosure. It involves real estate with an estimated value of at least $250 million in six areas: Southern California, Las Vegas, Chicago, Phoenix, Atlanta, and parts of Florida.

There are many more foreclosures that could be pooled into packages and sold to investors. More than 83,000 foreclosures were listed for sale by Fannie, Freddie or the Federal Housing Administration as of late December, with the largest concentrations in California, Georgia, Michigan and Florida. (View map.)

The idea of packaging these properties and selling them to investors has been kicking around in policy circles for quite a while now and has been seriously discussed by Obama administration, Federal Reserve officials and regulators since at least last summer.

“We’re working to turn more foreclosed homes into rental housing, because as we know and a lot of families know, that empty house or ‘for sale’ sign down the block can bring down the price of homes across the neighborhood,” President Barack Obama said in a speech Wednesday in Virginia.

The FHFA is setting up this pre-qualification process to make sure investors in such properties have strong enough finances and enough experience to handle the process. Investors would be required to rent out the foreclosures for several years.

Regulators selected Fannie Mae to run the pilot program rather than Freddie Mac because it has a larger inventory of foreclosures — more than 55,000 were listed for sale as of late December — and because it was easier to launch a pilot initiative with only one of the federally controlled mortgage giants.

–Nick Timiraos contributed to this report.

Follow Alan @alanzibel

McCain Pushes Ban on Fannie, Freddie Bonuses

Reuters
Sen. John McCain wants to ban executive bonuses at Fannie Mae and Freddie Mac while the companies remain under federal control.

An effort to bar bonuses for executives at Fannie Mae and Freddie Mac could move forward in the U.S. Senate this week.

Sen. John McCain (R., Ariz.), a long-standing critic of the mortgage giants, said Tuesday he would try to advance a measure that would bar senior executives at Fannie and Freddie from receiving bonuses while the companies remain under federal control. (Video.)

Mr. McCain and Sen. Jay Rockefeller (D., W.Va.) sought to attach the restriction on pay to a bill prohibiting members of Congress from trading on inside information about government activities that could impact stocks. That bill easily cleared a 60-vote procedural hurdle on Monday and could pass by the end of this week.

Lawmakers became outraged last fall over nearly $13 million in bonus and incentive pay for Fannie’s and Freddie’s top executives granted last year.

“I find it hard to believe that we can’t find talented people with the skills necessary to manage Fannie and Freddie for good money…without the incentive of multi-million dollar bonuses,” Mr. McCain said on the Senate floor on Tuesday. “There are many examples of intelligent, well-qualified, patriotic individuals working in our federal government who make significantly less than the top executives at Fannie and Freddie with just as much responsibility.”

Representatives for Fannie and Freddie declined to comment. Their regulator, the Federal Housing Finance Agency, didn’t immediately comment.

The FHFA has defended the current pay packages as appropriate given the technical expertise needed to oversee two companies that guarantee $5 trillion in mortgages and the fact the executives couldn’t be paid in the companies’ stock, which essentially is worthless.

Taxpayers, who have put about $151 billion into Fannie and Freddie since their takeover in fall 2008, “would not be better off if we provoke a rapid turnover of senior management by further slashing compensation,” said Edward DeMarco, the FHFA’s acting director, at a November hearing.

Fannie CEO Michael Williams announced in mid-January his plans to step down as soon as the Fannie board finds a successor. His counterpart at Freddie Mac, Charles E. Haldeman Jr., said last fall that he would leave sometime in 2012. Both executives took their jobs in 2009, less than a year after the government put the companies under federal control.