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Secondary Policies Updated

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In a series of actions involving the secondary market, Freddie Mac has revised and updated its selling requirements and its requirements for non-assumable Rural Housing Service mortgages, while Fannie Mae has updated its selling guide. Ginnie Mae expanded its data collecting, clarified its guaranty and other fees paid to and by issuers and made changes pertaining to the submission of fidelity bond and errors and omissions insurance and the publication of CUSIP and pool number information for multiple issuer pools.

CUSIP and pool number publication will be done in advance on Ginnie’s website for the current month plus the upcoming three months’ issuance production, bulletin APM 12-02 earlier this year stated. The information will be published by pool term, pool type and security interest rate.

Issuers of Washington, D.C.-based Ginnie now can submit insurance renewal documentation as well as annual audited financial statements and supplemental documents either by mail or electronically, according to bulletin APM 12-09.

And the government-owned corporation, to further align its data disclosures with the industry, now is collecting data from issuers pertaining to the qualification of first-time home buyers, the type of party that participated in the origination process, the up-front mortgage insurance premium percentage rate that institutions charge to insure FHA loans as well as the annual MIP percentage rate that institutions charge to insure FHA loans.

Ginnie additionally has revised and expanded its definitions of three data elements previously captured on HUD Form 11706: loan-to-value ratio percent, combined LTV ratio percent and loan status code, with the latter actually simplified to a simple is or is not a buy-down loan. The revisions were discussed in bulletin APM 12-07.

In bulletin APM 12-03, Ginnie advised issuers that fidelity bond and errors & omissions insurance renewal documents are to be mailed directly to its Financial Reports Review Agent and no longer to its Office of Mortgage-Backed Securities as previously required.

Freddie, as a result of its latest requirement changes, now states that its non-assumable Rural Housing Service loans must be sold with recourse, according to bulletin No. 2012-4. The GSE also has eliminated the terms “mortgages for newly constructed homes” and “newly built home mortgage” from its single-family seller/servicer guide. The guide’s selling requirements also have been updated and revised.

The updates include requirements for borrower funds, use of mortgage credit certificates for borrower qualification, Social Security number validation for the seller’s in-house quality control program, and use of third-party employment and/or income verification services.

Freddie eliminated two of its document custodian certification requirements and updated two of its delivery requirements. One provides additional delivery instructions with regard to completion of the party role identifier Uniform Loan Delivery Dataset while the other clarifies that, in its guide, refinance mortgages originated through the Home Affordable Refinance Program with LTV ratios greater than 105 percent are not included in the calculation of the 10 percent unpaid principal balance limitation for delivery of super conforming mortgages under fixed-rate cash contracts.

Freddie also has updated and revised its requirements for borrower funds, including for borrower personal funds and other borrower funds, and allowance of net proceeds of the trade-in of the borrower’s previously-owned residence and use of prior rental payments made by the borrower as credit toward a home’s purchase price.

Fannie’s Selling Guide updates include changes pertaining to construction-to-permanent financing, limited cash-out refinances, quality control compliance, DU Refi Plus and Refi Plus, employment and income policy and restructured mortgage loan policy, according to selling guide announcement SEL-2012-04. The Washington, D.C.-based firm also now allows the simultaneous refinance of an existing subordinate lien and grant-like unsecured financing through a Housing Finance Agency Hardest Hit Funds program for the purpose of paying down the outstanding mortgage balance of the existing mortgage at the time of closing or for paying closing costs, and removing the requirement for DU Refi Plus that lenders have to confirm fidelity insurance coverage for projects.

In selling guide announcement SEL-2012-01, Fannie outlined changes to construction-to-permanent financing, ensuring quality control and other selling guide updates.

Fannie and Freddie should shrink to serve only 30 to 35 percent of the overall secondary mortgage market, according to a policy paper on the future of the two GSEs released by the Community Mortgage Lenders of America. And they should be barred from securitizing or investing in anything except “plain vanilla” mortgages, the paper states.

The CMLA also proposes that Fannie and Freddie should pay an insurance premium to remove the hidden government subsidy and continue to reduce their retained portfolios as market pricing allows, with the goal of providing a window for other entities to serve the market over the next several years.

Independent Community Bankers of America Senior Executive Vice President and Chief of Staff Terry Jorde told a housing forum that the housing finance system should support a diverse range of mortgage lenders, including the nation’s community banks, according to a June announcement.

“Secondary market access is vitally important to community banks,” she told the forum, which was sponsored by the Bipartisan Policy Center’s Housing Commission and the Jack Kemp Foundation, “and we must ensure the existence of a strong, reliable secondary market that is available to lenders in all geographic locations and of all sizes.”

In other secondary market-related actions, the Securities and Exchange Commission approved the application of the Depository Trust & Clearing Corp. to operate a new central counterparty designed to reduce risks and costs in the $100 trillion-a-year market for U.S. mortgage-backed securities, an announcement earlier this year indicated. The mortgage-backed securities division of the Depository Trust’s Fixed Income Clearing Corp. subsidiary will act as the central counterparty for MBS trades, guaranteeing settlement of all matched MBS trades.

Following the Federal Reserve Board’s announcement last week that it would purchase more MBS through its latest quantitative easing strategy dubbed QE3, MBS yields tumbled 30 basis points, the Financial Times reported. Because QE3 is helping bank earnings as they securitize residential loans, MBS prices are rising.

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