Jumbo & Conforming Loan Limits - More Market Chatter 5/12/08

Last week Fannie Mae made an announcement about a new "keys to recovery initiative". Below is an overview as forwarded by a colleague. We are expecting more to follow this week, but at the origination level, we are already seeing the effects of this in the Jumbo-Conforming sector pricing for the new high balance conforming sized transactions. If you have questions about this, email me.


KEYS TO RECOVERY INITIATIVES

Fannie Mae’s Keys to Recovery™ initiatives are geared toward providing liquidity, stability, and affordability to the housing and mortgage markets for the long term, and include steps to keep struggling borrowers in their homes, assist prospective homebuyers with home purchases, and stabilize communities impacted by the
mortgage market downturn. The initiatives include
1) a new refinancing option for Fannie Mae “underwater” borrowers that will allow for
refinancing up to 120% of a property’s current value;
2) a renewal and expansion of the company’s partnership
with the state Housing Finance Agencies (HFAs) to provide $10 billion in financing for qualified, first-time
homebuyers;
3) in partnership with Self-Help Credit Union, a new initiative that allows families in hard-hit
communities to reside in foreclosed properties on a rent-to-own basis; and
4) pricing for new jumbo-conforming
loans that will be flat to conforming for portfolio asset acquisition through the end of the year.

Refinancing “Underwater” Borrowers
With home prices declining in many areas of the country and lending standards tightening as a result of the
ongoing turmoil in the housing finance system, many borrowers find themselves with mortgages that exceed
the value of their homes and are locked out of refinancing into safer loans that would allow them to sustain
their mortgage payments.
In order to assist borrowers whose home equity is “underwater,” reduce foreclosures and support sustained
homeownership, Fannie Mae will purchase refinanced loans the company owns for up to 120% of the current
property value provided the borrower is current with their mortgage payments.

HFA Investment
HFAs exist to provide affordable homeownership and rental housing opportunities within their states. The
majority of HFA single-family business is for first-time homebuyers who have received borrower counseling
and down payment and/or closing cost assistance from the government.
Fannie Mae has maintained a long-term agreement with the National Council of State Housing Agencies
(NCSHA) to purchase loans generated by the HFAs. The company is renewing and expanding its agreement
with NCHSA to purchase up to $10 billion in HFA loans by the end of 2009. In addition, the company will
provide preferred pricing on HFA business to lower borrower costs for first-time homebuyers.

Neighborhood Stabilization
In order to minimize the neighborhood impact of foreclosed properties, Fannie Mae will support an initiative
with Self-Help Credit Union in partnership with local non-profits to purchase Fannie Mae-owned, foreclosed
homes in hard-hit neighborhoods. The nonprofits would acquire and rehab the properties, and then sell them to qualified borrowers or enter into a customized lease-purchase agreement. The initiative will be geared toward borrowers who have the income to qualify for the home purchase, but need additional time to improve creditworthiness. Participants choosing the rent-to-own option would be granted up to five years to qualify for the mortgage and receive extensive credit counseling during the lease period.

Jumbo-Conforming Loans
Following passage of the Economic Stimulus Act of 2008, Fannie Mae is temporarily able to purchase loans
greater than the conventional-conforming loan limit of $417,000. In certain high cost-areas as designated by
HUD, the company is able to purchase jumbo-conforming loans up to $729,750 in the continental U.S. The
company is now accepting deliveries of 15-year and 30-year fixed-rate (FRM), and certain adjustable-rate
(ARM), jumbo-conforming mortgages.

In order to bolster liquidity in the jumbo-conforming market and help reduce rates for jumbo-conforming
mortgages in high-cost areas, the company will now:
• Price new jumbo-conforming loans flat to conforming for portfolio asset acquisition through the end
of the year. This means that although jumbos are not TBA-eligible, we will be pricing them as if
they were.
• Allow for cash-out, jumbo-conforming loan refinancings.
• Expand loan-to-value (LTV) criteria for jumbo-conforming purchase loans and limited cash-out
refinancings.
• Offer expanded jumbo-conforming FRM and ARM options.

HomeStay
The company’s Keys to Recovery™ efforts build on Fannie Mae’s HomeStay™ initiative announced last year.
The company is working with lenders, loan servicing companies and policymakers to respond to the housing
and mortgage market crisis with a goal to minimize the impact on families and communities by preventing
foreclosures, supporting counseling efforts, and providing market stability. Through HomeStay™, since the
beginning of 2007, the company has:
• Helped more than 200,000 at-risk homeowners refinance into safer loans or work out their loans,
including nearly $28 billion in refinancings for subprime borrowers.
• Provided more than $10 million in grants – and hundreds of employee volunteer hours – to support
foreclosure prevention counseling and workshops since the housing crisis deepened last year.
• Worked with loan servicers to emphasize work-outs for delinquent loans, instituted attorney incentive
fees for workouts, provided HomeSaver Advance™ loans that allow borrowers to catch up on their
delinquent mortgage payments, deployed staff to work on-site with our largest servicers, and made
dozens of operational changes and enhanced servicer authorities to allow for easier modifications and
work-outs.
• Supported HOPE NOW initiatives and public policies to give at-risk and delinquent borrowers a better
chance to afford their mortgages.