Fannie Mae Offers Free Mortgage Portfolio Review Service

Laurel Davis
September 16, 2009 | COMMENTS

Fannie Mae offers a free portfolio analysis service to credit unions holding mortgages on their balance sheets. This popular service offers great value to CFOs, portfolio managers, and asset-liability committees by leveraging Fannie Mae's resources to arm these decision-makers with the information necessary to manage their whole loan portfolios more effectively.

Many credit unions sell current production loans to Fannie Mae on a flow or monthly basis via eCommittingTM and deliver loans for cash within the commitment period.

Fannie Mae's Investor Channel specializes in the management of loans held on your balance sheet that may have been originated specifically for your portfolio, for investment purposes. These loans are seasoned and have a performance history. Its portfolio review service offers analysis, summary reporting, and recommendations tailored to the specific needs of your credit union.

Data Integrity Analysis

The first step is to determine the integrity of the data file that you send for review. Many loans held in portfolio have incomplete data elements. For example, many servicing systems do not differentiate cash-out refinance loans from rate/term-refinance loans. Often the occupancy and the number-of-units fields are coded incorrectly. Sometimes loans are not amortizing correctly. There are a number of issues that can be identified and corrected at this early stage of the analysis.

Credit Analysis

When preparing data for a portfolio review, Fannie Mae will request a new FICO score. This updated score will help determine the eligibility of the loan for sale or securitization. Credit union members whose loans are included in the analysis will not have a credit inquiry posted to their credit reports when Fannie Mae pulls the updated FICO score.

Collateral Analysis

We recalculate the estimated current value of each property using Fannie Mae's new, proprietary Mark-to-Market LTV (MTM-LTV) model. The MTM-LTV model is used to determine the eligibility of loans held in portfolio for sale or securitization and when assigning a dollar value to the loan. Portfolio managers also find this information very useful in assessing [or “evaluating”] the amount of equity that members have in their homes.

Ineligible Loan Summary

Given our role in the market, Fannie Mae can quickly determine which loans are eligible for sale to or securitization with Fannie Mae under current guidelines. Unfortunately, this step is ignored often in the market place and can delay the portfolio management process. This summary provides you with detailed information on your portfolio—information that many financial institutions do not have—including the reason(s) why a loan is ineligible. In some cases, the issue may be as simple as a minor data error; in other cases, this report could alert you to areas of credit risk and collateral exposure.

Indicative Price Stratification

This is one of the most valuable aspects of the portfolio review and provides CFOs with a spreadsheet that can provide answers to the common question, “How much can I sell at what price?”

The stratification process begins by grouping the loans in your portfolio into mortgage-backed securities (MBS)-like categories, then benchmarking those against the MBS market. This pricing analysis also takes into consideration the unique credit, collateral, seasoning, and performance characteristics of your portfolio.

Loans can be isolated and grouped to determine their value based on benchmarks and other indicators. Additionally, this report can be used to target specific transactions that meet your balance sheet and income statement needs.

Execution Options

There are two main executions that Fannie Mae offers for seasoned loans through our Investor Channel: a whole loan sale and a swap transaction. Both transactions offer liquidity to credit unions.

A seasoned whole loan sale results in cash proceeds, similar to what happens when you sell loans through eCommitting. Commitments are transacted via a recorded phone call with our Capital Market Sales Desk. These cash transaction are a great source of mortgage funds for your members and source of liquidity for your institution.

A swap results in the issuance of a Fannie Mae MBS into the account in which you normally hold securities. This MBS is backed by your loans and your loans only. Under the swap transaction, you have the option to hold the security in portfolio like you would any other security or sell that security in the open market for cash proceeds. By holding an MBS instead of whole loans, you can reduce your capital and reserve requirements and increase your borrowing capacity. The impact of securitization is broad; we can discuss generalities with you, but please consult with your accountants for the specific impact to your organization.

Getting Started

The first step to getting a better understanding of your mortgages held in portfolio is simple—all you have to do is contact a Fannie Mae Investor Channel representative. For credit unions east of the Ohio-Mississippi, please contact Michael Matz at 202-752-3324. If your credit union is west of the Ohio-Mississippi, please contact Ralph Bonner at 312-368-6228.

Laurel Davis is vice president of Fannie Mae's Investor Channel. Reprinted with permission from the newsletter of Prime Alliance Solutions, a CUSO that provides tools and services for real estate lending.