In an earlier post, we discussed the use of trial modifications as a leading indicator of buyouts, as loans in these programs must experience three months of successful payments prior to being eligible for a permanent mod[1]. On January 25, Fannie Mae announced that they had purchased certain loans out of pools prior to the completion of the necessary trial payments.[2] Then, on March 25, Fannie published a list of these securities, allowing us to quantify the impact of this event on the performance of their pools[3].

The spreadsheet attached to the March announcement contains over 17,800 entries dating back to February 2021 and states that the total unpaid balance bought out early amounted to over $4.5 billion.
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The point of this post is to assess the magnitude of this activity on Fannie Mae’s prepayment speeds. To address this question, we imported the data in the file released by Fannie Mae into our Recursion Pool Analyzer.
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As a first step, we look at the impact of these purchases on CDR’s as the activity was clearly involuntary.

While surging house prices continue to be the focus of market participants, the rental market is increasingly attracting the attention of policymakers, both because of the impact on inflation[1] and the importance of this market for the economic wellbeing of lower-income households[2]. In both cases, there is a widespread consensus regarding the need for new supply to ameliorate these problems. There are many factors that come into play regarding the construction of new rental units, including the availability of private and public sources of credit.
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As part of its quarterly release of the "Financial Accounts of the United States"[3], the Federal Reserve publishes data that allows us to break down the trend in total multifamily lending into major categories of credit risk holders:

In a recent post, we mentioned that the 24-month timeline for the purchase of delinquent loans out of pools implied that this activity would not pick up until April 2020[1]. However, some leading indicator of loan disposition was available through the release of trial modification data in the Borrower Assistance Plan (BAP) field released in the monthly Agency disclosures. Once loans have completed three months of successful payments in this plan, they are eligible to be purchased out for the commencement of a permanent modification, and eventual resecuritization.
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A loan in trial modification plan (trial mod) can transit into the following state the next month:

1. Mortgagor payoff: this is an unlikely outcome, as loans in trial mod are troubled loans.
2. Repurchase: Being repurchased out of the pool --- this typically should not happen after giving the loan 3 months in the trial.
3. Forbearance: also unlikely, most loans in trial mod should have used forbearance plan already.
4. Trial Period Plan: loans in trial mod for just 1 or 2 months should stay in trial mod for a least another month.
5. No Plan: trial mod terminated however did not result in a repurchase immediately.
6. Other or N/A: status not available.

The number of loans in these programs continues to grow, standing at 37,957 in February 2022, with a balance of about $8.3 billion, up from 9,911 and $2.1 billion in March 2021. The evolution of the disposition of loans is shown in the following chart:

​We’ve noticed that the prevalence of appraisal waivers for purchase mortgages within the eligible population peaked in Q4 last year, and recently has gone into steep decline. Our working thesis as to what is behind this trend is that lenders are getting concerned about the rapid pace of home price increases and want the additional security associated with an on-site appraisal. If this is indeed the case, we should see a greater decline in this share for larger mortgages than for smaller ones. So we break up the universe by GSE, and by loans above and below 2021’s conforming loan limit of $548,250: