Secondary Market

The nation's largest mortgage financier reported a smaller loss during the third quarter than it did in the second, with the latest figures representing a $17 billion improvement over financial results from a year earlier. Fannie Mae says, though, that it needs another $2.5 billion from taxpayers to cover its net worth deficit. The GSE also reported that home retention actions were down 14 percent in Q3, while home repossessions rose by nearly 24 percent. As of September 30, Fannie Mae's inventory of single-family REO properties stood at 166,787.

Fitch Ratings has assigned a negative outlook to the entire U.S. residential mortgage servicer sector, citing concerns over procedural defects in the judicial foreclosure process. Fitch says robo-signing issues pose several risks for the servicers involved, including additional costs and resources to research and remediate errors, potential penalties, and flawed reputations. But the damage goes beyond just those servicers. Fitch says it's now an industry-wide issue that will place all servicers under increased scrutiny.

Consumer default rates declined in September across certain structured finance categories, including first- and second-lien mortgages, according to a report issued Thursday by Standard & Poor's. The improvements, which S&P's data shows have continued since last year, came despite a national unemployment rate that is still near its recession peak. The agency's analysts explained that job growth typically lags an economic recovery, and noted tighter underwriting standards are having a positive effect.

Commercial and multifamily mortgage loan originations during the third quarter jumped 15 percent from the previous quarter and were 32 percent higher than during the same period last year, according to data released by the Mortgage Bankers Association (MBA) Thursday. Origination volumes for Fannie Mae, Freddie Mac, and life insurance companies were relatively strong, MBA says, but commercial mortgage borrowing at banks fell on both a quarter-over-quarter and year-over-year basis.

The Federal Reserve decided Wednesday to pump another $600 billion into the economy in the hopes of bolstering what it called a ""disappointingly slow"" recovery. The capital injection will come in the form of purchases of long-term Treasury securities by the central bank, about $75 billion a month between now and the end of June 2011. The goal is to buoy economic growth by inducing banks to lend more while keeping interest rates low. If it plays out correctly, the move is expected to spur spending, foster job creation, and keep deflation in check.

Freddie Mac said Wednesday that it lost $2.5 billion during the third quarter of this year. Add to that the $1.6 billion dividend payment the GSE had to make to Treasury on stock the company relinquished in exchange for bailout money, and Freddie Mac reported a net loss attributable to common shareholders of $4.1 billion. The company is asking Treasury for a draw of $100 million in taxpayer dollars. Since Freddie Mac was placed under government control, it has needed $64.2 billion to stay afloat.

The Securities and Exchange Commission (SEC) is putting mortgage lenders on alert regarding disclosures about potential losses from foreclosure paperwork defects and loans they may be forced to buy back from investors. In a letter sent to the chief financial officers of publicly traded banking companies, the federal agency reminded lenders that they are obligated to relay to their investors any known trends, commitments or uncertainties that they expect could have an ""unfavorable impact"" on the company's financial results.

Fitch Ratings puts the industry's shadow inventory - meaning loans that are seriously delinquent, in foreclosure, or REO - at 7 million homes. The agency says based on recent liquidation trends, it will take more than 40 months to clear this distressed inventory. While the volume of newly delinquent mortgages has begun to improve, liquidation rates have been constrained by weak demand and initiatives to modify loans. On top of that, Fitch says the recent discovery of defects in the foreclosure process is prolonging the housing correction.

The percentage of home loans 90 or more days past due held by the nation's two largest mortgage companies has declined yet again. Both Fannie Mae and Freddie Mac have reported a steady drop in their single-family delinquency rates since February of this year. According to the latest figures from Fannie, its serious delinquency rate fell to 4.70 percent in August. Freddie's dropped to 3.80 percent at the end of September. Movement in the two GSEs' multifamily delinquency rates was mixed.

Distressed conditions in the commercial real estate market combined with historically low interest rates present an opportunity for small business owners looking to grow their businesses, but many are finding themselves locked out of potential deals. According to the results of a nationwide survey published by CIT Group Inc., nearly one in five small business owners say they don't have the cash to cover the down payment needed to secure a traditional bank loan for acquiring commercial real estate.