Benchmark REMIC 2007- B1 is expected to price on March 22, 2007. The GMC will have a sequential pay structure and the underlying MBS used to collateralize the Benchmark REMIC will be Fannie Mae 30-year 5.5 percent coupon MBS with a 6.057 percent gross weighted average coupon (GWAC), a 337-month weighted average maturity (WAM) and a 19-month weighted average loan age (WALA).

Citigroup Global Markets Inc., Greenwich Capital Markets Inc., and J.P. Morgan Securities Inc. will be the joint lead managers for Benchmark REMIC Trust 2007-B1. Co-managers of the transaction will be Banc of America Securities LLC, Lehman Brothers Inc., and Merrill Lynch, Pierce, Fenner & Smith Incorporated.

Information about Benchmark REMIC Trust 2007-B1, of which the GMC is a part, will be available in the prospectus supplement on the Prospectus and Related Documents page of the company’s Web site at http://www.fanniemae.com/mbs/documents/remic/remicprospectussupplements.jhtml

Copies of the prospectus supplement can also be obtained by writing or calling the underwriters at:

Citigroup Capital Markets, Inc.
Prospectus Department
Brooklyn Army Terminal
140 58th Street, Suite 8-G
Brooklyn, New York 11220
(Tel. 718-765-6732)

Greenwich Capital Markets, Inc.
Prospectus Department
600 Steamboat Road
Greenwich, CT 06380
(Tel. 203-618-2318)

J.P. Morgan Securities, Inc.
c/o ADP Financial Services
Prospectus Department
1155 Long Island Avenue
Edgewood, New York 11717
(Tel. 631-254-7307)

Fannie Mae is a New York Stock Exchange Company. It operates pursuant to a federal charter. Fannie Mae has pledged through its American Dream Commitment to expand access to homeownership for millions of first-time home buyers; help raise the minority homeownership rate to 55 percent; make homeownership and rental housing a success for millions of families at risk of losing their homes; and expand the supply of affordable housing where it is needed most. More information about Fannie Mae can be found on the Internet at http://www.fanniemae.com/.

Benchmark Notes is a registered mark and Benchmark REMIC is a trademark of Fannie Mae. Unauthorized use of these marks is prohibited.

Later in my career, I spent 4.5 years working in secondary marketing of mortgages and better understood what had happened in 1998 and how the market has changed. Here’s my take on the future of sub-prime.

1) The number of mortgage lenders doing ONLY sub-prime lending are contracting and it will get worse for them.  In 1998, sub-prime mortgage backed securities were traded outside of the typical MBS market and were rated similar to junk bonds. All it took was a little bit of risk in that segment and new capital dried up.

Today, sub-prime loans are much more diversely securitized. Fannie Mae and Freddie Mac’s participation in buying subprime loans the last couple of years means that some sub-prime loans are tucked into conventional MBS issues.

Your true sub-prime securities are getting crushed right now and that means those lenders who ONLY do sub-prime and can’t diversify that paper are hurting. You can see why H&R Block is trying desperately to divest themselves of the financial albatross that Option One (a subprime wholesale lending company) has become for them.

2) The choices in sub-prime loans will diminish. Probably the biggest change you will see between now and next year is a MAJOR reduction in the use of 2/28 loans (2 year fixed rate loans). Federal regulators are looking at requiring lenders to qualify applicants on a 2/28 loan at the fully indexed rate after the first adjustment. Let me put that in numeric terms.

A 2/28 loan today could be at 7.00% for 2 years, often with a penalty for paying off early.  What regulators are considering is requiring the buyer qualify at the rate which this loan will change to after 24 months.  That same 7.00% 2/28 ARM would adjust based on the 6 month LIBOR (5.420) PLUS a margin of 6.00%-7.00% and a 5% cap on the first adjustment. That means the rate would go from 7.00% today to 11.42% at adjustment if the LIBOR stays the same. And regulators want to require lenders to qualify the borrower at that 11.42% rate.

The impact will be to kill the 2/28 in favor of the 3/27 which is probably .50% higher in that start rate for the first 3 years.

3) Lenders who have diversified and do all kinds of mortgages are best positioned to absorb these changes and continue to put the “top echelon” of sub-prime loans into less risky securities. 

4) In the short-term, mortgage brokers will be hurt hardest. Because lenders are increasingly taking losses on sub-prime loans, they are more likely to have more conservative guidelines for loans brokered to them vs. those originated by their own employees.

I’ve already seen several examples of loans that brokers can’t get approved but the broker is “losing” the deal to the same company through their retail group. There is no secret that loan fraud has a higher incidence rate in loans attained via a broker vs. their own employee (loan officer) which is why investment property financing has been harder of late although there have been hardly any guideline changes.

Tom, the biggest difference I see in this market over 1998 is that today, the largest sub-prime lenders are major financial institutions. If Option One were a stand-alone company they would be having a fire sale in my opinion. Because they are owned by H&R Block they have resources to make it through a short-term “hit”.

Long-term, sub-prime lending won’t go away becuase it is a much needed segment to provide homeownership opportunities. If Congress will allow HUD to lend to 100% that will really cut into sub-prime lending initiatives and offer a true low-rate and cost alternative.

Write your congressman!

The OFHEO sets the maximum loan limit that Fannie Mae and Freddie Mac (otherwise known as the “enterprises”) can purchase and/or “guaranty”. This is what is known as the “conforming” loan limit and mortgages above $417,000 are typically called “jumbo” or “non-conforming” loans.

The OFHEO also announced they will be issuing guidance for lenders for 2008 limits sometime in early 2007. There have been concerns over the conforming limit being lowered due to declines in property values nationally.

To read the press release, click here to visit the OFHEO website.

“Inflation, though down somewhat from its level earlier this year, remains uncomfortably elevated. Financial market prices imply that inflation will continue its gradual but persistent downward track during the forecast period,” claims Warsh.

For mortgage bankers this means that there continues to be uncertainty in the mortgage backed securities market which drives long term fixed interest rates. While all projections are made on various and complex modeling, there is never any true prediction of what the market will do. Forecasting is forecasting and whether it is inflation or snow storms, there’s just no telling.

Mr. Warsh also heaped criticism on the oversight, or lack thereof, concerning the GSEs, Fannie Mae and Freddie Mac. He sees the recent changes in the democrat vs. republican mix in Congress to make oversight and consesus in policy making regarding the GSE’s roles more difficult. As a result, he cautions against the two mortgage giants increasing their portfolio rapidly. This is not without merit as other articles have speculated that the GSE’s are interested in acquiring a market share of Pay-Option-ARM servicing while the federal government is revising disclosure requirements for these kinds of loans.

Ken Stampe
MortgageNewsReview

Furthermore, one of the salient points of the OFHEO findings is the deficiencies in how Fannie Mae in the accounting methodology of their portfolio. As Mr. McCormick was the SVP of Portfolio Management during this time, one has to attach some accountability to Mr. McCormick and his staff.

Lastly, the OFHEO report states that “The portfolio investment business had generated the majority of the net income” and, “Senior Management developed a business strategy [that]…involved aggressively expanding [Fannie Mae's] credit guarantee and portfolio investment business. The strategy also involved promoting an image of Fannie Mae as one of the lowest risk financial institutions in the world, in order to maximize the financial benefits of [Fannie Mae's] special relationship to the federal government. That image was false, since Fannie Mae took a significant amount of interest rate risk in the portfolio investment business and had serious operational deficiencies”.

So how does the SVP of Portfolio Transactions during this time period end up getting effectively a promotion at Impac?

For a complete review of the 348 page OFHEO findings, click here

Today, Impac Mortgage Holdings announced they have hired Mr. McCormick to assume the new position of Executive Vice President, Chief Investment Officer. His duties include “Securitization Structuring” and “all balance sheet investment decisions”.

Impac Mortgage Holdings, Inc. (NYSE: IMH), or the “Company,” a Maryland corporation, being taxed as a real estate investment trust (“REIT”), announces the hiring of Andrew McCormick who will assume the new position of Executive Vice President, Chief Investment Officer.
In this role, Mr. McCormick will be responsible for directing and overseeing of all balance sheet investment decisions, hedging policy decisions, pipeline hedging risk management, overall interest rate risk management and securitization structuring. Mr. McCormick will be chairperson of the Company’s Asset Liability Committee and a senior member of the Executive Committee.
Mr. Joseph Tomkinson, Chairman and CEO of Impac Mortgage Holdings, Inc. commented, “With over 24 years of transactional and risk management experience, Mr. McCormick brings a broad understanding to all aspects of building and managing a mortgage securities investment portfolio.” Mr. Tomkinson further commented, “With the addition of a professional portfolio manager to our senior executive management team, the Company will be better positioned to evaluate a wider array of investment opportunities while seeking to minimize interest rate volatility and diversify and reduce credit risk.”
Mr. McCormick previously served as Senior Vice President of Portfolio transactions at Fannie Mae. While at Fannie Mae, Mr. McCormick, was directly responsible for all on-balance sheet transactions for the world’s largest mortgage portfolio. Mr. McCormick led over 130 professionals to cover trading, sales and securitizations. Mr. McCormick was an active member of senior management committees, including risk policy, asset/liability, portfolio investment and mortgage securities policy. From 1996 to 1998, Mr. McCormick was responsible for all of Fannie Mae’s debt funding programs, which supported on-balance sheet assets, and was responsible for all liability hedging, including Fannie Mae’s derivative programs. Prior to Fannie Mae, Mr. McCormick was a Vice President, Fixed Income Securities at Morgan Stanley.

“The regulatory guidelines are definitely going to dampen growth or reverse the growth” that private-label MBS have seen over the mortgage bond programs of Fannie Mae and Freddie Mac, Marriott told reporters.

Regulators including the Federal Reserve and the Office of the Comptroller of the Currency recently finalized rules for underwriting exotic loans, including qualifying borrowers at the highest payments they would have to make over the life of the loan.

Financial institutions from Countrywide Financial Corp. to Lehman Brothers Holdings Inc. protested the rules earlier this year, saying they would stifle the market for loans that make houses more affordable.

The surge in popularity of payment-option adjustable-rate mortgages, which allow the borrower to pay no principal and wrap a portion of monthly interest back into the balance of the loan, has helped steer the flow of new mortgages toward Wall Street securitizations since Fannie Mae and Freddie Mac did not have the ability or will to purchase them.

The market shift toward private-label issues from agency MBS will be interrupted only until Wall Street firms adapt, Marriott said. But the trend will see “some reversal” in the next 12 to 18 months, he added.

Accounting overhauls at the government-sponsored enterprises also distracted them from keeping up with the new products developed by lenders, said Michael Perry, chief executive officer at IndyMac Bank.

Fannie Mae and Freddie Mac “have been dealing with a lot of issues ancillary” to their mortgage businesses, Perry said on the panel, which also included Fannie Mae Chief Executive Donald Mudd and Freddie Mac CEO Richard Syron.

Syron said the tables may be turning based on the regulatory guidance. The mortgage bond market is also at risk because Wall Street capital has flooded the market and reduced the return on riskier securities.

“How the regulators approach (exotic mortgages) is going to be a major determinant of what the GSEs have” for share of the bond market, he said.

Still, the GSEs will not regain the same degree of dominance they once enjoyed, said Fannie Mae’s Mudd.

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