What is an FMC Loan Pool?

[JenMBS]

Can someone explain what a FMC Loan Pool is?

[LHarveyMadman]

Do you know what FMC stands for? Is that the name of your loan company?

[JenMBS]

No, I have no idea. I'm with Flagstar Bank. Freddie Mac owned, I confirmed this. Please see my last post in the Flagstare Bank Mod Thread.

[JenMBS]

That would be the 5/6 post. Last part of my phone log.

[LHarveyMadman]

I think I know what it means now. Curiously, your screen name suggests to me that you might know what it is, too.

It sounds like Freddie Mac - FMC probably means Freddie Mac Corporation - packaged your loan and the loans of others into a financial instrument called a mortgage-backed security (MBS). This was then sold to another investor or investors. The investors - which don't just represent a bunch of Wall Street-Park Avenue fat cats, but might be 401(k) and pension plans, for example - get a piece of the interest revenue coming from the mortgages that make up the security. In return, Freddie Mac gets money that they can use to back additional mortgages, thereby increasing their profit and the profit of their investors. It's this kind of leverage that has contributed to the credit market crisis.

I don't have time to look at all the documents that have come out of the Treasury department in the past couple months, but I think I recall seeing somewhere that modifications might still be contingent on the approval of any investors on the loan. When I have time later tonight or tomorrow, I'll see if I can find that specific language for you. The info from the government seems to changing frequently, so it might be hard to find.

[JenMBS]

LOL about the screen name...it has nothing to do with banking.

So, is it possible then like Ronald from the Home Lending Dept. said that I am not eligible for the MHA Mod. because of this pool thing? That doesn't seem to be fair. I didn't know this had happened on my loan. All I know is that I'm Freddie Mac owned per their website and through Flagstar mitigation dept. and that should be good enough. Not my fault about the other.

Thanks for checking into this for me. I am getting very scared!

Below is from the other thread: Flagstar Bank Mod.
Phone Log
5/5/09 Ronald Home Lending Dept. Ref#

Ronald Keen called us from the Home Lending Dept. He said
since we are current on our payment we could refinance our
loan for 4.75% which would knock $275 off our
payments. I then told him I put in a hardship letter. He says he
sees it. It was scanned into their system on 4/10/09. I said we
were able make May’s payment because a contractor that owed
us money paid us and we used that money plus savings to
pay. I said we are not working at this time because we are in
the construction business and everything and just flat out
stopped in our area. He then said oh then you can not get the
refinance because you are not working. I said that is one of the
reasons we put in a hardship letter and we are interested in the
MHA Mod. He then looked closer at our paperwork. Then he
said it didn’t looked like we qualified. I said that didn’t make
since because of our hardship. He said that our loan was in a
FMC Pool of loans-a mortgage bought by investors. I said
we have been told every time by lost mitigation we were back
by Freddie Mac. He then said Freddie Mac services the loan
and Flagstar Bank is the note holder. The program is
not set up for pooled loans. He then said maybe we could do a
Freddie Mac Release Refinance Program. From there I said I
will talk to lost mitigation knowing we could not
do a refinance. We put in for a hardship. He did try and look
up on Freddie Mac’s website to see if Freddie Mac owned our
loan, the site was down. So, I got on there later and put our
info. in and it said that Freddie Mac owned our loan. I made a
copy of it.


*****
I really don't think he knew what he was talking about. Could
someone please explan what the FMC pool loan is? I think I
know from doing some research but would like it to be
explained better. I didn't sign up for it so don't know why that
would matter. And since my loan is owned by Freddie Mac
then that means my bank is the servercer (which is a pooled
loan, right?) and not how he explained it- He then said Freddie
Mac services the loan and Flagstar Bank is the note holder.
Explain please.

[LHarveyMadman]

Here's the language I was referring to:

Eligibility Requirements - Pooling and Servicing Agreements

"The program guidelines reflect usual and customary industry standards for mortgage loan modifications contained in typical servicing agreements, including pooling and servicing agreements (PSAs) governing private label securitizations. Participating servicers are required to consider all eligible loans under the program guidelines unless prohibited by the rules of the applicable PSA and/or other investor servicing agreements. Participating servicers are required to use reasonable efforts to remove any prohibitions and obtain waivers or approvals from all necessary parties."


The way I read this, it means that the investors still hold a trump card in the case of loans that have been pooled and securitized into a financial instrument. Interestingly, this is the first item under the eligibility requirements. To me, this indicates that the administration is acknowledging that there are limits as to how they will do to help the homeowner; they are also looking to protect and provide cover for investors as well.

It comes from the following document. I don't think anything has superseded this, since it comes from the Department of the Treasury's website.

http://www.treas.gov/press/releases/...guidelines.pdf

[JenMBS]

Isn't the investor Freddie Mac in my case? I don't understand.

[LHarveyMadman]

In a nutshell, here's how it works:

A lender sells you a mortgage, and sells mortgages to a bunch of other folks like you. They're lending you a big chunk of money in exchange for your interest payments. However, your lender only has a finite amount of money with which to make loans. If the lender doesn't raise additional capital to sell more mortgages, then they would have run out of money long time ago and would no longer be able to make loans to new customers. Interest payments alone would not be enough.

So, the lenders sells the mortgages to Freddie Mac, for example. Mortgages sold to Freddie are thus said to be backed by Freddie Mac. Freddie gets some of the interest income, and the lender gets a piece as well. However, just like the original lender, Freddie Mac and the other government agencies only have a finite amount of money with which to purchase loans. If they didn't have some other means of raising capital (interest payments alone would be insufficient), then they would have run out of money long time ago and would have stopped purchasing loans.

So what does Freddie do? They pool the loans that they purchase into mortgage-backed securities and sell them to other investors, typically in the form of bonds. The investors might be hedge funds on Wall Street, mutual funds that can be purchased by members of a company's 401(k) plan, or a state pension plan. Freddie gets money from the investors when they sell their bonds, and they use that money to buy additional loans, which they then pool and sell to investors, and then use the money to buy more loans, which they pool....ad infinitum.

You can probably see wherein the problem lies. The mortgage market is heavily leveraged, such that the same chunk of money is lent and re-lent to different homebuyers, and sold and re-sold to different investors. The investors have a certain expectation of return on their investment from Freddie. Freddie has the same expectation from the lenders, and the lenders have the same expectation from the homebuyers. If any part of the first steps in this web starts to falter, then it has a cascading effect on the whole system.

This is exactly what has happened now. Many borrowers were sold toxic adjustable rate loans that are resetting to higher payment. This, combined with the weak economy and lost wages are causing increasing numbers of homeowners to default on their loans. Loan defaults means that the lenders have less interest payments to give to Freddie, and Freddie has less interest to pay the investors of Freddie Mac MBSes. The investors, however, are demanding their partially guaranteed payments, and when they don't get them, they stop buying MBSes. Freddie has less money to buy up loans from lenders, and lenders have less money to lend. Mortgages become harder to obtain, so home purchasing drops. Less demand leads to lower prices, and the increased default rate leads to increased supply, and prices tumble even further. Foreclosures occur, which puts additional downward pressure on the housing market. People can't refinance because they don't have any equity or don't have the income to pay for their new loans. The problem gets worse and worse.

And that's when the government steps in. And we'll see if their well-intentioned but risky plan works.

So where does that leave you? Your loan was bought by Freddie Mac, and then Freddie pooled your loan with others and sold it to an investor. Freddie is obligated to honor the agreement that it made with the investor, and the the Making Home Affordable plan is not permitting these agreements to be automatically abrogated.

(This is highly simplified. There are other factors at play, such as the nebulous credit-default swaps, that also play a role, but that's too much to get into right now.)

[JenMBS]

Wow what a mess! Everyone just makes things too hard.
So, I'm in this mess because of it in more ways then one. One- I have a mortgage that was pooled & 2- I'm a subcontractor that is out of work because of this. So if things don't get better fast I may be looking at going bankrupt and I am not even in high debt like some, just no job to pay for things. 800 FICO score, 2 car payments and reg. bills, no credit card bills.
I am so mad at all this mess! And scared to death with having my two young children too, to take care of. I did nothing wrong! Sorry I needed to vent. I feel for all of us in this mess.

[JenMBS]

LHarveyMadman. Thank you so much for your time in explaining this better.