Fannie Mae's Buyback Plan; HARP Extended; Lock Desks Busier; RESPA vs. USPS; Rates to Rise 50bps
"Daddy, Daddy! Help me!"
I ran into my daughter's room. It was obvious that she'd just woken up from a nightmare. She was shaking and bathed in sweat.
"Daddy, it happened again - the dream. A man and a woman named Fannie and Freddie were after me. Fannie told me that I owed her $15 billion dollars. She said that I'd left off the middle initial on a 4506-T in 2003. I didn't know what she meant, something about "contractual obligations". And Freddie just stood there, grinning. They wanted all the money out of Swiss Pig, my piggy bank!"
"Take it easy," I told her. "Fannie and Freddie aren't after you. They want the money from the investors, not from us taxpayers, and only if loans are delinquent. And the investors will go after the mid-size and small originators due to their seller contracts. It has nothing to do with you and me, so go back to sleep."
"Whew!" I said to myself as I went back to bed. "At least it wasn't the Barney Frank, Tim Geithner dream again."
Contracts...Does attaching your signature mean anything anymore? We sign so many things with a quick scrawl: bills at the restaurant, checks, rental car forms...agreements with investors? Do we really read them, and take defensive steps ahead of signing them, or do originators just sign them because the pool of investors is so small? For example, who is liable if there is a mistake, and what can be done to correct it? Unfortunately now many of the terms of these agreements are "coming home to roost" and the ramifications are expected to continue to change the profile of the mortgage banking industry.
Foreign intrigue is always interesting (check today's joke at the bottom) as is a foreign report (in this case, British) on property values in Detroit. $1 for a house sounds tempting. READ MORE
The Federal Housing Finance Agency (FHFA), overseer of Fannie and Freddie, announced the Home Affordable Refinance Program (HARP) will be extended a year to June 30, 2011. HARP is part of the Making Home Affordable Program, and "is designed to expand access to refinancing for otherwise qualified borrowers who cannot move into more affordable mortgages because of a lack of equity in their homes" and is for borrowers who are current. For Fannie, this means that its Refi Plus and DU Refi Plus programs are extended into next year, and the same for Freddie's Relief Refinance Mortgage. READ MORE
Lock Desks were busier everywhere last week, and the MBAA reported that apps were up 15% in the week ended Feb. 26. Let's hope they translate to fundings! Applications to refinances were up 17% and purchases were up 9% after reaching the lowest level in more than 12 years the previous week. Refi's accounted for over 69% of applications.
The announcement by Freddie that their IO product will be phased out in September (nothing from Fannie yet on their IO product) seems justified. Freddie had $130 billion in unpaid principal on these IO loans, or 7% of their overall portfolio. Of those loans, 18% of them are considered seriously delinquent (more than 90 days past due). This amounts to $23.4 billion in delinquencies - why continue to expose yourself to that? READ MORE
On what do investors in mortgage-backed securities base, in part, their decision to buy a security? The delinquency of the mortgages contained in the pools, of course. Fannie's buyout announcement has completely re-priced the "coupon stack" for investors yesterday. Between 150-200,000 delinquent loans will be bought out each month, with the target for March and April being high coupons like 6.5% and 7% older coupons, and 6% securities (6.25-6.625% mortgages) in April and May. In May and June Fannie will target the more-current coupons of 5 and 5.5% MBS's. In sum, Fannie will be removing 25-30% of its delinquent loans each month over the next 3-4 months. Note that announcements vary between dollar amounts and loan numbers - the latter probably due to servicer constraints. There are a lot of loans for Wells, BofA, Citi, Chase, etc. to process.
Basically, Fannie loans done in 2007 are a mess, but at the end of 2009 4.7% of the entire mortgage-backed security portfolio was 120 days or more delinquent. Add 30, 60, or 90 day delinquencies, and you have even more of a mess, and the soon-to-be loans that are about to go delinquent, and the problem is even worse. And, looking at the big picture, if Fannie suffers a 10-15% loss on their foreclosure/REO properties, 10% of a $2.5 trillion portfolio amounts to a loss of $250 billion. Holy smokes! READ MORE
Borrowers in 15-year mortgages are less delinquent than 30-yr borrowers. Somewhat surprisingly, borrowers are about 30% less delinquent, although I imagine that any agent or broker originating loans in the last 10 years could guess that.
U.S. Bank Home Mortgage Wholesale Division shifted the maximum LTV's of its Second Mortgage and Simultaneous HELOC products due to continued distressed markets issues. Beginning Monday, ID, NM, RI, and WV were removed entirely from the Declining Markets list, with a new maximum LTV of 85%. OH and SC were added to list, and now have a maximum LTV of 75% along with others such as CA, FL, AZ, MI, NV, etc.
Union Bank of California tweaked its seasoning requirements for refinance transactions. Its clients are being encouraged to call to confirm the new policies on an refi that has been owned less than 12 months, but basically if "a borrower purchased the subject property with cash and is requesting to recoup the funds used to purchase the property, the transaction must be processed as a Cash-Out Refinance" and meet certain requirements, along with the file including a copy of the HUD 1 Settlement Statement or Certified Final Closing Statement for the purchase of the subject property. Any sales concessions must be deducted from the purchase price. Also, UBOC must verify that the source of acceptable funds originally used to purchase the subject property if purchased within the last 12 months.
Why do we often hear the belief that once the Fed ends their MBS buying program, mortgage rates will go up 50 basis points? Well, if one goes back over a 26-year relationship between Fannie Mae collateral and 10-yr Treasury yields, the spread has averaged about 125 bps (1.25%), and currently stands at about .70%. The spread has rarely traded at less than 100 bps, which suggests that Fed purchases may have caused spreads to tighten by 30-55 bps. There ya go! READ MORE
I imagine that originators are wondering about the 3-day RESPA changes, given the US Post Office proposals. With Saturday mail delivery on the cutting block, Joe L. reminded me that it brings the new 3-day notification into question. (Branches are expected to be cut, rates raised, and an expansion of self-service kiosks in grocery stores and other popular retail spots are planned.) The USPS saw a $3.8 billion 2009 loss, and the service is currently $10 billion underwater. Mail volume was down 12.7% for the year, a trend the agency expects to continue over the next decade as more consumers opt for online bill payments and message delivery. But eliminating Saturday delivery would take an act of Congress - in an election year?
Greece announced a well-publicized $6.5 billion plan to cut its deficit (3rd one in 3 months), which of course has their workers protesting. Taking a longer term view, these measures should help the country. Depending on the news from Greece, money either flows in to or out of our Treasury market with the "safe haven, flight to quality" attitude. Greece cutting its massive budget deficit by 4% is obviously a help. (10-yr Notes in Greece yield about 6 %.) ADP showed February private sector jobs declining 20,000, with a back-month revision. Later this morning we'll see some ISM numbers, and the Beige Book, but overnight (and for now) the rate markets are weaker with the 10-yr sitting around 3.63% and mortgages slightly worse. READ MORE
Sitting together on a train, travelling through the Swiss Alps, were a French guy, an English bloke, a little old Greek lady, and a young blond Swiss girl with a large chest.
The Train goes into a dark tunnel and a few seconds later there is the sound of a loud slap.
When the train emerges from the tunnel, the French guy has a bright red, hand print on his cheek. No one speaks.
The old lady thinks: The French guy must have groped the blonde in the dark, and she slapped his cheek.
The blonde Swiss girl thinks: That French guy must have tried to grope me in the dark, but missed and fondled the old lady and she slapped his cheek.
The French guy thinks: That English bloke must have groped the blonde in the dark - she tried to slap him but missed and got me instead.
And the English bloke thinks: I can't wait for another tunnel, just so I can smack that French *** again.