Principal Forbearance vs. Forgiveness; More on CFPB and Servicing; More Investor Updates
I woke up
yesterday morning wondering how I could convince the government to reduce my
principal. What about all those unfortunate folks who don't have a Fannie or
Freddie loan - will they miss the USS Debt Forgiveness when it leaves the dock?
And why would any borrower obtain a new loan now if their balance is going to
be cut soon? And really, when it comes
right down to it, do the proponents of this plan realize that, just like
raising g-fees or MI premiums, new borrowers and taxpayers are the ones who
bear the brunt of this?
comments that moved one grizzled vet to write to me saying, "I hope Ed DeMarco
runs for office - I'd vote for him!" the acting FHFA Director effectively nixed the idea of broad-based principal forgiveness
by Fannie Mae and Freddie Mac. He cited three key factors in the analysis.
The first was the NPV impact to taxpayer: the Treasury incentive payments would
be considered as an offset to the NPV benefits of a principal reduction modification.
The second was regarding borrower incentives, and the moral hazard issue
associated with principal forgiveness: less than 1 million of the 11 million underwater
borrowers would benefit from forgiveness, so what about keeping the remaining
borrowers current on their mortgages, most of whom have always been current?
Would the remaining herd be motivated to claim hardship or go delinquent on
their mortgage? And lastly, the operational costs could escalate. Forgiveness
guidelines would have to be clearly rolled out to over 1,000 servicers and that
there would be costs associated with such a rollout. What about the costs of the
HARP? (Read: DeMarco Dissects Arguments for Principal Forgiveness)
being said, DeMarco expressed a clear
preference for forbearance over forgiveness, and indicated that forbearance
is effectively a shared appreciation mortgage, with far fewer operational
complexities than an explicit shared appreciation mortgage. Remember that it is
no small deal: F&F have more than 465,000 seriously delinquent loans they
own or guarantee. And the whole issue springs from a Treasury Department
proposal to pay F&F as much as 63 cents for every dollar of principal they
forgive. The Treasury would provide the money to the government-sponsored
lenders from HARP 2.0 and leftover funds from the Troubled Asset Relief
Program. In a January analysis sent to Congress, FHFA said it would cost Fannie
Mae and Freddie Mac an additional $100 billion to write down all 3 million
underwater loans to the value of the homes securing them. How about we use the
money to plain ol' reduce our deficit? Text of his speech
"Rob, it is curious to note, given the recent claims against the two
Franklin Bank executives in Houston, that Lew
Ranieri was the chairman of Franklin's board. It will be interesting to see
if "the father of mortgage-backed securities" is involved in this at
some level, since it was under his watch that this took place."
I received this note regarding UG's
parent AIG. "One thing that readers should know is that the best
estimate is that AIG, owner of UG, still 'owes' the government about $45
billion and the government still owns about 70% of AIG's stock. Because
the government converted much of its stake into equity, it will exit via stock
sales when AIG exceeds $29 per share. The balance of the government's
investment is via a special fund organized by the Fed. Those of us in the
MI business know that the U.S. is happy just to get its money back but
repayment isn't generating any private equity-like returns to the
government. It is also worth remembering that the U.S. consistently
liberalized the repayment terms to ensure that AIG could repay. It is
amazing how quickly folks forget what happened."
How 'bout the CFPB determining the rules
for mortgage servicers - what impact might these new proposed rules have on
them? Well, here is the "borrower friendly" scheme that has been
And here is Fitch's opinion. (Read: CFPB Outlines Possible Rules for Servicers)
reported what lock desks around the country already knew: applications dropped
a little last week (2.4%) with refi's falling about 3% and purchase apps down
less than 1%. (Read: Application Volumes Decline Despite Falling Rates) And for any LO who has their business model built around refi's,
the news is not good: the refinance
share of total mortgage activity eased for the eighth week in a row to 70.5%
of applications from 71.2% the week before. It was the lowest refinance share
since late July, the MBA said. Hey, it can't last forever, right?
about some investor/lender updates from the last few weeks? As always, it is best to read the
actual investor bulletins - information provided here is meant to show
trends rather than timely detailed specifics.
outcry can actually change FHA's underwriting changes! GMAC and other investors notified clients that the FHA is delaying
the effective date of the following topics from ML 2012-03: Handling of
Disputed Accounts, Public Records FHA Total User Guide Chapter 2, and Handbook
4155.1 4.C.2.e, Paying off Collections and Judgments. The new effective date of
this section is delayed until July 1, but the FHA intends to seek additional
input on this section and work to clarify guidance, as appropriate.
And a clarification on HARP 2.0, Interbank
"was unlimited but since Wells Fargo changed to 105/110% we did the same
thing weeks ago."
Wells Fargo wholesale has announced that, as of two days
ago the 9th, it was implementing additional validations on lender-paid loans
during the Receiving process so as to catch discrepancies between the GFE and
loan application early. Under-disclosed total broker compensation is
highlighted as one of the most common incongruities, along with discount
points, premium pricing, lender off-set credit, and loan amounts that don't
match up. Lenders submitting Right to Cancel forms are reminded to complete the
form correctly or risk having their loan funding delayed or having to start a
new loan. Changes not initialed by the borrower, accidental borrower
signatures in the "Cancellation Request" box, and dates that are changed such
that they don't reflect an accurate three-day recission period are all errors
that should be avoided.
The guidance on flip transactions that Wells released on March 5th has been
revised. Sales of established non-profits that with a minimum two-year
history as an affordable housing provider; are based in Philadelphia, Atlanta,
Denver, or Santa Ana; and are included on the FHA Non-Profit List are exempt
from the flip policy, as are previously allowed transactions shown as Credit
Policy prior to March 12, 2012. These transactions are eligible in
addition to those outlined in the earlier communication. Happy Massachusetts
Patriots Day for April 16th! As an observed holiday in the Bay State, the
16th will not be considered a business day by Wells for Right of Recission
Fifth Third has issued updated guidance
on values permitted through the collateral review. For Freddie and Fannie
loans where the desk review value is lower but sufficient for the transaction,
the value should be upgraded to the field review value. If the Desk
Review value remains the same or increases, the appraised value should be
used. Portfolio products should use the Desk Review value in cases where
it is either lower or higher; if it remains the same the appraisal value should
Flagstar is revising the qualifying
ratios it requires for loans to receive an "Approve" response from RD's
Guaranteed Underwriting System (GUS). The maximum housing payment to
income ratio will be reduced to 35.99%; the total debt to income ratio,
47.99%. Loans with improper housing payment to income and total debt to
income ratios will not be approved by the GUS. Some clarification on property
inspections for streamline refinance transactions: a new appraisal isn't
necessary, but an inspection certifying that the property meets current HUD
standards is. Flagstar recommends having an FHA appraiser do the
inspection. Warehouse customers at Flagstar are reminded that the minimum
credit score for all government loan products has increased to 640 for loans
locked on or after March 20th and that loans for borrowers with scores between
620 and 639 must now have been locked (the deadline passed on March 29th) and
should disburse on or before May 11th.
Tomorrow the MBA will be offering a class
titled, "The Historic Federal-State Servicing Settlement, Part II: Servicer
Perspectives on Emerging Servicing Standards." It goes from 3-4:30PM EST,
online. "Learn how servicers who were not a part of the settlement are reacting
to the servicing standards and how the settlement has provided clarity or more
confusion to servicer roles, responsibilities and requirements. Hear from
servicing veterans as well as a seasoned attorney who participated in the
settlement negotiations. The cost is $50 for MBA members and $500 for
nonmembers. (No, I didn't leave off a decimal - membership has its privileges.)
Check it out.
waiting to lock until yesterday afternoon reaped the benefits. In spite of
slightly-above-normal MBS sales volumes, agency prices did very well relative
to Treasury prices. (Read: MBS RECAP: Decent Treasury Rally, but MBS Underperform) There is still demand for production! The market was helped
at 11AM PST by a good $32 billion 3-yr note auction by the Treasury. The increase
in bond prices (and the corresponding drop in yields) was attributed to "risk
aversion on continued euro zone and global growth worries, along with
nervousness as Q1 earnings season gets underway after the equity markets close."
10-year notes improved by about .5, falling below 2% for the first time in a
month, and current coupon MBS prices ended better by .125-.250.
we've had a couple minor numbers. (Export Prices, for example, were +.8% for
March.) Later we'll grapple with a $21 billion 10-yr T-note auction and the
release of the Fed's Beige Book at 2PM EST. In the early going the 10-yr's yield crept back up to 2.03% and
mortgage prices are a shade worse - but originators may see a slight
improvement depending on where certain investors priced yesterday afternoon.
This student received 0% on this exam. Or should he have received 100%?
Q1. In which battle did Napoleon die?
* his last battle
Q2. Where was the Declaration of Independence signed?
* at the bottom of the page
Q3. River Ravi flows in which state?
Q4. What is the main reason for divorce?
Q5. What is the main reason for failure?
Q6. What can you never eat for breakfast?
* Lunch & dinner
Q7. What looks like half an apple?
* The other half
Q8. If you throw a red stone into the blue sea what it will become?
* It will simply become wet.
Q9. How can a man go eight days without sleeping?
* No problem, he sleeps at night.
Q10. How can you lift an elephant with one hand?
* You will never find an elephant that has only one hand.
Q11. If you had three apples and four oranges in one hand and four apples and
three oranges in other hand, what would you have?
* Very large hands.
Q12. If it took eight men ten hours to build a wall, how long would it take
four men to build it?
* No time at all, the wall is already built.
Q13. How can u drop a raw egg onto a concrete floor without cracking it?
*Any way you want - concrete floors are very hard to crack.