heard that there are some places on the outskirts of Detroit that are becoming
farms. That is pretty weird. But even weirder are some of these places around
the world. (The photos are pretty haunting, even of Centralia, Pennsylvania.)
Remember that ordinance, in place in Chicago since mid-November and then Las
Vegas, that requires mortgage holders to pay
a one-time fee of $500 to register a vacant building with the city's
building department 30 days after it becomes vacant or 60 days after the
mortgage goes into default, whichever is later? Questions about the legality
and the "How do I know if it is vacant?" questions, Fannie & the
servicers are quietly protesting it.
don't die, they just join other boards. Former Morgan Stanley Chief Executive
John Mack has joined the board of LendingClub
as the "peer-to-peer lending startup" works to attract more investor money and
expand its consumer loan offerings.
something that might appeal to some folks: the MBA's Secondary Marketing Committee. It, along with the other MBA
committees, is a good way to have your voice heard. The Committee reports up to
the Residential Board of Governors within the MBA, and its goal is to foster
safe, sound, and prudent practices within our industry. "The Secondary
& Capital Markets Committee monitors secondary market activity and issues
and serves as an information resource and a policy formation advisory group for
MBA. Issues of interest to the committee range from securities disclosure and
GSE mission boundaries to development of more competition in the secondary
market through the FHLB programs or revitalization of FHA and Ginnie Mae."
Members, who cannot work for the agencies, need to be either MBA members, or
work for member firms. For more information about the group, or about joining,
visit this link.
(Now, if only the MBA can revisit its membership dues, which, as I have heard
from more than one party, seem to penalize companies that are expanding.)
Perhaps one of the discussion topics for the MBA's committee will be Ally, which is shutting down its Broker
Dealer desk. And talk on the street is that Ally is requiring all its customers
to pair off trades this week. Folks
say this is unprecedented - even Lehman wound it down over a 3 month period to
allow normal settlements. (And I remember when Drexel Burnham went under, the MBS
trading process we had to go through.) The Ally issue is not a crisis, but it
is a pain in the rump for hedging companies and secondary staffs with positions.
talking about mortgage-backed securities, about 90% of mortgage originations
are backed by the agencies. Good time for a quick lesson on one component of
MBS's: inverse floaters. F&F create a security (MBS) backed by mortgages it
guarantees which are often divided into two parts. The larger portion, backed
by principal, is viewed as a fairly low risk, paid a low return and traditionally
has been sold to investors. The smaller portion, backed by interest
payments on the mortgages, was riskier, and paid a higher return determined by
the interest rates on the underlying loans. This portion, called an "inverse
floater," is retained by Freddie Mac. But remember several months ago when
Freddie was accused of betting on declining values?
In 2010 and 2011 Freddie Mac's purchase (retention) of these inverse floaters
rose dramatically, from a total of 12 purchased in 2008 and 2009 to 29.
Most of the mortgages backing these floaters had interest rates of 6.5-7%. In
structuring these transactions, Freddie Mac sells off most of the value of the
MBS but does not reduce its risk because it still guarantees the underlying
mortgages and must pay the entire value in the case of default. The
floaters, stripped of the real value of the underlying principal, are also now
harder and possibly more expensive to sell, and as Freddie is paid the
difference between the interest rates on the loans and the current interest
rate, if rates rise, the value of the floaters falls.
While Freddie, under its agreement with the Treasury Department, has reduced
the size of its portfolio by 6 percent between 2010 and 2011, "that $43
billion drop in the portfolio overstates the risk reduction because the company
retained risk through the inverse floaters." Since the real value of the
floater is the high rate of interest being paid by the mortgagee, if large
numbers pay off their loans, the floater loses value. So did Freddie deter
prospective refinancers by tightening its underwriting guidelines and raising fees,
or was it only market influences?
end, the story died down, and it was generally viewed as unlikely that Freddie
purposely tried to dampen refinancing. The FHFA knew about the inverse floater
trades, as I recall, but it was unknown whether the FHFA knew about them as Freddie
was conducting them or whether the FHFA had explicitly approved them. The FHFA
statement said that Freddie Mac has historically used CMOs as a tool to manage
its retained portfolio and to address issues associated with security performance,
and that for several reasons Freddie's retention of inverse floaters ended in
2011 and only $5 billion is held in the company's $650 billion retained
portfolio. And supposedly none of this impacted HARP turning into HARP
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.
Flagstar issued a memo regarding which loans
must close in Flagstar's name and which FHA loans may close in the originating
lenders name. Beginning with loans locked last Friday, the three Expanded
Approval Risk Class price adjustments for applicable Flagstar serviced HARP
programs will be consolidated into one price adjustment (-.250).
GMAC spread the word to clients that transferred, modified or
replacement certificates will be permitted and utilize the MI coverage
requirements on the original loan as messaged by DU. Standard coverage
requirements by LTV do not apply. Coverage may be waived if permitted by DU.
SunTrust Mortgage updated the FHA product description
to include the new annual and upfront mortgage insurance premiums (UFMIP).
Additionally it removed references to the FHA MIA program because HUD suspended
U.S. Bank Wholesale reminded brokers of its "First Time
Home Buyers Program": borrowers can borrow up to 80% of the purchase price, the
remaining 20% of the purchase price can be gift funds from family, customer
reserves, or borrowed against other assets, seller concessions up to 3% allowed,
and maximum loan sizes up to $1,000,000. (Quite a first time home buyer
I don't know which large national bank agreed to pay, or if the fees they
agreed to pay were previously paid to the Appraisal
Loft group, as noted below. But Joan Kirby with United States Appraisals wrote, "Lender accepts responsibility for
unpaid appraisal fees. Last week precedence was set as a large national bank
agreed to pay significant unpaid appraisal fees resulting from the failure of
an appraisal management company, Appraiser Loft. Estimates are the AMC left
over $3,000,000 in unpaid appraisal fees across multiple lenders. The
Interagency Appraisal and Valuation Guidelines further support this position by
placing full responsibility of 3rd party vendors, including AMC's, solely with
the lender. What should lenders do to avoid a similar situation? United States
Appraisals pays appraisers every two weeks and provides a monthly
reconciliation report that details the actual fee paid, date paid, and ACH
transaction detail. Full financial disclosure should be provided by an AMC on a
In her marketing
piece Ms. Kirby continues, "How can lenders ensure appraisers are paid
customary & reasonable fees? Local appraisers actively engaged in appraisal
production are the most accurate source of information. Prior to accepting a
specific assignment, an appraiser should certify: 'By accepting and
completing this assignment, the appraiser agrees that the compensation offered
was established by the appraiser based upon market competitive rates for
similar assignments within the subject property's local market, and therefore,
constitutes a reasonable and customary fee under presumption one of the Interim
Final Rules.' What is the cost of C&R violations under the Dodd Frank? A
civil penalty of not more than $10,000 per day and $20,000 for each subsequent
violation." (Joan Kirby can be reached at joank@UnitedStatesAppraisals.com.)
wholesaler Pinnacle Capital's underwriting
guidelines on conforming loans have been modified, with changes regarding
Property Fieldwork Waiver eligibility, the waiting period calculation for short
sales, separated borrowers without legal separation agreements, and insurance
requirements for attached PUDs. Enhanced DU Refi Plus products now
feature an LTV cap of 125% with unlimited CLTV. The condo matrix has been
modified to include the DU Refi Plus updates, Combined Conventional and FHA
HO-6 requirements and clarification on coverage amounts.
around the nation thank the U.S. Government every day for buying MBS's, and for
good reason: the NY Fed is buying about
$1.4 billion per day, soaking up about 70% of what originators are issuing.
One can argue the merits of this strategy, but there is no doubt that it is
keeping agency mortgage rates low. And when this is added on to the typical
demand by money managers, REIT's, insurance companies, and so on, the demand
for mortgages is pretty darned good.
Beige Book, literally beige, showed concerns from many sectors of the economy
about increased energy prices which would seem to make the case for keeping it
in reserve if the economy has a setback, and economists inferred that any
chatter about QE3 should be saved for a dramatic adverse change in the economy.
By the end of the day MBS prices ended lower by over 1/4 point on 30-year 3.0%
coupons (3.25-3.625% mortgages), and the new 10-year note closed at 2.03%.
there was little of consequence, and U.S. Treasury debt hovered around the NY closing
levels for most of the London session. This morning we learned here in the
States that the Trade Deficit shrank. The Producer Price Index was unchanged,
much lower than expected, but the core rate was higher than expected at +.3%. And
lastly Jobless Claims are up to 380,000, up 23k from a revised 357k the prior
week. We still have a $13 billion 30-yr bond auction to get through at 1PM PST,
but in the early going the 10-yr is
nearly unchanged at 2.02% and MBS prices are about where they were at the end
Paradoxical "Quote of The Day" from Ben Stein, sure to, unfortunately, garner
me plenty of e-mails: "Fathom the hypocrisy of a government that requires
every citizen to prove they are insured... but not everyone must prove they are