Buybacks Plague Industry from Top to Bottom: FHA Webinar Today; Update on Non-Agency Secondary Market; NMLS Deadlines Loom
It's smart to keep several "Get Well" cards on the mantle, just in case uninvited guests come over. That way, they'll think you've been sick and unable to clean.
It's also smart for lenders to keep some reserves for buybacks.
The four largest U.S. commercial banks booked $2.5 billion in charges in the second quarter to handle the growing volume of mortgage-repurchase requests, most notably from Fannie and Freddie. According to regulatory filings those costs have more than doubled in the last year as big buyers and insurers of mortgages scour delinquent borrowers' files for signs of incomplete/missing required documentation or poor underwriting.
Buybacks? What buybacks? We don't have no buybacks! We don't need no stinkin' buybacks. Mortgage buyers are finding new reasons to make the originators buy back home loans, unfortunately, and it appears that the problem is not going away any time soon. Two of the most common justifications today are the discovery that the borrower has debts that were not disclosed to the lender/investor, and problems with appraisals. Buyers are also putting tougher language into their contracts for loans being sold today, according to an article by Kate Berry with American Banker. Of course, every mortgage company has to dedicate time and resources to the problem, regardless of which end you're on. Some sellers have found a new grounds on which to fight repurchase requests, arguing that the blame for a default lies not with the company that underwrote the loan but with the one that serviced it (in cases where they are not one and the same). F
annie Mae and Freddie Mac have said that repurchase requests are on the rise not because of guideline changes but because the foundering economy has led to higher defaults and loan reviews, and of course this "flows downhill" to the large investors and in turn to smaller originators. And these smaller originators often times cannot believe the reasons being given for buybacks.
MND SEARCH RESULTS FOR: BUYBACK REQUEST
What are you doing today at 4PM EST, 1PM PST? The FHA will have a webinar to provide an overview of the recently issued mortgagee letter announcing FHA's Short Refinance Option. After the overview, FHA staff will field questions from callers. No, I don't know what they'll do if the call is full, but here are the details:
The power point presentation for this webinar can be downloaded HERE. To access the live meeting, go to the live meeting link HERE; a new window will open. Enter the Meeting ID: fharefinance, Leave the Entry Code field blank and click the "Join" button. Step 2 - Dial (866)757-6799 - the conference ID # is: 93804842. The Treasury's "Supplemental Directives to second lien investors for the incentive payment" can be read online HERE and HERE.
NMLS news and deadlines are looming across the nation. For example, in California, September 15th is the deadline to submit an originator's NMLS transition request in order to have it processed by 1/1/11. New Year's Eve, of course, is the last day to originate any loans under a DRE license - after that it is all NMLS. Business card printers are licking their chops. Well, maybe that's an exaggeration. In California currently a Mortgage Loan Originator's DRE license number must be displayed on their business cards, but starting in January both the individual's DRE license number and the NMLS Unique identifier number must be on the Mortgage Loan Originator's business cards. I mention this because I don't know every state's rules and regulations, but often if something happens in "Cali" other states may have similar policies that follow.
The Obama Administration announced additional support to help homeowners struggling with unemployment through two targeted foreclosure-prevention programs. (Many folks are wondering where the US Government finds the money to pay for these programs.) Through the existing Housing Finance Agency (HFA) Innovation Fund for the Hardest Hit Housing Markets (the Hardest Hit Fund), the U.S. Department of the Treasury will make $2 billion of additional assistance available for HFA programs for homeowners in 17 states (those with unemployment rates higher than the national average) struggling to make their mortgage payments due to unemployment. Additionally, HUD will soon launch a complementary $1 billion Emergency Homeowners Loan Program to provide assistance - for up to 24 months - to homeowners who are at risk of foreclosure and have experienced a substantial reduction in income due to involuntary unemployment, underemployment, or a medical condition.
"The HUD Emergency Homeowners Loan Program will work with state and non-profit organizations to offer a deferred payment, no-interest loan of up to $50k to assist eligible homeowners for up to 24 months. The loan will be non-recourse to the borrower and subordinated to the first lien. To be eligible for the program, borrowers must be 3+ months delinquent on their mortgage but have a "reasonable likelihood" of being able to resume payments within two years, personally occupy the home and not own a second home, and demonstrate good payment behavior prior to the loss of income.
At first glance, analysts believe that the new HUD program will have little to no effect on agency prepayments. Currently loans are automatically being bought out by the GSEs at 120-days plus delinquency, so loans to in-trouble borrowers are mostly being repurchased before they can enroll in the program. And given that the entire size of the program is only a day or two of current production, it is not huge.
Barclays sent out a good write up focused on non-agency loan securitizations. To sum it up, "While any new securitizations will get increasing focus in coming quarters, we believe we are still miles away from anything meaningful." That is not good news for any originator not wanting to do Fannie, Freddie, FHA, or VA loans. Barclays sees limited potential for widespread non-agency lending in the short term. "An economic and housing recovery, along with reduction in risk aversion, will likely be required on the part of originators to jumpstart lending." However, "In the long run, we believe the non-agency sector is bound to make a comeback, although clearly not to its previous glory and potentially in a different form."
U.S. Bank Home Mortgage Wholesale Division is implementing an "Undisclosed Debt" form requiring mortgage loan applicants to sign and acknowledge that if they take out additional debt between loan application and closing, USBHM will require a re-underwrite of their loan which may result in amending or rescinding of the loan approval. "The reason for this required form is that a loan that is sold to the Agencies, where all borrower debt is not included in the liabilities and debt ratios, may be subject to loan repurchase or indemnification if discovered in a post sale loan quality review. This form will be required for all CUSB, Table Funded, and non-delegated Correspondent Lender loans starting Monday.
Speaking of USB, the company does not allow free extensions. For 7 days the fee is .125%, 15 days .375%, and 30 days .5%. USB clients can relock immediately after the expiration date, but the new price will be the worse of market at the time of re-lock or the original lock. Regarding renegotiations, "If all of your underwriting conditions have been cleared and the pricing/rebate has improved by at least 1% compared to where it was when you locked, you can check to see if a renegotiation is available by calling the help desk" and "your loan must close within 15 days of the renegotiation."
Friday and again Tuesday I mentioned pipeline hedging firms. Unfortunately, of course, I forgot another key player: Secondary Interactive. The company has been around for several years and "works with mortgage banking clients throughout the country ranging from emerging mandatory players doing $15M per month to large banks doing as much as $500M per month." My apologies.
While we're on the hedging topic, last week I alluded to how pricing to best-efforts rate sheets but selling through a mandatory execution might lead to inconsistent profit margins. (Spreads change, and vary based on product, which can lead to higher hedging costs.) So why do Secondary Marketing price-setters do it? Because, in spite of the flaws, it is so darned easy to take a best-efforts price, add the margin dictated by the owner/president, and send it out. No muss, no fuss. Pricing to mandatory execution, without the right technology and tools, can create monumental issues. Do you use live MBS prices that have to be adjusted continually? Include servicing released premium schedules, or buy-up/buy-down grids? Include volume or early delivery bonuses that vary among investors? And this is where pipeline hedging companies can make a difference - by helping smaller lenders grapple with these issues.
Well, what are we supposed to do with Fannie 3.5%'s trading well above par?
Current coupon MBS's were better between .125 and .250 (although Fannie 3.5's were up almost .5), but the 10-yr Treasury price was better by .75. Only $1.8 billion of MBS's were sold - with 3.5% securities accounting for over 30% of them. And why not - this 3.5% coupon, which includes 3.75%-4.125% mortgages, is now trading at a premium above par! Throw on some servicing value, whether it is .5 or 1.5, and suddenly borrowers are looking at a 4% 30-yr fixed mortgage IF MBS prices are passed down to brokers and loan agents.
This morning Weekly Jobless Claims were up 2k from last week's revised 482k, and the 4-week moving average shows claims worsening over 14k. Import Prices showed a .2% increase, with a year-over-year number of +4.9%. With a $16 billion 30-yr auction later today, we find the 10-yr sitting at 2.71% and current coupon MBS's better roughly .125.
A laid-off secondary mortgage manager went into the Job Center in downtown Manhattan looking for a position. While thumbing through the openings he sees "Playboy Photographer's Assistant". Interested, he asked the clerk for details.
The clerk pulled up the file and read; "The job entails getting the ladies ready for the photo shoot. You have to help the women out of their underwear, carefully lay them down and then rub in soothing oils so they're ready for the photographer. The annual salary is $65,000, but you'll have to go to Brooklyn."
"Brooklyn...is that where the job is?"
"No sir...that's currently where the candidate line ends."