Fannie and Freddie Short Sale Change; LO-Realtor Comments; Specified Pool Primer - How to Pick Up an Extra Point or Two
This is a frightening statistic, probably one of the most worrisome in
recent years: 25% of mortgage bankers and Realtors in the country are on
medication for mental illness. That is scary - it means that 75% are running
Statistics can be useful, sometimes not. On the "useful" side, the MBA
will release its weekly mortgage applications index for the prior week. But how
many of those retail applications actually close? It turns out that the MBA
informally polls its members regularly on this question. Over the past 12
months, about 70% of purchase apps and 60% of refi apps pull through. The
purchase number has been steady, but the refi number is up from about 50% 2
years ago. But loan origination software vendor Ellie Mae, which
processes over two million applications per year (around 20% of all American
originations) reports that of a sampling of 33% of those originations, it was
found that, from June to July, the overall percentage of applications that
closed dropped from 46.2 to 45.8%. Not a big deal, but something to note
nonetheless. The closing rate of purchase loans, however, rose for the third
consecutive month to 58.7%, which suggests that more borrowers are in a
position to buy property.
Freddie and Fannie (and the FHFA, of course) announced short sale changes
scheduled for later this year. [READ: GSEs to Allow Short Sales for Borrowers Who Are Current on Mortgage] Starting November 1, measures will be put in
place to make short sales of underwater homes easier for homeowners, including
extending help to people who have financial difficulties but haven't missed
mortgage payments. F&F are revising their short sale guidelines and
delegating authority to their mortgage servicers to approve short sales as of
November 1. The new procedures are part of the Servicing Alignment
Initiative which the Federal Housing Finance Agency has directed the GSEs to
develop. It is hoped that the streamlined program rules will enable lenders and
servicers to quickly and easily qualify borrowers, who do not have to be
delinquent on their mortgages, to qualify for short sales. As a further
step to facilitate speedy sales, both of the GSEs have authorized a payment of
up to $6,000 to incentivize second lien holders to allow the short sales to
proceed. (Here is Freddie's bulletin.)
Every lender and Realtor out there knows that short sales can drag on for
months, although they are not as difficult or lengthy as they were in previous
years. This is in part due to a short sale needing both the holders of first
and second mortgages, such as home-equity loans if they exist, must sign off on
the deal because they are accepting less than the outstanding mortgage balance.
Short sales typically sell for a 10% discount to ordinary homes, compared with
a 30% discount for foreclosures, said Sam Khater of CoreLogic Inc. One part of
the plan is for Fannie and Freddie to place a $6,000 cap (will it be enough?) on
the amount of money holders of second mortgages can receive when the sale is
completed, as a way to prevent the mortgage holders from haggling over their
slice of the home-sale proceeds. Those second-lien holders would still be able
to reject the sales if they saw fit.
Let's take a quick look at some related numbers. About 4.6 million
borrowers with loans backed by Fannie or Freddie are underwater, with 80% of
those homeowners having missed no mortgage payments. The biggest holders of
second mortgages in the U.S. are Bank of America, Wells Fargo, JPMorgan Chase,
and Citigroup. Short sales have been growing as a percentage of home sales.
They made up 8.8% of home sales in May, up from 7.6% a year earlier and 6.5% in
2010, according to CoreLogic Inc.
"The National Association of Realtors applauds the Federal Housing
Finance Agency for working with Fannie Mae and Freddie Mac to issue new
guidelines that expand eligibility criteria and streamline the short sale
process. The new guidelines would offer a more streamlined short sale approach
for homeowners most in need, as well as enable lenders to quickly and easily
qualify certain homeowners for a short sale who are current on their mortgage
payments, yet suffer from specific hardships such as job relocation, increase
in housing expenses, unemployment and disability. The FHFA guidelines will also
consolidate existing short sales programs into a single uniform process and
provide lenders and homeowners clarity on processing a short sale when a
foreclosure sale is pending."
While we're on NAR, a while back the commentary discussed some LO -
Realtor issues and comparisons. Two last notes on the topic. "Each
profession has its problems and rewards. Comparing the difficulties of
each in an attempt to justify earnings is a meaningless exercise. Each
makes its contribution to a complete transaction (don't leave out the title
companies, appraisers and all other involved vendors) and is compensated according
to what the market will allow. Well, at least this was the way it worked
until compensation limits were imposed by the government on the mortgage
industry in an attempt to protect the poor consumer...With all of our new
disclosures including the three loan comparisons, my customers just sigh and
sign the 28 forms attendant to each application, and they're no more informed
than when they walked in the door unless they actually read and questioned the
content of some of the documents (the most FAQ is why is the APR higher than my
interest rate?). With the regulations on this industry and risks of
financial penalties increasing by orders of magnitude on a regular basis, it's
amazing how many are willing to stay in it. We should all quit playing the
"I work harder than you do" game and work to lessen government
involvement in our industries."
And Martin L. from iServe writes, "I started in the Real Estate
Industry at the age of 19 and it's almost all I know; 13 years as a producing
Realtor, and the last 14 years I have been a successful LO. The debate over who
works harder is at best a moot point. It has us watch the ball and not the
powers that swing the ball. If we are to thrive and grow and I'm on the side
looking to thrive, we must work together and become stronger using our
collective resources - spending energy debating issues as unimportant as
reality TV. Our focus and attention need to change from fear based to abundant
and proactive thinking. So, let's join teams with Realtors, Lenders, Title,
Insurance, Escrow and build a voice that addresses the foundation of our
economy "Real Estate."
My cat Myrtle knows nothing about "specified pools." (And she
doesn't seem overly interested in CNBC or Bloomberg Radio in the mornings when
I am polishing up the day's commentary, either.) One would suggest that much of
the origination side of the biz knows nothing about them either. A trader's
note caught my eye last week. "In specifieds the story of the day was in Midget
3's, which saw the bid pop from 1-04 to 1-08 as there is finally deep real
money sponsorship. Midget payups are about 1-00 off their highs from Q1
and have lagged the payup increase on all other new production stories."
I also received this note on small loan sizes: "Since your email about the
loan amounts below $85K I have been prospecting around to find lenders or
brokers who specialize in smaller loan amounts. All I am finding is the
opposite. In fact, it seems like a lot of lenders are downright punitive
when it comes to smaller loan amounts. Many charge regressive add-ons that
increase as the loan amount decreases. If there is such a premium on the
secondary market for these loans why are they being charged up so heavily?
Would you say this is indeed another victim of Dodd-Frank? Here in the lead
aggregation world we see almost a third of our inquiries from borrowers below
$100K and below 80% LTV. These are people who could be helped, but they are
getting priced out by usurious lenders who don't think 108 on the back and a
point up front is enough. It feels like there is a serious disconnect here!
Don't get me wrong, I know a few lenders who can make this work, but by and
large I have a better chance of selling
bovine suppositories to a lender than leads for loan amounts below $100K."
So observed Paul F. with Ybrant Interactive Media.
So what happens to loans that aren't average loans? What do the
aggregators do with small loans, or high LTV loans? They, and the agencies,
package them and sell them in separate pools. It turns out that investors
will often pay higher prices, 2-3 points in some cases, for loans that will
be on their books, and being serviced, for a longer period of time. The
secondary market segregates pools into Ginnie, Fannie, or Freddie securities,
and then, if an originator or aggregator has enough volume with certain
attributes and interest rates, pools will be created filled with those loans.
Small loan amounts (less than $175k), high LTV insured product, low FICO agency
loans in some states, 20 or 10 year maturities are usually in the highest
And some middle-market firms make an active market in these, often sharing
the pay-up with the originator. For example, Tad Dahlke, Senior Managing
Director with Banc of Manhattan Capital and who I met with recently,
wrote, "Pay-ups continue to be on a one-way road higher, with the
strongest gains coming in 30-year conventional 3.0s and high-LTV HARP-type
paper. With the recent sell-off, payups have changed. 30-year Fannie 3.5s went
from a high price of 106.25 in late-July to 104.75 today. Weakness has
been concentrated in 30-year conventional 3.5s, partly due to higher
rates/lower prices and partly due to heavy supply in specified pools in this
coupon. Also, the 100% Refi 80-90 LTV sector has been struggling across
coupons. The spec pool market remains fluid, and payups are likely to
bounce around some until the bond market finds a new range." If you'd like
a current pricing grid from Tad, or more information on how specified pools
work, write to him at tad@bomcapital .com.
Tuesday - another day, another set of chatter about Europe (the same
problems and possible solutions that have been discussed for many months, and
will be for many more months). But maybe the U.S. economy isn't doing so poorly
after all. Or maybe most of the folks who can't make their payments have
already stopped making them. Default rates for most types of consumer loans
continued to ease during July according to the S&P/Experian Consumer Credit
Default Indices released on Tuesday. Only second mortgages increased from
June levels and those were up only marginally from .73 percent to .75
percent. First mortgage defaults were unchanged from June at 1.41 percent
which is their recent low.
On the trading side, there wasn't much volatility. Maybe we're following
Europe's lead and taking August off. Sources reported total originator selling
around $2 billion, and hedging consisted of 60% in 30-yr 3.5%. The U.S. 10-year
notes finished better by about .125 and closed with a yield of 1.80% while MBS
prices were unchanged. Today we'll have, but not until 1PM CST, the minutes
from the July 31-August 1 FOMC meeting are released. What investors will be
focused most particularly on is any discussion related to additional
quantitative easing, including the various policy tools available. We also have
Existing Home Sales for July due out. In post-fed trading the 10-yr is nearly
unchanged at 1.73%, and MBS prices are better.
Why the English Language is hard to learn:
The bandage was wound around the wound.
The farm was used to produce produce.
The dump was so full that it had to refuse more refuse.
We must polish the Polish furniture.
He could lead if he could get the lead out.
The soldier decided to desert his dessert in the desert.
Since there is no time like the present, he thought it was time to present the
The bass was painted on the head of the bass drum.
When shot at, the dove dove into the bushes.
I did not object to the object.
The insurance was invalid for the invalid.
There was a row among the oarsman about how to row.
They were too close to the door to close it.
The buck does certain things when does are present.