FDIC Sued Over WAMU's Bad Loans; LPS Sued Over Robo-Signing Allegations; Bank of America in Downward Spiral
Freddie, and the US Government aren't the only entities struggling with debt. The
U.S. Post Office is expected to hit its $15 billion borrowing limit next month,
and banks are scrambling to determine their potential lease exposure to the
agency on their retail loans. Watch for post office closings, announced several
weeks ago, and then end of Saturday delivery.
federal judge ruled that the FDIC has to face a $10 billion lawsuit tied to
the failure of WAMU: the judge refused the FDIC's request to dismiss the
lawsuit brought by Deutsche Bank National Trust Co over bad mortgages that were
securitized by Washington Mutual. As we all remember, WAMU was seized by the
OTS, and the FDIC was appointed receiver and immediately sold the bank to
JPMorgan Chase & Co for $1.9 billion. Deutsche Bank is arguing that loans
that were pooled into mortgage bonds did not meet the underwriting standards
that had been promised by WaMu, causing investors to lose billions of dollars.
or more specifically the argument over whether documents are signed correctly,
is not a dead issue. American Home Mortgage Servicing filed a lawsuit
against Lender Processing Services Inc. (LPS) alleging that the firm
improperly signed mortgage documents on its behalf and triggered millions of
dollars in legal expenses as a result. Did American Home incorrectly process
more than 30,000 mortgage assignments when seeking foreclosure on properties in
all 50 states as a result of the work by an LPS subsidiary? Stay tuned: DidYouSignThat?
A good-sized chunk of those
foreclosures took place in Phoenix where, according to the latest figures from
DataQuick, distressed property sales accounted for over 60% of resales in
July! Overall, July home sales in the Phoenix area fell about 13% from
June, but remain 19% above year-ago levels. In July, 9,050 new and resale homes
and condos were closed in Phoenix. Home prices in the area also fell last month
in that area. A drop in sales in July is common, according to DataQuick, but
this drop was steeper than in past years. The number of homes selling below
$100,000 jumped 43.2% over a year ago. The median home price in Phoenix hit
$120,000 last month, down 54.6% from the peak of $264,100 in June 2006.
Nationwide, the sales of new
single-family houses fell slightly in July to a seasonally adjusted annual
rate of 298,000, down from June's 300k level. So it dropped .7% from June
but is nearly 7% above the July 2010 level. There were an estimated 165,000
newly constructed homes for sale in the U.S. at the end of July which
represents a 6.6 month supply at the current pace of sales and down from a year
ago when we had 9 months' worth of supply.
FDIC-insured commercial banks and savings institutions reported an aggregate
profit of almost $29 billion in the second quarter of 2011, a $7.9 billion
improvement from the $20.9 billion in net income the industry reported in the
second quarter of 2010. This is the eighth consecutive quarter that earnings
registered a year-over-year increase. As has been the case in each of the last
seven quarters, lower provisions for loan losses were responsible for most of
the year-over-year improvement in earnings. Second-quarter loss provisions
totaled $19 billion, less than half the $40.4 billion that insured institutions
set aside for losses in the second quarter of 2010. However, net operating
revenue (net interest income plus total noninterest income) was $3 billion (1.8
percent) lower than a year earlier. 60% reported improvements in their quarterly
net income from a year ago while institutions reporting net losses for the
quarter fell to 15%.
I don't know exactly where Bank
of America falls into the numbers just mentioned, but let's hope all those poor
Countrywide folks who put their 401(k) money into Countrywide stock, only to
watch it almost disappear, didn't join Bank of America and start all over
again. BofA shares are near another 52-week low, "fueled by
investors' nervousness over the bank's balance sheet and its continued exposure
to mortgage-related losses." Yesterday BAC fell 7.9%, while Chase (JPM)
and Citigroup fell about 3% each. "But Bank of America, the nation's
largest bank, continues to outpace its peers in its downward spiral, with
shares down 49% over the past year. Compare that with JPMorgan, which is off
nearly 10%, and Citi, which shed 30%, over that same time frame."
By now Fannie has implemented DU Version 8.3, which includes updates to
DU's credit risk assessment, changes to high-balance mortgage loan limit
messaging, retirement of DU Version 8.1, implementation of the 2011 Area Median
Income (AMI) limits, and other miscellaneous updates and modified messages.
Speaking of which, the 2011 Area Median Incomes are now available, required for
all manually underwritten loans after 9/19, but now all loan case files
submitted to DU on or after August 20, 2011, are required to use the 2011
Wells Fargo's correspondent group spread the word to its clients of the
VA's plan to extend its 2011 Maximum Guarantee Loan Limits, a reminder that the
temporary loan limits are set to expire, and an improved pricing adjuster for
the HomePath Mortgage Program. And regarding the PMI news, "To ensure
sufficient time for review and purchase by Sept. 9, 2011, Loans should be
delivered to Wells Fargo Funding on or before Sept. 2, 2011. Note, per PMI's
announcement, MI Certificates must be activated by Sept. 16: Sellers must
notify PMI of all closing dates for BPMI monthly policies to activate coverage.
Sellers must pay all single policies, both BPMI and LPMI, to activate
MSI also cut
PMI off. "For loans currently closed/disbursed on/before 8/24/11 not yet
purchased by MSI, MSI will accept the Mortgage Insurance Certificate from PMI.
Loans must be purchased/funded by MSI no later than 8/31/11. Loans in process,
not yet closed/disbursed after 8/24/11: Loans must have a new mortgage
insurance certificate issued by an MSI-approved MI company to be eligible for
purchase/funding by MSI." Fifth Third followed, providing its
brokers with a list of dates and stages centered on September 16th.
(See bulletin for precise details.) PHH: "New Registrations
no longer accepted with PMI as the MI provider effective August 24th (excluding
HASP/HARP products). Active Pipeline with a MI a certificate from PMI will
remain eligible for funding provided all of the following criteria have been
met: Registration Date is prior to August 24, 2011 Note Date is between May 19,
2011 and September 16th, 2011 The correspondent provides proof the mortgage
insurance certificate has been activated and MI coverage is in force.
Commitments that have not been activated will not be accepted - funded by PHH
on or before September 30th, 2011."
Rates are great, and
mortgage-backed securities are being sold. But traders are reporting a great
deal more interest in selling MBS's than in buying them, and this is pushing
prices down and rates higher relative to Treasury securities - yet another
disconnect. "With international accounts on buyer's strike, an absent
deal-bid, and REITs/banks still relatively quiet, it's easy to justify the
underperformance. Fueling the investor apathy has been all the talk about the
possibility of an auto-refi program for underwater borrowers being put in
place. While we still believe that this will be a very tough
implementation, it cannot be entirely ruled out at this point given the bleak
economic picture and, seemingly, the administration's lack of bullets."
Mortgage banker selling reportedly totaled in the $2 billion area in 3.5% and
4% coupons, while higher rates were under pressure due to refi risk. MBS prices
were lower by about .250 while the 10-year notes lost nearly .5 in price and
closed around 2.14%.
It is a new day although we
started it off with Moody's downgrading Japan's credit rating one notch to Aa3,
the same as S&P. The MBA's weekly Mortgage Application Survey showed apps
dropped 2.4%, with refi's down 1.7% but purchase apps dropping 5.7% to a nearly
15-year low. The MBA said that purchase applications for jumbo loans fell by
more than 15% and purchase applications for the government housing programs
falling by 8.2%. Refi's account for nearly 80% of apps. We also had Durable
Goods came in +4%, higher than expected. Later we'll have the FHFA House Price
Index for June along with a $35 billion 5-yr note auction.
Word contexts are important for those of us who use words (unlike my 16-year
old daughter, who only knows three: "maybe," "no," and
"Mr. Winter, I have reviewed this case very carefully,' the divorce court
judge said, 'and I've decided to give your wife $775 a week."
"That's very fair, your honor," the husband said. "And every now
and then I'll try to send her a few bucks myself."
A doctor, examining a woman who had been rushed to the Emergency Room, took the
husband aside, and said, "I don't like the looks of your wife at
"Me neither, doc," said the husband. "But she's a great cook and
really good with the kids."