old saying goes, "If there is only one attorney in a town, he'll starve to
death. If there are two attorneys in a town, they'll both get rich." Attorneys
enjoy working with other attorneys, for the most part, and various groups of
attorneys, compliance people, and capital markets personnel have been "doing
some serious settlin'" in recent weeks. US Bank agreed to pay $53mm to
Freddie Mac to settle loans it sold between 2000 and 2008. PNC has
agreed to pay $89mm to settle legal disputes with Freddie over mortgages it
sold between 2000 and 2008. Bank of America has reached a $404mm
settlement with Freddie to resolve claims around residential loans it sold from
2000 to 2009. (This settlement and a prior one effectively settle claims on all
loans sold prior to 2012.) And Fifth Third Bancorp announced a
settlement with Freddie worth about $25 million. Go Freddie Go!
big is a typical loan files these days? 500 pages? No way! Yes way! Just ask
a spider isn't a problem. It becomes a problem when it disappears." People a
lot smarter than I am don't see Fannie Mae or Freddie Mac disappearing in the
near future: there is little of substance coming out of Congress, there's yet
another election next year, the agencies are earning too much money right now,
and maybe the right people are beginning to understand the important role. But
that won't stop lawsuits: the Treasury
issued a filing in which it defended its treatment of Fannie/Freddie and urged
a court to dismiss investor lawsuits. The Department of the Treasury
said it hasn't improperly taken anything from investors and that investors
can't prove they've suffered economic harm as a result of the conservatorship.
it is very helpful to look at recent plans for the agencies in order to
determine what might be ahead. I took a stab at writing about this in a blog
titled, "What Do We Know about the Future of the Agencies?" in the right-hand
column of www.stratmorgroup.com.
all of this reminds me of a recently published book, and a description of it
recently written by Paul Davis. I cannot attest to whether or not it is bedside
reading quality, but "The Mortgage Wars",
per Mr. Davis is the story of ousted Fannie Mae CFO Timothy Howard. Sure, he
hasn't been there in nine years, but it still might be of interest. Howard was
cut loose in late 2004 along with then-CEO Franklin Raines. "To hear Howard
explain the issue, Fannie Mae bears little responsibility for the chaos that
blew up other financial institutions, led to the creation of the Troubled Asset
Relief Program and is spurring ongoing debate over the fate of GSEs. To him,
the crisis was caused by a handful of greedy banks and mortgage lenders; Fannie
was merely collateral damage in a series of battles. 'The mortgage wars were
fought not over reducing risk to the taxpayers or providing the lowest-cost and
safest types of home loans to consumers,' he writes. Rather the war was over
'ideology, market power and money.' Internal mishaps do not play a major role
in Howard's telling of the Fannie Mae story. Instead, he asserts that the GSE
remained fundamentally sound throughout the crisis and was the victim of
vicious smear campaigns from groups such as FM Watch and 'free market
ideologues' at the Federal Reserve Board and Treasury Department. Issues at the
GSE were merely a case of shaped perceptions and slight-of-hand, rather than
real problems. Howard offers very few mea culpas. He acknowledges that Fannie
took too long to address the size of its portfolio and reliance on derivatives,
and he second guesses the GSE's dalliance with manufactured housing. Rather
than issue apologies, Howard opts to make a case for the GSE's actions. Adding
adjustable-rate mortgages to the portfolio was necessary to reduce interest
rate exposure. Easing loan-to-value standards was needed to fulfill a duty to
affordable housing. Soaring debt was 'entirely market driven,' he writes.
Furthermore, Howard asserts that Fannie implemented new discipline that was
'uniquely prepared' for the implosion of the housing market. 'The timing ... was
nearly perfect,' he adds."
article goes on. "What about the GSEs? He
argues that Fannie is much healthier than what many in Washington claim. He
asserts that the Treasury and Federal Housing Finance Agency threw anchors at
the GSEs after the financial crisis, while regulators tossed out lifelines to
banks. By forcing Fannie to reduce the size of its mortgage portfolio and
obligating it to pay outsized dividends, the Treasury all but issued the GSE 'a
death sentence.' Still, he acknowledges that the GSEs should be 'wound down
over time' but only because of controversy - not poor performance. 'Critics'
claims notwithstanding, the 'GSE model'
for the secondary mortgage market was not flawed,' he defiantly writes. 'It was
sabotaged by hostile and inept regulation. And the alternative free-market
model proved to be an unqualified disaster.' Fannie and Freddie 'could be de
novo companies or re-chartered' with the Fed or Treasury regulating returns.
Government support, in the form of a catastrophic risk reinsurance fee, could
be implicit or explicit. 'If we can succeed in devising such a system,
something positive will have come out of the mortgage wars after all,' he concludes."
31 is only 11 business days away! Ken Harney at the Washington Post has a look
at a plethora of mortgage/real estate-related tax credits and exemptions
that are due to expire at the end of the year. Like many items on
Congress' to-do list, Harney doesn't have much in the way of expectations that
any of them will be addressed in a meaningful way in time to extend the
consumer-friendly provisions. For example, homeowners who receive a
modification, short sale or principal reduction from their lender would
normally face a hefty tax bill from the IRS, as the amount written down is
considered income. However, over the last few years, Congress has passed
one-year measures to extend federal tax protection for those homeowners -
scheduled to expire on December 31. Additionally, laws providing tax
credits for energy-saving home improvements and new construction and the
mortgage insurance premium write off will expire if no action is taken in
Washington. If Congress does indeed fail to extend any of the measures,
late December should be a very busy time as consumers scramble to take
advantage while they still can.
Taylor Mortgage has
updated the guidelines for its Jumbo products to change the qualification for
5/1 LIBOR ARMs to the greater of the note rate plus 2% or the fully indexed
rate. Guidance has also been revised for
inter vivos revocable trust closings, non-arm's length transactions, and
appraisals for Jumbo ARMs, which must be locked prior to the appraisal being
sent to the investor for review. The
minimum FICO for all Jumbo transactions has been changed to 720, and clarification
has been added for construction-to-permanent loans.
MI issued a press release regarding its program for rescission relief after 12
months on every loan.
Wholesale Mortgage has
rolled out its custom-developed Income Calculator, designed for brokers to
accurately determine a borrower's wages for 1003 applications. Available within
the EASE broker portal, the Income Calculator allows brokers to use the same
tools as underwriters, making the calculation process both more accurate and
efficient and reducing the likelihood of underwriters' findings.
think that the government has set out to drive small broker-owners out of the
business. Certainly a number of small companies have joined larger ones. In yet
another example, Colorado's Milestone Mortgage merged with The Mortgage
Company (TMC). Milestone Mortgage is still its own entity, but is now
a branch of TMC.
is offering two options for the CHF Platinum Grant, having added the new 5%
grant to the existing 3%. CHF no longer
needs to wire funds at closing, as LOs will receive an obligation letter that
establishes a legally enforceable liability for CHF to reimburse MWF directly,
speeding up the closing process. Grants
are available for 30-year fixed rate FHA, VA, and USDA loans to use for down
payment and/or closing costs.
anticipation of the implementation of QM, MWF is no longer offering an Interest
Only option on Conforming LIBOR or DU High Balance LIBOR 5/1, 7/1, and 10/1
ARMs. Any loans locked under the
existing IO product code must fund by January 15, 2014.
to interest rates, they've slid higher. There was a surge in Weekly Initial
Jobless Claims, better than expected Retail Sales, and a decrease in
foreclosure activity: the news continues to indicate a decent economy.
Especially when combined with higher stock prices, rising home values, and
improving consumer sentiment. You can pick apart the numbers as much as you
want, but analysts say that the odds of a taper announcement at next week's
meeting have risen materially.
being said, as the 10 & 30-year yields rise and the 2 year yield (and other
short term rates) remains relatively flat, the "steepness" of the yield curve
has increased. The Fed as committed to keep short term borrowing costs low.
Recently the curve has hit its highest/steepest levels since 2011 while 30 year
mortgage rates have also hit their highest levels since 2011. The difference
between short and long term rates back then 250 basis points (2.5%), the same
as it is now. But back then we had the
potential for lower rates due to a continued slowing economy and continued
Quantitative Easing by the Fed. We don't have that now: the economy seems to be
doing okay, and QE will be "tapered off."
have not met Ben Bernanke, but he doesn't seem like a quitter. There is some talk out there about Bernanke
stepping down as chairman following Yellen's confirmation vote next
week. Yellen would take over as chairman at the January meeting instead of
March. Timing aside, it probably wouldn't change anything either in terms of
near-term policy; the Senate is expected to vote on Yellen sometime next week.
Price-wise, the NY Fed has continued to buy nearly $3 billion per day in TBA
(to be announced - general agency MBS instruments) securities which dwarfs the
$800 to $900 million in pipeline hedges which corresponds to roughly 80% of
scheduled news this week ended with the Producer Price Index this morning. It
was expected to be roughly unchanged - when was the last time inflation was a
problem? - and was -.1%. No big deal. The
10-yr is roughly unchanged (at 2.86%) as are the agency MBS prices that drive
rate sheet pricing.