Comments on Non-agency Modifications and Stated Loans; Investors Examine Who is Refinancing; A Buyer for Servicing
The good news is that we've survived. The bad news is that we're still
seemingly reliant upon politicians in Washington. But for the moment, go back
to 7th grade science! The December solstice (today) occurs when the sun reaches
its most southerly declination of -23.5 degrees. In other words, it is when the
North Pole is tilted 23.5 degrees away from the sun. On the solstice, all
places above a latitude of 66.5 degrees north (Arctic Polar Circle) are now in
darkness, while locations below a latitude of 66.5 degrees south (Antarctic
Polar Circle) receive 24 hours of daylight. It also marks the "longest" day of
the year in terms of daylight hours for those living south of the equator. Oh,
and by the way, since you're reading this, the purported Mayan end of the world
hasn't happened quite yet, so yes, you still have to wrap those presents.
I have been retained by a servicing investor to help in its search for up to
$500 million of Fannie Mae servicing. The ideal seller is a company out
there that is looking to raise cash by selling a small part of their conventional
portfolio. There are no parameters regarding loan limits, LTV's, or programs,
but due to licensing restrictions the properties must be located in one of the
following states: CA, OR, CO, WA, NM, TN, HI, or in a state not requiring
licensing. The non-depository uses DMI as its subservicer, and MIAC will be
handling the analytical analysis. Interested parties, principals only, should
contact me at rchrisman@robchrisman .com.
Yesterday the commentary mentioned a possible U.S. Treasury plan for loan
modifications for Alt-A, subprime, option ARM's, and so on - non-agency loans.
I received this opinion: "Really - this is what we're paying taxes (our
HIGHER) for? So that borrowers who bought more expensive homes than
conforming limits allow, or who had to lie about (oops sorry - meant to say
"state") their income to get the loans get an interest subsidy for 5 years,
just because someone looks into a crystal ball and establishes that there's a
"reasonably foreseeable default"? Why would tax payers want to subsidize such a
Mark B. wrote, "I have some thoughts about the program you outlined
the 'rumors' of. First, I live in Las Vegas. The people that live in Las
Vegas who are underwater & still current, but not 'significantly
underwater' will be frustrated even more. We talk to borrowers every day
that have 'A-paper loans' that are just not owned by Fannie/Freddie & can't
do anything. For example, the guy that bought a home for $400k, put $100k down,
owes $280k now, and the value is $225k - he cannot do anything with his 10 year
I/O loan at 6.5%? That is the guy they should help the most as he is the
most upset. He has lost $100k but gets no relief because he is less
likely to default? (I understand the default odds, but that consumer is really
going to be more likely to default now since it becomes clear there is no help
for him). Secondly, the guy that bought for $400k and owes 90%+ still on a 1st
& 2nd, has the 2nd at I/O & still owes $320k with a value of $225k, he
gets help? No money to 5% into the deal & he gets relief because he
is more likely to default? I would like to put bets on that guy
defaulting sooner or later no matter what. He will wake up one day &
see it will take 10+ years of 2-3% appreciation for him to ever get back to
square one. Someone needs to convey this to the decision makers if they do
I highly doubt if the Mayans had stated loans, but I did recently
receive this note concerning them after mentioning that I wouldn't hold my
breath waiting for their return to mainstream lending. Industry vet Mike Winks,
with Northpoint Bank, wrote, "I agree with the 'don't hold your
breath' comment regarding bringing stated income products back. However, let's
be reminded that the stated income loan in its truest (original) form makes
complete sense on terms of credit risk and customer service. For borrowers with
stable employment, very strong credit and high liquid assets, it is very
logical for a customer-focused lender to streamline the loan origination
process by not requesting full income documentation for up to two years. But,
in our world of consumer protection, how does this lender protect the borrower
from themselves if they do not have the documentation to determine the actual
DTI? Regulatory compliance (to lenders and the GSEs) includes the requirement
that borrowers are not approved for a larger loan then they can afford.
Further, we cap this DTI ratio under the premise that there is an ultimate one
size fits all - a point at which even liquid borrower with high assets and very
strong net worth are presumed to not be able to afford the debt. Therefore,
even if the borrower is satisfied with his proposed monthly payment amount on a
fixed-rate loan, the lender is here to protect or limit his options. Stated
income products fall very low on the lender concern list; however, it is
similar thinking that is driving many of the industry's changes."
Linda J. writes, "One of the agents blogged about servicing release and it
turns out that the new servicer does not have to honor the cash incentives to
the homeowner in a short sale. Bank of America is doing this. The comments from
the other agents are revealing! Here is a link.
refinancing? Investors in mortgage securities are always interested in how long
they're going to be receiving payments from borrowers and what kind of borrower
attributes indicate payment habits. With the scrapping of LTV caps on HARP loans
after the announcement of HARP 2.0, about $10 billion of high-LTV pools are
being issued per month and demand for those with shorter loan terms has been
solid. This is due in part to the type of borrowers that refinance into
such loans. Pools of 15- and 20-year loans are making up a growing percentage
of high LTV issuances-in October 2011, they comprised 6-8% of the total for
pools with LTVs over 105%, but that share climbed to 16-18% by September of
this year. Demand for shorter-maturity pools is increasing because the
borrowers who are refinancing now tend to be more seasoned and the difference
between rates for shorter- and longer-maturity pools is relatively high.
On the consumer end of things, these loans tend to be a cheaper option, thanks
to the removal of LLPAs on MHA loans with shorter durations and the fact that
borrowers can build equity more quickly. Underwater borrowers, in
particular, can move out of negative equity more easily by refinancing into
shorter maturity loans, and the FHFA is keen to let them know that.
speaking, borrowers who refinance into loans with shorter amortization terms
have better credit. Amongst Fannie and Freddie borrowers, those
who opt for 15- and 20-year loans have credit superior to those who refinance
into new 30-year terms, most likely due to a combination of self-selection and
tightened lending practices. They also tend to take out smaller loans;
the average size for 15-year HARP refinances ranges from $170,000-180,000,
while the average for high-LTV 30-year refinances is $210,000. For investors'
purposes, its high-LTV shorter-term borrowers' good credit quality that makes
involuntary prepays on these bonds unlikely, along with the HARP payment
reductions they receive upon refinancing. Any fluctuation in mortgage
rates isn't likely to impact prepay activity, either, as most borrowers remain
ineligible for HARP refinancing. It's difficult to predict what will
happen in the long term, however, and as home prices continue to improve, LTVs
will be more likely to drop to levels below the refinanceable limits, which
will change the game for voluntary prepays.
As mentioned above, the good news is that we have survived the predicted
Mayan apocalypse; the bad news is that we're still being jerked around by
politicians' inability to reach agreement. At this point, let the nation absorb
those changes on January 1! The sun will still come up the next day, and maybe
we'll be better off fiscally. Until then, we're seeing some improvement in
rates while they bicker and point fingers. Thursday mortgage banker supply
remained uneventful at between $2.0 and $2.5 billion, and MBS prices saw a very
slight improvement in price. On the 10-yr T-note camp, it closed around 1.79%,
almost unchanged in spite of some better-than-expected news about the Philly
Fed, Existing Home Sales, and GDP.
about that housing market! Homebuilder sentiment increased for the eighth
straight month with the index at its highest level since April 2006. Existing
Home Sales in November increased nearly 6% to a better than expected 5.04
million with sales at their highest level since November 2009. In addition, the
national median home price was up about 10% from a year ago while months'
supply of 4.8-months was at its lowest since September 2005. And the FHFA house
price index reported prices rose 0.5 percent in October and were up 5.6 percent
year-over-year. And if housing prices continue to move higher, that
increases the pool of potential refi's for 2013, right?
Today we've had Personal Income & Consumption (spending) and Durable Goods for
November, and look for things to really calm by late morning - there are no
economic releases until late next week. Personal Income, expected +0.3% from
flat, and Consumption, also expected +0.3% percent from -0.2 percent, and Durable Goods,
expected +0.2%, were +0.6%, +0.4%, and +0.7% respectively - pretty strong
numbers. Of course we still have European problems, and the bickering in
Washington (rates are actually helped the longer they bicker but does it help
the nation?), but after this noise we find the 10-yr at 1.75% and MBS prices
better by .125-.250 - we'll see if that makes it onto rate sheets.
A CHRISTMAS STORY
When four of Santa's elves got sick, the trainee elves did not produce toys as
fast as the regular ones, and Santa began to feel the Pre-Christmas pressure.
Then Mrs. Claus told Santa her Mother was coming to visit, which stressed Santa
even more. When he went to harness the reindeer, he found that three of them
were about to give birth and two others had jumped the fence and were out,
Heaven knows where. Then when he began to load the sleigh, one of the
floorboards cracked, the toy bag fell to the ground and all the toys were
Frustrated, Santa went in the house for a cup of apple cider and a shot of rum.
When he went to the cupboard, he discovered the elves had drunk all the cider
and hidden the liquor. In his frustration, he accidentally dropped the cider
jug, and it broke into hundreds of little glass pieces all over the kitchen
floor. He went to get the broom and found the mice had eaten all the straw off
the end of the broom.
Just then the doorbell rang, and an irritated Santa marched to the door, yanked
it open, and there stood a little angel with a great big Christmas tree.
The angel said very cheerfully, "Merry Christmas, Santa. Isn't this a lovely
day? I have a beautiful tree for you. Where would you like me to stick it?"
And thus began the tradition of the little angel on top of the Christmas tree.
Not a lot of people know this.