Pipeline Press

FHA Insurance Premium to Increase Again; CFPB Servicing Statement; AMC Tax Issues?

Rob Chrisman — Tue, 14 Feb 2012 16:17:51 GMT

This morning we had the Retail Sales figures. Shopping in Texas can be a different experience (30 seconds).

Small lenders can be assured that whatever happens to larger players in mortgage banking will eventually impact them in some way. It appears that the Obama administration is putting more pressure on Fannie & Freddie to write down principal. (I have never missed a mortgage payment - where do I sign up for that program?)

For the Chicago area only, I have been retained by a well-established, 100 year old community bank, based in far NW Suburban Chicago. It is looking to expand its presence in the North, Northwest and Western suburbs with the addition of a Branch Manager and production team. The bank is an approved FNMA seller-servicer, and also offers several correspondent options. They have local operations for underwriting, processing, etc. Any interested parties should send their resume to me at rchrisman@robchrisman.com.

In other parts of the nation, hiring also continues. Carrington Mortgage Services is expanding its sales force in both retail and wholesale channels. It has LO positions open in CA, AZ, FL, GA, NC, VA, PA, and NJ. Carrington is also hiring Wholesale AE's and Area Sales Managers for the following states: CA, AZ, WA, CO, UT, TX, NM, IL, FL, GA, VA, PA, and NJ. "Carrington is a Ginnie Mae Direct Seller Servicer offering a wide variety of loan programs: FHA/VA direct GNMA, Conventional, Fixed, ARM and more." All wholesale candidates are required to have an active broker base prior to consideration. Interested candidates contact John Cervantes at john.cervantes@carringtonmh.com.

Friday I noted that the Financial Crimes Enforcement Network (FinCEN) has new regulations that require non-bank residential mortgage lenders and originators to establish anti-money laundering (AML) programs and file suspicious activity reports (SARs), and that law firm Ballard Spahr has a free webinar on Thursday for its attorneys to explain the new requirements and discuss the steps non-bank residential mortgage lenders and originators must take now to comply with the new requirements. There is a link to the webpage where readers can learn more about the webinar.

The drama with FHA continues. For many months analysts have been pointing to its reserve fund, saying it is below congressionally mandated levels and some suggesting it is basically insolvent. Even the White House, in its budget proposal, noted that the agency's capital reserves would run out in the coming year, forcing it to draw as much as $688 million from the Treasury. But wait - HUD Secretary Donovan later said that the banks involved in the $25+ billion mortgage servicing settlement had agreed to pump close to $1 billion into the FHA. He also said the agency would raise premiums on loans it insures in a further step to bolster its reserves, with the numbers coming this week. Broadly speaking, HUD's 2013 budget requests $44 billion from Congress, about the same as this year. In addition, "HUD is asking for authority to guarantee $400 billion in mortgages through FHA's Mutual Mortgage Insurance Fund which is expected to provide 1.2 million single family mortgages, $149 billion in loan volume, during the year and $500 billion in Ginnie Mae guarantee authority in order to help finance a wide array of government-insured products" per Mortgage News Daily.

So let's see - first, additional guarantee fees are levied by the agencies for the next 10 years in order to pay for a payroll tax cut for two months. And now the five banks involved in the servicing settlement are chipping in $1 billion in order to support the FHA? Soon the FHA's increase in mortgage insurance premiums will at least go to support itself. The FHA now backs nearly $1 trillion in mortgages, and more than 9% of those loans are at least three months past due, per a story in the WSJ. Remember that the FHA doesn't make loans but instead insures lenders against losses for mortgages that meet its standards, and earns income by charging upfront and monthly insurance premiums to borrowers. The agency said Monday it would increase the annual insurance premiums by one quarter of one percentage point for loans that exceed $625,500.

The FHA is taking some additional steps to limit risk and strengthen finances, and HUD may require indemnification for 'serious and material' violations of FHA origination requirements, and for "fraud and misrepresentation such that the mortgage..." Many lenders have not prepared for this risk and have not begun reserving for the risk but it may not be enough. There are options, one being insurance to protect from repurchase or contractual liability tied to loans sold, including FHA. Contact Justin Vedder with Arthur J. Gallagher at justin_vedder@ajg.com to learn more.

Speaking of taxpayer support, recently the CFPB has released its first semiannual report to Congress outlining its activities. The report indicated the CFPB had hired more than 750 employees; fielded 13,210 consumer complaints (70% involved credit cards, 18% involved
mortgages and 12% were other); launched a supervision program to promote compliance with consumer protection laws; and evaluating and developing disclosures that make financial products' costs and risks easier to understand. The Bureau will soon unveil a prototype for a new monthly mortgage statement (VIEW) for consumers designed to clearly show important information from their servicer. The statement will include the principal owed on the loan, the current interest rate, the next date on which the interest rate could change, a description of late payment fees and a phone number and email address the homeowner could use to contact the company servicing the mortgage. The agency also is working on a new disclosure rule for hybrid adjustable-rate mortgages that would require consumers to be notified months before their first interest rate increase, as well as to be provided with a good-faith estimate of the new monthly payment. Servicers also would have to tell customers about alternatives to try to head off a higher interest rate, such as refinancing, per Politico.

Jerami A. Marshal, the Chair of the Massachusetts Mortgage Bankers Association, was recently quoted, "Investors continue to tighten their evaluation of loan files under post-closing and pre-purchase review. For the first in three decades, investors are asking for additional documentation that is not required within GSE guidelines or investor overlays in an attempt, as they say, 'to strengthen the loan file.' Marshal went on to say, "The typical mortgage banker is left to interpret investor guidelines on a more conservative manner than normal, not as a means to correct the direction of past mortgage lending philosophies, but to ensure salability of the loan transaction into the secondary market. Because of this, the low credit risk borrower, with a high credit score and low debt-to-income ratio, is finding it even more difficult to obtain financing at record low interest rates". In his opinion, Marshal says, "There seems to be a clear direction that the days of common sense analysis under delegated underwriting authority may become a thing of the past, in the not too distant future."

Most, if not all, of lenders use some type of Appraisal Management Companies, a vendor industry that sprang from HVCC. Yesterday a press release from NAIHP noted that it discovered many AMC's are operating without authority in most states and have failed to pay state income tax. "When businesses are formed, they are required to register with their Secretary of State, for authority to conduct business. That registration alerts the State Tax Department you exist and may be responsible for certain taxes. The same holds true if you operate outside your home state, according to Marc Savitt, NAIHP President. Most AMC's are only registered in a handful of states, but operate nationwide. If you're not registered, you're not paying taxes, said Savitt. Although, HVCC and now Appraiser Independence rules don't mandate the use of AMC's, many banks and large lenders, who own all or part of certain AMC's, require their usage by consumers. RESPA requires disclosure of these affiliated relationships. After polling NAIHP members in several states, we haven't found one AMC or any of their partners disclosing these affiliations. We've also discovered other RESPA violations as well, said Savitt."

Turning to the markets, Monday was more of the same: limited selling by originators met by buying the Fed and the usual suspects of money managers, banks, and hedge funds. There was no news here in the U.S., and Greek issues continued to dominate the press. By the close on Monday the 10-yr was at 1.97% and MBS prices were pretty much unchanged. This morning things have picked up a little with Retails Sales for January, +.4%, less than expected, but ex-auto was +.7%, better than expected. Import Prices +.3% as expected. The impact on the market is negligible: the U.S. 10-yr note is unchanged at 1.93%, and MBS prices are up.

In honor of Valentines Day:
NICKNAMES
If Laura, Kate and Sarah go out for lunch, they will call each other Laura, Kate and Sarah.
If Mike, Dave and John go out, they will affectionately refer to each other as Fat Boy, Bubba and Wildman.
EATING OUT
When the bill arrives, Mike, Dave and John will each throw in $20, even though it's only for $32.50. None of them will have anything smaller and none will actually admit they want change back.
When the girls get their bill, out come the pocket calculators.
MONEY
A man will pay $2 for a $1 item he needs.
A woman will pay $1 for a $2 item that she doesn't need but it's on sale.
BATHROOMS
A man has six items in his bathroom: toothbrush and toothpaste, shaving cream, razor, a bar of soap, and a towel.
The average number of items in the typical woman's bathroom is 337. A man would not be able to identify more than 20 of these items.
ARGUMENTS
A woman has the last word in any argument.
Anything a man says after that is the beginning of a new argument.
FUTURE
A woman worries about the future until she gets a husband.
A man never worries about the future until he gets a wife.
MARRIAGE
A woman marries a man expecting he will change, but he doesn't.
A man marries a woman expecting that she won't change, but she does.
OFFSPRING
Ah, children. A woman knows all about her children.
She knows about dentist appointments and romances, best friends, favorite foods, secret fears and hopes and dreams.
A man is vaguely aware of some short people living in the house.
THOUGHT FOR THE DAY
A married man should forget his mistakes.
There's no use in two people remembering the same thing!

If you're interested, visit my twice-a-month blog at the STRATMOR Group web site located at www.stratmorgroup.com . The current blog discusses residential lending and mortgage programs around the world, part 2. If you have both the time and inclination, make a comment on what I have written, or on other comments so that folks can learn what's going on out there from the other readers.

...(read more)

Forward this article via email: Send a copy of this story to someone you know that may want to read it.

Some 2011 Mortgage Volume Stats; EverBank to Buy MetLife Warehouse Lending

Rob Chrisman — Mon, 13 Feb 2012 14:47:16 GMT

Sometimes, at 4AM PST, my cat disdainfully watches CNBC while I work on the finishing touches in the daily commentary. Cats spend an inordinate amount of time being disdainful, but my cat has the perfect outlook while watching, which is to remember that much of the show is slanted toward entertaining, which can be enjoyable but much of which detracts from the substantive economic news. (For one thing, they're always talking about "economic uncertainty" - heck, there is always uncertainty - it's the future!) Paul Jacob with Banc of Manhattan put out a good piece late last week talking about the markets which is not so uncertain and sums things up. "This is one of those periods where the bond market feels a lot more volatile than it really is. The range since November 1 has been 1.80-2.09% on the 10-year Treasury. The push-pull hasn't changed: on the Bear side, momentum in the economy (modest but noticeable); uptrade in stocks. On the Bull side, Euro-anxiety; global fiscal headwinds; the Fed's Twist bid. We get the sense that the bond market isn't in a hurry to break the stalemate. But with the S&P at 1350 we also get the sense that stocks and bonds can't both be right; somebody's going home crying. We admit that we don't have special insight into Greece et al, other than to observe that Europe has a long track record of successfully dragging out problems well beyond the market's attention span."

Nonetheless, no one is complaining about rates, and companies are continuing to expand. I have been retained by a well-capitalized National Bank seeking a senior sales manager (SVP position) to lead its retail lending expansion. This well-known bank offers conventional and government lending through bank branch, traditional retail loan centers and call center channels. The ideal candidate should have P&L and strong recruiting experience. The name of the bank is to remain confidential, but it is well within the top 20 originators/investors in both conventional and government loan programs in the United States. If you are interested in this retail opportunity, or know someone who is, please send resumes confidentially to rchrisman@robchrisman.com.

For company news, EverBank Financial said it will buy MetLife Bank's warehouse finance business. Expected to close in the first half of this year, it is a very short story.

Lots of folks in the mortgage industry claim to be very busy. Obviously some firms have fewer employees, and it takes more resources to close a given loan (for example, underwriters going through 2-3 loans a day rather than 6-8). Sure the record low mortgage rates are helping, but 2011 was actually the slowest 365 days in mortgage lending since the year 2000, according to figures released by Inside Mortgage Finance. (That's why many companies are going after the market share vacated by BofA.) Residential home loan origination volume totaled an estimated $1.35 trillion last year, which was down about 17% from 2010. The company attributed the weakness to a soft second quarter, when just $280 billion in new mortgages were extended to homeowners. That was actually the weakest quarter since the end of 2008, when companies were tumbling and interest rates on 30-year fixed loans were close to 5%, which is more than a point above where they stand now. Interestingly enough, many mortgage lenders have complained about having too much business in recent years, so it's unclear if they actually wanted more volume. It wasn't long ago that Chase supposedly inflated its refinance rates to temper demand, partially because of reduced staff and more manpower directed toward things like loan modifications. And back in 2009, Wells Fargo complained about the quality of the loan applications it was underwriting, hinting that it may have been hurting them more than it was helping.

For those keeping track, Wells Fargo was the top residential mortgage lender in the 4^th quarter with $120 billion. (Using my HP 12C, this is an average of about $2 billion per day.) Its market share increased from 27% to 30%. It was followed by JP Morgan Chase, which brought in $42 billion, Citibank with $23 billion, and Bank of America, which fell to fourth on $22.4 billion in loan volume.

The FDIC was busy Friday, closing two banks and transferring assets. Wintrust Financial's subsidiary Barrington Bank & Trust Co. assumed the banking operations, including all the deposits, of Charter National Bank and Trust, and Muncie, Indiana-based First Merchants Bank, N.A., assumed from the FDIC all of the deposits of SCB Bank (Indiana). This brings the 2012 count to 9 (92 in 2011 and 157 in 2010).

The closing of banks is a reminder that although things have been looking up lately, the housing market is still very clearly depressed. Prices could continue declining, there's an oversupply of foreclosed homes, and many borrowers are still unable to qualify for loans. Enter the economists. Federal Reserve economists were behind the refinancing program comments in the State of the Union speech on January 24th, urging the White House take further action to ameliorate the housing crisis. Economists across the country have thrown out a few more ideas as well. Many believe that investors could play a greater role in local recovery, citing mom-and-pop investors that have bought up excess housing stock and rented it out. Encouraging that trend would help clear the "shadow supply" of foreclosures, but financing remains an issue. Increasing the number of loans that any one borrower can obtain from the GSEs is one suggestion, as is the elimination of capital-gains taxes on properties bought expressly as long-term investments with the intent to convert them to rentals. It has also been proposed that the market would benefit from policy makers finalizing a clutch of pending regulations that would restore clarity to lending. Establishing greater certainty around lending rules might make banks more generous with credit and increase consumer confidence. Another suggestion put forth by economists is that mortgage investors and banks reduce debt for the most troubled homeowners. It could be a risky move that might encourage more borrowers to default, but at this point negative equity is unlikely to cure itself. The idea here would be that borrowers would receive relief only if they stayed current on their loans, which would act as a check on a scenario of widespread defaulting.

Along those lines, in an effort to move troubled mortgages off their books, banks have begun offering more than $35,000 in cash to delinquent homeowners so that they can sell their properties for less than they owe. No lender likes short sales, but banks have decided that they're both quicker and less expensive than foreclosing. In addition to offering cash incentives, banks have been pre-approving details, streamlining the process of closing and forgoing their right to pursue unpaid debt in the hope of getting through some of the backlog. At this point, more than 14 million homes are in foreclosure, and the pending repossessions that have accumulated are standing in the way of the housing market's recovery and economic improvement. Often borrowers opt for load modification, which reduces the monthly payment and principal such that they can avoid foreclosure but as we know sometimes homeowners facing foreclosures are able to live rent-free for years before the home is actually foreclosed. Banks, then, have to offer a substantial cash benefit to sell short, and $35,000-plus appears to be the going rate to get someone out of their home. A number of banks in Arizona, California, Florida, New York and Washington are now offering cash incentives. The largest incentives are extended by JPMorgan Chase, who approve about 5000 short sales monthly, many of whom have include settlements of $10,000-$35,000 each. On average, short sale transactions, from listing to sale, take from 123 days - much less time than a foreclosure.

It is quite a week for economic news. There is zip today aside from the continued Greek tragedy that will be with us for years, in spite of a supposed "agreement" last week. (As expected, last night the Greek parliament approved an austerity package - but it will only permit the country to re-commence negotiations w/"troika" officials over the terms of a new EU130B bailout.) Tomorrow we have Retail Sales and Import & Export Prices. Wednesday is Empire Manufacturing, Industrial Production & Capacity Utilization, the NAHB Housing Index, and the release of the FOMC minutes. Thursday is Jobless Claims, Housing Starts & Building Permits, the Producer Price Index, and the Philly Fed. Phew! Friday is the Consumer Price Index and Leading Economic Indicators. Friday we closed out the 10-yr at 1.98%, and this morning we find it at 2.01% and MBS prices even to slightly better.

...(read more)

Forward this article via email: Send a copy of this story to someone you know that may want to read it.

Saturday Lender Updates, Gossip and Interesting Letters from the Trenches

Rob Chrisman — Sat, 11 Feb 2012 19:34:32 GMT

On the heels of the State of the Union address, the MBA has issued its annual State of the Mortgage Industry release, and the assessment is generally positive. The consensus was that states hit hardest by the housing crisis will continue to deal with the aftermath but that 2012 should see some degree of recovery. The MBA pointed to a number of recent upticks. Upheavals in the single family market have actually helped the multi-family market, for one. The rental market has seen some very positive activity, as more lenders, many of them life insurance companies, have moved into the sector. Of course, the residential market and refinancing remain thorns in the industry's side. MBA President and CEO Dave Stevens attributes the dearth of financing to market uncertainty, which has been aggravated by both unrest in international markets and regulation in the US. Much of the proposed legislation needs to be more specific, especially when it comes to underwriting and the definition of "ability to repay"-crucial to ensuring a safe haven for lenders. The idea of a high degree of risk is still not terribly attractive. Also criticized was the current structure of the mortgage market - the MBA points out that the GSEs or FHA are involved in 90% of lending, which was described as "simply unsustainable," and that he private sector should therefore be encouraged to re-enter the market. As for unemployment, the MBA expects 150,000 jobs to be created per month, which would have a positive effect on the mortgage market, though that number would of course vary for different demographics.

A story in American Banker by Kate Berry summed up the PHH news over the last few weeks. Namely, "PHH will cut back on correspondent lending, sell non-core assets and reverse its drive for market share in the mortgage business to alleviate investors' liquidity concerns," per CEO Glen Messina. He said that PHH may cut correspondent lending in half, directly related to PHH's near-term focus on hoarding cash since "loans originated with minor defects take up capacity on PHH's balance sheet because they typically are not eligible for warehouse financing." The article noted that, "Though PHH captured 4% of the mortgage market in the fourth quarter, Messina said that going forward 'setting a market share target' was not consistent with the company's near-term focus on liquidity and cash. PHH will no longer provide market share guidance."

At the other end of the spectrum, per Bloomberg, Bank of America's retail channel has been unable to keep up with demand for borrowers wanting to refinance, thanks in part to HARP Phase II, which is beginning to roll out. Per the article, borrowers are being placed on a 90 day waiting list. "Bank of America is telling some customers who call during high volume periods of the day to make a reservation. And once they do that, it could take anywhere from 60 to 90 days just to hear back. Even then, it's unclear how much longer it will take to apply for a refinance, get the loan underwritten, and finally get it funded." And don't forget that it stopped offering cash out refinances last month so if borrowers want to tap their home equity, they'll either have to try a HELOC or go elsewhere. Borrowers with checking accounts or those who visit a branch stand a much better chance of an earlier time frame.

A few weeks ago received information that Freddie Mac has extended the Uniform Loan Delivery Dataset implementation date, providing mortgage professionals with additional time to apply the first phase. Freddie has given substantial notice-new implementation requirements apply to loans whose applications were received on or after 12/1/11 and are delivered to Freddie on or after 7/23/12. The Freddie Mac selling system, positioned to be updated on January 23rd, will now be changed on April 23^rd. For details go to: http://www.freddiemac.com/sell/secmktg/uniform_delivery.html.

Given the number of e-mails I have received, out in the Western U.S. it seems that Reunion Mortgage, with ties to Citi, has ceased its wholesale business. For example, "It seems it pulled out of wholesale only (I didn't realize they even had a retail presence) but it sure seem to be doing it quietly. It seemed that the only brokers that received the email from them were the ones that were active with them. They didn't issue a rate sheet yesterday."

Fifth Third is expanding its policy on borrowers taking a leave of absence from their jobs in the wake of revised guidance from the GSEs now mandates that short-term income on the temporary leave is eligible for all conforming and portfolio products. Borrowers must meet a number of requirements, which include written intent to return to work in the same employment situation upon completion of the leave, verification of employment and income prior to the leave, and completion of necessary documentation. Also released by Fifth Third were its AMC turn times, which can be viewed at www.53.com/wholesalemortgage.

Mountain West is applying changes to conventional price adjusters for cash out and investment properties to loans locked on or after February 13, 2012 as well as loans that relock after that date.

For vendor news, Wednesday marked the launch of the free Zillow Mortgage Marketplace App for Android by real estate Web site Zillow. Also available for the iPhone, the newly launched app offers home shoppers on-the-go access to the loan shopping experience of Zillow Mortgage Marketplace. The app includes features that enable shoppers to narrow their home search to a specific price range, based on income, down payment, and monthly debt information. Technology marches on...

On to a few recent letters that I received. "A wise friend mentioned to me that before the government gives money to mortgagors who are underwater there should be a test to determine if a cash-out refi was done. The amount the poor, unfortunate homeowners extracted from the equity should be deducted from any principal reduction the government is handing out. Of course, this reduction will be mitigated an amount equal to the influence of the unscrupulous loan originator. I'm old enough that I will be done soon, and I am very glad that I won't have to participate in this farce much longer."

Steve Emory wrote, "I would hope that members of the industry quit going along with the mass media lies about the mortgage industry. No servicer tells a borrower to quit making their payments. This is almost an urban legend it gets so much press. Most servicers record calls with borrowers that call customer service lines. But assume somehow they avoided the subpoenas to get the recording, certainly with the volume of borrowers claiming this has happened to them there would be validated borrower recordings with proof of this practice. I've heard none and you have to know NBC, ABC, CBS, Huffington Post, etc. would plaster the airwaves with one if they had it. Sure there may be a few off the reservation ones but I haven't even heard a recording of one of these. Not one document in writing either. The press should know telling a borrower you can only process a modification for someone behind on payments, is not the same as telling the borrower to get behind on payments. A depressed homeowner may spin/twist that statement in that manner, but that is personal responsibility associated with a human tragedy, not servicer liability nor big banks/Wall Street's fault. The press should quit writing these allegations unless they have back-up proof. This lie, along with the lies of "banks want to foreclose" and "just lower the principal on all underwater homes to fix the housing crisis" are leading the uninformed distressed borrowers to conclusions that are harming those very borrowers. It helps progressive legislators pass laws that harm the financial services industry, which tighten lending standards beyond reason. It is harming people that otherwise would make their payments. It is demonizing lenders unfairly and tightens lending, which lowers the number of borrowers that qualify, which lowers home values further. It is a downward spiral that must stop before housing will recover."

And lastly, regarding the recent news about Fannie & Freddie bonuses, David Lewis, the managing consultant for Con-Serve Capital Consulting, wrote, "I guess I am among the short sighted members of the profession. I made my living as Chairman, President and CEO of two different mortgage banking companies. My span in the day-to-day business went from June of 1984 through June of 2010. From my perspective, employees at FNMA /FHLMC are government employees. As such, they are responsible to the Federal authority, and not to some Board of Directors in a "for profit" corporation. What else could they be, other than Civil Service employees, entitled to all the perks and benefits of such an employee? They certainly deserve to be graded, as are other government employees, by the grades and salary ranges appropriate to the responsibilities of their respective jobs."

Mr. Lewis continues, "For a number of reasons, these employees and the executives they report to, are no different than any employee/executive at HUD. To worry of their exodus for jobs in the private sector is to fret about the migration of any government employee. Short sighted or not, I, for one, could care less whether the new broom in Washington, D.C stays for a year or a day. FNMA/FHLMC/HUD employees raise no capital. All the capital is provided by the Federal government. If any of the entities loses money in a given fiscal period, the bills and the salaries continue to be paid with tax payer monies. FNMA/FHLMC premises are owned by the government, not the stock holders. So too, the furniture, fixtures and equipment are part of the public domain. Sales of securitized loans are sold into a market which is "made" by the Federal Reserve Board. What private enterprise is involved here? Lacking any private enterprise, in a not-for-profit corporation, how are any employees or executives different from any other publicly held department or division? The people who work at HUD, FNMA and FHLMC are public employees, period. As such, they deserve all the benefits and perquisites of public employment, and no other."

Last week I noted, "For all of you with any money left, be aware of the next expected mergers so that you can get in on the ground floor and make some "big bucks." Watch for these consolidations in 2012." I missed a few, which some readers kindly noted.
"And 2 railroads, the Norfolk Virginia Southern and the California Reading Way are merging, offering coast-to-coast overnight shipping. Coast-to-coast overnight shipping via rail? Norfolk-n-Way!"
And, "An unconfirmed rumor is that Dolly Parton will buy controlling interest in Piggly Wiggly, Big Lots and Harris Teeter. All 3 brands will operate under the name 'Dolly's Big Wiggly Teeters'."

And yesterday's joke had "I love you" in various languages, including one phrase from the southern states and a few in Canada, and received these notes:

"In Alabama, 'Nice Rack, Get in the Truck' is something you mutter under your breath when you see a big deer walking across your field.

And, "You know, in a lot of the states you mentioned in your Valentine's Day message, 'Nice rack' is actually something already in the truck. Just saying..."

If you're interested, visit my twice-a-month blog at the STRATMOR Group web site located at www.stratmorgroup.com. The current blog discusses residential lending and mortgage programs around the world, part 2. If you have both the time and inclination, make a comment on what I have written, or on other comments so that folks can learn what's going on out there from the other readers.

...(read more)

Forward this article via email: Send a copy of this story to someone you know that may want to read it.

Settlements Actually Mean Anything? FinCen's Impact on Non-bank Mortgage Lenders

Rob Chrisman — Fri, 10 Feb 2012 14:31:56 GMT

"Fat, drunk & stupid is no way to go through life son." One probably doesn't hear that admonishment much in the halls of the Financial Crimes Enforcement Network (FinCEN), which finalized regulations that require non-bank residential mortgage lenders and originators to establish anti-money laundering (AML) programs and file suspicious activity reports (SARs), as FinCEN requires of other types of financial institutions.

Law firm Ballard Spahr was quick to set up a free webinar for its attorneys to explain the new requirements and discuss the steps non-bank residential mortgage lenders and originators must take now to comply with the new requirements. Mortgage banks, who now have this new regulatory worry on their plate, may want to have someone sit in next Thursday (2/16) from 12-1 EST. For more information, contact Lora Burns at burnsl@ballardspahr.com. (Mortgage bankers have certainly become a growth industry for law firms everywhere.)

With this in mind, all kinds of things are being "settled" out there. (I am sure that many mortgage bankers wish their repurchases were being settled, which, on the flip side, is consuming the lives of many investor reps...) First, a "settlement" agreement was announced regarding Germany's bailout of Greece. Announcing it is one thing but carrying it out is another, as anyone who tries to lose 10 pounds will tell you. It is unclear whether the Greek people will accept austerity, whether it will be enforced, or whether Germany and other EU members will recognize it as enough. The markets had pretty much priced this in, so that the markets almost didn't care when Greek leaders agreed to the austerity measures tied to the next installment of its aid package.

Second, the Federal Reserve Bank of New York sold $6.2 billion worth of residential MBS to Goldman Sachs, its second major sale this year of assets acquired in the 2008 government bailout of insurer AIG. The auction-based sale will enable the New York Fed to recoup the remaining outstanding loan balance of $19.5 billion to the portfolio called Maiden Lane II. Those keeping track remember that Credit Suisse bought a $7.01 billion chunk of the portfolio three weeks ago after an auction.

Third, the U.S. Attorney for the Eastern District of New York announced the settlement of claims her office had brought against Bank of America, Countrywide Financial Corporations and some of its affiliates for underwriting and origination mortgage fraud on loans to unqualified borrowers and insured by the FHA. Of the $1 billion, there is an immediate payment of $500 million to correct some of the harm done to FHA by Countrywide's conduct. The remaining $500 million will be deferred to fund a loan modification program for borrowers across the nation with Countrywide mortgages that are under water.

And now the press can stop speculating on the servicing settlement: a final settlement between the nation's five largest mortgage servicers, two federal agencies and 49 of the states' attorneys general (AGs) was announced Thursday. (Ok, Oklahoma, what's the deal?) The market measured this as a slight positive for banks as the uncertainty of the settlement is cleared up and banks can now focus on moving forward on foreclosures. Bank of America, JPMorgan Chase & Co., Wells Fargo & Company, Citibank, and Ally Financial, (formerly GMAC) and their servicing subsidiaries have agreed to commit a minimum of $17 billion directly to borrowers through a series of relief effort options including principal reduction.

For more granularity, the ponying-up consists of Ally/GMAC ($310 mil), BofA ($11.8 billion), Citi ($2.2 billion), JP Morgan ($5.3 billion), and Wells Fargo ($5.4 billion) for $25 billion. Servicers will likely provide up to an estimated $32 billion in direct homeowner relief. There will be $4.2 billion paid directly to the states and $750 million to the federal government. In addition, a comprehensive set of new standards will be implemented to protect homeowners from future abuses and an independent monitor will be appointed to ensure servicer compliance. HUD Secretary Shaun Donovan has also commented that the total cost may increase to $45bn if additional banks sign onto the settlement deal.

Of course this does little to stop future lawsuits against these piñatas of the financial world. Nothing in the agreement grants any immunity from criminal offenses and will not affect criminal prosecutions. The agreement does not prevent homeowners or investors from pursuing individual, institutional or class action civil cases against the five servicers. The pact also enables state attorneys general and federal agencies to investigate and pursue other aspects of the mortgage crisis, including securities cases. The settlement only covers servicer liability for robo-signing and improper mortgage servicing. Notably, it does not cover any wrongdoings associated with mortgage securitizations, MERS, or any criminal liability.

"Because of the complexity of the mortgage market and this agreement, which will span a three year period, borrowers in some cases may be contacted directly by one of the five included mortgage servicers regarding loan modification offers, may be contacted by a settlement administrator or their state attorney general, or may need to contact their mortgage servicer to obtain more information about specific programs and whether their loan qualifies. More information will be made available as the settlement programs are implemented."

Barclays Capital broke down the numbers. $17 billion will come in the form of principal reductions on first and second lien mortgages ($10 billion), forbearance modifications, and costs to facilitate short sales. Principal reductions will not be applied to any loans in agency MBS trusts, and for principal reductions on non-agency loans or in bank portfolios, the servicer must determine that the modification results in a higher NPV than foreclosing on the home. $3 billion of the settlement cost will come in the form of refinancings for borrowers who are current on their mortgage payments but underwater. $1.5 billion, per Barclays, will be used to provide immediate cash payments of up to $2,000 to borrowers who lost their homes to foreclosure between January 1, 2008 and December 31, 2011.

The modifications, refinancings, and borrower payments outlined in the settlement will be performed over three years, with 75% of each bank's target required to be reached within two years. Servicers will identify borrowers eligible for these benefits over the next six to nine months. Banks that fall short of their settlement targets by the deadlines will be assessed cash penalties. Joseph Smith, the former North Carolina Commissioner of Banks, has been selected as a third party monitor to provide oversight of the participating bank servicers.

As part of the settlement, the participating banks will be required to comply with new servicing standards, most of which likely have already been implemented or are in the process of being incorporated into standard servicing procedures. (They are too numerous to repeat here.)

If you were a bank, wouldn't you try to modify as many non-portfolio loans as possible through this program since while they only get a 50% credit, banks also escape the actual monetary costs of forgiveness? However, this may not be possible for multiple reasons, and things become pretty complicated. For one thing, Barclays notes, the bank servicers will have to follow some NPV rules to make a judgment on whether to apply a principal forgiveness modification. All of the five servicers are part of the HAMP program and have presumably already been applying NPV tests to delinquent loans and have already determined on which loans a debt forgiveness modification would make sense. This settlement cannot change that assessment. Of course, more loans could be modified through debt forgiveness due to the increased HAMP PRA incentives that were announced a few weeks ago but this settlement does not change the NPV calculation beyond that.

So what can we gather from all this? As I told one reader, the whole thing was pretty much greeted with a shrug rather than champagne corks popping, especially since it certainly doesn't end many types of lawsuits. For the impact on non-agency RMBS modifications it is small, but will keep foreclosure rolls slow for another 6-12 months. The details released specifically exclude Fannie Mae/Freddie Mac pools from this settlement but one can expect that loans in private-label pools will be affected. It seems that the banks will be required to target the $17 billion in forgiveness and other relief, and will receive a 125% credit for every dollar of forgiveness that they apply to portfolio loans - but only a 50% credit for every dollar of forgiveness applied on loans that they service but do not own. The program will have a significant impact on liquidation timelines as it is likely to slow down 90+ delinquencies to foreclosure and foreclosure to REO roll rates as servicers take some time to adjust to the new servicing standards. After that, however, we expect these rates to pick up and rise to levels higher than that experienced over the past 12-24 months.

The U.S economy continues to show some signs of life. Yesterday Jobless Claims decreased 15,000 in the week ended Feb. 4 to 358,000, with the important 4-week moving average down to 366,250. Wholesale Sales were up 1.3% in December from the revised November level and were up 11.8% from the December 2010 level. Yesterday's $16 billion 30-yr bond auction went pretty well, but the 10-yr worsened .250 closing at 2.05%. In mortgage-land, ThomsonReuters noted that, "mortgage banker supply in the $2.0 billion area weighed as well as the Fed's buying has been about $1.25 billion per day on average." Rate-sheet MBS prices declined/worsened about .250.

This morning we've had some December International Trade figures which showed the deficit climbing from $47.1 to $48.8 billion. Later we have the University of Michigan Consumer Sentiment number. At 12:30PM EST Chairman Bernanke speaks on "Housing Markets in Transition" at the 2012 National Association of Homebuilders International Builders' Show from Orlando, Florida. In the early going the 10-yr is down to 1.97% and MBS prices are .125-.250 better.

With Valentine's Day approaching, you will be able to impress the object of your affection with some caring phrases. Here is "I LOVE YOU" in 10 languages, guaranteed to upset some readers.
English "I Love You"
Spanish "Te Amo"
French "Je T'aime"
German "Ich Liebe Dich"
Japanese "Ai Shite Imasu"
Italian "Ti Amo"
Chinese "Wo Ai Ni"
Swedish "Jag Alskar Dig"
Lithuanian "As Tave Meliu"
Alabama, Arkansas, Oklahoma, Texas, Louisiana, South Carolina, Georgia, Tennessee, Florida, Mississippi , Kentucky, North Carolina, West Virginia, Virginia, Manitoba, Saskatchewan, Alberta "Nice Rack, Get in the Truck".

If you're interested, visit my twice-a-month blog at the STRATMOR Group web site located at www.stratmorgroup.com. The current blog discusses residential lending and mortgage programs around the world, part 2. If you have both the time and inclination, make a comment on what I have written, or on other comments so that folks can learn what's going on out there from the other readers.

...(read more)

Forward this article via email: Send a copy of this story to someone you know that may want to read it.

Ally to Sell ResCap? NCUA on Loan Workouts; Thoughts on the FHA Streamline Situation

Rob Chrisman — Thu, 09 Feb 2012 14:51:13 GMT

Top Realtors and loan officers know that words make a difference in dealing with buyers and borrowers. It may seem obvious, but word choice, be it in advertising or client relations, has a big influence on what customers think about any given organization. Take, for example, the statement that "we can get you more loan business, trust us." The reader is highly unlikely to do so; in fact, he or she would likely be rather suspicious. The phrase "trust us" is a "negative transfer phrase"; that is, it elicits a psychological response that is the opposite of its intention. However, if told to "imagine if we can show you how to generate enough loan growth to not only meet your budget, but easily surpass it," the customer would be both interested to hear the solution and inclined to, yes, trust that company. Where "trust" is a negative transfer phrase, "imagine" is a positive transfer phrase. Some more positive transfer phrases: "I get it," "peace of mind," "customized," and "strategic objectives." And some negative transfer phrases: "prepayment penalty," "locks you into a fixed payment," and jargon or acronyms. There's your sales tip of the day.

Another tip is that Pacific Union Financial is looking to expand its sales force in the following regions: Northern CA, Southern CA, CO, CT, ID, MA, PA, MN, NV, OR, TX, and WA. "We have fulfillment centers in the Bay Area, Orange County and Fairfax VA. We are looking for regional sales managers and area sales managers with existing teams to help us expand our national footprint," along with looking for wholesale AE's. Pacific Union is a Ginnie and Fannie Direct Servicer Seller offering "an aggressive comp structure," full benefits, the advantages minimal overlays, 560 FICO's on FHA (with restrictions), and so on. All wholesale candidates need to have recent production reports and an active broker base. If you're interested contact Darius Mirshahzadeh at darius@loanpacific.com.

Maybe some of the folks from Chase will apply, since Chase correspondent "consolidated" eight regions last week for various reasons, following PHH's move a few weeks ago. And then there was yesterday's story from Bloomberg that Ally Financial is talking with private equity firms about selling its mortgage unit, Residential Capital LCC, through a pre-package bankruptcy. (I've lost track of the names over the years - RFC, GMAC, RFC/GMAC, Ally, ResCap - but this is definitely about ResCap.) According to Bloomberg, Ally has contacted Fortress Investment Cerberus Capital Management, Centerbridge Capital, and Leucadia National Corporation to see if they have any interest in a purchase.

Occasionally residential loan originators need to be reminded why investors don't pay huge premiums for pools of mortgage backed securities, and especially why prices tend to level off on rate sheets. It is expected that, due to the spike in refinancing in January, amongst other factors, prepayments will increase up to 15% in March, which will in turn increase Fannie Mae speeds. However, analysts predict that speeds will slow down in April. Most affected were the seasoned 2003-5 "vintages," though the speeds on 30-year Fannie 4%-6% have all showed decline of between 4 and 10% in the past couple of days. Speeds on 15-year Fannie's were observed to have declined along with their 30-year counterparts. Net issuance has gone from $2 billion in December to $6 billion in January, and though Fannie and Ginnie MBS outstanding continued to increase, Freddie's outstanding float declined.

For credit unions out there, a week ago the National Credit Union Administration (NCUA) published a proposed rule related to the management of loan workouts and nonaccrual policies for loans. The rule as proposed would, for all federally insured credit unions, establish standards for the management of loan workout arrangements and require written workout policies, revise requirements for reporting troubled debt (TDR) restructured loans, including the calculation and reporting of TDR loan delinquency based on restructured contract terms, prohibit accruing interest on loans at least ninety days past due (with some exceptions), and lastly maintain member business workout loans in nonaccrual status until the credit union receives six consecutive payments under the modified loan terms. The NCUA is accepting comments on the proposed rule through March 2, 2012. Visit here for a copy of the proposed rule .

The talk continues to swirl about the changes in FHA Streamline loans, whether it is lender overlays or the program being dropped from compare ratio calculations. One reader noted, "It would be interesting to look at FHA streamline default rates from the standpoint of how many borrowers who did the streamline refinance would have defaulted if they had been unable to lower their rate. For once, instead of looking at how many did, why not ask how many didn't. Maybe overall, FHA default rates would be even worse without the streamline refinance option?"

(Which raises a good point - before companies with high compare ratios break out the champagne, remember to subtract all the Streamlines from your production when calculating your new compare ratios - it won't only be the delinquent Streamlines that are removed!)

Another wrote, prior to HUD's compare ratio announcement but still worth thinking about, "I'm not sure I totally agree with the commentary on where tightening FHA underwriting takes the markets and the compare ratios. I agree that the concept of placing a cap on compare ratios will have somewhat of a long term constricting effect on FHA production but there are a lot of moving parts here and some of the production over the 150 is not good for anyone. But for the individual lender it's a crazy strategy. If the lender with the high compare ratio simply tightens its guidelines that's more likely to move the lender's compare ratio to 150 even faster than doing nothing. I agree that tightening guidelines will ultimately help performance but all the lenders loans that were previously originated will still continue on their projected delinquency pattern."

He continued, "But simply tightening guidelines will also restrict (new) production and slow the growth of the denominator (old + new production). Improving quality today will have virtually no immediate impact on the numerator (the number of delinquent loans) and the ratio will actually increase since production is constrained. Likely the ratio will rise faster than if nothing were done. Worse yet those allegedly marginal loans will still go somewhere making the lender's competitor's denominator grow faster and even reduce their ratios more. The better plan is to 1) immediately incent higher quality loans especially in appreciating markets (open branches) and discourage lower quality loans through price and possibly service - to the point of producing the "most high quality loans as fast as possible" likely at lower margin, 2) work the 30/60/90 day delinquent loans or incent your servicer/subservicer to work harder to cure them, and 3) buy the delinquent loans out of the Ginnie security and sell the whole loans to a re-performing investor/servicer to fix/mod/liquidate ASAP - better to fix what you can as fast as you can and take your lumps."

Here's a wrinkle only an underwriter would find interesting. The FHA will combine ratios with a non-occupant co-borrower. This is what is called a pure blend because the owner-occupants' ratios are not calculated separately. Freddie Mac will also use a pure blend but some lenders will require the owner occupant to have a certain ratio by themselves, even if it is relatively high. As it turns out, FHA will do the blended ratios as long as the borrower and the non-occupant co- borrowers are related. Many don't know they needed to be related, perhaps because non-related non occupant co-borrower loans don't come along every day. And if the borrower and non-occupant co-borrower are not related, the FHA requires 25% down. If it is not at least a cousin co-borrowing with the borrower, Freddie Mac is a better deal.

Turning to something simple like the daily markets, the current verdict on the job market seems to be that, despite signs of economic recovery over the past year, it is still far from healthy. Federal Reserve Chairman Ben Bernanke has in turn called on legislators to reduce the long-term budget deficit, describing the "unusually high level of long-term unemployment" as "particularly troubling." In the short term, however, the news has been undeniably positive in spite of Bernanke's concerns. With the addition of 243,000 jobs, unemployment fell to 8.3% in January. The outcome exceeded even the most optimistic projections of a group of economists recently surveyed by Bloomberg - and we'll see what today's Jobless Claims brings.

Yesterday, although the 10-yr did hit 2.00% (gasp!) it closed nearly unchanged at 1.98%. In mortgages, it was the same old story: $1-2 billion of originator selling versus hedge fund, money manager, and bank buying on top of the usual $1-1.2 billion of Fed purchases. The dynamic of that supply/demand situation caused MBS prices to improve slightly - maybe .125. And overnight Greek government officials met with officials from the country's three major parties to discuss austerity measures, but they failed to reach an agreement. (Is anyone surprised?) Pension cuts appeared to be the main issue. For news here in the States we'll have Initial Claims and Wholesale Trade numbers, along with the auction of $16 billion 30-yr bonds. Current MBS Prices

Ever since I was a child, I've always had a fear of someone under my bed at night. So, I went to a shrink and told him, "I've got problems. Every time I go to bed I think there's somebody under it. I'm scared. I think I'm going crazy."
"Just put yourself in my hands for one year," said the shrink. "Come talk to me three times a week and we should be able to get rid of those fears."
"How much do you charge?"

"Eighty dollars per visit," replied the doctor.

"I'll think about it," I said.
Six months later, I met the doctor on the street. "Why didn't you come to see me about those fears you were having?" he asked.

"Well, eighty bucks a visit three times a week for a year is an awful lot of money! A bartender cured me for $10. I was so happy to have saved all that money that I bought me a new pickup!"
"Is that so!" he said with a bit of an attitude. "And how, may I ask, did a bartender cure you?"
"He told me to cut the legs off the bed! There's nobody under there now!"

...(read more)

Forward this article via email: Send a copy of this story to someone you know that may want to read it.

Missouri Goes After Processor DocX; Wells Now #1 Servicer; Rural Streamlines

Rob Chrisman — Wed, 08 Feb 2012 16:59:00 GMT

What, exactly, qualifies a person as "rich"? It depends who you are - here in the States the wealth of the top 1% is about 225 times greater than that of the typical family, compared to 125 times in 1962, and the cumulative wealth of the Forbes 400 was $1.54 trillion, equal to worth of the bottom half of American families. Household net worth has been falling, and a recent Gallup poll states that the median income to be considered "rich" is $150,000 a year, up from the $120,000 that qualified a person as rich in 2003. Amongst different demographics, however, what makes one "rich" is relative. About 15% of respondents said it would take $1 million a year or more to fall into that category, but three in 10 say that they'd qualify as prosperous even pulling in less than six figures. About half of Americans believe that affluence equates to at least $1 million in net worth. Men, as well as people younger than 50, said they need more than $150,000/year before calling themselves rich; for women and older people, $100,000. For college graduates, households with children under age 18 and residents in cities and suburbs, it's $200,000 a year to categorize themselves as well off-double the amount stated by non-graduates, those without young children and people living in small towns or rural areas.

Speaking of income, I have been retained by a very well-capitalized mortgage bank that is searching for a Southwest Regional Manager for their Wholesale/Correspondent Lending Division and high-performing Account Executives in key markets. This national lender has a portfolio lending appetite with company-wide production in excess of $5 billion through its wholesale, correspondent, retail, and direct lending channels. The ideal Regional Manager is a strong leader with a proven industry track record who can assemble and motivate a strong sales team. Preferably located in SoCal, the territory includes CA, NV, AZ and UT. Please send resumes to me at rchrisman@robchrisman.com and I will confidentially forward them.

I cannot divulge the name of the company above, but I can tell you that it is not Bank of America, which, by the way, is no longer the nation's biggest mortgage servicer in the U.S., according to the latest report from IMF. It is no surprise that Wells Fargo is now the biggest mortgage servicer in the country with $1.82 trillion in business, or nearly 18% of the total market, compared with Bank of America's $1.77 trillion or a shade over 17%. (Recently BofA had lost its title as biggest bank in the U.S. when its reported assets fell to $2.22 trillion, below JPMorgan Chase's $2.29 trillion, and Brian Moynihan has stated that the company would rather be the best than the biggest.)

The Midwest (named long ago by folks in the east, as opposed to people in the west calling it the Mideast) is especially interested in the Federal Agriculture Department's proposal eliminating the required new credit report and appraisal in an effort to further streamline the refinancing process for rural housing loans. Rural housing loans offer comprehensive prepay protection and trade quite well, though they comprise a small part of the market. Not only are originators interested in the pricing, but investors want to know how the Agriculture Department's proposal would affect prepayment speeds. For Guaranteed Loans, there is already a streamlined refinance program in place that doesn't require an appraisal if the maximum loan amount doesn't exceed the principal balance of the existing loan and guarantee fee. For the most part, in fact, borrowers are able to get around much of the documentation mentioned in the proposal, and for this reason analysts believe that speeds of Guaranteed Rural Housing loans won't be hugely impacted.

Mortgage brokers, servicers, and banks are not the only ones being sued. In Missouri, a loan processor (DocX) is the target.

Four items in yesterday's commentary garnered some reader comments: the update on HUD's discrimination news, the servicer settlement, Google and its withdrawal from the mortgage space, and FHA Streamline loans.

On Streamlines: "This is great news but it still does not change the fact that streamlines have literally 4x the default rate of other FHA programs. It doesn't make them desired loans now. If the FHA really wanted more homeowner's with FHA loans to take advantage of the FHA streamline refi they would grandfather in the FHA insurance, which I believe is the main reason homeowner's don't take advantage of a very good program. In today's world, even if the interest rate is 2% lower than the current note rate, the increase in FHA MI over the last 2 years off sets the interest rate savings - it makes no sense."

On HUD and the Fair Housing Act: "The recent announcement does not amend ECOA - the previously protected classes are already covered by ECOA. And the Fair Housing Act has also always covered the handicapped and familial status. Effective March 5, what is new is that HUD now prohibits discrimination against the LGBT community (Lesbian, Gay, Bisexual and Transsexual) and they have more clearly defined the meaning of the word "family" to include single people as well as any combination of people who call themselves a family or choose to live together as such. And this prohibition applies to lenders providing the standard suite of FHA loan products as well as their public housing and rental programs. I did not see any language that stated clearly that these new protected classes are now under the Fair Housing Act umbrella. The new regulations, published as final in the Federal Register in late January, will go into effect 30 days after the rule was published."

On the robo-signing servicer settlement news: "With regards to the proposed settlement with the banks by the states, it appears that this is nothing more than extortion. Giving $2,000 to every borrower that didn't make their payments seems absurd to me. Sure there were some problems but NOT EVERY foreclosure was the fault of the banks. Taking this to the extreme, why doesn't this administration just seize the major banks and redistribute the money (after a service charge of course). As an aside, why can't I sue, and receive free money, because it is not fair that I make my mortgage payments on time. I should get some too! (sniffle)"...

...(read more)

Forward this article via email: Send a copy of this story to someone you know that may want to read it.

Google Ends Mortgage Ads; Streamlines to be Nixed from FHA Compare Ratios; Servicing Agreement Bumping Along

Rob Chrisman — Tue, 07 Feb 2012 16:00:00 GMT

This is Black (African-American) History Month. The event began as Black History Week in 1926. For many years, the second week of February was set aside for this celebration to coincide with the birthdays of abolitionist/editor Frederick Douglass and Abraham Lincoln but then expanded in 1976 into Black History Month. The 2010 census counted 42 million black (either a single ethnicity or a combination of races) people in the U.S., nearly 14% of the population. Looking at the states, New York had the highest population with 3.3 million blacks, followed by Florida, Texas, Georgia, California, North Carolina, Illinois, Maryland, Virginia and Ohio. In terms of percentages of overall state population, Mississippi led the nation with 38%, followed by Louisiana (33), Georgia (32), Maryland (31), South Carolina (29) and Alabama (27).

When NASA first started sending up astronauts, they quickly discovered that ballpoint pens would not work in zero gravity. To combat the problem, NASA scientists spent a decade and $12 billion to develop a pen that writes in zero gravity, upside down, underwater, on almost any surface including glass and at temperatures ranging from below freezing to 300 centigrade. The Russians used a pencil. There's a lesson in that amusing tale for mortgage bankers and Realtors - I just don't know what it is. I do know that the definition of "deleveraging" is, "The process or practice of reducing the level of one's debt by rapidly selling one's assets." As it turns out, Equifax reported that U.S. consumers sharply reduced their debts by 11% last year, from $12.4 trillion to $11.1 trillion.

This news will prompt many lenders to throw a ticker-tape parade that will rival the NY Giants football event today. HUD and the FHA have long promoted the FHA Streamline Refinance as a useful tool to allow responsible homeowners to save thousands of dollars by refinancing at today's low interest rates. FHA-insured borrowers must be current, and in theory they can refinance into today's lower rates without requiring additional underwriting. "However, it has become apparent that some of our lending partners are reluctant to offer this product widely because of concerns about taking on the risk of a loan which they may not have underwritten and the potential adverse impact such a loan may have on their FHA Compare Ratio. In order to expand the availability of this product for eligible borrowers, FHA will make changes to the way in which FHA Streamline Refinance loans are displayed in the Neighborhood Watch Early Warning System (Neighborhood Watch). Streamline Refinances will be removed from the public compare ratio in Neighborhood Watch, but lenders will still be able to view their own traditional compare ratio (with streamlines included)." The Announcement

All eyes are on California as the deadline approaches for state officials to sign onto the multibillion-dollar foreclosure abuse settlement. As the largest remaining holdout, California appears to leaning towards signing, which could potentially increase the settlement from $19 billion to upward of $25 billion. New York seems to be acting on the same lines. (Do you think the AG's are texting with each other?) Part of the deal for these two states would be the preservation of the right to investigate banks' past misdeeds and adding regulation to ensure that financial institutions adhere to the deal and that the money actually reaches struggling homeowners. As it stands now, the deal would allocate $17 billion specifically for principal reductions and other relief for up to one million borrowers whose homes are underwater. The 750,000 families whose homes have been foreclosed would receive checks for about $2,000. A deal has been in the making for the past 13 months, as the settlement has been delayed on multiple occasions, so a lot is riding on the decisions of the California and New York Attorneys General - if they do sign on, a finalized deal will come much sooner than later.

As the foreclosure abuses settlement deal finalizes people are getting a better idea of the numbers involved. The amount that home mortgage securities investors will have to pay is now projected to be up to $40 billion, which, according to the government, would act as a "down payment" for future principal reduction initiatives from future settlements. The White House plans to litigation as a key tool for procuring additional sums from large financial institutions that will be used to further aid for struggling borrowers. This is part of a trend that has seen the Obama administration escalate efforts to help US borrowers-in addition to the finalization of the foreclosure and loan abuses settlements, a new state and federal unit has been created to investigate mortgage-related fraud.

I will never be an internet mortgage marketing whiz kid. And I guess Google thinks something similar - on the heels of several office closures, Google has discontinued its mortgage rate advertising platform Google Mortgage Advisor after two years of operation. Apparently the decision was based on the product's poor performance and a company initiative to de-clutter by shutting down programs that aren't as successful as projected. From the Google website: "Google Advisor mortgages has been discontinued We’ve been prioritizing our product efforts across Google, which means taking a hard look at products that haven’t been as successful as we would have hoped. To that end, we’ve closed down the mortgage search feature of Google Advisor and are focused on building continued improvements into the rest of the product."

"Recent changes to the Home Affordable Refinance Program (HARP) present both opportunities and challenges to lenders and services. DataQuick, a provider of advanced real estate information solutions powered by data, analytics and decisioning, has already responded with timely new offerings that quickly identify eligible loan modification candidates. Through the application of proprietary analytics on its nationwide property database, DataQuick has identified 6.7 million borrowers who meet the new eligibility requirements and will most likely benefit from the revised program. Lenders and servicers can easily match their current portfolio to the database to identify the best candidates for loan modification. HARP eligibility requires that candidates have no late mortgage payments in the past six months and no more than one late payment in the past 12 months." Sounds pretty nifty - for more information contact your DataQuick sales representative or Wendy Barnett at wbarnett@dataquick.com. (And nope, this wasn't a paid ad.)

I am not an expert in compliance, but this caught my eye: in the January 24th Federal Register, HUD has proposed a rule (ECOA/Reg B) that prohibits banks from discriminating against borrowers based on ethnicity, religion, national origin, gender, marital status, age (provided the applicant has the capacity to contract), income from public assistance, or the exercise of any Consumer Credit Protection Act. The Fair Housing Act prohibits discrimination on account of familial status or handicaps. These are very, very recent developments-both rules go into effect on March 5. It boggles the mind a bit, but better late than never, one supposes. The January 24th Federal Register entry can be read by clicking http://edocket.access.gpo.gov/2011/pdf/2011-1346.pdf.

The markets certainly don't care about marital status or gender, and yesterday we saw a nice little half-point rally (improvement) in the U.S.10-yr with it closing at 1.90%. With no scheduled news in this country, Treasuries gained today as "risk aversion" was back on worries about Greece. MBS prices improved from nearly .5 on 30-year 3.0% coupons to just roughly unchanged on 4.5's through 6.5's, as one would expect. And then overnight Greece's main political parties reportedly missed a deadline for responding to demands for more austerity measures. Negotiations between Greece and its private creditors are on hold while officials work on a rescue program with the EU, the International Monetary Fund and the European Central Bank. Greece faces a 14.5 billion euro bond repayment in less than six weeks. It won't be able to make the payment without international help.

Here in the states, once again there is no news of substance although we do have a $32 billion 3-yr note auction at 1PM EST. Chairman Bernanke is scheduled to repeat his recent testimony before the House Budget Committee to the Senate Budget Committee beginning at 10AM EST, but don't look for anything new. MBS Prices are down.

HIGH SCHOOL -- 1957 vs. 2010 (Part 2 of 2)...

...(read more)

Forward this article via email: Send a copy of this story to someone you know that may want to read it.

All FHA Today: Compare Ratios, Streamlines, Condo Approvals, LI Program Changes

Rob Chrisman — Mon, 06 Feb 2012 15:14:21 GMT

Some will call this a useful tool and a time saver - others will say it is another sign of our privacy going away and "Big Brother" seeing everything. Enter an address, and it displays a map of the area showing all residences/businesses, including their phone numbers: http://neighbors.whitepages.com.

In Northern California, WBC Lending is looking for experienced wholesale AE's to call on brokers. WBC Lending has "an aggressive product offering, including a super jumbo portfolio product with start rate 1.625% and life cap of 6.25%, up to $2 million dollars with a 50% DTI, and a 40-year term." With over 65 years of combined wholesale mortgage banking experience, the executive management team at WBC Lending believes they have put together a wholesale platform that is second to none, and would prefer that candidates have a minimum of 2 years' experience. WBC has local underwriting, docs and funding all out of the San Jose based corporate offices. If interested, please inquire today by contacting John Giagiari at jg@westernbancorp.com, and for more information on the company visit http://www.westernbancorp.com/.

Perhaps Bank of America home loans president Barbara Desoer could apply - she will retire this month after being at the bank since 1977! Her most recent assignment was the "integration of the Home Loans business into Consumer Banking" after the 2008 purchase of Countrywide.

HUD, and the FHA, is definitely a big part of the home mortgage environment. In the name of further learning, HUD is offering a variety of training programs, including an online course on the new HOPE LoanPort (HLP) enhancements. You can register for classes, which are take place every Tuesday and Thursday. Also available is a series webinars on Loss Mitigation, offered in conjunction with the FHA. Some of the upcoming courses cover HUD's Neighborhood Watch System, loss mitigation, default reporting and FHA claims. See the HUD website to register.

Early pay-offs (prepayments) of Ginnie Mae securities, made up primarily of FHA and VA loans, is causing some concern among investors. Besides the initiatives announced by President Obama in his Plan to Help Responsible Homeowners and Heal the Housing Market, more changes, such as tweaks to the FHA mortgage insurance premiums (MIP), could be unveiled in the next few weeks. President Obama's plan describes "Streamlined Refinancing for FHA Borrowers" by excluding streamline-refinanced loans from comparison ratio calculations. Most believe that this plan will be implemented and has the potential to raise GNMA prepayment speeds. (There has been a recent increase in early pay-offs; most attribute this to the "GNMA universe" becoming a lot more refinanceable after the improvement in FHA rates this year.)

(As a quick refresher, the compare ratio is the serious delinquency rate of all loans originated by a lender during a one or two-year period relative to the average of all lenders operating in the same region. If this ratio rises above 150%, the lender may lose the ability to make new FHA loans out of that region or branch - 200% is almost a sure thing. As higher coupon and seasoned loans have a weaker credit and greater default risks, lenders worry that streamline-refinancing them could push up the compare ratio.)

If Streamlines are excluded from the compare ratio calculation, this should remove a disincentive for streamline-refinancing higher-risk borrowers. This argues for an increase in GNMA prepayments, particularly on higher coupons and pre-2009 originations since these have the worst credit quality. But data from HUD suggest that the compare ratios of most national lenders are now significantly below the 150% threshold (see below), implying that this is not the only binding condition for refinancing riskier loans. In addition, FHA's indemnification rules essentially grant put-back amnesty for loans originated before 2009 - refinancing these loans would reset the clock and put the lender on the hook for fresh rep & warranties. Unless FHA grants put-back amnesty for all streamline refinances, lenders are likely to remain skittish. And let us not forget the various overlays that most investors have in place on FHA Streamlines.

So where are the compare ratios of "the big boys"? The current national compare ratios for the big lenders, from research piece I read from a large broker-dealer, are all below 130% - well below 200% recommended by FHA. Only 6% of lenders have a compare ratio of above 200% and these lenders comprise of only 2% of the total loans outstanding (that are considered for calculating compare ratios). BofA has 126, Chase 39, Wells 79, Quicken 78, US Bank 69, Fifth Third 59, PHH 66. Bank of America 90+ delinquencies have been steadily rising and there are concerns that they will be forced to do a one-time buyout as their 90+ delinquencies hit 5%, and/or, similar to GMAC, BofA starts buying out just enough delinquent loans to maintain delinquencies at that level.

Critics of the compare ratio ask, "Isn't it more of a long term snapshot of performance than short term? If a lender tightens up their guidelines would you see an immediate impact to the compare ratio?" Some liken it to turning a cruise ship, and only looking in the rear view mirror. And further complicating things is the theory that most delinquencies are caused by unforeseen job losses, rather than other reasons that might have been caught during the underwriting process - unless one's underwriters were very poor and the company was seeing a first payment default problem.

Speaking of which, the serious delinquency rate for FHA mortgages reached 9.6% in December, and the highest level in more than two years, HUD recently announced. More than 711,000 FHA-insured loans were seriously delinquent, up almost 19% from one year earlier, according to the HUD report, and up 3% from November. At the same time, mostly for pricing reasons, originations are down. In December, the FHA insured 93,700 mortgages, a nearly 30% decline from the 133,000 insured in December 2010. Analysts are most concerned with the FHA's insurance fund: in its fiscal year 2011, the FHA Mutual Mortgage Insurance Fund slipped to a 0.24% capital ratio from 0.5% the year prior. By law, the fund must remain above 2%. Lenders should not be surprised if the FHA insurance premiums go up again this year.

Here in Miami, and everywhere else condos exist, condo buyers are having a hard time obtaining FHA mortgages, and often it's down to the building's financial status, not the borrower's. Since February 2010, the FHA have required that the whole building be deemed financially viable rather than just the single units, which has resulted in a proliferation of rejected buildings, a headache for condo sellers who rely on the FHA stamp of approval as a marketing mechanism, impeding the housing market's recovery. FHA regulations now dictate that buildings must be 50% owner-occupied, that no more than 10% of the units are owned by one entity, that no more than 15% of the units are 30 days past due on their monthly assessments, and that at least 10% of the association budget be set aside for capital expenditures and deferred maintenance. The general consensus in the housing industry is that, given consumer demand for FHA-backed mortgages, the regulation is short-sighted.

FHA mortgagees participating in the Lender Insurance ("LI") program will be required to indemnify HUD for self-endorsed loans that HUD deems ineligible for FHA insurance based on a final regulation published by HUD on January 25. The regulation finalizes changes to the LI regulations and will take effect on February 24. In addition to the significant changes to HUD's indemnification authority for self-endorsed loans through the LI program, the final regulation also amends mortgagee eligibility criteria to participate in the LI program, including acceptable default/claim rates, amends HUD's authority to monitor lenders participating in the LI program, and implements a process for FHA lenders terminated from the LI program to request reinstatement of their LI authority.

HUD made clear that these amendments are designed to improve and expand the risk management activities of the FHA and to strengthen the FHA Insurance Fund by limiting "unnecessary and inappropriate risks" to the Fund associated with loans that the Department determines should not have been endorsed through the LI program. As HUD notes, this is the latest in a series of steps the Department has taken to strengthen the financial soundness of the FHA program and mitigate the risk of possible insolvency of the FHA Insurance Fund as HUD continues its efforts to increase FHA's capital reserve ratio to meet the congressionally mandated threshold of two percent.

Last week was not kind to fixed-income U.S. securities, especially after that strong jobs number Friday. But the U.S. economy is not setting the world on fire, and Europe still poses a threat - and could for years. So we can all expect rates to drift and drift down. Rates are holding record lows as mortgage bonds (MBS) rally ever higher. Any modest improvement in our economy would nudge investors into equities and out of bonds - but the overhang of the Eurozone debt crisis proves to be too much. Our 10-yr T-note closed Friday at about 1.94%

The economic calendar will be very light this week - so watch for Europe to perhaps regain center stage. We do, however, have some Bernanke testimony and Treasury auctions tomorrow, Wednesday, and Thursday; the Trade Balance and Consumer Sentiment will be released on Friday. Ahead of that rates and prices are nearly unchanged from Friday.

HIGH SCHOOL -- 1957 vs. 2010 (Part 1 of 2)
Scenario 1:
Jack goes quail hunting before school and then pulls into the school parking lot with his shotgun in his truck's gun rack..
1957 - Vice Principal comes over, looks at Jack's shotgun, goes to his car and gets his shotgun to show Jack.
2010 - School goes into lock down, FBI called, Jack hauled off to jail and never sees his truck or gun again. Counselors called in for traumatized students and teachers.
Scenario 2:
Johnny and Mark get into a fist fight after school.
1957 - Crowd gathers. Mark wins. Johnny and Mark shake hands and end up buddies.
2010 - Police called and SWAT team arrives -- they arrest both Johnny and Mark. They are both charged with assault and both expelled even though Johnny started it.
Scenario 3:
Jeffrey will not be still in class, he disrupts other students.
1957 - Jeffrey sent to the Principal's office and given a good paddling by the Principal. He then returns to class, sits still and does not disrupt class again.
2010 - Jeffrey is given huge doses of Ritalin. He becomes a zombie. He is then tested for ADD. The family gets extra money (SSI) from the government because Jeffrey has a disability.
Scenario 4:
Billy breaks a window in his neighbor's car and his Dad gives him a whipping with his belt.
1957 - Billy is more careful next time, grows up normal, goes to college and becomes a successful businessman.
2010 - Billy's dad is arrested for child abuse; Billy is removed to foster care and joins a gang. The state psychologist is told by Billy's sister that she remembers being abused herself and their dad goes to prison. Billy's mom has an affair with the psychologist.
(Part 2 tomorrow.)

...(read more)

Forward this article via email: Send a copy of this story to someone you know that may want to read it.

PHH Restructuring; MBA Classes; Servicing Comp Change Bearing Away; Harsher Fraud Penalties Coming?

Rob Chrisman — Fri, 03 Feb 2012 15:34:55 GMT

The e-mail wires here in Miami have been burning up with...e-mails.

PHH clients received a note from Norm Fitzgerald, explaining the recent restructuring. "I am writing to let you know we recently decided to reallocate resources from our Correspondent Lending channel to our Private Label Solutions and Real Estate Field Sales distribution channels. Although this action will reduce our Correspondent Lending volume, I want to be clear that we are committed to Correspondent Lending and will continue to participate in the business with a renewed focus on our high quality and long term customers. We made this decision in response to ongoing challenges posed by the volatility in the global economy, the capital markets and the housing markets. We believe these market uncertainties require an increased emphasis on liquidity and cash-generation. While our company focus may shift and adapt with the current market environment, our priorities remain the same, including an unwavering commitment to customer service."

Lenders One clients also received a note about PHH, recently downgraded by S&P (join the club!), under investigation by the CFPB, and which carried out significant layoffs earlier this week. "Given the potentially serious nature of the situation, we have endeavored to find out as much as possible so that we could share tangible information with the Members. However, we also want to avoid spreading rumors or providing misinformation. To that end, we can think of no better way to ensure the most accurate distribution of information than to invite each of you to participate in the upcoming PHH earnings call which, fortuitously, is scheduled for next week...'PHH announced plans to release its fourth quarter 2011 results on Monday, February 6, 2012, after the market closes. The Company will host a conference call at 10AM EST on Tuesday, February 7, to discuss its fourth quarter 2011 results. You can access the conference call by dialing (888) 510-1762 or (719) 457-2634 and using the conference ID 4120134 approximately 10 minutes prior to the call. The conference call will also be webcast, which can be accessed at www.phh.com/invest under webcasts and presentations.'"

Not to be outdone in sending notes, Wells Fargo's wholesale management (Kevin Sexton, Bill Trees, and Jim Wyble) sent out a note to brokers. "As the competitive landscape for third party lending continues to evolve, we wanted to take this opportunity to confirm our commitment to Wholesale lending and our broker community. As other lenders exit the Wholesale business, we believe 2012 promises to be a great year with ample opportunity as we continue to work together and remain focused on quality. Wells Fargo Wholesale Lending is committed to serving you and your customers. For more than 15 years, Wells Fargo has been an industry leader in the Wholesale channel. As we've demonstrated time and again, Wells Fargo is invested in the long-term success of you, your borrowers and the wholesale business. You can count on our dedicated team to partner with you to provide valuable products and programs to American homebuyers in a fair and responsible way."

Back in September the FHFA, the overseer of Fannie & Freddie, released a "white paper" suggesting a change to the way servicers are compensated. FHFA's goal was to propose a new servicing compensation structure to (i) improve service for borrowers; (ii) reduce financial risk to servicers; and (iii) provide flexibility for guarantors to better manager non-performing loans while promoting continued liquidity in the TBA market. It asked for comments on reducing the Minimum Servicing Fee (MSF) from 25bp to 12.5bp to 20bp. (The proposal established a separate account within the trust structure of the MBS which is funded by reallocating around 5bp from the borrowers payments, and would be available to pay for non-performing loan servicing.) Under this proposal, servicers were to move from receiving 25bp of servicing to receiving a fixed dollar amount based of compensation if the loan is current ($10/loan). And in order to protect investors from churning, the enterprises were to do the following: implement a net tangible benefit test for streamline refi programs, enhance monitoring and tracking of prepayment speeds for each servicer, and restrict the amount of excess IO in a pool. But lacking was a plan for guidance on what a servicer might earn should a loan go delinquent.

We've come to learn that the FHFA is preparing to back away from this plan to overhaul the minimum servicing fees paid on Fannie Mae and Freddie Mac loans, after intense, across-the-board industry opposition to the idea. "Sources" say it's pretty much over and done with, and in a non-descript message FHFA spokeswoman Corinne Russell e-mailed, "Considering changes to the structure of mortgage servicing compensation is an important component of improving the operations of the future mortgage market. We received useful input on the discussion paper, and will provide an update on next steps in the near future." Most servicing advisory firms came out against any radical changes to compensation, as did the MBA. (Editor's note: haven't we had enough change and uncertainty from outside the industry - why do we need more from within it?)

Live and learn. There are a lot of learning opportunities from our MBA for mortgage folks out there. (Probably even a few where this might happen). For example from Feb 13-15, "Collections and Early Intervention: Regulatory Requirements and Implementation Strategies is for all the collections and customer service managers, leads, and supervisors out there to help design compliant strategies and processes for handling collections" - Link.
Continuing on, for asset managers, relationship managers, servicing managers, and commercial real estate primary services who service CMBS loans, "CMBS Restructures: How to Work with Customers on Non-Performing Loans" outlines the specific details of the responsibilities, standards, and circumstances associated with CMBS loans. More information for the Feb 16 course. And anyone who works in REO and is interested in asset management protection should look into "REO and Property Preservation," which will help participants with strategy, managing remediation costs and timetables, and calculating return on the repair dollar and its influence on the markets. This one will take place from March 12-13.

The FDIC will host a national conference on "The Future of Community Banking" on February 16 in Arlington, Virginia. The conference will provide a forum for community bank stakeholders to explore the unique role community banks play in the country's economy and the challenges and opportunities this segment of the banking industry faces. Ben Bernanke and FDIC Director Tom Curry are scheduled to deliver the keynote addresses at the conference. FDIC Acting Chairman Martin J. Gruenberg will also make remarks - additional information. Before you book your flight, attendance at the conference is by invitation and will be open to credentialed members of the media - so the conference will be broadcast live and archived through a publicly available webcast on the FDIC's Web site here.

In keeping with regulation trends, the US Sentencing Commission has proposed harsher sentencing guidelines for securities and mortgage fraud violations. (Who knew our government had a sentencing commission - but these days who is surprised?) It is seeking comment on whether or not the current guidelines under Dodd-Frank account for potential and actual harm to the public and financial markets from securities, mortgage and financial institution fraud. Regarding securities, the Commission is focusing on insider trading, while for mortgage fraud, they're looking to amend the way loan fraud loss is calculated. The latter would be assessed by taking into account the amount recovered from the foreclosure sale where the collateral is disposed as well as reasonably predicted administrative costs incurred by the lending institution associated with the foreclosure of the mortgaged property. The Commission also wishes to amend the sentencing for specific financial harms such as "jeopardizing the financial institution." To view the proposal in full, see http://www.ussc.gov/Legal/Federal_Register_Notices/20120119_FR_Proposed_Amendments.pdf. Note as well that they are accepting public comments until March 19th!

The California Department of Real Estate (DRE) is constantly asked, regarding short sale transactions, whether a buy can be charged to compensate either the sale negotiator or the broker. As of July 2011, California state law prohibits the charging of additional fees in exchange for the written consent of the sale. Under the Real Estate Law, short sale fees may still be charged, but, to maintain a certain level of transparency, the negotiator must be properly licensed under California law, and there must be full written disclosure to all parties involved, including the short sale and originating lenders. The compensation fees must be disclosed in the purchase agreements, escrow instructions, and HUD 1 statement. Any "special fees" charged must be authorized by the DRE via an advance fee contract; Additionally, the Real Estate Settlement Procedures Act (RESPA) requires these fees to correspond to an actual service performed-in other words, the buyer must be getting work done for any money paid. Any "junk" or "special" fees and they'll be on you like a ton of bricks.

Yup, rates are good, and should be for quite some time. Like Ground Hog Day, yesterday was more of the same: good supply/selling from mortgage bankers (maybe locks are picking up with these record low rates?) met by more demand by the Fed, hedge funds, banks, and money managers. Investors are piling into agency MBS in anticipation of a QE3 round from the Fed - officials have been hinting lately about plans to potentially launch another round of QE (w/this one focused on mortgages instead of Treasuries). The Fed's appetite continues to be a constant $1-1.2 billion a day, so any selling above or below that by originators tends to tilt the scale. (Bernanke, who testified yesterday in Washington, said nothing new to move the markets.) Yesterday, by the close, MBS prices were better by almost .250 and the 10-yr T-note closed at 1.83%.

We've had the 1^st-Friday-of-every-month jobs numbers this morning. January's Nonfarm Payrolls, expected +150k, down from +203k in December, came out at +243k. The Unemployment Rate dropped from 8.5% to 8.3% (the lowest in almost 3 years). With no substantive news from Europe, this will probably determine trading for today, and soon after the strong jobs number the 10-yr worsened from 1.82% to 1.92%, and MBS prices appear worse by .375-.50.

For more weekly insight into MBS / secondary markets, make sure to read and subscribe to: Calculating Current Coupon in a Record Low Rate Environment by Bill Berliner.

A guy took his blonde girlfriend to her first football game.
They had great seats right behind their team's bench.
After the game, he asked her how she liked it.
"Oh, I really liked it," she replied, "especially the tight pants and all the big muscles, but I just couldn't understand why they were killing each other over 25 cents."
Dumbfounded, her boyfriend asked, "What do you mean?"
"Well, they flipped a coin, one team got it and then for the rest of the game, all they kept screaming was, 'Get the quarterback! Get the quarterback!' I'm like...Helloooooo? It's only 25 cents!!!!"

If you're interested, visit my twice-a-month blog at the STRATMOR Group web site located at www.stratmorgroup.com. The current blog discusses residential lending and mortgage programs around the world, part 2. If you have both the time and inclination, make a comment on what I have written, or on other comments so that folks can learn what's going on out there from the other readers.

...(read more)

Forward this article via email: Send a copy of this story to someone you know that may want to read it.

Citi Exits Broker Biz; Fed Addresses Sticky Second Mortgage Situation

Rob Chrisman — Thu, 02 Feb 2012 14:18:52 GMT

Yesterday, as I was standing in line at Franklin's BBQ in Austin, Texas, my head began to spin. Not because of the great smell, or from wondering why all these people weren't working at 11AM instead of standing in line, but from trying to keep track of all the continued government intervention in the housing market - not that it hasn't always been there. As I tell folks, nothing is going to happen to Freddie and Fannie until 2013, if at all, and the way Congress and the president keep using the agencies to try to accomplish policies they certainly are not going away.

The HARP 2.0 initiative aimed at helping agency homeowners to refinance. Then came HAMP 2.0 (this past Friday), aimed at helping to encourage more modifications. Yesterday Obama unveiled a separate refinancing program (discussed below) targeted at non-agency homeowners (making refinancing easier for mortgages not backed by Fannie or Freddie). Finally, in the coming days/weeks we could get a final foreclosure settlement as well as a plan to sell foreclosed homes in bulk. In aggregate, all these policy moves could help at the margin but most believe they fall short of some grand Fannie/Freddie automatic refinance plan for which some investors had hoped. Maybe we're done with government initiatives for the year? Perhaps not - don't forget chatter out there about the foreclosed properties sitting on the agency's balance sheets, and large scale plans of selling them to investors. And we have some type of possible settlement between the state's AG's and large servicers...

Regarding President Obama's election year housing plan, which is probably going to require Congressional approval, and is therefore highly unlikely...there are fact sheets ranging from 7-10 pages. It certainly gave investors something to talk about yesterday, even if it will take many months, if at all, to roll out. There is too much to reproduce here, check out the original. Most believe that this plan will not pass through Congress, given the level of political polarization. And it is difficult to understand why the Administration thinks it can get this proposal through Congress when it cannot get the parts that do not need Congressional approval through the GSE's and FHFA (a federal agency). If rising pressure on the GSEs does lead to them to adopt the agency components of this plan, there will be an enormous effect on agency MBS.

One statement noted, "... believe these steps are within the existing authority of the FHFA. However, to date, the GSEs have not acted, so the Administration is calling on Congress..." Most of the proposals for the plan do not need Congressional approval but the Administration is implying that the main reason to send these proposals to Congress is that the Administration cannot get the GSEs (and presumably FHFA) to do what needs to be done "in the taxpayer's interest..." Consequently, this public proposal seems to be a way to put pressure on the GSEs and FHFA to do what the Administration wants. I guess this is how modern government functions...

So please dig into the fact sheet noted above - that is what the market knows. Originators should probably not become too enamored or bogged down in the plan, as it will take, if it happens at all, several months to sort out, digest, and implement. And who knows which agencies or investors will still be around to originate or buy those loans, which leads me to...

"Dear Broker Mortgage Lending Clients: Over the last four years, the Broker Lending community has shown great resilience during continued consolidation of this market segment. We appreciate your partnership, your willingness and your ability to adapt to the ever-changing regulatory environment. After careful consideration, Citibank has decided to transition away from our Broker lending business and sharpen our focus on a customer-centric channel strategy...In an effort to effectively manage the Broker Mortgage Channel pipeline for you and your customers, we will manage the transition as follows: We will no longer accept new registrations from our Broker Mortgage Channel clients after the close of business on Wednesday, February 8, at 11:59 pm CST. All locked pipelines must be funded and closed by April 30."

And with that, Citi exits the wholesale business. Although Citi had scaled back from its broker channel some time ago, and tended to be more focused on certain geographic areas than others, it is yet another piece of bad news. Brokers have to be thinking about the old saying, "Death by a thousand cuts." Of the major, top 4 or 5 investors who had wholesale divisions a few years ago, or bought loans from correspondents who dealt with brokers, who is left? Uh, Wells Fargo. BofA is gone, Citi is now gone, GMAC/Ally has scaled back, Chase won't buy TPO business. SunTrust is going through a massive retooling. That being said, there are plenty of investors and lenders willing to step into this arena, and already have. I am not going to make a list of them here, but brokers do have many homes for their loans.

(Ally's results came out this morning. The bank suffered a loss of $250 million for the 4^th quarter, and the mortgage Origination and Servicing segment reported a fourth quarter 2011 pre-tax loss from continuing operations of $237 million. "The fourth quarter 2011 pre-tax loss from continuing operations included $125 million of pre-tax income from originations, an $81 million pre-tax loss from servicing and a $270 million charge recorded during the quarter for penalties expected to be imposed by certain regulators and other governmental agencies in connection with foreclosure-related matters. In addition to the foreclosure-related charge, fourth quarter 2011 Origination and Servicing results declined on a year-over-year basis due to a lower net gain on the sale of mortgage loans, lower net financing revenue due to a decline in production and higher noninterest expense." Refinancing was 80% of volume.)

There is discussion about, "will the U.S. become a nation of renters?" A decent chunk of private equity is certainly moving that way, buying up inventory to rent out.

This leads into whether or not the U.S. is much different from other nations when it comes to housing and interest rates. Just how does the U.S. stack up? Part II of a write up on international housing comparisons can be found at www.stratmorgroup.com.

There are many questions about how 2^nd mortgages fit into refinancing plans, and how institutions should handle the potential losses on the write-downs. This week the Board of Governors of the Fed, the FDIC, the National Credit Union Administration, and the OCC "issued supervisory guidance" on allowance for loan and lease losses (ALLL) estimation practices associated with loans and lines of credit secured by junior liens on one- to four-family residential properties. This serves as a message to institutions to keep a careful eye on credit quality indicators relevant to credit portfolios, including junior liens (i.e. second mortgages, home equity lines of credit). To view the full release, visit: http://www.fdic.gov/news/news/press/2012/pr12015a.html.

And many mortgage insurance companies know about losses. Standard & Poor's downgraded the credit ratings of several U.S. mortgage insurers, and said the outlook is negative. On Monday Fitch Ratings dropped its ratings on Old Republic International Corp. (ORI) by three notches, sending the ratings into junk territory. S&P downgraded MGIC Investment Corp. and its mortgage unit a notch to B, Radian Group and three of its units, and Genworth Mortgage Insurance Corp. and Genworth Residential Mortgage Insurance Corp. of North Carolina by two notches to B.

For market activity, traders reported that mortgages did exceptionally well despite making new record highs on lower coupons (Fannie 3.5's, containing 3.75-4.125% mortgages are at a four point premium!) and the constant chatter about government sponsored refi programs. MBS "spreads" (their yields versus Treasury yields) closed tighter, which is good for mortgage prices in spite of higher-than-normal selling volumes by originators. Normally the refi plan news would shock higher coupons (they're going to refinance!) but the market believes it to be primarily a re-election ploy since the makeup of Congress would make it difficult to get legislation passed. For the lower, rate-sheet production, we saw strong buying from money managers, banks, hedge funds, and the usual Fed. In terms of numbers, MBS prices Wednesday were basically unchanged but the 10-yr T-note was worse by about .375, closing at a yield of 1.85%.

Tomorrow is the big unemployment number, but we have today first. We have some testimony from Ben Bernanke before the House Budget Committee on "The Economic Outlook and the Federal Budget Situation." (I think we all know the story.) We've had Initial Jobless Claims for last week (-12k to 367k), along with the preliminary Q4 reading on Productivity and Unit Labor Costs (+.7% and +1.2%). This is hardly market moving news, the 10-yr is at 1.82% and mortgage prices are roughly unchanged so far.

...(read more)

Forward this article via email: Send a copy of this story to someone you know that may want to read it.

"Dead On Arrival" Refi Plan to be Announced Today; Large Investors Devolve/Evolve - Is Servicing, or F&F, the Answer?

Rob Chrisman — Wed, 01 Feb 2012 15:20:43 GMT

Here we are in February already, which has Valentine's Day. Some guys out there look forward to that day with about as much anticipation as hugging their girlfriend's cat, or picking out a costume at Halloween. Comparisons aside, the most popular theory is that Valentine was a clergyman who was executed for secretly marrying couples in ancient Rome. Per the census bureau, there are 1,177 U.S. manufacturing establishments that produced chocolate and cocoa products in 2009 (it is its own food group, right?), employing 34,252 people. California led the nation in the number of chocolate and cocoa manufacturing establishments, with 135, followed by Pennsylvania, with 111, with the total value of shipments totaling nearly $13 billion. And Americans consumed almost 25 pounds of candy per capita.

As much as the government talks about staying out of housing, it can't. President Obama is expected to unveil a new refi plan today in Virginia at 11AM CST. Whatever plan it is, no one expects it to pass through Congress, IF Congressional approval is required. Recall that this plan was previewed by Obama during his SOTU address last week. The plan would allow non-agency mortgage holders (so those mortgages not backed by Fannie/Freddie) who are current to refinance into a lower-interest federally insured mortgage (via the FHA). Borrowers could qualify even if they had negative equity. The plan could help as many as 3.5M homeowners refinance. The plan is expected to cost ~$5-10B and Obama will call for a new fee to be charged to banks to pay for the proposal - because they have all the money, right? Watch his speech live here.

Rates can do whatever they want, but if large investors go away, and the government does away with Fannie & Freddie, is the borrower better off? (Remember borrowers?) As was mentioned in this commentary earlier this week, there have been rumors about PHH Mortgage and SunTrust. PHH especially, after the S&P downgrade and the CFPB probe being revealed, was rumored to be having funding problems and being forced to downsize. Sources indicate that those rumors are true, and that PHH Mortgage has eliminated twelve account rep positions and retained only six. In addition, clients are suggesting that PHH is cutting back on pricing and increasing internal requirements for loan purchases. And at SunTrust, the entire mortgage channel is indeed going through reorganization, making the business "flatter" and cutting costs.

"In reaction to the Federal Housing Finance Agency statement released December 29, 2011 regarding guarantee fee increases, Chase Lock Extension fees will increase by 0.25% for all extension terms." So reads the latest release from Chase. So, for example, a 7 day extension will cost .625 instead of .375 (which many viewed as steep to begin with); 30 days will now cost a point.

Needless to say with all this, the mortgage herd (especially those companies that sell to them) is spooked. Competitors are warily watching, not really wanting a huge increase in volume coming their way. And smaller shops are wondering, "When is this going to end?" Or "What am I supposed to do?" Some lenders with a minimum net worth of $2.5 million have begun selling loans directly to Fannie and Freddie, with the servicing either being retained (in house or with a subservicer) or sold released to a servicing counterparty of F&F (such as Central, USB, PHH, and so on). But that is not a sure thing either, as the FHFA, not content to leave well enough alone, has offered two options to revamp the economics of mortgage servicing rights - which brings up the issue of how the market values servicing versus how the lender values servicing.

Retaining mortgage servicing isn't a matter of just saying, "Sounds good, let's crank it up." CFO's and owners need to be fully aware of the capital it requires, both in pricing the loans, in carrying them on the books, and in setting aside reserves for delinquencies. Depending on the arrangement (actual-actual or scheduled-actual) the servicer must fund principal and interest payments to investors, which can quickly eat up cash.

(By the way, SunTrust will buy FirstAgain LLC for an undisclosed sum, as it seeks to increase direct online lending. FirstAgain specializes in providing direct unsecured loans to super-prime borrowers via the Internet and operates proprietary technology offering clients' completely digital and paperless origination, underwriting and servicing.)

It can't be any fun to be a large financial institution any more - not like the old days. A new federal task group set up to investigate residential mortgage-backed securities (RMBS) fraud signed off on subpoenas for 11 undisclosed financial institutions. New York Attorney General and co-chair Eric Schneiderman did not name any of the financial institutions subpoenaed by the group but said that the group has "jurisdiction to go after every aspect of the artificial inflation... and the crash that brought down the economy" over the last several years. He said that the group would levy "appropriate civil and criminal charges" against financial institutions as investigations moved forward under the auspices of the Financial Fraud Enforcement Task Force. (What about the borrowers who abused the system?) Of course the SEC has already "issued scores" of their own subpoenas, obtained millions of documents, and interviewed dozens and dozens of key witnesses related to mortgage-backed securities. Officials said that the unit will include in its ranks more than 55 Justice Department attorneys and investigators, 15 civil and criminal attorneys, and 10 agents and analysts with the Federal Bureau of Investigation. Thirty more attorneys and personnel will take up positions in the group in the weeks ahead. Critics point to job growth at the Federal level rather than the private sector - our tax money at work!

I received this note. "Rob, who is going to regulate the regulators? They must be tripping over each other with the confusing jurisdictions and responsibilities. I have been in the real estate and mortgage business for years, and I am feeling like one of those floats in the Macy's parade and everyone shooting at it because it is such a big target." President Obama did indeed create yet another regulatory body noted above to investigate financial institutions. He directed Attorney General Eric Holder to create a new office on Mortgage Origination and Securitization Abuses. The President said, "The American people deserve a robust and comprehensive investigation into the global financial meltdown to ensure nothing like it ever happens again." According to the Huffington Post, the new office will take a three-pronged approach to the issue, holding financial institutions accountable for abuses, compensating victims, and providing relief for homeowners, and will operate as part of the existing Financial Fraud Enforcement Task Force. Good luck working with the state Attorneys General, the Department of Justice, the SEC, the OCC, the FBI...

But we may not have Treasury Secretary Timothy Geithner to kick around much longer. He said President Barack Obama is likely to be re-elected, but he isn't likely to stay for a second term. "I'm confident he'll be president. But I'm also confident he's going to have the privilege of having another secretary of the Treasury."

Remember the little thing in NPR about Freddie betting against homeowners? "Freddie Mac stopped making investments in derivatives known as inverse floaters last year after a regulatory exam raised questions about the mortgage company's controls, the Federal Housing Finance Agency said. An FHFA examination "identified concerns regarding the controls, including risk management, surrounding the inverse floaters," the oversight agency said in a statement. 'FHFA and Freddie Mac agreed that these transactions would not resume.'"
Read all about it.

Above I mentioned the U.S. becoming a nation of renters - but often times investors and lenders do not have sufficient insight into distressed property trends at the national and local level which reduces their ability to effectively manage collateral risk and establish effective loss mitigation strategies and accurate loss projections. DataQuick has developed a Distress Property Analysis Tool called RiskFinder Distress to come up with monthly statistics for the past 10 years to help track trends and help identify geography, down to a neighborhood level, that most negatively impacted by distressed property trends. For more information contact your DataQuick representative or Wendy Barnett at wbarnett@dataquick.com.

The MBA reported that apps last week dropped about 3% after dropping 5% the week before. (Refi's dropped 3.6%, purchases down 1.7%, with refi's accounting for an even 80% of nationwide retail applications.) But at least the "Bernanke freight train bond market," as one MBS salesman noted, is rolling along. "With the Fed potentially on hold thru 2014 and QE3 being discussed," Fannie 3.5's are nearly at a price of 104 - that is a 4 point premium for 3.75-4.125% 30-yr loans, not even including the servicing! Yesterday we had a slew of news: the Employment Cost Index rose 0.4% in 4Q 2011, the S&P/Case-Shiller index showed that home prices continued to decline in November, the ISM Chicago Purchasing Managers Index fell, and the Conference Board's Consumer Confidence Index dropped as well. Most of the news out yesterday points to a slow economy in this country, and a slowing economy generally leads to lower rates.

So are LO's excited about a continued refi boom? Perhaps - but rates haven't been an issue in a long time. Investors are not necessarily excited about more refinancing - they'd like to keep the existing MBS's on their books a while longer. Thomson Reuters noted, "Traders have cautioned of the potential for increased supply in coming days as originator pipelines have been building up in response to the decline in rates." But the U.S. 10-yr T-note hit 1.80% and rate sheet MBS prices improved by another .125.

Today we've already had the MBA apps numbers out, noted above. And we've also had the ADP Employment report for January, always of questionable predictive ability for the actual government numbers Friday. The number was +170k for January, with a downward revision for December but still this is the 24^th straight gain in private payrolls. Later we'll have another ISM Index and Construction Spending at 10AM EST, along with the Treasury announcing the size of next week's 3, 10, and 30-yr auctions (estimated unchanged at $72 billion). So far rates are flat to Tuesday's close with the 10-yr at 1.81% and MBS prices unchanged.

CONFUCIUS DIDN'T SAY:
Man who eats many prunes get good run for money.
War does not determine who is right, it determines who is left.
Man who fight with wife all day get no piece at night.
It takes many nails to build a crib, but one screw to fill it.
Man who drives like hell is bound to get there.
Man who stands on toilet is high on pot.
Man who live in glass house should change clothes in basement.
Man who fish in other man's well often catch crabs.
Finally CONFUCIUS SAY -
"A lion will not cheat on his wife, but a Tiger Wood!"

If you're interested, visit my twice-a-month blog at the STRATMOR Group web site located at www.stratmorgroup.com. The current blog discusses residential lending and mortgage programs around the world. If you have both the time and inclination, make a comment on what I have written, or on other comments so that folks can learn what's going on out there from the other readers.

...(read more)

Forward this article via email: Send a copy of this story to someone you know that may want to read it.

Freddie's PR Nightmare; Servicing's Negative Earnings Impact; More on MetLife's Fade

Rob Chrisman — Tue, 31 Jan 2012 14:52:39 GMT

Do you think it takes a long time to have a loan purchased by Wells or MetLife? Try running the world's longest lab experiment, begun in the 1920's.

Fortunately finding a job in mortgage banking doesn't take eighty years. In Toms River, New Jersey, Glendenning Mortgage currently has an opening for a DE Underwriter to join its team. Business has been too good for Glendenning, which has found itself outsourcing a portion of its underwriting needs - it would like to bring that back in-house entirely. The successful candidate should be highly experienced in FHA, VA, USDA and Conventional underwriting guidelines and will join a firm that has built a reputation for service excellence since its inception in 1989. Interested candidates may contact the firm's president, James Anzano, for details visit its website at: www.glendenning.com.

And for job seekers on the West Coast, an expanding Orange County, California mortgage banker is seeking a Senior VP of Credit Policy. "The candidate must have experience in the areas of credit policy formulation, product development and implementation, investor relations including Fannie/Freddie/Ginnie direct, multi-channel originations, and management of the Underwriting Department Team Leaders." Products include conventional and FHA/VA and USDA. To be considered for this role please email your resume to me at rchrisman@robchrisman.com. Any inquiries will remain confidential. (I will be heading to Austin today, and then to Miami on Thursday, so there may be a slight delay in responding - but I will.)

For more company news, in Illinois Town and Country Bank will buy a branch in Quincy from Associated. (Associated had announced late last year that it planned to close 21 branches in total with 3 in Illinois.) And Walton family-owned Arvest Bank Group is acquiring Union Bank, therefore tripling its footprint in the Kansas City area by increasing to 20 branches and $633 million in deposits. It's an all cash deal with bank level P&A acquisition with an earn-out mechanism. Union Bank has approximately $458.7 million in total assets, a 3.82% leverage ratio, and 25.6% NPAs/Assets. Most importantly, the merger removes the last sizeable troubled institution in the Kansas City market from the potential FDIC-assisted deal pipeline.

Someone had better get the PR department on the phone. Has Freddie Mac been betting against homeowners? There was a lot of chatter yesterday about how Freddie has sold off the principal on loans into mortgage-backed securities and is only retaining the interest of the loan for revenue, and how they are betting on borrowers inabilities to refinance to lower coupons, thereby mitigating that return on higher existing margin loans.

The FHFA did respond late Monday afternoon. FHFA Answers Conflict of Interest Charges against Freddie Mac

I've always wanted to start my own rating agency, and now might be my chance because Fitch is going to "open its kimono".

Last week the commentary mentioned a statement that "the Democrats rejected a 5% rule that would require a minimum down payment on home loans from federal agencies. Senator Chris Dodd (D-Conn) is quoted as saying that his reasons saying that 'passage of such a requirement would restrict home ownership to only those who can afford it.'" Thank you to Leslie H., who pointed me toward TruthorFiction's statement that "Senator Chris Dodd did not make that remark. The source for this eRumor is an article by satirist John Semmens who writes a weekly Semi-News feature for the Arizona Conservative. Semmens wrote about a proposed amendment that failed in the Wall Street Reform Bill, which Senator Bob Corker (R-Tenn) proposed to raise the minimum down payment to 5% for federally assisted home loans." Here is the story.

There has also been a lot of news on the foreclosure front (a possible settlement happening but without California and without a broad legal release for banks), refinancings (Obama promises to send a proposal to Congress although most think it will be limited only to non-agency mortgages), and modifications (an expanded HAMP was unveiled Friday and joins the expanded HARP announced a few weeks back). But few in the industry believe that any of these mortgage plans will be game changing. The "new" refinancing plan outlined by President Barack Obama a week ago was short on details - and given Congress' inability to break its gridlock few expect anything to happen (especially during an election year). Congressional Republicans are opposed to additional intervention in the mortgage market and are philosophically opposed to a bank tax. Taking this slightly farther, the fact that the president is seeking congressional approval could be interpreted as a sign that the administration has taken its own refinancing efforts as far as it can without legislation. And investors don't like being subjected to policy changes ("policy risk"), so pricing could become an issue.

Turning our eye to servicing, the recent bank results were not great. High servicing expenses are expected to be a drag on the top banks for some time to come. JPMorgan Chase's mortgage servicing expenses totaled $925 million in the fourth quarter, down 4% from a year earlier, but the CFO said that servicing costs will continue to be high in the first half of 2012 - 75% of which is due to costs for defaulted loans and foreclosures. (JPMorgan Chase posted a $258 million loss in its mortgage unit, compared with a profit of $330 million a year earlier.) Some of the biggest hits in the 4^th quarter came from mortgage repurchase requests, which show few signs of ending. Wells took a $404 million provision for mortgage loan repurchase losses; JPMorgan Chase took a $390 million provision; B of A set aside $263 million for repurchases and Citigroup took a $200 million hit. Meanwhile, SunTrust Banks Inc. said Friday it had to increase reserves for mortgage repurchases to $320 million. Attorneys are quick to point out that Fannie Mae and Freddie Mac are being very aggressive in pursuing repurchase claims because they have a statute of limitations of between four to six years to do so.

The jungle drums continue to beat about MetLife's fade into the sunset of forward mortgage originations. I received this note: "I am a quality control auditor currently employed with MetLife Home Loans. I can't really speak for the wholesale side, but if it's anything like us here in retail, we ARE funding loans but everything is bottlenecked in a QA/QC process. Once the decision was made to dissolve the company rather than sell it we immediately went to a 100% QA audit environment. Previously, auditors in the branches were doing 100% but the audits were quick. QA based out of MetLife's headquarters does full-file re-underwrites; they were only pulling 50% or less of files, so now to go to 100% has been utter hell. We do our reviews in the branch once a loan is ready to doc out, but then we wait a day for a purchase, up to 5 days for a refi to get thru QA. It feels like they didn't sufficiently staff the QA department before making the decision and got completely overwhelmed. They've been bringing on more bodies but it's out of control. By the way, the official announcement was that we are funding thru April 30th. Originations have obviously ceased, however, and a lot of ops staff was given their 60-day notices yesterday but there will still be a skeleton crew until the end. I'm very sad MLHL is closing, and it very frustrating for the over 4,000 of us who had hoped to have a future here."

And a MetLife AE sent out a note to clients, "All loan files must be delivered by January 31st (and must be locked). All expired locks will result in file cancellation."

Through this all, rates continue to be good. Yesterday U.S. rates dropped, with the reason attributed to continued fears associated with the European debt crisis. Heck that will be going on for years! Our 10-yr T-note improved by about .5 in price (closing at 1.84%).

In MBS-land, selling volume picked up, but these lofty price levels are causing a little concern among investors. If mortgage rates drop, will current production refi again? The low rate environment anticipated through late 2014, the strong supply/demand dynamics, and increased odds for QE3 all make for an interesting environment. But borrowers are still faced with higher fees, stagnant values, and documentation requirements that many view as extreme - all these serve to limit refinancing. Yesterday MBS prices improved by about .125.

Today for news in this country we'll have the Employment Cost Index (ECI) for the fourth quarter, the S&P Case-Shiller House Price Index, the Chicago Purchasing Manager's Survey, and Consumer Confidence for January. But when countries are caving in Europe, is what a purchasing manager did last month in Chicagoland critical? Tomorrow is the ADP employment numbers, ISM Index, and Construction Spending. Thursday is Initial Jobless Claims and unit labor costs. And on Friday is "the big daddy" here in the United States: the monthly employment data. In the early going we find the 10-yr at 1.83%, and MBS prices pretty much unchanged from Monday's close.

Two rules for success in life:
1) Don't tell people everything you know.
2)

If you're interested, visit my twice-a-month blog at the STRATMOR Group web site located at www.stratmorgroup.com. The current blog discusses residential lending and mortgage programs around the world. If you have both the time and inclination, make a comment on what I have written, or on other comments so that folks can learn what's going on out there from the other readers.

...(read more)

Forward this article via email: Send a copy of this story to someone you know that may want to read it.

Special Edition of Investor, Lender and MI Changes

Rob Chrisman — Mon, 30 Jan 2012 18:03:23 GMT

Investors have been busy in recent weeks, and with no college or pro football, no NASCAR, no baseball, why not read about recent guideline changes? As always, it is best to read the actual guidelines from the investor - this is not meant to replace them. And they are not particularly timely, but meant to indicate trends in the marketplace. So, in no particular order...

Effective Wednesday, January 25, 2012, Home Savings of America temporarily suspended loans in New York and Hawaii.

Yesterday Provident Funding told its clients that as a result of increase in g-fees, its lock extension policy has been updated. "Lock extensions on Conforming and Super Conforming loans previously locked before February 9, 2012 that will extend the lock expiration date past March 9, 2012 will be affected as follows: When a lock extension is requested, a market comparison is performed on the original lock base price plus lock period adjustment and the current base price, and the lock is extended at worse case. If the original lock base price plus lock period adjustment is worse, then a 0.5% lock extension adjustment is applied. If the current market is worse, then a 0.5% lock extension adjustment is not applied since the increased G-Fees has already been accounted for in the current base price."

On the 13th Franklin American expanded its FHA Jumbo Product, issuing the following statement: "streamline refinances with or without appraisals will be eligible for FAMC's FHA Jumbo product provided the following are met: Minimum FICO 680, 0x30 mortgage history for the last 12 months, and all other FHA Jumbo and Streamline guidelines are met." FAMC also told its clients that USDA Rural Development Refinance Funds are available, starting on the 10th, under the Single Family Housing Guaranteed Loan Program. The investor reminded counterparties that VA appraisals must include interior photos, and of the VA's policy that the value must match the appraiser's value estimate. "VA SAR Underwriters must issue NOVs at the appraised value documented in the appraisal report. VA guidelines have historically allowed VA approved Underwriters who are approved as Staff Appraisal Reviewers (SARs), to issue Notices of Value (NOVs) with a value up to a five percent deviation from the appraiser's estimate, with supporting documentation. Deviation from the appraiser's value estimate is no longer allowed."

Earlier in January Wells' wholesale announced its HARP 2.0 plans. "Several changes will go into effect for the Home Affordable Refinance Program (HARP) on Monday, Feb. 6, and there are important deadlines for HARP 1.0 transactions for loans with registration dates prior to Feb. 6. Changes to the HARP will go into effect with loan registrations on or after Monday, Feb. 6, 2012. Important: The Loan-to-Value (LTV) enhancement offered by Freddie Mac and Fannie Mae will not be available to the Wells Fargo Wholesale channel until a thorough assessment of the impacts has been made. Check out the bulletin issued to brokers for more on specific changes, dates and underwriting.

Due to the current performance of non-credit qualifying Sreamline Refinance loans, Wells Fargo Home Mortgage increased the minimum Loan Score required for non-credit qualifying FHA transactions. Provided that they have scores of at least 640, loans that don't meet the new minimum score can still be processed as a credit-qualifying Streamline Refinance or a Rate/Term Refinance.

And some more Wells news: as of February 13, 2012, Wells Fargo Funding
will update their Non-Conforming Loan policy by adding additional requirements to the Multiple Financed Properties policy; enhancing post-closing liquidity, departure residence and maximum LTV/CLTV; clarifying the definition of liquid assets to meet the reserve requirements when the LTV/CLTV is less than 60% or the debt ratio is less than 24%; and reducing the maximum LTV/CLTV by 5% for Loans where the subject property is located in Market Class 4.

PHH expanded the Freddie Mac Relief Refinance Open Access product family to include new 20-yr Fixed and 5/1 ARM products to provide another refinancing option for borrowers who qualify for the HARP programs. Additionally, the 80% maximum LTV restriction for properties in Texas has been removed with cash back at closing in mind. Thanks to the HARP II initiative, MI providers are no longer requiring lenders to apply additional restrictions to Fannie and Freddie HARP program guidelines when transferring mortgage insurance to the new loan. Accordingly, the HARP MI Provider Overlay and the HARP MI Requirements Checklist have been eliminated.

Mountain West Financial is now only offering FHA 203k Streamline loans with a maximum loan amount of $417,000.00 (not including UFMIP).

CitiBank spread the word to its correspondent sellers that documenting gift funds is a very common post purchase defect and that they are at the mercy of pre-purchase suspense conditions if they cannot provide the source of gift funds or the gift letter from the donor in the loan package submission-often the lender can't locate the source of the gift funds received outside of closing. Lack of proper sourcing documentation is also a common problem, as are partial gift funds (rather than the full amount). In short, be sure to include that pesky gift letter from the donor in the loan package!

On the 16^th MGIC changed a few underwriting guidelines regarding their ARM rates to better align with industry standards, and reworked their framework for loans with both traditional and non-traditional credit borrowers.

SunTrust has issued a friendly reminder to follow Agency guidelines for rural properties and that the Key Loan Program limits properties to a maximum of 10 acres. In other SunTrust news, SunTrust Mortgage, Inc. has updated acceptable borrower benefit requirements for the DU Refi Plus loan program.

HSOA now allows electronic delivery and signing of upfront disclosures. Keep this in mind, though: although it's HSOA/Federal policy that signed initial disclosures are not required to be in the file, proof of delivery of initial disclosures is mandatory, so if the borrower signs and returns the documents (either electronically or physical/wet signature) HSOA will scan and upload them. Some documents that can use the electronic signature: URLA/Application/1003 (unless the loan will be closing with a Power of Attorney), interim; pre-closing; disclosures; and appraisals (if signed by the appraiser and reviewer appraiser). The rulers are a bit more specific for FHA loan documents, though, so it's worth a closer look if you're interested.

HSOA told clients that the DU for Government Loans is to be updated 2/18. FNMA will install an update for DU for Government loans the weekend of February 18, and any new submission and any re-submissions will be subject to the changes. The new county limits, when they're published, can be viewed at https://entp.hud.gov/idapp/html/hicostlook.cfm.

In response to recent updates to FHA TOTAL Scorecard User Guide, Chase is revising the policy regarding the treatment of FHA loans with disputed accounts on the credit report. In addition to the existing Chase Records Center in Monroe, Louisiana, Chase opened a second site in Fort Worth, Texas, which will be the primary delivery site for Correspondents whose headquarters are located in Minnesota and North Dakota. The site will also provide disaster recovery capabilities for the Records Center in Monroe. Chase is also notifying Correspondents that they must convert to Imaged Document Delivery in ChaseLoanManager by February 1, 2012.

Chase announced a policy overlay, effective on the 23^rd for best efforts and mandatory, requiring all reported delinquent Chase accounts be brought current prior to or at the time of closing on all FHA, VA and Conventional loan transactions due to Fannie Mae DU Refi PlusTM and Freddie Mac LP Open Access transactions being excluded from this policy overlay.

Kinecta Federal Credit Union has updated its "Eligibility Matrix" for loans in Florida, Arizona, Nevada and Georgia such that jumbo products and Kinecta HELOCs are no longer available, and if property is a condo in a declining market, a 5% reduction in LTV will apply. Applications for properties in Nevada will no longer be accepted. Meanwhile, in California, any guideline changes changes that apply to properties will occur "only to non-conforming/jumbo products and...in certain counties." Guideline changes include an additional 5% reduction in CLTV and that Kinecta HELOCs are subject to70% maximum CLTV, 720 minimum FICO, 41% maximum DTI, and 24 months' minimum reserves. Some counties are exempted, though.

GMAC has announced VA overlay additions dictating the following: the payoff of revolving accounts is permitted if the account is paid in full prior to closing, and the pay off and zero balance must be documented directly from the creditor. (The pay off may not be reflected on the HUD-1.)

Essent Guaranty has been added as an approved MI company for borrower paid monthly insurance for Fifth Third Correspondent Lending.

In order to be compliant with the S.A.F.E. Act, U.S. Bank Home Mortgage Wholesale Division would like to inform you that, as of, Thursday, January 19, "our SellUs web site requires you to fill in your 'Loan Originator ID' and 'Loan Originator Name' on any loan that is locked on the SellUs website, regardless of registration date. The 'Loan Originator ID' will be your LO NMLS number (LO originating the application) and the 'Loan Originator Name' will be the Loan Officer's name.

United Guaranty is introducing an enhancement to Performance Premium mortgage insurance eligibility effective for rate quote requests and mortgage insurance applications received on or after February 13, 2012. "The enhancement offers a new approach to determining MI eligibility for loans using both general underwriting requirements and automated risk tools, which will be able to provide eligibility for loans that don't qualify for United Guaranty mortgage insurance at present."

A good old Alabama boy won a bass boat in a raffle drawing.
He brought it home and his wife looks at him and says, "What you gonna do with that. There ain't no water deep enough to float a boat within 100 miles of here."
He says, "I won it and I'm a-gonna keep it."
His brother came over to visit several days later. He sees the wife and asks where his brother is.
She says, "He's out there in his bass boat", pointing to the field behind the house.
The brother heads out behind the house and sees his brother in the middle of a big field sitting in a bass boat with a fishing rod in his hand.
He yells out to him, "What are you doin'?"
His brother replies, "I'm fishin'. What does it look like I'm a doin'?"
His brother yells, "It's people like you that give people from Alabama a bad name, makin' everybody think we're stupid. If I could swim, I'd come out there and whip your +++!"

If you're interested, visit my twice-a-month blog at the STRATMOR Group web site located at www.stratmorgroup.com. The current blog discusses residential lending and mortgage programs around the world. If you have both the time and inclination, make a comment on what I have written, or on other comments so that folks can learn what's going on out there from the other readers.

...(read more)

Forward this article via email: Send a copy of this story to someone you know that may want to read it.

Correspondent Investors: News, Volumes and Rumors; Government Turns Focus to HEMP

Rob Chrisman — Mon, 30 Jan 2012 15:09:02 GMT

Sorry, did I hit the incorrect letter? The Administration announced important enhancements to the Making Home Affordable Program, including the Home Affordable Modification Program (HAMP) late last week. The expanded program is expected to be available by May, but we should keep a few things in mind. First, this is not the mortgage refinancing program that President Obama mentioned in the SOTU speech (that referred to helping current borrowers refinance into a lower rate). The HAMP update is a focus on debt forgiveness modifications, and arguably impacts investors more than originators and Realtors - the implications for agency MBS investors seem limited but are very meaningful for non-agency investors. (Removing the 31% DTI constraint for HAMP eligible borrowers could embrace about 800,000 potential borrowers, and the program will be extended through 2013.)

Analysts suggest that the effect on agency MBS prepayment speeds should be minimal, since the vast majority of debt forgiveness will be on delinquent loans, which are typically already bought out of the agency MBS trust (if they are more than 120 days delinquent). The only effect could be if underwater borrowers in agency MBS pools start going delinquent on purpose to qualify for debt forgiveness, speeds will obviously rise - hopefully unlikely. And only pools of loans originated before 2009 qualify for this program. FHFA Acting Director Edward DeMarco released a press statement stating that "principal forgiveness did not provide benefits that were greater than principal forbearance as a loss mitigation tool". Further, the press release noted that "FHFA's assessment of the investor incentives now being offered will follow its previous analysis, including consideration of the eligible universe, operational costs to implement such changes, and potential borrower incentive effects." This suggests that Fannie Mae and Freddie Mac may not adopt this program. The incentive to investors for principal reduction in HAMP has been tripled (the range of 6-18 cent payout on debt reduction goes up to 18-63 cents) - a significant change for various reasons and should result in higher modification rates. It is important to note that the incentives for servicers are not any different now than before (servicer strip dependence on the balance).

The President's State of the Union address suggested a new government effort to refinance borrowers but at this point most expect it will be aimed at non-agency loans, but more details should emerge in the near term. Total borrower savings from such a refi effort would be at most $5-6 billion per year, but in reality would be a small fraction of that amount. The program may involve non-agencies refinancing into FHA loans and so expect the impact on the agency MBS market to be modest, however. Total throughput of the program should be low, given the challenges witnessed in agency HARP, lack of servicer incentives, and rep/warrant hurdles. Recently a speech by HUD Secretary Donovan sparked fears of a Ginnie refi program and while this program is likely targeted at non-agencies investors continue to fear event risk in Ginnies, possibly via a restructuring of MIPs at some point.

And while we're talking about residential MBS's, agency (Fannie, Ginnie, Freddie) MBS prices have had a great run since mid-December compared to Treasury prices. Some now expect agency MBS spreads to remain tight so long as the 10-year Treasury stays at current levels. Should the 10-year yield hit 2.5%, however, they would see those spreads widen significantly. These projections are due in part to the Fed's announcement that they will likely keep short-term rates low until late 2014, which both creates an ideal scenario for banks to buy up agency MBS and for implied volatilities to decline, and to the fact that the Treasury has been selling about $10 billion agency MBS monthly but that this should be drawing to a close, leaving only $15 billion. Additionally, the MBS sector is attractively priced compared to investment grade corporate bonds right now, so the long-term "supply-demand technical" look good. In the event that the 10-year yield reached 2.5%, though, spreads would widen, a prediction assuming that a selloff is caused by improving fundamentals of the economy, which reduces the probability that the Fed's QE3 involving agency MBS would diminish significantly in a rates backup scenario. Such a shift in rates would also indicate that volatility had increased, which would likely lead to a sudden increase in agency MBS, which of course skews that nice supply-demand projection. There's your dose of daily technical talk.

There is a lot of chatter about investors out there, some of it factual, some of it rumored. The most recent big move was from Citibank, which, due to liquidity and market risk concerns, became the latest major bank to stop the purchase of "medium" and "high risk" mortgage loans from its correspondent originators. No one wants buyback requests appearing in their mailbox, and Citi is no exception. And we know that these, if they can't be fought, are passed on to the company that sold the loan to the investor. So Citi is attempting to improve the quality of the mortgages it buys, a good thing, and told correspondent lenders "to withdraw medium/high risk loans," saying the bank could not predict time frames for when the loans would be reviewed "if we are able to review them at all." Perhaps Citi's pre-purchase review process (begun in 2010) is still letting some potentially defective loans slip through.

While this is a good goal, and should be done, for correspondent clients it is more tough news since it comes on the heels of Bank of America and MetLife's exit from correspondent lending. Ally/GMAC has scaled back. And rumors surfaced last week, and I repeat - rumors, that SunTrust will be combining its wholesale and correspondent channels, and that PHH is also contemplating scaling back operations. (Of course wholesale reps love calling on larger correspondent clients, but it doesn't work the other way - correspondent reps rarely want the opportunity to call on brokers. Certainly the rep and warrants are different.) On the positive side, we have Wells Fargo being featured on the Forbes cover and recent results from Flagstar showing that mortgage banking operations had strong revenues in the fourth quarter. (Flagstar's gain on loan sale income increased from Q3 totals to $106.9 million, with a margin of 102 basis points. The firm reported residential first mortgage loan originations of $10.2 billion in Q4, an increase of $3.3 billion, or 47.1 percent, from third quarter totals.)

We're pretty much done with much of the earnings reports from the big banks/servicers. Things don't look too peachy as most took charges for repurchasing soured loans, complying with federal mortgage servicing standards, paying for an upcoming settlement with state attorneys general and resolving significant foreclosure and litigation costs. Wells Fargo posted the strongest fourth-quarter mortgage results but still had $300 million in costs related to mortgage servicing and foreclosures. U.S. Bancorp and PNC Financial Services both took charges in the quarter related to the pending settlement agreement with state attorneys general and to the cost of complying with federal consent orders for past mortgage servicing failures ($164 million and $240 million, respectively). Most lenders would agree that mortgage banking profits are up and origination volume increased in the fourth quarter, things are slower than a year ago. BofA's mortgage origination volume dropped 77% from a year ago and Wells saw a 6.2% decline from a year earlier in fourth-quarter mortgage originations (to $120 billion). Chase's mortgage origination volume dropped 24% from a year earlier, and Citigroup's fell 3%. One investment bank noted, "Solid organic loan growth is very difficult to achieve when consumers and corporations are deleveraging (cutting back on debt in their lives) and economic growth is moderate."

MGIC (which injected $200 million into a subsidiary last month to keep writing policies) announced that it posted its sixth straight quarterly loss. MGIC said its risk-to-capital ratio will probably exceed the maximum 25-to-1 allowed by some state regulators in the second half of this year. The ratio was 20.3-to-1 on Dec. 31 compared with 22.2-to-1 on Sept. 30.

Friday saw our share of bank closures. In Florida First Guaranty Bank and Trust Company of Jacksonville was enveloped by CenterState Bank of Florida, with the help of the FDIC. Up in Tennessee, Tennessee Commerce Bank became part of Kentucky's Republic Bank & Trust Company and BankEast in Knoxville is now part of U.S. Bank National Association of Ohio. And up in Minnesota Patriot Bank Minnesota is now part of First Resource Bank of Savage, Minnesota.

Friday also had news that the U.S. economy expanded less than forecast in the fourth quarter as consumers curbed spending and government agencies cut back, validating the Federal Reserve's decision to keep interest rates low for a longer period. GDP disappointed analysts. Remember - jobs and housing, housing and jobs. "We're going into 2012 with less momentum than people were thinking," said Michael Hanson, a senior U.S. economist at Bank of America. This week's Fed announcement that they would hold rates near zero for years was a stunning admission that monetary policy has failed to stimulate the economy to anywhere near the extent anticipated. And fiscal policy has had the same impact. So what does the government have up its sleeve? Not much.

If that's the case, then we're in for a weak 1^st quarter here in the United States, and we're going to have to face the prospect that European debt needs to be written off. At this point it is arguable how much of Europe's coming recession spills into the United States, but it will indeed have an impact. And, more often than not, a slowing U.S. economy leads to lower rates (since there is less demand for capital) - unfortunately for LO's the lower rates have to be balanced against the higher fees, documentation hurdles, and appraisal problems.

Our 10-yr T-note closed Friday with a yield of 1.90%. One headline I saw this morning noted that, "US stocks are poised to open lower Monday after the weekend came and went without Greek leaders reaching an agreement on a debt-relief deal." Is that a surprise to anyone? In this country this morning we've already had Personal Income +.5%, Personal Consumption was unchanged, the savings rate went to 4%, and the Core PCE Price Index was +.2%. For the remainder of the week, the big excitement will be Friday's employment data. But rates continue to drop, and we find the 10-yr down to 1.83% and MBS prices are about .250 better.

An old man walks into the barbershop for a shave and a haircut, but he tells the barber he can't get all his whiskers off because his cheeks are wrinkled from age.
The barber gets a little wooden ball from a cup on the shelf and tells him to put it inside his cheek to spread out the skin.
When he's finished, the old man tells the barber that was the cleanest shave he's had in years. But he wanted to know what would have happened if he had swallowed that little ball.
The barber replied: "You'd just bring it back tomorrow like everyone else does".

If you're interested, visit my twice-a-month blog at the STRATMOR Group web site located at www.stratmorgroup.com. The current blog discusses residential lending and mortgage programs around the world. If you have both the time and inclination, make a comment on what I have written, or on other comments so that folks can learn what's going on out there from the other readers.

...(read more)

Forward this article via email: Send a copy of this story to someone you know that may want to read it.

California Says "No Thanks"; FHA Compare Ratio, and Lender FHA Changes not to be Ignored

Rob Chrisman — Fri, 27 Jan 2012 14:44:25 GMT

"The trouble with quotes on the internet is that it's difficult to determine whether or not they are genuine." So said Abraham Lincoln. But here is one I received yesterday from Steve S., the president of Residential Mortgage Group in Minnesota: "In thinking about the mortgage programs being proposed, we continue to be too stupid to have our own country." And another from a broker discussing signing documents with his clients: "Anyway, I had an older married couple come in to sign refinance papers this morning and when they got to the page entitled 'Intent to Proceed with Application,' the husband threw up his hand and said, 'You mean we sign and initial 29 times and they still think we don't intend to proceed? Monkeys! We are governed by Monkeys!'" These blunt thoughts reflect many e-mails that I am receiving.

American Pacific Mortgage, a retail mortgage banking based in Roseville, California (near Sacramento) is searching for a Director of Hedging and Trading, reporting directly to the EVP of Capital Markets. The company has been in business for 16 years with a solid production network of 100 retail branches and licenses in 19 states, primarily west of the Rockies. The candidate must be a team-player who thrives in a collaborative work environment and possess extensive experience in hedging, trading, direct loan sales to Fannie/Freddie and mortgage-backed securitization. Interested candidates should send a resume to Cap Markets EVP, Chito Schnupp at cschnupp@apmortgage.com or VP of HR, Amy Bush at abush@apmortgage.com.

The Financial Times reports that California (with the largest US property market) said "no thanks" to an offer of roughly $15 billion in lower monthly mortgage payments and reduced loan balances for its residents in talks to settle allegations of mortgage-related misdeeds by leading US banks. "Bank of America had guaranteed California borrowers would receive $8bn in mortgage aid, while Wells Fargo and JPMorgan Chase committed at least $5bn to the state's distressed homeowners, according to people familiar with the matter, who declined to give exact figures." Using my HP 12C, California would have received more than half of about $25 billion of aid that would be available to borrowers in a nationwide deal under discussion to settle allegations that banks illegally seized homes using faulty documentation. "The proposals offered were inadequate for California because they did not contain the aspects vital for our state: transparency, real relief for distressed homeowners and strong enforcement mechanisms to guarantee accountability," said Shum Preston, a spokesman for the state attorney-general. Back to the drawing board.

Turning to FHA news, I received this thoughtful note on FHA compare ratios. "I wanted to share a thought on FHA's compare ratios and their "hard coding" of 150% as the max to be eligible for LI (lender insurance). The problem with this approach is quickly evident using a bit of math. A compare ratio is a peer based metric. In other words, everyone's compare is based off of the entire group's average 90 day delinquent figures. When a hard cap is placed at 150 - with death penalty type consequences if that cap is exceeded, the results are very predictable. Any company that is moving toward 150 will quickly clamp down hard on their FHA lending. They will put FICO score minimums, DTI maximums, etc., in place. They will tell their underwriters to be very, very careful. They will move away from areas of the country that are experiencing economic challenges. And, in doing so, those companies will see their 90 day defaults drop. And that will drop the average that calculates everyone's compare ratio, so when the average goes down, any company whose 90 day delinquents didn't go down by an equal amount, will see their compare ratio go up. Those companies will then tighten - which will mean the average will again drop - which means that any company whose 90 day delinquents remained static - will have their compare ratio rise. And so on. Just watch - my guess is that after a few years FHA lending will become extraordinarily tight. Taken to its logical conclusion, if average 90 defaults fall below 1.0%, any firm that has 1.51% (an extraordinarily clean book) would have a 151% compare ratio and would be terminated by FHA. A compare ratio is a useful tool - but to wrap draconian penalties around it is a terrible mistake. Those who the FHA program is meant to help, the borrower who isn't, by definition, 'perfect', is going to be the big loser."

Lenders have indeed been abuzz about last Friday's FHA announcement of the latest in a series of steps to protect and strengthen the FHA's Mutual Mortgage Insurance Fund, while enabling the agency to continue to fulfill its mission to provide access to homeownership for qualified borrowers. "These new regulations strengthen the process by which FHA requires certain lenders to indemnify the U.S. Department of Housing and Urban Development (HUD) for insurance claims paid on mortgages that are found not to meet the agency's guidelines. In addition, the final rule requires all lenders with the authority to insure mortgages on HUD's behalf ('Lender Insurance' mortgagee) to meet stricter performance standards to gain and maintain their approval status. More than 80 percent of all FHA forward mortgage loans are insured by Lender Insurance lenders." To read this press release in its entirety, please visit this link.

One industry operations person summed things up. "The new edict covers three issues. The first is regarding indemnifications. The primary change is that all direct endorsement lenders with lender insurance authority will be subject to indemnification procedures and will not be able to negotiate the settlement as is the current practice. The mortgagee shall indemnify HUD for an FHA insurance claim paid within 5 years of mortgage insurance endorsement, if the mortgagee knew or should have known of a serious and material violation of FHA origination requirements, such that the mortgage loan should not have been approved and endorsed by the mortgagee and irrespective of whether the violation caused the mortgage default.

The second is regarding Lender Insurance Authority. In order to retain their Lender Insurance authority, mortgagees must maintain the acceptable claim and default rate required of them when they were initially delegated such authority. A mortgagee has an acceptable claim and default rate if its rate of claims and defaults is at or below 150% of the average rate for insured mortgages in the state(s) in which the mortgagee operates. HUD will monitor a mortgagee's eligibility to participate in the Lender Insurance program on an ongoing basis. And the third addresses the Lender Insurance Rule in the Case of Corporate restructuring. The proposed rule would facilitate the compliance of new lending institutions resulting from a merger, acquisition, or reorganization with the statutory requirements for Lender Insurance approval."

FHA mortgagees participating in the Lender Insurance ("LI") program will be required to indemnify HUD for self-endorsed loans that HUD deems ineligible for FHA insurance based on final regulations. Since January 1, 2006, FHA mortgagees, with approval from HUD, have been permitted to endorse loans themselves, without first having to send the loans to HUD. The final regulation marks the first time HUD will make significant changes to the LI program, one of which automatically increases LI lenders' liability for the loans they close and self-endorse. These changes finalize LI regulations proposed by HUD in October 2010 and will take effect on February 24, 2012. Under the final regulation, LI lenders will be required to indemnify HUD for an FHA insurance claim paid within five years of mortgage endorsement if the lender knew or should have known of a serious and material violation of FHA origination requirements that would have rendered the mortgage ineligible for FHA insurance, regardless of whether the violation caused the default. An LI lender also will be required to indemnify HUD for an insurance claim if the lender knew or should have known that fraud or misrepresentation was involved in connection with the origination of the loan. While FHA-approved mortgagees may be used to receiving periodic indemnification requests from HUD as part of an enforcement action, until now, HUD has not had the authority to require lenders to indemnify the Department. Effective February 24, 2012, each time LI lenders self-endorse FHA loans, they are agreeing to automatically indemnify HUD for any losses on loans identified as containing serious and material violations or fraud. HUD notes in the preamble to the final regulation that it will use existing practices, such as post-endorsement technical reviews, quality assurance monitoring reviews, lender self-reports, OIG audits, and other HUD investigations to identify loans for which HUD will demand indemnification. HUD assures lenders that these processes will afford ample opportunities to submit additional information to HUD.

While LI lenders may have the opportunity to defend themselves against indemnification demands, it is likely, with this new financial recovery regulation, that HUD will focus its audits on LI loans, rather than loans from non-LI lenders. And, that inevitably means that participation in the LI program will be costly for FHA mortgagees. HUD also will begin to monitor a lender's eligibility to participate in the LI program on an "ongoing basis," rather than annually as it does now. HUD will change its formula for calculating a lender's default/claim rate by measuring whether the LI lender's default/claim rate is below 150% of the average rates for the states in which it does business, as opposed to 150% of the national average. Finally, new mortgagees resulting from merger, acquisition, or restructuring will now be eligible for the LI program under certain circumstances, despite having less than a two-year performance history. Should a lender be terminated, the regulation provides a process, similar to that used for the Credit Watch program, to seek reinstatement. Lenders may find themselves re-evaluating the costs and benefits of participating in the LI program. And, should lenders determine that these costs are too high, HUD may find itself manually reviewing every FHA loan prior to endorsement, wiping out the benefits of the LI program for both HUD and FHA mortgagees.

And is any company prepared for an FHA audit? Especially since going forward companies will be dealing with a changed threshold for indemnification requests to a standard that the lender, "knew or should have known" of a serious violation or fraud? "The Collingwood Group invites you to listen in on a conference call with FHA and Mortgagee Review Board (MRB) experts to address steps that lenders and servicers can take to be proactive, manage risk and avoid FHA enforcement sanctions." Several authorities will converse on the purpose, function and procedures of the Mortgagee Review Board, FHA sanctions and will provide insight into navigating FHA compliance reviews and HUD Inspector General Audits. It is free, and being held on Thursday, February 9^th from 2-3 EST. To register

(Editor's opinion note: The FHA can say all it wants about its capital ratios being fine. Most analysts don't believe it. And, HUD, just like any organization in this situation, is going to do what it can to lower risk, increase return, and continue to try to stick to its charter. None of this should be a surprise to anyone.)

Looking very briefly at the markets, there is not much going on. Rates are stable, and with some of the transition going on, most of the focus is, and should be, on the structural changes in the mortgage industry (like those above) rather than rates which may not do much for a long time. (There, I said it.) That said, things were quiet overnight and heading into the weekend, and the 10-yr seems content around 1.93% and MBS prices are a shade better.

(Parental Discretion Advised.)
As a kid, I was always told by my parents to brush my teeth. Maybe if I'd seen this 1 minute video, I would have had even more motivation.

If you're interested, visit my twice-a-month blog at the STRATMOR Group web site located at www.stratmorgroup.com . The current blog discusses residential lending and mortgage programs around the world. If you have both the time and inclination, make a comment on what I have written, or on other comments so that folks can learn what's going on out there from the other readers.

...(read more)

Forward this article via email: Send a copy of this story to someone you know that may want to read it.