If you take away one thing from today's commentary, it should be "don't pull this stunt on your underwriting manager." WATCH THIS VIDEO, it's worth 30 seconds.
The jumbo market is taking baby steps in the right direction. Redwood Trust Inc. is marketing a $280 million residential mortgage-backed security, the first private deal of this year, backed by a mix of fixed-rate and adjustable-rate mortgages. According to news on the issue, the average loan size is $978,000 and the average FICO score is 775 - pretty similar to last year's Redwood deal made up of Citi loans. Redwoods is in its "quiet period," and probably not adding originating customers, but if you are originating similar type loans, consider getting in touch with Redwood Trust later in the quarter. And please, don't e-mail me asking for contacts. For complete details on the deal see the TERM SHEET
Let's hope that they have some loans to fill those securities! Last week mortgage applications dropped 9.5% to a level last seen in November 2008. Refinancing activity was down 11.4%, and now accounts for 64% of new apps, and purchases were down about 6%. Braver Stern Securities wrote that, "with conforming mortgage rates at (these levels), almost 60% of the FH/FN mortgage universe does not have an economic incentive to refinance at the current time. For FHA borrowers this number is just over 85%." LOAN APPLICATION CHARTS
I have never seen a Federal Budget in person, and something tells me that I am not missing much. Analysts have happily plunged into dissecting the 2012 budget, however, which begins in October (for some reason) and details are coming out on its housing & mortgage numbers. The cost of rescuing mortgage giants Fannie Mae and Freddie Mac is likely to sink to nearly half of the current cost over the next decade, for example. The budget estimates keeping Fannie and Freddie afloat will cost $73 billion by 2021, reflecting dividends paid back to the Treasury Department and is 45% lower than the $131 billion cost to date and much lower than outside estimates. Fannie and Freddie must pay 10% dividends on the quarterly cash infusions they receive from the Treasury, which some argue should just be forgiven, thus saving them a tremendous amount of ducats. In fact, the White House estimates that the companies will be paying back more in dividends by 2013 than they receive in cash infusions and from 2014 on, the companies are expected to need no more funding. Turning to HUD, the budget proposal outlines a $48 billion spending program for fiscal year 2012, an increase of more than $900 million from 2010. FULL HUD BUDGET RECAP
A fellow in secondary marketing wrote to me and said, "When is technology going to be socially curbed? I love to see people who spend hours at Starbucks using their iPhones and laptops suddenly complain about the traffic camera on the busy intersection. The people in business offices who complain about having to have a Blackberry with them at all times, are always the ones who send out emails on Saturday mornings. And cell phones? Just because you CAN get ahold of me, doesn't mean you SHOULD."
But technology is critical to many facets of the mortgage process, not the least of which is servicing. Recently the Federal Housing Finance Agency (FHFA), who oversees Freddie & Fannie, has become very involved in reforming mortgage servicing rights and due compensation, which in effect sets up a new payment structure for mortgage servicers in the future. A panel at the American Securitization Forum conference last week in Orlando agreed now is a good time to change the fee structure, because simply put, it seems unfair. Some want to increase it, others decrease it, and industry vets remember Countrywide wanting to eliminate it entirely (due to capital issues). As is known by many servicers & investors, securitizing mortgages, which helps not only agency but also jumbo and other loan types, is dependent on a good servicing model - and inefficient servicing operations are part of what's holding back new securitization.
It is not a simple topic. The industry must make sure that MSR (mortgage servicing rights) reform doesn't kill the mortgage servicing business in the revamp, but also that the fees are more relevant to the actual tasks and suited to the responsibility of the servicer. Does servicing a current Fannie loan really warrant .25%? Does servicing a delinquent loan warrant the same .25%? Should the originator be the only one responsible for the servicing - like the subprime days of the past? Basel III is scheduled for implementation in 2014, and at this point MSRs will not count as common equity for Tier 1 capital - what will that do to BofA, Wells, and others? The president of Ginnie Mae (Theodore Tozer) suggested a sliding scale based on constant versus variable costs.
The servicing rights for an MBS (MBSR) or most mortgages include receiving both principal and interest. Currently for agency loans the GSE bonds have a minimum 25 basis point servicing "piece" retained by the servicer and used to fund the processing of the principal, interest, and any delinquencies. The servicer also receives float on the money received by the homeowner, since there is a lag between the payment is received and when the money is due to the investor. It is pennies on individual loans, but adds up if you have billions in servicing. And of course servicers receive late fees (some borrowers are surprisingly regularly late), ancillary income from other marketing efforts such as credit cards, insurance, etc., and a good shot at refinancing the borrower should it come to that. It is truly an interesting business model, and more & more companies are looking at it closely.
"I've been charged with murder for killing a man with sandpaper. To be honest I only intended to rough him up a bit." According to a recent research piece by Barclays, servicers may get roughed up a bit pretty soon. In fact, Barclays suggests that the FHFA, HUD and the GSEs are much farther along in this process than many people may realize. The goals include "improving the servicing of non-performing loans and reducing GSE credit losses, relieving banks of their capital requirement issues under Basel 3, and reducing the risk of servicer concentration in the market." Barclays' report states, "Although banks should face less onerous capital requirements and experience less earnings volatility under such a structure, the servicing side of the business is likely to become much less profitable in future."
We have three brand-spankin' new Mortgagee Letters from HUD. The first introduces a 25 basis point increase to the Annual Mortgage Insurance Premiums for forward mortgage amortization terms. It also provides guidance on the validity period of case numbers and new requirements for requesting them. The second clarifies and updates existing guidance to mortgagees concerning refinance transactions for FHA insurance. And the third announces the FHA servicing lenders' tier rankings for Round 42. They were calculated using established criteria for HUD's Tier Ranking System (TRS) based on activity during the performance period from October 1, 2009 through September 30, 2010. (I guess I wasn't paying attention to Rounds 1-41.)
The letters can all be found at http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/
The PMI Group "only" lost $184 million in the 4th quarter, although it had a 128% increase in new loan insurance for the period and a slight decline in the number of PMI-insured U.S. primary loans classified as in default. The loss is less that than 2009's 4th quarter loss of $228 million, but still worse than expected.
Stearns Lending let its brokers know that its Declining Market Policy has been removed for loans under $417k in CA, AZ, FL, and NV for loans requiring MI. There are other restrictions, so check the bulletin.
J.P. Morgan Chase rolled out some new programs to help military and veteran customers stay in their homes as it seeks to repair its image after wrongly foreclosing on military families and overcharging thousands for mortgages. Chase also recently updated its Reps & Warrants section of its Guide to "specifically reference the Appraisal Independence Requirements" under Dodd-Frank and the Appraiser Independence Requirements issued by Fannie Mae and Freddie Mac to replace HVCC. Chase, as have others, temporarily suspended temporary buydown loans until regulators address paperwork issues. And Chase decreased the price adjustment for Agency Fixed Rate High Balance loans, improving pricing by .375.
Kinecta Federal Credit Union announced the rollout of FHA 15- and 30-year fixed rate products. "Business Partners must obtain separate approval to originate FHA loans. Products are eligible in the following states: CO, IL, IN, KS, MI, MN, MO, ND, NE, OH, OK, SD and WI."
For economic news today we've had Housing Starts were up 14.6%. But Building Permits were down 10.4%. The Producer Price for January was +.8%, as expected, although ex-food & energy it was +.5% - the biggest jump since 2008. The Consumer Price Index comes out tomorrow, and we'll be able to see if these price pressures have come down the consumer level.
I have never written to you before, but I really need your advice. I have suspected for some time now that my wife has been cheating on me. The usual signs; phone rings but if I answer, the caller hangs up. My wife has been going out with 'the girls' a lot recently although when I ask their names she always says, just some friends from work, you don't know them.
I try to stay awake and watch for her when she comes home, but I usually fall asleep.
Anyway, I have never broached the subject with my wife. I think deep down I just did not want to know the truth, but last night she went out again and I decided to finally check on her around midnight, I hid in the garage behind my golf clubs so I could get a good view of the whole street when she arrived home from a night out with "the girls."
When she got out of the car she was buttoning up her blouse, which was open, and she took her panties out of her purse and slipped them on. It was at that moment, crouching behind my golf clubs, that I noticed a hairline crack where the grip meets the graphite shaft on my TaylorMade 460 driver. Is this something I can fix myself or should I take it back to the PGA Superstore?
Signed - Concerned Golfer