When I was a kid, I used to pray every night for a new bike. Then I realized that God doesn't work that way. So instead I stole a bike and asked Him to forgive me.
Neither strategy worked for four more banks, as the FDIC shut them down Friday (without finding buyers for two of them leading to losses for depositors who had balances exceeding the agency's insurance limits). Sun American's (FL) deposits and assets were acquired by First-Citizens Bank (NC) at a cost to the FDIC of $103 million. The Bank of Illinois was "absorbed" by Heartland Bank (IL) at a cost to the FDIC of about $54 million. Waterfield Bank (MD), at a cost to the FDIC $51 million, and Utah's Centennial Bank are now being run by the FDIC, with the help of Zion's Bank, at a cost of about $96 million.
HUD broke out some interesting news late last week, targeting FHA-approved loan correspondents. Last November HUD proposed that eliminating FHA approval for loan correspondents. But sometimes these things take time, and nothing has been decided yet, so FHA is extending the deadline for the submission of audited financial statements for loan correspondents seeking renewal of their FHA lender approval for 2010. "For loan correspondents with a fiscal year end of December 31, and that would ordinarily be required to renew their FHA approval by March 31, 2010, HUD is providing these lenders with an additional 30 days in which to submit their audited financial statements. Loan correspondents that do not complete their renewal in accordance with the deadlines as specified above will no longer be FHA-approved as of the effective date of the final rule that follows the November 30, 2009, proposed rule." READ THE STORY
Roll on, credit unions! Over 7,700 of them (including Navy Federal Credit Union, the world's largest with $40 billion in assets) originated $95 billion in residential mortgages in 2009, taking a 4.5% share of the nation's total mortgage market. At the end of 2009, the credit union industry held $314 billion in real estate loans in 2009, up 1.52% from 2008's origination level, and apparently has a goal of 10% of the mortgage origination market by 2016. Credit unions have increased total loan originations in 64 of the past 65 years, according to credit union research firm Callahan & Associates. NFCU said it funded $6.2 billion in mortgages last year, and has committed $7 billion to originate, purchase, and refinance mortgages with loan-to-values (LTVs) of up to 100% for its members this year.
If 2008 and 2009 were known as companies going out of business and tightening underwriting guidelines, 2010 runs the risk of being the year of loan buy backs. Everything points to FNMA & FHLMC putting back loans in mammoth proportions to investors, who in turn will look to the smaller originators for remuneration. Let's hope that smaller lenders have the resources not only to underwrite new loans but in scrubbing old ones. READ MORE
In a report from Oppenheimer & Co., it is estimated that Freddie and Fannie (owned by us, the tax payers) could force large investors to buy back $21 billion of home loans this year, resulting in a loss to investors of $7 billion. (This follows a loss of $5 billion this year for the same reason.) And there are plenty of losses to share, since Fannie Mae and Freddie Mac have lost over $200 billion since 2007. Freddie Mac forced lenders to buy back $4.1 billion of mortgages last year, almost triple the amount in 2008, and had another $4 billion outstanding loan-purchase demands that lenders had not met. Fannie Mae didn't disclose the amount of its loan-repurchase demands. The banks have to buy back the loans at par, and then take an impairment, because borrowers usually have stopped paying and the price of the underlying home has plunged. BLOOMBERG STORY
Quicken Loans' call centers, according to its CEO, have remained profitable during the mortgage crisis, posted record results in its last fiscal year, and weighed in at #14 in terms of originations last year. The company is privately held, but reported that its origination more than doubled in 2009 to $25 billion. Like so many other companies, the company is trying to increase its market share in 2010. If one excludes loans made through correspondent lenders or brokers, Quicken was #5.
Freedom Mortgage announced the discontinuation of all Interest Only programs, with April 1 as the cut-off date. This includes FHLMC's fixed rate IO and FNMA's fixed rate IO products.
Are there patents in mortgage banking? The Prieston Group's application by its owner for a patent on the Method of Rating Lenders quantifying the risk associated with the "lending practice including fraud detection, organizational structure and management among other qualitative analytics was approved." Prieston's "Lender Rating will increase predictability of repurchase risk of any particular lender. One of the many uses of the Rating Methodology can be applied to determining potential financial strengths and weaknesses of lenders."
Freddie Mac published information regarding their buy backs late last week. The good news is that the company seems to have cleaned up delinquency pipelines across vintages, coupons, and products, and because it will disclose the amount of delinquencies to be bought out ahead of time on a go-forward basis projecting Freddie's prepayment speeds seems much easier now. Of course the buyouts varied significantly among originator/servicers and geographical areas, with Countrywide leading the servicer pack and Florida being the worst hit state. This has significant implications on buyout rates going forward.
After coming out with investor's policies on following the FHA flipping waiver, especially concerning the amount of profit a seller can make, I received some mail. One wrote, "Telling some guy who is putting his money at risk how much he can make is bull. So some guy who buys a house in Detroit for $10,000 can only sell it for $12,000? Give me a break."
Another industry veteran wrote, "It is amazing how many creative ways the banks can find to sabotage the credit markets. Risk-takers all over the country sit on county court steps fronting their own cash to buy their troubled assets. They take on these risks in the pursuit of profit which can be realized after they clean up and stage the property...this so-called flip is a viable investment strategy that serves the bank's interests. In many cases the investor's markup on the flip is offset by the amount of rehabilitation put into the property or the rehabilitation itself is what inspires the buyer to pay that higher price."
"I can see it now. The listing sign will read, 'For Sale. The most we'll take is $250,000 and not one dollar more!' So if you're one of these investors you have a few options: accept the artificial markup caps because the reward is still worth the risk, stop rehabbing properties so you can keep the little markup they will allow, invest and hold your properties longer, or take your money elsewhere."
Back to the economy! Last week rates were pushed around by economic data. By Friday rates were pretty much the same as they were on Monday and locks appeared to be picking up a little, but then a better-than-expected employment number pushed rates higher. Fortunately for mortgage rates, the spread between them and the 10-yr Treasury (still a benchmark, in spite of actual rates more closely tracking 5-yr and 7-yr notes) is the lowest it has ever been. READ MORE. This week won't have as much to chew on: the Trade Balance & Jobless Claims will be released on Thursday, and Retail Sales, Consumer Sentiment, and Business Inventories come out Friday. And on Tuesday, Wednesday, and Thursday the US Government will be selling securities to finance its activities: $74 billion broken down by $40 billion in three-year notes, $21 billion in 10-year notes and $13 billion in 30-year bonds. Ahead of this the 10-yr yield is up to 3.72% and mortgage prices are worse by between .125 and .250 in price.
NEW UNDERWRITING UPDATES (my daily joke)
All borrowers' birth certificates will be required with pictures taken in the hospital with medical staff. Birth certificate with a live home delivery will not be eligible for first time home buyers.
Marriage certificate with bridal dress will be required if both husband and wife are required to qualify for the loan.
GFE will not require signature, but will require blood sampling from a recognized institution within three days of application.DNA test will be performed at closing to avoid any non-arms length transactions. Loan funding will be contingent upon satisfactory receipt of DNA results.
Verification of deposit will be acceptable only if Bank representative is present at the closing.
Copy of Pay stubs and W2 will only be acceptable through IRS and only with a wax-sealed envelope mailed directly to the lender. Seven witnesses from the neighborhood will be required as proof of primary residence in case borrower owns more than 1 property.
All appraisers will be required to use masks and ear plugs at the time of inspection to avoid any personal influence by the borrower or broker for the appraised value.
In order to correctly calculate DTI and true housing ratio a list of grocery items, monthly usage and brand names will be required with receipts and projected 12 month consumption chart.
Closing will not occur without loan officer presence at settlement and loan officer picture will be taken at the closing in a mug shot format with loan number. Picture should meet standard guideline of 2 X 2 inch in color format with one facing and one side view.
Loan officer picture will be attached to the Deed and note and will be made available for general public and security agencies in case borrower defaults on the loan.