Yesterday I mentioned the question about whether or not modified loans could still be forced back to the seller for buybacks.
Freddie Mac does indeed say that the seller would still need to buy it back after a modification. At the current time, however, there is the belief that sellers continue to be successful in challenging these because most contracts don't specifically allow the servicers to modify the loans. And in fact several national law firms are making a run at challenging the large servicers, who find themselves caught between not being able to modify a loan and being forced to modify it by the GSE's and HAMP. Servicers claim that the reps and warrants stay with the seller, and especially if the loan is modified due to fraud or material misrepresentation then the seller may have to indemnify the loan with some deposit of money to the investor.
Bank of America came out with its official stance on two FHA items. The first, as announced in a HUD Mortgagee Letter, will be the new upfront mortgage insurance premium of 2.25% for both purchases and refinances. BofA will start this April 5. The only FHA programs not impacted by the new UFMIP factors at this time are for loans dealing with Indian Reservations or Hawaiian Homelands. The second addresses BofA's stand on the FHA flipping waiver, whereby HUD announced a 1-yr waiver to the 2003 90-day restriction. Starting 4/1, BofA's correspondent lending "will allow the 90-day waiver for all property sellers, including private sale transactions, but prohibits FHA financing for properties owned less than 90 days if the sales price is greater than or equal to a 20% increase over the seller's acquisition cost. The 90 days is calculated from the seller's acquisition date to the purchase contract date of the new transaction." Transactions must meet the usual arm's length requirements.
Bank of America will soon begin offering, by invitation only, loan modifications based on a reduction of the mortgage principal to some of its borrowers. Borrowers with principal balances of 120% or more of the home's market value or who are confronted with endlessly increasing balances on negative amortization loans will be the target (they must meet the basic qualifications of HAMP), and stories reported that BofA will forgive up to 30% of the mortgage loan balance in two stages: the bank will offer an interest-free forbearance of up to 30% of the principal balance for five years, and if the homeowner stays current on mortgage payments for the period of time, then the amount will be forgiven. Urged by the US Government to do more, we may see that other banks are willing to take some losses now to avoid much greater losses later if the housing markets begin to drop again. Industry observers say that it is a variation on the implementation of HAMP, rather than a new alt-HAMP or HAMP-light program. Say what you want, HAMP volumes have been disappointing, especially for Pay-Option ARMs. Bank of America estimates that 45,000 loans will be affected for about $3 billion in principal reductions ($67,000 per loan).
Come April 1st, ACORN will be closing state chapters across the country. Several chapters across the country have formed similar groups with new names. ACORN began to falter after an alleged embezzlement scandal and cover-up involving the brother of ACORN founder Wade Rathke was revealed in 2008, and then received more bad press when employees were filmed giving advice on how to evade taxes and police. Critics say that they've merely changed names; proponents say that things are evolving and that what will remain will be an effective advocate for low- and moderate-income members.
If you're not already tired of reading reports in the press about the mortgage and housing crisis, the New York Times has an article titled, "Microcosm of Housing Crisis on an Arizona Street.' HERE it is.
We have less than a week until the end of the Federal Reserve's purchase program of mortgage-related debt. Eyes are on the difference between mortgage and Treasury rates - remember that yesterday ALL rates rose. But there appears to be a continued belief that even without the Fed there will be enough investors in mortgage-backed securities that a big jump is very unlikely. READ MORE A jump of .1-.25% perhaps, but not the .5% or worse that some were forecasting a month ago. Less supply (40% less in 2010 versus 2009 by some estimates), and solid interest in owning mortgages should come into play by mutual funds, pension funds, foreign entities, and private investors. In late 2008, the average 30-year fixed mortgage rate topped 6.30%, and is now around 5.05%. Of course, during that time the Fed has purchased $1.25 trillion in MBS's, along with $175 billion in agency debt. Besides, are rates really the reason for lower mortgage production? Unemployment, appraisal values, and stricter guidelines obviously are an issue.
What happened to the entire fixed-income, and stock, markets yesterday? In the middle of the usual weekly auction, the $42 billion 5-yr Treasury sale went poorly ("sloppy"), and suddenly investors realized that yes indeed, our deficit is growing, and demand may drop for our securities. Volatility increased, and the yield on the 10-yr broke through a key level of 3.80% and into the low 3.80's. Mortgage prices worsened by up to a point, hitting levels that we haven't seen in a month. READ MORE. In addition, dealers say that they are seeing "money center" banks doing some selling to recognize gains prior to the end of the quarter, and in fact mortgage selling was estimated at three times the average daily volume over the last few weeks. There is continued nervousness about Greece and Portugal impacting the entire credit market. Portugal's budget deficit is over three times the European's limit of 3 percent at 9.3 percent of GDP.
In our country, Durable Goods rose for the third month in a row, but February's New Home Sales, although the median sales price climbed noticeably, showed a 2.2% decrease - perhaps due to poor weather and unemployment. (Who is going to buy a new house if they don't have a job, and especially if there are so many existing homes from which to choose...?) Purchases fell 20% in the Northeast, 18% in the Midwest and 4.6% in the South, but demand climbed 21% in the West.
Today we had Initial Jobless Claims and Continuing Jobless Claims, but still have a $32 billion 7-yr Treasury auction to muddle through. Last week there were 442,000 initial claims, down from 456,000 for the previous week, and the four-week moving average dropped by 11,000. Continuing claims also dropped slightly. After these numbers the 10-yr is sitting around 3.84%, stocks appear to be bouncing, and mortgage prices, depending on coupon, are flat.
Chutzpah is a Yiddish word meaning gall, brazen nerve, effrontery, sheer guts plus arrogance...
A little old lady sold pretzels on a street corner for 25 cents each. Every day a young man would leave his office building at lunch time and as he passed the pretzel stand he would leave her a quarter, but never take a pretzel.
This went on for more than 3 years. The two of them never spoke. One day as the young man passed the old lady's stand and left his quarter as usual, the pretzel lady spoke to him.
Without blinking an eye she said, "They're 35 cents now."