Here is an interesting note for debt market students: Germany is scheduled today to sell two-year bonds that won't make set interest payments. The move reflects the safe harbor of German debt while revealing trepidation about the euro zone. There is even talk of German bonds with negative yields. "In these uncertain times, people are more concerned about the return of capital rather than the return on capital," said one strategist at Lloyds Bank. (Our 2-yr. was auctioned off yesterday with a yield of .3%.)

But others reach for yield. Any time someone sees a headline like, "AIG ventures back into subprime mortgages" it can cause shudders. But yup, that's the deal.

Expansion is the name of the game for many lenders. Majestic Home Loan is looking for Branch Managers, Area Managers, Retail Loan Officers, DE Underwriters, Funders and wholesale AE's in six markets: CA, WA, GA, MD, NC and VA.  Majestic, founded in 1997, will also be hiring a Branch Manager, Area Manager and Loan Officers for its Duluth, GA, office. The company's headquarters are in Rancho Cucamonga (Southern California), and resumes should be sent to Roger Zelaya, Regional Vice President, at

And talking about expansion, it appears ClearPoint Funding (national wholesaler) is going through a national reorganization, and there may be some good sales and operations talent available in many markets across the country. If you are looking to expand your footprint throughout the country, this may be a good opportunity. If you are interested in finding out who may be available please send an email to mortgageHR@hotmail .com.

In an interesting move, in May Bank of America will repurchase $330 million of home loans from Freddie Mac "after flaws were found in how they were created." In a story from Bloomberg, the facts seem to be that the payments on the "vast majority" of the loans are current but that BofA agreed to the refunds "because the valuation method used at origination did not meet the investor's technical requirements." Freddie Mac and Bank of America announced a $1.28 billion settlement in January 2011 over bad loans sold through 2008 by Countrywide. Bank of America's backlog of pending demands for refunds on soured loans reached a record $16.1 billion in the first quarter as a dispute deepened between the bank and Fannie Mae. Fannie stopped accepting new loans from Bank of America in January.

From an investor's viewpoint, this is an interesting development. Freddie provided a list of pools for which the share of balance to be bought-out exceeded 5%.  These pools represent a total outstanding balance of $1.3 billion and the net buyouts on these pools add up to $330 million. Further, the affected pools were mostly issued in 2010 and 2011, the pools are originated entirely by Bank of America, and the buyouts span 30-yr, 20-yr, 15-yr, as well as ARMs. Freddie Mac had mentioned a change in its rep and warranty sampling methodology in its latest Q1 filing, and Barclays Capital suspects these rep and warranty buyouts may be related to its new sampling system. Barclays points out that the buyout does raise some questions. "1) If these are rep and warranty repurchases on post HARP loans originated under a fairly tight underwriting regime, then they will generate concerns around buyouts on newly originated loans. This will especially true for higher SATO and HARP loans. 2) Though this round appears to be entirely targeted at Bank of America issued pools, it is unclear if other originators are being targeted. 3) It is also unclear if this is a one time-issue or a process that will be revisited at some regular interval. 4) Another concern would be whether similar buyouts are being considered or being implemented at Fannie Mae.

Similar to my inability to keep track of all the housing price measures that are out there, I can't keep track of the various delinquency numbers that seem to come out every week. But the recent numbers from the MBA caught my eye. There were substantial improvements in delinquency rates during the first quarter of 2012 according to the National Delinquency Survey. Jay Brinkmann, MBA's Chief Economist and SVP of Research and Education said that the combined percentage of loans in foreclosure or at least one payment past due was roughly 11%, a drop from last quarter and from last year's first quarter. In fact, this was the lowest that this measure has been since 2008 - mostly due to a decrease in the rate of loans that were 30 days or more delinquent. There was also a decrease in seriously delinquent loans but it was not accompanied by an increase in foreclosure starts which, in fact, decreased. Mr. Brinkmann suggested that looking at the two figures together leads to the assumption that a lot of very delinquent loans are being resolved in a manner other than foreclosure.

Mike Fratantoni, MBA's Vice President of Research and Economics said noted that the percentage of loans in foreclosure is up for prime and FHA loans, but the percentage of subprime loans in foreclosure continues to fall as the subprime loans age and the problems loans are resolved one way or the other. "The problem continues to be the slow-moving judicial foreclosure systems in some of the largest states," Franantoni said.  While the rate of foreclosure starts is essentially the same in judicial and non-judicial foreclosure states, the percent of loans in the foreclosure process has reached another all-time high in the judicial states, 6.9 percent.  In contrast that rate has fallen to 2.8 percent in non-judicial state, the lowest since early 2009." The difference in the rates is even more disturbing in certain states.  In Florida the percent of loans in foreclosure is now 14.31 percent. New Jersey and Illinois are trailing Florida substantially but still have rates of 8.37 percent and 7.46 percent and, Brinkmann said, their rates are increasing.  Ten judicial states have rates above the national average of 4.39 percent.  On the other hand, among the 29 states using a non-judicial process, only Nevada has a higher rate of loans in foreclosure (6.47 percent) than the national average.

Five states now account for over 52.4 percent of all foreclosures in the country while accounting for only 32.1 percent of the loans serviced. They are Florida, California, Illinois, New York, and New Jersey.

Along those lines, Realtors can tell you that over the past few years short sales have risen significantly as a percentage of total non-agency liquidations. The benefits of pursuing a short sale are compelling for servicers and investors, who are able to liquidate delinquent loans in an expedited fashion with fewer P&I advances and are often able to sell the property in a better condition at better prices, lowering severities. The benefits of a short sale are largest for jumbo borrowers and smallest for subprime borrowers; as a result, the usage of short sales is also highest among jumbo borrowers. This is partly because subprime servicers stop advances more and as a result the difference in timelines matters less. Historically, judicial states used short sales more, but that gap has narrowed recently as non-judicial state timelines have extended, and short sales now represent half of the liquidations in non-judicial states. Short sale usage among higher balance and owner-occupied loans has also been higher historically to some extent. For example, because of their long liquidation timelines, New York and New Jersey utilize short sales much more frequently than other states; these two states also derive the most benefit from using a short sale. On the other hand, liquidations in states such as Texas and Nevada, which have relatively short timelines, are less likely to involve short sales, per Barclays Capital.

Larger servicers have more frequently utilized short sales as a liquidation strategy, potentially because their ongoing servicing costs tend to be higher than for specialized servicers such as Ocwen and Nationstar. Another reason may be the heightened scrutiny from the government and the media over their foreclosure practices since the robo-signing scandal emerged. And looking at investors, Barclays found that the benefits of a short sale, after adjusting for compositional and timeline differences, are highest for Citigroup, JP Morgan, and Indymac.

My bet is that NAR chief economist Lawrence Yun has been waiting for yesterday for a long time. The National Association of Realtors announced that the median price of an existing home climbed about 10% to $177,400 from $161,100 in April 2011, the strongest year-to-year gain since January 2006. The median price in April reached its highest level since July 2010 when it was $182,100. And Existing Home sales rose to 4.62 million at a seasonally adjusted annual rate in April from a downwardly revised March rate of 4.47 million.

NAR chief economist Lawrence Yun said, "It is no longer just the investors who are taking advantage of high affordability conditions.  A return of normal home buying for occupancy is helping home sales across all price points, and now the recovery appears to be extending to home prices. The general downtrend in both listed and shadow inventory has shifted from a buyers' market to one that is much more balanced, but in some areas it has become a seller's market. This is the first time we've had back-to-back price increases from a year earlier since June and July of 2010 when the gains were less than one percent."

Looking at rates, Treasuries bounced off their lows in the last half hour before the close as equities sold-off in a late day "risk-off" trade. The 2-yr auction went off without too much fuss. Our MBS prices closed lower by about .125, but tighter to Treasury yields, on volume that was slightly above the recent averages, and the 10-yr. worsened by .5 in price settling at 1.79%.

On tap today is a mugful of housing news: the MBA's application index, New Home Sales, and the FHFA Housing Price Index for March. We also have a $35 billion 5-yr note auction.

An old man and woman were married for many years, even though they hated each other. Whenever there was a confrontation, yelling could be heard deep into the night. The old man would shout, "When I die, I will dig my way up and out of the grave and come back and haunt you for the rest of your life!"
Neighbors feared him. They believed he practiced magic because of the many strange occurrences that took place in their neighborhood. The old man liked the fact that he was feared.  To everyone's relief, he died of a heart attack when he was 98.
His wife had a closed casket at the funeral. After the burial, she went straight to the local bar and began to party as if there was no tomorrow. Her neighbors, concerned for her safety, asked, "Aren't you afraid that he may indeed be able to dig his way out of the grave and haunt you for the rest of your life?"
The wife put down her drink and said, "Let him dig.  I had him buried upside down, and I know he won't ask for directions."