My mother never told me to become a lawyer. Wise advice or not, attorneys have their hands (and billing records) full of mortgage-related issues.
Yesterday California filed a lawsuit against Fannie, Freddie, and the FHFA over their opposition to a home energy-improvement program backed by the Obama administration.
The FHFA's Acting Director Edward J. DeMarco had this to say: “In keeping with our safety and soundness obligations, the Federal Housing Finance Agency will defend vigorously its actions that aim to protect taxpayers, lenders, Fannie Mae and Freddie Mac. Homeowners should not be placed at risk by programs that alter lien priorities and fail to operate with sound underwriting guidelines and consumer protections. Mortgage holders should not be forced to absorb new credit risks after they have already purchased or guaranteed a mortgage.”
This is happening because the FHFA has directed Fannie & Freddie to avoid participating in the PACE program. PACE encourages home-energy improvements whereby municipalities make loans through special property-tax assessments for homeowners to install solar panels, energy-efficient heating systems and other upgrades. Local governments sell municipal bonds to fund loans that property owners pay off over 15 to 20 years. PACE liens, like all property-tax assessments, are senior to existing mortgage debt. READ MORE
Charles Schwab is suing Bank of America, Chase, and UBS over the sale of mortgage-backed securities to the company's bank, alleging the firms made false statements or omitted facts about the credit quality of loans that backed the investments. Does it have anything to do with the FHFA subpoenaing lenders for loan docs earlier this week? READ MORE
Oregon and several other state investment funds have signed on to a class-action lawsuit against Countrywide Financial Services, claiming the Oregon Public Employee Retirement Fund lost $29 million on Countrywide mortgage-backed securities due to CW's "making statements to investors that were materially false and misleading. Company officials allegedly misrepresented and/or failed to disclose information crucial to investors' ability to accurately assess the risks of their investments."
The SEC has levied charges against Thomas Priore, ICP Asset Management LLC, and investment adviser and three of his affiliated firms with fraudulently managing investment products tied to the mortgage markets as they came under pressure in 2007. It "...defrauded four multi-billion-dollar collateralized debt obligations by engaging in fraudulent practices and misrepresentations that caused the CDOs to lose tens of millions of dollars."
A group of investors is suing Fortuno, Inc. a buyer of foreclosed homes and its outside marketing executives, alleging they illegally "enticed" the group to invest in the purchase and re-sale of REOs in Ohio and Michigan with the promise of high returns upon flipping the properties.
The FDIC has filed a $300-million negligence lawsuit against four former executives at IndyMac Bank FSB, accusing them of granting loans to homebuilders who were unlikely to repay the loans.
Morgan Stanley agreed to pay $102 million to Massachusetts homeowners and the state, settling allegations that it aided and abetted subprime lender New Century Financial Corp. in taking advantage of consumers.
And in what could become a lawsuit, the Securities Industry and Financial Markets Association said certain dealers of Ginnie Mae mortgage bonds failed to conform to the trade group's guidelines, amid concern that some dealers may have been recently using inappropriate tactics to profit in the market. Some dealers apparently filled Ginnie Mae Platinum securities, which are created from pools of other Ginnie Mae bonds, with inappropriate debt (notes backed by larger loans, or delinquent mortgages). The bonds were not eligible to be used for TBA ("to be announced") trades, which constitute the bulk of MBS's.
JPMorgan Chase announced earnings for the 2nd quarter. There is a lot of one-time and miscellaneous items involved, making it somewhat confusing, but its net income was $4.8 billion, or $1.09 per share, on revenue of $25.6 billion. The company reduced its loan loss reserves by $1.5 billion - a very encouraging sign. Quarterly profits were up, charge-offs and delinquencies improved, etc.
Yesterday I mentioned a drunken tirade about current correspondent investors. I made a note that I was just passing it along, not saying that it was factual, but apparently there was one glaring error: PHH is actually courting mortgage banker clients, and not only focusing on credit unions and small banks.
In other good news, Southern California's American Capital Corporation, which has been around for 17 years, is expanding its wholesale and retail channel and expects to close $1 billion this year. The company is owned by three originators, and just opened up an operations site in Northern California. (Many would believe, however, that as a mortgage company grows, management will eventually give up doing loans and focus on managing.) ACC claims that for its brokers it uses a "traditional" broker agreement without some of the harsh EPD language, and it will not recruit LO's out of an approved ACBN broker's office. Contact Allen Cravello at email@example.com.
Old, bad loans don't fade away - they are peddled by the FDIC, with the FDIC usually keeping a piece. The FDIC announced that it has closed on a sale of 40% equity interest in a limited liability company (LLC) created to hold assets with an unpaid principal balance of approximately $1.85 billion (1,660 distressed commercial loans, 50% of which are delinquent) from 22 failed bank receiverships. "The winning bidder of the Multibank Structured Transaction is Colony Capital Acquisitions with a price of approximately 59.00 percent of the unpaid principal balance." The FDIC kept 60% of the LLC.
Well, the Senate is expected to take their final vote on the Dodd-Frank (not Frank 'n Dodd) Wall Street Reform and Consumer Protection Act today or tomorrow. Assuming it passes, the president will most likely sign it next week. Once that happens, however, "all hell will break loose" as regulators and investor scramble to figure out when we will see changes within our industry, as some parts of the legislation may become effective before others. Months and years will pass, as we saw with the SAFE Act, RESPA, HVCC, etc.
Like those Acts, the intent of the Reform Bill is to protect consumers from the unanticipated and unintended consequences associated with many of the loan products and lending practices that arose from 2003-2007. Anyone who claims that these were the "Golden Years" of mortgage banking are obviously mistaken, since basic underwriting principals seem to have gone by the wayside, with plenty of blame to go around between consumers, brokers, rating agencies, investors, etc.
I have not read the 2,300 bill, but from what I understand it will eliminate compensation directly tied to the interest rate, and that consumers' interest rate is not tied to the loan agent's compensation. Yield Spread Premium was already "hit hard" with RESPA changes (for any table-funded transaction, the consumer must receive the full benefit of the interest rate the consumer selects), and going forward the consumer must freely elect to compensate the originator by means of an increase in the interest rate of the loan ( with full disclosure by the originator and full acknowledgement by the consumer of the cost and that this is what is being chosen) and the originator cannot receive any other compensation, directly or indirectly, from the consumer or any other party.
For anyone originating FHA or VA loans, engaging in loan counseling, or doing HECM loans, HUD released a new handbook that "specifies the most current legislative and programmatic requirements for the implementation of the Department's Housing Counseling Program". Program eligibility and approval, the delivery of comprehensive and HECM counseling services, program record keeping and reporting, performance monitoring, and the competitive funding and grant application process are all included. OFFICIAL GUIDANCE
We had a nice move in interest rates yesterday, as mortgage rates tagged along with the improvement in Treasury yields. The 10-yr Treasury rose by over .5 in price and moved to a 3.05% yield. (They don't always move together, based on the perceived risk or early pay-off characteristics of mortgage pools.) MBS volumes were above "normal" hitting $2.1 billion (mostly 4 & 4.5% securities), but there was decent demand by the usual assortment of investors (money managers, servicers, hedge funds, pension funds). Bonds were helped by a semi-solid 30-yr bond auction and some relatively weak economic news (Retail Sales, Business Inventories, mortgage refinancing), while the Fed's revised forecast included in the FOMC minutes was revised downward in terms of economic growth and upwards in terms of unemployment rate.
The Fed downgraded its economic growth projections to 3-3.5% from 3.2-3.5% for 2010 and increased the expected unemployment rate. To sum up their comments, the Fed will not be selling any of their $1+ trillion of MBS's any time soon, and not without advance notice, and the Fed will be on hold for the foreseeable future rate-wise, it remains a favorable rate environment for agency mortgage-backed securities. In fact, at this point no MBS's will be sold until after the Fed raises overnight rates - so it could be a while. READ MORE ABOUT THE FOMC AND HOUSING
This morning we've already seen a slew of economic news. Jobless Claims dropped from 458,000 to 429,000, down 31k, and the 4-week moving average dropped. They've hit a 2-yr low - but is it from jobless benefits expiring? The June PPI number came in at -.5%, with a core rate (for those that don't eat or use a car, plane, or bus) of +.1% - but who cares about inflation anymore? The Empire State Manufacturing Index dropped unexpectedly, which is putting a damper on the stock market and helping yields early on. And we've Industrial Production +.1%, and Capacity Utilization was 74.1 - both about as expected. After the news, the 10-yr yield is 7 basis points lower at 2.979% and mortgage prices are better between .0.25 and 0.375%.
Rob Chrisman started the day early having set his alarm clock (MADE IN JAPAN) for 6 am. While his coffeepot (MADE IN CHINA) was perking, he shaved with his electric razor (MADE IN HONG KONG). He put on a dress shirt (MADE IN SRI LANKA), designer jeans (MADE IN SINGAPORE) and tennis shoes (MADE IN KOREA) After cooking his breakfast in his new electric skillet (MADE IN INDIA) he sat down with his calculator (MADE IN MEXICO) to see how much he could spend today. After setting his watch (MADE IN TAIWAN) to the radio (MADE IN INDIA) he got in his car (MADE IN GERMANY) filled it with gas (from SAUDI ARABIA) and continued his search for a good paying AMERICAN JOB. At the end of yet another discouraging and fruitless day checking his Computer (made in MALAYSIA), John decided to relax for a while. He put on his sandals (MADE IN BRAZIL), poured himself a glass of wine (MADE IN FRANCE) and turned on his TV (MADE IN INDONESIA), and then wondered why he can't find a good paying job in AMERICA AND NOW HE'S HOPING HE CAN GET HELP FROM THE PRESIDENT.