Ally, Chase, and BofA have made headlines in the foreclosure department, suspending them in almost two dozen states. Can the baby be thrown out with the bathwater? Sure. One reader wrote, "I have a client in Florida that closed on his sale in Florida on Thursday, and was supposed to close on his purchase of a Fannie Mae owned home this Wednesday. Well, last Friday he received a notice from the title company that they have indefinitely suspended the sale, due to the previous owner & servicer being JPM Chase.  However, the borrower was foreclosed on two years ago.  So now, with a wife and two dogs, my client has nowhere to go.  The auction company gave him until today to cancel and get a refund of his deposit, or to extend for 6 months, but with no direction on a closing date."

Originators want to know which states carry out which types of foreclosure. Here you go: In the "silver lining" category, the immediate result is that with thousands of foreclosures being delayed, the sales market won't be flooded with these REO properties for resale. That, in turn, could help stabilize prices in the near term.

One industry vet wrote to me about a comment on this. ("All these people know they signed the mortgage documents with the obligation to repay. What's the issue?") "The answer to this question may be that the documents were signed within the long established national agreement of an American free market and that our concept of contract law is predicated on that free market. Now many feel that the government is destroying this free market and replacing it with government mandates and picking the winners and losers, and the whole concept of contract law is on a very weak foundation. The government has to walk a fine line between this and assuring citizens to look to the government as their solution and role model."

The agencies are certainly stepping into the foreclosure issue. "Freddie Mac is deeply concerned about recent news reports that affidavits used in foreclosure proceedings may have been executed inappropriately and without proper notarization. In response, on October 1, 2010, we issued an Industry Letter that reinforces for Servicers of Freddie Mac-owned mortgages the critical importance of ensuring that the legal rights of borrowers are protected." Fannie, in a similar letter (are they still two separate companies?) said similar things, and both are requesting servicers review their servicing operations with respect to foreclosures that are either currently pending or within the applicable judgment review period in each state. FULL STORY

One issue that has been an, uh, issue lately is whether or not mortgage banks should keep their servicing - like mortgage banking from 20 years ago? Does it help them diversify their risk, and give them income when production slows? Up until recently big banks paid servicing released premiums that were more than the value of servicing to a small shop, nudging smaller originators to sell 100% of their production on a servicing released basis. Over the past year, however, it has become increasingly apparent to mortgage industry observers that the SRP's embedded in the pricing for many loans may be well below full value, and that has been discussed in this commentary. There has been a recent "wrinkle", since under the capital and liquidity reform package issued in July by the Basel Committee on Banking Supervision, mortgage servicing assets would be counted as 10% of Tier 1 capital at most, which would cause all of the large servicers to take a capital hit.

So at this point, not only are the large servicers dealing with foreclosure issues, but also with the possibility of paying high SRP's anymore. Hence it makes  a great deal of sense for mortgage bankers to constantly evaluate loan pricing and retain the servicing rights on those loans for which the available secondary market price is the most below full value: low default risk and low prepayment speeds. Licensing is required and there are a few pitfalls, so getting expert advice on the pros and cons, including the use of a sub-servicer and modeling operating results and cash flow under various scenarios is important. One firm providing these services is Financial Analysis Partners, and the president, David Fleig, is worth talking to if you want to learn more than just from this commentary. He can be reached at or go to

Last week I received a note. "I had an idea a long time ago to help stabilize the real estate markets without additional money from the government. It allows certain qualified borrowers who lost their homes to foreclosure in the beginning of the crisis to get back into the market sooner by reducing the time they have to wait to get an agency loan after foreclosure. I would add they should be well qualified buyers with good reserves, jobs, credit histories (other than the foreclosure), etc. This would bring back more buyers to help stabilize the drop and also stimulate the economy in other ways such as I have heard the average home buyer spends close to $6,000 the first year they own their home for things such as window coverings, appliances, furniture etc. Also insurance agents, Realtors, builders, public utilities, state property tax collections etc., would all see benefits from something like this."

What do San Francisco, Atlanta, and Orlando have in common? Each has been the site of a "grassroots" mortgage production conference called "Mortgage Revolution". There's an event for the benefit of loan officers and the industry coming up on Oct. 15-17th in Tarrytown, NY. One of the organizers wrote and said, "Having folks communicate, talk about current issues, etc., is the goal. It is an all volunteer entity with the proceeds donated to charity - there are no commercial interests." It is an interesting approach, and you can check it out at Education & communication are good things.

How about some investor chatter? Wells Fargo's brokers, by now, know that a full appraisal (Fannie Mae 1004/Freddie Mac 70 Uniform Residential Appraisal Report) is required on Conforming loans with LTV less than or equal to 80% and DTI greater than 45%. GMAC told its correspondents that "RESPA requirements require all borrower-charged fees to be disclosed in the borrower column on the HUD-1 and that any credits paid on the borrower's behalf must be disclosed on the first page of the HUD-1. In addition, all credits to the veteran from the seller, lender, mortgage broker, real estate agent or any other party to the transaction must be itemized by specifying what fees were paid by the credits."

Any FHA originators know that after the end of the year, TPO's will be permitted to continue participation in FHA programs by establishing a sponsorship relationship with an FHA-approved Direct Endorsement (DE) mortgagee. Most investors are offering such sponsorships to brokers. For example, "PHH Mortgage will begin accepting FHA Third Party Originator (TPO) applications for non-approved originators and previously approved loan correspondents whose approval has since expired." PHH offers different policies and procedures to different originators based on their Tier rankings - it is best to check their actual bulletin for specific details. It is also dependent on whether or not the originator was already producing FHA loans.

On to the markets! By the time the dust settled on Monday (and there was very little dust), current rate sheet mortgage prices improved by about .250 in the securities market. Whether or not the investor passes that on to the agent or borrower is up to them. Pending Home Sales, while still pretty low, showed some signs of improvement. If you're looking for a few reasons that a few investors improved pricing, one has a mixture of quantitative easing (QE) expectations, a flight to quality bid on terrorist warnings in Europe, and lower stocks. The 10-year note rallied about .375 in price down to 2.48%, but only $500 million in MBS's crossed the wires.

We don't have much market-moving news until Friday. Weekly jobless are not generating any excitement while they remain between 450,000 and 500,000. For Friday's expectations, looks for an increase in the unemployment rate to 9.7% from 9.6%. The majority of the US people need jobs and need to see housing stabilize. Granted, since the last Fed's FOMC meeting, the 10 year note rate has fallen about 25 basis points while mortgage rates have declined just 5 basis points. Not much may happen ahead of Friday - and don't forget the bond and mortgage markets close early on Friday ahead of the Columbus Day holiday. So far this morning both the stock and bond markets are slightly better than Monday's close, with the 10-yr yield sitting around 2.47%.


1. New Orleans Saint RB George Rogers when asked about the upcoming season: "I want to rush for 1,000 or 1,500 yards, whichever comes first."
2. And, upon hearing Joe Jacobi of the 'Skins say: "I'd run over my own mother to win the Super Bowl," Matt Millen of the Raiders said: "To win, I'd run over Joe's Mom, too."
3. Torrin Polk, University of Houston receiver, on his coach, John Jenkins: "He treats us like men. He lets us wear earrings."
4. Football commentator and former player Joe Theismann, 1996: "Nobody in football should be called a genius. A genius is a guy like Norman Einstein."
5. Senior basketball player at the University of Pittsburgh: "I'm going to graduate on time, no matter how long it takes." (Now that is beautiful).
6. Bill Peterson, a Florida State football coach: "You guys line up alphabetically by height." And, "You guys pair up in groups of three, and then line up in a circle."
(7-14 tomorrow)