Here's a rare editorial comment from me if folks care to read it. I found the MBA's conference earlier this week to be well attended, informative, and upbeat. It reinforces what I have believed for much of my career: that the high percentages of people in this biz are honest, hard-working, and actually care about doing a good job. Sure the percentage ebbs and flows, but most who don't or aren't have left the industry. And sure the money is very good for individuals and companies right now - that won't last, at least not for everyone. But the people I came in contact with at this week's conference, either meeting for the first time or folks I have known since the mid-1980's, were optimistic, well informed, and happy to be there. Sometimes conferences are not much fun functioning on a severe lack of sleep, trying to do one's regular job while having the day filled with meetings, or wondering at the lack of folks under the age of 35 who attended. But if the conference is any indication, the industry continues on, much to the relief of millions of borrowers.
Back to the usual "stuff." Everyone loves the E*Trade baby
commercials (the earlier ones at least), but not everyone loves E*Trade. E*Trade
Financial Corp has hit something of rough patch: the company reported third
quarter losses and is attributing it to third parties' failure to relay crucial
data about loan holders in a timely fashion. The losses incurred from
July through the end of September totaled $28.6 million, which has impacted the
stock price. It's been a rather tough road for E*Trade since the housing market
collapsed in 2007, and over the past five years, the company has done its best
to make a dent in its outsized portfolio of bad loans. There are about 50
third-party servicers who are meant to procure bankruptcy data specific to the
portfolio, but one of those servicers, whom E*Trade has declined to name, did a
less than stellar job of reporting that data for $90 million worth of loans,
about 90% of which were current. As such, E*Trade wrote down an extra $50
million in loan-loss provisions, putting the total for the quarter at $141
million-substantially more than the $98.4 million in loan-loss provisions in Q3
of 2011. "Nobody knows the trouble I've seen..."
Zillow is now showing foreclosure properties with the launch of its "Foreclosure Center." Who needs MLS or asking every bank for its REO list - per Zillow you can now access pre-foreclosures, foreclosure auctions, bank-owned properties, and more, alongside their standard listings. Zillow estimates their pre-market inventory to total more than 1.5 million properties nationwide, along with another 250,000 properties that have already been foreclosed on.
I am often asked, "Why does it take so flippin' long for a bank to do a short sale? You'd think after years of practice they'd be good at it." Well, remember that at the root of this, no bank, or person for that matter, is psychologically prepared to take a financial loss and make it smooth. With that in mind, California's real estate agents are grousing: when polled by the California Association of Realtors, 64% reported "difficulty" closing short sales, and 34% described the difficulty as "extreme." They cited slow lender response time and sub-par lender communication as the two main reasons for the struggles. As dismal as that may sound, however, those numbers actually represent an improvement. Back in 2010, 70% of respondents experienced "difficulty" when trying to closing short sales; in 2011, it climbed to 77%, and 56% report "extreme" difficulty. More real estate agents are describing their short sales as "easy" or "extremely easy" these days; 19% responded as such this year, up from 11% in 2011. Problems with appraisals and dual track issues also abated, and, in general, real estate agents reported better overall satisfaction with lenders than they did a year ago.
ResCap has seen its share of short sales, speaking of which, the Ocwen/Walter partnership won the bidding for ResCap's mortgage servicing business with a $3 billion bid. It beat out a competing bid from Nationstar. Ocwen will get the bulk of the servicing and Walter will get the Fannie Mae MSRs plus the mortgage origination platform. Other details about the transaction have not yet been released. Analysts proceeded to run to their calculators to try to figure out the impact of this on stock prices, but their success will be limited without knowing the split of the purchase price between Ocwen and Walter, the economics and duration of the subservicing contract, the financing costs of the MSRs, and how each company will finance the transaction - both companies have indicated that they will not need to raise equity. It seems Ocwen will keep the bulk of the servicing while Walter will take the Fannie Mae MRSs and the mortgage origination business. Walter could fund its MSRs through capital partners and it has an estimated $100 million in capital after the recent raise. The company had also noted last week that it would create an accordion feature which would allow it to increase its borrowings on its 1st lien facility. Since the company can't fund the mortgage bank through servicing financing facilities, that remains the most challenging piece to fund.
And Warren Buffett's Berkshire Hathaway won an auction for a portfolio of Residential Capital LLC's loans with a $1.5 billion bid, adding to Warren Buffett's bet on a housing market recovery. To refresh our collective memory, Ally Financial allowed its ResCap unit to file for bankruptcy in May to distance itself from the mortgage lender's losses and help repay its 2008 bailout money.
The deal has to be approved by the bankruptcy court in late November, but the two auctions were expected to generate about $4 billion.
ResCap, coupled with Ally's much smaller business, was the fifth-largest mortgage servicer in the U.S. in the second quarter, handling the billing and collections on about $329 billion of mortgages. And Mr. Buffett, through Berkshire, has been betting on a housing rally by buying a brick maker, owning nearly 10% of Wells Fargo, expanding a real-estate brokerage (Leucadia - Berkadia), owning Clayton Homes (manufactured homes), buying, in 2008, a portfolio of loans backing factory-built homes from CIT Group Inc., another lender that went into bankruptcy. And let's not forget his $5 billion bet on Bank of America.
Turning briefly to the elections, Thomson Reuters points out, "As for the election, Credit Suisse thinks that an Obama win would be neutral to slightly positive for MBS in the near term as it would be status quo for the markets which suggests a decline in volatility. A Romney win, meanwhile, could lead to some knee-jerk widening related to a positive risk-on/rate sell-off response from the markets. Looking to the longer term impact, they thought MBS valuations should be similar in a strong economic recovery regardless of who is elected. In a 'muddling' recovery, a risk seen with an Obama win was replacement of acting FHFA Director DeMarco with someone who is more amenable to principal reductions on underwater mortgages. Under Romney in this scenario, they would anticipate increased volatility associated with the possibility of less Fed support beginning in 2014 under a new Fed Chairman appointed by a Republican administration. As for the running of the FHFA, odds were deemed favorable for Mr. DeMarco remaining at the helm under a Romney win."
a little relatively recent lender news. As always, it is best to read the full bulletin
for comprehensive details, but these should give you a taste of trends.
Pinnacle-approved VA brokers are now able to do IRRRLs when reusing entitlement on VA-to-VA refinance provided that the borrower has a credit score of at least 640, no serious delinquencies in the past 12 months, and no late housing payments (either mortgage or rental) in the past 12 months. The new loan's interest rate must be lower than that of the previous loan and the P&I reduced except in cases where an ARM is being refinanced to a fixed-rate, and the transaction must be manually underwritten. Asset documentation is not required; income documentation is not required unless PITI is increasing by 20% or more. Non-owner-occupied transactions and jumbo loan amounts are not eligible. For more information on reusing entitlement refinances, see Pinnacle's VA requirements, which provide full details of the requirements.
In conjunction with the release of DU Version 9.0, M&T Bank will be allowing simultaneous refinances of second liens. Fannie high balance purchase/LCO refinance ARMs on 2-4 unit primary residences and premium conforming 2-unit primary purchases, 1-unit investment purchases, and 1-unit primary cash-out transactions will all be subject to LTV/CLTV/HCLTV changes. Limited credit qualifying borrowers, if employed, will be required to submit a verbal verification of employment within 10 days of closing and one month's most recent pay stubs with YTD figures, while self-employed borrowers must submit the pages of their most recent tax returns reflecting self-employed income and a verbal verification of self-employment within 10 days of closing. Assets for closing must be verified by a Direct Written Verification of Deposit that has been completed by the repository and the most recent bank statement; for deposits that exceed twice the borrower's monthly income, M&T will require an explanation and Paper Trail documentation.
M&T has revised the maximum principal curtailment at closing, which is now limited to $1,000 or 1% of the loan amount for loans under $100,000. And as of October 17th, M&T will require a tri-merge credit report, a fully executed 4506-T at application and at closing, and a minimum FICO score of 640 for all non-M&T-to-M&T VA IRRRL transactions. Borrowers will also be subject to a maximum DTI of 45%.
Following the USDA announcement about funding, SunWest is now accepting USDA Rural Housing submissions from all channels for purchase and refinance transactions.
Carrington Mortgage has announced that it will no longer accept FHA Streamline applications for 3-4 unit properties and that any such refinances currently in the pipeline require a full appraisal, full income documentation, and verification of three months' reserves in order to fund. The property must also pass a self-sufficiency test confirming that the gross rents less vacancy factor for all units is less than or equal to the PITI for the subject property, and the loan must fund by October 26th. For such loans that locked after October 12th, the lock desk should be contacted for pricing.
Switching over to the markets, Thursday MBS prices were lower and tighter (to Treasuries) on lower-than-normal. Unlike 10-yr T-notes, that sank .5 and closed at a yield of 1.83%, "current coupon" MBS prices were off about .250. But with the Fed buying so much, how much can prices really drop and rates go up?
This morning we've had the first look (there are three every time) at third quarter GDP. It was expected to be +1.9% versus the +1.3% for the 2nd quarter - the right direction but not very convincing. In reality it came out at +2.0%, a bit of good news for the current administration. After the news we find rates slightly better with the 10-yr at 1.78% and MBS prices better.
How about some political part 1 of 3 of some political quotes, with neither party targeted?
The problem with political jokes is they get elected.
~Henry Cate, VII
We hang the petty thieves and appoint the great ones to public office.
If we got one-tenth of what was promised to us in these acceptance speeches there wouldn't be any inducement to go to heaven.
Those who are too smart to engage in politics are punished by being governed by those who are dumber.