I should have listened to my Mom and become a lawyer.

In Florida, where palmetto bugs rule the earth, attorneys who take on foreclosure dismissal cases are accepting payments in the form of 2nd mortgages on their client's house. A lien is added if the foreclosure is dismissed and the homeowner's debt to the bank is reduced. Given all the press about sloppy processing of foreclosures, attorneys who specialize in property law are in demand but many of the clients are short on funds to pay the legal fees. "It's a new model, a new paradigm'' said Peter Ticktin of the Ticktin Law Group in Deerfield Beach. According to the story in the New York Times, each will be a contractual obligation with the law firm, labeled as a mortgage and structured like one, too, with the client paying a certain sum every month and using the house as collateral. If the Ticktin lawyers cause the original mortgage to be nullified or reduced because of the bank's misdeeds, the client must take out a new mortgage for 40% of the savings. (They'd better be sure they do the paperwork & disclosures correctly!)

"Why don't the strategic default people apply that "walking away" logic to everything they borrow money to purchase?  Their car is worth less the minute they drive it off the lot - why not quit making that payment?

Common sense underwriting will return when the American public applies common sense to repayments.  When they promise to pay back the loan they need to keep their promise, regardless of what the asset backing the loan is worth.  The industry is trying to protect itself from the "strategic default" people....something we've never had to contend with before.  So even if you have a "good loan" based on performance and risk, you still have to dot every "I" and cross every "T" twice so if the borrower executes their "strategic default", you don't have to repurchase (or make whole) the loan.  We spend more time every day just trying to make our loans bullet proof than we do actually making the loan decision. OK - I'm done ranting - pass the Xanax.

Who are the 10 big servicers?

By the end of the 2nd quarter..

  1. Bank of America was #1 with $2.2 trillion in servicing.
  2. Wells Fargo with $1.8 trillion
  3. Chase with $1.4 trillion
  4. Citi with $700 billion
  5. Ally/GMAC with $400 billion
  6. US Bank with $200 billion
  7. SunTrust with $175 billion
  8. PHH with $155 billion
  9. PNC with $150
  10. OneWest/IndyMac with $110  billion. (The Florida lawyers mentioned above are not on this list yet.)

Servicing provides a great cash flow, and apparently is worth the headache for those who own it. Of course, if something goes wrong with foreclosures, as GMAC is experiencing in Ohio, look out. "If Ohio has 10,000 of these cases, there should be 10,000 hearings." So said an Ohio judge, regarding reviewing foreclosures. "I'm sympathetic to the fact that it's onerous for the lenders, but I still have to do my job." The judge said she will hear arguments (tell the truth - did you think it was a "he"?) related to the integrity of the foreclosure documents and may decide to allow depositions of individuals who signed affidavits in the case at a subsequent hearing. If she determines the circumstances rise to the level of fraud, GMAC could be found in contempt of court. READ MORE

Every investor in fixed-income securities has choices to make: US Treasury debt, foreign bonds, corporate notes, etc. And each investor has limited capital, the supply of each of those is carefully monitored, and a large amount of one type can drive prices down and rates higher and compete for investment dollars. It seems that municipal bonds are about to see a lot of supply hit the market - over $10 billion this week, and $16 billion in the next 30 days, according to Ipreo LLC and The Bond Buyer. Some believe that issuers will have to make the yields more attractive to find a home for the bonds and get the deals done.

The National Association of Realtors (NAR) is urging the lending industry to make things easier to qualified buyers to become homeowners. Appealing to the agencies, the NAR's president said that the government agencies are impairing their own mission to provide mortgage liquidity to home buyers with unnecessarily restrictive limits on the availability of credit. "These policies are delaying recovery both of the housing market and the larger economy." With home ownership hovering in the mid-60% range, high by world standards, it is important to define "qualified buyers".  The mortgage industry has already responded in size: READ MORE

Someone already wrote to me about this. "Extending credit to unqualified buyers, or qualified borrowers who are walking away, is a key piece of the entire mortgage credit mess. Hasn't the NAR been reading the newspapers over the last few years? Realtors have never been known for their underwriting prowess. How about we crank up the rating agency machine while we're at it, where investment banks pay rating agencies to grade securities issued by...investment banks?"

It has almost been a week since the FOMC came out with its $600 billion bond buying program. How exactly will it work? The Fed, although it does not print money per se, effectively does so by expanding its balance sheet - currently triple where it stood in 2007. The Federal Reserve Bank of New York will buy up to $900 billion of government debt by next summer, a chunk of which will come from the expected $250-300 billion of income/early pay-offs from the $1.2 trillion of mortgages it purchased earlier this year. Most of those government securities will be in the 2 to 10 year range which is the part of the Treasury yield curve that helps to determine mortgage rates. Given supply and demand, as the Fed buys Treasuries, the rates on those securities will fall, and it is believed that rates on mortgages, corporate debt and other loans pegged to the Treasury securities will also drop, and cheaper loans will push Americans to spend. And if companies start to spend and expand, it will lead to more hiring, etc.

A mortgage industry vet wrote, "Now, here I am printing money out of thin air, creating electronic entries for specified amounts on my own balance sheet.  I then, on my own wire, aka Fed Wire, send that amount over to the US Treasury Department's operating account.  At exactly that same moment I simultaneous enter an asset entry on my own balance sheet which is identified by a specific CUSIP number for that particular U.S. Treasury bill or note that I just purchased with my magic money.  Voila - I am making interest on money that didn't exist 30 days ago.  This interest income becomes a part of my operating revenue.  I have purchased a trillion or so dollars of bonds and notes, and I have earned (billions) of dollars in interest, from cash that didn't exist until I waived my magic money making wand. But if I really am another branch of the Federal government, why would I continue to collect interest from myself?  Said another way, why wouldn't I simply forgive the U.S. Treasury debt?"

It appears that the USDA Rural Development program is back. Wholesalers, such as Wells Fargo and Mountain West, are telling their broker clients, "The USDA announced on Thursday that funding for the single family housing Guaranteed Loan Program is now available for fiscal year 2011." Wells said, "We are pleased to announce that RD Rate/Term Refinance transactions are now available at a 1% guarantee fee. Purchase transactions continue to be available at a 3.5% guarantee fee."

As expected, Ambac, the bond insurer, declared Chapter 11 bankruptcy yesterday, seeking relief on $1.6 billion of debt. "The Company was unable to raise additional capital as an alternative to seeking bankruptcy protection and was also unable to agree to terms with an ad-hoc committee of certain senior debt holders in order to restructure its outstanding debt through a prepackaged bankruptcy proceeding."

Mortgage rates are relatively stable, but that doesn't stop companies from examining and occasionally revising lock policies. Caliber Funding updated its lock policy for all Conventional Conforming and Government Adjustable Rate Mortgage products. It will now offer a 7 day relock option for 0 relock fee if the relock is taken within 3 days of lock expiration.

Mountain West Financial reminded California brokers of its "CalHFA 1% down FHA loan" program, where MWF combines an FHA 1st with a CHDAP for 99% financing. This program is designed for 1st time homebuyers (cannot have owned a home in past 3 years). The borrower must have 1% of own funds for down payment, and there are maximum income limits to qualify for the $417,000 loan along with several other considerations - check with your MWF rep.

Yesterday had very little market-moving news It appeared that most traders spent their day rolling hedging positions than in bidding bonds. Little was said about the 3-year UST note auction, other than it was yielding 0.56% in pre-auction trading, which would be the least ever. Today is another day of no news, but the US government will be selling $24 billion in 10-year notes (and $16 billion of 30-year bonds tomorrow). The "benchmark" 10-yr is sitting at 2.57% and mortgages a few ticks cheaper as traders price in pre-auction concessions. 

You can retire to the Midwest where...  
1. You've never met any celebrities, but the mayor knows your name.
2. Your idea of a traffic jam is ten cars waiting to pass a tractor.
3. You have had to switch from "heat" to "A/C" on the same day.
4. You end sentences with a preposition: "Where's my coat at?"
5. When asked how your trip was to any exotic place, you say, "It was different."