I should have listened to my Mom and become a lawyer! Back in 2008, as WaMu was collapsing, the FDIC brokered a transaction between the failing S&L and J.P. Morgan Chase. But the question has now arisen: "Who should cover billions of dollars from a legal mess that WaMu left behind?"
The FDIC took them over, and then JPMChase bought it for $1.9 billion within 2 days - but the deal left open who exactly should cover WaMu's liabilities. (Isn't that covered somewhere in law school?) Chase's position is that it agreed only to take on bank liabilities that were spelled out on WaMu's books during the handoff - which did not include the cost of the lawsuits. The FDIC, supported by bank contributions or the taxpayer, depending on who you ask, has said J.P. Morgan agreed to buy the bank, both the good and the bad. But wait - there's more! WaMu is being sued by large investors who say it sold securities full of mortgages but misrepresented the risk. Deutsche Bank National Trust, who is representing the investors, filed suit against both the FDIC and J.P. Morgan claiming $6-$10 billion in damages for violating contracts.
But then again, earlier this week we learned that Bank of America won a dismissal, or at least another month of time, of a lawsuit claiming its Countrywide Financial Corp. unit made false statements about loan origination practices in selling mortgage-backed securities. The judge gave investors who brought the complaint 30 days to revise it. After they re-file the complaint, the court "will consider further the other grounds" in the bank's motion to dismiss it.
According to the story in Bloomberg, the judge stated that "this was all too complicated to figure out" and slammed her gavel down. Ok, just kidding. The judge actually said that investors didn't sufficiently demonstrate they suffered an injury for the securities they bought, and that the statute of limitations had expired for some claims. The suit claimed documents for mortgages originated by Countrywide and later securitized contained misrepresentations and omissions, and didn't follow the lender's own guidelines. Those failings must be addressed in the new complaint, she said. BofA said that, because the judge's ruling narrows the scope of claims that would be allowed to proceed in a revised complaint, it expects the securities at issue in the case would decline from 427 offerings with a face value of about $352 billion to about 22 offerings valued at about $31 billion.
Can you define a "safe" mortgage? (I know - "one where the borrower makes their payments.") But next month Federal regulators are expected to issue proposed rules spelling out which loans will be excluded from a new requirement that issuers hold onto 5% of the risk of mortgages packaged into securities. In the Dodd Frank legislation Congress exempted certain loans called "qualified residential mortgages" from the requirements, giving regulators the job of defining the loans and determining how securities issuers of securities can satisfy the rules. They are doing that now. READ MORE
In a leaked news story rumor, President Obama will nominate North Carolina Banking Commissioner Joseph A. Smith Jr. to be chief regulator for Fannie Mae and Freddie Mac along with the 12 Federal Home Loan Banks. Since FHFA was formed in 2008 it is had an acting director (Ed DeMarco). Freddie and Fannie, in case you're new to the business today, have had over $150 billion in Federal aid but paid out nearly $20 billion in preferred dividends. Smith, who has a law background, helped implement laws regulating mortgage brokers and lenders in North Carolina in 1999 became the first state to enact predatory lending laws to restrict high-cost and subprime loans.
A few years back OneWest Bank absorbed the carcass of IndyMac. Yesterday OneWest purchased a $1.4 billion, 600 multifamily and commercial real estate loan portfolio from Citibank as it expands its CRE lending business. "This portfolio purchase represents our ongoing commitment to commercial real estate lending," said the CEO.
The MBA, American Bankers Association, American Financial Services Association, Community Mortgage Banking Project, Consumer Bankers Association, CMC, Housing Policy Council, and the Independent Community Bankers of America all want the Federal Reserve and HUD to make the merger of the TILA and RESPA mortgage disclosures a "first priority" and halt other related rule changes. As most know, the Dodd-Frank bill calls for numerous changes to regulations that have compliance folks pulling their hair out. Back in September a TILA proposal surfaced that covered changes to reverse mortgage disclosures, mortgage borrowers' rights of rescission and certain unfair acts and practices. FULL STORY
Ginnie Mae will allow issuers to pool mortgages processed through the FHA's Short Refinancing Program. Ginnie doesn't buy and sell mortgages, but instead guarantees investors the timely payment of principal and interest on mortgage-backed securities containing federally insured loans like FHA and VA products. There is already $14 billion set aside from TARP to encourage mortgage servicers to support write-downs of second mortgages and provide coverage for a share of potential losses on the new loans. This month Ginnie will begin disclosing the concentration of FHA short refinance loans in pools, providing investors the amount of loans, the unpaid principal balance, and the percentage of the loans compared to the total dollar amount in the pool.
Speaking of FHA, the Federal Housing Commissioner announced a new mortgage insurance product that "will help current homeowners make energy-efficient home improvements". It is called the FHA PowerSaver, and gives us yet another word with a capital in the middle of it. Investors may actual go along with it - as we know, some programs offered by the agencies either don't make it to originators, or have investor-based risk overlays. Starting next year the FHA PowerSaver "will extend financing for credit-worthy borrowers to make cost-effective, energy-saving improvements to their homes." Only a limited number of lenders can participate (to be eligible, lenders must be approved participants in either the FHA Title I or Title II programs, and if selected lenders will be required to target PowerSaver loans to markets that have already taken affirmative steps to expand home energy improvements). PowerSaver loans will only be available to borrowers with credit scores of at least 660, total DTI's no higher than 45 percent, and combined loan-to-value ratios (including the PowerSaver loan) of no more than 100 percent. FHA insurance will cover up to 90 percent of the loan amount with the lenders retaining the remaining risk. Consumers will be able to borrow up to $25,000 with loan terms up to 20 years. Interest rates are expected to be 5 - 7 percent, comparable to or lower than other home-improvement finance options. READ MORE
Zillow began cranking out its property value reports 3-4 years ago, which is why so many people view the company as never coming out with any good news. Its latest report, dissecting the dire straits that the South Florida market is in, was in a similar vein. About 45% of homes sold in September in Palm Beach, Broward and Miami-Dade counties went for a loss. And 42% of single-family homeowners with a mortgage are "underwater," owing more than the properties are worth, and South Florida home values have tumbled 53% in the last 4 years and are now back to where they were in July 2002. Only Ocala and Bend, Ore., had higher declines. READ MORE
State Bank & Trust, headquartered in North Dakota, is buying Minnesota's Bell Mortgage. Bell has only been around for 130 years - a real "newbie". The deal combines the largest independently owned bank in Minnesota, North Dakota and South Dakota with the tri-state area's largest private mortgage company. Bell Mortgage has 180 employees at 28 offices in the Twin Cities; Phoenix; and Bozeman, Mont. State Bank & Trust has more than 500 employees at 14 sites and assets of more than $1.9 billion.
GMAC announced to its correspondent clients that GMACB will accept conventional appraisals completed by LandSafe for Bank of America in response to Bank of America leaving the wholesale mortgage market, for applications purchased by GMACB dated on or before December 31, 2010. "All LandSafe for Bank of America appraisals delivered to GMACB must comply with the following requirements: The file must have the HVCC compliance certificate on a Bank of America form or letterhead, and it must comply with all HVCC and all GMACB guidelines." The Client assumes responsibility for the accuracy of the appraised value and compliance with HVCC.
PHH recently updated its minimum FICO scores for FHA fixed purchase, rate/term refinance, and CO refinance loans. "A minimum representative credit score of 640 is required for all borrowers as determined by either a three repository merged credit report or a residential mortgage credit report", being bumped up from 620.
Today Flagstar Bank will be increasing the price adjustment for loans with LPMI that have properties in Florida from a hit of .25 to a hit of .55. Flagstar also changed its employment and income underwriting guidelines for rental income. "For rental income to be used to qualify, it must appear on the borrower's filed tax returns except for owner-occupied two-unit residences. For owner-occupied two-unit properties, net cash flow may be used to qualify for purchase transactions with a loan-to-value less than or equal to 75%. The lesser of 75% of the lease amount or the amount from the operating income statement (Form 216) will be used to qualify. A minimum 680 credit score is required and two months' PITI reserves must be documented."
Back to the fixed income markets, which yesterday were closed in the US. Pretty much the only scheduled economic news ahead of us is the University of Michigan's Consumer Sentiment Index. (It slid to 67.7 in October, the lowest level since November 2009, but is expected to increase slightly.) As mentioned yesterday, Wednesday's $16 billion 30-yr auction was not so hot.
You can retire to Colorado where...
1. You carry your $3,000 mountain bike atop your $500 car.
2. You tell your husband to pick up Granola on his way home and so he stops at the day care center.
3. A pass does not involve a football or dating.
4. The top of your head is bald, but you still have a pony tail.