I don't remember the exact moment that I decided to start my own investigation of the foreclosure issue. I figured that with Congress, 50 states attorneys, the OCC, the OTS, the FDIC, FHFA, and probably several dozen high-powered law firms around the nation doing their own investigations for various MBS investors, I might as well join the club. Heck, even the FTC issued a "Mortgage Assistance Relief Services Rule" two weeks ago, stating that by year-end, so-called mortgage foreclosure rescue and loan modification firms will be prohibited from collecting fees until homeowners have a written offer from their mortgage lender or loan servicer that they deem acceptable.
The owners of the mortgage-backed securities in question are pushing for a resolution of the 50-state probe of foreclosure practices. The attorney general from Arizona said, "The mortgage backed securities are worth pennies on the dollar, so any kind of recovery would be better." State officials have begun informal talks with some investors, but for the last month and a half all 50 U.S. states have been investigating whether banks and loan servicers used false documents and signatures to justify hundreds of thousands of foreclosures. FULL STORY
What's the next huge problem to face our industry? "The potential liability facing bankers arises from the $2 trillion in subprime, alt-A and option-adjustable rate mortgages that they underwrote and sold to investors, mostly as mortgage-backed securities during the home-lending boom of 2005 to 2007. The losses on the mortgages will be horrendous before the dust settles-over $700 billion on these and other so-called non-agency mortgage securities..." FULL STORY
Last week I wrote about the Federal Reserve's comment period regarding the exclusion of certain "safe" loans from the 5% holding requirements. "I have been watching the Federal Reserve's 'safe mortgage' news with interest. For a while people in the business talked about having all Fannie & Freddie, FHA, and VA loans be 'safe'. The problem with this is two-fold. One, some of the underwriting guidelines they approve for certain programs I don't view as safe - and the programs they had a few years ago were even worse. But more importantly, what if Freddie and Fannie don't even exist in a year? Then what will regulators say is 'safe' and exempt from reserving 5% in capital?"
Another wrote, "Do regulators know that forcing mortgage bankers to retain 5% in capital of what they originate will force our business to grind to a halt? Even requiring the top 5 investors to do this would be a nightmare. Is it going to be based on LTV? DTI? FICO? Originator? Agency? Obviously it can't be the last two - originators are susceptible to going out of business, and the government may do away with Fannie and Freddie entirely - then what?"
Two bored Congressman were absentmindedly chatting a few weeks ago. "What do you want to do?" "I don't know. What do you want to do?" "I dunno. How about we question whether or not to keep the mortgage interest tax deduction?" Of course, this was picked up by a reporter, and now we have folks talking about it for about the 18th time that I can remember. The news comes from the president's deficit reduction study, and as I wrote about a few weeks back, it seems that the viability of the treasured mortgage interest deduction is being questioned again. (That's just what the housing market needs, right? Let's see what happens to values in whatever segment of the market in which the deduction is ended.) READ MORE
One senior VP at WestStar Mortgage wrote to me saying, ""In our business, of course, the tax break helps promote home ownership, since people have to come with less of a down payment. An interesting question to ask a borrower is whether or not they'd buy a home if the tax deduction went away. In countries that don't offer the tax break, like England, home ownership is about the same as the US, but house prices are much lower. And the argument can always be made that economies are better off when people are making decisions based on economic principals rather than tax considerations, and in fact the current crisis is due in part to increased borrower debt magnifying risk. Many economists feel that any system meant to encourage people to take on more debt is not a great thing."
He continued, "What many people fail to realize is that the current tax deduction for mortgage interest is simply an acceleration of the type of deductions that we take for other investments. For instance, if you trade stocks on margin, you incur margin interest costs which are deductible from your gains at the end of the year. You can also deduct broker commissions, costs to improve commercial real estate, etc. - the same should apply to home mortgage interest.
"As economists will tell you, eliminating the annual deduction simply reduces the present discounted value of the home to the homeowner and, consequently, will result in a reduction in home values in the marketplace. As such, the elimination of the annual deduction is, at best, a revenue-neutral action and would actually reduce the long-term value of the largest piece of personal "capital" that any of us own - our home. At the margin (as economists like to say), this would have a significant negative "income effect" for homeowners and those industries related to home ownership the reduction in associated income taxes would probably more than offset any enhanced tax revenues from elimination of the deduction."
Friday was an early close for the fixed-income markets, and MBS's ended the day better by about .250 in price. Treasury debt prices rose as worries over the potential fallout from a euro zone debt crisis had investors turning away from stocks for the lower-risk haven of government debt. 10-yr notes were 12/32 higher in price to yield 2.87%. 5-yr notes, probably a better proxy for MBS prices given the life of new-production mortgages, were better by about .125.
At this point, in spite of the huge US deficits and other credit problems, our rates are being moved by overseas activity. Today we have firm news of a $113 billion bailout plan for Ireland. There is more geopolitical stress in Dubai, N/S Korea, Spain, and Portugal. In addition to the Ireland plan, European governments are crafting blueprints for future rescue efforts. The aid for Ireland, after a rescue for Greece earlier this year, is intended to show that the euro zone will help its members. But will it be enough?
In the short run, fortunately for mortgage rates MBS traders report that they are continuing to see steady demand from banks, money managers and oversea investors. The Fed is scheduled to buy about $39 billion in Treasuries this week after purchasing only $10 billion in a holiday abbreviated week. We have no economic news today, aside from the media chewing on shopping news. Tomorrow is the S&P/Case-Shiller set of housing price indices, Consumer Confidence, and the Chicago Purchasing Manager's numbers. Wednesday we have the ADP private employment numbers, productivity and cost statistics, Construction Spending, ISM Manufacturing data, and the release of the Beige Book. Thursday we'll see the usual Jobless Claims, and also Pending Home Sales, and on Friday the unemployment data. With that ahead, the 10-yr yield has further improved to 2.83% and 30-yr MBS prices are better by about .125. ECON CALENDAR
A Catholic Priest, a Baptist Preacher, and a Rabbi all served as chaplains to the students of Northern Michigan University in Marquette. They would get together two or three times a week for coffee and to talk shop.
One day, someone made the comment that preaching to people isn't really all that hard - a real challenge would be to preach to a bear. One thing led to another, and they decided to do an experiment. They would all go out into the woods, find a bear, preach to it, and attempt to convert it.
Seven days later, they all came together to discuss their experience. Father Flannery, who had his arm in a sling, was on crutches, and had various bandages on his body and limbs, went first.
"Well," he said, "I went into the woods to find me a bear. And when I found him, I began to read to him from the Catechism. Well, that bear wanted nothing to do with me and began to slap me around. So I quickly grabbed my holy water, sprinkled him and, Holy Mary Mother of God, he became as gentle as a lamb. The Bishop is coming out next week to give him first communion and confirmation."
Reverend Billy Bob spoke next. He was in a wheelchair, had one arm and both legs in casts, and had an IV drip. In his best fire-and-brimstone oratory, he claimed, "Well, brothers, you KNOW that we don't sprinkle! I went out and I FOUND me a bear. And then I began to read to my bear from God's HOLY WORD! But that bear wanted nothing to do with me. So I took HOLD of him and we began to wrestle. We wrestled down one hill, UP another and DOWN another until we came to a creek. So I quickly DUNKED him and BAPTIZED his hairy soul. And just like you said, he became as gentle as a lamb. We spent the rest of the day praising Jesus... Hallelujah!"
The priest and the reverend both looked down at the Rabbi, who was lying in a hospital bed. He was in a body cast and traction with IVs and monitors running in and out of him. He was in really bad shape. The Rabbi looked up and said: "Looking back on it ...circumcision may not have been the best way to start."