The JD Power Survey is mostly known for car rankings. But the rating firm also takes a look at mortgage lenders.

Congrats in the above to Quicken Loans, which came out on top. But Quicken Loans had some backtracking to do recently. Its OnQ bulletin announced one thing, which was corrected with the final result being that Quicken will no longer offer the "non-agency loan product" in 2012. Although somewhat still confusing, one broker noted, "The non-agency jumbo they are discontinuing is their jumbo loan product.  I have no idea what their agency jumbo is, other than conforming loans that have the ability to go over $417K based on high priced areas."

And keeping on the jumbo news front, U.S. Bank Home Division announced for its wholesale group that, "Effective immediately, the combined loan amount appraisal requirement thresholds on all Jumbo loan products have been changed as follows: For California only, U.S. Bank Home Mortgage Wholesale Division will no longer require two appraisals if the combined loan amounts for the 1st and 2nd mortgages totals less than $1.5 million.  If the combined loan amounts are equal or greater than $1.5 million, two appraisals will be required. There has been no change on appraisal policies for all other states; the $1.0 million threshold still applies for the two appraisal requirement. For all states, the combined loan amount threshold calculation for appraisal purposes has been changed to use only the loans/liens with U.S. Bank Home Mortgage that are secured by the subject property and does not apply when another lender holds a 2nd lien position that is subordinate to US Bank."

The Justice Department announced the largest residential fair-lending settlement in history, saying that BofA had agreed to pay $335 million to settle allegations that its Countrywide Financial unit discriminated against black and Hispanic borrowers during the housing boom. "A department investigation concluded that Countrywide loan officers and brokers charged higher fees and rates to more than 200,000 minority borrowers across the country than to white borrowers who posed the same credit risk. Countrywide also steered more than 10,000 minority borrowers into costly subprime mortgages when white borrowers with similar credit profiles received regular loans, it found." Critics are quick to point out that no one from that company has ever served any time.

Like it or not, it is an agency world in mortgage lending. The FHFA, the agency in charge of the agencies, is weighing a proposal that would reduce bankrupt homeowners' loan balances. The Financial Times reports that the plan would call for Fannie and Freddie to allow homeowners in Chapter 13 bankruptcy proceedings who owe more on their housing debt than their homes are worth to pay zero per cent interest for five years, subject to approval by bankruptcy judges, according to a letter to Congress. The "principal pay down plan", which would apply to mortgages owned and guaranteed by Freddie & Fannie, would in effect act as a backdoor means of cutting mortgage principal for "underwater" borrowers, or those with negative equity. About one in four US borrowers, or 11 million homeowners, are underwater, according to data provider CoreLogic.

Proponents believe that reducing underwater borrowers' loan balances would be the most effective antidote to the US's housing woes, but critics believe that "such action would impose significant costs on lenders, investors and taxpayers, and would have unforeseen consequences on the future of US housing finance."

In the suit where California is suing Fannie and Freddie, the FHFA told the Attorney General that it would not respond to a detailed list of questions she sent the companies last month, and that it had exclusive authority to regulate the companies and that the AG lacked authority to compel responses.

The plot somewhat thickened in the SEC suit against former Fannie & Freddie executives. Daniel Mudd, chief executive of Fortress (owner of NationStar), is to take a leave of absence from work after he was charged with securities fraud. The SEC has accused Mr. Mudd, Fannie's chief executive from 2004 to 2008, and five other former executives of understating the holdings of high-risk home loans by Fannie and fellow mortgage finance group Freddie Mac. The Financial Times reports that, "Fortress did not disclose whether the leave was paid or unpaid. In 2009 Mr. Mudd was paid $25.7 million, including $24 million in stock awards on his appointment as chief executive. Last year he received compensation of $3.3m, according to regulatory filings."

While Congress is muddling along, this time over the payroll tax break extension, we were reminded that the MBA has been vocal on the use of guarantee fees to pay for it. Dave Stevens' key points include: "The MBA does not support using the GSE G-Fees as a new piggy bank for other arbitrary tax policy. Please note, the Senate bill requires that the GSEs raise G-Fees by 10bps on loans for the next ten years with that 10bps to be allocated directly to the treasury for this two month extension of the payroll tax cut. Ten years of rate increases to homeowners, for their thirty year mortgages, translate into a $4,000 cost (using an average $200k loan) to every borrower who uses a GSE loan to pay for only a two month payroll tax extension. The MBA has no objection to raising G-Fees as necessary to offset their credit risk and to offset debt obligations as necessary, and that the MBA is not commenting at all about the payroll tax extension goals or the term of the extension and remains non-partisan as to this matter."

Ed DeMarco, acting director of FHFA, has also weighed in publicly with the same concerns. "Relying on long-term revenue from the enterprises as an offset for short-term tax cuts seems inconsistent with the need to end the conservatorships and reform our housing finance system. FHFA will implement whatever Congress directs but I hope final resolution of the conservatorships occurs much sooner than 10 years from now."

Earlier this week Fannie Mae updated its seller guide to reflect the changes announced as part of HARP 2.0. Although most of the changes were already specified in Fannie Mae's release on the topic in November, Fannie eliminated the requirement that the lender determine if the borrower has a reasonable ability to repay the mortgage, and this caught the market by surprise. In the release, Fannie Mae stated that the "Reasonable ability to repay" terminology was removed from the requirements because the seller guide already describes the specific underwriting requirements that are applicable to each transaction. Thus, for Refi Plus, the lender is no longer required to determine the borrower has a reasonable ability to repay the mortgage based on a review of the information provided on the new loan applications. Analysts believe that it indicates that the GSEs are much more willing to provide lenders with reps and warrants relief that previously anticipated. Further, although reps and warrants risk reduced by this change may not be significant, it may still lead to a change in lender behavior which in turn could lead to faster prepayments.

Put another way, Fannie requires lenders to adhere to certain underwriting guidelines and documentation procedures for loans that are delivered to it with one of them being "borrower ability to pay." The previous Seller Guideline for HARP loans that are processed through the manual underwriting channel (Refi Plus) puts the onus on lenders to determine that the borrower has 'a reasonable ability to repay the mortgage' based on information provided by the borrower and payment history. It also requires that lenders verify and ensure that the borrower has a source of income. Under the revised guidelines, the 'borrower ability to pay' clause is no longer an underwriting requirement. Ability to pay has traditionally been measured using DTI (debt-to-income ratio) but as per HARP guidelines, no DTI calculation or evaluation is required if the borrower's payment does not increase by more than 20% (a 45 DTI cap applies otherwise). Lenders have argued that lack of clarity on what "reasonable ability" precisely means could expose lenders to indemnification liability in the event that the loan defaults. Whenever it is that lenders can roll the product out, they can underwrite HARP loans assessing borrower credit based on a straightforward metric (number of payments made) which reduces a significant layer of complexity with respect to rep and warranties liabilities for these loans.

Turning to the economy, we learned from NAR yesterday that Existing Home Sales were up 4% in November, with the sales pace about 12% higher than a year ago. Lawrence Yun, NAR chief economist, noted, "We've seen healthy gains in contract activity, so it looks like more people are realizing the great opportunity that exists in today's market for buyers with long-term plans." The median price for existing homes of all types was $164,200, down 3.5 percent from a year earlier.  Foreclosures and short sales which typically sell at deep discounts accounted for 29 percent of sales in November, up one percentage point from October but lower than the 33 percent of distressed sales recorded in November 2010.  Last month foreclosures accounted for two thirds of distressed sales and short sales for one third. A high level of "contract failures" continued in November with 33% of NAR members reported having at least one in November, much higher than the 9% from a year ago. (Contract failures are cancellations caused by declined mortgage applications, failures in loan underwriting from appraised values coming in below the negotiated price, or other problems including lower conforming mortgage loan limits, home inspections and employment losses.)

But as announced last week, NAR's numbers have been miscalculated since 2007. Without going into the statistical and methodological reasons (including a drop in FSBO listings), previous data was revised downward: down for 2010 data of 14.6% from the 4.91 million existing home sales that NAR had projected to 4.19 million sales.  For the period 2007 to 2010 the downward revisions altered figures for both sales and sales inventory by 14.3%. Oops.

This morning we had the third look at GDP, and moved it to +1.8% from +2.0%. We also had 364k for Jobless Claims, down 4k from a revised 368k. Today we'll also have the Chicago Fed Survey, Personal Income & Consumption, the U. of Michigan Confidence numbers, Leading Indicators, and another house price index. But a holiday mood pervades the markets with little volatility: the 10-yr is at 1.93% and MBS prices are up slightly.

Today my wife asked me, "What are you doing?"
I replied, "Nothing."
She said, "But yesterday that's what you told me you were doing."
I said, "That's right - I wasn't finished."

If you're interested, visit my twice-a-month blog at the STRATMOR Group web site located at The current blog discusses the time frames for borrowers returning to A-paper status after a short sale or foreclosure. If you have both the time and inclination, make a comment on what I have written, or on other comments so that folks can learn what's going on out there from the other readers.