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How long have you had
your bank account? 5 years - not bad. 10 years - good. 20 years - a loyal
customer. How about since before WWI: DoesThatComeWithFreeChecks? Think
of all the toasters she missed out on by not moving her account?
"My wife has been missing a week now.
Police said to prepare for the worst. So I have been to the thrift shop to get
all her clothes back."
In preparing for the worst, what is worse for mortgage
banking, indecision or a bad decision? Anytime something crosses the airwaves
from the Board of Governors of the Federal Reserve System, HUD, FDIC, FHFA, OCC
and the SEC, one should take notice. In this instance these six federal
agencies "have approved and will submit a Federal Register notice that extends
the comment period on the proposed rules to implement the credit risk retention
requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The comment period was extended to August 1, 2011, to allow interested persons
more time to analyze the issues and prepare their comments. Originally,
comments were due by June 10, 2011. The proposed rule generally would
require sponsors of asset-backed securities to retain at least 5 percent of the
credit risk of the assets underlying the securities and would not permit
sponsors to transfer or hedge that credit risk." SHARE YOUR FEEDBACK
Another headline from yesterday noted that
for $264 million Goldman Sachs is selling its Litton Loan Servicing Group to
Ocwen (New Company - New Co. - spelled backward). The sale price does not
reflect certain assets that Goldman Sachs will retain, and Goldman does not
expect the sale to have any material impact on earnings in the second quarter.
Ocwen also agreed to pay off $337.4 million in Litton Loan Servicing LP debt to
Goldman, with the assistance of a new $575 million loan from Barclays, which
advised Ocwen on the deal. The deal gives Ocwen Financial Corporation a
mortgage servicing portfolio of approximately $41.2 billion, mostly in
sub-prime mortgages.
By most accounts, it appears to be a good
fit. The overall stop-advance rates have been similar for Ocwen and Litton in
the past, and the CLTV, loan balance, and liquidation timelines for delinquent
loans have been similar for both servicers. But modification rates for Ocwen
have been about double that of Litton recently and analysts expect modification
rates to increase for Litton-serviced loans transferred to Ocwen. Ocwen tends
to re-modify loans at a higher rate compared with other servicers, and thus
some loans previously modified by Litton may be re-modified by Ocwen with a
higher payment cut or principal reduction.
Over in the agency side of the world, Fannie
and Freddie have both been busy in recent weeks. Fannie Mae
announced it has approved Genworth Residential Mortgage Assurance Corporation
(GRMAC) as an insurer of conventional mortgage loans in a limited number of
states. The insurer is responsible for compliance with its state limitations
and which entity is used: Genworth. Fannie has
spread the word regarding policy changes regarding deferred student loans,
documentation requirements for retirement accounts, prohibition of certain
mortgage insurance agreements, DU resubmission policies, MERS updates, and two
other miscellaneous items.
Fannie Mae is "requiring servicers, in
determining whether a borrower faces imminent default, to apply the evaluation
methods now used only for HAMP modifications to non-HAMP modifications secured
by owner-occupied properties. In addition, Fannie Mae is requiring servicers to
use Fannie Mae Network Providers to obtain broker price opinions or appraisals
to complete the evaluation of preforeclosure sales and deeds-in-lieu of
foreclosure." In addition, Fannie will be conducting a reapplication
process for the Retained Attorney Network in 16 states, is updating the maximum
number of allowable days in which routine foreclosure proceedings are to be
completed in each jurisdiction, announcing new servicer requirements to
streamline and simplify servicing processes related to delinquency management,
updating the Servicing Guide to simplify the existing servicing fee structure
for mortgage loan modifications while making the servicing fee comparable to that
of other secondary market investors, and reminded clients that if a mortgage
loan is registered with the MERS and "is originated naming MERS as the
original mortgagee of record, MERS must not be named as the loss payee on
property insurance policies." All of these can be viewed at Fannie.
Across the agency aisle and down the road a ways, Freddie Mac has made
changes to its selling requirements to improve the quality of appraisal data
and introduce additional borrower qualification sources. FreddieQualification.
Freddie has also revised its credit requirements to "Provide an avenue for
borrowers with unrestricted access to eligible assets to utilize those assets
to qualify for a mortgage" for manually underwritten loans as long as the
borrower "must not currently be using the eligible assets as a source of
income." Freddie also announced that an increase in the limit for
"credit card charges, or the use of a cash advance or an unsecured line of
credit to pay mortgage application fees. We are increasing the maximum amount a
borrower may charge to a credit card, or receive from a cash advance or
unsecured line of credit to pay fees associated with the mortgage application
process from 1 percent of the mortgage amount to the greater of 2 percent of
the mortgage amount or $1,500. Additionally, we are removing the provision
regarding the maximum allowable amount of $500 for appraisals and credit
reports."
In September Freddie is amending property
eligibility and appraisal requirements related to property underwriting and
review of appraisals and taking another step in the implementation of UAD
(Uniform Appraisal Dataset). Freddie also announced revised eligibility
requirements for manufactured homes, incomplete improvements including energy
conservation improvements (effective September 1), appraisal photographs
(effective March 19, 2012), transmitting appraisal reports (effective March 19,
2012), and seller warranties for Established Condominium Projects and New
Condominium Projects. As always, for these and everything Freddie, go to the
source at FreddieBulletins.
Yesterday the commentary noted how rates
declining have impacted the number of refi's, potential, and otherwise. It also
noted the hurdles to anyone refinancing, and how it is more difficult
now. As usual, I received a number of good comments.
"I question the rational of refinancing
with 0.5% gain. A $100K loan at 5%, the P&I is $537, but at 4.5% it is
$506. That is only a $31/month difference. The cost involved is $2,300
(lender admin fee, appraisal, credit, title and escrow and recording).
This rate has enough YSP to cover broker fee 1.5%. There is no way I can
justify a refi that takes 74 months to recover closing costs; even a $200K loan
would take 40 months to recover. In those scenarios the borrower would be
better off making a principal payment of $2,300 and saving interest that way.
The old rule of thumb was to recover the cost in 24 months or less. But
in my market, all this really is inconsequential, since no one has any
equity to refi. Back in the day, when FNMA had no seasoning, you could do
refi's for a lot of good reasons. Now, the rules have changed. What
I would like to see is the FNMA DU REFI PLUS program allowed for everyone
that has 760+ FICO, income, and cash reserves. Up to 105% of value.
That would have kept a lot of good borrowers in their homes. Now, many of
those good borrowers have made a business decision to walk away."
Another wrote, "I don't want to state the obvious but with banks
controlling the appraisal process and insisting on market comps (i.e., heavily
impacted by REOs and Short sales) as the yardstick of value, rates of even 2%
wouldn't realistically make any more refi's eligible. Until jobs create
employment and housing is lifted out of the stranglehold lenders have it in,
then this terrible economy will continue."
In a related issue, Barclays released a
research piece focused on the recent speed, or lack thereof, of prepayments.
"Given the recent rally in rates, the big question is: where will speeds
settle? The no-point mortgage rate, which briefly touched 5.2% in February, has
retreated all the way to 4.7% as of last week. (But the MBA refinance index is
languishing) and is barely responding to the increased incentive. We
attribute the diminished refinancing responsiveness to four factors: many
higher-WAC loans had already been refinanced into lower rates during the most
recent refinancing boom, burnout and diminished media effect, tighter
underwriting and increased friction (documentation and costs), and phasing out
of the HARP program. "Since HARP is the only channel left for streamlined
refinance, fewer borrowers qualifying for this program has reduced the
refinancing responsiveness." "As a result, we expect speeds to be
much slower than last year, when rates were at similar levels," which is
good news for investors but not-so-good news for originators.
On the FHA/VA side, GNMA speeds will likely
remain depressed as originators brace for increased put-back risks by the
FHA. Late last year, HUD proposed new rules to streamline the process of
indemnifications related to underwriting defects and more recently "the
proposed Biggert FHA bill seeks to expand HUD's authority to pursue indemnification
to more lenders (currently, HUD's right is limited to 29% of all FHA lenders,
or 70% of total FHA origination)."
M&A activity in the mortgage biz is alive
and well. In Southern California, the parent of Pacific Trust Bank has
agreed to buy Gateway Bancorp for about $17 million in cash. "The move
aims to expand Pacific Trust's reach in mortgage lending. While Gateway
Business Bank only has two bank branches, it does operate 22 mortgage loan
offices in California, Arizona and Oregon under the name Mission Hills
Mortgage." Pacific Trust has been more of a wholesale shop so this is a
move into retail, while Gateway, with $187 million in assets, was not
profitable and lost nearly $1 million last quarter: PacificTrust.
Yesterday was pretty quiet, market-wise, and
don't look for much more today. Tradeweb's MBS volume registered at 52% of the
30-day average with all sectors below normal. On no news the 10-year Treasury
note closed at a yield of 3.00%, nearly unchanged, and MBS prices were also
flat to Friday's close. Today we do, however, have yet another auction starting
up - this time $66 billion for the week with $32 billion in 3-yr notes. And we
have a speech by Chairman Bernanke on "The U.S. Economic Outlook" at
the International Monetary Conference in Atlanta, GA at 3:45 EST.
Try this while sitting at your desk. Raise
your right leg up, and make clockwise circles.
Now, while doing this, draw the number '6' in the air with your right hand.
Your foot will change directions. (Almost as amazing as a borrower claiming
that they didn't sign a loan document 5 years ago that said they would make
payments on the loan...)
If you're interested,
visit my twice-a-month blog at the STRATMOR Group web site located at www.stratmorgroup.com . The current
blog is new and takes a look at the opinions on QRM's impact on our
industry. 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.
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