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Jan. 19, 2011: Earnings from Wells, Goldman, USB; 25 bp servicing going away? Freddie eliminates streamline refi program
Rob Chrisman
Terrorists are now planting bombs in cans of alphabet
soup. If one of them explodes it could spell disaster!
Of
course, everyone in mortgage banking is hoping that 2011 is not
a disaster. (Remember - borrowers still
borrowed money even when rates were in the high teens.) That
being said, not only did Freddie Mac recently lower its
production estimates for 2011, but the Mortgage Bankers
Association (of America) came out with its forecast for 2011:
30yr conforming conventional fixed rates at 5.5% by year end,
and $966 billion total single family originations in 2011. How’s
your business plan? http://www.mortgagebankers.org/files/Bulletin/InternalResource/75318_.pdf
Regarding
volumes, this morning we learned from the MBA what many lock
desks could tell us: that apps picked up by 5% last week,
with refinancing applications up almost 8%. Purchases dropped
about 2%.
Will
any mortgage with an LTV of 70% or less avoid the future 5%
risk retention situation for issuers? That LTV level,
which continues to pop up in the press, could be the new basic
level for a "safe mortgage" - check out this story in the Wall
Street Journal: http://online.wsj.com/article/SB10001424052748703889204576078371120293698.html?
In February, from the 10th through the 12th, one has the “2011
Midwinter Housing Finance Conference” in Utah. The annual
event geared to the top executives in the mortgage finance
industry who ski, along with key regulators who ski, economists
who ski, and those that serve the business who ski. In all
seriousness, check it out at http://midwinterconference.com/Midwinter_Housing_Finance_Conference/Welcome.html
FHFA, which obviously has a great interest in the future of
Freddie & Fannie, announced a “joint initiative” between the
two and HUD for “Alternatives for a New Mortgage Servicing
Compensation Structure.” “(It) will consider alternatives
to the traditional servicing compensation structure. The goals
are to improve service for borrowers, reduce financial risk to
servicers, and provide flexibility for guarantors to better
manage non-performing loans, while promoting continued liquidity
in the To Be Announced mortgage securities market. Alternatives
for consideration may include a fee for service compensation
structure for non-performing loans as well as the possibility of
reducing or eliminating the minimum mortgage servicing fee for
performing loans, or other structures. Many of these issues have
been the subject of discussion within the mortgage industry for
years.” Before servicing employees begin wringing their hands,
nothing expected until the summer of 2012. http://www.fhfa.gov/webfiles/19639/Servicing%20model11811.pdf
Paul Jacob with Banc of Manhattan believes that what
will result will include “Greatly reduced minimum
servicing. This has long been on the wish list of
servicers. Based on the press release, it looks to us as if a
change from % to set $-per-loan is also on the table.
(Servicers will tell you that the cost structure of basic
servicing is more per loan than per $ of current face; a $400k
loan doesn’t cost 4 times as much to service as a $100k loan.)
What’s notable is that the press release explicitly questions
the wisdom of “the creation of a mortgage servicing right asset,
which is difficult to manage and separate from a servicer’s core
competency”. Don’t forget that Basel III makes servicing a
less attractive asset for banks to own. On the other
hand: MBS investors have reacted very negatively every time
this has been raised in the past, and they’re unlikely to be any
happier about the prospect now.” And the current system incents
servicers to foreclose, rather than engage in other loss
mitigation, so look for compensation for servicing delinquent
loans to possible change.
Fraud - in Washington state? No way! But... http://www.seattleweekly.com/2011-01-12/news/feature-hed/.
Don’t do the crime if you can’t do the time.
Freddie
Mac turned
some heads yesterday by announcing that it is “revising certain
refinance mortgage eligibility and underwriting requirements,
and announcing the elimination of Freddie Mac-owned streamlined
refinance mortgages.” After May 1 Freddie is, “Requiring
verification of funds for all refinance mortgages. This
requirement will apply to all refinance transactions except for
certain Relief Refinance Mortgages – Same Servicer. The
elimination of Freddie Mac-owned streamlined refinance mortgages
and requiring that a purchase money mortgage be seasoned for 120
days in order to be refinanced as a “no cash-out” refinance
mortgage. If the new mortgage is refinancing a purchase money
transaction, the note date of the original mortgage must be at
least 120 days prior to the note date of the “no cash-out”
refinance mortgage.” See all the details, and more including
news on PACE obligations, at http://www.freddiemac.com/sell/guide/bulletins/pdf/bll1102.pdf
Bank of America correspondents were reminded that “In
accordance with GSE data point of delivery requirements,
effective on all loans delivered for purchase on or after
January 28, 2011: Rental income and bedroom count for the
subject property must be captured on all non-owner occupied one-
to four-unit properties and all owner-occupied two- to four-unit
properties, whether or not the rental income is used to qualify
the borrower and regardless of the Automated Underwriting System
(AUS) decision.” Also, for appraisal documentation, "for
conforming loans, regardless of AUS: The Operating Income
Statement (Form 216) is not required: If rental income from the
subject property is not used in qualifying the borrower
(borrower qualifies with the full PITIA) or for refinance
transactions where the borrower has owned the subject property
for at least one year and reports the income on Schedule E. In
addition, the Single Family Comparable Rent Schedule (Form 1007)
is required for single family investment properties when income
from the subject property is used to qualify the borrower."
Wells Fargo alerted its broker clients about changes
required escrow holdback accounts starting Monday. “Escrows for
completion will only be allowed for minor items that do not
affect the safety, livability, marketability, or accessibility
of the subject property. Escrows are not allowed on condominiums
if the incomplete items are common elements or property.”
Fannie
Mae came
out with a couple of servicing bulletins, one addressing an
increase in foreclosure attorney fees in Maryland, and another
providing “additional guidance on servicer responsibilities in
connection with mortgage loans owned or guaranteed by Fannie Mae
and the Hardest-Hit Fund (HHF) Unemployment and Reinstatement
Programs.” https://www.efanniemae.com/sf/guides/ssg/2011annlenltr.jsp
PHH’s
clients learned of several “clarifications and reminders” in its
policies and procedures. PHH provided information on the Home
Affordable Refinance (HASP) product, including the description
and addressing subordinate financing (new subordinate financing
is not permitted). The company repeated recent Fannie DU Refi Plus and
Freddie Mac Relief Refinance Open Access changes, listing at
length the underwriting “tweaks” and refinements. It also
reminded clients of risk-based pricing notice disclosure
requirements (“Industry practice is to provide the notice within
3 business days of pulling credit and is still the expectation
of PHH. However, PHH recognizes that this may not always be
possible. Therefore, the decision has been made to allow up to
10 business days from credit pull date for the notice to be
provided. This timeframe is reasonably practicable and any
notice received dated beyond 10 days of the credit pull date
will require a written explanation of the delay to be reviewed
by PHH.”) and for recovery periods after bankruptcies,
foreclosures, and deed-in-lieu actions.
Although
the supply of MBS’s is sliding, and the demand is still decent,
yesterday "rate sheet" mortgage-backed security prices finished
off Tuesday worse by about .250 after beginning the day better
by .250. Tradeweb reported that volumes averaged 87% of the
30-day average, up from a daily average last week of 73%. Our
10-year Treasury notes closed worse by .250 in price and at a
yield of 3.37%. “Lower and wider didn’t draw in significant
buying as many real money types held closer to the sidelines
waiting for stabilization in the market and volatility, said
sources” per one trader.
For
news, we did have some information yesterday on home builder
confidence, which was unchanged for the third straight month in
January at “16” – whatever “16 means. This time around the
chairman of the NAHB noted that the difficulty in obtaining
financing and obtaining accurate appraisals continues to plague
the industry.
Today,
however, we have a little more to chew on. Wells Fargo’s
earnings came out as expected at $3.2 billion (61 cents per
share). Initial reads show that Wells’ loan growth was better
than expected. Credit quality improved dramatically, allowing
Wells to release some $850 million in reserves which is about 10
cents per share. Goldman Sachs also came out slightly
better than expected at $3.79 per share versus $3.76 per share,
although revenue came in lower than expected. Goldman did not
have a monumental quarter, as some were hoping. US Bank
reported its earnings at 49 cents per share, slightly better
than the 46 cents per share expected. The bank also reported a
provision for credit losses lower than net charge-offs by $25
million and net securities losses of $14 million, which
increased earnings per common share by three cents in the fourth
quarter. We also had Housing Starts and Building Permits for
December; starts were expected to decline and permits pick up.
Starts were indeed down 4.3%, possibly with some influence from
weather, and permits were up 16.7%. Regardless, housing is slow,
and continues to grapple with a foreclosure overhang. After
the news the 10-yr yield is chopping around 3.34% and MBS
prices are a shade better.
The
teacher asked the class to use the word "fascinate' in a
sentence.
Molly put up her hand and said, "My family went to my granddad's
farm, and we all saw his pet sheep. It was fascinating."
The teacher said, "That was good, but I wanted you to use the
word 'fascinate, not fascinating.'"
Sally raised her hand. She said, "My family went to see Rock
City and I was fascinated." The teacher said, "Well, that was
good Sally, but I wanted you to use the word 'fascinate.'"
Little Johnny raised his hand. The teacher hesitated because she
had been burned by Little Johnny before.
She finally decided there was no way he could damage the word
"fascinate,' so she called on him.
Johnny said, "My aunt Gina has a sweater with ten buttons, but
her chest is so big she can only 'fasten-eight!"
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