Jan. 20, 2011: Mortgage company earnings continue; Freddie & Fannie conjecture; Realtors & settlement cost input
Rob Chrisman

Some would say that the winning bid for this website domain name represents the change in mortgage lending in the last 5 years: http://cgi.ebay.com/OptionARMLenders-com-Mortgage-Lending-Domain-NR-/110635533090?ptDomain_Names&hashitem19c2644322
 
And here is one quote that I received recently which also represents what many seem to feel. "I love my job but it's really the industry I dislike right now."
 
Companies in the mortgage industry have been reporting financial results lately. In the mortgage insurance sector, most MI company shares tumbled after MGIC Investment Corp. posted fourth-quarter results far below analysts' expectations. MGIC’s shares plummeted 21% in one day after the company reported a loss of 93 cents a share. The largest MI company’s llosses on mortgage default claims rose again after trending downward during the two previous quarters, and in fact MGIC has been posting quarterly losses for more than three straight years with the exception of second quarter 2010. On the good news side, Morgan Stanley’s earnings came out this morning at 43 cents per share (higher than the expected 35 cents per share) on revenue of $7.8 billion.
 
Looking back at Wells Fargo’s results, it made $3.4 billion over 3 months in the last quarter! Size aside, its production numbers are reflective of many mortgage banks. The #1 lender said applications for home mortgages fell to $158 billion in the fourth quarter, down over 19% from the prior quarter but up almost 10% from $144 billion a year earlier. The bank closed the quarter with a pipeline of first mortgages initiated yet unclosed of $73 billion, which is down from $101 billion on 9/30. Nonperforming loans dropped by $2.1 billion, which is the first drop since acquiring Wachovia, but Wells increased its provision for loan repurchase losses to $464m from $370m in the third quarter. Yesterday Wells Fargo’s stock dropped, as did shares of US Bancorp which declined nearly 3% in one day. USB showed a nice profit, but less than what was expected. It released $25 million of loan loss reserves in the quarter, but also grew loans by 2%.
 
January is scheduled to be a big month for Freddie and Fannie, in that the Treasury is expected to release plans for their future. Merrill Lynch released some conjecture about upcoming news, which will probably come out after the State of the Union address on 1/25. Merrill reminds us that “The GSEs are in two very different and distinct businesses. One is in the Guarantee (or "G" fee) business which is essentially an insurance business and where a big chunk of the losses came from in the 2008-09 period. The second business is the retained portfolio business where they own mortgage products on their balance sheets and do so because it is accretive and where the bulk of the profits come. Incoming Republicans have been very vocal about GSE reform and all of the commentary seems to be negative for the retained portfolio business at a minimum, and currently, under the Senior Preferred Stock Purchase Agreement, Fannie and Freddie must shrink their retained portfolio's at a 10% per annum clip.”
 
The report continues to opine, “Regardless of the content, Republicans will dismiss it as spin and cry for immediate action on reform that includes, among other things, a much more rapid wind down of the retained portfolios. The market is very complacent on the topic of GSE reform and few have gone through the calculus of, for example, what something like a 4 year wind down of the GSEs would mean to absolute rates, Agency debt and mortgage valuations, spreads and volumes.  Or what an economic based mortgage insurance (or re-insurance) premium assessed by the government would do to housing prices and the macro economy in general.  The "White Paper" is important but represents merely the first salvo in what i am sure will prove to be an interesting public debate.  Ultimately, there will be meaningful change in the market place so be forewarned!”
 
HUD offered up a couple Mortgagee Letters yesterday, in what some would say are somewhat obscure topics. The first letter addressed "Claim Process for FHA Refinances of Borrowers in Negative Equity Positions (ADP Codes 821, 822, 831, or 832)", and the second dealt with the "Elimination of the Master Appraisal Report (MAR)." Check them out: http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/

Guild Mortgage spread the word among their broker clients that not only is it committed to the wholesale channel, but "We set a funding record for volume, no small feat for a company celebrating fifty years in business.  It was a year of regulatory changes, with SAFE Act compliance taking center stage.  What quickly became apparent is that the true professional brokers in the market quickly understood the requirements, put in the necessary time and effort, and obtained their NMLS License number.  Your population was reduced by the brokers lacking the level of commitment to satisfy their professional requirements.  This is proving to be a positive influence on our collective reputation with our customers.  We are repairing the damage done to our image by years of dishonest origination practices by the quick-buck tactics of an unfortunate minority in our industry.  Those people and companies are now gone, leaving true mortgage professionals.”

Here's an interesting, but out-of-my-expertise, note that I had received about Realtors and settlement costs. "We are seeing that realtors are requiring certain title agents to act as the closing agent with the lender having no say. These realtors and closing agents make the borrower believe that it is a requirement of the bank, or in many cases Fannie Mae who owns the property, when this is not true. The closing agent then charges $1,700 in settlement fees to the buyer on the closing statement when the buyer could have used someone else recommended by their new lender and only paid $500 for the settlement fee. Because the realtor's closing agent is not a recommended vendor of the lender, the 10% tolerance for fees listed on the GFE do not apply and the buyer never sees the settlement charges until they get the closing statement the day before closing. Why are these closing agents and realtors not required to disclose these charges upfront like the lenders are required and there is no accountability? As far as I know, they can charge whatever they want. It also puts the lender in a risky position having to wire out hundreds of thousands of dollars to a title company they don't know. What happened to the day when the lender who is funding up to 95% of the purchase price had a say in who was reviewing the title and closing loans for them?”
 
At least rates seem to have stabilized. Yes, MBS volumes are on the light side, as you’d expect with these pipelines, but MBS prices are doing ok. Yesterday lower coupon product gained ¼ in price, and about .125 on current coupon product while the 10-yr yield closed out the day at 3.34%. As we learned, Housing Starts fell, as expected, while Building Permits were up almost 17%, possibly due to changes in regulations in NY, PA, and CA but also due to a huge increase in multi-family permits. Builders continue to be faced with the economic reality of the high current and forecast future supply of homes on the market.
 
Today closes out this week’s “docket of data”. Initial Jobless Claims came out at 404k, down from 441k, a significant drop. Continuing Claims dropped slightly, and the 4-week moving average dropped 4k. At 7AM PST, 8AM MST we have Existing Home Sales (expected to show an increase), Leading Economic Indicators (expected +.6%) and the Philly Fed. At 11AM EST we find out the details of next week’s 2-, 5-, and 7-year Treasury auctions, and at 1PM a $13 billion 10-year TIPS auction. Currently the 10-yr is 3.39% and MBS prices are about .125 worse from Wednesday.


(Parental guidance suggested?)

He grasped me firmly but gently just above my elbow and guided me into a room, his room. Then he quietly shut the door and we were alone.
He approached me soundlessly, from behind, and spoke in a low, reassuring voice close to my ear.
"Just relax."
Without warning, he reached down and I felt his strong, calloused hands start at my ankles, gently probing, and moving upward along my calves slowly but steadily. My breath caught in my throat. I knew I should be afraid, but somehow I didn't care. His touch was so experienced, so sure.
When his hands moved up onto my thighs, I gave a slight shudder, and partly closed my eyes. My pulse was pounding. I felt his knowing fingers caress my abdomen, my ribcage. And then, as he cupped my firm, full chest in his hands, I inhaled sharply. Probing, searching, knowing what he wanted, he brought his hands to my shoulders, slid them down my tingling spine and into my panties.
Although I knew nothing about this man, I felt oddly trusting and expectant. This is a man, I thought. A man used to taking charge. A man not used to taking `no' for an answer. A man who would tell me what he wanted. A man who would look into my soul and say…
"Okay, ma'am," said a voice. "All done."
My eyes snapped open and he was standing in front of me, smiling, holding out my purse. "You can board your flight now."