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Apr. 20, 2011: Dodd Frank's potential impact on underwriting guidelines; bank earnings continue; Cantor's commercial deal; lender & investor news
Rob Chrisman
Lee
Farkas, the former chairman of Taylor, Bean and Whitaker
Mortgage Corp., was found guilty on all 14 charges stemming from
a seven-year, multibillion-dollar fraud scheme that led to the
collapse of his firm and Colonial Bank. Even the photo can make
you cringe. http://online.wsj.com/article/SB10001424052748704740204576273511899362604.html
At this point Mr. Farkas is probably not interested that Cantor
Fitzgerald sold $635 million of bonds backed by commercial
mortgages in its first sale of the securities. Congrats to
Cantor, who started its real-estate finance business in
September. The company is "catching the wave" since banks have
arranged about $8.6 billion of commercial-mortgage backed
securities this year, compared with $11.5 billion for all of
last year, per Bloomberg. Issuance hit $234 billion in 2007 and
$3.4 billion in 2009. And, per the article, top-rated securities
tied to commercial property loans are yielding 1.93 percentage
points more than Treasuries, compared with 2.28 percentage
points on Dec. 31, according to a Barclays Plc. index.
At this point Mr. Farkas is probably not interested in the bank
earnings that are coming out. US Bank's profit
jumped 56% to $1.05B coming in above estimates due to improved
asset quality and lower provisions. Loan growth was 2.4%. Zions posted an unexpected profit of $53mm (vs. a
loss last 1Q) due to a 65% drop in provision expense. Comerica posted a higher than expected profit of
$102mm (vs. a loss last 1Q) due to improved credit quality and a
72% drop in provisions. Keycorp earned $184mm
(vs. a loss last 1Q) due to improved credit quality and lower
provisions. Wells Fargo came in this morning,
with net charge-offs decreasing dramatically. 1st
quarter revenue dropped slightly due to a decline in mortgage
banking fee income.
How about this note that I received? "I have been originating
mortgages Georgia for almost 20 years, and done my best to stay
away from 'steering' my borrowers to any loans they either
couldn't afford or shouldn't be in. But when are the Realtors
going to face the consequences of steering borrowers into higher
priced homes they may not be able to afford, and then collecting
their 5 or 6% commissions based on that higher-priced house? Why
doesn't Dodd Frank include them?"
Dodd Frank is indeed the gift that keeps on giving. Earlier this
week the Federal Reserve Board (FRB) requested public comment on
a proposed rule under Regulation Z that would require creditors
to determine a consumer’s ability to repay a
mortgage before making the loan and would establish minimum
mortgage underwriting standards. (So let’s
take away Fannie & Freddie, and have regulators set
underwriting guidelines for private mortgage bankers?) The
proposal would apply to all consumer mortgages (except home
equity lines of credit, timeshare plans, reverse mortgages, or
temporary loans). The proposal would also implement the
Dodd-Frank Act’s limits on prepayment penalties. But wait – the
FRB will not even finalize the rules, since this authority will
be transferred to the CFPB before the comment period ends! Are
we having fun yet?
The Community
Mortgage Banking Project wrote, “(It) is important for
consumers and the mortgage industry because it will allow for a
side-by-side comparison with the proposed Qualified Residential
Mortgage exemption and the Risk Retention regulations. These two
regulations will be influential in determining the future shape
of the mortgage market of the future, thus it is vital that we
achieve the goal of harmonizing those two sets of regulations to
the greatest extent possible. The proposed ability-to-repay
regulations present two options for the Qualified Mortgage. One
option reportedly offers lenders and investors in mortgages a
true safe harbor from the significant liability under the Truth
in Lending Act that results from failure to meet the
ability-to-repay rules. If this option does offer a true legal
Safe Harbor, lenders and investors will have the legal certainty
necessary to provide low cost mortgage credit without the added
expense of excessive defensive measures undertaken strictly to
ward off class action attorneys.”
At this point Mr.
Farkas is probably not interested that for investors, BNP
Paribas said the proposed rule would be “a positive for
mortgages in the intermediate and longer term due to lower supply and reduced negative convexity.” To
read the entire proposal, go to
http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20110419b1.pdf,
or check out the summary at http://www.mortgagenewsdaily.com/04192011_qualified_mortgage_tila.asp.
A week or two Citi announced a name change for
correspondents, and several months ago AmTrust became NYCB. Another recent name change to take note of
is "US Mortgage Corporation dba Mortgage Concepts", which is now
officially "US Mortgage Corporation," its
original name from the mid-90's. Currently licensed in over 20
states, it has plans to go nationwide - nothing other than the
name is impacted by this change. And for more information on the
company, visit www.usmortgage.com.
At this point Mr. Farkas is probably not interested that
investor changes continue. M&T Bank
suspended its FHA Streamline product line.
ING reminded its brokers that the new
compensation rules prohibit steering or directing the borrower
to a loan solely to increase broker compensation. To this end,
although the Rule does not require the use of any new specific
disclosure, beginning April 20th brokers sending
loans to ING will be required to certify on the ING Broker
Gateway prior to the submission of a loan that the Borrower was
not directed or steered to a loan solely to increase the Broker
compensation. “Further, you will certify that you met the 'safe
harbor' provisions by disclosing the following options to the
Borrower: Loan with the lowest rate; Loan with the lowest total
dollar amount for origination points or fees and discount
points; and Loan with the lowest interest rate and no risky
features such as negative amortization, prepayment penalty,
interest-only payments, balloon payment in first 7 years of
loan, demand feature or shared equity or appreciation.”
The future impact of
Basel III is continuing on. It came to light that Citi
is selling $12.7 billion of assets, much of it mortgages,
ahead of compliance:
http://www.ft.com/cms/s/0/8c5fb104-69e0-11e0-89db-00144feab49a.html?ftcampcrm/email/2011419/nbe/FinancialServices/product#axzz1Jxx1DrbR
Flagstar has a lengthy series of training
sessions. Reg. Z Compensation Changes “Let our professional
training staff outline Reg. Z changes and show you how Flagstar
makes compliance easy. Classes are offered daily. Don't delay.
Class sizes are limited.” https://flagstar.webex.com/sac0405lb/salescenter/portal/PortalUrlAction.do?siteurlflagstar&portalNameY737
Housing Starts and
Building Permits were both a little stronger than expected –
good news for the housing biz although they remain low by
historical standards. Today at 9AM CST we have Existing Home
Sales, which in February fell 9.6% with declines in every region
of the country. Distressed transactions accounted for 39% of all
transactions for the month and the median price of an existing
single-family home down about 4% over the last year. But
analysts are calling for a slight improvement in this morning’s
number.
The MBA came out with
its weekly index, shopping a little pop last week of 5.3%.
Refi’s were up almost 3%, and purchases were up 10% (driven by
FHA/VA production). The percentage that refi’s constitute of
overall business continues to drop, and is now about 58% - the
lowest in almost a year. And ARM share increased to 6.5%.
Rate-wise, yesterday
was uneventful. The data was limited to Housing Starts, not a
big market-moving number. Agency MBS prices closed around
unchanged and the Treasury’s 10-yr settled around 3.36%. A
trader reported that “mortgage banker supply remained minimal.”
This morning rates are a shade higher, with the
10-yr at 3.40% and agency MBS prices worse by about .125.
Although this is not a joke in the traditional sense, it did
make me laugh out loud. Regardless of bad things
get, just be happy you're not a servicing manager in the
District of Columbia trying to comply with the new "District
of Columbia Department of Insurance, Securities, and Banking's
'Saving D.C. Homes from Foreclosure Congressional Review
Emergency Amendment Act of 2011'." Even though it is
exciting to have several new forms to use (like FM-1, or FM-2,
like radio in England) you can deal with, "...before a
residential mortgage lender may initiate foreclosure proceedings
in the District, the regulations require lenders to provide
notice to borrowers in the form specified on the newly released
Form FM-1. The form provides borrowers with details of the
amount owed on the loan, the amount required to be paid in order
to bring the loan current, and a description of loan
modification or other alternatives available from the District.
Lenders must note that the issuance of this notice requires
strict compliance. Indeed, the issuance of any notice that does
not follow the prescribed form will be automatically voided.
According to the Program, lenders are not only responsible for
providing Form FM-1 notice, but the regulations also set forth
several additional disclosure requirements. Among others,
borrowers must receive (i) a Borrower Assistance and Resource
Information Form (Form FM-1BA), providing resources where the
borrower may obtain assistance with mortgage problems and other
housing issues; (ii) a Mediation Election Form (Form FM-2),
providing instruction on how to opt-in to the new mediation
program; (iii) contact information for which the borrower may
use to reach an agent or representative of the lender with the
authority to explain the mediation process; and (iv) a
description of all loss mitigation programs available from the
lender and applicable to the residential mortgage for which the
notice of default is being issued. If the borrower opts out of
the mediation after the receipt of a Notice of Default, a
Mediation Certificate is provided to the lender and the lender
may then initiate a Notice of Foreclosure. If, however, the
borrower, within 30 days after the receipt of a Notice of
Default, elects to participate in mediation, then the lender is
required to participate in “good faith” in the mediation with
the borrower. Any lender that fails to mediate in good faith may
be subject to penalties. Although the final determination of
whether a lender has acted in good faith is left to the
Mediation Administrator, generally the District requires the
lender at mediation to (i) evaluate the borrower’s eligibility
for alternatives to foreclosure (including reinstatement, loan
modification, forbearance, short sale, deed-in-lieu of
foreclosure, etc.); (ii) offer the borrower a loan modification
(if eligible); and (iii) if the lender does not reach a
settlement with the borrower during mediation, the lender must
be able to demonstrate that the net present value of receiving
payments pursuant to a modified mortgage is less than the
anticipated net recovery following foreclosure."
(And yes, trying to
wade through that is the joke of the day.)
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