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May 6, 2011: Implications of lower rates on refinancing; lawsuits, lawsuits everywhere; commercial MBS news
Rob Chrisman
The
driving force behind Mother’s Day was Anna Jarvis, who organized
observances in Grafton, W.Va., and Philadelphia on May 10, 1908.
As the annual celebration became popular around the country in
1914 Congress designated the second Sunday in May as Mother’s
Day.
Rates are
improving, and agency MBS prices yesterday improved by
.375-.50. Fannie & Freddie
4's closed yesterday about 100.375. By and large, these
securities are filled with 4.25-4.625% 30-yr mortgages. Let's be
conservative and add a point (1.0) for the value of servicing,
and suddenly "the market" is paying nearly 101.50 (1.50 rebate)
for a 4.50% 30-yr agency mortgage. Below that there will be some
buy-downs, and above it will be some buy-ups, and it depends on
rate lock period, but that's about the pricing. This leads into…
Rates are about the best they've been all year.
Remember all those sparkly clean 5% or even 5.50% 30-yr agency
loans that the originators were producing in the last 6 months?
Many of them may be coming back as refi’s. But keep in mind that
loan-level price adjustments (LLPA's) have changed, as has the
FHA MIP's, so recent prepayment speeds have been in transition
over the past few months due to those, and due to servicers
prioritizing loan processing for one agency over the other. And
if you think components such as LLPA's, MIP's, and increased
documentation impact the borrower's ability to refinance, just
wait and see what comes out of the QRM public comment period.
Mortgage security traders hardly know which way to turn, and I
read several divergent ideas about what is going on and where
investors should place their bets - any of which can be
confusing to anyone not well versed in MBS lingo. But this is
more relevant for originators: “Freddie Mac reported that
30-year fixed mortgage rates averaged 4.71% this week which
matches the lowest level seen this year. Refi
activity is likely to have increased this week as more of the
5% coupon enters into the refi window; however, a significant
pickup is not expected unless mortgage rates rally to 4.50%,
said a Credit Suisse report.”
Yesterday I mentioned the latest from Freddie Mac
about not requesting government funds given the quarterly
results. I received a helpful note: "Thanks for earnings
update. One small correction, which is that this is actually the
fourth time since the government took Freddie over that it
reported quarterly earnings and did not ask for a Treasury draw
(not the first as you reported). Freddie's earnings are up,
delinquencies down, and even its REO inventory dropped 10% in
the last quarter - good things."
What is the “False
Claims Act?” Besides “you look good in that dress” and “I think
you look just as handsome without hair,” there are other false
claims, and financial services industries are often accused of
them. The U.S. attorney who sued Deutsche Bank used the False
Claims Act in going after the bank's alleged practice of making
federally insured mortgage loans without actually checking, as
it repeatedly claimed, on whether the borrowers actually had
jobs or incomes or bank accounts that would allow them to repay.
After being passed in 1863, the government has collected $27
billion in False Claims Act recoveries since the law was
strengthened two decades ago. http://finance.fortune.cnn.com/2011/05/04/have-lying-mortgage-bankers-met-their-match/
I should have listened to my mother and been a lawyer, as the
legal fun never ends. Citigroup and Bank of America
disclosed new lawsuits yesterday related to originating and
servicing mortgages. In their reports to the SEC, both banks
said the Federal Home Loan Bank of Boston sued
them in state court in Massachusetts, alleging misstatements or
omissions in connection with mortgage-backed securities. But
they’re not alone in facing the FHLB, as it is suing Ally
Financial, Capital One Financial, Wells Fargo, Morgan Stanley,
several foreign banks, and McGraw-Hill Co. Inc. (MHP) for losses
on its $5.8 billion investment in private-label mortgage-backed
securities issued by 115 securitization trusts. The FHLB, on its
website, said it seeks "various forms of relief including
rescission, recovery of damages, recovery of purchase
consideration plus interest" and legal costs.
Citi said in its filing that the Union Central
Life Insurance Co., Ameritas Life Insurance Corp. and Acacia
Life Insurance Co. are suing it in federal court in Manhattan,
seeking unspecified recovery of damages from losses sustained
during the financial meltdown related to mortgage-backed
securities. A slew of other banks are mentioned in the suit,
including Wells Fargo, Goldman Sachs, Morgan Stanley, and
several foreign banks. http://online.wsj.com/article/BT-CO-20110505-723985.html
How do the words "Deutsche Bank" and "slumlord" wind up in the same
sentence in the LA Times? The Los Angeles city attorney's office
filed a civil lawsuit against the world's fourth-largest bank,
seeking hundreds of millions of dollars in penalties and
restitution and an injunction forcing it to clean up its LA
foreclosed properties saying they breed crime.
http://www.latimes.com/news/local/la-me-bank-slumlord-20110505,0,3922962.story
Perhaps the False
Claims Act will apply to this: "Rob, you spoke about some firms
cheating the new comp rules. I've been in this business for 20
years, and a top producer for my company, but the first two
weeks of last month I had no fundings and got a check for a few
hundred dollars. Last week I heard about ----- having a plan
where an LO can charge overage and apply it to what sounds like
a company slush fund and then use it as additional comp later or
apply it to short files or retain for an annual bonus. I don't
see how this is legal and conforming with the new system. But
how will a regulator even catch it? Are there even resources for
them to catch it? And when/if someone catches the scam, what
will they do...Seems like a slap on the hand at worse, because
the rules are so convoluted that most can't even process them.
Another large lender is rumored to have 5 retail rates sheets
with different comp levels...Choose your comp on each deal and
go. How does that comply... and that's a bank! Thank goodness I
am doing Real Estate on the weekends now. I put in over twenty
years, worked hard, made some money and am still waiting for my
industry to figure it out - but clearly we haven't. Sing with
me... "Take this NMLS number...and Shove It!"
In the CMBS
(commercial mortgage-backed security) market, a new limited
partnership, International Market Centers (IMC),
has been formed. This company is expected to play a key role in
the resolution of a number of defaulted CMBS loans associated
with the furniture showroom business. The new
company is expected to have a majority market share in the
marketing of the premium home furnishings, gift and home décor
showrooms and exhibition space to wholesale buyers and sellers.
The major IMC shareholders are Bain Capital and Oaktree Capital
Management. Among the minority shareholders are Related
Companies, Bassett Furniture Industries, and affiliates of
Network World Market Center. The new company is expected to
invest up to $1bn in its effort to combine the High Point and
Las Vegas home furnishings markets and will become the owner of
three complexes (International Home Furnishings Center and
Market Square in High Point, and World Market Center in Las
Vegas) encompassing 10.6mn sq. ft. of showroom space spread
across 13 buildings. In about 60 days, additional property,
Showplace International, is expected to be added to the
portfolio, increasing the leasable area to 11.5 million square
feet and the number of buildings to 18.
Bank of America (#2 in the 4th quarter) correspondents learned
of changes to its CLUES Credit Report Inquiry Policy, credit
report inquiry policy, and gave out some additional client guide
updates, along with announcing updates to its Correspondent
Lending Website (Internet Explorer 8.0 Compatibility). For
example, “for conforming loans with CLUES decisions submitted or
resubmitted on or after May 22, 2011, Clients must utilize
credit reports that include at minimum a 120-day credit inquiry
history.” In addition, “Existing credit inquiry evaluation
policy requires borrowers to provide a detailed explanation
letter that addresses all credit inquiries on the credit report.
Effective immediately for conforming loans, Correspondent
Lending requires inquiry review based on (certain) timeframes.
Clients must review and evaluate all credit inquiries which
occur in these timeframes to determine whether the borrower
received additional credit not reflected in the credit report or
disclosed on the application. The timeframe requirements below
apply per automated underwriting system (AUS), regardless of any
AUS condition. As a reminder, for all automated underwriting
systems, regardless of any AUS condition, borrowers must provide
a detailed explanation letter that specifically addresses both
the purpose and outcome of each credit inquiry. A general credit
explanation letter is not acceptable.”
Last month the government reported that the economy added
216,000 jobs in March, and the unemployment rate dipped to 8.8%.
But although the number of unemployed has declined by 1 million
since November, hourly earnings growth remains anemic, having
been flat in four of the past five months, and don’t expect high
gas prices to help the retail and leisure/hospitality industries
and therefore job counts.
As mentioned above,
Treasuries and MBS’s rallied yesterday. The 10-year note closed
better by nearly .5 at a yield of 3.17%. Some of the commodities
are coming off of their high levels, so perhaps we’ll see some
better prices at the gas pump which would tend to help the
consumer’s outlook. The expectations were for this morning’s
numbers to show that job growth slowed in April (+185k) and that
the unemployment rate was unchanged (8.8%). But nonfarm payrolls
came out at +244,000, and the Unemployment Rate was 9.0% for
April. The 10-yr shot up to 3.21% and MBS prices
are worse by roughly .250.
(Parental discretion
advised.)
At the regular Saturday morning service, the rabbi announced
that he was planning to leave for a larger congregation that
would pay him more.
There is a hush within the congregation. No one wants him to
leave because he is so popular.
Fred Shapiro, who owns several car dealerships in Newton and
Brookline, stands up and proclaims "If the rabbi stays, I will
provide him with a new Cadillac every year and his wife with a
Honda mini-van to transport their children!"
The congregation sighs in appreciation and applauds.
Saul Cohen, a successful businessman and lawyer, stands and
says, "If the rabbi will stay on here, I'll personally double
his salary and establish a foundation to guarantee a free
college education for his children!"
More sighs and loud applause.
Estelle Rubin, age 88, stands and announces with a smile, "If
the rabbi stays, I will give him sex!"
There is total silence.
The rabbi, blushing, asks her: "Mrs. Rubin, you're a wonderful
and holy lady. Whatever possessed you to say that?"
Estelle's 90-year old husband, Abe, is now trying to hide,
holding his forehead with the palm of his hand and shaking his
head from side to side, while his wife replies:
"Well, I just asked my husband how we could help, and he said,
"Screw him."
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