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May 24, 2011: Google wades farther into mortgage pool; general industry comments & trends and NAR & CAR statements on lending
Rob Chrisman
We can
bicker over underwriting guidelines, disclosure documents, or
turn times, but the flooding and tornado disasters that have
befallen many states take precedence. Our thoughts go out to
those affected by natural events. The events that have unfolded
there are certainly more important than the rumors surrounding
Sarah Palin's possible purchase of a $1.7 million, 8,000 square
foot home in Scottsdale, Arizona. SISA deal?
"I am the owner of a
mid-sized mortgage bank, and have been for many, many years. I
am trying to figure out if it is only the productivity of my
staff that is going down the drain, or if all companies are
seeing this. Suddenly, it seems, underwriters are lucky if
they do 3 loans in a day. And underwriters aren't cheap. My LO's
numbers are down to the point where I am wondering about this
whole minimum wage thing I put in place for them. We always
thought of ourselves as a "high touch" company with the borrower
- now we may-as-well be Super Glued to them. Our cost to produce
a loan is way out of whack - there is no way the borrower is
better off. And comparing any metrics with last year's makes
little sense - are you hearing this from other companies?"
As a matter of fact, I am indeed hearing that. Folks in
the trenches talk about DU & LP loan files that are more
than 2 inches thick, and non-agency loan files are twice that,
filled with documentation in an effort to make sure that all
investor requirements are met. Many mortgage banks had a very
productive 2010 but saw underwriting and funding productivity
per person deteriorate, though profits were good so they didn't
notice it as much. On the production side, in some cases LO’s
who blamed the slow business earlier this year on the comp issue
have learned that the blame doesn’t rest with the comp issue.
Rates stayed relatively, surprisingly, low, especially when
compared to what "experts" thought rates would happen. But as
documentation requirements have increased over the last several
months, the importance of underwriting and compliance has
increased dramatically. And when combined with the changes in
underwriting guidelines, yes, every mortgage company is
grappling with the same issues.
Along those lines, I received this note. "So who is doing FHA
loans below 620? We are getting a lot of pressure from our
sales force to do this business and they say many lenders are
doing it. However, finding an investor who will buy them has
been difficult. Perhaps these are only lenders selling directly
to HUD? (Editor's note: HUD doesn't buy loans directly. The
loans go into Ginnie securities.) It seems that our sales force
would be happy to have no minimum FICO, have the taxpayer bear
the default burden, and pretend the credit crisis never
happened. Although HUD allows low FICO loans, investors have
overlays to protect themselves, and buyers who claim to
buy loans with low FICO's often have other, more stringent
overlay requirements. You may want to remind readers of this."
Last week NAR's president said the lending community needs to
return to sensible standards. “We want to ensure that
qualified buyers will be able to own their property on a
sustained basis from a sound credit evaluation, but banks
needn’t be so stingy as to only lend to those with the highest
credit scores,” he said. “Very high shares of cash purchases,
and high credit score requirements, have led to historically low
default rates among home buyers over the past two years. This
trend implies a gulf is opening between those who can and cannot
have access to the American dream of home ownership,” he said.
“At the same time, existing guidelines from Freddie Mac and
Fannie Mae must be fully implemented so all appraisals are done
by valuators with local expertise.” The NAR president added that
proposals and regulations are being considered in Washington
that could further constrain the housing market. “One of the
most damaging proposals would effectively raise down payment
requirements to 20 percent, which would slam the brakes on the
housing market,” he said. “What we need to do is simply return
to the sound standards that were in place before the
introduction of risky mortgage products.” NAR consumer survey
data shows 56 percent of entry level buyers in the past year
financed with an FHA loan.
Realtors and mortgage
bankers don't always see eye-to-eye, but when livelihoods are at
stake, some differences tend to be ironed out. Where does the
California Association of Realtors stand on the future of Fannie
& Freddie, and moving back to a purely private market? http://www.car.org/meetings/narmeetings/narmeetingscvrmay2011/556789/.
Here is some company
news of note. Springleaf, an offshoot of American
General Finance, is planning to raise $500 million for
nonconforming/non-agency loan financing. It is hard to tell if
this means jumbo, or subprime. Either way, in the “old days”
companies like Beneficial, Household Finance, and Aames knew how
to run their subprime businesses, from processing to servicing.
In the early 2000’s that changed as other companies moved down
the credit curve and bought loans they shouldn’t have, for a
variety of reasons, and for several years now the industry has
waited for a “mainstream” outlet for those loans. I don’t know
if this is it, but the lender/investor has filed a registration
statement with the SEC to raise $500 million in order to
originate and buy nonconforming mortgages and “consumer loans”
through its 1,100 branches.
Similar to the way PennyMac
is derived from old Countrywide management, Springleaf
is brought to us by American General, an AIG company, with AIG
owning a 20% stake and the other 80% by FCFI Acquisition LLC, a
private equity fund. FCFI is, in turn, managed by an affiliate
of Fortress, run by Daniel Mudd, the former CEO of
Fannie Mae. Fortress also owns Nationstar, which is not
only expanding but also trying to go public with its $65 billion
of specialty servicing. Nationstar hopes to raise as much as
$400 million in an initial public offering, according to a
regulatory filing. It did nearly $3 billion of production last
year, and it is one of the five largest non-bank mortgage
servicers in the U.S., servicing almost 400,000 loans. Along
with that comes running businesses like REO management and
recovery of charged-off mortgage deficiencies, and it owns a
portion of National Real Estate Information Services,
which provides settlement and valuation services.
Any time Google discusses doing anything focusing on
searching for mortgages, it is good for us to know about. Google
has built on its providing mortgage rate searches by launching a
one-stop tool for consumers, allowing them to compare loans and
other banking products. http://techland.time.com/2011/05/20/googles-financial-comparison-tools-rolled-into-advisor-site/.
You can also go directly to the site, and then we can debate privacy
rights versus convenience when Google knows where you are
and what the best mortgage rates are in your area: https://www.google.com/advisor/home.
How much will lenders eventually pay to be included?
In the commercial
side of things, CoStar Group offered 3.75 million common
shares of the company's stock to fund taking over LoopNet,
an online listing space for commercial real estate properties.
Washington, D.C.-based CoStar currently operates a database of
commercial real estate research and analytics, which includes
occupied CRE properties.
Carrington Mortgage
Services, one of the largest
servicers of subprime home loans, on Monday said it has avoided
penalties as it put an end to a lawsuit filed by the state of
Ohio nearly two years ago. http://www.reuters.com/article/2011/05/23/us-mortgages-carrington-ohio-idUSTRE74M4YJ20110523
Don't forget that
next Monday is a Federal holiday, with its impact on rescission
periods. And watch for markets and lock desks closing early on
Friday. FAMC, for example, sent out a notice to its
clients reminding them of the adjusted schedule on Friday and
the closure on Monday.
Franklin American Mortgage improved pricing on its
conventional conforming 5/1 product although NY properties are
not eligible. (FAMC also hopes to roll out a high balance
conforming 5/1 soon.) Franklin also reduced the minimum required
FICO from 680 to 660 for 95% purchase and R/T refinances for all
conventional conforming products. Lastly, the investor reminded
clients that “FHA approved lenders that have not obtained their
unconditional DE authority by 6/30/2011 will lose their ability
to pull case numbers for non-test cases on 7/1/2011.”
MSI alerted sellers
about a “clarification for “ending” dates for High Balance,
implementation of DU Refi Plus for High Balance loans, an
increase in the MSI price cap for all products, clarification
for Attached PUDs and implementation of a new MSI Attached PUD
Certification form, reminder of the deadline for the NMLS
Registry for Federally Regulated originators, a link for a RESPA
Update to remind Sellers, clarification for Rental Income for
HomePath mortgages, and a discussion of the actions accepted by
MSI for curing material errors in TILs.
Turning to the
markets, yesterday started off with much lower rates, but as the
day wore on the market sold off and the 10-yr only ended the day
better by about .125 at a yield of 3.13%. MBS prices started off
better by .250, but worsened to “only” unchanged resulting in
some intra-day price changes. The worry du jour was European
debt, including the stability of Italy, Spain, and now Belgium.
Traders reported that mortgage banker selling held to the lower
end of its $1 to $1.5 billion range.
Today we start yet
another Treasury auction, this time $99 billion, with $35
billion in 2-year notes. At 9AM CST we have New Home Sales – no
one is looking for it to skyrocket (putting it mildly). New home
sales rose 11.1 percent in March, but have remained at extremely
depressed levels for nearly a year. Homebuilders continue to
contend with the steady decline in existing home prices due to
foreclosures and short sales, which have significantly widened
the gap between the median price of a new versus an existing
home. We find the 10-yr at 3.15% and MBS prices a shade
worse than Monday’s close.
There was a knock on the door yesterday.
I opened it to find a young man wearing a tie standing there.
He said, "Hello, I'm a Jehovah's Witness."
I said, "Come in and sit down."
I offered him tea or coffee and asked, "What do you want to talk
about?"
He said, "Beats the ---- out of me; I've never gotten this far
before."
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 QRM proposal’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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