Jun. 17, 2011: ING & Capital One; Wells & reverse mortgages; Radian, LPS, RMIC, & Mortgage Harmony
Rob Chrisman

“Mama just hung her said head and said, ‘Papa was a rolling stone. Wherever he laid his hat, that was his home…’” The U.S. Census Bureau announced that among those who moved between 2009 and 2010, almost 44% of them (16.4 million) did so for housing-related reasons, such as the desire to live in a new or better home or apartment. Additional reasons included 30% with family concerns (which includes marital status), and 16% for employment. When the dust settled, in 2010 37.5 million people 1 year and older changed residences in the U.S., which, at 12.5% of our population, was about the same as 2009. Of those millions of movers, almost 70% stayed in the same county.
 
In a sign of the times, Lender Processing Services, which makes money from processing foreclosures and new home loans, lowered its second-quarter earnings outlook. LPS said that “low loan default volumes will hurt its revenue in the quarter. It also expects its results will be affected by higher-than-anticipated regulatory and legal expenses during the period.” LPS was one of 16 of the nation's largest mortgage lenders and servicers that were ordered by regulators to reimburse homeowners who were improperly foreclosed upon.
 
Numerous studies have been done on, when push comes to shove, are in-trouble borrowers more likely to make their monthly payments on their credit cards or mortgages. Either way, perhaps the latest credit card stats provide a glimmer of good news, whatever you want to attribute it to. Barclays reports that major bank credit card trust collateral performance for the May collection period was positive across the board, e.g., aggregate charge-offs and delinquencies decreased further this month, while aggregate yield and excess spread levels increased.
 
Wells Fargo announced that it will no longer originate reverse mortgages because of unpredictable home values and restrictions on those loans. Back in February Bank of America did the same thing, and in March Wells took reverse mortgages away from wholesale (brokers) and has been originating them only through its own branches. In 2010, reverse mortgages totaled roughly 2.2% of the bank's $392.5 billion mortgage volume – perhaps a lot of legal exposure without much profit contribution. Wells said it will continue to service existing reverse mortgages, but new rules made it difficult to determine a seniors' ability to meet the obligations of the loan, such as making property tax payments and homeowners' insurance. Is this another “unintended consequence” of government regulation, or the preference of staying away from having the Gray Panthers picketing the home office appearing on the Channel 5 news?

This change in corporate policy is interesting in that it coincides with the recent Harvard Housing Study for 2011, which indicates that the number of senior households will increase 35% by 2020: http://www.jchs.harvard.edu/publications/markets/son2011/son2011.pdf.
 
The folks at ING Direct USA will soon have a new boss: Capital One Financial. (You know - the guys with the Viking ads on TV?) Capital One has been around for quite some time, was prominently mentioned in Michael Lewis’s “The Big Short,” and as you recall bought North Fork Bancorp (which owned GreenPoint and which resulted in a $860 million charge off) in 2006, Hibernia in 2005, and Chevy Chase in 2008. ING Direct is being purchased for $9 billion: $6.2 billion in cash, $2.8 billion in stock.
 
Wednesday the commentary had two items (financial education and VA IRRL’s) which brought a good-sized number of replies of varying perspectives. Today I wanted to post the financial education letters, but before I do so I should note that a few folks wrote, asking about one reader's reference to a "VA Compare Ratio." Note that the HUD compare procedure only measures performance of FHA loans, and I was unable to find out any exact process for determining any VA Compare Ratio. For more information go to https://entp.hud.gov/sfnw/public/help-FAQ.cfm.
 
"Rob, I have to respectfully disagree with your statement regarding financial literacy that, 'So it seems that not only do we need regulations to protect the consumer…’  Over the last several years the industry has been inundated with regulations all purportedly designed to ‘protect the consumer.’ The result has been higher costs for the consumer, restricted access to mortgage credit and fewer products from which to choose. The GFE and Good Faith are no more understandable since they have been 'fixed' through regulation.  A better answer may lay with the schools.  High schools used to teach students about basic economics and such.  Now the kids can’t even balance a check book.  Real world financial education in our schools would do far more than the restrictive regulation which has now become the norm."

"Rob, I couldn’t agree more with your statements about financial illiteracy.  The Florida Quality Council is trying to put together an education program on how mortgages work, what are the borrowers’ obligations and what are the lenders’ obligations, but no one seems to feel they need this.  And this is the state that was the epicenter of the mortgage meltdown!!”
 
“Back when Fannie and Freddie first ventured into loans with 5% down payments, we loan officers had to give potential borrowers 6 hours of instruction based on workbooks Fannie Mae created.  It wasn't much, but at least it gave first-timers a broad overview of the lending process and allowed them to ask questions in a structured setting. I have been trying to shop a comprehensive program of much more thorough financial literacy for borrowers with the length of the instruction required based on the down payment capabilities of the customers. I know this is "high touch" work, but it's a perfect slot for community banks that are fearing the QRM guidelines. Even if some folks don't turn out to be candidates for home ownership, the local banks would most likely retain them as customers.  Substituting an educated borrower for "skin in the game" should be welcomed by both Wall Street and regulators. I haven't gotten much traction on that here in DC although everyone I show it to says the approach is unique and has merit - any suggestions?"

Radian Guaranty recently announced that it is implementing a series of changes to its guidelines and rates that will be applicable for all MI applications received on or after July 11, 2011. “As part of the Radian ‘PowerPak,’ the company has introduced the One Underwrite program, lowered borrower-paid (BPMI) rates and expanded its Non-Agency Jumbo Loan program. The new One Underwrite program further aligns Radian MI eligibility with Fannie Mae DU and Freddie Mac LP approval recommendations, eliminating the concept of a double underwrite for MI eligibility. With the program, Radian's customers can now qualify loans for buyers with FICO scores down to 620 for Radian MI with an Approve/Eligible or Accept/Eligible recommendation from DU or LP and only five underwriting overlays, details of which are available on Radian's website at www.radian.biz/rates.” Radian also made changes to its rates, which will increase affordability for buyers with low down payments and expand eligibility for those with lower FICO scores, subject to regulatory approval.
 
Radian also announced changes to its Non-Agency Jumbo Loan program, a strategic move given the expected reduction in agency loan limits on 10/1. “Radian's jumbo coverage available at the following static maximum loan amounts will be especially helpful to lenders: $650,000 for loans with LTVs of 85.01% - 90%, and $750,000 for loans with LTVs of 80.01% - 85%. Additional changes to Radian's Non-Agency Jumbo Loan program include lowering the minimum FICO score from 760 to 720 and the elimination of the restriction of charter minimum coverage.”
 
Last week RMIC made changes to its market classifications whereby 22 markets improved from their previous classification, and no markets became more restrictive. For the complete list of market classifications go to RMIC's Housing Market Monitor, and its site also contains complete underwriting overlays on appraisal data based on market level and so forth.
 
RMIC also spread the word that it will insure the HarmonyLoan product, provided the loan meets all other RMIC guidelines. HarmonyLoan allows a borrower to reset their interest rate as the market changes, “without the expense and hassle of a traditional refinance. HarmonyLoan ARMs are eligible for RMIC Fixed Payment premium rates provided the initial fixed rate period is five or more years. Please enter "Harmony" in the Lender Program Code field for all RMIC submission methods.”
 
Mortgage Harmony Corp. has been receiving some press lately, the most recent being that McLean Mortgage Corporation will become the first correspondent lender to offer the HarmonyLoan. The loan itself is a “consumer-initiated interest rate-resetting mortgage product with a patented recurring compensation structure for loan officers... Borrowers can lower their rate as often as every 120 days with a click of a button, assuming their payment history is solid.” For more about the company go to http://www.mortgageharmony.com/, and no, this is not a paid announcement!
 
In spite of a little intra-day volatility, it is hard to complain about these rates. Yesterday the 10-year UST note closed at 2.91% but its yield during the day reached 2.88%, the lowest level since Dec. 1, and 2-year yields touched 0.34%. Tying up your money for 2 years to earn .34% - what does that tell you? The focus was on European talks about the Greek debt crisis, and after weekly jobless claims in the U.S. fell more than expected. The low rates are good, but in talking to LO’s it seems that most of the “low hanging refi fruit has already been picked,” leaving the tougher deals – and renewed hopes for even lower rates.
 
Today we will have some Michigan Sentiment number, but Leading Economic Indicators for May at 10AM EST. The 10-yr is sitting around 2.96% and MBS prices are worse about .125.
 
 
How dry is it in Texas?
It's so dry in Texas that the Baptists are starting to baptize by sprinkling, the Methodists are using wet-wipes, the Presbyterians are giving out rain-checks, and the Catholics are praying for the wine to turn back into water. Now that’s dry!
I was playing poker online with a buddy out of Georgia.  He said he'd killed a mosquito that was carrying a canteen.
My nephew in Alabama told me the chicken farmers were giving the chickens crushed ice to keep them from laying hard-boiled eggs.
But just this week, here in Opelousas, I saw a fire hydrant bribing a dog.
In Eunice, we caught a 20 lb. catfish that had ticks on it!
Man, it's been hot, and it is only June!


If you’re interested, visit my twice-a-month blog at the STRATMOR Group web site located at www.stratmorgroup.com . The current blog takes a look at the opinions on QRM’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.