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Aug. 11, 2011: Agency's glut of NOO - their own; more on LO comp; reverse mortgage conference; will record MBS prices trickle down?
Rob Chrisman
Last
night my wife met me at the front door. She was wearing a sexy
negligee. The only trouble was, she was coming home.
The correct perspective is important. For example, are property values in
Phoenix rebounding, or still mired down in quicksand? And
what could Phoenix tell us about cities in the rest of the US?
Sales are moving higher, but certainly at lower prices than a
year ago: They point to strong existing home sales in June, up
22% according to the NAR. It was the second consecutive month of
strong sales, with the June figure the strongest recorded since
December 2006. But while sales may be up, prices are not. The
NAR report says the median price of a home sold in the Phoenix
area in June was down 13% from the same month in 2010, and many
expect expects prices to remain weak because distressed
properties are accounting for 64% of sales:
http://finance.yahoo.com/real-estate/article/113212/phoenix-epicenter-housing-crisis-marketwatch?modrealestate-sell.
Phoenix's "fun with numbers" reminds us that it is easy to be
confused, or misled, with seemingly simple numbers. For
example, imagine you are saving for your child's college costs,
expected to amount to $100,000, and that you are 80 percent of
the way there with $80,000 in your account. The next year, the
value of your investment account drops 25 percent, to $60,000.
The year after that, it bounces back 25 percent. Are you back to
where you started? No, because now you have $75,000 in your
account. Next, assume college costs are rising 8 percent per
year. Now how close to paying for college are you? The answer:
64 percent, because you have $75,000 toward $117,000 of costs.
Even though your investments rose the same percentage as they
fell, you're further from your goal than before. This is the
same situation faced by pension funds.
I've lost track - is this the week that the government wants out
of mortgage banking, and to dissolve Freddie & Fannie, or is
this the week when they want to continue to control
securitization, underwriting, and servicing? I guess it is the
latter: The Obama administration, through FHFA, Treasury, and
HUD, will seek investors' ideas for turning thousands of
foreclosed properties owned by government-backed entities into
rental homes, thus, in theory, helping values and lowering
inventories (?). Heck, Fannie Mae and Freddie Mac sold a record
100,000 homes during the second quarter – I bet they’re becoming
adept at it. Fannie +
Freddie + FHA 250,000 homes at the end of June, or around
half of all unsold, repossessed properties. According to the
WSJ, there are another 830,000 homes through the three
agencies in the foreclosure pipeline – and they will all
pass through the same 12 Realtors nationwide. (Just kidding.)
Owners of non-owner occupied properties across the nation are
protesting the move. (Just kidding again.) Seriously, anything
is better than a vacant, deteriorating property, and given many
ex-owners’ credit reports, their only choice is to rent. For
more: http://www.fhfa.gov/webfiles/22367/FHFARFIReleaseFinal.pdf.
More
on the LO comp issue,
Kevin Iverson with Reed Mortgage Corporation wrote, "Regarding
the recent posts about LO Compensation and renegotiations -
actually the new LO compensation rules should help with
maintaining pipeline and reducing fallout. Previously, prior to
the new LO comp rules, if rates dropped a mortgage broker LO
could increase their compensation by simply pulling the loan
from locked lender and placing with another lender – maybe give
the borrower better pricing and at the same time increase
his/her compensation. Now, assuming everybody is following the
rules (which might be a leap of faith), the LO is going to get
paid the same regardless of where loan is placed. Thus the LO
has no incentive to pull loan and place with some other lender,
especially if a lot has already been done on the loan (who wants
to do more work?). And HVCC (or whatever they call it these
days) makes it problematic to place a loan with a new different
lender, as many lenders are not taking transferred appraisals."
I received this note from a much respected attorney who
specializes in mortgage banking. "I am seeing some companies
allowing an 'overage' account for marketing expenses while
others are not. And there is the perception that an 'overage'
account is illegal. The
terms 'overage account,' 'points bank,' and 'bonus account'
are all non-specific, non-legal terms. Accordingly,
whether any one is 'legal' or, more precisely, whether any one
is permissible under the Truth in Lending Act’s new Loan
Originator Compensation Rule and other applicable state and
federal laws, depends of course on the individual situation.
However, as a general statement, it is certainly possible to set
up such an account in a manner which is fully compliant with all
applicable laws, including the new LO Comp Rule. If properly
set up and implemented, it is also possible, within limits and
subject to certain restrictions, to use funds in that account
for certain bona fide business expenses of the affected LO."
Don't forget that effective July 29, 2011, depository institutions
were required to become registered in NMLS under the SAFE Act.
According to the Board of Governors, the S.A.F.E. Act imposes
additional requirements upon MLOs who are not employees of
agency-regulated institutions, including state licensure and
testing requirements and character and fitness standards. In
this regard, employees of bank holding companies and their
non-bank subsidiaries who act as MLOs are subject to state
licensure and associated state regulation.
http://www.federalreserve.gov/boarddocs/srletters/2010/sr1014.htm
The National Reverse
Mortgage Lenders Association has announced its 2011 Annual
Meeting & Expo which will focus on the role reverse
mortgages can play in retirement planning and the emerging
opportunities for realignment of the industry following the
departure of such entities as Bank of America and Wells Fargo.
“As some companies exit the sector, it creates room for others
to enter and grow,” says Peter Bell, NRMLA president and CEO.
The gathering will be held October 24-26 in Boston. Additional
information can be found at www.nrmlaonline.org or by contacting Marty Bell of NRMLA at mbell@dworbell.com.
While we’re on reverse mortgages, the AARP filed another suit:
http://bucks.blogs.nytimes.com/2011/08/04/aarp-files-another-reverse-mortgage-suit/. According to
Reverse Mortgage Daily, AARP filed a class action lawsuit
against Wells Fargo Bank and Fannie Mae on behalf of reverse
mortgage borrowers and their survivors who have faced
foreclosure and eviction - that Wells Fargo has illegally
foreclosed upon reverse mortgage borrowers who were not notified
and were not given the opportunity to purchase the property for
95% of its appraised value after the loan becomes due and
payable. The lawsuit is the second suit filed by AARP this year
concerning reverse mortgage borrowers and their heirs. The
original suit was dismissed by the court in July.
Rock
on…Farmer Mac?
Federal Agricultural Mortgage Corp. (AGM), commonly known as
Farmer Mac, around since 1988, reported second-quarter earnings
more than doubled on higher interest income. Credit quality
continued to improve: 90-day delinquencies were 1.27% of its
portfolio, improving from 1.3% a year earlier, and new program
business volume was $608.1 million, though it added $1 billion
in the first quarter.
What
happened to Option One? It became Sand Canyon,
and it announced a resolution of claims of unfair and
discriminatory lending practices by modifying thousands of
Massachusetts homeowners’ loans and making a significant payment
to the Commonwealth of Massachusetts as part of a settlement
valued at $125 million. It requires the mortgage originator, a
subsidiary of H&R Block Inc., to pay $9.8 million to the
Commonwealth and to direct American Home Mortgage Servicing Inc.
(AHMSI), the current servicer of approximately 5,500 Option One
loans in Massachusetts, to institute an aggressive loan
modification program that will provide an estimated $115 million
in additional relief. The suit alleged that the risk-layered
loans were unfair because they posed an excessive risk of
default and foreclosure, and that Option One knew that loans
with such risk characteristics were doomed to fail but that it
originated them nonetheless in order to sell them to the
secondary market and realize a profit.
I have a clarification regarding Wells Fargo's wholesale
cut off dates for locks, given the impending loan limit
changes. "Temporary loan limits scheduled to expire Sept. 30,
2011: Deadline for 45-day locks is Aug. 16.The deadlines for
locking loans using the temporary loan limits is: For 45-day
locks: Tuesday, Aug. 16, 2011 For 30-day locks: Wednesday, Aug.
31, 2011 For 15-day locks: Thursday, Sept. 15, 2011. Reminder:
Only the temporary loan limits are expiring – permanent limits
remain available after Oct. 1. Therefore, transactions not
impacted by the expiration of the temporary loan limits may be
locked at any time."
Just so we're clear here: Fannie 3.5% securities (which
generally contain 3.75-4.125% loans) are now above 101 (a 1
point premium). Add some servicing (this is clean, low coupon
stuff!) and suddenly a 4% conventional mortgage is earning the
seller 102 (2 point premium) in the MBS market. What is passed
on, through originator rate sheets, is up to the lender. There
are profit margin, overhead, hedge costs, and so on that must be
accounted for - but still, these are record mortgage price
levels.
Today
is a new day, with more potential volatility. Given the comments
I am seeing, folks would be happy with a quiet summer Thursday
& Friday heading into the weekend. Yesterday prices quickly
gained as EU fears related to French banks and their exposure to
Greek debt sent investors to the safety of the AA+ rated US (as
opposed to AAA-rated France!). We had a solid 10-yr note auction
in the US, and yield hit a low of 2.10%. But things worsened
slightly, and we closed around as the stock market plummeted
(again). Mortgage banker selling has been much muted – almost as
if companies are afraid to sell their new locks, instead using
them to fill older unfilled positions with investors and Wall
Street.
Today
we’ve had Jobless Claims, and some trade numbers, and will have
a $16 billion 30-yr T-bond auction. New U.S. claims for
unemployment benefits dropped to a four-month low last week, a
rare dose of good news - initial claims for state unemployment
benefits fell 7,000 to a seasonally adjusted 395,000 from 402k
the week before. MBS
prices are worse .375-.5.
(Parental
discretion advised!! Don’t read it and then write to grouse
about it.)
From a teacher -- short and to the point.
“In
the world of hi-tech gadgetry, I've noticed that more and more
people who send text messages and emails have long forgotten the
art of capitalization. For those of you who fall into this
category, please take note of the following statement:
‘Capitalization
is
the difference between helping your Uncle Jack off a horse and
helping
your uncle jack off a horse.’ Is everybody clear on that?”
If
you're
interested, visit my twice-a-month blog at the STRATMOR Group
web site located at
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