Aug. 23, 2011: PMI stops MI issuance - who's left? Accenture & Zenta merger; appraisal process in the news; FHA training
Rob Chrisman

Who is Deven Sharma? He is the latest person to quit his job. Ordinarily this wouldn't be a big deal, but he was the president of Standard & Poor's - the rating agency that stripped the United States of its AAA credit rating. The newspapers cite people familiar with the matter (why am I never familiar with any matter?) who say Sharma's move was in the works well before S&P downgraded its rating on the U.S., is purely due to organizational changes and does not have anything to do with the Justice Department investigating whether the agency improperly rated dozens of mortgage securities in the years leading up to the financial crisis in 2008. Citibank’s now ex-COO Douglas Peterson will replace him.
 
It is hard to talk about the government removing itself from the residential mortgage process when one sees a headline like, "FHA Endorses $10.5 billion in Multifamily Rental Housing Loans." Demand through the FHA has skyrocketed for FHA-insured financing to build, rehabilitate or refinance multifamily apartment properties. FHA has announced that it has endorsed 1,100 loans for multifamily rental housing loans since last October, with another month-and-a-half remaining in the fiscal year.
 
HUD sends its apologies to those who traveled to Puerto Rico this week for FHA training - it was cancelled due to bad weather. (How come "traveled" has one "l" and cancelled has two "l"'s?) But don't worry, there are more sessions on FHA appraisals, HECM's, processing, etc.: tomorrow in Portland (OR), 25th Indianapolis, September 7th Anchorage, 21st Birmingham, October 24th Boston... Most of it is paid for by the taxpayer and therefore free to the attendee, but for more information go to http://portal.hud.gov/hudportal/HUD?src/program_offices/housing/sfh/events/events.

I swear that I did not start any appraisal controversies in the press last week when I brought up valuation problems, but there was a coincidental flurry in the press about the subject. Maybe it was the appearance that NAR keeps blaming "bad appraisals" for the lack of appreciation in the housing market. Regardless, the Wall Street Journal came out with one article: http://online.wsj.com/article/SB10001424053111904006104576500170808091148.html. At which point the appraisal industry appears to have raised up its head and cried out, "Don't blame us, we're just doing our jobs!" http://www.appraisalbuzz.com/Appraisal-Foundation-Response
 
And regarding RE/MAX’s survey of 53 cities, “showing that July home sales dropped 12.7% from the previous month. RE/MAX blamed tightened lending standards, concern about the overall economy and bad appraisals that reportedly killed many transactions” I received this note: “Rob, I would like to comment that just because an appraisal does not meet the contract price it is not necessarily a bad appraisal. If more appraisers had considered the market and just not the contract amount in the past we may not have had as steep of a fall in values. A ‘good’ appraisal is one that accurately portrays the market value, which may not always be the contract price. ‘Low appraisals led to 13% of contracts being renegotiated below the agreed upon price’ is more accurate and leads to a buyer paying the market price and not an inflated price.  Appraisers have a challenging job these days and too often are used as the scapegoat for the loan not closing. Thank you to Vicky Thompson at CMI Valuation Management Group www.ValuationManagementGroup.com.

After last week’s appraisal notes, I received, "One way to nail down pull through is to watch appraisal orders and receipt of the appraisal.  I needn't explain the correlation between ordering an appraisal and pull-through - no appraisal, no loan. Additionally, we've found that beyond the ordering, the timing of the receipt of the appraisal really dictates when, not if, the loan will close. I never thought in a million years I'd be looking at appraisal ordering and receipt as a gage for fundings."
 
“Once Fannie and Freddie have all of the information on your house, and all of your neighbor’s houses, why would we need appraisers and not just inspectors confirming that the house was still standing? Statistically, the larger the group you take you’re sampling from, the more accurate your results. AND since you are the one ultimately determining value and lending the money why would there be any appreciation allowed beyond what you had determined was an acceptable amount? Say 1-3% for flyover states and 3-5% for the coast?" (Anyone willing to let the government control the market for housing to this great a degree, step right up!)
 
The big story yesterday was that another MI company has stopped writing new commitments. “We are writing to inform you of the very recent regulatory decisions that have impacted our ability to write new commitments. Specifically, PMI Mortgage Insurance Co. (“PMI”) and PMI Mortgage Assurance Co. (“PMAC”) have been informed that they must cease writing new commitments for insurance effective as of the close of business on August 19, 2011. PMI and PMAC may issue mortgage insurance policies under pending commitments through the close of business on September 16, 2011.” There was the usual language about “we will support our customers’ ongoing policy servicing needs and loss mitigation programs. PMI will maintain all systems, processes, and contact points for policy servicing, loss mitigation, and claims operations just as we do today.”
 
Freddie Mac and Fannie Mae wasted no time. "Effective immediately, we are suspending PMI and its wholly-owned subsidiaries as approved mortgage insurers. With this suspension, mortgages insured by PMI with note dates before May 19, 2011, or after September 16, 2011, will no longer be eligible for sale to Freddie Mac. To help manage your pipeline, mortgages insured by PMI with note dates on or after May 19, 2011, and on or before September 16, 2011, must be delivered to Freddie Mac on or before December 30, 2011, whether for borrower-paid or lender-paid insurance.”

Freddie reminded clients that there are indeed other approved MI companies: http://www.freddiemac.com/sell/guide/exhibit10.pdf.
 
Investors followed. CitiBank quickly spread the word to clients. "In order to meet the deadlines set by PMI's regulator, Citi is requiring any loan insured by PMI be purchased by Citi no later than September 2, 2011. Reminder:  Payments for any single premium MI policies must be submitted to PMI immediately upon loan closing." U.S. Bank Home Mortgage Wholesale Division wrote, “In-process loans, insured by PMI with certificate dates on or before August 19th, 2011, will be accepted for purchase under the following criteria: Existing loans in your pipeline, with certificates issued by PMI, must be closed, disbursed/funded by August 31st, 2011 and be delivered and purchased by USBHM on or before September 9th, 2011. Loans with PMI insurance certificates that do not close by the above deadlines will not be accepted by USBHM until new MI insurance is obtained from one of our other approved MI providers: MGIC, Radian, UG, Genworth, and Essent.
 
Speaking of UG, it sent news out to its clients that, "We have new appraisal guidelines that reflect the new Uniform Appraisal Dataset from Fannie Mae and Freddie Mac. We'll be modifying our underwriting requirements guides to reflect these changes, effective 9/1:  http://www.ugcorp.com/news/announcements/CA2011-18_Uniform_Appraisal_Requirements.pdf.
 
Accenture announced its acquisition of mortgage outsourcing provider Zenta. The release said, “In a move that puts the global consulting and outsourcing provider in the thick of the mortgage origination business and the massive loss mitigation efforts ongoing in the mortgage servicing industry.” Zenta has 3,700 employees provide business process outsourcing in mortgage origination fulfillment, servicing loss mitigation, as well as portfolio due diligence and management for investors.
 
The deal prompted one industry vet to write to me, “Mainstream origination firms are clamoring for better LOS technology, not for BPO providers to take over their back office. The 'people challenges' involved in end-to-end BPO are huge, especially in purchase money transactions where sales compensation is at risk and loan officers are loathe to disrupt trusted personal working relationships with their processing team. Nor is there a magic fountain of elastic capacity - when the demand switch flips and everyone needs scarce talent at the same time, exactly how will Accenture/Zenta instantly fill critical high skilled roles any better than anyone else? And then there is there is the question of who takes repurchase risk when the end-to-end process is shared with a third party and the investor's claim cites a tangled mix of defects whose trails cross organizational boundaries? These challenges have ‘undone’ a slew of entrants to the first mortgage end-to-end BPO space who believed that superior technology held the answer.”
 
Last week stock markets declined as the euro zone sovereign debt crisis remains unresolved. (Germany is opposed to common euro-denominated bonds despite pressure from the European Commission and members of the European Union that see this as the solution to the debt crisis.) The big problem with euro bonds is that the European Union members do not have common fiscal policies. The general consensus is that Europe must find solutions for the current debt obligations before they can work on how the Union will handle future obligations.
 
Over in the U.S., of course, rates remain low. A major problem, of course, is that current low interest rates are a result of falling confidence in the economic outlook. It's cheaper than ever to borrow, but that's because no one wants to borrow! Current coupon (whatever that is these days) MBS prices ended the day lower/worse by .125-.250 while 10-yr Notes were nearly unchanged at 2.09%. News is limited again with only New Home Sales for July coming out at 9AM CST, and a $35 billion 2-yr note auction, and in the early going the 10-yr is at 2.14% and MBS prices are worse a smidge.
 
 
A tourist in a bar in Florida asks an Irishman sitting at the bar, "Why do scuba divers always fall backwards off their boats?"
To which the Irishman replies: "If they fell forwards they'd still be in the darned boat!”


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