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Aug. 24, 2011: Phoenix market numbers; WAMU, American Home, LPS lawsuits; investor/PMI updates; loan loss reserves falling & helping banks
Rob Chrisman
“President
Obama
has just confirmed that the DC earthquake occurred on a rare and
obscure fault-line, apparently known as ‘Bush's Fault.’ Obama
also noted that the Secret Service and Maxine Waters continue an
investigation of the quake's suspicious ties to the Tea Party. A
portion of the politicians told residents of Washington, D.C.,
‘Don't be alarmed with the earthquakes - that's just the country
shifting to the right.’” Fortunately it didn’t raise our debt…
Fannie,
Freddie,
and the US Government aren't the only entities struggling with
debt. The U.S. Post
Office is expected to hit its $15 billion borrowing limit next
month, and banks are scrambling to determine their
potential lease exposure to the agency on their retail loans.
Watch for post office closings, announced several weeks ago, and
then end of Saturday delivery.
And
a federal judge ruled that the FDIC has to face a $10
billion lawsuit tied to the failure of WAMU: the judge
refused the FDIC's request to dismiss the lawsuit brought by
Deutsche Bank National Trust Co over bad mortgages that were
securitized by Washington Mutual. As we all remember, WAMU was
seized by the OTS, and the FDIC was appointed receiver and
immediately sold the bank to JPMorgan Chase & Co for $1.9
billion. Deutsche Bank is arguing that loans that were pooled
into mortgage bonds did not meet the underwriting standards that
had been promised by WaMu, causing investors to lose billions of
dollars.
Robo-signing,
or
more specifically the argument over whether documents are signed
correctly, is not a dead issue. American Home Mortgage
Servicing filed a lawsuit against Lender Processing Services
Inc. (LPS) alleging that the firm improperly signed
mortgage documents on its behalf and triggered millions of
dollars in legal expenses as a result. Did American Home
incorrectly process more than 30,000 mortgage assignments when
seeking foreclosure on properties in all 50 states as a result
of the work by an LPS subsidiary? Stay tuned: http://in.reuters.com/article/2011/08/24/idINIndia-58943620110824.
A
good-sized chunk of those foreclosures took place in Phoenix
where, according to the latest figures from DataQuick, distressed property sales
accounted for over 60% of resales in July! Overall, July
home sales in the Phoenix area fell about 13% from June, but
remain 19% above year-ago levels. In July, 9,050 new and resale
homes and condos were closed in Phoenix. Home prices in the area
also fell last month in that area. A drop in sales in July is
common, according to DataQuick, but this drop was steeper than
in past years. The number of homes selling below $100,000 jumped
43.2% over a year ago. The
median home price in Phoenix hit $120,000 last month, down
54.6% from the peak of $264,100 in June 2006.
Nationwide,
the sales of new
single-family houses fell slightly in July to a seasonally
adjusted annual rate of 298,000, down from June’s 300k level.
So it dropped .7% from June but is nearly 7% above the July 2010
level. There were an estimated 165,000 newly constructed homes
for sale in the U.S. at the end of July which represents a 6.6
month supply at the current pace of sales and down from a year
ago when we had 9 months’ worth of supply.
FDIC-insured commercial
banks and savings institutions reported an aggregate profit of
almost $29 billion in the second quarter of 2011, a $7.9
billion improvement from the $20.9 billion in net income the
industry reported in the second quarter of 2010. This is the
eighth consecutive quarter that earnings registered a
year-over-year increase. As has been the case in each of the
last seven quarters, lower provisions for loan losses were
responsible for most of the year-over-year improvement in
earnings. Second-quarter
loss provisions totaled $19 billion, less than half the $40.4
billion that insured institutions set aside for losses in the
second quarter of 2010. However, net operating revenue
(net interest income plus total noninterest income) was $3
billion (1.8 percent) lower than a year earlier. 60% reported
improvements in their quarterly net income from a year ago while
institutions reporting net losses for the quarter fell to 15%.
I
don’t know exactly where Bank of America falls into the numbers
just mentioned, but let's hope all those poor Countrywide folks
who put their 401(k) money into Countrywide stock, only to watch
it almost disappear, didn't join Bank of America and start all
over again. BofA shares
are near another 52-week low, "fueled by investors'
nervousness over the bank's balance sheet and its continued
exposure to mortgage-related losses." Yesterday BAC fell 7.9%,
while Chase (JPM) and Citigroup fell about 3% each. "But Bank of
America, the nation's largest bank, continues to outpace its
peers in its downward spiral, with shares down 49% over the past
year. Compare that with JPMorgan, which is off nearly 10%, and
Citi, which shed 30%, over that same time frame."
By now Fannie has
implemented DU Version 8.3, which includes updates to DU's
credit risk assessment, changes to high-balance mortgage loan
limit messaging, retirement of DU Version 8.1, implementation of
the 2011 Area Median Income (AMI) limits, and other
miscellaneous updates and modified messages. Speaking of which,
the 2011 Area Median Incomes are now available, required for all
manually underwritten loans after 9/19, but now all loan case
files submitted to DU on or after August 20, 2011, are required
to use the 2011 AMI’s: https://www.efanniemae.com/sf/refmaterials/hudmedinc/index.jsp.
Wells Fargo's
correspondent group spread the word to its clients of the VA’s
plan to extend its 2011 Maximum Guarantee Loan Limits, a
reminder that the temporary loan limits are set to expire, and
an improved pricing adjuster for the HomePath Mortgage Program.
And regarding the PMI news, "To ensure sufficient time for
review and purchase by Sept. 9, 2011, Loans should be delivered
to Wells Fargo Funding on or before Sept. 2, 2011. Note, per
PMI’s announcement, MI Certificates must be activated by Sept.
16: Sellers must notify PMI of all closing dates for BPMI
monthly policies to activate coverage. Sellers must pay all
single policies, both BPMI and LPMI, to activate coverage."
MSI also cut PMI off.
“For loans currently closed/disbursed on/before 8/24/11 not yet
purchased by MSI, MSI will accept the Mortgage Insurance
Certificate from PMI. Loans must be purchased/funded by MSI no
later than 8/31/11. Loans in process, not yet closed/disbursed
after 8/24/11: Loans must have a new mortgage insurance
certificate issued by an MSI-approved MI company to be eligible
for purchase/funding by MSI.” Fifth Third followed,
providing its brokers with a list of dates and stages centered
on September 16th. (See bulletin for precise
details.) PHH: “New
Registrations no longer accepted with PMI as the MI provider
effective August 24th (excluding HASP/HARP products). Active
Pipeline with a MI a certificate from PMI will remain eligible
for funding provided all of the following criteria have been
met: Registration Date is prior to August 24, 2011 Note Date is
between May 19, 2011 and September 16th, 2011 The correspondent
provides proof the mortgage insurance certificate has been
activated and MI coverage is in force. Commitments that have not
been activated will not be accepted - funded by PHH on or before
September 30th, 2011.”
Rates
are great, and mortgage-backed securities are being sold. But
traders are reporting a great deal more interest in selling
MBS’s than in buying them, and this is pushing prices down and
rates higher relative to Treasury securities – yet another
disconnect. “With international accounts on buyer's strike, an
absent deal-bid, and REITs/banks still relatively quiet, it's
easy to justify the underperformance. Fueling the investor
apathy has been all the talk about the possibility of an
auto-refi program for underwater borrowers being put in place.
While we still believe that this will be a very tough
implementation, it cannot be entirely ruled out at this point
given the bleak economic picture and, seemingly, the
administration's lack of bullets.” Mortgage banker selling
reportedly totaled in the $2 billion area in 3.5% and 4%
coupons, while higher rates were under pressure due to refi
risk. MBS prices were lower by about .250 while the 10-year
notes lost nearly .5 in price and closed around 2.14%.
It
is a new day although we started it off with Moody’s downgrading
Japan’s credit rating one notch to Aa3, the same as S&P. The
MBA's weekly Mortgage Application Survey showed apps dropped
2.4%, with refi’s down 1.7% but purchase apps dropping 5.7% to a
nearly 15-year low. The MBA said that purchase applications for
jumbo loans fell by more than 15% and purchase applications for
the government housing programs falling by 8.2%. Refi’s account
for nearly 80% of apps. We also had Durable Goods came in +4%,
higher than expected. Later we’ll have the FHFA House Price
Index for June along with a $35 billion 5-yr note auction. We have the 10-yr sitting
around 2.16% and MBS prices are worse by about .125.
Word contexts are important for those of us who use words
(unlike my 16-year old daughter, who only knows three: “maybe,”
“no,” and “why”).
"Mr. Winter, I have reviewed this case very carefully,' the
divorce court judge said, 'and I've decided to give your wife
$775 a week."
"That's very fair, your honor,” the husband said. “And every now
and then I'll try to send her a few bucks myself."
A doctor, examining a woman who had been rushed to the Emergency
Room, took the husband aside, and said, "I don't like the looks
of your wife at all."
"Me neither, doc," said the husband. "But she's a great cook and
really good with the kids."
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