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Aug. 30, 2011: BofA settlement in question; NMLS releases interesting originator stats; impact of Ginnie Mae's mod rule change; fraud in lawyers and builder sector
Rob Chrisman
Realtors
and
mortgage professionals know that divorce can often lead to
the formation of a new household. According to the Census
Bureau, the national divorce rate was 9.2 for men and 9.7 for
women per 1,000. Men and women in the South had higher rates of
divorce in 2009 than in other regions of the country, 10.2 per
1,000 for men and 11.1 per 1,000 for women (versus the lowest
region – the Northeast – with 7.2 and 7.5 respectively). But
there is an explanation: "Divorce rates tend to be higher in the
South because marriage rates are also higher in the South," said
Diana Elliott, a family demographer at the Census Bureau. "In
contrast, in the Northeast, first marriages tend to be delayed
and the marriage rates are lower, meaning there are also fewer
divorces." But marriage rates, which often lead to the
consolidation of households, were higher: 19.1 for men and 17.6
for women.
Remember
that
proposed $8.5 billion
Bank of America settlement with investors back in June?
“Not so fast,” said the FDIC. The settlement still requires a
judge's approval, and the
FDIC filed an objection in federal court in Manhattan as
an investor rather than as a regulator of the Bank of America.
It said it owns securities that would be covered by the
settlement because it took over banks that failed during the
financial crisis. "The reason for the FDIC's objection is that
it does not have enough information to evaluate the Settlement,"
it said in the notice. According to the Financial Times,
“Several investors have requested to intervene in the
settlement. Earlier this month, AIG sued Bank of America to
recover more than $10 billion it lost on mortgage investments,
and also objected to the proposed $8.5 billion settlement, and
another potential settlement, with state law enforcers, still
looms.”
On
the other side of the balance sheet, Bank of America has struck
a deal to sell about half of its stake in China Construction
Bank to a group of investors for $8.3 billion and thus making a
profit of $3.3 billion. In
the mortgage world, rumors abound concerning Bank of America
exiting correspondent lending, given the defection of top
individuals in recent months, its exit from wholesale late
last year, the easing of mortgage pricing in recent months,
and the focus on taking care of problems with older loans.
BofA’s shares have tumbled more than 40% this year, much of it
due to issues in the mortgage business, and headlines were made
again late last week with Warren Buffett’s Berkshire Hathaway
buying $5 billion of preferred stock.
The
Nationwide Mortgage Licensing System and Registry (NMLS) has
released information on licensed entities as
of the first quarter of 2011 and a limited update on licensees
at the end of the second quarter. It is the first set of reports
after four years of operation, and definitely has some insights
into the mortgage biz. The numbers moved up from the first
quarter, and by the end of the second quarter there were 16,153
companies holding 30,945 licenses, 17,387 branches holding
267,211 licenses, and 106,881 individuals with 201,469
licenses. Multiple licenses are held where states require
separate licenses for DBAs or for different authorities such as
lender and broker. The NMLS report gives us insight into who
many licensees are originating 1st or 2nd
mortgages, VA, FHA, reverse mortgages, operate across state
lines or even nationwide, numbers of branches, and so on. Check
it out at: http://mortgage.nationwidelicensingsystem.org/about/Documents/Quarter-2-2011-Licensing-Data.pdf.
Ginnie
Mae recently announced that it is expanding the parameters
regarding loans eligible for repurchase from Ginnie Mae MBS’s.
“Under the new policy, any modified loan may be repurchased
after successfully completing a three-month trial payment
period, if a trial period is required. This change aligns Ginnie
Mae’s repurchase policy for the FHA non-Home Affordable
Modification Program (HAMP) high-risk loans with the current
policy for FHA-HAMP loans.” The memo goes on to say, “The FHA
policy now requires that high-risk non-HAMP loans complete a
three-month trial period before a modification becomes
permanent. Loans that have completed the required three-month
trial payment program will be eligible to be repurchased from
Ginnie Mae pools. Additionally, the newly-modified loan can be
re-pooled into MBS by Issuers.” It seems that FHA loan
performance data shows that many modified borrowers are at risk
of a re-default, and undergoing a trial payment period may help
avoid this. FHA loan data shows that modified high-risk
borrowers were responsible for more than half of re-defaults in
2010, with the majority occurring within three months on
modified loans without a trial payment period.
To
sum that up, effective October 1, most FHA loans will need to
complete a 3-4-month trial modification before a permanent
modification is granted. The
news turned some investor and servicer heads, but does it
really matter? Probably not. In the past, GNMA servicers
could buy out a delinquent loan at par, perform quick
modifications and immediately deliver it back into GNMA TBA. In
many cases, the modification simply recapitalized the delinquent
amount (principal, interest, insurance, tax, and late fees etc.)
while leaving other terms of loan almost unchanged, resulting in
little relief to the struggling borrower. Although these
modifications let servicers quickly re-coup their advances on
the delinquent loan and sometimes make a profit at the delivery,
they also led to extraordinarily high re-default rates. As a
result, in September 2009, the FHA started requiring that the
note rate on the modified loan could not be more than 50 basis
points above the Freddie Mac Survey rate, and the new loan must
re-amortize for 30 years. This, combined with other policing
initiatives by the FHA and overall improved microeconomics, has
contributed to the drastic decline in GNMA default / buyout
rates over the last couple of years.
A
key consideration is that for as long as the loan is in the
pool, the servicer is obligated to advance the full principal
and interest due MBS holders. Therefore, under the previous rule
the servicer needs to advance three months of full P&I
before having the option to buy the loan out, while under the
new rule the servicer receives the trial payments which reduce
the amount of P&I advanced. Because FHA only reimburses the
principal portion but not the interest part of the advances in
cases where the loan eventually goes into foreclosure (the
debenture interest reimbursement by FHA is not related to
advances), the new rule should reduce the total costs associated
with modifications for servicers. The steps suggest that
servicers will be more likely to execute modifications only when
appropriate, the total amount of modifications and buyouts
should remain roughly unchanged for GNMA pools, and loss
mitigation loans redelivered into new-issue GNMA pools should
have significantly lower re-default rate due to the requirement
of a trial period. This should alleviate investor concerns.
Any time one sees
"builder," "fraud," "FBI," and "schemes" in a story, it might be
worth a glance: http://www.builderonline.com/blogs/postdetails.aspx?BlogIdthompsonsblog&PostId5158.
Huh? Now mortgage-related law firms
are engaging in fraud? “An extensive mortgage-fraud ring
led by the law firm Kramer
and Kaslow has been stopped in its tracks.” The California
Department of Justice (DOJ) and the State Bar of California is
going after Kramer and Kaslow, headquartered in Calabasas
(Countrywide’s old stomping grounds): http://newamericamedia.org/2011/08/california-law-firm-nailed-for-mortgage-scam.php.
Don't do the crime if you can't do the time. In the Chicago
area, a man who directed a mortgage fraud scheme that cost
lenders about $16 million for properties will spend more than 17 years in prison.
The scam involved 120 residences…$16 million in mortgage loans
not repaid or recovered through foreclosure sales…guilty on nine
counts of wire fraud, four counts of bank fraud and three counts
of mail fraud. It was the usual story that the public hears
about now in the newspapers, where he orchestrated the
fraudulent purchase and resale of dozens of residences, pocketed
undisclosed payments and kickbacks from each transaction and
also controlled about $3.1 million in post-closing funds over
the course of the scheme, according to court records.
Turning
to the markets, we did have a smattering of economic news
yesterday which included Pending Home Sales. NAR announced that
this number fell for July, after being up for two months, and
versus a year ago the index is over 14% higher. (The number
comes from sales of existing homes where a contract has been
signed but the transaction has not closed.) Lawrence Yun, NAR
chief economist, said, "The
market can easily move into a healthy expansion if mortgage
underwriting standards return to normalcy.” Mr. Yun –
please! That aside, Personal Income was higher than expected,
Hurricane Irene caused less damage than anticipated, stocks
bounced, and the 10-yr T-note dropped .75 in price and moved up
to a yield of 2.27%. MBS prices ranged from worse about .5 on
30-year 3.5’s to roughly unchanged on 5.5’s.
Today
it expected that trading volumes will pick up a little as
schedules return to normal in the Northeast and we see month-end
flows. Today we have the release of Consumer Confidence, the
Case-Shiller Index, and the release of the 8/9 FOMC minutes. In the early going stocks
are pointing lower, gold is up almost 2%, the 10-yr T-note is
sitting at 2.19%, and MBS prices are about .250 better.
(From
9/1 through 9/9 I will be out of the country – Peru, if you must
know. My access to e-mail will be sporadic at best, and my
ability to send out commentaries will be diminished. I have
lined up several very knowledgeable "guest writers" of varying
mortgage backgrounds who will be taking my place every day. So
while I am dodging llama spit readers will receive a different
take on the industry from different perspectives: contract
negotiation, insurance, compliance, risk management, and so
forth.)
During a recent
company password audit, it was found that a blonde secretary was
using the following password:
"MickeyMinniePlutoHueyLouieDeweyDonaldGoofySacramento."
When asked why she
had such a long password, she said she was told that her
password had to be at least 8 characters long and include at
least one capital.
(Editor's note: What
is even funnier is the thought of a company doing a "password
audit"... they wouldn't have liked some of mine over the years.)
If you're interested,
visit my twice-a-month blog at the STRATMOR Group web site
located at
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