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Sep. 12, 2011: Possible HARP changes; MERS carries on; temporary loan limit extension update; big bank lawsuits & BofA's job cuts
Rob Chrisman
Don’t
forget
that we’re one week away from "Talk Like a Pirate Day." Of
course, to err is human; to arr is pirate.
The
next time you're thinking about outsourcing your underwriting to
another nation, think twice:
http://www.youtube.com/watch?vHD8zHyV2qSM
A
few weeks back the mortgage-backed security markets were roiled
with rumors of a massive government sponsored refinance program.
Investors who owned any securities at 5% or above, containing
30-yr loans with rates of 5.25% or above, were wringing their
hands, worried that suddenly their holdings would either
evaporate or they would be earning 4% instead of 5% every year.
The market chewed on this possibility for a few weeks, until the
end of last week when President Obama, in a speech about jobs,
noted his intention to
help "responsible homeowners refinance their mortgages at
interest rates that are now near than 4 percent."
This is certainly
less extreme than some of the rumors that had been circulating
in recent weeks, but it is still something to ponder. The focus is on HARP
loans, and in turn on FHFA, who oversees Freddie and
Fannie, and then again on FHFA Director Edward Demarco. He
pretty much said that any restructuring of HARP would have to
strike a balance between benefiting homeowners and preserving
current levels of credit risk for Fannie and Freddie. "FHFA is
carefully reviewing the mechanics of the HARP program to
identify possible enhancements that would reduce barriers for
borrowers already otherwise eligible to refinance using HARP. If
there are frictions associated with the origination of HARP
loans that can be eased while still achieving the program's
intent of assisting borrowers and reducing credit risk for the
Enterprises, we will seek to do so." Perhaps Loan Level Pricing
Adjustments would be tweaked, perhaps the current 125% LTV limit
would be raised, perhaps... well, you can see the release for
yourself at http://www.fhfa.gov/webfiles/22607/HARPSTMT9911.pdf.
MERS is certainly holding
its own. It won a U.S. appeals-court ruling upholding
dismissal of claims by Arizona borrowers challenging their
lending and foreclosure procedures. The federal court in San
Francisco ruled last week that a district court properly threw
out a lawsuit filed by three borrowers alleging conspiracy and
fraud. In addition to MERS, defendants included Bank of America
and JPMorgan Chase. "The plaintiffs' claims that focus on the
operation of the MERS system ultimately fail because the
plaintiffs have not shown that the alleged illegalities
associated with the MERS system injured them or violated state
law," the three-judge appeals panel said. http://seattletimes.nwsource.com/html/realestate/2016149925_realmers11.html.
In a somewhat
related matter, HUD came
out with a Mortgagee Letter announcing that "FHA approved
Holders and Servicers are subject to sanctions for failure to
report Mortgage Record Changes (MRC) for mortgage sales,
transfers and terminations of mortgage insurance. Mortgagees who
fail to comply may be subject to referral to the Mortgagee
Review Board (MRB) for administrative actions including but not
limited to civil money penalties. Check it out at: http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/.
And what is new with
the temporary loan limits, set to expire in about 2 1/2 weeks?
Congress, which recently never seems to do much preemptively
lately, is being hit up by mortgage and real estate trade
groups. The latest is a
push to take action on a bill that would extend the maximum
mortgage loan limits through 2013. A bipartisan bill
introduced about a month ago (don't forget - they were on
vacation) would allow the FHA, VA, and Fannie & Freddie to
continue insuring homes up to the higher levels for another two
years. Watch for news on The Homeownership Affordability Act of
2011. Few politicians want to be seen as hindering any recovery
in housing, of course and in a joint letter to Congress several
industry organizations warned that failing to extend the limits
would delay the housing recovery and make it more difficult for
consumers to secure affordable financing. "With tight
underwriting already constraining mortgage availability,
lowering the loan limits will only further restrict liquidity,"
the letter reads in part. "Private lending remains wary of
returning to the market with all the current uncertainty.
Extending the existing limits at levels appropriate for all
parts of the country will provide homeowners and home buyers
with safe, affordable financing and help stabilize local housing
markets." On Thursday, a bipartisan group of 37 lawmakers sent a
letter to the House Appropriations committee recommending a
short-term extension of the current conforming limits. The
lawmakers urged the committee to attach the provision to a
temporary government funding bill.
But don't look for
anything to sail through. Opponents of retaining the loan limits
claim there's an appetite in private markets for jumbo loans.
This brings up two major issues. The first is the recent news out of the
SEC that it could close the exemption status real estate
investment trusts (REIT’s) have from the Investment Company
Act (ICA) when pooling and selling mortgage-backed securities.
The SEC said "the mortgage markets have evolved and expanded,
and the provision has been used by a wide variety of types of
pooled vehicles and other companies unforeseen at the time of
enactment,” which include certain MBS issuers and REIT’s. We now
are able to comment on it - but the price of REIT's dropped
significantly. There are a lot of clever minds in the REIT
business, and alternatives may be found that preserve tax
benefits and thus continue their demand for mortgage products.
But it should remind everyone in the mortgage business that we
cannot rely on the REIT’s demand for MBS’s to save our industry.
The second issue is, of course, the fact that major banks, which
are pretty much the same thing as major mortgage originators,
investors, and servicers, are now staring down the gun of the
Federal Government who is suing them. It will take some very
good minds to come up with plans in the future to motivate
private investment in mortgages while at the same time
convincing these banks to loosen up their purse strings and
invest in production. Oh, and at the same time let's eliminate
Fannie and Freddie! Seventeen
banks, dozens of their subsidiaries and over one hundred bank
officers were named as defendants in a lawsuit filed by the
Federal Housing Finance Agency (FHFA), conservator of the
GSE’s. The civil suits allege violations of federal
securities laws and common law in the sale of residential
private-label mortgage-backed securities to the GSE’s.
But
wasn’t the FHFA, and other large investors, smart enough to
analyze the securities and evaluate the risks? That is the
argument, of course, and one – Ally – was quick to bring that to
everyone’s attention. “Ally
believes that FHFA’s claims are meritless, and the company
intends to defend its position aggressively. Freddie Mac is a
sophisticated investor and elected to take certain risks with
respect to purchasing securities. The losses Freddie may have
sustained related to those securities are a result of market
forces, not any alleged errors or omissions by Ally in
connection with the securities.”
Speaking
of
lawsuits with big banks, US
banks are in talks with state prosecutors to settle claims of
improper mortgage practices. They have been offered a deal
that is proposed to limit part of their legal liability in
return for a multibillion dollar payment. This focuses on the
“robosigner”, workers who signed off on foreclosure documents en
masse without reviewing the paperwork. Apparently state
prosecutors have proposed effectively releasing the companies
from legal liability for allegedly wrongful securitization
practices.
Small
and regional banks have been busy.
Out in California, First PacTrust Bancorp will acquire Beach
Business Bank, following another recent deal to buy Gateway
Business Bank. (After the acquisitions, First PacTrust will have
about $1.3B in total assets and 18 branches.) Up in Ohio,
Croghan Bancshares will buy 4 branches with $111.7mm in deposits
from the parent company of The Home Savings and Loan, as Home
Savings is selling the branches to raise capital. Over in the
Carolinas, Bank of North Carolina will buy Regent Bank in South
Carolina, and up in Washington AmericanWest Bank will buy the
parent company of Viking Bank. The First National Bank of
Florida was closed by the OCC, and with the help of the FDIC
found CharterBank of Georgia to assume all of the deposits. In
Georgia, Georgia Commerce Bank acquired the banking operations,
including all the deposits, of Patriot Bank of Georgia and
CreekSide Bank. (The two were closed by the Georgia Department
of Banking and Finance.)
Bank
of America will reportedly announce 40k job cuts or 14% of its
workforce. The cuts are
expected to be largely centered on retail operations. While BofA
has already shuttered 63 of its 750 planned branch closures
(13%), these cuts would likely mean more are on the way. More
at: http://www.boston.com/business/articles/2011/09/12/bank_of_america_ceo_brian_moynihan_to_faces_skeptics_today/.
While last week was a fairly light week for economic data,
speeches by President Barack Obama and Fed Chairman Ben Bernanke
dominated headlines. Bernanke’s speech offered nothing new. The
president outlined a plan that calls for payroll tax cuts and
spending initiatives, and although the proposal could boost
growth somewhat most do not believe it fully addresses the core
issues of weak consumer demand and structural unemployment. The
president called for payroll tax cuts, which accounted for more
than half of the plan, extension of emergency unemployment
compensation, infrastructure spending, aid to state and local
governments, programs to subside the issue of long-term
unemployment and mortgage-refinancing assistance.
The
$447 billion package is equivalent to nearly 3 percent of GDP,
and it could provide a boost to economic growth next year.
However, the proposal still needs to be passed by Congress.
There is likely to be substantial politicking in Congress over
next few weeks, given the varying possibilities for the proposal
to be adopted. How could it impact interest rates in the US? The
rates market implications of any fiscal stimulus occur through 2
channels: 1) boost to growth, and 2) worsening deficit. So far
stocks thinks very little of the plan, and rates seem to be
heading lower, suggesting that the markets do not believe that it will help the
economy much.
We
have quite a week of scheduled news ahead of us, in addition to
whatever might unexpectedly come along from overseas. The fun
kicks off tomorrow with some import & export prices and
continues Wednesday with the Producer Price Index and Retail
Sales. (Few care about inflation at this point, but many hope to
see a pickup in Retail Sales.) Thursday is Jobless Claims and
the Consumer Price Index, along with Industrial Production and
Capacity Utilization. So
far this morning the 10-yr is at 1.91%.
Take heed......
When you drink Vodka
over ice, it can give you kidney failure.
When you drink Rum
over ice, it can give you liver failure.
When you drink
Whiskey over ice, it can give you heart problems.
When you drink Gin
over ice, it can give you brain problems.
Apparently, ice is
really bad for you!
Warn all your
friends.
If you're interested,
visit my twice-a-month blog at the STRATMOR Group web site
located at
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