Investor Cash Adding Downward Pressure on Home Prices

Cash buyers, principally investors, may
be putting downward pressure on home prices according to the Campbell/Inside
Mortgage Finance Housing Pulse Tracking Survey released Monday.  The survey found that investors with cash in
hand are able to offer something that homeowners dependent on mortgage
financing cannot, a guaranteed sale with a quick closing timeline.  This seems to offset the desirability of a
higher bid with a mortgage contingency.   

The
Housing Pulse survey found that the trade-off between price and speed is
particularly true with offers on distressed properties because the lenders and
servicers liquidating the properties generally prefer transactions that can
settle within 30 days.  The Campbell
report states, “While investor bids may not be the
first offers accepted, they often end up winning properties after other
homebuyers are eliminated because of mortgage approval or timeline problems.
Appraisals below the contracted price are a common reason for mortgage denials.
Most mortgage financing timelines are now in excess of 30 days.”

The
survey reports that 33.2 percent of home buyers in December were cash buyers,
up from 29.6 percent in December 2010. 
However, 74 percent of investors came to the table with cash.  This is especially striking as the survey
found that investors accounted for 22.8 percent of home purchases in December,
changed only slightly from 22.2 percent in November.  But, Campbell says, “Despite their relatively
small share among homebuyers, investors have an outsize effect on home prices because
their bids bring down market prices.”

Real estate agents responding to the
survey commented on the low bids they are seeing from investors.  Campbell quoted anecdotal information from a
few agents indicating they are seeing investor bids 10-20 percent below list
prices, but with quick closings.

The total share of distressed properties
in the housing market in December continued at a three-month moving average of
47.2 percent, the 24th consecutive month that the HousePulse
Distressed Property Index (DPI) was over 40 percent.

The Campbell/Inside Mortgage Finance
HousingPulse Tracking Survey involves approximately 2,500 real estate agents
nationwide each month and provides up-to-date intelligence on home sales and
mortgage usage patterns.

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BofA Halts Cash-out Refinancing; Letters From the Trenches; Mortgage Hiring Continues

Hey, if
you can’t beat ’em, join ’em. I bet many
wouldn’t mind making nearly a quarter million a year being a “cutting edge”
CFPB regulator
link.
Compare that to a story last week in the Wall Street Journal noting,
“Government regulators will cut sharply the pay of the executives they
hire to succeed the departing heads of Fannie Mae and Freddie Mac, said
regulators, which may make it difficult for the struggling mortgage-finance
giants to attract and keep qualified chief executives. Some officials even have
floated the idea of paying a salary of $1. Whatever ultimate pay arrangement is
approved by regulators for Freddie could set a precedent that would be adopted
by Fannie.” MBA President David Stevens warns that the pool of CEO
candidates will shrink as compensation for the post (which can be difficult to
fill given the limitations of being under government control) declines.

In the
private job market, Florida Capital Bank Mortgage is expanding its national mortgage
operations with the opening of an Operations Center in Northern California. FLCBM is looking for underwriters,
processors and closers for this location. In addition, they are looking for AE’s
across the country
to support its growing broker, mini-correspondent, correspondent
and Early Purchase Funding Program allowing brokers to become mortgage bankers.
Interested operational candidates can contact Gerhard Naude at gnaude@flcb.co and AE’s can contact Tommy
Adkins at tadkins@flcb.com.

In addition,
Prospect Mortgage is hiring Loan
Officers and Sales Managers
who leverage relationships with business
referral partners for sales growth. Prospect Mortgage offers nationwide lending
and has branches from coast to coast. For rankings, “Prospect is one of the
largest independent residential retail mortgage lenders in the US: it is the
second largest 203K lender, a top-10 FHA lender and a top-five Fannie Mae
HomePath Renovation lender.” So if you know of anyone interested in the retail
side of things with Prospect, they should contact Chief Talent Officer Daniel
Nieto at Daniel.Nieto@prospectmtg.com.

In other
corporate news, SunTrust Bank’s 16%
decline in earnings for the fourth quarter highlighted a problem many
originators are having: setting aside higher mortgage repurchase provisions.

Earnings were down from a year ago, as were revenues. “SunTrust’s mortgage
repurchase reserves rose to $320 million from $282 million in the third
quarter. The bank received $636 million in repurchase demands, up sharply from
$440 million a quarter earlier and $233 million in the fourth quarter 2010.”
Management saw it coming, as it warned the industry that repurchases would
increase significantly in the fourth quarter. Putting some numbers on the
problem, SunTrust holds $120 billion in unpaid balances from loans done between
2006 and 2008, and about $21 billion have gone 120 days or more past due. Of
those unpaid legacy mortgages, SunTrust has received repurchase demands on $4.4
billion, with $3.9 billion of those resolved. Repurchase issues were a factor
in the mortgage production side of SunTrust swinging to a $62 million loss from
a $41 million profit a quarter earlier.

As we move
toward having more regulators than originators, in Utah, Primary Residential Mortgage created of a new Enterprise Risk
Management (ERM) group that will “manage risk through the entire loan
origination process and ensures that the company has the appropriate monitoring
and evaluation policies.” Dave Zitting, president and CEO, observed,
“While the larger banks all have ERM departments, it’s uncommon for a
company of our size to have one but we wanted to take aggressive steps to
demonstrate to our customers, partners and employees our commitment to
providing a safe and compliant mortgage experience.” The leader of the
group noted, “In today’s mortgage environment, lenders must manage
compliance and quality issues more closely than ever before. By establishing
this new group we are implementing a solution that will sharpen our focus on
complying with all mortgage banking laws and regulations, improve on our
overall loan quality and help us to better manage risk across all areas of our
company.”

Bank of America certainly turned some heads last week
when it told its retail loan officers nationwide that the lender will halt, for
now, originations of cash-out
refinancings
, citing what it calls a “surge of refinancing
activity” and capacity problems. A memo written by B of A home loans sales
executive Matt Vernon notes that “while we regret the inconvenience this will
cause to some of our customers in the short term, we are making the responsible
choice that is in the best interest of our long-term capabilities to provide a
predictable customer experience.” In spite of arguments that this is some of
the cleanest product ever to be originated, and profit margins being solid for
many in the business, BofA continued to de-emphasize residential loans in the
fourth quarter, producing just over $22 billion in mortgages, a stunning 75%
decline from 4Q 2010.

At least
Bank of America is not expecting to have the FDIC come through its doors on a
Friday afternoon…but others had that happen (for the first time in over a
month). In PA American Eagle Savings Bank was closed and became part of MD’s Capital Bank, National Association.
Down the coast in Florida, Central Florida State Bank became part of CenterState Bank of Florida, National
Association
. And in neighboring Georgia, the depositors of The First State
Bank will soon have the name of Hamilton
State Bank
on their checks.

Mortgage
company transition is expected to continue in 2012. Industry vet Larry
Charbonneau, owner of Charbonneau &
Associates
, wrote to me, saying, “Rob, I’ve been in this business over
thirty years, and 2011 was one of my busiest ever. Your readers should know
that merger and acquisition activity is
picking up
. There are some commercial banks looking to acquire well
managed mortgage bankers, and the warehouse industry is very liquid now and
credit is readily available to those who have the required net worth.” If you
want to reach Larry, shoot him an e-mail at larry@charbonneauinc.com.

Regarding recent legal events, David Oldenberg
writes, “Attorneys are going to do the same thing to themselves that we did
to the mortgage industry. We created better and better loans programs to get
people into homes and it back-fired when there were no more buyers left and the
bottom dropped out. Attorneys are going to keep creating more and more ways to
sue lenders and eventually they will all stop lending, leaving no one left to
sue. They will destroy their industry based on greed, the same way the mortgage
industry has destroyed itself. When I used to play stock broker and financial
advisor on my radio show, I always said, ‘the trend is your friend until the
end!'”

Barry S. from Illinois wrote, “I just had another two week fight with one
of the top 4 investors. They underwrote the loan – it has MI, is a condo, and
an 800 credit score. They have some overlay that says HO6 insurance must be
escrowed, we never heard of such a thing, none of our other lenders force you
to escrow HO6 insurance. Anyway, loan was cleared to close and the underwriter
never said anything about HO6 being escrowed. We closed it and they wouldn’t
purchase the loan because the HO6 was not being escrowed on the HUD. So the
borrower signed new docs escrowing the HO6 since they had to pay it themselves
so they really didn’t care if it was escrowed. Then the original investor
refused to purchase the loan because it’s a TILA violation: they say you need
to reopen the recession period because the total payment has changed! I asked,
‘What happens each year when escrow analysis are done and servicers increase a
borrowers total payment when their taxes or insurance increase, TILA violation?
What happens when a borrower calls a bank to add escrows to their mortgage
payment TILA violation? What happens when a title company or lender puts the
wrong info for the taxes and insurance escrows and has to fix the mistake on
the HUD-1, TILA violation?’ These are the same guys who three weeks ago gave me
the same song and dance when a digit was reversed on an address in the closing
package, fun thing was the borrowers were both big time attorneys in Chicago
and couldn’t believe they had missed the mistake while signing. (An investor
finally bought that loan after a month of saying you can’t fix a typographical
error on a closing package!) But now we have to take the loan elsewhere.”

(For the uninitiated, HO6 insurance is
designed for condo owners
. The HO6 condo insurance will cover losses to any
of your persona property and any structure you own. This policy also covers
damages to any fixtures of upgrades you added on since the move-in date. A lot
of people have HO6 insurance because they are required to if they have a
mortgage on the condo. A regular condo insurance policy does not cover your
actual unit or any of your belongings. HO6 does provide liability protection.)

Sometimes it is tough for compliance and QA personnel to stay up on the changes
in the market. They should check out the next monthly conference call (free!) of
the California Mortgage Bankers
Association’s Mortgage Quality and Compliance Committee (MQAC)
– you don’t
even have to live in California. Call in this Thursday (26th) at
11AM PST (free!). The topic is “Regulatory Forecast for 2012: How Should You Be
Prepared?” Let your fingers do the walking: 1-800-351-6802, passcode 43784. For
more questions contact Dustin Hobbs with the CMBA at dustin@cmba.com.

Turning to
interest rates, which are still pretty low on the radar screen of concerns of
originators, they slid higher last week. In fact, Treasuries had their biggest
weekly loss in a month with the 10-yr moving to 2.02% and MBS prices (on
Friday) worse by about .125. Is the economy really picking up? The current
administration sure hopes so, although the president comes in a distant third
to stimulating the economy compared to the Federal Reserve and Congress. Existing
Home Sales increased 5% in December to an annual rate of 4.61 million units,
and were up 3.6% versus a year ago. “Record low mortgage interest rates, job
growth and bargain home prices are giving more consumers the confidence they
need to enter the market.”

For
scheduled economic news in the United States this week doesn’t commence until
Wednesday with Pending Home Sales, the FHFA Housing Price Index, and the FOMC’s
rate decision. Thursday is Jobless Claims, Durable Goods, New Home Sales, and
Leading Economic Indicators; on Friday are GDP and a Michigan Consumer
Sentiment number. With things continuing quiet in Europe, and no news here, we find the 10-yr’s yield up to 2.08% and
MBS prices worse.

I pointed to two old drunks sitting across the bar from us and told my friend, “That’s
us in 10 years”.
He said “That’s a mirror, dummy!”

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MBS Price Considerations Surrounding G-Fee Increase; PNC’s Results Reflect Servicing Lawsuit Settlement?

 

Basketball
fans know that all-stars Patrick Ewing, Charles Barkley, Dominique Wilkins,
Elgin Baylor, Reggie Miller, Pete Maravich, Karl Malone, and John Stockton share
something – none of them ever won an NBA championship. Like basketball, football
is a team sport. OJ Simpson knows a thing or two about team sports – and now he
knows about the foreclosure process, in which it is rumored that Chase reps
could not locate him in spite of his well-publicized prison stay: http://sports.yahoo.com/nfl/news?slug=ap-ojsimpson-foreclosure.

 

On the
more constructive side of things, Franklin
American Mortgage Company is currently searching for a VP of Wholesale
Operations
for a Regional Operations Center located in Concord, California. As
most know, FAMC is one of the top 5 independent wholesale lenders in the country. The
VP is responsible for overseeing day-to-day wholesale business operations for
A-paper originations, including Jumbo, FHA and VA, process flow management,
individual and regional production goals, corporate and state/federal
regulatory compliance, employee and state HR requirements, loan quality,
customer service and policy/procedure implementation and accountability. Prior
wholesale operations management experience is highly preferred.  Please
submit resumes to Bobby Frank at b.frank@franklinamerican.com.

 

Head-shaking
continues regarding economic stimulus and recovery, the agency plans, and g-fee
increases. A while back Steve T. with Primary
Residential
in Utah wrote and noted, “Let’s say we both put $20 into a box. I sell you the box for $30.
We both make $10. Repeat for infinite cash flow: economic problems solved
.
Last year ‘in a bid to stem taxpayer losses for bad loans guaranteed by federal
housing agencies Fannie Mae and Freddy Mac, Senator Bob Corker (R-Tenn.)
proposed that borrowers be required to make a 5% down payment in order to
qualify. His proposal was rejected 57-42 on a party-line vote because, as
Senator Chris Dodd (D-Conn) explained, passage of such a requirement would
restrict home ownership to only those who can afford it.’ What are we missing
here?”

 

And Lindsay
Hill with Compass Analytics noted,
“The congressionally-mandated g-fee increases, established in part to pay
for extensions of the payroll tax cut and unemployment benefits, has created
somewhat of a disconnect between MBS prices and lender rate sheet prices. It creates an interesting dynamic when the
government is purchasing mortgage-backed securities to keep rates low and help
fuel a recovery in housing, and yet the same government is increasing rates on
the g-fee side, increases that will trickle directly down to the borrowers that
are hoped will lead a housing recovery
.”

 

The g-fee “shall
be determined by the FHFA Director to reflect the risk of loss, as well the
cost of capital allocated to similar assets held by other fully private
regulated financial institutions, but such amount shall not be less than an
average increase of 10 basis points for each origination year above the average
fees imposed in 2011 for such guarantees. The GSEs will be prohibited from
offsetting the cost of the fee to originators, borrowers and investors by
decreasing other charges, fee, or premiums, in any other manner. The director
of the FHFA will determine appropriate g-fee to reflect the risk of loss, as well
the cost of capital allocated to similar assets held by other fully private
regulated financial institutions. FHFA can allow the increase in the g-fee
charged by the GSEs to be phased-in gradually over a 2-year period from the
enactment of the bill. The increase should be such that it provides uniform
pricing among lenders, and takes into consideration the risk levels and
conditions in the financial market.”

 

Some Wall
Street MBS analysts believe that it is likely that the g-fee needs to increase
by another 15-45bp over the next two years (on top of the 10bp increase) if the
FHFA changes g-fee level such that it reflects the risk of loss as well as the
cost of capital allocated to similar assets by other fully private regulated
financial institutions as required by H.R. 3630. The analysts note that conventional securities could be worth .375-.625
more because of g-fee increase’s impact on current production, and older
securities could be worth 1.5-2.0 points more since it will be more expensive
to refinance, so fewer will do it, meaning that the securities are on the books
longer.

 

Yesterday
the commentary mentioned some trouble that a lender was having ascertaining the
FHA loans that had gone delinquent and that were impacting its compare ratio. I
received a few notes on it. Ray W. wrote, “Rob, Potomac Partners in DC is
a consulting group lead by Brian Chappelle (bjc@p2partners.com)
and can likely give guidance to your reader.”

Darryl R.
from Illinois wrote, “Maybe if FHA would allow individuals who are currently
at .50 on their monthly MI to refinance at .50 and also those at .80 to
refinance at .80 and those at 1.15 to refi at 1.15 they wouldn’t see as many
delinquencies.  Does it take a brain surgeon to figure out that this makes
sense? They put the 5% rule in place (which I do think is a good thing) but
that should be enough.  If people who put down 20% are underwater today,
what do they think about people who put down either 3 or 3.5%?  But
remember the Dodd-Frank fiasco was put in place to help the people.  HUD
is doing practically nothing to help people refinance and stay in their homes.
The biggest thing that I don’t understand is when the government prolongs the
entire program but doesn’t move the date for individuals to be eligible –
haven’t house values continued to decline since 2009?”

 

And while
we’re on suggestions, here’s an idea for
a new conventional program.
Fannie and Freddie offer a 15-year fixed
refinance based on today’s value with the loan amount equal to appraised value.
The balance of the deficiency is due at the end of the 15 year term. Equity is
built faster.  In five years the borrower is ‘back to even’ if values
stabilize. They could sell in five years and the deficiency would be paid in
full. You could throw a term life policy on the borrower for the deficiency
amount with the lender as the beneficiary just in case the borrower dies. The
proposed payment to borrowers sitting at 5% with a reduced loan balance would
be close to what they are paying now if the rate on the 15 year fixed is around
3%. The lenders get paid in full and our industry moves back to stabilization
with borrowers building equity. A 125% 30 year loan for an underwater borrower
does not solve anything for the housing industry: what is better for the
housing industry – pools of 30-year fixed $500k loans on $400k properties at 4%
or pools of $400k loans at 3% on $400k properties for 15 years with $100k
balloons? You can’t do a massive loan reduction because of fairness to those
that have paid as agreed, but you can create a loan program that reduces the
loan balance quicker.” For comments write to Mark Weber at mweber89@cox.net.

 

The
housing market continues to muddle along. U.S. home prices fell 0.4% in
November from October, the fourth-straight monthly decline according to FNC’s
residential price index. The index is 4.6% lower than a year earlier, though
FNC said year-over-year declines have stabilized in recent months. By the way, the co-founders of FNC (a real estate
technology firm focused on appraisals and servicing) host a “radio” show on
Monday’s
– check it out at http://www.fncmorningview.com.

 

PNC Financial knows something about housing. It is
the nation’s sixth largest bank, and announced that net income fell to $451
million in the 4th quarter, down from $798 million a year ago. It set
aside $240 million (contributing to a 40% drop in quarterly profits) because it
and other big banks may be near a settlement of government allegations of
mortgage and foreclosure abuse – “robo-signing.” (U.S. Bancorp, #5,
did something similar, reporting a $130 million “expense accrual related to
mortgage servicing matters.”)

 

 

The latest
SEC lawsuit involves Florida’s BankAtlantic
Bancorp
and its CEO Alan Levan. They allegedly misled investors on
defaulting loans in its real estate development portfolio, and hid the
“deteriorating state” of portions of its land acquisition and
development business in 2007. The company and Levan then tried to minimize
losses on the books, the SEC said, by committing accounting fraud and improperly
recorded loans it tried to sell from the portfolio.

 

Complaints
about interest rates continue to be non-existent, and yesterday was no
exception. Yesterday, however, mortgage banker selling picked up, nearly
doubling from recent levels. At the same time, unfortunately, investors in MBS’s
grew cautious given the refi numbers from the MBA’s weekly survey: who wants to
pay a premium above par for a loan if it is going to refinance relatively soon?
The 10-yr T-note closed at a yield of 1.90% (easy to remember) and MBS prices
were worse by about .125. For good news, the National Association of Home
Builders Housing Market Index which increased four points in January to 25 –
its highest level since June 2007 and its fourth monthly improvement in a row.

 

Today,
given that things are pretty quiet in Europe, the focus is more on U.S news. We
had weekly Jobless Claims which dropped 50k (after the big rise last week) to
352k – the lowest in almost four years. The 4-week moving average is -3,500.
This certainly indicates some strength in the jobs market, even if one
questions the precise numbers. The Consumer Price Index was unchanged and +.1%
on the core rate – inflation is not an issue. Housing Starts came in slightly lower
than expected, -4.1%, and Permits were -.1%. We’ll also have the Philly Fed
Survey for January, and at 8AM the Treasury announces details of next week’s
auctions of 2-, 5- and 7-year notes – estimated unchanged at $99 billion. So
far, given the strong jobs number this
morning, rates are slightly higher: the 10-yr is up to 1.94% and MBS prices are
worse about .250.

 

A man and woman were having a quiet, romantic dinner in a fine restaurant. They
were gazing lovingly at each other and holding hands.
Their waitress, taking another order at a table a few steps away, suddenly
noticed the man slowly sliding down his chair and under the table, but the
woman acted unconcerned.
The waitress watched as the man slid all the way down his chair and out of
sight under the table.
Still, the woman appeared calm and unruffled, apparently unaware her dining
companion had disappeared.
The waitress went over to the table and said to the woman, “Pardon me,
ma’am, but I think your husband just slid under the table.”
The woman calmly looked up at her and said, “No, he didn’t. He just walked
in the door.”

If you’re interested, visit my twice-a-month blog at the STRATMOR Group web
site located at www.stratmorgroup.com . The current blog discusses residential
lending and mortgage programs around the world. If you have both the time and
inclination, make a comment on what I have written, or on other comments
so that folks can learn what’s going on out there from the other readers.

 

 

 

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Momentum Seen for Home Improvement Spending

Spending
on home improvements and remodeling have shown signs of a rebound and the
Remodeling Futures Program at the Harvard Joint Center for Housing Studies is
projecting that sector of the economy will end 2012 on a positive note.

The
Joint Center produces the Leading Indicator of Remodeling Activity (LIRA) each
quarter.  It is designed to estimate
national homeowner spending on improvements for the current quarter and the
following three quarters.  The indicator, measured as an annual rate-of-change
of its components, provides a short-term outlook of homeowner remodeling
activity and is intended to help identify future turning points in the business
cycle of the home improvement industry.

The
figures from the most recent quarter, the fourth quarter of 2011, showed an
estimated four-quarter moving total of $112.4 billion in home improvement
spending compared to $113.8 billion in the third quarter.  This number is expected to dip further in the
first quarter of 2012, to $108.1 billion before starting to build at mid-year.

 “Sales of existing homes have been increasing
in recent months, offering more opportunities for home improvement projects,”
says Kermit Baker, director of the Remodeling Futures Program at the Joint
Center.  “As lending institutions become less fearful of the real estate
sector, financing will become more readily available to owners looking to
undertake remodeling.”

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Old Rating Agency Model Becoming Extinct? Independent Mortgage Banks Able to do HARP 2.0 Loans?

The world
has been watching the ship incident in the Mediterranean, and the fact that the
captain was seen on an island during the event. His quote, “I slipped and
fell into the life boat” was the headline of the story I saw yesterday. (I
actually thought about using that as the joke today.) It makes one wonder if
“accountability” is a dying concept.

Moving on,
retail mortgage banker Spectra Home
Loans is expanding and is seeking qualified branch managers and LO’s throughout
both the Mid-Atlantic seaboard and California. “Spectra offers a wide
variety of loan products, and is ‘on the fast track’ to becoming a Fannie,
Freddie and Ginnie direct seller/servicer. Founded by industry veterans on the
premise of being a leader in the mortgage banking industry, Jim Cassidy, former
National Production Manager of SunTrust Mortgage, is now President and Chief
Financial Officer of Spectra Home Loans.” Please contact Ted Smith at tsmith@spectraloans.com for
opportunities throughout California or Jay DeCarlo at jdecarlo@spectraloans.com for
opportunities in the Mid-Atlantic region, or visit its website at www.spectraloans.com, and click on “Join
Spectra Today” at the top for more information.

Although
the industry is waiting for more details on HARP 2.0, there is some serious
thinking going on about how the program will work. More specifically, warehouse
lending. Jim Cameron from the STRATMOR Group wrote, “We are hearing that there is questionable enthusiasm for HARP
2.0 amongst the warehouse lenders
.  There are a few exceptions, but at
this time most lenders will only finance up to 100% of the value of the
property. As everyone knows, if a non-depository mortgage banker cannot borrow
from their warehouse lines to fund these loans, the program will have mostly
confined to depository institutions. This won’t help independent mortgage
bankers unless alternative funding sources are arranged. And while a Fannie
direct seller can sell to the ASAP window, this may cause execution to be less
than optimal.  If HARP 2.0 volume is
significant, most independents would not have enough liquidity to self-fund
even with a relatively quick funding by the investor
.  The good news
is that where there is a will, there is a way.  If the market opportunity
is big enough, warehouse lenders will figure out a way to price the risk.”
This makes a lot of sense.

(By the way, STRATMOR is offering HARP 2.0 sessions around the country. 
While the Las Vegas and Chicago sessions have sold out, there are still
available seats for the Washington, D.C. meeting scheduled for next Thursday,
January 26, and there is talk of adding a session. If you’d like more
information, contact Jim at Jim.cameron@Stratmorgroup.com.)

Earlier this week the commentary discussed the Maiden Lane sale and its
expected impact on subprime MBS pricing. “The Federal Reserve Bank of New York announced
that it has sold $7.014 billion in face amount of assets from its Maiden Lane
II LLC (ML II) portfolio through a competitive process to Credit Suisse Securities (USA) LLC.” So it is done, without much
fanfare.

What have
received fanfare over the last week are the bank earnings reports, and
especially for this commentary how they report mortgage banking activities. Bank of America reported net income that
met expectations – consumer real estate had a loss of $1.46 billion, mortgage related
litigation expenses reached $1.5 billion (in the 4th quarter!), but loan
loss provisions fell 43%. BB&T
reported profit of 55 cents per share vs. 30 cents for the prior year on a
slight increase in revenue – credit conditions strengthened and reserves fell
58.9%, and noninterest expense climbed 13.9% (mostly due to 114% increase in write-downs
and losses on foreclosed real estate). (By the way, Wells Fargo has branches in
the most states, 40, followed by BofA in 36 states, U.S. Bank in 25 states, and
JP Morgan Chase in 24 states – impacting
retail origination potential
.)

The recent
headlines blared, “Foreclosure filings and repossessions fell to their lowest
level since 2007 last year.” RealtyTrac noted that, “Total filings of default
notices, scheduled auctions and bank repossessions were down 33% for the year
to 2.7 million. Last year one in every 69 homes had at least one foreclosure
filing during the year, much better than 2010’s one in every 45 homes. Folks in
the biz, however, know that much of the
drop in filings was due to processing delays caused by fall-out from the
“robo-signing” scandal
that broke in late 2010 which created a
backlog as banks spent more time making sure paperwork was legal and proper. In
fact the average time it took to process a foreclosure climbed to 348 days
during the fourth quarter, up from 305 days a year earlier.

When it
comes to foreclosures and the housing market’s recovery, everyone has a
different answer, and no one seems sure of where things are headed. Part of the
confusion is due to the wildly divergent foreclosure timeline across the
country, and their impact on regional markets and recoveries. According to Lender Processing Services
(LPS), the national average ‘time to foreclosure’ is currently 674 days, up
from 253 just a few years ago
. However, that number belies the sharp contrast
between states that process foreclosures through the judicial system, and those
that don’t. Want a quick, but potentially volatile recovery? States utilizing the non-judicial format
(most of the western states) are able to process much quicker (less than 200
days in Arizona, Oregon, Washington), but have seen deeper drops in home values
over the past year due to the increased supply.
For instance, Nevada saw a
near-20% drop in home values this past year. On the other hand, Florida, which
takes an average of 1,027 days to foreclose (remember: that’s an average of 3
years) experienced just a 2.8% dip in values in 2011. However, their recovery,
as will other states under a judicial system, will most likely take much longer
to materialize as homes will be kept off the market while undergoing the
foreclosure process. The bottom line number to keep an eye on is “foreclosure
inventory” – the rate in non-judicial states was more than 6%, while the
judicial states saw a rate of less than 3%.

For jobs
in the mortgage arena, Hammerhouse LLC released the results from its Second
Annual Survey of Originator Opinions
.  This 14 question survey was
completed by a statistically significant sample of approximately 400 active
mortgage loan originators and asked originators for their opinions on critical
issues facing the mortgage industry and impacting their job performance.

There is
plenty of blame to go around in the credit crisis in mortgage origination, much
of it resting with the rating agencies
. They belong to NRSRO (Nationally
Recognized Statistical Rating Organization), an organization going back over a
hundred years to Mr. Moody and Mr. Poor were some of the first to provide
detailed analysis of the risks associated with individual railroad companies
and their bond obligations. In 1936, the newly created SEC introduced a set of
laws prohibiting banks from investing “speculative grade securities as
determined by recognized rating manuals”. State insurance regulators then
followed suit. The NRSROs instantly become a critical part of the risk
management process for the post-depression era financial system. By the 1970s
the proprietary information created by the NRSROs was being compromised,
largely due to the advent of cheap photocopiers, so they made a very
significant change in the business model – a move away from investor fees
towards issuer fees. Investors were still the end user, but the issuers paid the bills. This change
in the payment structure redefined the entire business model and of course the
incentive structure, so although investors hoped the rating agencies gave out unbiased
information for investors, the fact that the issuers were/are paying the bills
creates issues. But looking ahead, one of the impacts of Dodd Frank’s immense
girth is that the rating agencies will lose their coveted US Federal blessing:
the latest Federal press release on the new US capital standards can be seen at
http://www.federalreserve.gov/newsevents/press/bcreg/20111207a.htm.

What
exactly happens next for US bank capital regulations, and eventually insurance
company and pension funds, remains highly uncertain – but there is virtually no chance the NRSROs will have
any meaningful role
. And over in Europe the story is exactly the same. The
ECB has all but abandoned NRSRO credit ratings for collateral eligibility.
Naturally these changes have not been lost on the NRSROs and they are trying to
salvage a broken business model. They are trying to make a big splash by
returning to a more conservative and unbiased business model, and create
publicity by downgrading U.S. banks, and nations around the world – but it is
rare that anyone should be surprised by a rating move, as the agencies are
using information that other analysts already are aware of. One quote I saw
said, “It’s a way to try to be relevant as the regulators of the world put them
out of business.”

Turning to
interest rates, they have been creeping higher this week. Yesterday we saw a
few intraday rate sheet price changes. Although the Fed continues to buy about
$1.2 billion a day of MBS’s, originator selling has picked up – I guess lock
desks are busy. Yesterday’s strong Jobless Claims started things off (reminding
us that a growing economy tends to push rates higher),single-family housing
starts are picking up, homebuilder sentiment is improving, and by the end of
the day 10-yr T-notes were worse by almost .75 in price (1.97%) and current
coupon mortgage security prices were worse .250.

It was
quiet overnight in Asia and Europe, and the only news out today in the U.S. is
Existing Home Sales (Dec) at 9AM CST, and which is projected higher to 4.65
million from 4.42 million. Rates have
edged higher, and the 10-yr is at 1.99% and MBS prices are a shade worse.

I just got off the phone with a friend living in North Dakota near the Canadian
border.

She said
that since early this morning the snow has been nearly waist high and is still
falling. The temperature is dropping way below zero and the north wind is
increasing to near gale force. Her husband has done nothing but look through
the kitchen window and just stare.

She says
that if it gets much worse, she may have to let him in.

…(read more)

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