Drop in Refinancing Curtails Application Volume

The Mortgage Composite Index, a measure of loan application
volume, was down 6.7 percent on a seasonally adjusted basis and 6.6 percent
unadjusted during the week ended June 29 compared to the week ended June
22.  The Mortgage Bankers Association
(MBA) released the Composite and other results of its weekly Mortgage
Applications Survey this morning.

The decrease in mortgage volume was attributed to a drop of
8 percent in the Refinance Index which was in turn driven by a drop in
applications for government-backed refinancing loans.  The share of refinancing applications was 78
percent of all applications, down one percentage point from the previous
week.  Applications for HARP refinancing
which is available only to current Freddie Mac and Fannie Mae borrowers have represented
a quarter of all refinancing applications for the last two weeks.

The seasonally adjusted Purchase Index was up one percent
from the previous week.  The unadjusted
Purchase Index rose only slightly from the previous week and was down 7 percent
from the same week in 2011.  

Purchase Index vs 30 Yr Fixed

Click Here to View the Purchase Applications Chart

Refinance Index vs 30 Yr Fixed

Click Here to View the Refinance Applications Chart

Both the contract interest rate and the effective rate for
all loan types decreased during the week and several rates hit new all time
lows
.   The average contract rate for 30-year fixed
rate mortgages
(FRM) with conforming balances ($417,500 or less) decreased to
3.86 percent with 0.41 point from 3.88 percent with 0.40 percent, the lowest
rate for those loans since MBA began tracking them. 

Jumbo 30-year FRM (balances over $417,500) dropped four
basis points to 4.08 percent with points up to 0.38 from 0.35.  This was the second lowest jumbo loan rate in
MBA’s history.   

FHA-backed 30-year FRM also set a new benchmark low with an
average rate of 3.69 percent with 0.46 point compared to 3.71 percent with 0.46
point.   

Fifteen-year FRMs set a new low at 3.20 percent with 0.47
point.  The rate the previous week was
3.24 percent with 0.44 point.

The average 5/1 adjustable rate mortgage (ARM) rate fell to 2.76
percent with 0.45 point, down from 2.81 percent with 0.41 point.  Applications for ARMs represented only 4
percent of all mortgage applications.

All rate quotes are for loans with an 80 percent
loan-to-value ratio and points include the application fee.

The MBA’s weekly survey covers
over 75 percent of all U.S. retail residential mortgage applications, and has
been conducted weekly since 1990.  Respondents include mortgage bankers,
commercial banks and thrifts.  Base period and value for all indexes is
March 16, 1990=100.

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First Round of Pilot Rental Initiative Completed with 2,500 Homes Sold

The first round of winners has been
selected to purchase foreclosed real estate from Freddie Mac and Fannie
Mae.  The Federal Housing Finance Agency
(FHFA) announced today that 2,500 single family homes had been awarded to successful
bidders under a pilot initiative to convert real estate acquired by the two
government sponsored enterprises (GSE) through foreclosure into rental property. 

Successful candidates for purchasing properties
from the GSE’s real estate portfolio (REO) had undergone several steps in a
qualification process before being permitted to bid on the houses which they had
to agree to hold and rent for a period of time before reselling. 

The properties were offered in sale
pools which were geographically concentrated in various locations across the
United States.  The GSEs, FHFA and other federal
agencies involved, Departments of Treasury, Housing and Urban Development,
Federal Deposit Insurance Corporation and the Federal Reserve, had several
goals
for the program.  They hoped to
relieve the GSEs of the costs and administrative burdens of managing thousands
of foreclosed properties, alleviate the blight imposed on communities by large
number of vacant and possibly deteriorating properties, increase the rental
stock, while at the same time not flooding the market with distressed
properties.

 FHFA described the response to the pilot
initiative as “robust with strong qualified bidder interest.”  Some 4,000 responses were received to the
initial “Request for Information” issued by the program sponsors last February,
however beyond announcing that the awards had been made FHFA released no
information on the names or even the numbers of successful bidders.

“FHFA
undertook this initiative to help stabilize communities and home values in
areas hard-hit by the foreclosure crisis,” said Edward J. DeMarco, Acting
Director of FHFA. “As conservator of Fannie Mae and Freddie Mac, we believe
this pilot program will assist us in achieving our objectives and help to
maximize the benefit to taxpayers. We are pleased with the response from the
market and look forward to closing transactions in the near future.”

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Five Questions: Time to Unify Fannie, Freddie Securities?

Freddie Mac is facing a new problem as it nears the fourth anniversary of its government takeover: Investors are spurning its mortgage security in favor of its sibling, Fannie Mae.

Congress Hears Different Views on Appraisal Regulation

Among those testifying at a hearing of the House Committee on Financial Oversight’s subcommittee on
Insurance, Housing, and Community Opportunity were William B.
Shear
, director, Financial Markets and Community Investment, Government
Accountability Office (GAO) and Sara
W. Stephens, president of the Appraisal Institute.  Shear restated GAO’s earlier recommendations
that federal regulators set minimum standards for registering Appraisal
Management Companies (AMC)
before a hearing on
Thursday while Stephens countered
that non-congressionally mandated regulations are threatening to hamstring and jeopardize the real estate appraisal
profession altogether.

Shear presented results of a GAO
study on appraisal oversight which confirmed that appraisals remain the most
popular form of property valuation used by Freddie Mac, Fannie Mae (the GSEs) and
major lenders.  While other valuation
methods such as broker opinions and automatic valuation models (AVM) are
quicker and less expensive, they are also considered less reliable and are not
generally used for loan originations.   While GAO did not capture data on the
prevalence of approaches used to perform appraisals, the sales comparison
approach is required by the GSEs and FHA and is reportedly used in nearly all
appraisals.

Charges of conflict of interest have
changed the ways in which appraisers are selected and raised concerns about the
oversight of AMCs which often manage appraisals for lenders, GAO said.  The Dodd-Frank Act reinforced earlier
requirements and guidance about selecting appraisers and prohibiting coercion
and this has encouraged more lenders to turn to AMCs.  This in turn has raised questions about the
oversight of these firms and their impact on appraisal quality.

Federal regulators and the
enterprises said they hold lenders responsible for ensuring that AMCs’ policies
and practices meet their requirements but that they generally do not directly
examine AMCs’ operations.  Some industry
participants voiced concerns that some AMCs may prioritize low costs and speed
over quality and competence. The Dodd-Frank Act requires state appraiser
licensing boards to supervise AMCs and requires other federal regulators to
establish minimum standards for states to apply in registering them. Setting
minimum standards that address key functions AMCs perform on behalf of lenders
could provide greater assurance of the quality of the appraisals those AMCs
provide GAO said, but as of June 2012, federal regulators had not completed
rulemaking for such standards.

The Appraisal Subcommittee (ASC)
established in 1989 by the Title XI of the Financial Institutions Reform,
Recover, and Enforcement Act (FIRREA) has been monitoring the appraisal function
but its effectiveness has been limited by several weaknesses which include failing
to both define the criteria it uses to assess state compliance with Title XI and
the scope of its role in monitoring the appraisal requirements of federal
banking regulators.

ASC also lacks specific policies for
determining whether activities of the Appraisal Foundation (a private nonprofit
organization that sets criteria for appraisals and appraisers) that are funded
by ASC grants are Title XI-related. Not having appropriate policies and
procedures is inconsistent with federal internal control standards that are
designed to promote the effectiveness and efficiency of federal activities.

Appraisals and other types of real
estate valuations have come under increased scrutiny following the mortgage
crisis
and Dodd-Frank codified several requirements for the independence of
appraisers and expanded the role of ASC. 
It also directed GAO to conduct two studies which were the source of Shear’s
testimony before the committee.

GAO recommends that federal
regulators consider key AMC functions in rulemaking to set minimum standards
for registering AMCs, that ASC clarify the criteria it uses to assess states’
compliance with Title XI of FIRREA and develop specific policies and procedures
for monitoring the federal banking regulators and the Appraisal Foundation.  ASC and regulators are either taking steps to
implement these recommendations or considering doing so.

Although she was not speaking directly
to the GAO report, Stephens in a written statement told committee members that,
although appraising is the most heavily regulated activity within the mortgage
and real estate sectors
, regulatory agencies are planning to enact further
changes that would threaten to tie the hands of appraisers, curtail innovation
and increase regulatory burdens on appraisers and financial institutions.

Stephens was testifying directly
against The Appraisal Foundation’s creation of a new Appraisal Practices Board
delving into appraisal practice matters without Congressional authorization.
The Foundation does not have authority to codify appraisal methods and
techniques, she said, and called it a dangerous and unjustified move.  “The regulatory burden for appraisers is on
the cusp of being expanded exponentially.”

“Appraisal methods and techniques
require judgment by the appraiser. It is assumed that the appraiser has
been thoroughly trained to judge appropriate situations. The choice of methods
and techniques are the responsibility of the appraiser in the development of
his/her scope of work” she said. For instance, whether to use reproduction cost
or replacement cost or when and how to adjust for sales concessions are
dependent on the actions of the marketplace and should not be mandated by a
body such as the Appraisal Practices Board. Hard “rules of thumb” do not work
within valuation because there always is an exception to the rule, she said.

The Appraisal Institute offered a
long list of recommendations
to Congress including that they:

  • realign the appraisal regulatory
    structure with those of other industries in the real estate and mortgage
    sectors
  • Protect the independence of the
    appraisal standards-setting process and require that standards for federally
    related transactions be issued by an entity that does not develop or offer
    education for appraisers.
  • Establish limitations around the
    Appraisal Practices Board specifying that no tax dollars be used to fund the
    venture, voluntary guidance be truly voluntary, and meaningful oversight over
    the de facto regulatory action of the Foundation be established.
  • Reiterate that the Foundation does
    not have legislative authorization in the area of “methods and techniques” and
    “appraiser education.”
  • Authorize the GSEs and other agencies
    to halt purchase or guarantees of loans in states that maintain deficient
    appraiser regulatory regimes and ensure that ongoing federal support for the
    GSEs or any replacement maintains consistent appraisal rules.

The Institute said states should be restricted from
codifying voluntary guidance into state law or regulation and the Appraisal
Standards Board prohibited from specifically
referencing its works within the Uniform Standards of Professional Appraisal
Practice and laws should be established to empower state boards to investigate
and prosecute complaints involving appraisers.

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OCC: Mortgage Performance Best Since 2008

Mortgage performance during the
first quarter of 2012 was the best in three years according to the Office of Comptroller
of the Currency’s (OCC’s) Mortgage
Metrics Report
.  Percentages of
mortgages that were 30 to 59 and 60 to 89 days delinquent were at the lowest
level since at least the first quarter of 2008 when Metrics was first published. 
The percentage of mortgages current and performing at the end of the
quarter was 88.9 percent up 1.1 percent from the previous quarter and 0.3
percent from a year earlier. OCC attributed the improvement in performance to
several factors including strengthening economic conditions, seasonal effects,
servicing transfers, and the ongoing effects of both home retention programs
and home forfeiture actions.

The quality of government guaranteed
mortgages
improved during the quarter with current and performing mortgages at
85.9 percent of the portfolio compared to 84.2 percent in the previous quarter but
down from 87.0 a year earlier.  Mortgages
serviced for the two government sponsored enterprises (GSEs) Fannie Mae and
Freddie Mac made up 59 percent of servicer portfolios and 93.7 percent of these
loans were current and performing, a percentage that has changed little over
the past year.

New foreclosures initiated during
the quarter were down 1.8 percent to 286,951 which OCC said reflected the
emphasis on home retention actions as well as a decrease in delinquencies.  Many servicers have also slowed new
foreclosures in response to changing servicing standards and requirements.  

Completed foreclosures increased to
122,979-up 5.9 percent from the previous quarter and 2.7 percent from the first
quarter of 2011.  The inventory of foreclosures in process increased from
the previous quarter to 1,269,921, but is down from 1,308,757 a year ago.  Deeds-in-lieu of foreclosure, and short-sales
brought the total number of home forfeiture actions to 185,781 during the
quarter, an increase of 1.9 percent from the fourth quarter of 2011 and 8.3
percent from a year earlier.

Servicers initiated 352,989 home
retention actions
during the quarter and have initiated more than 2.2 million
such actions including modifications, trial-period plans, and payment plans
over the last five quarters.  At the end
of the first quarter of 2012, 50.7 percent of modifications remained current or
were paid off.  Modifications made since 2008 that reduced borrower
monthly payments by 10 percent or more performed better (57.6 percent remained
current) than those that reduced payments by less than 10 percent (36.8
percent.)

On average, modifications
implemented in the first quarter of 2012 reduced monthly principal and interest
payments by $437, which is 31 percent more than modifications implemented
during the first quarter of 2011. HAMP modification reduced payments by $588 on
average and those modifications performed better than others, with 68.2 percent
remaining current compared to 53.4 percent of modifications done by others.  OCC said HAMP’s performance reflects the
significantly reduced monthly payments, the program’s emphasis on affordability
relative to borrower income, required income verification, and the successful
completion of a required trial period.

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