HARP 3.0 Musings; What these High MBS Prices Mean; Flood Insurance in the News Again?

Sometimes I wish that I could use swear words in this commentary, but they wouldn’t pass e-mail filters. But if I could, I’d use them here. Why is Congress still “jerking around” with flood insurance? If Congress is concerned enough with protecting borrowers to ram Dodd Frank through and put the CFPB in place, why can’t they even come to an agreement on flood insurance? Instead the can is kicked down the proverbial road: Congress has given itself two more months to come up with long-term solutions for the program. The last full-scale reauthorization of the NFIP, a wing of the Federal Emergency Management Agency, occurred in 2004. Since 2008 the insurance provider has stayed alive through a series of 16 short-term extensions while lawmakers debate how to restore its fiscal soundness.

This time around, a voice vote in the House extended the life of the National Flood Insurance Program for 60 days. Last year the House passed a five-year extension that allowed for increased premiums and ended some subsidies, but the Senate has been unable to get a companion bill to the floor for a vote. The Senate last week passed the 60-day extension after adding a provision by Sen. Tom Coburn, R-Okla., that would gradually eliminate premium rate subsidies for people buying second homes and vacation homes in flood-prone areas. Coburn said that could save the program $2.7 billion over 10 years. I am done ranting, and there is a back story, of course, and that is that the NFIP was largely self-financing until it was overwhelmed by claims from hurricanes Katrina and Rita in 2005. It now owes nearly $18 billion to the Treasury. But still, should ordinary borrowers suffer again due to Congress’ inability to come to a conclusion?

MBA president Dave Stevens, ex-World Savings, ex-Freddie Mac, ex-Wells Fargo, ex-Long and Foster, ex-HUD/FHA, announced that he will soon be ex-MBA.  Dave will be leaving the organization effective June 30, to join SunTrust Bank as president of SunTrust Mortgage. Anyone interested in the vacated spot can send their resume to Michael Young at the MBA…

But here is a different type of opportunity. An experienced, well-financed mortgage banking group is actively pursuing opportunities to purchase controlling or full interest in an established mortgage bank with current annual production in the $50 million to $300 million range. In 2013, the minimum liquid capital requirement will be $2.5 for many types of business. “Our group will provide a minimum of $5 million injection of equity while building a national platform. The mortgage banker MUST have minimum of a New York state license – multi-state license preferred – and must be Direct Endorsed FHA lender and preferably have seller/servicer approval from Fannie and/or Freddie. We would like Chase and/or Wells (preferably both) to be current approved investors, of course other investors are a positive. Our offer will be based on number of state licenses as well criteria mentioned above. All inquiries will be strictly confidential.” Please contact Mr. Kalin at mk@buildaforce .com to discuss further.

Remember HARP 3? I received this note yesterday from New Jersey: “If it is truly the objective of government to protect the masses and offer a fair and balanced unwinding of the mortgage situation, HARP 3 is necessary. At some point, whether it’s a HARP 3, 4 or 5, the basic economics are going to dictate that the ability to refinance into a lower interest rate should be afforded to all Americans. I don’t know if it needs to be a 28th Amendment, but since Congress can’t remember how to build a budget I’d rather not consider the war over a new Amendment. The Real Estate sector accounts almost 19% of the US Economy. Considering how beaten down our economy has been in recent years perhaps something radical is required. HARP 3 needs to be a unified refinance program. Perhaps the FHA or Fannie/Freddie is not the solution, as has been rumored, but the US Government owns another source of funding: the USDA.  Since USDA is exempt from many state laws it’s foreclose process is simpler, thus making it more attractive in the MBS markets – and no MIP, simple and complete.”

Speaking of HARP III, here’s Part II of a little write up, near the top right corner: www.stratmorgroup.com.

How do Ops and compliance folks keep up with things? Here are some somewhat recent investor/agency updates. As always, it is best to read the actual bulletin, but this will give one a flavor for what is happening out there. In no particular order…

The FHA has issued a few reminders about the source reference and data elements for 203(k) transactions in FHA Connection for insuring.  The values in “Est. Value of Property” (line C3 on the conditional commitment section of the 203kWS); FHAC, Appraised Value; and FHAC, Escrow Amount should be used to obtain the correct LTV at the time of insuring for Purchases or Refinances.  For more 203(k) loan program resources, there’s an online reference guide at http://portal.hud.gov/hudportal/HUD?src/program_offices/housing/sfh/203k/203kmenu.

Freddie Mac announced that, beginning November 26, the GSEs’ respective electronic delivery systems will deliver a fatal or critical edit when the data for ULDD Sort IDs 525 (appraisers’ state license), 627 (loan origination company), and 634 (loan originator) is not delivered.  Freddie has also issued a reminder that, under Dodd-Frank, the GSEs are all required to publicly disclose information on ABS loan repurchase requests, including the identity of whoever is funding the applicable mortgage.  As such, lenders will need to supply ULDD data points Sort IDs 641.1 (“NotePayTo”) and 641.2 (the name of the entity funding the mortgage as listed on the note).

The ULDD transition period, of which we’re currently in the middle, will come to an end on July 23, when the requirements of Phase I will go into effect for loan deliveries whose applications are dated December 1, 2011 or after.  Freddie encourages making the transition as soon as possible by entering the date on which the application was received along with all data required for Phase I.  All data entered for relevant loans should match the appraisal data entered into the UCDP.  Fannie’s website features a number of resources to help with the transition, including ULDD tutorials (http://freddiemac.sparklist.com/t/410575/4682831/4967/35/), selling and delivery training tools (http://freddiemac.sparklist.com/t/410575/4682831/1627/36/), a list of key program milestones (http://freddiemac.sparklist.com/t/410575/4682831/4747/37/), and an interactive webinar on the new selling system functionality (http://freddiemac.sparklist.com/t/410575/4682831/4876/34/).

Wells Fargo Correspondent has updated its cooperative LTV ratios, reducing the LTV/TLTV/CLTV maximum by 5% for conforming loans on primary residences as of June 18th.  Fannie HomePath Program loans submitted to Wells will not be affected by the changes.

Correspondent clients are reminded that all loans submitted for purchase on or after June 11th must list the originating company’s main company NMLS ID on the Universal Residential Loan Application (a.k.a. Freddie Mac Form 65 and Fannie Mae Form 1003).  Submissions that only list the originating company’s Branch NMLS ID will no longer be accepted.  For companies in Delaware, Maine, and Missouri that don’t have a Company NMLS ID, the appropriate Agency Assigned Code should be used.

As per Uniform Delivery Dataset requirements, Wells is required to report the year that a property purchased with an agency loan was built, regardless of whether an appraisal was conducted for the transaction.  Conventional loans for which the appraisal or loan application doesn’t supply the year built will be suspended.  This applies to conventional Conforming and Non-Conforming loans whose applications are dated December 1, 2011 or after.

Loans received by Wells Fargo Wholesale are required to have The Record of Account (Box 6C) ticked on the 4506-T Transcript of Tax Return.  This is necessary for the loan to move to the Underwriting Department.  Clients are also reminded that the Return Transcript (Box 6A), Record of Account (Box 6C), Form W-2, the Form 1099 series, and Box 8 of the Form 1098 series must all be checked and completed as necessary.

New pricing is in effect for FHA and VA loans that locked or re-locked with Wells Wholesale on or after May 21st; loans locked prior to this should be renegotiated accordingly.  While pricing was previously based on GNMA I or II identifiers, the identifiers are no longer selectable, and there is only one government price on display.  Interest rates are now available in 0.125% increments.  Temporary Buydowns on 15-year fixed-rate FHA and VA loans, previously not allowed, are now being accepted, and the High Balance FHA Loan Program is being allowed with 15-year fixed rate, 30-year fixed rate, 5/1 and 3/1 ARM transactions.  The High Balance VA Loan Program is allowed with 15-year fixed rate and 30-year fixed rate transactions with amortization terms between 20 and 30 years, as well as 5/1 ARMs with margins of 1.75.  The relevant borrowers are required to qualify at the Note Rate apart from exceptional circumstances.

Wells Wholesale has improved the pricing adjusters for Freddie Mac Relief Refinance Mortgage 20-year fixed rate loans with LTVs over 125%.  The adjuster for primary residences has been updated from 1.625 to 1.375; for second home/investment loans, the adjuster has been changed from 3.125 to 2.875.

And rates continue to avoid being a source of complaint from anyone. Yesterday the U.S 10-yr T-note hit 1.63%. Prices on 30-year Fannie 3.0%, 3.5% and 4.0% coupons hit new price highs respectively of 102.25, 104.75, and 106.375 per Tradeweb – and when you add on a little servicing value those are some hefty premiums! And originators should remember that just because agency MBS prices rally doesn’t mean those price moves are passed on to rate sheets – most lenders are being somewhat conservative for reasons discussed a few weeks ago in this commentary. But mortgage rate sheets are almost back to where they were on May 18th – it seems that no points loans at 3.75% for 30-yr and 3% for 15-yr are where the market is. As we all know, Wednesday’s prices were driven by the ongoing crisis in Europe which will be with us for years.

At these lofty price levels, if you were a servicer, would you want to own mortgages with rates above 4.25%? If you were a borrower, would you be waiting to refinance? If you were a lender, would you be worried about the margin calls on your hedged pipeline while also being concerned about fallout/renegotiation? The answers, of course, are “no”, “no”, and “yes”. In the meantime, LO’s and well run mortgage companies can’t believe their good fortune despite all the hassles of actually moving a loan from application to funding.

Continuing with the markets, this morning we had the ADP Employment report of May, always of questionable predictive ability for tomorrow’s government unemployment data, which came in at +133k (lower than expected). And April was revised downward. We also had the weekly Initial Claims (5/26), up 10k to 383k. Other economic news consists of the preliminary reading on Q1 GDP (+1.9%, lower than expected) and at 10AM EST is the Chicago PMI index for May. In the early going the 10-yr is down to 1.60% and MBS prices are better .125-.250.

Puns (Part 3 of 4)
I got a job at a bakery because I kneaded dough.
Haunted French pancakes give me the crepes.

My Dad was a bankrupt doctor right after med school – he had no patience.
Velcro – what a rip off!
Cartoonist found dead in home. Details are sketchy.
Venison for dinner? Oh deer!
Earthquake in Washington — obviously the government’s fault.
Be kind to your dentist. He has fillings, too.
I used to think I was indecisive, but now I’m not so sure.

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Flood Insurance Program Gets Another Two Months

Lawmakers on Capitol Hill moved to keep the federal government’s flood-insurance program running for another two months, giving Congress more time to finish a long-term overhaul that aims to shore up the program’s finances.

Flood Insurance Program Still in Limbo

The long-running struggle to figure out the future of a federal program that provides insurance to homeowners in flood-prone areas is continuing, apparently without any end in sight.

GE De-banks MetLife; Bank of America and Turbulent Times; PHH’s Financial Condition; Two Banks’ Housing Market Forecasts

Overheard
recently: “I love Christmas lights – they remind me of some co-workers.
They all hang together, half of them don’t work, and the ones that do aren’t
that bright.” But there lots of very bright people in the mortgage
business, and some wonder about the general common sense level of those in
Washington. Take HR 2055 for example. The While house signed HR 2055 which gives $1 trillion to extend
the National Flood Insurance Program through May 31, 2012
, which should
give Congress enough time to put a permanent law in place. That is good news. But
can they really put something in place prior to May 31 that helps the program?
Or will the American public, which includes those to whom flood insurance is
very important, witness another last minute compromise, see an approval tied to
a totally unrelated bill, or see “the can kicked down the road” yet
again? Let’s hope it is the first.

Bank of America’s problems are well
documented
. I did not have the time or inclination to go back and check
famous CEO quotes from Countrywide, WAMU, Lehman, Taylor Bean, and so on, but
“We’re prepared for turbulent times” seems to ring a bell.
Marty Mosby, managing director at Guggenheim Securities, said Bank of America
might have to raise $45 billion over the next several years to de-risk its
balance sheet. “The real risk really comes from the overhang we get from
Countrywide,” Mosby said, noting that mortgage putbacks and home-equity
products could be among the biggest risks for the lender. “Those are
products that are still here domestically, the ones that have the most potential
stress if we were to dip into another recession,” he said.

Long-time
industry vet A.B. writes, “Conduit margins are high right now, leaving
sellers with the choice of either investing in the servicing assets they create
or selling them cheaply, at least by the standards of the last ten years or
so.  I believe the primary reason
that conduit margins have widened to the extent that they have stems from BAC’s
decision to exit the correspondent and wholesale channels.
  However,
to my thinking the corollary statement is that by exiting these channels and
allowing Wells, Chase and others to book extra-normal profits, it may well be
that the net effect of BAC’s decision to exit will be to set-up yet another
situation in which it will appear to materially under-perform its competitors.
The competitive dynamic has changed, with BAC in the conduit space margins were
normal and no one competitor got rich; without BAC the remaining competitors
get to juice up their profit margins by paying less for purchased assets and by
becoming more selective about the assets that they will purchase.  By
exiting, BAC made the strategic misstep of ceding higher margin business to its
competitors because it apparently didn’t expect that margins would expand upon
its exit or, if it had such expectation, it underestimated the magnitude and
persistency of such margin expansion.  In the dead pool that I am in, I
have Brian Moynihan being ousted one day prior to BAC’s next quarterly earnings
report.”

“MetLife
& GE, sittin’ in a tree…” General
Electric Co.’s finance arm agreed to buy the U.S. retail-deposit business of
insurer MetLife
, in a deal that matches the life insurer’s desire to get
out from under federal regulation with GE’s pursuit of a more-reliable funding
source. The acquisition will bring GE Capital $7.5 billion in deposits as well
as MetLife’s online-banking platform. The deal, expected to close in mid-2012,
will speed GE’s new effort to attract more individual savers and further reduce
its reliance on potentially volatile financial markets for funds. As we know, MetLife
put its banking operations on the block in July in hopes of getting out from
under the regulation of the Fed. GE considers its current lending channel to be
a core business. The deal with MetLife will boost GE Capital’s existing U.S.
deposit base of $23 billion by about a third and help support its commercial
lending business. GE Capital paid less
than $100 million for the MetLife operation,
at the low end of the usual
range for such deals, which typically command a price equal to 1% to 3% of
deposits. Here is the scoop on the banking deal, although I don’t know any
specifics on the mortgage operation.

How are
mortgage folks and Realtors supposed to reconcile headline stories like,
“Sales of newly built, single-family homes edged up 1.6% to a seasonally
adjusted annual rate of 315,000 units in November – the third consecutive
monthly gain in new-home sales and the fastest pace of such activity since
April” and “The Office of the Comptroller of the Currency (OCC)
reported that the number of new foreclosures increased by 21.1% during Q3, as
servicers lifted voluntary moratoria implemented in late 2010 and exhausted
alternatives to foreclosure for the large inventory of seriously delinquent
mortgages working through the loss mitigation process. The increase in new
foreclosures and the increase in average time required to complete foreclosures
sales has resulted in the number of foreclosures in process increasing to 4.1%
of the overall portfolio, or 1,327,077 loans, at the end of the third quarter
of 2011”?

Comerica Bank takes a stab at it. “Residential real
estate markets are looking a little better as both construction of new homes
and sales of existing homes ticked up in November.  Improving consumer
confidence and gradually tightening labor markets look like they are helping to
build a foundation under housing. Of course the firmest support to the
foundation would be improving sales prices and that has not happened yet. 
Prices still look soft for most market
areas, sagging under the weight of bloated inventories of distressed homes for
sale
.”

Over at Wells Fargo, according to the National
Association of Homebuilders/Wells Fargo Housing Market Index (HMI), builder
confidence continued to show gains in December, the third consecutive monthly
increase and the highest level since May 2010. Starts and permits have also
perked up, with single-family starts up 4.6 percent on a year-ago basis in
November and permits up 3.6 percent over the same period. “The increases mirror
improvement in construction outlays and sales, which have also seen gains in
the past few months. While the increases are promising, we do not believe a ‘genuine’ recovery in housing activity has begun.
Indeed, the major obstacles that have troubled the housing market over the past
few years still remain intact, including the oversupply of single-family homes
and mounting distressed transactions.  We
expect home prices to come under additional pressure this winter, as more
foreclosures come on the market during the seasonally slow sales period.
Appraisals are likely to remain conservative for at least the next year, or
until the mountain of foreclosures hanging over the market finally clears.”

By the
way, anyone looking for the MBA
application index
today will be disappointed: the MBA offices are closed
all week and next Monday, so the survey results will next be released on
1/4/2012 and cover two weeks.

Yes, PHH was downgraded by S&P,
and has seen its stock price falter. But the company has capital and financing
in place, as noted in its SEC 8K filing yesterday
. Excerpts include, “PHH has $9.8 billion
of financing arrangements in addition to revolving credit facility as of
December 21, 2011…PHH projects sufficient liquidity to retire its debt
obligations maturing in 2012 and support its ongoing business operations…With
the exception of the Fannie Mae early funding committed facility, none of the
Company’s committed financing facilities are subject to termination,
acceleration, modification,  collateral posting or adverse price changes
solely as a result of a downgrade of the Company’s unsecured debt ratings below
investment grade.”

The 8k
goes on. “The mortgage operation has $6.5 billion of financing facilities and currently
maintains 13 separate mortgage-related financing facilities.  The Company
primarily uses warehouse and gestation facilities to fund closed loans that
have been pre-sold on a committed basis to, or sold pursuant to programs
sponsored by, Fannie Mae, Freddie Mac and Ginnie Mae. Mortgage warehouse
facilities are generally structured as 364-day repurchase agreements and are
essentially collateralized borrowings with loans originated by the Company
serving as the underlying collateral.  As secured financings, the advance
rate and financing cost under such facilities are primarily based on the historical
quality and performance of the Company’s loan originations rather than the
Company’s unsecured debt ratings…Due to the recent Standard and Poor’s ratings
action, Fannie Mae may terminate or modify its $1 billion committed early
funding facility or waive its termination rights and continue to provide such
funding on a committed or an uncommitted basis.”

Have you
ever heard of Wallick & Volk? I
must admit that I had not, although the mortgage company has been around a long
time, and is expanding in the western U.S. Although it has a fair amount of
fluff, here is the PR piece.

Above the
commentary discussed the expected continued rocky housing market, and this was
supported yesterday by the S&P/Case-Shiller 10-City Composite falling 1.1%
in October, and dropping in 19 of 20 cities tracked for another index.
Optimists suggest that at least the downward trend may be slowing, if only by a
bit.

The
markets were pretty much dead in the water yesterday, although there is
continued concern about Europe, which will be with us for months if not years. There
was “solid” origination from mortgage banks which was easily absorbed through
Fed buying and insurance company, REIT, and money manager buying. With no news
today it could be pretty quiet.  MBS have moved up in morning trading.

If you
were going to be hiking in Bear Country up in the mountains what size pistol
would you carry? What is the smallest caliber you trust to protect yourself?
My personal favorite bear defense gun has always been a little Beretta Jetfire
in .22 short!
I’ve found over the years when hiking in bear country I never leave without it
in my pocket.
Now you might think you need some huge cartridge gun like a .357 magnum. Nope –
a little .22 will work just fine.
I remember one time hiking with my brother-in-law in northern Montana.
Of course we all know the first rule when hiking in the wilderness is to use
the “Buddy System”.
For those of you who may be unfamiliar with this it means you NEVER hike alone,
you bring a friend or companion, even an in-law, that way if something happens
there is someone to go get help.
Out of nowhere came this huge brown bear and man was she MAD! We must have been
near one of her cubs.
Any way if I had not had my little Jetfire I’d sure not be here today.
That’s right, one shot to my brother-in-law’s knee cap and I was able to escape
by just walking at a brisk pace.
That’s one of the best pistols in my safe!

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 the time
frames for borrowers returning to A-paper status after a short sale or
foreclosure. 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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