Obama expands foreclosure prevention program

The Obama administration is taking another swing at improving its main foreclosure prevention program.

DeMarco: Principal Write-Downs Expensive, Benefits Uncertain

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Edward DeMarco, acting director of the Federal Housing Finance Agency

How far should the federal government go to stabilize the housing market?

Many Democrats say more should be done. That’s why there have been a series of calls of late from Democratic lawmakers on Capitol Hill and Federal Reserve officials to have government-controlled mortgage finance companies Fannie Mae and Freddie Mac reduce the value of borrowers’ mortgages for homeowners who are “underwater,” meaning that they owe more on their properties than their homes are worth.

Fannie and Freddie and their regulator, however, have resisted doing so, despite pressure from the highest levels of government.

Last week, the acting director of the Federal Housing Finance Agency, which regulates Fannie and Freddie, sent lawmakers a detailed analysis of why cutting loan balances doesn’t make sense from a financial standpoint, given the regulator’s mandate to “preserve and conserve” Fannie and Freddie’s assets.

The letter was requested by Rep. Elijah Cummings, the top Democrat on the House Oversight Committee.

Edward DeMarco, acting director of the FHFA, argued that doing so would cause taxpayers to spend more money on the mortgage giants’ rescue than other foreclosure-prevention strategies. Fannie and Freddie have been propped up by taxpayer support for more than three years, a rescue that’s cost taxpayers about $151 billion

“Any money spent on this endeavor would ultimately come from taxpayers and given that our analysis does not indicate a preservation of assets for Fannie Mae and Freddie Mac substantial enough to offset costs, an expenditure of this nature at this time would, in my judgment, require congressional action,” DeMarco wrote in the letter.

About 3 million borrowers with loans backed by Fannie and Freddie owed more on their homes than their properties were worth as of last summer. That’s about 10% of the loans they own or guarantee. A write-down of all 3 million of those mortgages would cost taxpayers $100 billion, Mr. DeMarco estimated.

Fannie and Freddie do offer forbearance plans, in which lenders don’t require any payments on a portion of the loan for up to 12 months. What they don’t offer is forgiveness, where that portion of the loan is wiped out.

Mr. Demarco, in his letter to lawmakers, said FHFA’s analysis concluded that “forbearance achieves marginally lower losses for the taxpayer than forgiveness, although both forgiveness and forbearance reduce the borrower’s payment to the same affordable level.”

In addition, Mr. DeMarco noted that Fannie and Freddie would face significant up-front technology and training costs to launch a principal write-down program.

“Unless there is an expectation that principal forgiveness will reduce losses, we cannot justify the expense of investing in major systems upgrades,” he wrote.

This position has put Mr. DeMarco at odds with many Democrats and some Federal Reserve officials. In a paper earlier this month, the Fed noted that, “Some actions that cause greater losses to be sustained by the [companies] in the near term might be in the interest of taxpayers to pursue if those actions result in a quicker and more vigorous economic recovery.”

However, Mr. DeMarco’s letter noted that “our determination has been based on projected economic costs to taxpayers, not short-term accounting considerations.”

Fannie and Freddie would also risk giving up money if they reduced loan balances because they could no longer recover money from mortgage insurers, which cover some losses for borrowers who have a down payment of less than 20%.

FHFA Releases GSE Home Retention Metrics

The two government sponsored enterprises
(GSEs) Freddie Mac and Fannie Mae completed nearly twice as many foreclosure
prevention actions
in the first quarter outside of the Home Affordable
Modification Program as they did through it. 
According to the Federal Housing Finance Agency’s (FHFA) Foreclosure Prevention Report for the
quarter, there were 111,739 home retention actions taken by the two
companies including 60,348 loan modifications, 44,636 repayment plans, 6,245
forbearance plans and 507 charge-offs-in-lieu. 
The modification figure includes just over 31,000 transacted through
HAMP. 

Approximately half of the loan
modifications resulted in a reduction in the borrower’s monthly payment of 30
percent or more.  FHFA has repeatedly stressed
that the larger the payment reduction the greater the chance the modification
will succeed.  Nearly all of GSE
modifications resulted in some combination of rate reduction, forbearance,
and/or term extension.  Servicers are not
allowed to do principal reductions as part of modifications of GSE loans
however FHFA said that nearly one-third of the loan modifications included
principal forbearance.

Home retention actions decreased in the
first quarter of 2012 as compared to the fourth quarter of 2011 from 120,698 to
111,739 and modifications (including those done through HAMP) were down by
almost 11,000. 

Total home forfeiture actions totaled
34,360 during the first quarter, down from 34,895 in the previous quarter.  Of this number 30,601 were short sales (down
from 31,785) and the remaining 3,759 were deeds-in-lieu of foreclosure, an
increase from 3,110.

The performance of modified loans
remains strong, especially among those modified after the first few years of
the foreclosure prevention initiatives. 
Fewer than 15 percent of loans modified in the second quarter of 2011
had missed two or more payments nine months after modification.

Delinquency rates for the GSEs continue
their slow decline.  Loans that are 30-59
days delinquent represent 1.7 percent of the portfolio down from 2.1 percent in
the previous quarter.  The 60+ day rate
is 4.2 percent, down from 4.5 percent and serious delinquencies are at 3.6
percent compared to 3.8 percent.

Delinquencies continue a wild state by
state variation.  Florida has by far the
largest number of delinquencies – over 270,000 with California not even close
at about 150,000.  Florida is also notable
for being the only state with a delinquency rate over 8 percent and for the number
of delinquent loans – 160,000 – that have been delinquent for more than one
year. 

An
interactive version of the map below is now available.   The new Borrower Assistance Map allows
state level access to information on delinquencies, foreclosure prevention
activities, Real Estate Owned (REO) properties and refinances for GSE
loans.   

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FHFA’s DeMarco Announces Timothy J. Mayopoulos as Fannie Mae CEO

Statement of FHFA Acting Director Edward J. DeMarco On Appointment of Timothy J. Mayopoulos as CEO of Fannie Mae:

“I am pleased that the Fannie Mae Board of Directors has selected Timothy J. Mayopoulos to become President and Chief Executive Officer (CEO) of Fannie Mae.  Tim brings a breadth of knowledge and experience in housing finance and financial services that is vital at this important time for Fannie Mae and the nation’s housing finance system.  I look forward to working with him on the next phase of the conservatorship and the efforts to transition beyond.

“In January, Fannie Mae announced that Michael Williams had informed the Board of his plans to step down as President and CEO after 21 years of service to the company.  I would again like to thank Mike for his leadership at Fannie Mae. 

“We applaud the Board’s selection and welcome Tim to this new role where he will lead efforts to continue strengthening Fannie Mae and provide critical foreclosure prevention services as we build the foundation for the secondary mortgage market of the future.” 

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Fed’s Vote Next Week on Basel III Will Impact Rate Sheets; Beazer to Form Rental REIT

Are politicians
always calm and collected and afraid to voice their opinion? Not necessarily – you
gotta check this out.
(You’d think those around him would show a little more interest…)

The north Atlantic hurricane season
begins today and lasts through Nov. 30
. The U.S. Census Bureau, who like
numbers, point out that about 37 million (12% of the nation’s population) live
in the coastal portion of states stretching from North Carolina to Texas – the
areas most threatened by Atlantic hurricanes. Last year there were “only” seven
hurricanes during the 2011 Atlantic hurricane season, four of them Category 3-strength
or higher with Irene being the only hurricane to make landfall. Speaking of
names, the Weather Bureau officially began naming hurricanes in 1950. Hurricane names rotate in a six-year cycle
with the 2012 list being a repeat of the 2006 names with “bad” storm names
being retired. For the first time since 1997, the World Meteorological Center
did not retire a storm name.

Speaking
of names, I’ve heard of a fish, but not a storm, named Wanda. And Wanda DeLeo is now Deputy Director of the
FHFA
,
and running a new office to implement its Strategic Plan for Fannie
Mae and Freddie Mac Conservatorships: the Office of Strategic Initiatives. Remember
that this is the plan which was sent to Congress is February established
objectives and steps for FHFA to take to meet its obligations as conservator of
the two government sponsored enterprises (GSEs).  Under the plan, the next
phase of the conservatorship will require FHFA to build a new infrastructure for
the secondary mortgage market, contract in a gradually manner the GSEs dominant
presence in the marketplace while simplifying and shrinking their operations, and
maintain foreclosure prevention activities and credit availability for new and
refinanced mortgages.

Europe is
probably getting vertigo from standing on the edge of the financial cliff for
so long, as a Chase trader put it. But that has not stopped Basel III, which impacts many things
including the ability for depositories to hold various amounts of servicing,
which in turn directly impacts servicing
values and rates/prices for borrowers
. The plan is going to be voted on
next week by the Federal Reserve.

The Wall Street Journal reports that “investors can buy stakes in malls,
apartment towers, timber forests and even cellphone towers through real-estate
investment trusts. Now, add to the list: single-family homes transformed into
rental properties. Beazer Pre-Owned Rental Homes Inc., which hopes to expand
beyond Phoenix and Las Vegas to at least one other, as-yet unidentified market.
Within two years, Beazer said the number of rental homes under the new REIT’s
control could number in the thousands.” Beazer
has formed a REIT that will buy and then rent single-family homes.
It, and
KKR, will eventually take the REIT public. Of course, a certain percentage of
the rentals are homes that Beazer built and sold originally, recently purchased
through foreclosure auctions, short-sales or other distressed home-buying
strategies. It is not the first – Paulson & Co., Starwood Capital Group and
Och-Ziff Capital Management LLC have expressed interest in gathering portfolios
of single-family homes with plans to rent them out until the market turns and
they can be sold for a profit.

The WSJ
story goes on. “The company said an initial public offering will come after the
company’s assets reach at least $150 million. REIT experts say that similar
companies could follow, especially if the Beazer venture is successful.
According to Census Bureau data analyzed by Green Street Advisors Inc., there
are about 25.5 million single-family rental properties, defined by Green Street
as houses with between one and four units in the country, compared with just 18
million rental apartments in buildings with five or more units.”

Investor
and MI changes just continue to flow through. What’s a mother to do? Reading
the actual bulletin is important, but here are some somewhat recent changes of
note:

Citibank has updated several of its credit
overlays.  Following a policy change in March, the section on FHA Loan
Limits has been removed, and the guidelines on Amended Subordinate Financing
have been clarified to indicate that they also apply to LP and LP Open Access.
Loans on PUD properties, both primary residences and investment homes, may be a
2-unit property and should be submitted to DU and LP as such; this affects
loans registered on or after May 19th.  In light of Fannie’s release of DU
Version 8.3 back in April, Citi will accept property values determined by DU if
the loan is eligible for a property fieldwork waiver.

Lenders registering their loans on the Citi Correspondent website will now find
additional fields that will allow for the registration of up to four borrowers,
including their respective FICO scores.

Citi has clarified guidelines on subordinate lien documentation such that when
the subordinate lien is refinanced concurrently with the first mortgage, the
note, security instrument, GFE, final TIL statement, HUD-1 Settlement
Statement, maximum permitted credit advance, and the HELOC Agreement where
appropriate must all be included in the final loan package.  Certain DU
and LP guidelines have been clarified as well.  DU will not take trade
lines that are reported as disputed (disputed accounts with multiple derogatory
payments, multiple disputed trade lines) into consideration for its credit
analysis.  The disputed trade line message won’t appear if there’s only
one disputed account with no derogatory payments, but the payment for the trade
line must be included in the debt ratios.  For LP Open Access, a
tri-merged report is preferable, but an in-file merged/joint credit report will
also be accepted.

Citi reminds clients that they are required to comply with the Fannie policy on
lenders’ reviews of the General Services Administration Excluded Party List or
the HUD Limited Denial of Participation List when it comes to hiring employees
involved in the origination process.  The same goes for the corresponding
Freddie policy.

A few more miscellaneous Citi reminders on documentation: lenders should supply
the appraiser with all the necessary financing data and sales concessions,
which includes the sales contract, primary and secondary financing terms,
gifts, and buydowns.  When documenting a borrower’s income, all
income-related schedules and forms must be provided (W-2s, 1099s, and the
like).  If the borrower has requested an extension to file their most
recent tax returns, a copy of the extension request should be provided along
with all filed tax returns from the previous two years.

In response to some improvement in the Florida, Arizona, and Nevada markets, MGIC is loosening up some of its
underwriting guidelines for these areas.  For borrowers taking out loans
of up to $625,000 on primary residences, the minimum credit scores has been
reduced from 720 to 700, and the maximum DTI for loans that are fixed rate for
at least the first five years has been increased from 41% to 51%.

Flagstar reminds clients that, for
all FHA table funded refinance transactions, its Funding Department must
receive all FHA Refinance pre-funding documents by the monthly deadlines so as
to meet all UFMIP refund and loan calculation deadlines (the next one is June
25th).  Funding requests should be submitted before closing and not during
the rescission period to ensure that lenders have enough time to review and
correct the HUD-1 settlement statement.  Funding will be cancelled if the
necessary documentation isn’t submitted in time, which will require the loan to
be resubmitted to Flagstar Underwriting for review and, in certain cases,
result in extra fees.  All funding requests should include a copy of the
“Notice to Settlement/Escrow Agent” closing form, RESPA 2010 compliant HUD-1
settlement statement, MDIA compliant TILs, completed GFE History-Broker, all
GFEs provided to the borrower, verbal VOE, transaction-specific Closing
Protection letter, E&O insurance, wire instructions on the agent’s
letterhead, hazard insurance, any other required insurances, and either the
short form title policy or title commitment.

As of Friday the 25th, Kinecta Federal
Credit Union
is no longer offering the 40-year amortization option for
Jumbo ARM loans.

“Hedge funds were active buyers of lower coupons, and, in Specified Pool space,
we saw good money manager demand for call protection 4.0s and low-pay up
3.5s.  The decline in longer-dated vol (2y10y down approx 2 normals on the
day) and shortage of afternoon supply (less than 500mm, to total 1.9BN on the
day) certainly supported the basis as well.  We are turning more negative
on 30yr 4.0s as the 3.625 primary rate has now re-appeared and the potential
for a 1.50-1.75% type 10yr environment seems more and more likely. The
refi-incentive for 4.0% coupon borrowers now becomes very real (which makes the
roll look that much richer).  Furthermore, 3.5s should become increasingly
attractive for investors looking to move down-in-coupon as 3.0s take on a
greater share of origination.”

What the
heck does that trader talk mean? It boils down to an explanation of why
investors are nervous about owning higher-coupon mortgages (anything going into
a 4% security). Yesterday’s fixed income security markets continued to improve,
thanks to European problems and weak economic news here, and our 10-yr note hit
a low of 1.57%. And with it came more
talk about Quantitative Easing 3 (QE3)
. Mortgage selling/volume picked up, but
although the 10-yr T-note improved by about .50 in price, mortgages lagged
somewhat improving by about .25, and lagged even more on consumer’s rate
sheets.

Today,
prior to the unemployment data, our 10-yr was down to 1.52%. Nonfarm Payrolls were
projected to increase to 150k from 115k with the unemployment rate holding at
8.1%. But Payrolls were only up 69k,
and the unemployment rate was 8.2%, up from April’s 8.1%. In addition, there
were some back-month revisions (March -11k, April -38k). Personal Spending was +.3%,
but really, this, and a few numbers due out later this morning, pale in
comparison to the disappointing employment data.

Jobs and
housing, housing and jobs…housing appears to be on the upswing in many places,
but we can’t have much of a recovery without more folks working. And, of
course, rates are great, but it is hard to qualify without a job. That being
said, folks who have a job, and who obtained a loan a few months ago, could be
ready for a refinance already! Soon
after the employment news the 10-yr dropped to 1.47% – look for a solid improvement
in MBS prices and in rate sheets.

Puns (Part
4 of 4)
I changed my iPod’s name to “Titanic”; it’s syncing now.
When chemists die, they barium.
I thought I made a mistake once, but I was wrong.
Jokes about German sausage are the wurst.
A soldier who survived mustard gas and pepper spray is now a seasoned veteran.
I know a guy who’s addicted to brake fluid. He says he can stop any time.
How does Moses make his tea? Hebrews it.
I stayed up all night to see where the sun went. Then it dawned on me.
This girl said she recognized me from the vegetarian club, but I’d never met
herbivore.
A guy got arrested for playing the guitar — for fingering A minor.
I’m reading a book about anti-gravity and I can’t put it down.

 

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