Borrower Behavior and Loan Statistics of Interest; Ally/Rescap Update; Chatter on Agency’s Future

The United
States is an amazing place – everyone is different! But here’s an interesting
chart someone sent me on state’s teen pregnancy rates, and some interesting
comments below it: http://boingboing.net/2012/04/16/u-s-teen-pregnancy-drops-shar.html.

Knowledge
is power – just think of all the data that is contained in title companies,
MERS, national appraisal companies, loan origination systems, and so forth. When one looks at all the data out there,
some interesting trends emerge
. For example, the National Association of
Realtors (NAR) has analyzed 2011 investor behavior, and, as LO’s can tell you,
there was a significant rise in
non-owner purchases last year
. Investors purchased 1.23 million existing
and new homes, an increase of 64.5% from 2010, and investment home sales
comprised 27% of all activity, an increase of 17%.  Nearly half of investor purchases were made
in cash, and half were distressed homes. 
The regions that saw the most activity were the South (41%) and West
(23%), while purchases in the Midwest and Northeast made up 17% and 15% of the
total, respectively.

A recent
study conducted by TransUnion has revealed that, when faced with credit card,
auto loan, and mortgage debt, the
typical troubled borrower is most likely to let their mortgage payments slip
.
Four million indebted borrowers were surveyed (that’s a lot of dinner-time phone
calls!), and a mere 9.5% of those were delinquent on auto loans, while 17.3%
were delinquent on credit card payments. 
Nearly 40% of the borrowers polled were behind on their mortgage, opting
instead to pay auto and credit card loans.

January saw more short sales close
nationally than foreclosures for the first time
, meaning that banks were agreeing to
more deals. Short sales accounted for almost 24% of home purchases in January
versus about 20% for sales of foreclosed homes. (In January 2011 it was 16 and
23%, respectively.) Depository banks were never designed to be landlords, hold
real estate, or voluntarily swallow losses on thousands or millions of homes.
But they can process short sales in less time and at significantly less cost
than foreclosures, leading to fewer foreclosures on the market, leading to
fewer distressed properties on the market.

Lastly, Ellie Mae released a report using a
sample of loan application data from its database for March compared to
February 2012 and September and December 2011. 
(Ellie Mae States that there were two million loan applications
processed through its systems in 2011.) In March, 61% of originations were for refinancing,
about the same as three and six months previous but down from 67% in February. FHA-backed
loans accounted for 28% versus 64% for conventional. A typical loan regardless of its purpose took 42 days to close in March,
about the same as in February but down three to five days from December. The
majority of loans that went through Ellie Mae were 30-year fixed-rate loans but
20% were 15 year and about 4% were ARMs. 

In a stat
of great interest to secondary marketing folks, Ellie Mae calculated a “pull-through” rate for a sampling
of loans for which applications had been submitted 90 days earlier. The pull
through for March was 47%: 56% for purchases and 42% for refi’s. The average loan closed in March had a FICO
score of 749, an LTV of 77% and a DTI of 23/35.
(Loans that were denied had
an average FICO of 699, 85% LTV, and a DTI of 27/43.)

Bank of
America is gone from wholesale and correspondent lending, but a) are still a
huge retail force, and b) still dealing with legacy issues from its poorly executed
Countrywide purchase (in comparison to Wells swallowing Wachovia & World
Savings). BofA said first-quarter profit
rose amid a rebound in trading and lower provisions for bad loans
. Profit
excluding certain one-time items increased to 31 cents a diluted share from 23
cents a year earlier, better than expected. Net income, which includes
accounting charges, fell to $653 million from $2.05 billion. For mortgage
originations, its market share has plummeted from about 25% in 2007 to 5% or
less in recent quarters. Of great interest is how much of the HELOC portfolio
will be reclassified into NPAs (due to the change in regulatory guidance that
requires HELOCs with high LTVS over 100% be reclassified as an unsecured loan).
The guidance is expected to impact $2B of existing loan volume.

In other
big-bank news, Ally Financial announced that
it’s wholly owned subsidiary Rescap did not make a scheduled interest payment

on its 6.5% notes due April 2013 ($473mn outstanding). Rescap now has a 30-day
grace period before creditors can accelerate the debt and declare an event of
default. Most believe Rescap’s bankruptcy is eminent. We all know that chatter about
a potential restructuring and/or bankruptcy filing by Rescap has been prevalent
for a few years now – darn those mortgages originated between 2005 and 2007. Recently
debt has been extended or renegotiated. Barclays
points out that “according to the PSAs that govern Rescap-serviced RMBS trusts,
the trustee has the option to terminate the master servicer’s rights and
obligations if the master servicer (Rescap) becomes insolvent. The trustee
would be required to terminate the master servicer’s responsibilities if
directed to by 51% or more of the certificate holders. The trustee would then
succeed to the master servicer’s role and be entitled to a similar compensation
arrangement.” Things become even more complicated, based on the trustee, primary
servicer, master servicer, and which deals are impacted by this, how the
servicer settlement factors into the situation, and which servicing assets can
be split. There are a lot of moving pieces that make my head spin, mostly
focused on the impact to investors rather than the origination universe.

Bloomberg reported on the latest
Treasury “fix” for Fannie Mae and Freddie Mac.
Once again, it raises the question
about what will require Congressional approval and what won’t, because if any
major change requires Congress to vote on it, nothing will happen until early
2013. In February of 2011 the Treasury released a “white paper” various options
for the agencies, and it seems that the
Treasury has focused on Option 3 (sounds like a science fiction movie title)
which has the greatest role for the government.
In a move that may be used
to gauge public opinion, U.S. Treasury officials are leaning toward recommending
that Fannie Mae and Freddie Mac be replaced with a government safety net for
the mortgage finance system and continued federal backing for loans to
lower-income homebuyers. Some believe that the uncertainty surrounding the
future of the mortgage finance system has impeded the rebound of the housing
market and the private housing-finance market.

Option 3
is where the government would supply “assistance for low- and moderate-income
borrowers and catastrophic reinsurance behind significant private capital, private
companies could insure mortgage bonds, with the government paying out to bondholders
only after shareholders were entirely wiped out. Also on the table are
proposals about a government-run “secondary market facility” for residential
mortgages to replace Fannie & Freddie, or replacing the GSE’s with privately-capitalized
entities that would purchase government backing for the mortgage bonds they
issued. But at this point it appears that the Treasury is leaning toward trying
to reduce the government footprint on housing – good luck with that one.

Pricing models
everywhere are reeling (maybe that’s too strong of a word) from Wells Fargo’s changes, especially in
the mandatory sales world. The bank distributed a new mandatory pricing tool
with higher guarantee fees (about 2
basis points in yield which is about 11 basis points in price) that impact the
buy-up and buy-down multiples. Originators selling to Wells under a best
efforts scenario saw this hit about a month ago, but sellers are warned that
another hit will impact July deliveries/agency contract renewal.

Conversely,
word from the street suggests that there will be improvements to the Fannie 30-year, fixed-rate, Refi Plus >125% HARP
2.0 whole loan pricing model
. Five months ago Fannie provided guidance that
it would initially price the >125% LTV product originated under the expanded
HARP program at the same price as 15-year and 30-year fixed rate mandatory and
best efforts whole loan pricing. But with the recent sales of MBS’s backed by
this product, settling in June, it has become evident that a market has
developed for the 30-year >125% LTV product (which traders have given a “CR”
prefix). So Fannie adjusted its whole loan pricing to reflect current market
conditions.

Wednesday
was another decent day for folks who prefer non-volatile markets. Traders
reported that MBS volume was below normal, while the usual culprits were in
buying: banks, REITs, insurance companies, and hedge funds, along with the Fed.
By the time the whistle blew, MBS prices ended higher by about .125, and the
“benchmark” 10-yr T-note was better by about .250 (1.98%). Thursday
morning we have the usual Jobless Claims (expected to drop to 370k from 380k,
but it “dropped” to 386k from a revised 388k) with Existing Home Sales for
March (called higher to 4.62 million from 4.59 million), Leading Economic
Indicators (expected to drop slightly), and the Philly Fed Survey. At 11AM EST
the U.S. Treasury Department will announce details of next week’s auctions of
2-, 5- and 7-year notes, estimated unchanged at $99 billion. But when it comes
right down to it, none of this is expected to move rates too much, so perhaps,
barring some unexpected event, we’ll end about where we start off rate-wise. This morning we’re starting off with the
10-yr, as a proxy for interest rates in general, at 1.96% and MBS prices
roughly unchanged.

The
Jury…

In a
criminal justice system based on 12 individuals not smart enough to get out of
jury duty, here is a jury to be proud of:

A
defendant was on trial for murder.  There
was strong evidence indicating guilt, but there was no corpse. In the defense’s
closing statement, the lawyer, knowing that his client would probably be
convicted, resorted to a trick.

“Ladies
and gentlemen of the jury, I have a surprise for you all,” the lawyer said
as he looked at his watch.  “Within
one minute, the person presumed dead in this case will walk into this
courtroom.” He looked toward the courtroom door.  The jurors, somewhat stunned, all looked on
eagerly.           

A minute
passed.  Nothing happened.             

Finally
the lawyer said, “Actually, I made up the previous statement.  But you all looked on with anticipation.  I, therefore, put it to you that you have a
reasonable doubt in this case as to whether anyone was killed, and I insist
that you return a verdict of not guilty.”

The jury
retired to deliberate.   A few minutes
later, the jury returned and pronounced a verdict of guilty.         

“But
how?” inquired the lawyer. 
“You must have had some doubt; I saw all of you stare at the
door.”

The jury
foreman replied:

“Yes,
we did look,

But your
client didn’t.”

 

…(read more)

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March Loan Statistics Detailed in Ellie Mae Report

The second edition of a new report looking in depth at the mortgage origination market was released today by Ellie Mae.  The report for March reviews and compares data amassed from loan applications in its database for March compared to February 2012 and September and December 2011.  Ellie Mae States that there were two million loan applications processed through its systems in 2011 and the survey is based on a “robust” sample of those applications. 

The report outlines the characteristics of the loans for each of the four monthly periods.  Because of the volume of data contained in the report, we will summarize figures for February and note any substantial variations from the three earlier periods.

Sixty-one precent of loans originated in March were for the purpose of refinancing, about the same as three and six months previous but down from 67 percent in February.  FHA-backed loans accounted for 28 percent and conventional loans for 64 percent of the total compared to 25 percent and 67 percent in February.  A typical loan regardless of its purpose took 42 days to close in March, about the same as in February but down three to five days from December. 

The majority of loans were 30-year fixed-rate loans (FRM) but 20.2 percent were 15 year notes and 4.2 percent were adjustable rate mortgages (ARMs.)  The incidence of ARMs has decreased in each of the reporting periods since September when they had a 6.0 percent market share.  The average note rate for a 30-year FRM has declined steadily from 4.412 in September to 4.080 in March.

Ellie Mae calculated a “pull-through” rate for a sampling of loans for which applications had been submitted 90 days earlier.  The pull through for March was 47 percent with a higher percentage (56.4 percent) of purchase mortgages closing than loans for refinancing (42.1 percent.

The average loan closed in March had a FICO score of 749, a loan-to-value (LTV) ratio of 77 percent and a debt-to-income (DTI) ratio of 23/35.  A loan that was denied had a FICO on average of 699, an 85 percent LTV, and a DTI of 27/43.

 Jonathan Corr, chief operating officer of Ellie Mae said of the closed loan statistics, “In March, as we moved into the Spring selling season, underwriting standards for both purchase and refinance loans continued to be highly conservative.  The average loan denial in March still had a FICO score just shy of 700, and more than 15% in equity or a down payment.  On average, there was an 8-point spread between back-end DTI ratios for approved-versus-denied loans last month.”  Average denials for conventional refinances and purchases, he said, continued to have significantly higher FICOs, lower LTVs and more restrictive DTIs than the overall averages.

…(read more)

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