Applications Fall 5% during Holiday Shortened Week

Mortgage applications were down during
the week ended January 20 according to the Weekly Mortgage Applications Survey
conducted by the Mortgage Bankers Association (MBA).  The Market Composite Index, a measure of
application volume fell 5 percent on a basis that was adjusted seasonally and
to account for the week shortened by the Martin Luther King holiday.  On a non-seasonally adjusted basis the
Composite fell 13.8 percent from the previous week which ended January 13.

The
seasonally adjusted Purchase Index was down 5.4 percent and the unadjusted
Purchase Index 9.7 percent.  The latter
was 6.5 percent lower than during the same week in 2011.  The index measuring applications for
refinancing was down 5.2 percent. 

The
four week moving averages for all indices remained positive.  The Composite Index was up 4.12 percent, the
Refinance Index increased 4.85 percent and the seasonally adjusted Purchase Index
rose 0.47 percent.

Refinancing
continued to represent the majority of mortgage activity, falling slightly from
82.2 percent of all applications the previous week to 81.3 percent.  Applications for adjustable rate mortgages
were at a 5.3 percent level compared to 5.6 percent a week earlier. 

Looking
back at the month of December, MBA found that refinancing borrowers applied for
30-year fixed-rate mortgages (FRM) in 56.6 percent of cases and 24.3 percent of
applications were for a 15-year FRM.   ARMs represented 5.3 percent of applications in
December.  The
share of refinance applications for “other” fixed-rate mortgages with
amortization schedules other than a 15 or a 30-year term was 13.8 percent of
all refinance applications.

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

The average contract interest rate for 30-year FRMs with
conforming loan balances of $417,500 or less increased to 4.11 percent from
4.06 percent with points down one basis point to 0.47 point.  The effective rate increased from the
previous week.  The rate for jumbo
30-year FRM with balances over $417,500 decreased from 4.40 percent with 0.37
point to 4.39 percent with 0.40 point. 
The effective rate also decreased. 
The rate for FHA-backed 30-year FRM rose to 3.97 percent from 3.91
percent while points were down from 0.59 to 0.57 point.  The effective rate increased.

The
average rate for 15-year FRM increased to 3.40 percent from 3.33
percent, with points increasing to 0.40
from 0.39 and the effective rate increased as well. The rate for the 5/1 hybrid ARM was
up one basis point to 2.91 percent with points decreasing to 0.41l from
0.45.  The effective rate increased.

All
rates quoted are for 80 percent loan-to-value mortgages and points include the
application fee.

 The
MBA 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.

…(read more)

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District Court Upholds MERS Rights to Assign and Foreclose

Mortgage Electronic Registration
Systems, Inc. better known as MERS won a significant victory in court on
Tuesday as the U.S. Court of Appeals for the 11th Judicial Circuit validated
its rights to assign a security deed and/or foreclose on secured property.  The decision upheld the decision of the U.S.
District Court for the Northern District of Georgia in Smith V. Saxon Mortgage.

The plaintiff in the original case had
contested the foreclosure of her home on the grounds that:

1).   The assignment of the security deed was
invalid because MERS, as nominee of a defunct lender could not assign the documents
of its own volition.

2.
    The “splitting” of the mortgage and
the note rendered the mortgage null and void and therefore notices of
foreclosure were invalid as not coming from a secured creditor.

In the original District Court opinion in March 2011, U.S. Magistrate Judge
Janet F. King pointed to the standard language in the Georgia security deed
signed by all borrowers at closing which grants MERS the power to act on behalf
of the current and future owners of the loan. 
.   “Unless the instrument
creating the power specifically provides to the contrary . . . an assignee
thereof . . . may exercise any power therein contained,” Judge King wrote.
“[T]he Security Deed . . . transfers rights to MERS, and MERS’ assigns may
exercise any power contained therein.”

The 11th District Court which has jurisdiction over federal cases
originating in the states of Alabama, Florida and Georgia, agreed with Judge
King’s recommendation.  “It is not
disputed that plaintiff executed the Security Deed which granted MERS the power
to sell the Property, if plaintiff was not able to comply with the terms of the
Note,” Senior U.S. District Judge William O’Kelley wrote. “Furthermore, the
Security Deed expressly states that it applies to MERS ‘[and] to the . . .
assigns of MERS.’ Pursuant to the terms of the Security Deed, MERS had
authority to assign the Security Deed.”

MERS issued the following statement in response to the District Court
decision. 

“A significant body of clear and specific federal case law is coming
together with this decision from the 11th Circuit Court of Appeals, along with
favorable rulings from the First, Fourth, Fifth, Eighth, Ninth, and Tenth circuit
appellate courts and U.S. District Courts in a number of states,” said Janis L.
Smith, MERSCORP’s vice president of corporate communications. “The 11th
Circuit’s ruling underscores the soundness of MERS’ business model by
solidifying the legality of MERS’ role in the security deed, explaining how
that role came about, and clarifying MERS’ power to act on behalf of the
lender.”

…(read more)

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FREE Accessibility Training Federal Design and Construction Requirements under the Fair Housing Act Friday, March 23, 2012, Portland, Oregon.

FREE Accessibility Training Federal Design and Construction Requirements under the Fair Housing Act Friday, March 23, 2012, Portland, Oregon.

OIG Finds FHLBanks Corrected Foreign Credit Exposure, more Supervision Needed

The Office of the Inspector General
(OIG) of the Federal Housing Finance Agency (FHFA) issued a report this morning
that was mildly critical of the FHFA’s oversight of Federal Home Loan Banks (FHLBanks)
granting of unsecured credit to European banks.   OIG said that extensions of unsecured credit
in general increased by the FHLBanks during the 2010-2011 period, even as the
risks for doing so were intensifying.

FHFA regulates the FHLBanks and has
critical responsibilities to ensure that they operate in a safe and sound
manner.  FHFA’s OIG initiated an
evaluation to assess the regulator’s oversight of the Banks unsecured credit
risk management practices.

Unsecured credit extensions to European
institutions
and others grew from $66 billion at the end of 2008 to more than
$120 billion by early 2011 before declining to $57 billion by the end of that
year as the European sovereign debt crisis intensified.  During this period extensions of unsecured
credit to domestic borrowers remained relatively static but extensions to
foreign financial institutions fluctuated in a pattern that mirrored the
FHLBanks’ total unsecured lending.  That
is, it more than doubled from about $48 billion at the end of 2008 to $101
billion as of April 2011 before falling by 59 percent to slightly more than $41
billion by the end of 2011.

FHFA OIG also found that certain
FHLBanks had large exposures to particular financial institutions and the
increasing credit and other risks associated with such lending.   For example, one FHLBank extended more than
$1 billion to a European bank despite the fact that the bank’s credit rating
was downgraded and it later suffered a multibillion dollar loss.

During the time period in question OIG
found there was an inverse relationship between the trends in lending to
foreign financial institutions and the Banks advances to their own members.  Since mid-2011 the extensions to foreign
institutions have declined sharply but the advances have continued their
longstanding decline.  OIG said it
appears that some FHLBanks extended the unsecured credit to foreign
institutions to offset the decline in advance demand and that they curtailed
those unsecured extensions as they began to fully appreciate the associated
risks.

At the peak of the unsecured lending,
about 70 percent of the FHLBank System’s $101 billion in unsecured credit to
foreign borrowers was made to European financial institutions and 44 percent
were to institutions within the Eurozone. 
About 8 percent of unsecured debt ($6 billion) was to institutions in
Spain, considered by S&P to be even riskier than the Eurozone as a whole.

Some banks within the FHL System had
extremely high levels of unsecured credit extended to foreign borrowers.  The Seattle Bank’s exposure to foreign
borrowers as a percentage of its regulatory capital was more than 340 percent
in March 2011; Boston was at 300 percent, and Topeka 360 percent.  All three had declined substantially by the
end of 2011 but Seattle and Topeka remained above 100 percent.

OIG said that the vast majority of the
Banks’ extensions of unsecured credit appeared to be within current regulatory
limits (although OIG said these limits may be outdated and overly permissive),
some banks did exceed the limits and OIG found the three banks (which for some
reason it treated anonymously) definitely did so and blamed that on a lack of
adequate controls of systems to ensure compliance.

OIG reviewed a variety of FHFA internal
documents during the 2010-2011 period during which it found the Agency had
expressed growing concern about the Banks’ unsecured exposures to foreign
financial institutions.  But, even though
FHFA identified the unsecured credit extensions as an increasing risk in early
2010, it did not prioritize it in its examination process due to its focus on
greater financial risks then facing the FHLBank system especially their private
label mortgage-backed securities portfolios. 
In 2011, however, FHFA initiated a range of oversight measures focusing
on and prioritizing the credit extensions in the supervisory process and
increasing the frequency with which the Banks had to report on that part of
their portfolios.

OIG believes that FHFA’s recent initiatives
contributed to the significant decline in the amount of unsecured credit being
extended by the end of 2011.

The final findings issued by OIG in its
report are:

  1. Although
    FHFA did not initially prioritize FHLBank unsecured credit risks, it has
    recently developed an increasingly proactive approach to oversight in this
    area.
  2. FHFA
    did not actively pursue evidence of potential FHLBank violations of the limits
    on unsecured exposures contained in its regulations.
  3. FHFA’s
    current regulations governing unsecured lending may be outdated and overly
    permissive.

To correct
these deficiencies, OIG recommends that the Agency:

  • Follow up on any potential evidence of violations of
    the existing regulatory limits and take action as warranted;
  • Determine the extent to which inadequate systems and
    controls may compromise the Banks’ capacity to comply with regulatory limits;
  • Strengthen the regulatory framework by establishing
    maximum exposure limits; lowering existing individual counterparty limits; and
    ensuring that the unsecured exposure limits are consistent with the System’s
    housing mission.

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Pending Home Sales Rise; NAR Sees Tight Inventory Leading to Price Increases

Pending home sales in May bounced
back to match March numbers which were the highest seen in two years. The
improvement was broad-based, affecting every region in the country according to
the National Association of Realtors® (NAR). 

NAR’s Pending Home Sales Index (PHSI)
rose 5.9 percent in May from 95.5 in April to 101.1, equaling the index level last
March.  This was an increase of 13.3
percent from May 2001 when the index was 89.2. 
The last time the PHSI was higher than the March and May number was in
April 2010 when buyers were rushing to beat the deadline for the home buyer tax
credit.

The PHSI is a forward indicator
reflecting signed contracts for home purchases. 
The index does not include closing transactions which are generally
expected to occur within 60 to 90 days.

Lawrence Yun, NAR
chief economist, said longer term comparisons are more relevant.  “The
housing market is clearly superior this year compared with the past four
years.  The latest increase in home contract signings marks 13 consecutive
months of year-over-year gains,” he said.  “Actual closings for
existing-home sales have been notably higher since the beginning of the year
and we’re on track to see a 9 to 10 percent improvement in total sales for
2012.”

The national
median existing-home price is expected to rise 3.0 percent this year and
another 5.7 percent in 2013.

On a regional
basis, May pending sales in the Northeast increased 4.8 percent to 82.9, 19.8
percent above May 2011.  The pending sales number in the Midwest was 98.9
up 6.3 percent from April and 22.1 percent from a year ago.  The index for
the South increased 1.1 percent month over month and 11.9 percent year over
year to an index of 106.9.  In the West
the index jumped 14.5 percent in May to 108.7 and is 4.8 percent stronger than
a year ago.

Yun said that
low inventory could negatively impact some contract activity.  “If credit
conditions returned to normal and if we had more inventory, especially in the
lower price ranges, more people would become successful buyers.  In an
environment of historically favorable housing affordability conditions, it’s
frustrating to see some consumers thwarted in the process,” he said.

The low
inventory in some cases is because of the numbers of homeowners who are unwilling
to list their homes for sale because they are underwater on their mortgages.  Selling underwater homes requires that sellers
either bring cash to the table or undergo a lengthy and often frustrating short
sale process.  NAR estimates 85 percent
of homeowners have positive equity, with 15 percent in an underwater situation.

“Low inventory
can be cured by increasing new home construction,” Yun said.  He projects
housing starts to rise by 26 percent this year and another 50 percent in 2013.  “If housing starts do not rise in a meaningful
way over the next two years due to the difficulty in getting construction
loans, and barring an unexpected shift in the economy, the steady shedding of
inventory could lead to shortages where home prices could get bid up close to
10 percent in 2013,” Yun said.

…(read more)

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