Google Ends Mortgage Ads; Streamlines to be Nixed from FHA Compare Ratios; Servicing Agreement Bumping Along

This is
Black (African-American) History Month. The event began as Black History Week
in 1926. For many years, the second week of February was set aside for this
celebration to coincide with the birthdays of abolitionist/editor Frederick
Douglass and Abraham Lincoln but then expanded in 1976 into Black History
Month. The 2010 census counted 42 million black (either a single ethnicity or a
combination of races) people in the U.S., nearly 14% of the population. Looking
at the states, New York had the highest population with 3.3 million blacks,
followed by Florida, Texas, Georgia, California, North Carolina, Illinois,
Maryland, Virginia and Ohio. In terms of percentages of overall state
population, Mississippi led the nation with 38%, followed by Louisiana (33),
Georgia (32), Maryland (31), South Carolina (29) and Alabama (27).

When NASA first started sending up astronauts, they quickly discovered that
ballpoint pens would not work in zero gravity.  To combat the problem,
NASA scientists spent a decade and $12 billion to develop a pen that writes in
zero gravity, upside down, underwater, on almost any surface including glass
and at temperatures ranging from below freezing to 300 centigrade. The Russians
used a pencil. There’s a lesson in that amusing tale for mortgage bankers and
Realtors – I just don’t know what it is. I do know that the definition of
“deleveraging” is, “The process or practice of reducing the level of
one’s debt by rapidly selling one’s assets.” As it turns out, Equifax reported
that U.S. consumers sharply reduced
their debts by 11% last year, from $12.4 trillion to $11.1 trillion.

This news
will prompt many lenders to throw a ticker-tape parade that will rival the NY
Giants football event today. HUD and the FHA have long promoted the FHA
Streamline Refinance as a useful tool to allow responsible homeowners to save
thousands of dollars by refinancing at today’s low interest rates. FHA-insured
borrowers must be current, and in theory they can refinance into today’s lower
rates without requiring additional underwriting. “However, it has become
apparent that some of our lending partners are reluctant to offer this product
widely because of concerns about taking
on the risk of a loan which they may not have underwritten and the potential
adverse impact such a loan may have on their FHA Compare Ratio
. In order to
expand the availability of this product for eligible borrowers, FHA will make
changes to the way in which FHA Streamline Refinance loans are displayed in the
Neighborhood Watch Early Warning System (Neighborhood Watch). Streamline Refinances will be removed from
the public compare ratio in Neighborhood Watch
, but lenders will still be
able to view their own traditional compare ratio (with streamlines included).”
The Announcement

All eyes
are on California as the deadline approaches for state officials to sign onto
the multibillion-dollar foreclosure abuse settlement.  As the largest remaining holdout,
California appears to leaning towards signing, which could potentially increase
the settlement from $19 billion to upward of $25 billion. New York seems
to be acting on the same lines
. (Do you think the AG’s are texting with
each other?) Part of the deal for these two states would be the preservation of
the right to investigate banks’ past misdeeds and adding regulation to ensure
that financial institutions adhere to the deal and that the money actually
reaches struggling homeowners.  As it stands now, the deal would allocate
$17 billion specifically for principal reductions and other relief for up to
one million borrowers whose homes are underwater. The 750,000 families
whose homes have been foreclosed would receive checks for about $2,000. A deal
has been in the making for the past 13 months, as the settlement has been
delayed on multiple occasions, so a lot is riding on the decisions of the
California and New York Attorneys General – if they do sign on, a finalized
deal will come much sooner than later.

As the
foreclosure abuses settlement deal finalizes people are getting a better idea
of the numbers involved.  The amount that home mortgage securities
investors will have to pay is now projected to be up to $40 billion, which,
according to the government, would act as a “down payment” for future principal
reduction initiatives from future settlements. The White House plans to
litigation as a key tool for procuring additional sums from large financial
institutions that will be used to further aid for struggling borrowers.  This
is part of a trend that has seen the Obama administration escalate efforts to
help US borrowers-in addition to the finalization of the foreclosure and loan
abuses settlements, a new state and federal unit has been created to
investigate mortgage-related fraud.

I will never be an internet mortgage marketing whiz kid. And I guess Google
thinks something similar – on the heels of several office closures, Google has discontinued its mortgage rate
advertising platform Google Mortgage Advisor after two years of operation

Apparently the decision was based on the product’s poor performance and a
company initiative to de-clutter by shutting down programs that aren’t as
successful as projected. Mortgage Advisor was discontinued in most US states in
November with the exception of Alabama, Alaska, California, Pennsylvania and
DC, though lenders who advertised on the platform and mortgage technology
vendors believed that the part closure was only temporary.  Google at the
time framed the decision as a strategy that would allow the company to better
focus on a smaller market, tweak the program as necessary, and then implement
the improved version on a national scale once more.  Lenders were
apparently not notified of the discontinuation and received a rather rude
surprise upon trying to log into their accounts… Some users believe that, poor
performance aside, the program was scrapped because (in the words of a former
customer who wanted to be kept anonymous) “mortgage is kind of a dirty word
across the industry.”   The fact that other Google Advisor product
searches like credit cards, certificates of deposit, and checking and savings
accounts still remain would suggest as much.

changes to the Home Affordable Refinance Program (HARP) present both
opportunities and challenges to lenders and services. DataQuick, a provider of
advanced real estate information solutions powered by data, analytics and
decisioning, has already responded with timely new offerings that quickly
identify eligible loan modification candidates. Through the application of
proprietary analytics on its nationwide property database, DataQuick has identified 6.7 million borrowers who meet the new
eligibility requirements and will most likely benefit from the revised program
Lenders and servicers can easily match their current portfolio to the database
to identify the best candidates for loan modification. HARP eligibility
requires that candidates have no late mortgage payments in the past six months
and no more than one late payment in the past 12 months.” Sounds pretty nifty –
for more information contact your DataQuick sales representative or Wendy
Barnett at (And nope, this wasn’t a paid ad.)

I am not
an expert in compliance, but this caught my eye: in the January 24th Federal
Register, HUD has proposed a rule  (ECOA/Reg B) that prohibits banks from
discriminating against borrowers based on ethnicity, religion, national origin,
gender, marital status, age (provided the applicant has the capacity to
contract), income from public assistance, or the exercise of any Consumer
Credit Protection Act.  The Fair
Housing Act prohibits discrimination on account of familial status or handicaps
These are very, very recent developments-both rules go into effect on March 5. 
It boggles the mind a bit, but better late than never, one supposes. The
January 24th Federal Register entry can be read by clicking

markets certainly don’t care about marital status or gender, and yesterday we
saw a nice little half-point rally (improvement) in the U.S.10-yr with it
closing at 1.90%. With no scheduled news in this country, Treasuries gained
today as “risk aversion” was back on worries about Greece. MBS prices improved from
nearly .5 on 30-year 3.0% coupons to just roughly unchanged on 4.5’s through 6.5’s,
as one would expect. And then overnight Greece’s main political parties
reportedly missed a deadline for responding to demands for more austerity
measures. Negotiations between Greece and its private creditors are on hold
while officials work on a rescue program with the EU, the International
Monetary Fund and the European Central Bank. Greece faces a 14.5 billion euro bond
repayment in less than six weeks. It won’t be able to make the payment without
international help.

Here in
the states, once again there is no news of substance although we do have a $32
billion 3-yr note auction at 1PM EST. Chairman Bernanke is scheduled to repeat
his recent testimony before the House Budget Committee to the Senate Budget
Committee beginning at 10AM EST, but don’t look for anything new. MBS Prices are down.

HIGH SCHOOL — 1957 vs. 2010 (Part 2 of 2)…

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January Housing Scorecard Released by HUD, Treasury

Departments of Housing and Urban Development (HUD) and Treasury issued the
administration’s January Housing Scorecard on Monday.  The report is essentially a summary of
data on housing and housing finance released by public and private sources over
the previous month and/or quarter.  Most
of the data such as new and existing home sales, permits and starts, mortgage
originations, and various house price evaluations have been previously covered
by MND. 

The scorecard incorporates by reference
the monthly report of the Making Home Affordable Program (MHA) through the end
of December.  This includes information
on the universe of MHA programs including the Home Affordable Modification
Program (HAMP), HOPE Now, and Second Lien Modifications and other initiatives. 

Since the
HAMP program began in April 2009 1,774,595 homeowners have entered into trial
loan modifications, 20,074 since the November HAMP report.  About half of these homeowners, 933,327, have
completed the trials and converted to permanent modifications; 23,374
conversions took place during the current report period.  Just over three-quarters of a million of the permanent
modifications are still active.

While the
HAMP program dates to April 2009, it underwent substantial revisions to its
policies and procedures in June 2010, and many of the measures of its
performance are benchmarked at that time. 
Eight-four percent of homeowners who entered a trial modification after
that date have received a permanent modification with an average trial period
of 3.5 months compared to 43 percent who entered a trial prior to the changes.  As of December, 21,002 of the active trials
had been underway for six months or more; in May 2010, the month before the
changes took place, 190,000 trials were six months old or more.  In December every servicer except Ocwen was
above an 80 percent conversion rate.

modifications with the largest reduction in mortgage payments continue to
demonstrate the lowest redefault rates.  At
18 months after modification all loans have a 90+ day default rate of 23
percent.  However, loans with a 20
percent or smaller reduction in loan payment are defaulting at the rate of 36.4
percent while loans with a 50 percent payment decrease or greater have a
default rate of 13.3 percent. 

The Home
Affordable Foreclosure Alternatives program offers incentives to homeowners who
wish to exit home ownership through a short sale or deed-in-lieu of
foreclosure.  Thus far 43,368 homeowners
have been accepted into the program and 27,665 transactions have been
completed, the vast majority through a short sale.  More than half of the completed transactions
(18,350) were on loans owned by private investors; 7,711 were portfolio loans
and 1,604 were GSE loans.

There has
been an emphasis in some quarters on reducing the principal balance of
distressed loans since the last HAMP report. 
Some members of Congress have asked for justification from the GSEs as
to why they were not participating in principal reductions and the Treasury
Department recently urged them to do so as well while tripling the incentives
it is paying to other investors to reduce principal.  The HAMP Principal Reduction Alternative
(PRA) has started trial modifications for 63,203 home owners and permanent
modifications for 42,753 of which 40,374 are still active.  The median principal amount reduced in these
modifications is $67,196, a median of 31.1 percent of the principal balance.

Each month
HAMP reports on selected servicer performance metrics.   Servicers
are expected to make Right Party Contact (RPC) with eligible homeowners and
then evaluate their eligibility for HAMP.  HAMP evaluated servicer outreach to 60 days
delinquent homeowners over the previous 12 months (November 2010-December 2011)
and found most services have made RPC at least 85 percent of the time; however
there is a wide range of performance results in terms of completed the evaluations.

are also expected to identify and solicit homeowners in early stages of
delinquency and, effective October 1, 2011, a higher compensation structure was
put into effect to reward servicers who complete evaluations and place
homeowners in a trial modification within 120 days of first delinquency.  The table below shows the status of major
servicers relative to their eligibility for maximum incentives.

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Reports Continue to Show Home Price Declines

CoreLogic and Lender Processing Services
(LPS) have each released their most recent Home Price Indices.  CoreLogic’s HPI covers December; LPS’s covers
the month of November.  Here is a quick
review of each.

LPS found that the average home price
for transactions during November was $199.000, down 0.6 percent from the
October average.  This is the fifth consecutive
month that this index has declined. 
Preliminary information on December sales indicates that the HPI might
have lost another 0.8 percent during that month.

When the market peaked in June 2006 the
total value of the U.S. housing inventory covered by LPS was $10.8
trillion.  The value has declined 30.6
percent to $7.5 trillion since that time.

Price changes were consistent across the
country, increasing in 13 percent of the ZIP Codes in the database.  Higher priced homes had somewhat small price
declines than those in the middle and low price categories with the range from
high to low covering only 13 basis points.

CoreLogic issues two sets of indices,
one including sales of distressed properties, the other excluding those
sales.  The HPI for all sales decreased
1.4 percent in December and was down 4.7 percent on an annual basis, the fifth
year in a row that this HPI has declined.   
The Index covering market sales was 0.9 percent higher than in December
2010 which, Core Logic says, gives an indication of the impact distressed sales
are having on the market.  The HPI excluding distressed sales posted its first month -over-month
gain since last July, rising 0.2 percent. 

the top 100 Core Based Statistical Areas as measured by population, 81 showed
year-over-year declines in November compared to 80 that were down on a monthly
basis in November compared to October.

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Housing Assistance 2012: Another Herculean Task for the FHA

Beginning the 37th month of his presidency, the Obama Administration today announced a laundry list of new programs to help struggling homeowners, crack down on abusive lending practices, make mortgage documents easier to read, convert REO to rental, and other assorted initiatives.  Some require Congressional approval; others are a work in progress, and a couple can begin quickly.
At the heart of the announcement is a broad new refinance program with the venerable FHA stepping in (once again) to help save the mortgage market by offering current but underwater non-FHA borrowers another lifeline.
Concurrently, the Administration appears to be on the verge of a broad-based “REO-to-Rental” initiative by announcing a pilot project to be led by FHFA, HUD, and Treasury.  I think the Administration is smart to move this initiative forward as they certainly have the political cover through last year’s RFI process.  They asked for comments and suggestions and reportedly received thousands of responses.  They can now say we are implementing what America said they wanted.   Of course, we do not yet know exactly how it will work.
Lawmakers and mortgage industry professionals have previously questioned whether or not FHA can handle yet another herculean task.  Recall in 2007 when the mortgage market sputtered and into 2008 when new higher loan limits were unveiled, FHA saw its share of the mortgage market jump exponentially in a matter of months. What was a $350 billion book of business in 2005 has today mushroomed to $1 trillion with more than 7.4 million homes with FHA insurance.
Since presumably these would be riskier borrowers (higher LTVs and underwater) it remains to be seen:

  1. If Congress will give FHA the authority to increase its current LTV caps.
  2. How OMB will “score” the proposal thus dictating the mortgage insurance pricing?
  3. Will proposed new bank fees and presumably higher premium revenue off-set the expected “cost” to FHA?

FHA is reportedly considering placing these loans in an insurance fund separate from its current Single Family books of business, but could ultimately require the FHA to invoke its “permanent indefinite” budget authority to keep it afloat (as opposed to the self-sustaining Mutual Mortgage Insurance fund).
That said, the Administration indicated the cost of these programs will “not add a dime to the deficit” and will be off-set by a fee on the “Largest Financial Institutions.”  (Note: Congress might have an opinion here.)
Since FHA has not in recent memory refinanced borrowers with LTVs in the 120-140 range (presumably one of the groups targeted by the Administration), I think it will be difficult to estimate the performance of these loans over time and thus their impact on FHA’s actuarial foundation regardless of which fund they place them in.  While the FHA “short re-finance” program announced in 2010 allowed a 115% CLTV, it has had very little participation thus making it difficult to gauge performance relative to what could be even higher LTV participants.
It should be noted that the Administration is targeting borrowers who have made 12 consecutive payments so one could argue that despite the fact they are underwater they have been able to afford their mortgage payments – presumably in some cases for several years.  So does that mitigate some of the potential risk meaning that they will certainly be able to afford reduced monthly payments?  But again, given FHA’s limited experience with borrowers outside their established guidelines and requirements predicting their performance with any degree of certainty is difficult at best.
And assuming those previously non-FHA borrowers default on their new FHA loan, who do you think will now be at-risk with an underwater property?  Again, the Administration stated these programs “will not add a dime to the deficit” – I hope they are right.
FHA’s actuarial soundness has been rocked by the on-going erosion of house prices nationwide which has led to three consecutive years of declines in their capital reserve ratio.  The best medicine for FHA is house price appreciation and the positive ripple effect of increased value to their housing portfolio.  But they have been waiting three years for that to happen.
Welcomed news as part of this new refinance program is they would be removed from an FHA lender’s compare ratio within Neighborhood Watch (FHA’s public database of lender’s default rates compared to its peers in a given geographic region).  That said, I suspect FHA will establish a separate category of compare ratios for this book of business, as it did for Negative Equity Refinances and the Hope For Homeowner (H4H) program.
So while this action will remove a potential barrier to participation, lenders should be cautioned that performance will still matter and they should stand ready for increased scrutiny especially by the HUD OIG.
I give the Administration credit for launching another round of housing assistance as too many homeowners continue to struggle.  Putting politics aside on the surface it appears to be the right and proper thing to do, however it remains to be seen the level of participation (and degree of Congressional acceptance) and ultimately what cost, if any, to the taxpayers – most of which have grown weary of the nagging housing crisis.
Note: We will continue to follow this initiative with keen interest as it makes its way through Congress and will offer periodic updates as developments warrant.

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WASHINGTON- The U.S. Department of Housing and Urban Development (HUD) and the U.S. Department of the Treasury today released the December edition of the Obama Administration’s Housing Scorecard – a comprehensive report on the nation’s housing market. Data in the December Housing Scorecard show some subtle improvements in the market over the past year, but underscore fragility as the overall outlook remains mixed. For example, new and existing home sales rose compared to the prior month and remain higher than a year ago, and homes are more affordable than they have been since 1971. Median-income families today have nearly double the funds needed to cover the cost of the average home. However, home prices showed a slight dip from the prior month and remain below year ago levels. The full report is available online at