Refinancing Apps Rise on Record Low Rates

Mortgage
rates broke another set of records during the week ended February 3,
establishing several new historic lows. 
In response, the seasonally adjusted Mortgage Bankers Association’s (MBA)
Market Composite Index, a measure of mortgage application volume, rose 7.5
percent and 8.7 percent on an unadjusted basis. 
  

The increases were
driven solely by refinancing which represented 80.5 percent of total applications for the week,
up from 80.0 percent the previous week. 
The Index measuring applications for refinancing increased 9.4 percent over
that of the week ended January 27 but the seasonally adjusted basis the
Purchase Index ticked up only 0.1 percent. The unadjusted Purchase Index was 6
percent higher than in the previous week and 4.1 percent lower than during the
same week in 2011. 

The four-week
moving averages for the seasonally adjusted Market and Purchase Indices were up 4.88 percent and 0.65 percent respectively and
the moving average for the Refinance Index rose 5.72 percent. 

Statistics for the
month of January indicate that investors played a slightly smaller part in the
purchase mortgage market than in December with the investor share of applications
for home purchase at 6.4 percent compared to 6.9 percent in December.  In
addition, the share of purchase mortgages for second homes increased to 5.9
percent in January from 5.4 percent in December.  The investor share of applications declined
in the West and East North Central regions. 

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

Both the average
contract interest rate and the effective rate for all types of mortgages with
loan-to-value ratios of 80 percent declined for the week and all fixed-rate
mortgages (FRM) reached new lows. 

  • Rates for 30-year FRM with onforming loan balances of $417,500
    or less
    decreased to 4.05 percent from 4.09 percent, with points increasing to 0.44 from 0.41 including the
    origination fee. 
  • Jumbo 30-year FRM, those with loan
    balances greater
    than $417,500,
    had averages
    rates of 4.29 percent with .43 point compared to 4.33
    percent with 0.41 point.
  • The rate for 30-year fixed-rate mortgages backed by the
    FHA decreased to 3.89 percent from 3.96 percent, with points increasing to 0.78
    from 0.61. 
  • Fifteen-year FRM had an average
    rate of 3.33 percent, down 3 basis points from the previous week and points decreased to
    0.37 from 0.41. 
  • The rate for 5/1 adjustable-rate mortgages (ARM) decreased to
    2.91 percent from 2.94 percent, with points increasing
    to 0.40 from 0.39. The ARM share of mortgage
    applications was up to 6.0 percent from 5.6
    percent the previous week.

MBA’s Weekly
Mortgage Applications 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.

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Foreclosure deal: Closer, but not there yet

States have until the close of the business day to agree to the latest draft deal aimed at relieving homeowners struggling with mortgages bigger than their home’s value.

MERS, Banks Sued by New York State; MERSCORP Responds

Three major banks and Virginia-based
MERSCORP, Inc. and its subsidiary Mortgage Electronic Registrations Systems
(MERS) were sued Friday by the state of New York.  The suit, filed by the state’s Attorney
General Eric T. Schneiderman
, charges that the creation and use of a privately
national electronic registration system, MERS, “has resulted in a wide range of deceptive and fraudulent foreclosure
filings in New York state and federal courts, harming homeowners and
undermining the integrity of the judicial foreclosure process.”  Further, the lawsuit charges that the
employees and agents of the three banks, Bank of America, J.P. Morgan Chase,
and Wells Fargo
, acting as “MERS certifying officers,” have
repeatedly submitted court documents containing false and misleading information
that made it appear that the foreclosing party had the authority to bring a
case when in fact it may not have.  The
suit also names additional defendants for some of the charges including loan
servicing subsidiaries of the three banks.

The
lawsuit, filed in the Supreme Court of the State of New York, Kings County levies
the following charges:   

  • MERS was created to allow financial
    institutions to evade country recording fees, avoid the need to publicly record
    mortgage transfers and facilitate the rapid sale and securitization of
    mortgages. MERS members log all of their
    transfers in a private electronic registry rather than in the local county
    clerk’s office.
     
  • MERS is a shell company with no
    economic interest in any mortgage loan.
    It is the nominal “mortgagee” of the loan in the public records and
    remains as such regardless of how often the loan is sold or transferred among
    its members.
     
  • MERS has few or no employees but
    serves as the mortgagee for tens of millions of mortgages. It has indiscriminately designated over
    20,000 MERS member employees as MERS “certifying officers” expressly
    authorizing them to assign MERS mortgages and execute paperwork to foreclose on
    properties and submit claims in bankruptcy proceedings while failing to
    adequately screen, train, or monitor their activities. Assignments were often automatically
    generated and “robo-signed” by individuals who did not review the
    underlying property ownership records, confirm the documents’ accuracy, or even
    read the documents. MERS certifying
    officers have regularly executed and submitted in court mortgage assignments
    and other legal documents on behalf of MERS without disclosing that they are
    not MERS employees, but instead are employed by other entities, such as the
    mortgage servicer filing the case or its counsel.
     
  • Use of the private database to
    record property transfers has eliminated homeowners’ and the public’s ability
    to track them through the traditional public records system. This data base is plagued with inaccuracies
    and errors which make it difficult to verify the chain of title or the current
    note-holder. In addition, as a result of these
    inaccuracies, MERS has filed mortgage satisfactions against the wrong property.
     
  • This “bizarre and complex end-around
    of the traditional recording system” has saved banks more than $2 billion in
    recording fees and allowed the banks to securitize and sell millions of loans, “often
    misrepresenting the quality and nature of the mortgages being transferred.”
     
  • The creation and use of the MERS
    System by the Defendant Servicers and other financial institutions has resulted
    in a wide range of deceptive and illegal practices, particularly with respect
    to the filing of New York foreclosure proceedings in state courts and federal
    bankruptcy proceedings.

The lawsuit estimates that MERS
members have brought over 13,000 foreclosures against New York homeowners
naming MERS as the foreclosing property when in many cases MERS lacks the
standing to foreclosure.  Even when
foreclosures were not initiated in MERS name, proceedings related to their
registered loans often included deceptive information.

The lawsuit seeks a declaration that
the alleged practices violate the law, as well as injunctive relief, damages
for harmed homeowners, and civil penalties. The lawsuit also seeks a court
order requiring defendants to take all actions necessary to cure any title
defects and clear any improper liens resulting from their fraudulent and
deceptive acts and practices.

On January 24 the U.S. Court of
Appeals for the 11th Judicial Court upheld an appeal from MERS that
contended a lower court had erred in finding that a homeowner had been
improperly foreclosed on by MERS 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.

The New York suit differs slightly from
the facts in Smith V. Saxon Mortgage,
but if Schneiderman wins his case, it could be that the legitimacy of MERS will
ultimately have to be decided by the U.S. Supreme Court.

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Geithner Outlines Accomplishments, Future of Financial Reform

Treasury Secretary Timothy Geithner told
the Financial Stability Oversight Council that the financial system is getting
stronger and safer and that much of the excess risk-taking and careless
financial practices that caused so much damage has been forced out.  However, he said, “These gains will erode
over time if we are not able to put our full reforms into place.”

He outlined the basic framework has been
laid, with new global agreements to limit leverage, rules for managing the
failure of a large firm and the new Consumer Financial Protection Bureau (CFPB)
up and running, and the majority of the new safeguards for derivatives markets proposed.  Geithner ticked off the major accomplishments
of reform.

First, banks now face much
tougher limits on risk which are critical to reducing the risk of large
financial failures and limiting the damage such failures can cause.  The focus in 2012 will be “on defining the
new liquidity standards and on making sure that capital risk-weights are
applied consistently.”

 The new rules are tougher on
the largest banks that pose the greatest risk and are being complemented by
other limits on risk-taking such as the Volcker Rules and limits on the size of
firms and concentration of the financial systems.  These will not apply only to banks but to
other large financial institutions that could pose a threat to financial system
stability and this year the Risk Council will make the first of these
designations.

Second, the derivatives market will,
for the first time, be required to meet a comprehensive set of transparency
requirements, margin rules and other safeguards.  These reforms are designed to move
standardized contracts to clearing houses and trading platforms and will be
complemented with more conservative safeguards for the more complex and
specialized products less amenable to central clearing and electronic
trading.  These reforms, the balance of
which will be outlined this year, will lower costs for those who use the
products, allow parties to hedge against risk, but limit the potential for
abuse, the Secretary said. 

Third, is a carefully designed set
of safeguards against risk outside the banking system and enhanced protections
for the basic infrastructure of the financial markets: 

  • Money market funds will have new
    requirements designed to limit “runs.”
  • Important funding markets like the
    tri-party repo market are now more conservatively structured.
  • International trade repositories are
    being developed for derivatives, including credit default swaps.
  • Designated financial market utilities
    will have oversight and requirements for stronger financial reserves;

Fourth; there will be a stronger set
of protections in place against “too big to fail” institutions.  The key elements are:

  • Capital and liquidity rules with
    tough limits on leverage to both reduce the probability of failure and prevent
    a domino effect;
  • New protections for derivatives,
    funding markets, and for the market infrastructure to limit contagion across
    the financial system;
  • Tougher limits on institutional size;
  • A bankruptcy-type framework to
    manage the failure of large financial firms.
    This “resolution authority” will prohibit bailouts for private
    investors, protect taxpayers, and force the financial system to bear the costs
    of future crisis.

Fifth, significantly stronger
protections for investors and consumers are being put in place including the
CFPB which is working to improve disclosures for mortgages and credit cards and
developing new standards for qualified mortgages.  New authorities are being used to strengthen protections
for investors and to give shareholders greater voice on issues like executive
compensation.

Geithner pointed to the failure of
account segregation rules to protect customers in the MF Global disaster as proof
of the need for more protections and said that the Council will work with the
SEC and the Commodity Futures Trading Council on this problem.   

Moving forward, reforms must be
structured to endure as the market evolves and to work not just in isolation
but to interact appropriately with each other and the broader economy.  “We
want to be careful to get the balance right-building a more stable financial
system, with better protections for consumers and investors, that allows for
financial innovation in support of economic growth.” 

First, he said, we have to make sure
we have a level playing field at home; that financial firms engaged in similar
activity and financial instruments that have similar characteristics are
treated roughly the same because small differences can have powerful effects in
shifting risk to where the rules are softer. 
A level field globally is also important, particularly with reforms that
toughen rules on capital, margin, liquidity, and leverage, as well as in the
global derivatives markets.  “In these areas we are working to discourage
other nations from applying softer rules to their institutions and to try to
attract financial activity away from the U.S. market and U.S. institutions.” 

It is necessary to align the
developing derivatives regimes around the world; preventing attempts to soften
application of capital rules, limiting the discretion available to supervisors
in enforcing rules on risk-weights for capital and designing rules for
resolution of large global institutions.  Also, because some U.S. reforms are different
or tougher from rules in other markets, there needs to be a sensible way to
apply those rules to the foreign operations of U.S. firms and the U.S.
operation of foreign firms.

 The U.S. also needs to move
forward with reforms to the mortgage market including a path to winding down
the government sponsored enterprises (GSEs.) 
The Administration has already outlined a broad strategy, Geithner said,
and expects to lay out more detail in the spring.  The immediate concern is to repair the damage
to homeowners, the housing market, and neighborhoods.  The President spoke this week about the range
of tools he plans to use.  Our ultimate goals
are to wind down the GSEs, bring private capital back into the market, reduce
the government’s direct role, and better target support toward first-time
homebuyers and low- and moderate-income Americans.

Geithner said the new system must
foster affordable rentals options, have stronger, clearer consumer protections,
and create a level playing field for all institutions participating in the
system.  For this to happen without
hurting the broader economy and adding further damage to those areas that have
been hardest hit, banks and private investors must come back into the market on
a larger scale and they want more clarity on the rules that will apply. 

Credit availability is still a problem
and there is a broad array of programs in place to improve access to credit and
capital for small businesses.  As
conditions improve, it is important that we remain focused on making sure that
small businesses, a crucial engine of job growth, have continued access to
equity capital and credit.

Many Americans trying to buy a home
or refinance their mortgage are also finding it hard to access credit, even for
FHA- or GSE-backed mortgages.  The Administration has been working closely
with the FHA and FHFA to encourage them to take additional measures to remove
unnecessary barriers and they are making progress.  They will probably outline additional reforms
in the coming weeks.

Bank supervisors, in the normal
conduct of bank exams and supervision, as well as in the design of new rules to
limit risk taking and abuse, must be careful not to overdo it with actions that
cause undue damage to the availability of credit or liquidity to markets.

Geithner said the U.S. financial
system is getting stronger
, and is now significantly stronger than it was
before the crisis.  Among the achievements:

  • Banks have increased common equity
    by more than $350 billion since 2009.
  • Banks and other financial
    institutions with more than $5 trillion in assets at the end of 2007 have been
    shut down, acquired, or restructured.
  • The asset-backed commercial paper
    market has shrunk by 70 percent since its peak in 2007, and the tri-party repo
    market and prime money market funds have shrunk by 40 percent and 33 percent
    respectively since their 2008 peaks.
  • The financial assistance we provided
    to banks through TARP, for example, will result in taxpayer gains of
    approximately $20 billion.

The Secretary said the strength of
the banks is helping to support broader economic growth, including the more
than 3 million private sector jobs created over 22 straight months, and the 30
percent increase in private investment in equipment and software.  
Broadly, the cost of credit has fallen significantly since late 2008 and early
2009.  Banks are lending more, with commercial and industrial loans to
businesses up by an annual rate of more than 10 percent over the past six
months.  

He concluded by saying that no
financial system is invulnerable to crisis, and there is a lot of unfinished
business on the path of reform.  The reforms are tough where they need to
be tough.  “But they will leave our financial system safer, better able to
help businesses raise capital, and better able to help families finance safely
the purchase of a house or a car, to borrow to invest in a college education,
or to save for retirement.  And they will protect the taxpayer from having
to pay the price of future crisis.”

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Finally, a foreclosure settlement (Maybe)

States have until late Monday to agree to the latest draft deal aimed at relieving homeowners struggling with mortgages bigger than their home’s value.