Year End STAR Achievers Announced by Fannie Mae; PHH Shines

The servicers scoring STAR rewards for
the second half of 2011 were announced today by Fannie Mae.   STAR, the Servicer Total Achievement and
Rewards Program was established in early 2011 to
establish standards and recognize excellence among Fannie Mae servicers in
their overall performance, customer service, and foreclosure prevention
efforts. 

STAR uses two methods for evaluating
participating servicers, operational assessment and Performance
Scorecards.  Fannie Mae will publish
overall 2011 STAR Program annual results incorporating both elements next
month. 

When STAR was first rolled out we interviewed Leslie Peeler, the person who was heading the program at that
time.  She explained that the scorecard covers four performance categories:

  • Roll rates.
    Measures loans progress through the various stages of delinquency.
  • Solution delivery.
    The number of borrowers assisted, the number who are able to retain their
    homes, and the number of loans liquidated through foreclosure alternatives
    as a ratio of the universe needing help.
  • Workout effectiveness.
    Numbers of modified loans still performing at designated milestones. Was
    the right solution prescribed and was follow-through appropriate?
  • Time line management.
    Were actions performed efficiently? Was intervention timely? Was
    resolution timely?  

For 2011, the following servicers
have produced results on the STAR Performance Scorecard at or above median
levels relative to peers.  Those appearing
for the first time are in bold.

  • Peer Group One (consisting of 11 servicers) –
    CitiMortgage, Inc., EverBank, GMAC Mortgage, LLC (Ally Bank), JP Morgan
    Chase
    , and Wells Fargo Bank, NA
  • Peer Group Two (consisting of 9 servicers) – Aurora
    Bank, FSB, Central Mortgage Company, Fifth Third Bank, HSBC Mortgage
    Corporation, The Huntington National Bank, and Regions Bank
  • Peer Group Three (consisting of 13 servicers) –
    American Home Mortgage Servicing, Inc., Arvest Mortgage Company,
    Associated Bank, NA, Capital One, N.A., Colonial Savings, F.A., Doral
    Bank, M&T Bank, Nationwide Advantage Mortgage Co., Navy Federal Credit
    Union, Third Federal Savings and Loan,  Branch Banking & Trust,
    and Sovereign Bank, FSB

Several banks that appeared on the
list during the first half of the year did not appear on the current list.  The Fannie Mae press release also noted that,
“For the second half of 2011, PHH Mortgage Corporation demonstrated significant
performance improvements
and achieved at or above median levels compared to
peers.”

Thirty-three servicers now
participate in the STAR program but additional servicers will be added this
year.  Fannie Mae said that, as a result,
the peer groupings will change.

 “Servicers in the STAR Program are changing
their approach to managing Fannie Mae loans, assisting homeowners, and
measuring success,” said Tara Malone, Vice President of Servicer Review and
Measurement, Fannie Mae. “We’re pleased to report significant improvements in
performance for some of our servicers over the course of 2011. Servicers have
increased their focus on areas of key importance for helping Fannie Mae manage
losses and prevent foreclosures, which should drive improved STAR performance
in 2012.”

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PHH Restructuring; MBA Classes; Servicing Comp Change Bearing Away; Harsher Fraud Penalties Coming?

The e-mail
wires here in Miami have been burning up with…e-mails.

PHH clients received a note from Norm
Fitzgerald
,
explaining the recent restructuring. “I am writing to let you know we
recently decided to reallocate resources from our Correspondent Lending channel
to our Private Label Solutions and Real Estate Field Sales distribution
channels. Although this action will reduce our Correspondent Lending volume, I
want to be clear that we are committed to Correspondent Lending and will
continue to participate in the business with a renewed focus on our high
quality and long term customers. We made this decision in response to ongoing
challenges posed by the volatility in the global economy, the capital markets
and the housing markets. We believe these market uncertainties require an
increased emphasis on liquidity and cash-generation. While our company focus
may shift and adapt with the current market environment, our priorities remain
the same, including an unwavering commitment to customer service.”

Lenders One clients also received a note
about PHH
, recently downgraded by S&P (join the club!), under
investigation by the CFPB, and which carried out significant layoffs earlier
this week. “Given the potentially serious nature of the situation, we have
endeavored to find out as much as possible so that we could share tangible
information with the Members.  However, we also want to avoid spreading
rumors or providing misinformation. To that end, we can think of no better way
to ensure the most accurate distribution of information than to invite each of
you to participate in the upcoming PHH
earnings call
which, fortuitously, is scheduled for next week…’PHH
announced plans to release its fourth quarter 2011 results on Monday, February 6,
2012, after the market closes. The Company will host a conference call at 10AM
EST on Tuesday, February 7, to discuss its fourth quarter 2011 results. You can
access the conference call by dialing (888) 510-1762 or (719) 457-2634 and
using the conference ID 4120134 approximately 10 minutes prior to the call. The
conference call will also be webcast, which can be accessed at www.phh.com/invest under webcasts and
presentations.'”

Not to be outdone in sending notes, Wells
Fargo’s wholesale management (Kevin Sexton, Bill Trees, and Jim Wyble) sent out
a note to brokers
. “As the competitive landscape for third party
lending continues to evolve, we wanted to take this opportunity to confirm our
commitment to Wholesale lending and our broker community. As other lenders exit
the Wholesale business, we believe 2012 promises to be a great year with ample
opportunity as we continue to work together and remain focused on quality.
Wells Fargo Wholesale Lending is committed to serving you and your customers.
For more than 15 years, Wells Fargo has been an industry leader in the
Wholesale channel. As we’ve demonstrated time and again, Wells Fargo is invested
in the long-term success of you, your borrowers and the wholesale business. You
can count on our dedicated team to partner with you to provide valuable
products and programs to American homebuyers in a fair and responsible
way.”

Back in September the FHFA, the overseer
of Fannie & Freddie, released a “white paper” suggesting a change
to the way servicers are compensated.
FHFA’s goal was to propose a new
servicing compensation structure to (i) improve service for borrowers; (ii)
reduce financial risk to servicers; and (iii) provide flexibility for
guarantors to better manager non-performing loans while promoting continued
liquidity in the TBA market. It asked for comments on reducing the Minimum
Servicing Fee (MSF) from 25bp to 12.5bp to 20bp. (The proposal established a
separate account within the trust structure of the MBS which is funded by
reallocating around 5bp from the borrowers payments, and would be available to
pay for non-performing loan servicing.) Under this proposal, servicers were to move
from receiving 25bp of servicing to receiving a fixed dollar amount based of
compensation if the loan is current ($10/loan). And in order to protect
investors from churning, the enterprises were to do the following: implement a
net tangible benefit test for streamline refi programs, enhance monitoring and
tracking of prepayment speeds for each servicer, and restrict the amount of
excess IO in a pool. But lacking was a plan for guidance on what a servicer
might earn should a loan go delinquent.

We’ve come
to learn that the FHFA is preparing to
back away from this plan to overhaul the minimum servicing fees
paid on
Fannie Mae and Freddie Mac loans, after intense, across-the-board industry
opposition to the idea. “Sources” say it’s pretty much over and done with, and
in a non-descript message FHFA spokeswoman Corinne Russell e-mailed,
“Considering changes to the structure of mortgage servicing compensation
is an important component of improving the operations of the future mortgage
market. We received useful input on the discussion paper, and will provide an
update on next steps in the near future.” Most servicing advisory firms came
out against any radical changes to compensation, as did the MBA. (Editor’s note: haven’t we had enough change
and uncertainty from outside the industry – why do we need more from within
it?)

Live and
learn. There are a lot of learning
opportunities from our MBA for mortgage folks out there.
(Probably even a
few where this might happen).
For example from Feb 13-15, “Collections and Early Intervention: Regulatory
Requirements and Implementation Strategies is for all the collections and
customer service managers, leads, and supervisors out there to help design
compliant strategies and processes for handling collections” – Link.
Continuing on, for asset managers, relationship managers, servicing managers,
and commercial real estate primary services who service CMBS loans, “CMBS
Restructures: How to Work with Customers on Non-Performing Loans” outlines the
specific details of the responsibilities, standards, and circumstances
associated with CMBS loans. More information for the Feb 16 course.
And anyone who works in REO and is interested in asset management protection
should look into “REO and Property Preservation,” which will help participants
with strategy, managing remediation costs and timetables, and calculating
return on the repair dollar and its influence on the markets.  This one
will take place from March 12-13.

The FDIC will host a national conference
on “The Future of Community Banking” on February 16 in Arlington,
Virginia
. The conference will provide a forum for community bank
stakeholders to explore the unique role community banks play in the country’s
economy and the challenges and opportunities this segment of the banking
industry faces. Ben Bernanke and FDIC Director Tom Curry are scheduled to
deliver the keynote addresses at the conference. FDIC Acting Chairman Martin J.
Gruenberg will also make remarks –  additional information.
Before you book your flight, attendance at the conference is by invitation and
will be open to credentialed members of the media – so the conference will be
broadcast live and archived through a publicly available webcast on the FDIC’s
Web site here.

In keeping
with regulation trends, the US
Sentencing Commission has proposed harsher sentencing guidelines for securities
and mortgage fraud violations
. (Who knew our government had a
sentencing commission – but these days who is surprised?) It is seeking comment on whether or not the current guidelines
under Dodd-Frank account for potential and actual harm to the public and
financial markets from securities, mortgage and financial institution
fraud.  Regarding securities, the Commission is focusing on insider
trading, while for mortgage fraud, they’re looking to amend the way loan fraud
loss is calculated. The latter would be assessed by taking into account
the amount recovered from the foreclosure sale where the collateral is disposed
as well as reasonably predicted administrative costs incurred by the lending
institution associated with the foreclosure of the mortgaged property. The
Commission also wishes to amend the sentencing for specific financial harms
such as “jeopardizing the financial institution.”  To view the proposal in
full, see http://www.ussc.gov/Legal/Federal_Register_Notices/20120119_FR_Proposed_Amendments.pdf
Note as well that they are accepting public comments until March 19th!

The California Department of Real Estate
(DRE) is constantly asked, regarding short sale transactions, whether a buy can
be charged to compensate either the sale negotiator or the broker.
  As
of July 2011, California state law prohibits the charging of additional fees in
exchange for the written consent of the sale.  Under the Real Estate Law,
short sale fees may still be charged, but, to maintain a certain level of
transparency, the negotiator must be properly licensed under California law,
and there must be full written disclosure to all parties involved, including
the short sale and originating lenders.  The compensation fees must be
disclosed in the purchase agreements, escrow instructions, and HUD 1
statement.  Any “special fees” charged must be authorized by the DRE via
an advance fee contract; Additionally, the Real Estate Settlement Procedures
Act (RESPA) requires these fees to correspond to an actual service performed-in
other words, the buyer must be getting work done for any money paid.  Any
“junk” or “special” fees and they’ll be on you like a ton of bricks.

Yup, rates are good, and should be for quite some time. Like Ground Hog Day,
yesterday was more of the same: good supply/selling from mortgage bankers (maybe locks are picking up with these
record low rates?
) met by more demand by the Fed, hedge funds, banks, and
money managers. Investors are piling into agency MBS in anticipation of a QE3
round from the Fed – officials have been hinting lately about plans to
potentially launch another round of QE (w/this one focused on mortgages instead of Treasuries). The
Fed’s appetite continues to be a constant $1-1.2 billion a day, so any selling
above or below that by originators tends to tilt the scale. (Bernanke, who
testified yesterday in Washington, said nothing new to move the markets.) Yesterday,
by the close, MBS prices were better by almost .250 and the 10-yr T-note closed
at 1.83%.

We’ve had
the 1st-Friday-of-every-month jobs numbers this morning. January’s Nonfarm
Payrolls, expected +150k, down from +203k in December, came out at +243k. The
Unemployment Rate dropped from 8.5% to 8.3% (the lowest in almost 3 years). With
no substantive news from Europe, this will probably determine trading for
today, and soon after the strong jobs number
the 10-yr worsened from 1.82% to 1.92%, and MBS prices appear worse by .375-.50
.

For more weekly insight into MBS / secondary markets, make sure to read and subscribe to: Calculating Current Coupon in a Record Low Rate Environment by Bill Berliner.

A guy took his blonde girlfriend to her first football game.
They had great seats right behind their team’s bench.
After the game, he asked her how she liked it.
“Oh, I really liked it,” she replied, “especially the tight
pants and all the big muscles, but I just couldn’t understand why they were
killing each other over 25 cents.”
Dumbfounded, her boyfriend asked, “What do you mean?”
“Well, they flipped a coin, one team got it and then for the rest of the
game, all they kept screaming was, ‘Get the quarterback! Get the quarterback!’ I’m
like…Helloooooo? It’s only 25 cents!!!!”

 

If you’re
interested, visit my twice-a-month blog at the STRATMOR Group web site located
at www.stratmorgroup.com. The current blog discusses
residential lending and mortgage programs around the world, part 2. If you have
both the time and inclination, make a comment on what I have written, or
on other comments so that folks can learn what’s going on out there from the
other readers.

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Saturday Lender Updates, Gossip and Interesting Letters from the Trenches

On the
heels of the State of the Union address, the
MBA has issued its annual State of the Mortgage Industry release, and the
assessment is generally positive. The consensus was that states hit
hardest by the housing crisis will continue to deal with the aftermath but that
2012 should see some degree of recovery. The MBA pointed to a number of recent
upticks. Upheavals in the single family market have actually helped the
multi-family market, for one. The rental market has seen some very
positive activity, as more lenders, many of them life insurance companies, have
moved into the sector. Of course, the residential market and refinancing remain
thorns in the industry’s side.  MBA President and CEO Dave Stevens attributes
the dearth of financing to market uncertainty, which has been aggravated by
both unrest in international markets and regulation in the US.  Much of
the proposed legislation needs to be more specific, especially when it comes to
underwriting and the definition of “ability to repay”-crucial to ensuring a
safe haven for lenders. The idea of a high degree of risk is still not
terribly attractive. Also criticized was the current structure of the mortgage
market – the MBA points out that the GSEs or FHA are involved in 90% of
lending, which was described as “simply unsustainable,” and that he private
sector should therefore be encouraged to re-enter the market. As for
unemployment, the MBA expects 150,000 jobs to be created per month, which would
have a positive effect on the mortgage market, though that number would of
course vary for different demographics.

A story in
American Banker by Kate Berry summed up the PHH news over the last few weeks.
Namely, “PHH will cut back on
correspondent lending
, sell non-core assets and reverse its drive for
market share in the mortgage business to alleviate investors’ liquidity
concerns,” per CEO Glen Messina. He said that PHH may cut correspondent lending
in half, directly related to PHH’s near-term focus on hoarding cash since
“loans originated with minor defects take up capacity on PHH’s balance sheet
because they typically are not eligible for warehouse financing.” The article
noted that, “Though PHH captured 4% of the mortgage market in the fourth quarter,
Messina said that going forward ‘setting a market share target’ was not
consistent with the company’s near-term focus on liquidity and cash. PHH will
no longer provide market share guidance.”

At the
other end of the spectrum, per Bloomberg, Bank
of America’s retail channel has been unable to keep up with demand
for
borrowers wanting to refinance, thanks in part to HARP Phase II, which is
beginning to roll out. Per the article, borrowers are being placed on a 90 day
waiting list. “Bank of America is telling some customers who call during high
volume periods of the day to make a reservation. And once they do that, it
could take anywhere from 60 to 90 days just to hear back. Even then, it’s
unclear how much longer it will take to apply for a refinance, get the loan
underwritten, and finally get it funded.” And don’t forget that it stopped
offering cash out refinances last month so if borrowers want to tap their home
equity, they’ll either have to try a HELOC or go elsewhere. Borrowers with
checking accounts or those who visit a branch stand a much better chance of an
earlier time frame.

A few
weeks ago received information that Freddie
Mac
has extended the Uniform Loan Delivery Dataset implementation date,
providing mortgage professionals with additional time to apply the first
phase.  Freddie has given substantial notice-new implementation
requirements apply to loans whose applications were received on or after 12/1/11
and are delivered to Freddie on or after 7/23/12.  The Freddie Mac selling
system, positioned to be updated on January 23rd, will now be changed on April
23rd. For details go to: http://www.freddiemac.com/sell/secmktg/uniform_delivery.html.

Given the
number of e-mails I have received, out in the Western U.S. it seems that Reunion Mortgage, with ties to Citi, has
ceased its wholesale business
. For example, “It seems it pulled out of
wholesale only (I didn’t realize they even had a retail presence) but it sure
seem to be doing it quietly.  It seemed that the only brokers that
received the email from them were the ones that were active with them. 
They didn’t issue a rate sheet yesterday.”

Fifth Third is expanding its policy
on borrowers taking a leave of absence from their jobs in the wake of revised
guidance from the GSEs now mandates that short-term income on the temporary
leave is eligible for all conforming and portfolio products.  Borrowers
must meet a number of requirements, which include written intent to return to
work in the same employment situation upon completion of the leave, verification
of employment and income prior to the leave, and completion of necessary
documentation. Also released by Fifth Third were its AMC turn times, which can
be viewed at www.53.com/wholesalemortgage.

Mountain West is applying changes to
conventional price adjusters for cash out and investment properties to loans
locked on or after February 13, 2012 as well as loans that relock after that
date.

For vendor news, Wednesday marked the launch of the free Zillow Mortgage Marketplace App for Android by real estate Web site
Zillow. Also available for the iPhone, the newly launched app offers home
shoppers on-the-go access to the loan shopping experience of Zillow Mortgage
Marketplace. The app includes features that enable shoppers to narrow their
home search to a specific price range, based on income, down payment, and
monthly debt information. Technology marches on…

On to a
few recent letters that I received. “A wise friend mentioned to me that before the government gives money to
mortgagors who are underwater there should be a test to determine if a cash-out
refi was done.
The amount the poor, unfortunate homeowners extracted from
the equity should be deducted from any principal reduction the government is
handing out. Of course, this reduction will be mitigated an amount equal to the
influence of the unscrupulous loan originator. I’m old enough that I will be
done soon, and I am very glad that I won’t have to participate in this farce
much longer.”

Steve
Emory wrote, “I would hope that members of the industry quit going along with
the mass media lies about the mortgage industry. No servicer tells a borrower to quit making their payments. This is
almost an urban legend it gets so much press. Most servicers record calls with
borrowers that call customer service lines. But assume somehow they avoided the
subpoenas to get the recording, certainly with the volume of borrowers claiming
this has happened to them there would be validated borrower recordings with
proof of this practice. I’ve heard none and you have to know NBC, ABC, CBS,
Huffington Post, etc. would plaster the airwaves with one if they had it. Sure
there may be a few off the reservation ones but I haven’t even heard a
recording of one of these. Not one document in writing either. The press should
know telling a borrower you can only process a modification for someone behind
on payments, is not the same as telling the borrower to get behind on payments.
A depressed homeowner may spin/twist that statement in that manner, but that is
personal responsibility associated with a human tragedy, not servicer liability
nor big banks/Wall Street’s fault. The press should quit writing these
allegations unless they have back-up proof. This lie, along with the lies of
“banks want to foreclose” and “just lower the principal on all underwater homes
to fix the housing crisis” are leading the uninformed distressed borrowers to
conclusions that are harming those very borrowers. It helps progressive
legislators pass laws that harm the financial services industry, which tighten
lending standards beyond reason. It is harming people that otherwise would make
their payments. It is demonizing lenders unfairly and tightens lending, which
lowers the number of borrowers that qualify, which lowers home values further.
It is a downward spiral that must stop before housing will recover.”

And
lastly, regarding the recent news about
Fannie & Freddie bonuses
, David Lewis, the managing consultant for Con-Serve
Capital Consulting, wrote, “I guess I am among the short sighted members of the
profession.  I made my living as Chairman, President and CEO of two
different mortgage banking companies.  My span in the day-to-day business
went from June of 1984 through June of 2010. From my perspective, employees at
FNMA /FHLMC are government employees.  As such, they are responsible to
the Federal authority, and not to some Board of Directors in a “for
profit” corporation.  What else could they be, other than Civil Service
employees, entitled to all the perks and benefits of such an employee? 
They certainly deserve to be graded, as are other government employees, by the
grades and salary ranges appropriate to the responsibilities of their
respective jobs.”

Mr. Lewis
continues, “For a number of reasons, these employees and the executives they
report to, are no different than any employee/executive at HUD.  To worry
of their exodus for jobs in the private sector is to fret about the migration
of any government employee.  Short sighted or not, I, for one, could care
less whether the new broom in Washington, D.C stays for a year or a day. FNMA/FHLMC/HUD
employees raise no capital.  All the capital is provided by the Federal
government.  If any of the entities loses money in a given fiscal period,
the bills and the salaries continue to be paid with tax payer monies. FNMA/FHLMC
premises are owned by the government, not the stock holders.  So too, the
furniture, fixtures and equipment are part of the public domain.  Sales of
securitized loans are sold into a market which is “made” by the
Federal Reserve Board.  What private enterprise is involved here? 
Lacking any private enterprise, in a not-for-profit corporation, how are any
employees or executives different from any other publicly held department or
division? The people who work at HUD, FNMA and FHLMC are public employees,
period.  As such, they deserve all the benefits and perquisites of public
employment, and no other.”
 

Last week I noted, “For all of you with any money left, be aware of the
next expected mergers so that you can get in on the ground floor and make some
“big bucks.” Watch for these consolidations in 2012.” I missed a
few, which some readers kindly noted.
“And 2 railroads, the Norfolk Virginia Southern and the California Reading Way
are merging, offering coast-to-coast overnight shipping. Coast-to-coast
overnight shipping via rail? Norfolk-n-Way!”
And, “An unconfirmed rumor is that Dolly Parton will buy controlling interest
in Piggly Wiggly, Big Lots and Harris Teeter.  All 3 brands will operate
under the name ‘Dolly’s Big Wiggly Teeters’.”

And yesterday’s
joke had “I love you” in various languages, including one phrase from the
southern states and a few in Canada, and received these notes:

“In
Alabama, ‘Nice Rack, Get in the Truck’ is something you mutter under your
breath when you see a big deer walking across your field.

And, “You
know, in a lot of the states you mentioned in your Valentine’s Day message, ‘Nice
rack’ is actually something already in the truck. Just saying…”

If you’re
interested, visit my twice-a-month blog at the STRATMOR Group web site located
at www.stratmorgroup.com. The current blog discusses
residential lending and mortgage programs around the world, part 2. If you have
both the time and inclination, make a comment on what I have written, or
on other comments so that folks can learn what’s going on out there from the
other readers.

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“Dead On Arrival” Refi Plan to be Announced Today; Large Investors Devolve/Evolve – Is Servicing, or F&F, the Answer?

Here we
are in February already, which has Valentine’s Day. Some guys out there look
forward to that day with about as much anticipation as hugging their
girlfriend’s cat, or picking out a costume at Halloween. Comparisons aside, the
most popular theory is that Valentine was a clergyman who was executed for
secretly marrying couples in ancient Rome. Per the census bureau, there are
1,177 U.S. manufacturing establishments that produced chocolate and cocoa
products in 2009 (it is its own food group, right?), employing 34,252 people.
California led the nation in the number of chocolate and cocoa manufacturing
establishments, with 135, followed by Pennsylvania, with 111, with the total
value of shipments totaling nearly $13 billion. And Americans consumed almost 25 pounds of candy per capita.

As much as
the government talks about staying out of housing, it can’t. President Obama is expected to unveil a new
refi plan today in Virginia at 11AM CST.
Whatever plan it is, no one
expects it to pass through Congress, IF Congressional approval is required. Recall
that this plan was previewed by Obama during his SOTU address last week.  The plan would allow non-agency mortgage
holders (so those mortgages not backed by Fannie/Freddie) who are current to
refinance into a lower-interest federally insured mortgage (via the FHA).  Borrowers could qualify even if they had
negative equity.  The plan could help as
many as 3.5M homeowners refinance.  The
plan is expected to cost ~$5-10B and Obama will call for a new fee to be
charged to banks to pay for the proposal – because they have all the money,
right?  Watch his speech live here.

Rates can
do whatever they want, but if large investors go away, and the government does
away with Fannie & Freddie, is the borrower better off? (Remember
borrowers?) As was mentioned in this commentary earlier this week, there have
been rumors about PHH Mortgage and
SunTrust
. PHH especially, after the S&P downgrade and the CFPB probe
being revealed, was rumored to be having funding problems and being forced to
downsize.  Sources indicate that those rumors are true, and that PHH
Mortgage has eliminated twelve account rep positions and retained only
six.  In addition, clients are suggesting that PHH is cutting back on
pricing and increasing internal requirements for loan purchases. And at
SunTrust, the entire mortgage channel is indeed going through reorganization,
making the business “flatter” and cutting costs.

“In
reaction to the Federal Housing Finance Agency statement released December 29,
2011 regarding guarantee fee increases, Chase
Lock Extension fees will increase
by 0.25% for all extension terms.”
So reads the latest release from Chase. So, for example, a 7 day extension will
cost .625 instead of .375 (which many viewed as steep to begin with); 30 days
will now cost a point.

Needless
to say with all this, the mortgage herd
(especially those companies that sell to them) is spooked
. Competitors are
warily watching, not really wanting a huge increase in volume coming their way.
And smaller shops are wondering, “When is this going to end?” Or “What
am I supposed to do?” Some lenders with
a minimum net worth of $2.5 million have begun selling loans directly to Fannie
and Freddie
, with the servicing either being retained (in house or with a
subservicer) or sold released to a servicing counterparty of F&F (such as
Central, USB, PHH, and so on). But that is not a sure thing either, as the
FHFA, not content to leave well enough alone, has offered two options to revamp
the economics of mortgage servicing rights – which brings up the issue of how the market values servicing versus how
the lender values servicing.

Retaining mortgage servicing isn’t a matter of just saying, “Sounds good, let’s
crank it up.” CFO’s and owners need to be fully aware of the capital it
requires, both in pricing the loans, in carrying them on the books, and in
setting aside reserves for delinquencies. Depending on the arrangement
(actual-actual or scheduled-actual) the servicer must fund principal and
interest payments to investors, which can quickly eat up cash.

(By the
way, SunTrust will buy FirstAgain LLC
for an undisclosed sum, as it seeks to increase direct online lending.
FirstAgain specializes in providing direct unsecured loans to super-prime
borrowers via the Internet and operates proprietary technology offering
clients’ completely digital and paperless origination, underwriting and
servicing.)

It can’t
be any fun to be a large financial institution any more – not like the old
days. A new federal task group set up to
investigate residential mortgage-backed securities (RMBS) fraud signed off on
subpoenas for 11 undisclosed financial institutions
. New York Attorney
General and co-chair Eric Schneiderman did not name any of the financial
institutions subpoenaed by the group but said that the group has “jurisdiction
to go after every aspect of the artificial inflation… and the crash that
brought down the economy” over the last several years. He said that the group would levy “appropriate civil and criminal charges”
against financial institutions as investigations moved forward under the
auspices of the Financial Fraud Enforcement Task Force. (What about the
borrowers who abused the system?) Of course the SEC has already “issued scores”
of their own subpoenas, obtained millions of documents, and interviewed dozens
and dozens of key witnesses related to mortgage-backed securities. Officials
said that the unit will include in its ranks more than 55 Justice Department
attorneys and investigators, 15 civil and criminal attorneys, and 10 agents and
analysts with the Federal Bureau of Investigation. Thirty more attorneys and
personnel will take up positions in the group in the weeks ahead. Critics point
to job growth at the Federal level rather than the private sector – our tax
money at work!

I received
this note. “Rob, who is going to
regulate the regulators
? They must be tripping over each other with the
confusing jurisdictions and responsibilities. I have been in the real estate
and mortgage business for years, and I am feeling like one of those floats in
the Macy’s parade and everyone shooting at it because it is such a big
target.” President Obama did indeed create yet another regulatory body noted
above to investigate financial institutions. He directed Attorney General Eric
Holder to create a new office on Mortgage Origination and Securitization
Abuses.  The President said, “The American people deserve a robust
and comprehensive investigation into the global financial meltdown to ensure
nothing like it ever happens again.” According to the Huffington Post, the
new office will take a three-pronged approach to the issue, holding financial
institutions accountable for abuses, compensating victims, and providing relief
for homeowners, and will operate as part of the existing Financial Fraud
Enforcement Task Force. Good luck working with the state Attorneys General, the
Department of Justice, the SEC, the OCC, the FBI…

But we may not have Treasury Secretary Timothy Geithner to kick around much
longer. He said President Barack Obama is likely to be re-elected, but he isn’t
likely to stay for a second term. “I’m confident he’ll be president. But
I’m also confident he’s going to have the privilege of having another secretary
of the Treasury.”

Remember the little thing in NPR about
Freddie betting against homeowners?

“Freddie Mac stopped making investments in derivatives known as inverse
floaters last year after a regulatory exam raised questions about the mortgage
company’s controls, the Federal Housing Finance Agency said. An FHFA
examination “identified concerns regarding the controls, including risk
management, surrounding the inverse floaters,” the oversight agency said in a statement.
‘FHFA and Freddie Mac agreed that these transactions would not resume.'”
Read all about it.

Above I
mentioned the U.S. becoming a nation of renters – but often times investors and
lenders do not have sufficient insight into distressed property trends at the
national and local level which reduces their ability to effectively manage
collateral risk and establish effective loss mitigation strategies and accurate
loss projections. DataQuick has
developed a Distress Property Analysis Tool called RiskFinder Distress
to
come up with monthly statistics for the past 10 years to help track trends and
help identify geography, down to a neighborhood level, that most negatively
impacted by distressed property trends. For more information contact your
DataQuick representative or Wendy Barnett at wbarnett@dataquick.com.

The MBA
reported that apps last week
dropped about 3% after dropping 5% the week
before. (Refi’s dropped 3.6%, purchases down 1.7%, with refi’s accounting for
an even 80% of nationwide retail applications.) But at least the “Bernanke
freight train bond market,” as one MBS salesman noted, is rolling along. “With
the Fed potentially on hold thru 2014 and QE3 being discussed,” Fannie 3.5’s are nearly at a price of 104 –
that is a 4 point premium for 3.75-4.125% 30-yr loans, not even including the
servicing!
Yesterday we had a slew of news: the Employment Cost Index rose
0.4% in 4Q 2011, the S&P/Case-Shiller index showed that home prices
continued to decline in November, the ISM Chicago Purchasing Managers Index
fell, and the Conference Board’s Consumer Confidence Index dropped as well. Most of the news out yesterday points to a
slow economy in this country, and a slowing economy generally leads to lower
rates.

So are
LO’s excited about a continued refi boom? Perhaps – but rates haven’t been an
issue in a long time. Investors are not necessarily excited about more
refinancing – they’d like to keep the existing MBS’s on their books a while
longer. Thomson Reuters noted, “Traders have cautioned of the potential for
increased supply in coming days as originator pipelines have been building up
in response to the decline in rates.” But the U.S. 10-yr T-note hit 1.80% and
rate sheet MBS prices improved by another .125.

Today
we’ve already had the MBA apps numbers out, noted above. And we’ve also had the
ADP Employment report for January, always of questionable predictive ability
for the actual government numbers Friday. The number was +170k for January,
with a downward revision for December but still this is the 24th straight
gain in private payrolls. Later we’ll have another ISM Index and Construction
Spending at 10AM EST, along with the Treasury announcing the size of next
week’s 3, 10, and 30-yr auctions (estimated unchanged at $72 billion). So far rates are flat to Tuesday’s close
with the 10-yr at 1.81% and MBS prices unchanged.

CONFUCIUS DIDN’T SAY:
Man who eats many prunes get good run for money.
War does not determine who is right, it determines who is left.
Man who fight with wife all day get no piece at night.
It takes many nails to build a crib, but one screw to fill it.
Man who drives like hell is bound to get there.
Man who stands on toilet is high on pot.
Man who live in glass house should change clothes in basement.
Man who fish in other man’s well often catch crabs.
Finally CONFUCIUS SAY –
“A lion will not cheat on his wife, but a Tiger Wood!”

If you’re
interested, visit my twice-a-month blog at the STRATMOR Group web site located
at www.stratmorgroup.com. The current blog discusses
residential lending and mortgage programs around the world. If you have both
the time and inclination, make a comment on what I have written, or on
other comments so that folks can learn what’s going on out there from the other
readers.

…(read more)

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