Good Riddance 30-Year Fixed Mortgage? Not So Fast…

J. Wallison’s recent article in the Wall Street Journal on government support
of the residential housing market (“What’s So Special About the 30-Year
“) is an interesting academic exercise but it has no relevance to
the reality of the U.S. housing market.

it is true that, for many years over the life of a 30-year loan, most of the
payments go to interest and not principle, if we were to remove the tax
deductibility of the interest paid
(regardless of the term of amortization) as
some have suggested, we would remove another 33% of value from the American homeowner,
based on the marginal rate at the Federal level of 28% and the average State
and local tax rate of 5%.


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Cutoff Looms on Loan Accord

State attorneys general have until Friday to join a potential national settlement of alleged foreclosure abuses, according to a document reviewed by The Wall Street Journal.

BofA Halts Cash-out Refinancing; Letters From the Trenches; Mortgage Hiring Continues

Hey, if
you can’t beat ’em, join ’em. I bet many
wouldn’t mind making nearly a quarter million a year being a “cutting edge”
CFPB regulator
Compare that to a story last week in the Wall Street Journal noting,
“Government regulators will cut sharply the pay of the executives they
hire to succeed the departing heads of Fannie Mae and Freddie Mac, said
regulators, which may make it difficult for the struggling mortgage-finance
giants to attract and keep qualified chief executives. Some officials even have
floated the idea of paying a salary of $1. Whatever ultimate pay arrangement is
approved by regulators for Freddie could set a precedent that would be adopted
by Fannie.” MBA President David Stevens warns that the pool of CEO
candidates will shrink as compensation for the post (which can be difficult to
fill given the limitations of being under government control) declines.

In the
private job market, Florida Capital Bank Mortgage is expanding its national mortgage
operations with the opening of an Operations Center in Northern California. FLCBM is looking for underwriters,
processors and closers for this location. In addition, they are looking for AE’s
across the country
to support its growing broker, mini-correspondent, correspondent
and Early Purchase Funding Program allowing brokers to become mortgage bankers.
Interested operational candidates can contact Gerhard Naude at and AE’s can contact Tommy
Adkins at

In addition,
Prospect Mortgage is hiring Loan
Officers and Sales Managers
who leverage relationships with business
referral partners for sales growth. Prospect Mortgage offers nationwide lending
and has branches from coast to coast. For rankings, “Prospect is one of the
largest independent residential retail mortgage lenders in the US: it is the
second largest 203K lender, a top-10 FHA lender and a top-five Fannie Mae
HomePath Renovation lender.” So if you know of anyone interested in the retail
side of things with Prospect, they should contact Chief Talent Officer Daniel
Nieto at

In other
corporate news, SunTrust Bank’s 16%
decline in earnings for the fourth quarter highlighted a problem many
originators are having: setting aside higher mortgage repurchase provisions.

Earnings were down from a year ago, as were revenues. “SunTrust’s mortgage
repurchase reserves rose to $320 million from $282 million in the third
quarter. The bank received $636 million in repurchase demands, up sharply from
$440 million a quarter earlier and $233 million in the fourth quarter 2010.”
Management saw it coming, as it warned the industry that repurchases would
increase significantly in the fourth quarter. Putting some numbers on the
problem, SunTrust holds $120 billion in unpaid balances from loans done between
2006 and 2008, and about $21 billion have gone 120 days or more past due. Of
those unpaid legacy mortgages, SunTrust has received repurchase demands on $4.4
billion, with $3.9 billion of those resolved. Repurchase issues were a factor
in the mortgage production side of SunTrust swinging to a $62 million loss from
a $41 million profit a quarter earlier.

As we move
toward having more regulators than originators, in Utah, Primary Residential Mortgage created of a new Enterprise Risk
Management (ERM) group that will “manage risk through the entire loan
origination process and ensures that the company has the appropriate monitoring
and evaluation policies.” Dave Zitting, president and CEO, observed,
“While the larger banks all have ERM departments, it’s uncommon for a
company of our size to have one but we wanted to take aggressive steps to
demonstrate to our customers, partners and employees our commitment to
providing a safe and compliant mortgage experience.” The leader of the
group noted, “In today’s mortgage environment, lenders must manage
compliance and quality issues more closely than ever before. By establishing
this new group we are implementing a solution that will sharpen our focus on
complying with all mortgage banking laws and regulations, improve on our
overall loan quality and help us to better manage risk across all areas of our

Bank of America certainly turned some heads last week
when it told its retail loan officers nationwide that the lender will halt, for
now, originations of cash-out
, citing what it calls a “surge of refinancing
activity” and capacity problems. A memo written by B of A home loans sales
executive Matt Vernon notes that “while we regret the inconvenience this will
cause to some of our customers in the short term, we are making the responsible
choice that is in the best interest of our long-term capabilities to provide a
predictable customer experience.” In spite of arguments that this is some of
the cleanest product ever to be originated, and profit margins being solid for
many in the business, BofA continued to de-emphasize residential loans in the
fourth quarter, producing just over $22 billion in mortgages, a stunning 75%
decline from 4Q 2010.

At least
Bank of America is not expecting to have the FDIC come through its doors on a
Friday afternoon…but others had that happen (for the first time in over a
month). In PA American Eagle Savings Bank was closed and became part of MD’s Capital Bank, National Association.
Down the coast in Florida, Central Florida State Bank became part of CenterState Bank of Florida, National
. And in neighboring Georgia, the depositors of The First State
Bank will soon have the name of Hamilton
State Bank
on their checks.

company transition is expected to continue in 2012. Industry vet Larry
Charbonneau, owner of Charbonneau &
, wrote to me, saying, “Rob, I’ve been in this business over
thirty years, and 2011 was one of my busiest ever. Your readers should know
that merger and acquisition activity is
picking up
. There are some commercial banks looking to acquire well
managed mortgage bankers, and the warehouse industry is very liquid now and
credit is readily available to those who have the required net worth.” If you
want to reach Larry, shoot him an e-mail at

Regarding recent legal events, David Oldenberg
writes, “Attorneys are going to do the same thing to themselves that we did
to the mortgage industry. We created better and better loans programs to get
people into homes and it back-fired when there were no more buyers left and the
bottom dropped out. Attorneys are going to keep creating more and more ways to
sue lenders and eventually they will all stop lending, leaving no one left to
sue. They will destroy their industry based on greed, the same way the mortgage
industry has destroyed itself. When I used to play stock broker and financial
advisor on my radio show, I always said, ‘the trend is your friend until the

Barry S. from Illinois wrote, “I just had another two week fight with one
of the top 4 investors. They underwrote the loan – it has MI, is a condo, and
an 800 credit score. They have some overlay that says HO6 insurance must be
escrowed, we never heard of such a thing, none of our other lenders force you
to escrow HO6 insurance. Anyway, loan was cleared to close and the underwriter
never said anything about HO6 being escrowed. We closed it and they wouldn’t
purchase the loan because the HO6 was not being escrowed on the HUD. So the
borrower signed new docs escrowing the HO6 since they had to pay it themselves
so they really didn’t care if it was escrowed. Then the original investor
refused to purchase the loan because it’s a TILA violation: they say you need
to reopen the recession period because the total payment has changed! I asked,
‘What happens each year when escrow analysis are done and servicers increase a
borrowers total payment when their taxes or insurance increase, TILA violation?
What happens when a borrower calls a bank to add escrows to their mortgage
payment TILA violation? What happens when a title company or lender puts the
wrong info for the taxes and insurance escrows and has to fix the mistake on
the HUD-1, TILA violation?’ These are the same guys who three weeks ago gave me
the same song and dance when a digit was reversed on an address in the closing
package, fun thing was the borrowers were both big time attorneys in Chicago
and couldn’t believe they had missed the mistake while signing. (An investor
finally bought that loan after a month of saying you can’t fix a typographical
error on a closing package!) But now we have to take the loan elsewhere.”

(For the uninitiated, HO6 insurance is
designed for condo owners
. The HO6 condo insurance will cover losses to any
of your persona property and any structure you own. This policy also covers
damages to any fixtures of upgrades you added on since the move-in date. A lot
of people have HO6 insurance because they are required to if they have a
mortgage on the condo. A regular condo insurance policy does not cover your
actual unit or any of your belongings. HO6 does provide liability protection.)

Sometimes it is tough for compliance and QA personnel to stay up on the changes
in the market. They should check out the next monthly conference call (free!) of
the California Mortgage Bankers
Association’s Mortgage Quality and Compliance Committee (MQAC)
– you don’t
even have to live in California. Call in this Thursday (26th) at
11AM PST (free!). The topic is “Regulatory Forecast for 2012: How Should You Be
Prepared?” Let your fingers do the walking: 1-800-351-6802, passcode 43784. For
more questions contact Dustin Hobbs with the CMBA at

Turning to
interest rates, which are still pretty low on the radar screen of concerns of
originators, they slid higher last week. In fact, Treasuries had their biggest
weekly loss in a month with the 10-yr moving to 2.02% and MBS prices (on
Friday) worse by about .125. Is the economy really picking up? The current
administration sure hopes so, although the president comes in a distant third
to stimulating the economy compared to the Federal Reserve and Congress. Existing
Home Sales increased 5% in December to an annual rate of 4.61 million units,
and were up 3.6% versus a year ago. “Record low mortgage interest rates, job
growth and bargain home prices are giving more consumers the confidence they
need to enter the market.”

scheduled economic news in the United States this week doesn’t commence until
Wednesday with Pending Home Sales, the FHFA Housing Price Index, and the FOMC’s
rate decision. Thursday is Jobless Claims, Durable Goods, New Home Sales, and
Leading Economic Indicators; on Friday are GDP and a Michigan Consumer
Sentiment number. With things continuing quiet in Europe, and no news here, we find the 10-yr’s yield up to 2.08% and
MBS prices worse.

I pointed to two old drunks sitting across the bar from us and told my friend, “That’s
us in 10 years”.
He said “That’s a mirror, dummy!”

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Home Prices Rise, but Not for All

While property markets across the country rose together during the housing boom and fell together during the crash, new data analyzed by real-estate firm Zillow for The Wall Street Journal show that markets are exiting the downturn at different speeds.

Housing Comeback Remains Uneven

While property markets across the country rose together during the housing boom and fell together during the crash, new data analyzed by real-estate firm Zillow for The Wall Street Journal show that markets are exiting the downturn at different speeds.