"Wow" Stats from Citi’s Lawsuit Settlement; Short Sale vs. Foreclosure Losses; ASF Notes; More Conferences

Citizens
of the U.S. have well-documented accents, but do you ever wonder what
linguistics majors do when they graduate? 

At certain
phases of the economic cycle, loan originators often wonder about how
bankruptcies impact credit ratings. Now many wonder how loan modifications impact bankruptcies.

Yesterday
this commentary noted several upcoming
conferences
sprinkled around the nation. The problem with any list, whether
it is investors, best teen movies, vendors, Jewish football players, conferences,
favorite BBQ joints, broker dealers, warehouse banks, is that producing an
all-inclusive list is nearly impossible. Of course I received information on several
conferences & events that I had not listed. For example, the MBA’s National Advocacy Conference is
April 18-19 in Washington DC. “It gives
you the opportunity to speak directly to lawmakers about what you do in your
community as well as the practical effect proposed changes may have on your
business and the industry.” 

For those
who are comfortable operating in the “leads generating” business, February
28-29 offers LeadsCon in Las Vegas has become quite popular
with lenders doing on-line lending. Out in San
Francisco
, on April 10 & 11, the CMBA’s Sales & Marketing
Conference
takes place. “This event focuses on Retail, Wholesale &
Correspondent Sales and Marketing ideas for the coming year. This year’s event
has a focus on Mini-Correspondent (broker to banker) as well as Compliance, the
future of retail with emphasis specifically on the competition from larger
aggregators exiting the correspondent and wholesale business.”

Down in
California, Lenders One, the largest
national alliance of mortgage bankers, is hosting their member conference in Huntington Beach March 5-7. The
expected attendance of members, partners and industry speakers is over 600
people.  Information can be found at www.LendersOne.com.

If you are
in the reverse mortgage biz, and would like to visit New York on March 26 & 27, you may want to take in The National
Reverse Mortgage Lenders Association’s Eastern Regional Meeting & Reverse
Mortgage Securitization Forum. It includes “an update on the CFPB study on
reverse mortgages called for in the Dodd-Frank legislation, a review of the
state of loan officer compensation throughout the country, reports on
successful selling of the HECM Saver and HECM for Purchase, and a perspective
on what loan originators should know about the secondary market.” Registration
is available at http://www.nrmlaonline.org/.

For those of
you unable to cruise down in the middle of winter to balmy Arizona last week
for the NMLS conference, it hosted
its annual user conference last week in Scottsdale. Through the wonders of
technology, the NMLS has the slides available, posted under the “agenda” tab of
the conference web site.

Turning to
the usual news these days, it was Citigroup’s turn to settle a lawsuit. It has
agreed to pay $158.3 million to settle claims that its mortgage unit
fraudulently misled the government into insuring risky mortgage loans for over
six years. Before you skip to the next story,
check out these stats
: the government said that CitiMortgage had certified
30,000 mortgages for insurance provided by the FHA and submitted many
certifications that were “knowingly or recklessly false.” More than a third of
those mortgage loans went into default, resulting in millions of dollars in
losses for the government because of the insurance claims. Per the NYT, “Since 2004 more than 30% of loans
originated or underwritten by CitiMortgage have gone into default
. The
Department of Housing and Urban Development said that CitiMortgage’s default
rate soared to over 47% on loans originated in 2006 and 2007…” Here is the
story
.

While we’re
on lawsuits, a while back news broke on a lawsuit
against BBVA Compass for alleged labor law violations
. “Compass
systematically violated federal labor laws by denying overtime pay to its
mortgage banking officers, Lee & Braziel, LLP and the Rowdy Meeks Legal
Group, LLC allege” in a lawsuit filed in Texas federal court. “Filed on behalf
of former mortgage banking officer (MBO) Keith Vaughn, the lawsuit alleges that
the bank illegally misclassified MBOs nationwide as overtime-exempt employees
until approximately April 2011 in violation of the federal Fair Labor Standards
Act (FLSA). In April 2011, the bank reclassified its MBOs to make them eligible
for overtime pay. Although Compass instituted a time-tracking system last year,
it discouraged MBOs – who regularly work overtime – from entering more than 40
hours per work week so the bank could avoid paying overtime compensation,
according to the lawsuit. More information about the litigation is available at
www.BBVACompassOvertime.com.

A few
weeks ago Barclays Capital produced some findings from the ASF (American
Securitization Forum) which are worth noting. Analysts agree that, compared to
other risk assets, non-agencies are “cheap”,
with many preferring stable profile, high carry, bonds.  Some analysts,
however, believe that technical pressures are unlikely to subside in the short
run and recommend trades such as Jumbo and Alt-A FRM, both sectors that have
experienced widening for which lower rates have compensated. It is no surprise
that in light of the Eurozone crisis and lack of vigorous economic recovery
here in the US, certain investors remain concerned about still-declining home
prices.  Prices are predicted to drop by around 5% and to trough in March
of this year, with the worst scenario being a 15%.  This, however, is
unlikely, as the actual oversupply of homes is around 3 million, and the market
has proved able to absorb about 1.5 million distressed liquidations per year.

The ASF consensus is that while rental programs would be helpful for home
prices, it would be difficult to implement.  That rental yields are
significantly lower than bond yields makes it much less attractive in terms of
equity, and centrally-organized bonds are far more manageable than properties. Analysts
expect timelines for loans liquidated in the next 18 months to be longer than
those for loans being liquidated at present, which means severities will stay
high for the next year and a half.  Liquidation should get faster, though,
as servicers continue to make their foreclosure processes more efficient. The
disparity between received cash flows versus actual loans levels is being
chalked up to servicers ceasing advances and recapitalizing advances on
modified/cured borrowers, as well as inconsistent reporting. This issue appears
to affect subprime deals, in particular, and Alt-B/Option ARM deals to a lesser
extent.

According
to Moody’s, losses for lenders are about
15% lower on short sales of troubled SFR real estate when compared to
traditional foreclosure sales
. While the discounted loss is greater in
short sales, the longer period of legal, taxes, maintenance, carry, insurance,
liability and other costs usually result in a greater loss at banks for
foreclosures. A recent report from McKinsey finds the vast majority of
reduction in consumer debt is from defaults. Overall, household debt
outstanding has fallen $584B from the end of 2008 to the 2Q of 2011 and
defaults accounted for about 70% of the decrease in mortgage debt and 80% of
the drop in consumer debt.

I am sure that some of those short sales and foreclosures involve fraud. Has fraud gone away? No it has not. Interthinx has released its quarterly
Mortgage Fraud Risk Report covering data collected in the fourth quarter of
2011. Property valuation fraud risk is increasing, as is income/employment
fraud. Interthinx’s national “Mortgage Fraud Risk Index” was up 1.4% over the
last quarter and 3.6% from a year ago.  And
Arizona overtook Nevada as the nation’s “Riskiest State” per the company, with
Florida #3 (which is home to the Cape Coral/Fort Meyer area, the riskiest ZIP
code in the nation – quite the honor!). Check out the report at http://www.interthinx.com/.

Homebuilders are more confident. In fact, per the NAHB index, they
are more confident than any time in the last five years. On the one hand, they
should be reminded of the huge inventories and future short sale and
foreclosure numbers on the horizon – why build a new house when there are
plenty of used ones around? And in many areas appraisals are coming in less
than the cost of construction. But on the other hand, perhaps an improvement from
“suicidal” to “deeply depressed” is something to be excited about. U.S. home
construction in the last 4-5 years has been well below the normal replacement
level of household formation. And at some point some areas will have
burned off the boom-time overbuilding and will actually need to start building
homes again. The NAHB Chief Economist noted that five months is the longest
period of sustained improvement for the HMI since 2007 and called it
encouraging.

That was
one piece of news that might have nudged markets yesterday, but the focus is
still on Europe, as it has been for years and will be for the foreseeable future.
Yes, mortgage prices are doing well – why shouldn’t they when the Fed is
buying, in effect, as many MBS’s as originators are producing? No matter about
that or the release of the FOMC minutes – rates yesterday were nearly unchanged
from Tuesday’s closing levels, and the 10-yr closed at 1.93%.

Today is a
new day, and a bold departure from recent trading. Not. We did, however, have slurry
of economic news. Initial Jobless Claims came in at 348k, down from 361k and
the lowest level in nearly 3 years. Housing Starts were +1.5%, better than
expected at 699k, with a revision higher the previous month, and at 676k Building
Permits with a slight downward revision last month were about as expected. And
remember when we cared about inflation? January’s PPI as +.1%, with its core rate
+.4%. (We still have a Philly Fed Survey later, and at 8AM PST the Treasury
announces details of next week’s auctions of 2-, 5- and 7-year notes –
estimated unchanged at $99 billion.) Currently
the 10-yr is nearly unchanged at 1.95% and MBS prices are down.

 
Two   rednecks   are drinking in a bar.
One says, “Did you know that elks have sex 10 to 15 times a day?”
“Aw darn…,” says his friend, “and I just joined the Lions
club!”  

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.

…(read more)

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