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Jan. 12, 2011: Prepayment speeds' implications on new originations; more mortgage jobs; MBA addresses combining servicing & risk retention reform
Rob Chrisman
Some recent mortgage fraud figures have been
released and the winner is.... South Florida! "South Florida's
mortgage market had the nation's highest number of suspicious
activity reports in the third quarter of 2010, according to the
Financial Crimes Enforcement Network's third-quarter mortgage
fraud report released Thursday." http://www.miamiherald.com/2011/01/07/2004440/south-floridas-still-a-national.html?
Kinecta
Federal
Credit Union has been expanding its broker business in the
Western US, and is looking for seasoned Wholesale AE’s in the San
Jose, Sacramento, Washington, and Arizona markets. Kinecta has
over $3.5 billion in assets and is serving over 220,000
member-owners across the country. According to the release,
“Kinecta offers a competitive compensation and benefits package
in addition to a dynamic culture – AE’s will develop and
maintain relationships with wholesale and correspondent mortgage
loan brokers to gain loan business.” If you are interested or
know someone who might be, send a resume to Erika Schlarmann at
eschlarmann@kinecta.org.
Every loan agent now has files on their desks, if they didn’t
already, of borrowers where the increase in rates has stopped
the refinance option. From their point of view, it is not a good
thing, but an investor’s point of view is different – existing
loans will stick around longer. Late last week prepayment
speeds came out, showing a slow-down for various coupons and
“vintages.” Broadly speaking, the supply of conventional
30-yr MBS contracted for the 11th consecutive month (-$13.1
billion) but the 30-yr GNMA supply continues to increase and now
stands at 24% of the agency market per Sterne Agee.
Barclays Capital’s latest report suggested that the
prepayment report “marks the end of the 2010 refinancing
‘wavelet’." “The slowdown in overall speeds suggests that there
is not much backlog left in the origination pipeline, and,
therefore, there should be a sharp slowdown in speeds next
month.” Barclays attributes the differences in prepayment speeds
to HARP (as a streamlined refinance process), coupon,
origination year (2002 faster than 2003, which are faster than
2004 & 2005, for example), current interest rates (which
will impact lower rates since they never really picked up when
rates were low), recent loan level price adjustment changes by
Fannie & Freddie, FHA’s change in mortgage insurance costs,
and continued tighter underwriting.
Of particular interest is Barclay’s opinion that “although Bank
of America had made a deal with Freddie to cover all its current
and future put-back liability on its legacy Countrywide loans
(pre-2009 origination) with a lump sum payment, and other
originators may follow suit, we do not expect such
actions to lead to any easing in underwriting. These
agreements only cover reps and warranties on existing loans, not
on new loans resulting from refinances. Consequently, they would
actually discourage lenders from refinancing existing loans that
are already covered by these settlements.”
According
to a story in Reverse Mortgage Daily, reverse mortgage
volume fell 35% during 2010, with 72,748 units being
endorsed in 2010. Even in December the number of HECM
endorsements fell slightly to 6,554 units during December, down
0.1% according to data from Reverse Market Insight. “Lower home
values have played a role in the drop in endorsements, but the
number of lenders originating reverse mortgages fell 28.9%
during the year,” said RMI. In December, the number of active
lenders fell to 560, down 47% from last year and the lowest
since September 2006 although the number of units per lender
rose to 11.7 in December, the highest since July 2007 according
to RMI.
With
all the confusion over originator compensation, I’ve heard, "I
am not surprised that the government thinks its ok for
originators to be paid by the borrower as long as they don’t get
compensated by the borrower." So wrote Derek B. with Pugdog
Marketing in Oregon.
Not
only is compensation a continuing worry, but we also have
the risk retention issue mixed with servicing reform. The
MBA recently sent a letter to federal regulators, expressing
"deep concern" regarding recent letters calling on regulators to
create national residential mortgage servicing standards as part
of a fast-track risk retention rulemaking under the Dodd-Frank
Act. “These (two) issues deserve the careful consideration and
debate that can only be achieved if they are addressed
separately, especially given the approaching deadline for
Section 941 rules." Section 941 creates a congressionally
mandated deadline of April 17 for new risk retention rules. MBA
said risk retention is "challenging enough" in its own right and
that it would be a mistake to add a second highly complex topic
into the same policymaking process. (The MBA will also be
holding its “Council on Residential Mortgage Servicing for the
21st Century” summit next week in Washington “to facilitate
dialogue on ways to ensure alignment of servicing practices with
investor and borrower interests and to improve residential
mortgage servicing going forward, including discussion of
national servicing standards.”)
Along
those lines, an MI executive wrote to me saying, “We are
awaiting the pending outcome of the QRM definition (we're
looking for a level playing field with the FHA) and whether the
GSEs continue with their loan level pricing increases in the
spring which would make conventional financing unattractive
relative to the FHA. If one or both move in the direction of the
MI's it would accelerate the road to recovery. If neither does,
it will be the same grind-it-out battle it has been for 4
years.” It is an interesting take on the issue.
This announcement from an AE with Bank of Internet
sounds like "the old days"! "No Job, No Income, No Problem! We
qualify a 5% amortized annual rate of financial asset depletion
as qualifying income. In a nut shell, the older you are and more
you have, the better. Mix and match with all our other
incredible accommodations..." One capital markets executive
suggested, "Seriously, isn’t there a regulator out there looking
for this, just waiting to shut down banks? No job? Uh, just
leave that blank. No income? Uh, don’t worry about filling that
part of the 1003 out. You are 70 years old? Perfect! Here is a
loan you can’t afford." Another thought, "Dodd-Frank states that
the lender must prove that the borrowers can re-pay the loan,
and I believe it even states that the lender must show that the
borrower has the income to re-pay it, and not just the assets.
It will be interesting to see what warehouse banks think of
claims like this." (Editor’s note: these are independent
editorial comments, given an individual AE’s marketing
piece, which may or may not reflect company policy.)
Moving
on, at least mortgage apps for last week showed some
improvement: they increased for the 2nd
straight week. The MBA numbers, which poll about half the retail
channel, were up 2.2%, with refi’s up almost 5%. Purchase
applications fell almost 4%, and have fallen in four of the past
five weeks.
But
rates are not helping things. Yesterday, although MBS prices
started off ok, traders reported that “once the buying subsided
mortgages started to leak wider on continued hedge fund and
money manager basis selling in addition to outright selling from
the originator community.” MBS trading volume was close to
normal, although prices finished Tuesday with a whimper, down
(worse) by .5-.75 in price, depending on rate.
Overall
U.S. treasuries declined for a second day as Japanese officials
said the nation may extend purchases of bonds sold by the
European fund set up to fight the sovereign-debt crisis, easing
demand for the safest assets. Here in this country, the $32
billion 3-year auction went fairly well, but today we have the
$21 billion 10-year note sale and tomorrow $13 billion of
30-year bonds. We did have some pricing information this
morning, with December’s import prices increasing 1.1%, less
than the +1.5% we saw in November, and export pricing rose .7%.
Ahead of today’s auction we have the 10-yr yield sitting at
3.40% and MBS prices are worse by about .250.
Southern Ingenuity
One morning 3 South Tennessee good old boys and 3 Yankees were
in a ticket line at the Nashville train station heading to
Knoxville for a big football game.
The 3 Northerners each bought a ticket and watched as the 3
Southerners bought just one ticket among them.
"How are the 3 of you going to travel on one 1 ticket?" asked
one of the Yankees.
"Watch and learn" answered one of the boys from the South.
When the 6 travelers boarded the train, the 3 Yankees sat down,
but the 3 Southerners crammed into a bathroom together and
closed the door.
Shortly after the train departed, the conductor came around to
collect tickets.
He knocked on the bathroom door and said, "Tickets please." the
door opened just a crack and a single arm emerged with a ticket
in hand. The Conductor took it and moved on.
The Yankees saw this happen and agreed it was quite a clever
idea. Indeed, so clever that they decided to do the same thing
on the return trip and save some money.
That evening after the game when they got to the Knoxville train
station, they bought a single ticket for the return trip while
to their astonishment the 3 Southerners didn't buy even 1
ticket.
"How are you going to travel without a ticket?" asked one of the
perplexed Yankees.
"Watch and learn", answered one of the Southern boys.
When they boarded the train the 3 Northerners crammed themselves
into a bathroom and the 3 Southerners crammed themselves into
the other bathroom across from it.
Shortly after the train began to move, one of the Southerners
left their bathroom and walked quietly over to the Yankee's
bathroom. He knocked on the door and said "ticket please".
There's just no way on God's green earth to explain how the
Yankees won the war...
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