Feb. 8, 2011: News from Fannie, Redwood Trust, Beazer, BofA, Ameriprise, etc.; reverse mortgage PR issue; Commercial sector picking up steam
Rob Chrisman

We’ve had fourteen bank closures so far this year, the latest being 3 on Friday. Gone are American Trust Bank (GA, and now part of Renasant Bank of MS), North Georgia Bank (GA, now part of BankSouth also of GA), and Community First Bank (IL, now part of Northbrook Bank and Trust also of IL).
 
On the opposite end of things, one company seeking to expand is mortgage banker & broker V.I.P. Mortgage. The lender is relatively new, with no legacy issues, has a FHA full eagle status, and is actively looking for both individual retail LOs and entire branches. Its headquarters are in Arizona, but it is licensed in 8 states. V.I.P. has an interesting pricing strategy, offering “raw” pricing direct from large investors with no margins. If you know someone interested, they should contact Tom Kerby at tkerby@vipmtginc.com.
 
Hey, not only is mortgage originator pay being examined, but let’s not forget bank executives. The FDIC is expected to propose that top management at banks with more than $50 billion in assets have 50% of their bonuses deferred for 3 years in order to better match risk and reward.

Scott Garrett, the chairman of the House Financial Services subcommittee on capital markets and government-sponsored enterprises said that the U.S. government needs to end its role in the mortgage market as it decides the future of Fannie Mae and Freddie Mac. “Let me stress and be very clear where I stand: I am firmly committed to a purely private U.S. mortgage market over time, free of any government subsidies or guarantees,” Garrett said today in Orlando at the American Securitization Forum trade group’s annual conference. He added that lawmakers should scale back the government’s role in the market before implementing any broad reforms, and that F&F should be forced to shrink their mortgage portfolios more quickly and lower the size of loans they buy from the current limit of as much as $729,750, and the agencies should be brought onto the federal budget, which would create political pressure on lawmakers to act more quickly.

In addition, Martin Hughes, CEO of Redwood Trust, said that the U.S. government will have to reduce its competitive role in the mortgage market to entice private investors to return, even if it means higher borrowing costs in the transition. Folks who follow such matters know that Redwood has pretty much been the sole issuer of private mortgage-backed bonds in recent years. He stated that private lending would increase if the government reduced the size of loans it guarantees. No matter what, it will be interesting: Fannie Mae purchased $87.6 billion of mortgages in December and $855 billion in 2010. Fannie Mae accounts for 54% of the market share and Freddie Mac accounts for 26%.

How can a reverse mortgage lead to foreclosure? The FHA has stated that “pressure to collect unpaid taxes and insurance from homeowners with reverse mortgages could lead to an increase in foreclosures on senior citizens.” That would certainly be a PR mess, and the Gray Panthers would be out in force: nationwide, per HUD, there are over 670,000 reverse mortgages including 68,660 in Florida.
http://www.palmbeachpost.com/money/some-reverse-mortgage-borrowers-risk-going-into-default-1233751.html

Check out the MBA’s page for the latest stats on the $110 billion of commercial and multifamily mortgages originated during 2010. It is an increase of 36% from 2009, with life insurance companies being the leading source of funding. “Fannie Mae, Freddie Mac and FHA/Ginnie Mae also saw strong volumes, with increases in production.” http://www.mbaa.org/NewsandMedia/PressCenter/75615.htm
 
How is the commercial sector doing? Wells Fargo reports that, "Rising demand for commercial properties has greatly relieved fears about how the impending mountain of maturing commercial real estate loans will be refinanced. Operating fundamentals continued to improve during the fourth quarter for all property types. Sales have continued to increase and the prices of commercial properties sold from the NCREIF database, as measured by the MIT Center for Real Estate, rose 19 percent in 2010. The rise in sales prices marks the second largest gain ever for this series and is likely being driven by a surge in demand for marquee properties in key gateways cities such as New York, Washington, D.C. and Boston. The overall environment has improved much less. Fortunately, the credit environment is opening up, and with property fundamentals continuing to improve, the recovery should strengthen and broaden in 2011.

Investors gone wild?
 
Recently BB&T has posted an update to its guidelines which applies to its FHA, VA & Non-Conforming product lines, Mortgage Services III tweaked its FHA/VA/USDA product lines, Flagstar Correspondent changed its guidelines for its FNMA DU Refi Plus product, Affiliated Mortgage changed many guidelines, and Franklin American sent a bulletin out to clients focused on "Third Party Invoices," Updated Truth in Lending Disclosure (use the new form!).
 
Beazer Homes USA saw its closings drop 42%, which in turn resulted in a loss for the latest quarter of nearly $49 million. This compares to a profit a year ago of $48 million. Homebuilding gross margin, excluding writedowns and abandonments, fell to 10.7% from 12.5% on lower revenue on fixed indirect construction costs and interest expense, and its cancellation rate increased to 32.1% from 27%. New orders fell 24%. Closings dropped in each of the company's three regions, falling 45% in the West and 41% and 44%, respectively, in the East and Southeast.
 
Fannie Mae recently updated its selling guide to reflect changes regarding community land trusts and non-standard payment collection options, and to include a number of other miscellaneous updates and clarifications. It is best to read the bulletin directly detailing the changes: https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2011/sel1101.pdf
 
Last week Bank of America announced that it was suspending buy down loans until more guidance was provided by the Federal Reserve Board. Plaza Home Mortgage has done the same, citing the new summary table confusion as part of the Regulation Z and the Truth In Lending Act (TILA) that is effective with new applications on or after January 30. Focusing on the summary table, “Plaza Home Mortgage, Inc. has determined that the guidance does not address how loans with temporary buydowns need to be disclosed,” and the company is also suspending temporary buydowns on all products until the FRB and our Investors provide additional guidance.
 
Caliber Funding will “no longer accept Business Partner GFEs that list less than 10 business days from the Date of GFE in the Important Dates Line 2 field. In the past, Caliber accepted Business Partner GFEs that showed less than 10 business days by correcting the date on the Caliber GFE.”
 
In its retail channel, Wells Fargo reduced its minimum FICO’s for FHA loans to below 600. Direct Mortgage Wholesale has done something similar by reducing its minimum FHA FICO to 580 for purchase and rate & term refinance loans. There are other requirements, of course, including 90% maximum LTV, no gift funds, etc. (As it turns out, Direct also goes to 125% LTV/CLTVs on non-owners as well.)

In Illinois Mortgage banker Woodfield Planning Corp. was purchased by Wintrust Financial Corporation. Last year Woodfield funded nearly $200 million of loans, mostly in the Chicago area.
 
Ameriprise Bank has teamed up with CMG Financial Services to launch the Ameriprise Home Ownership Accelerator loan product. “This new home financing option replaces a traditional mortgage with a combination of a home equity line of credit and a checking account which together can help a borrower use idle cash to reduce interest costs and pay off the loan balance years early. The Accelerator works by syncing (the salary and the home mortgage payment), since homeowners deposit their paychecks into a checking account which is linked to a home equity line of credit. Cash left in the account at the end of each day is swept into the line of credit, driving down the principal balance on their loan and subsequently lowering the amount of interest owed.”

Possible rumors and innuendos from various e-mails: “BofA contracted with PHH to do their mortgages for the Private Banking sector, adding to PHH’s stable along with Charles Schwab’s mortgage operations.” “GMAC is back in wholesale in this area.” “Bank of America is going to shut down correspondent, wholesale, and retail mortgage operations.” (It turns out this last bit of gossip refers only to their reverse mortgage operation, not to its entire operation.)

MBS volume was pretty slow yesterday. ("Pretty slow" is a technical trading term.) Braver Stern Securities noted yesterday that with the increase in interest rates, and the 10-year Treasury note breaking out of its recent 3.25%-3.50% trading range, "this move has significant implications for mortgage rates and prepayment speeds. Many investors were able to tighten their margins as volumes dropped and to gain market share, but this can only go on for a limited period. So at this point consumers are truly feeling the increase. Rate sheet mortgages are now sitting around 5%, and no-point loans are around 5.25%. Braver Sterns points out that a large block of existing mortgages are now out of the refinancing window, and that prepayments should drop in the coming months or at least until some originators make a push to get some of these loans refinanced before HARP expires in June. “Should HARP not be extended many of these borrowers (especially 2006-2007 production) will have a harder time refinancing due to LTV constraints."
 
We have another day of no news, although the fixed-income markets are slightly better. The 10-yr Treasury is hovering around 3.65%, and MBS prices are about .125 better.


A cowboy, who is visiting Wyoming from Montana, walks into a bar and orders three mugs of Bud. He sits in the back of the room, drinking a sip out of each one in turn. When he finishes them, he comes back to the bar and orders three more.
The bartender approaches and tells the cowboy, “You know, a mug goes flat after I draw it. It would taste better if you bought one at a time.”
The cowboy replies, “Well, you see, I have two brothers. One is in Arizona, the other is in Colorado. When we all left our home in Montana, we promised that we'd drink this way to remember the days when we drank together. So I'm drinking one beer for each of my brothers and one for myself.”
The bartender admits that this is a nice custom and leaves it there. The cowboy becomes a regular in the bar and always drinks the same way. He orders three mugs and drinks them in turn.
One day, he comes in and only orders two mugs. All the regulars take notice and fall silent. When he comes back to the bar for the second round, the bartender says, “I don't want to intrude on your grief, but I wanted to offer my condolences on your loss.”
The cowboy looks quite puzzled for a moment, then a light dawns in his eyes and he laughs.
“Oh, no, everybody's just fine,” he explains, “it's just that my wife and I joined the Baptist Church and I had to quit drinking. Hasn't affected my brothers, though.”