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Feb. 25, 2011: Which judge is right on MERS? Fannie & Freddie's results; oil prices' impact on rates; more investor changes
Rob Chrisman
Here is
an interesting question for any home gardener, or Realtor: "Do
you own the rain that falls on your roof?" http://www.brasschecktv.com/page/1039.html
There are many things from the past that impact the present. For
example, rotary dial telephones meant that high-population areas
received low area codes - it took less time for the dial to turn
back around and was more efficient for larger numbers of people.
(So in the 1940’s when area codes were created, New York
received 212, Chicago, 312, Los Angeles 213, etc.) There are
many people in the business who argue that the government's
insistence on lowering lending standards in the past, in order
to increase home ownership, especially to those who weren't
credit worthy in the past, accounted for a good chunk of the
credit issues that we're dealing with now. There is
obviously a fine line between encouraging home ownership for
those who can afford it, and accepting the fact that not
everyone can qualify for a home loan, for whatever reason.
With that in mind…
The FDIC Advisory
Committee on Economic Inclusion (ComE-IN) will meet on
Wednesday “to discuss principles for low- and moderate-income
(LMI) mortgage lending, and supporting financial education. Committee members
will discuss responsible ways to restore LMI mortgage lending
and sustainable homeownership in the wake of the mortgage and
housing crisis… borrowers' opportunities for homeownership have
diminished as the availability of mortgage credit has
contracted. The market disruptions have been particularly
difficult for lower-income borrowers, who have been
disproportionately affected.” The meeting will be open to the
general public and the media in Washington DC, and on the web: http://www.fdic.gov/about/comein/agendaMarch22011.html.
Fannie reported a
loss of $2.1 billion in the fourth quarter, while Freddie
checked in with a loss of “only” $113 million. Freddie’s loss for
2010 was $14 billion, versus 2009’s loss of over $21 billion.
“Freddie Mac also said Donald J. Bisenius, executive vice
president of the single-family credit guarantee business,
received a “Wells notice,” which indicates the SEC is
considering filing a civil lawsuit against him. Credit-loss
provisions at Freddie were $3.1 billion, down from $7.1 billion
a year earlier and $3.73 billion in the third quarter. Down the
street, Fannie is asking for an additional $2.6 billion in
federal aid. For the year Fannie lost $21.7 billion. Both
company’s performance includes billions paid to the government
in dividends.
How about making the
banks hold 5% of whatever they originate? Obviously originators
are watching the QRM (Qualified Residential
Mortgage) story closely. Even my kids know that requiring
a lender to retain, on their books, $50,000 for every $1 million
in mortgages it originates would be the death knell for many.
Here is the latest on the QRM saga: http://www.nytimes.com/2011/02/18/business/18norris.html.
A servicing
“settlement”,
mentioned yesterday, certainly has the industry roiled –
especially BofA and Wells Fargo, who together service nearly $4
trillion in residential mortgages. Pulling together state
attorneys general, regulators such as the CFPB, SEC, OCC, and
the mortgage servicers would be difficult, at best. The OCC's
examination concluded only a "small number" of borrowers were
improperly foreclosed upon, and banks have argued that any
settlement should reflect that fact. Other federal agencies and
state officials disagree, and the administration's proposed
settlement has banks bearing the cost of all write-downs rather
than passing them on to other investors. It is
certainly no wonder why banks are tending to sit on huge
amounts of capital, given the potential liabilities ahead.
Many analysts feel that the cost of the settlement will lead to
lenders tightening underwriting criteria even further.
I lose track of the lawsuits flying around, but apparently Bank of America has a new one to worry about, as
it was sued by investors in mortgage-backed bonds who are
seeking to force the bank to buy back loans underlying their
securities. The complaint filed in New York State Supreme Court
alleges that Bank of America’s Countrywide Financial unit
breached representations and warranties about the loans, which
it originated. This is on top of the $47 billion lawsuit in
which a separate group of mortgage-bond investors (including the
Federal Reserve Bank of New York and PIMCO) is fighting with
Bank of America over, which is oriented toward declaring Bank of
America in default of its loan-servicing duties.
News on MERS
goes ‘round and ‘round. A California appeals court ruled that
MERS has the right to foreclose on defaulted borrowers in
California. “Under California law MERS may initiate a
foreclosure as the nominee, or agent, of the note holder,” wrote
the judge last week. Earlier this month, an Oregon bankruptcy
court allowed a MERS “Wrongful Foreclosure Claim” to proceed,
based in part on plaintiff's allegation that not every transfer
of the loan was recorded in the land records. This may in part
be due to Oregon’s judicial foreclosure statute allowing for
foreclosures where not every transfer has been recorded. In
McCoy v. BNC Mortgage, the plaintiff received a mortgage loan
secured by a deed of trust naming MERS as the "Beneficiary."
According to the allegations in plaintiff's complaint, the
beneficial interest in the loan was sold several times, and was
eventually securitized into a mortgage-backed security.
According to plaintiff, none of the transfers was recorded in
the county land records. Plaintiff eventually defaulted on the
loan and, after the substitute trustee issued a notice of
default, filed a chapter 7 bankruptcy petition. It goes on from
there, and the case can be seen at BuckleySandler’s http://www.buckleysandler.com/In_Re_McCoy.pdf.
On the other hand, a judge in the United States Bankruptcy Court
for the Eastern District of New York concluded that MERS lacks
authority under New York law to assign interests in mortgages
among its members. The details of the case are beyond
reproducing in this simple commentary – interested readers can
go to http://www.buckleysandler.com/In_re_Agard.pdf.
And the investor & lender news continues to roll along. Fifth Third, starting on 3/1, told brokers that,
“When a mortgage being refinanced is a purchase money
transaction, the mortgage being refinanced must have a Note Date
at least 120 days prior to the Note Date of the new Rate/Term
refinance transaction.”
Plaza Home Mortgage spread the word of a
policy change for Florida property loans, listing the
information required for the broker to provide to the borrower 3
days prior to closing. (It is best to check the announcement for
specific details.)
Flagstar is offering
video/live training to its broker clients. They can visit https://flagstar.webex.com/sac0405lb/salescenter/portal/PortalUrlAction.do?siteurlflagstar&portalNameY737
to sign up. Flagstar also sent an update
out focused on its review of all “rates and fees charged on
every loan sold to Flagstar. Going forward we will be increasing
the frequency of these reviews to quarterly under our updated
Revenue Per Loan Policy.” The investor also announced that
“Florida new construction condominiums are now eligible” for FHA
and conventional financing, given certain restrictions.
Franklin American sent out an
extensive reminder to its clients. Items include issuing reps
and warrants that the borrower has not received any additional
credit beyond what is disclosed on the credit report. “Payoff
statements are required to be in each loan file on all refinance
transactions, regardless of the AUS findings.” The bulletin goes
on to describe changes and reminders for rental income and
bedroom count documentation requirements, qualifying rental
income, revolving debt, verbal VOE’s, etc.
Guild Mortgage also sent out a
lengthy memo that only an underwriter would love (or hate)
detailing updates in the refinance process, subordinate lien
policy, Streamline Refinances, acceptable payment history for
cash out refinances, occupancy of former investment properties,
refinancing multi-unit properties, future changes in net
tangible benefits, etc., etc., etc. Check the bulletin for all
the information far too lengthy to reproduce here.
Higher oil
prices... are they inflationary? Many would say
"yes," although from the Fed's point of view, higher oil prices
actually cause people to spend less on other items and instead
put their money into the gas tank. Either way, the oil market is
all over the press, and we are reminded of it every
time we drive by a gas station – prices are easily back up
to 2008 levels. And rumors of Gaddafi being shot, Saudi Arabia
making up any shortfalls, or the reminder that the US has huge
amounts of untapped reserves just creates more volatility.
Yesterday, and today, the turmoil continued to impact the
financial markets. We also had a better-than expected Jobless
Claims number, and a disappointing Durable Good figure. MBS
volumes were less than the recent averages, and MBS prices
finished the day better by about .250 in price with the 10-yr
around 3.44%.
Wednesday we had one
housing price index, yesterday we had another. The FHFA House
Price Index declined 0.3% in December versus a projected 0.1%
dip. On top of that, New Home Sales in January declined a more
than expected 12.6% to 284k from a downwardly revised 325k that
was previously reported at 329k. In terms of supply, at this
pace we have a 7.9-month supply. For news today we have the Q4
GDP number (old news) and final February Michigan Sentiment at
9:55. The second look at the 4th quarter GDP number
moved it from +3.2% to +2.8%. After the number we find the 10-yr around 3.45% and MBS prices close to unchanged.
(Warning: parental
discretion advised.)
A dog lover, whose dog was a female and "in heat', agreed to
keep her neighbors' male dog whilst they were away on vacation.
She had a large house
and believed that she could keep the dogs apart. But as she was
drifting off to sleep she heard awful howling and moaning
sounds, rushed downstairs and found the dogs locked together, in
obvious pain and unable to disengage as so frequently happens
when they mate.
Unable to separate them and perplexed as to what to do next,
although it was late, she called the vet, who answered in a very
grumpy voice.
Having explained the problem to him, the vet said "Hang up the
phone and place it down alongside the dogs. I will then call you
back and the noise of the ringing will make the male lose his
desire and be able to withdraw.”
"Do you think that will work?" she asked
"It just worked for me," he replied
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