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May 5, 2011: Deutsche & MortgageIT, BofA & Countrywide; Freddie doesn't need money this time around; lots of investor u/w adjustments
Rob Chrisman
Cinco de
Mayo does not mark the discovery of tequila, but instead
celebrates the legendary Battle of Puebla on May 5, 1862, in
which a Mexican force of 4,500 men faced 6,000 well-trained
French soldiers. The 4-hour battle ended in a victory for the
Mexican army under Gen. Ignacio Zaragoza. But the
other, tragic, fabled story of this date can be found at the
end of this commentary.
Lenders should note that the median age of US residents of
Mexican descent is about 26 years old versus 37 years old for
the general population, among households where the householder
was of Mexican origin 35% of them had children younger than 18
(versus 21% of all households), and the average size of those
families was 4.2 people versus 3.2 for all families. Going to
the Census Bureau's <http://factfinder.census.gov>
(gracias Census Bureau) one finds that there are about 32 million U.S. residents of Mexican origin, 10%
of the nation’s total population and 66% of the Hispanic
population. Nearly 20 million of the 32 live in either
California or Texas, about one-third of the residents of those
two states. The median income in 2009 for households with a
householder of Mexican origin is $39,000 versus $50,000 for the
population as a whole, and the home ownership rate stands at
about 50% versus 65%.
Freddie Mac’s employees may want a margarita
tonight after reporting a $676 million quarterly profit, and
indicated it would not seek additional funds from
the US Treasury this quarter for the first time since it
was taken over by the government nearly three years ago. But
Freddie said that over the long term it was unlikely to earn
more than the dividends owed to the Treasury on preferred stock
issued as part of its bail-out and therefore expected to request
additional funds in future periods. The CEO said, “Continued
improvements on the employment front and in early-stage
delinquencies were positive signs during the quarter, but we
believe large inventories of unsold homes and a high number of
distressed sales will continue to put downward pressure on home
prices in many neighborhoods.” (Does he mean Nevada down 59%,
Arizona down 50% and Florida down 49% from 2006 highs?)
Importantly for the
industry, Freddie Mac also said that its requests
to banks to repurchase faulty loans declined to $3.4
billion at the end of the first quarter, compared with $3.8bn at
the end of the fourth quarter of 2010. More than 40% of loans
owned by Freddie Mac were originated after 2009 and those loans
have far higher equity and lower delinquency rates than those
issued in 2006 and 2007.
Some acquisitions
tend to work out better than others. (Wells & Wachovia seems
to be working out.) On the other hand…Moody's
downgraded Bank of America’s mortgage servicing ratings
because its loss prevention results have deteriorated. The
agency lowered the ratings to "above average" from "strong."
BofA recently set aside $1 billion to repurchase mortgages and
added $352 million to its legal expenses during the period. The
company is fighting lawsuits from investors and insurers that
claim they were tricked into buying mortgages based on
fraudulent documents during the housing boom, the attorneys
general from all 50 states are investigating allegations that
BofA, and many other banks, submitted erroneous foreclosure
documents, and the SEC is conducting a separate probe into
misleading mortgage-backed investments.
We also have Deutsche Bank AG, who recently reported good
earnings, being sued by the U.S. attorney’s office for allegedly
lying over mortgages. Deutsche Bank bought MortgageIT
in 2006, and both, according to the suit, heedlessly chose
mortgages that dishonored the FHA’s mortgage insurance program
rules. Quality checks and the ability of borrowers to make
mortgage repayments were ignored before making the selection.
Deutsche later resold those government insured mortgages and
made significant gains. MortgageIT endorsed over 39,000
mortgages between 1999 and 2009 with a total underlying
principal balance of more than $5 billion for the FHA insurance.
Over $386 million have been paid in F.H.A. insurance claims and
several more millions of dollars are expected to be paid for
MortgageIT home loan defaults in the days ahead.
A segment of the population looks forward to the Special
Swimsuit Edition of Sports Illustrated, or Time Magazine's Man
of the Year Edition. Somehow, I don't think that the FDIC's
answer will garner quite the attention, but it is useful to
servicers nonetheless. "Supervisory Insights
Special Foreclosure Edition" can be found at http://www.fdic.gov/regulations/examinations/supervisory/insights/sise11/index.html.
This is not good news, but it is not unexpected, for anyone
following shadow inventory numbers. The report shows the FHA REO
inventory was at 68,801 at the end of February, up 54.2% from
February 2010! http://portal.hud.gov/hudportal/documents/huddoc?idFHAComRpt11feb.pdf
Wells' (#1 in the 4th quarter)
wholesale channel recently checked in with some changes on
"Upcoming Benefit to Borrower Policy" and on Monday instituted a
policy stating that on FHA flip transactions second appraisals
cannot be charged to the borrower. Wells also gave brokers
requirements for Living “Inter Vivos” Trusts, and stated that
documentation for these trusts must be submitted prior to
requesting closing documents so Wells Fargo can determine if the
trust meets the requirements.
Fifth Third Mortgage updated its appraisal
management contacts, appraisal management company turn times,
and announced a new service a few weeks back whereby it
“developed a GFE worksheet that is formulated to accurately feed
fees to the correct GFE boxes” and gave clients a process to
utilize this tool. Fifth Third told clients that it “is unable
to allow a borrower to change his or her compensation option
from the Borrower Paid compensation option to the Lender Paid
compensation option. Fifth Third will allow a borrower to change
from the Lender Paid compensation option to the Borrower Paid
compensation option during the processing of the loan. Changing
compensation models is an allowable changed circumstance under
RESPA, but it is not permissible to increase Block 1
(Origination charge). Therefore, the Borrower Paid compensation
option cannot be greater than the amount disclosed under the
Lender Paid Compensation option.” Fifth Third has also released
adjustments to its HomePossible program, rental property
management requirements, existing loan subordination policy, and
told brokers that it will no longer collect a $150 AMC appraisal
ordering fee, but will increase its Funding Fee to offset the
AMC expense (which range from $725-780, depending on program).
Earlier this week Union Bank put out a closing
guarantee whereby, “on certain purchase transactions, Union Bank
will meet or beat the closing date stated in your client’s
purchase contract or their first month’s mortgage payment is on
us.” (Check the actual bulletin for terms and conditions.) In
addition, the Bank is waiving the Lender Origination Charge and
offering a one-time interest rate float down at no cost with
certain restrictions.
Effective last week Home Savings “will allow 3rd party processing
fees to be paid to the broker for loans closed under a lender
paid compensation plan. This applies to bona fide contract
processing and not for processing that is completed by an
employee of the broker. If the processing fee is paid directly
to the broker it must be disclosed in Block 1 of the GFE and
will be included as income on form 1099.”
On May 1 Chase Home
Finance LLC merged into JPMorgan Chase Bank National Association
(“JPMCBNA”). By now all transactions should have no reference to
Chase Home Finance LLC and instead be JPMorgan
Chase Bank, N.A. Although the primary impact is to the
documents such as the Insurance Mortgage Payee Clause, any
document that references Chase Home Finance LLC (or CHF, LLC)
should be updated to reflect JPMorgan Chase Bank, NA.
Yesterday the MBA
reported what lock desks everywhere already knew, and that was
that residential mortgage applications increased 4%
from one week earlier. Refinancing apps picked up 6% and
purchases were up .3%. With these lower rates refi’s are
accounting for nearly 63% of apps, and ARM share is up to 6.7%.
And yesterday rates
continued to drop, with the ADP private payroll employment
numbers yesterday coming in weaker than expected (179k versus
200k) and the ISM Service coming in at their weakest levels
since last August (“slumped” is the word one report used). The
US continues to need to finance its deficit, which includes
selling $72 billion next week ($32 billion 3-yr on the 10th,
$24 billion in 10-yr’s on the 11th, and $16 billion
in 30-yr’s on the 12th).
How about these rates
this morning? The yield on the 10-yr this is below 3.20%, down
to 3.17%. Jobless Claims this morning came out
up 43,000 to 474,000 claims last week. Productivity numbers also
showed an increase, which is helpful, but stocks and bonds are
reacting to the Jobless Claims increase. Agency MBS
prices are better by between .125-.250.
Most people don’t know that in 1912, Hellmann’s mayonnaise was
manufactured in England. In fact, the Titanic was carrying
12,000 jars of the condiment scheduled for delivery in Vera
Cruz, Mexico, which was to have been the next port of call for
the great ship after its stop in New York.
This would have been the largest single shipment of mayonnaise
ever delivered to Mexico. But as we know, the great ship did not
make it to New York. The ship hit an iceberg and sank, and the
cargo was lost forever.
The people of Mexico, who were crazy about mayonnaise, and were
eagerly awaiting its delivery, were disconsolate at the loss.
Their anguish was so great that they declared a National Day of
Mourning, which they still observe to this day.
The National Day of Mourning occurs each year on May 5th and is
known, of course, as Sinko de Mayo.
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