|
Aug. 9, 2011: HVCC = AIR; Freddie's loss; AIG vs. BofA; handling rate lock renegotiations
Rob Chrisman
"There's
no
time to stop for gas, we're already late." One has to think
about the warped logic that is behind that statement, just as
one has to think about how a downgrade by S&P of
US debt caused a drop in rates. Yesterday the 10-year UST
note yield fell to 2.41%, the lowest level since October, and
the 2-yr UST yield hit a fresh record low of 0.232%. The price
move underlines the dilemma confronting investors: there are few alternative
safe-haven assets out there that can match the depth and
liquidity of the Treasury market, with over $9.3 trillion
in debt outstanding. The US debt downgrade from triple-A to
double A-plus was not a big surprise to investors, but the fears
about the U.S. economy faltering further and the euro-zone debt
crisis have spooked investors' sentiment and increased worries
that the downgrade could further undermine consumer confidence.
Bill Gross, the manager of the world’s largest bond mutual fund,
praised S&P’s ‘Spine’ on the move. PIMCO, as we remember,
was the fund that sold all its US Treasury securities several
months ago, only to see prices rally dramatically – it has been
buying US Treasury securities back again.
How does an appraiser find comps for a 100 square foot house?
Something tells me that there would be no comps: http://biggeekdad.com/2010/07/bachelor-pad/.
Something to give the person who has everything…
A
while back the commentary mentioned that HVCC had been phased
out. "It is now A.I.R. - Appraisal
Independence Requirement. They are “technically”
correct. HVCC no longer exists but it is only in name. The AIR
is essentially the exact requirement." Another vet wrote, "The
actual HVCC was put to bed last October. However, two events
occurred. First; The GSE’s internally adopted permanent rules to
continue HVCC. You have to remember Cuomo wanted HVCC after
conducting the investigation of WAMU and an AMC. He only got
HVCC after he backed off of the affiliated arrangement
restriction to 20% ownership by a banking entity. Second; the
Dodd Frank Bill incorporated the HVCC into the Bill that is now
in effect in Section 1472, Title XIV, subtitle F. There are
also some provisions in the Interagency Banking Guidelines. Have
you noticed the FHA Streamlines are almost non-existent since
they changed the MIP? They do not work."
For
those interested in some training, and who isn’t, “The Property Sciences Group
presents a complimentary 90 minute Webinar: ‘Clarity on the
Upcoming Changes’ tomorrow at 10AM PDT. Come September 1, 2011,
the appraisal forms we have grown accustomed to will have a
different "look and feel" in some specific areas. Join us as we
provide clarity to
Underwriters, Appraisers and Loan Agents on the upcoming
changes brought on by the Uniform Appraisal Dataset (UAD).”
Check it out at https://www2.gotomeeting.com/register/991525002.
Cash
held by US banks surged 8.4% to a record $981B during the week
ending July 27, according to Fed
data. That’s more than 3x the amount held in July of 2008. What
does that tell you about where banks, and individuals, are
putting their money?
We
know a company that could use some – Freddie reported a $2.1
billion loss for the second quarter and said it will seek $1.5
billion in U.S. Treasury aid in order to eliminate a
net-worth deficit of $1.5 billion for the three- month period
ending June 30. Like Fannie, the deficit was partly attributable
to a $1.6 billion quarterly dividend payment to the Treasury
Department, the company reported. It is better than the $4.7
billion loss in the same period last year, but this loss, along
with Fannie’s helps critics calling for the end of the agencies.
In September it will have been three years since F&F were
placed into conservatorship.
Speaking
of Freddie & Fannie, S&P’s downgrades did not stop at US
Treasury securities – it
downgraded the debt of these two also, along with 10 of the 12
Federal Home Loan Banks and five insurers from AAA to AA+:
Knights of Columbus, New York Life Insurance, Northwestern
Mutual, Teachers Insurance & Annuity Association of America
and United Services Automobile Association. But wait – there’s
more! Investors are expecting downgrades of states or
municipalities that rely on federal funding, along with hundreds
and hundreds of securities whose ratings are dependent on U.S.
sovereign ratings.
American
International Group (see next paragraph), the bailed-out
insurer, plans to sue Bank of America for $10 billion to
recover losses on mortgage bond investments. AIG took U.S.
government bailouts starting in 2008 to avert a collapse after
losses tied to subprime home loans and insuring mortgage bonds.
As you’d expect, BofA rejects the insurer’s assertions, and
through a spokesman said, “AIG recklessly chased high yields and
profits throughout the mortgage and structured finance markets.
It is the very definition of an informed, seasoned investor,
with losses solely attributable to its own excesses and errors.”
Last
week we all saw the news on RMIC’s cessation of writing new MI
policies, which was followed by conjecture that PMI was next.
But there are still other MI companies, and a news release AIG
CEO Robert Benmosche said that subsidiary United Guaranty is
thriving. The mortgage insurance unit earned $13 million in
quarterly operating income. "They've done a wonderful job of
reinventing how they underwrite mortgages," Benmosche explained.
"So they have a model now that works very effectively on new
business."
HUD
has reached a settlement with BofA that releases the company
from liability for failing to adequately provide alternatives to
foreclosure on 57,000 delinquent government-insured mortgages.
American Banker reported that, “It has been forged on a separate
but parallel track from continuing settlement talks between Bank
of America, state attorneys general and other regulators over
alleged mortgage origination and servicing failures. B of A's
pact with HUD requires it to waive a minimum of $10 million in
unpaid mortgage payments and vet each of the 57,000 delinquent
borrowers for a possible loan modification, short sale or other
foreclosure alternative...After such outreach, the settlement
paves the way for B of A to foreclose on homes that borrowers
could not afford even after a mortgage modification and those
that have been left vacant by owners. In forging the agreement,
HUD decided to forgo steep monetary damages or admissions of
error from the bank.”
With
the move down in rates, mortgage companies everywhere are
grappling with renegotiations.
Tina Reid-Freeman of MIAC
wrote, “Everyone is complaining about renegotiations. It is a
loss mitigation situation and you lose money every time you have
to renegotiate, period. There are things we can do to mitigate
the losses, however. First, we structure our fallout tables to
have “extra” fallout to account for the “partial fallout” of a
renegotiation. This helps you from being over-hedged as the
market moves up. However, since the position is adjusted after
a certain degree of movement has occurred, even if it happens
the same day, there are some losses. Historically, people
purchased options to cover this risk, and a few companies still
do. But most take the risk, and use dynamic pullthrough
adjustment to prevent significant over-hedging. This avoids the
certain cost of option premiums in favor of the potential cost
of renegotiations, and actually works well.
“With respect to handling renegotiations internally, it is
important that everyone involved understand that they are not free.
The loans are hedged from day one so there is a cost to the
company. They are a loss mitigation exercise…you lose by giving
the borrower a better rate, but lose less than you would if you
lose the deal entirely. It helps to require everyone in the
food chain to share part of the loss, including the loan officer
and cost center manager, who should approve each one before it
goes to Secondary. This helps remind people that it is not
free. Second, the goal should be to give the borrower a small
concession, so they feel they have “won”, but not to give away
the farm. If you can keep the deal for a .125% in rate, don’t
offer .25% or .50%!
I am personally opposed to programs that make it super easy and
formulaic to renegotiate, because this implies to all involved
that it is no big deal. The exception would be an actual
float-down lock program, where you plan from the beginning to
automatically reduce the rate to market (or close to it) at
closing, but this does require an allowance for hedge costs in
the initial rate sheet quotes (which may result in complaints
about competitiveness….your people have to be able to embrace
the float-down concept and sell it).” Thank you Tina.
“Panic”
is how a few reports summed up the markets yesterday. Despite
the S&P downgrade on US debt, Treasuries remained the go to
safe haven with 10-year notes surging almost 2 points and
dropping the yield to 2.34%, its lowest level since January
2009. The Dow, on the other hand, plummeted over 600 points or
5.5%. Investors are becoming increasingly bearish about global
growth and the prospects of another recession and the continuing
uncertainty in the EU. MBS prices closed higher by roughly .75
and .5 on 30-year 3.5% and 4.0% coupons, although how much of
this is passed through on rate sheets remains to be seen.
Today…
who knows? We had some Non-Farm Productivity numbers of little
consequence (-.2% for the 2nd quarter). We have a
one-day FOMC meeting with the statement released at 2:15PM EST
and prior to that at 1PM EST the Treasury will auction $32
billion in 3-year notes. So
far this morning we’re seeing a slight rebound in
headline-grabbing stocks, but rates have crept up: the 10-yr
is at 2.39% and MBS prices are slightly worse.
An
elderly woman decided to prepare her will and told her preacher
she had two final requests.
First, she wanted to be cremated, and second, she wanted her
ashes scattered over Wal-Mart.
“Wal-Mart?” the preacher exclaimed. “Why Wal-Mart?”
“Then
I'll be sure my daughters visit me twice a week.”
If
you're
interested, visit my twice-a-month blog at the STRATMOR Group
web site located at
|
