Speaking of problems that will last for many months, possibly years, the OCC and the Fed will require targeted servicers to review their foreclosure actions. “The OCC and the Federal Reserve announced an agreement with a number of mortgage servicers that allows borrowers who believe they suffered financial harm stemming from foreclosure processes to request an independent review of their circumstances.” Order some cases of Red Bull: government officials said as many as 4.5 million cases could be involved. The Federal Reserve announcement can be found at http://www.federalreserve.gov/newsevents/press/enforcement/20111101a.htm and involves four mortgage servicers it supervises: GMAC, HSBC, SunTrust, and EMC. The OCC action (http://www.occ.treas.gov/topics/consumer-protection/foreclosure-prevention/correcting-foreclosure-practices.html) involves potentially more than two dozen mortgage servicers under its jurisdiction. As many remember, 18 months ago the OCC, Fed, and OTS announced enforcement actions against 14 large residential mortgage servicers and two third-party vendors for “unsafe and unsound practices related to residential mortgage servicing and foreclosure processing.” As part of those consent orders, federal regulators required servicers to engage independent firms to conduct a multi-faceted review of foreclosure actions for ’09 & ’10.

It is rumored that the price tag to settle the state and federal investigation of bank foreclosure practices has increased by at least $5 billion to $25 billion. No wonder banks and servicers (in most cases the same institutions) are beefing up reserves. $25 billion for the nation's five largest mortgage servicing companies: (alphabetically) Ally, BofA, Chase, Citi, and Wells. But does the settlement depend on bringing California back? (It left the talks in early October.) How will the billions be divvied up, and who is going to oversee it?

The enforcement actions also required servicers to correct other deficiencies in residential mortgage loan servicing and foreclosure practices going forward. Servicers must specify a single point of contact for certain borrowers who are having difficulty paying their mortgages, ensure that foreclosures are not pursued when a borrower is performing on a loan modification, and establish “robust controls and oversight” over their third-party vendors. Under this recent announcement, borrowers are eligible for a review if their primary residence was in the foreclosure process in 2009 or 2010, whether or not the foreclosure was completed. The review would determine if those borrowers suffered financial harm directly resulting from errors, misrepresentation, or other deficiencies.

A hotline number has been established (888-952-9105) along with a website, www.IndependentForeclosureReview.com. To support awareness, servicers will conduct an advertising campaign and send letters to borrowers who may be eligible. The agencies said requests for review by the servicers' independent consultants must be received by April 30, 2012. Are we having fun yet?

Fannie Mae is rumored to be getting out among the people again. There are companies out there that fill out the application, but don't know where to send it. Fannie is looking for more sellers, and more seller-servicers. But the GSE is rumored to be monitoring foreclosure time periods for large lenders, so that after the REO sale, big servicers are dinged if the property sold X number of days after the average of either national or state numbers – and big servicers are usually inclined to pass things like that down the food chain. Rumors only!

When a company is losing money, management tries to change that by lowering costs or making more money: simple. Why should Freddie & Fannie be any different? Since being placed into conservatorship they have steadily increased guarantee fees and lessened the degree of cross subsidization in credit pricing. But industry observers suggest that even with these improvements the GSE's current pricing for credit guarantees is less than one would likely observe in a purely private, competitive market. Put another way, given today's real estate markets and delinquency issues, it appears reasonable to assume that fully private firms operating with their own capital at risk would be more likely to give greater weight to more negative scenarios or model uncertainty than F&F do operating under the umbrella of conservatorship and government capital. In addition, private firms would likely target a higher rate of return than the GSE's, and the market would demand higher levels of capital. Therefore, a logical next step in conservatorship is to continue down the path already started of gradually increasing guarantee fee pricing to better reflect that which would be anticipated in a private, competitive market.

And if you think about it, jacking up the g-fees might actually help stabilize things somewhat. One can model and make educated guesses about the price a purely competitive, private market would charge for a given set of mortgage credit characteristics presented by any given borrower, but we can’t know this with certainty. For these reasons, many believe that a series of periodic, gradual price increases makes more sense than one or two larger price adjustments, and thus anticipate the F&F will continue the gradual process of increasing guarantee fees. This will not happen immediately but should be expected in 2012, with lots of warning (as has become standard). And don't look for lenders to keep this cost - it will certainly be passed on to the borrower.

But Fannie & Freddie aren’t the only ones in the news. Ginnie Mae has reported that its fiscal year net income for 2011 hit $1.2 billion – a record. “Ginnie Mae has had a remarkable year; it’s our best yet,” said its president Ted Tozer. “Our financial performance this fiscal year—despite a mortgage market still in turmoil—is a testament to our well-functioning business model. Our business is simple, our approach to risk-taking is conservative, and our ability to finance government-insured mortgages is helping to keep the housing market afloat.” Numbers indicate that Ginnie-backed loans financed nearly 60% of all home purchases in fiscal year 2011. And in fact so far this year Ginnie Mae (that doesn’t buy mortgages but instead insures and packages mortgages backed by the FHA, VA, and other agencies, and is 100% explicitly backed by the U.S. government) has issued more mortgage bonds than Freddie Mac.

And as politicians and regulators fumble along, either trying to figure out what to do about Freddie & Fannie or not dealing with the issue at all, some groups say Ginnie Mae is an example of how the government could retain a role in the market without the kind of taxpayer risk posed by Fannie Mae and Freddie Mac. Under the Ginnie model, the FHA and servicers are the first lines of defense when a loan defaults. Ginnie pays investors only when a servicer fails – like Taylor, Bean and Whitaker which was servicing $26 billion in Ginnie Mae loans when it collapsed into bankruptcy in 2009. Ginnie has $600 million in loan-loss reserves and $16 billion in capital reserves. And smaller servicers should be happy to know that as larger companies may not want to service as many loans, Ginnie is trying to woo smaller players into selling and servicing Ginnie Mae securities. Perhaps this will help speed up the Ginnie Mae application and approval process which in some cases takes years.

In all the excitement over the Fannie & ResCap news yesterday, I didn't have space to note that LoanSifter and Google have teamed up. LoanSifter, known for its product and real-time pricing platform, and Google, known for, uh, being Google, announced a “strategic relationship that gives consumers access to mortgage loan products and real-time pricing based on LoanSifter's technology, including side-by-side comparisons of mortgage loan products from multiple lenders through Google's Comparison Ads.” The press release said that the Google users will be given rates and in turn LoanSifter's lenders will receive qualified online leads: http://www.marketwatch.com/story/loansifter-to-provide-google-with-real-time-mortgage-quotes-2011-11-07.

Rate-wise, yesterday continued gyrations from situations in Italy and Greece and sent the Dow tumbling 3%, while 10-year Treasury notes improved 1 point and down to a yield of 1.95%. But apparently MBS investors are nervous about new mortgages staying on their books for very long: 30-year 3.5% and 4.0% coupons improved by about .125 on lighter-than-average selling.

Tomorrow bond markets are closed (and anyone producing a rate sheet tends to price conservatively) but today we do have some U.S. news to chew on. We’ve had Jobless Claims (-10k to 390k), Import Prices, and the Trade Balance (-$43 billion). And later we’ll have a $16 billion 30-yr bond auction. But rates (and stocks) were showing some rebound from yesterday prior to these numbers, and we have the 10-yr back to 2.05% and MBS prices worse by .125-.250.

We always hear about problems with third world countries. What about problems in first world countries?
"My hand is too fat to shove into the Pringles container so I have to tilt it."
"I didn't have a lousy childhood, so I can't turn my pain into art."
"I had too much food for lunch and now I'm tired."
"I forgot to bring my phone with me to the bathroom and I was bored the whole time."
"I'm kind of hungry, but my roommate has guests over so if I go into the kitchen I'll have to introduce myself."
"My laptop battery is low, but the charger is way over there."
"The Domino Pizza Tracker app is not working, so I don't know when to put my pants on."
"I can't hear the TV while I'm eating crunchy snacks."
"I'm trying to text while at a red light, but I keep making all the greens."
"My GPS made me drive through the ghetto."
"I have to find my own girlfriend because my culture doesn't practice arranged marriages."