Knowledge is power - just think of all the data that is contained in title companies, MERS, national appraisal companies, loan origination systems, and so forth. When one looks at all the data out there, some interesting trends emerge. For example, the National Association of Realtors (NAR) has analyzed 2011 investor behavior, and, as LO’s can tell you, there was a significant rise in non-owner purchases last year. Investors purchased 1.23 million existing and new homes, an increase of 64.5% from 2010, and investment home sales comprised 27% of all activity, an increase of 17%.  Nearly half of investor purchases were made in cash, and half were distressed homes.  The regions that saw the most activity were the South (41%) and West (23%), while purchases in the Midwest and Northeast made up 17% and 15% of the total, respectively.

A recent study conducted by TransUnion has revealed that, when faced with credit card, auto loan, and mortgage debt, the typical troubled borrower is most likely to let their mortgage payments slip. Four million indebted borrowers were surveyed (that’s a lot of dinner-time phone calls!), and a mere 9.5% of those were delinquent on auto loans, while 17.3% were delinquent on credit card payments.  Nearly 40% of the borrowers polled were behind on their mortgage, opting instead to pay auto and credit card loans.

January saw more short sales close nationally than foreclosures for the first time, meaning that banks were agreeing to more deals. Short sales accounted for almost 24% of home purchases in January versus about 20% for sales of foreclosed homes. (In January 2011 it was 16 and 23%, respectively.) Depository banks were never designed to be landlords, hold real estate, or voluntarily swallow losses on thousands or millions of homes. But they can process short sales in less time and at significantly less cost than foreclosures, leading to fewer foreclosures on the market, leading to fewer distressed properties on the market.

Lastly, Ellie Mae released a report using a sample of loan application data from its database for March compared to February 2012 and September and December 2011.  (Ellie Mae States that there were two million loan applications processed through its systems in 2011.) In March, 61% of originations were for refinancing, about the same as three and six months previous but down from 67% in February. FHA-backed loans accounted for 28% versus 64% for conventional. A typical loan regardless of its purpose took 42 days to close in March, about the same as in February but down three to five days from December. The majority of loans that went through Ellie Mae were 30-year fixed-rate loans but 20% were 15 year and about 4% were ARMs. 

In a stat of great interest to secondary marketing folks, Ellie Mae calculated a "pull-through" rate for a sampling of loans for which applications had been submitted 90 days earlier. The pull through for March was 47%: 56% for purchases and 42% for refi’s. The average loan closed in March had a FICO score of 749, an LTV of 77% and a DTI of 23/35. (Loans that were denied had an average FICO of 699, 85% LTV, and a DTI of 27/43.)

Bank of America is gone from wholesale and correspondent lending, but a) are still a huge retail force, and b) still dealing with legacy issues from its poorly executed Countrywide purchase (in comparison to Wells swallowing Wachovia & World Savings). BofA said first-quarter profit rose amid a rebound in trading and lower provisions for bad loans. Profit excluding certain one-time items increased to 31 cents a diluted share from 23 cents a year earlier, better than expected. Net income, which includes accounting charges, fell to $653 million from $2.05 billion. For mortgage originations, its market share has plummeted from about 25% in 2007 to 5% or less in recent quarters. Of great interest is how much of the HELOC portfolio will be reclassified into NPAs (due to the change in regulatory guidance that requires HELOCs with high LTVS over 100% be reclassified as an unsecured loan). The guidance is expected to impact $2B of existing loan volume.

In other big-bank news, Ally Financial announced that it’s wholly owned subsidiary Rescap did not make a scheduled interest payment on its 6.5% notes due April 2013 ($473mn outstanding). Rescap now has a 30-day grace period before creditors can accelerate the debt and declare an event of default. Most believe Rescap’s bankruptcy is eminent. We all know that chatter about a potential restructuring and/or bankruptcy filing by Rescap has been prevalent for a few years now – darn those mortgages originated between 2005 and 2007. Recently debt has been extended or renegotiated. Barclays points out that “according to the PSAs that govern Rescap-serviced RMBS trusts, the trustee has the option to terminate the master servicer's rights and obligations if the master servicer (Rescap) becomes insolvent. The trustee would be required to terminate the master servicer's responsibilities if directed to by 51% or more of the certificate holders. The trustee would then succeed to the master servicer's role and be entitled to a similar compensation arrangement.” Things become even more complicated, based on the trustee, primary servicer, master servicer, and which deals are impacted by this, how the servicer settlement factors into the situation, and which servicing assets can be split. There are a lot of moving pieces that make my head spin, mostly focused on the impact to investors rather than the origination universe.

Bloomberg reported on the latest Treasury “fix” for Fannie Mae and Freddie Mac. Once again, it raises the question about what will require Congressional approval and what won’t, because if any major change requires Congress to vote on it, nothing will happen until early 2013. In February of 2011 the Treasury released a “white paper” various options for the agencies, and it seems that the Treasury has focused on Option 3 (sounds like a science fiction movie title) which has the greatest role for the government. In a move that may be used to gauge public opinion, U.S. Treasury officials are leaning toward recommending that Fannie Mae and Freddie Mac be replaced with a government safety net for the mortgage finance system and continued federal backing for loans to lower-income homebuyers. Some believe that the uncertainty surrounding the future of the mortgage finance system has impeded the rebound of the housing market and the private housing-finance market.

Option 3 is where the government would supply “assistance for low- and moderate-income borrowers and catastrophic reinsurance behind significant private capital, private companies could insure mortgage bonds, with the government paying out to bondholders only after shareholders were entirely wiped out. Also on the table are proposals about a government-run “secondary market facility” for residential mortgages to replace Fannie & Freddie, or replacing the GSE’s with privately-capitalized entities that would purchase government backing for the mortgage bonds they issued. But at this point it appears that the Treasury is leaning toward trying to reduce the government footprint on housing – good luck with that one.

Pricing models everywhere are reeling (maybe that’s too strong of a word) from Wells Fargo’s changes, especially in the mandatory sales world. The bank distributed a new mandatory pricing tool with higher guarantee fees (about 2 basis points in yield which is about 11 basis points in price) that impact the buy-up and buy-down multiples. Originators selling to Wells under a best efforts scenario saw this hit about a month ago, but sellers are warned that another hit will impact July deliveries/agency contract renewal.

Conversely, word from the street suggests that there will be improvements to the Fannie 30-year, fixed-rate, Refi Plus >125% HARP 2.0 whole loan pricing model. Five months ago Fannie provided guidance that it would initially price the >125% LTV product originated under the expanded HARP program at the same price as 15-year and 30-year fixed rate mandatory and best efforts whole loan pricing. But with the recent sales of MBS’s backed by this product, settling in June, it has become evident that a market has developed for the 30-year >125% LTV product (which traders have given a “CR” prefix). So Fannie adjusted its whole loan pricing to reflect current market conditions.

Wednesday was another decent day for folks who prefer non-volatile markets. Traders reported that MBS volume was below normal, while the usual culprits were in buying: banks, REITs, insurance companies, and hedge funds, along with the Fed. By the time the whistle blew, MBS prices ended higher by about .125, and the "benchmark" 10-yr T-note was better by about .250 (1.98%). Thursday morning we have the usual Jobless Claims (expected to drop to 370k from 380k, but it “dropped” to 386k from a revised 388k) with Existing Home Sales for March (called higher to 4.62 million from 4.59 million), Leading Economic Indicators (expected to drop slightly), and the Philly Fed Survey. At 11AM EST the U.S. Treasury Department will announce details of next week's auctions of 2-, 5- and 7-year notes, estimated unchanged at $99 billion. But when it comes right down to it, none of this is expected to move rates too much, so perhaps, barring some unexpected event, we'll end about where we start off rate-wise. This morning we’re starting off with the 10-yr, as a proxy for interest rates in general, at 1.96% and MBS prices roughly unchanged.

The Jury...

In a criminal justice system based on 12 individuals not smart enough to get out of jury duty, here is a jury to be proud of:

A defendant was on trial for murder.  There was strong evidence indicating guilt, but there was no corpse. In the defense's closing statement, the lawyer, knowing that his client would probably be convicted, resorted to a trick.

"Ladies and gentlemen of the jury, I have a surprise for you all," the lawyer said as he looked at his watch.  "Within one minute, the person presumed dead in this case will walk into this courtroom." He looked toward the courtroom door.  The jurors, somewhat stunned, all looked on eagerly.           

A minute passed.  Nothing happened.             

Finally the lawyer said, "Actually, I made up the previous statement.  But you all looked on with anticipation.  I, therefore, put it to you that you have a reasonable doubt in this case as to whether anyone was killed, and I insist that you return a verdict of not guilty."

The jury retired to deliberate.   A few minutes later, the jury returned and pronounced a verdict of guilty.         

"But how?" inquired the lawyer.  "You must have had some doubt; I saw all of you stare at the door."

The jury foreman replied:

"Yes, we did look,

But your client didn't."