Oct. 26, 2012: Warren Buffett up to his shins in betting on a housing-related recovery; Zillow lists foreclosures
Rob Chrisman
Here's
a rare editorial comment from me if folks care to read it. I
found the MBA's conference earlier this week to be well
attended, informative, and upbeat. It reinforces what I have
believed for much of my career: that the high percentages
of people in this biz are honest, hard-working, and actually
care about doing a good job. Sure the percentage ebbs
and flows, but most who don't or aren't have left the
industry. And sure the money is very good for individuals and
companies right now - that won't last, at least not for
everyone. But the people I came in contact with at this week's
conference, either meeting for the first time or folks I have
known since the mid-1980's, were optimistic, well informed,
and happy to be there. Sometimes conferences are not much fun
functioning on a severe lack of sleep, trying to do one's
regular job while having the day filled with meetings, or
wondering at the lack of folks under the age of 35 who
attended. But if the conference is any indication, the
industry continues on, much to the relief of millions of
borrowers.
Back to the usual "stuff." Everyone loves the E*Trade baby
commercials (the earlier ones at least), but not everyone
loves E*Trade. E*Trade Financial Corp has hit something of
rough patch: the company reported third quarter losses and
is attributing it to third parties’ failure to relay crucial
data about loan holders in a timely fashion. The losses
incurred from July through the end of September totaled $28.6
million, which has impacted the stock price. It’s been a
rather tough road for E*Trade since the housing market
collapsed in 2007, and over the past five years, the company
has done its best to make a dent in its outsized portfolio of
bad loans. There are about 50 third-party servicers who are
meant to procure bankruptcy data specific to the portfolio,
but one of those servicers, whom E*Trade has declined to name,
did a less than stellar job of reporting that data for $90
million worth of loans, about 90% of which were current. As
such, E*Trade wrote down an extra $50 million in loan-loss
provisions, putting the total for the quarter at $141
million—substantially more than the $98.4 million in loan-loss
provisions in Q3 of 2011. "Nobody knows the trouble I've
seen..."
Zillow is now showing foreclosure properties with the
launch of its “Foreclosure Center.” Who needs MLS or
asking every bank for its REO list – per Zillow you can now
access pre-foreclosures, foreclosure auctions, bank-owned
properties, and more, alongside their standard listings.
Zillow estimates their pre-market inventory to total more than
1.5 million properties nationwide, along with another 250,000
properties that have already been foreclosed on. Here you go:
http://www.zillow.com/foreclosures/.
I
am often asked, “Why does it take so flippin' long for a bank
to do a short sale? You'd think after years of practice
they'd be good at it.” Well, remember that at the root of
this, no bank, or person for that matter, is psychologically
prepared to take a financial loss and make it smooth. With
that in mind, California’s real estate agents are grousing:
when polled by the California Association of Realtors, 64%
reported “difficulty” closing short sales, and 34% described
the difficulty as “extreme.” They cited slow lender
response time and sub-par lender communication as the two main
reasons for the struggles. As dismal as that may sound,
however, those numbers actually represent an improvement.
Back in 2010, 70% of respondents experienced “difficulty” when
trying to closing short sales; in 2011, it climbed to 77%, and
56% report “extreme” difficulty. More real estate agents are
describing their short sales as “easy” or “extremely easy”
these days; 19% responded as such this year, up from 11% in
2011. Problems with appraisals and dual track issues also
abated, and, in general, real estate agents reported
better overall satisfaction with lenders than they did a
year ago.
ResCap
has seen its share of short sales, speaking of which, the
Ocwen/Walter partnership won the bidding for ResCap’s mortgage
servicing business with a $3 billion bid. It beat out a
competing bid from Nationstar. Ocwen will get the bulk of the
servicing and Walter will get the Fannie Mae MSRs plus the
mortgage origination platform. Other details about the
transaction have not yet been released. Analysts proceeded to
run to their calculators to try to figure out the impact of
this on stock prices, but their success will be limited
without knowing the split of the purchase price between Ocwen
and Walter, the economics and duration of the subservicing
contract, the financing costs of the MSRs, and how each
company will finance the transaction - both companies have
indicated that they will not need to raise equity. It seems
Ocwen will keep the bulk of the servicing while Walter will
take the Fannie Mae MRSs and the mortgage origination
business. Walter could fund its MSRs through capital partners
and it has an estimated $100 million in capital after the
recent raise. The company had also noted last week that it
would create an accordion feature which would allow it to
increase its borrowings on its 1st lien facility. Since the
company can't fund the mortgage bank through servicing
financing facilities, that remains the most challenging piece
to fund.
And
Warren Buffett’s Berkshire Hathaway won an auction for a
portfolio of Residential Capital LLC’s loans with a $1.5
billion bid, adding to Warren Buffett’s bet on a housing
market recovery. To refresh our collective memory, Ally
Financial allowed its ResCap unit to file for bankruptcy in
May to distance itself from the mortgage lender’s losses and
help repay its 2008 bailout money.
The
deal has to be approved by the bankruptcy court in late
November, but the two auctions were expected to generate about
$4 billion.
ResCap,
coupled with Ally’s much smaller business, was the
fifth-largest mortgage servicer in the U.S. in the second
quarter, handling the billing and collections on about $329
billion of mortgages. And Mr. Buffett, through Berkshire,
has been betting on a housing rally by buying a brick
maker, owning nearly 10% of Wells Fargo, expanding a
real-estate brokerage (Leucadia – Berkadia), owning Clayton
Homes (manufactured homes), buying, in 2008, a portfolio of
loans backing factory-built homes from CIT Group Inc., another
lender that went into bankruptcy. And let’s not forget his $5
billion bet on Bank of America.
Turning
briefly to the elections, Thomson Reuters points out,
“As for the election, Credit Suisse thinks that an Obama win
would be neutral to slightly positive for MBS in the near term
as it would be status quo for the markets which suggests a
decline in volatility. A Romney win, meanwhile, could lead to
some knee-jerk widening related to a positive risk-on/rate
sell-off response from the markets. Looking to the longer term
impact, they thought MBS valuations should be similar in a
strong economic recovery regardless of who is elected.
In a ‘muddling’ recovery, a risk seen with an Obama win was
replacement of acting FHFA Director DeMarco with someone who
is more amenable to principal reductions on underwater
mortgages. Under Romney in this scenario, they would
anticipate increased volatility associated with the
possibility of less Fed support beginning in 2014 under a new
Fed Chairman appointed by a Republican administration. As for
the running of the FHFA, odds were deemed favorable for Mr.
DeMarco remaining at the helm under a Romney win.”
Time
for a little relatively recent lender news. As always, it is best to read the
full bulletin for comprehensive details, but these should give
you a taste of trends.
Pinnacle-approved VA brokers are now able to do IRRRLs
when reusing entitlement on VA-to-VA refinance provided that
the borrower has a credit score of at least 640, no serious
delinquencies in the past 12 months, and no late housing
payments (either mortgage or rental) in the past 12 months.
The new loan’s interest rate must be lower than that of the
previous loan and the P&I reduced except in cases where an
ARM is being refinanced to a fixed-rate, and the transaction
must be manually underwritten. Asset documentation is not
required; income documentation is not required unless PITI is
increasing by 20% or more. Non-owner-occupied transactions
and jumbo loan amounts are not eligible. For more information
on reusing entitlement refinances, see Pinnacle’s VA
requirements (http://library.constantcontact.com/download/get/file/1102397712215-244/VA+UNDERWRITING+GUIDELINES+10092012.pdf),
which
provide full details of the requirements.
In conjunction with the release of DU Version 9.0, M&T
Bank will be allowing simultaneous refinances of second
liens. Fannie high balance purchase/LCO refinance ARMs on 2-4
unit primary residences and premium conforming 2-unit primary
purchases, 1-unit investment purchases, and 1-unit primary
cash-out transactions will all be subject to LTV/CLTV/HCLTV
changes. Limited credit qualifying borrowers, if employed,
will be required to submit a verbal verification of employment
within 10 days of closing and one month’s most recent pay
stubs with YTD figures, while self-employed borrowers must
submit the pages of their most recent tax returns reflecting
self-employed income and a verbal verification of
self-employment within 10 days of closing. Assets for closing
must be verified by a Direct Written Verification of Deposit
that has been completed by the repository and the most recent
bank statement; for deposits that exceed twice the borrower’s
monthly income, M&T will require an explanation and Paper
Trail documentation.
M&T has revised the maximum principal curtailment at
closing, which is now limited to $1,000 or 1% of the loan
amount for loans under $100,000. And as of October 17th,
M&T will require a tri-merge credit report, a fully
executed 4506-T at application and at closing, and a minimum
FICO score of 640 for all non-M&T-to-M&T VA IRRRL
transactions. Borrowers will also be subject to a maximum DTI
of 45%.
Following the USDA announcement about funding, SunWest
is now accepting USDA Rural Housing submissions from all
channels for purchase and refinance transactions.
Carrington Mortgage has announced that it will no
longer accept FHA Streamline applications for 3-4 unit
properties and that any such refinances currently in the
pipeline require a full appraisal, full income documentation,
and verification of three months’ reserves in order to fund.
The property must also pass a self-sufficiency test confirming
that the gross rents less vacancy factor for all units is less
than or equal to the PITI for the subject property, and the
loan must fund by October 26th. For such loans that locked
after October 12th, the lock desk should be contacted for
pricing.
Switching over to the markets, Thursday MBS prices were lower
and tighter (to Treasuries) on lower-than-normal. Unlike 10-yr
T-notes, that sank .5 and closed at a yield of 1.83%, “current
coupon” MBS prices were off about .250. But with the Fed
buying so much, how much can prices really drop and rates go
up?
This
morning we’ve had the first look (there are three every time)
at third quarter GDP. It was expected to be +1.9% versus the
+1.3% for the 2nd quarter – the right direction but
not very convincing. In reality it came out at +2.0%, a
bit of good news for the current administration. After the
news we find rates slightly better with the 10-yr at 1.78%
and MBS prices better by .125.
How about some political part 1 of 3 of some
political quotes, with neither party targeted?
The problem with political jokes is they get elected.
~Henry Cate, VII
We hang the petty thieves and appoint the great ones to public
office.
~Aesop
If we got one-tenth of what was promised to us in these
acceptance speeches there wouldn't be any inducement to go to
heaven.
~Will Rogers
Those who are too smart to engage in politics are punished by
being governed by those who are dumber.
~Plato
If
you're interested, visit my twice-a-month blog at the STRATMOR
Group web site located at www.stratmorgroup.com.
The current blog discusses the looming fiscal cliff brought on
by Washington DC. If you have both the time and
inclination, make a comment on what I have written, or on
other comments so that folks can learn what's going on out
there from the other readers.
