Nov. 15, 2012: MI deduction thoughts; FHA – running out of money? Buffett buys more Wells; who takes the hit on writedowns?

Nov. 15, 2012: MI deduction thoughts; FHA – running out of money? Buffett buys more Wells; who takes the hit on writedowns? Rob Chrisman

The median age of a Realtor is 56 – as in “fifty six.” <Insert joke here about median age in photograph used by Realtor in promotional materials.> If you don’t believe me, go to http://www.realtor.org/reports/member-profile, and remember that “median” is half above and half below. The MBA doesn’t publish this for the people who work for the companies that belong to it, and besides, many lenders don’t belong to the MBA. But when I speak to various groups, I will often ask people how they go about bringing young people into the industry – it is a very important subject to think about. (Just think of the lack of personnel in servicing, DE underwriting, or compliance.) At first glance, few in the real estate or lending industry want the government to do away with the mortgage interest tax deduction. But as noted in this commentary a few months ago, the deduction a) is rare in other countries, b) has a much larger perceived benefit than actual benefit. Besides, they’ll probably go from $1 million down to $500k, making it politically acceptable. Lastly, “The Mortgage Interest Deduction is of limited value because of low rates and low house prices. A $300,000 house with a 30-year mortgage at 3.25% pays just $7,800 in mortgage interest, yet the 2012 standard deduction is $11,900 if married filing jointly. If the MID is nixed, placing your house into a corporation and having the corporation rent the home to you, allows you to continue deducting all mortgage interest.” (So wrote economist Elliot F. Eisenberg – if you want to receive his free 70 word updates shoot him an e-mail at elliot@graphsandlaughs.net.) Yes, I take my 89-year old Dad to Costco. He likes the hot dogs, and to people watch. As best I can tell, Costco’s are generally arranged to have a series of ad posters for you to stare at while you dine, or while you wait in line to leave. Yesterday my Dad exclaimed, pointing to an ad for home loans, “Hey, look at that – do you think anyone at this joint gets your commentary?” I told him I doubted it, and he went back to happily munching his dog, but sure enough, Costco shoppers think Costco offers home loans. As we all know, they farm it out, but here is what the press sees: http://www.nytimes.com/2012/11/14/business/major-retailers-start-selling-financial-products-challenging-banks.html. Is the FHA facing its own fiscal cliff? It is a catchy headline, but more importantly, there appears to be some truth to it. The actual government report comes out tomorrow (Friday), but in the meantime, “The Federal Housing Administration’s annual report is expected to show a sharp deterioration in the agency’s financial condition, including a shortfall in reserves, the result of escalating losses on the $1.1 trillion in mortgages that it insures, according to people with knowledge of the entity’s operations.” Here is the NYT story: http://www.nytimes.com/2012/11/15/business/fha-expected-to-report-declining-finances.html?_r0.

Speaking of the FHA program, a recent list of the top 10 FHA originators for the fiscal year ending 9/30 has come out: Academy ($1.6 billion), Fifth Third, Primary Residential, US Bank, MetLife, PrimeLending, Chase, Bank of America, Quicken, and Wells Fargo ($18.4 billion). The discussion of “mortgage broker” and “mortgage banker” continues. “The main thing is getting rid of these titles.  Mortgage banker is used now more than ever after these years of net branch recruiting and broker bashing, when it’s the same if the correspondent employs the originator or not wholesale or retail.  There are many titles to use, but this can be deceiving at the consumer level. For example, if I personally came to you after setting up a line of credit with my bank and offered you a loan using that line, would you personally consider me a bank or banker?  I would certainly hope not. Our industry is just lacking common sense.  Let’s put education before sales for once.  It will help us all, including consumers and regulators.” Thanks!

Speaking of education…huh? Freddie Mac is competing with Flo-rida on YouTube? You bet – here are Freddie’s views of the housing industry. When I looked at it, there had been 15 views. I think Flo-rida had 101 million. Come on, Freddie!! Here you go: http://www.youtube.com/watch?vötEXwI-ne8&featureem-uploademail Here is some quick investment news: Warren Buffett’s Berkshire Hathaway disclosed yesterday that it raised its stake in (among others) Wells Fargo by 11 million to 422.5 million shares in the third quarter, and it reduced stakes in U.S. Bancorp (among others). But what does he know?

Turning to the secondary markets, remember that even though Wells, or Chase, or whoever, “owns” the loan, more often than not it is securitized through Fannie & Freddie, or securitized by the bank, and the MBS purchased by an investor such as a money manager, insurance company, bank, retirement plan, whoever. When a large aggregator/servicer takes a large principal writedown, do they lose money or does the actual, end investor? The Financial Times did a report on exactly who takes the hit. “Investors in US mortgage securities have been forced to absorb large writedowns in response to a deal between leading financial groups and government agencies over the “robosigning” scandal. Mortgage bond investors and U.S. lawmakers had feared such an outcome earlier this year after reports that a deal was near to resolve accusations that banks mistreated homeowners and wrongfully certified legal documents used to evict defaulted borrowers. The banks (Chase, BofA, Wells, Citi, and Ally) agreed to forgive billions of dollars’ worth of distressed borrowers’ mortgage principal in exchange for waivers from potential liability. On Wednesday, BofA said that 60% of the $4.75 billion in first-lien mortgage principal it has thus far agreed to forgive would come from non-government guaranteed loans that were packaged into bonds and sold to investors. Of JPMorgan’s $3bn in forgiven mortgage debt, slightly less than half has come from investors’ holdings, a person familiar with the matter said. The other three banks either declined to provide numbers or did not respond to requests for comment. Earlier this year, some US senators worried that pension funds would have to absorb losses on their mortgage bond holdings as a result of a settlement meant to punish banks and aid troubled borrowers.”

Remember, however, that much of this settlement money that is going to the states is being used by the states for non-housing issues, usually helping alleviate some of their own deficits. And is that the right thing to do? And is the US government upset about that?

On to some other somewhat recent training, conference, and investor updates, along with the usual disclaimer that it is best to read the bulletin for full details, but this will give you a flavor for current news.

The New Mexico Mortgage Lenders Association will be hosting an event devoted to the upcoming 2013 regulatory changes discussed at the MBA today in Albuquerque. For more information go to