Sep. 13, 2012: Reader comments on gfees and sales caps; Freddie buybacks; MERS & Radian in the press; CFPB Advisory Board announced

Sep. 13, 2012: Reader comments on gfees and sales caps; Freddie buybacks; MERS & Radian in the press; CFPB Advisory Board announced Rob Chrisman

Before enlisting in the Navy and serving 20 years, my Dad grew up in San Francisco during The Depression and carried with him, to this day, a general feeling that cash in the hand was safer than that in the bank. (Heck, right now they’re both earning about the same rate!) At one point, several years ago, he took me into his garage and pointed to an old Hills Brothers Coffee can on a dusty shelf and advised, “Look, if anything ever happens to me, grab that can and don’t look back.” I opened it up and found several wads of $20 bills, mostly from the 1950’s and 1960’s. Bank tellers will now be interested to know that now they’re coming out with nano-technology currency to defend against counterfeiting – which might mean that any attempt to use “old” money will be problematic: http://gizmodo.com/5942482/why-it-is-about-to-get-a-lot-more-difficult-to-produce-counterfeit-cash. (The comments on the site are good. And yes, the can is still around, and no, I’m not going to tell you where he lives!) Lots of companies out there are looking to grow, shrink, or join forces. In this case, under the “grow” column, an experienced, well-financed mortgage banking group is looking to either acquire a mortgage bank or invest in a mortgage bank, and will bring your mortgage banking company to a national level.  Start planning for the major market changes coming in 2013. “We will provide a strong forward and reverse origination strategy to build a national platform with the right firm. Your mortgage-banking firm should have minimum of a New York state license – multi-state license is preferred – and must be Direct Endorsed FHA lender and preferably have seller/servicer approval from Fannie Mae, Freddie Mac or Ginnie Mae.” Please contact the group’s representative Mr. Kalin at mk@buildaforce.com to discuss further. All inquiries will be kept strictly confidential. Are you on the CFPB Advisory Board? Probably not – but I may have missed them on the list of new members. Then again, I didn’t see any Realtors, title company folks, mortgage lenders, or small business types: http://files.consumerfinance.gov/f/1209_cfpb_cabbios.pdf.

What company’s database contains 60% of all mortgages? MERS! And it is doing a little PR work: http://www.ocregister.com/articles/registry-371166-santa-act.html. On the other end of the spectrum, MI companies are always having someone jabbing sticks at them. Yesterday it was Radian’s turn: http://seekingalpha.com/article/862831-radian-group-management-is-misleading-investors.

A correction to yesterday’s opening gaffe. (In every commentary I try to have an opening gaffe, a middle gaffe, and a closing gaffe.) The national “debt” is $16 trillion, not the national “deficit,” which is running along at a clip of about a trillion a year. For a quick primer, the national debt is the total amount of money owed by the US Federal Government to creditors who hold US debt instruments (like Treasury Bills and Savings Bonds). It includes all federal debt held by states, corporations, individuals and foreign governments. (It does not include Medicaid, Social Security, and Medicare.) The National Deficit is a budget deficit of the federal government. If the government drew up a spreadsheet and subtracted all the expenses from all the income, they’d come up short. The amount of this shortfall is the national deficit. As deficits accumulate, they must be financed, leading to debt – just like you and me, except with 15 zeroes on the end. The commentary received a few e-mails on the gfee and sales cap information from yesterday (www.robchrisman.com). “So you believe none of the G- Fee increase is really a tax on mortgages but truly a recalculation of the pricing of risk? I’m skeptical!” “You mentioned the .125 hike going through a 4:1 buy-up to determine the hit on price. I am seeing closer to 6-7:1, resulting in a bigger hit to borrowers.” “Instead of private label MBS I would like to see banks, insurance companies, and hedge funds bid for the right to guarantee agency mortgages.  We could keep the standards in place that way. I am afraid that if we move to a private label market the little guy will get boxed out.” “Rob, our increase in gfee was much less than 10 basis points, but before the champagne corks flew Fannie told us our annual sales cap was only 7x. Looks like we might be using some of the tactics you mentioned to boost it up.” “The gfee increase looks like the choice of using the local gas station – do you want to support it and pay 50 cents more per gallon of gasoline, or suffer the consequences of it closing shop – then what good what that do?” “Once again, the FHFA, in its sales cap numbers, has shown its favoritism toward depository banks. I guess I can’t blame it – who wouldn’t want to do just as much business with fewer counterparties?” “Once again, different lenders and investors are handling the implementation dates differently. I know that Fannie has dates a few months down the road, but, of course, the companies that we sell loans to have different dates based on turn times, pooling lags, wanting to err on the conservative side, etc.”

There are usually two sides to every statistic. For example, Friday the unemployment rate actually dropped from 8.3% to 8.1%. But that was due to people actually giving up looking for work (that group of people aren’t counted in the statistics). Yesterday, in what most viewed as a positive sign for the housing market, the number of households that received foreclosure filings in August was up 1% from last month – but it was down 15% from last year (according to RealtyTrac). And foreclosure starts (the pace at which mortgages enter the foreclosure process) declined after three consecutive monthly increases. But is that due to things improving, more modifications, or just the backlog of paperwork? Foreclosure starts were down in states like Oregon, Nevada, Utah and others because of recent regulations like Oregon’s foreclosure mediation program that allows homeowners at risk of default a chance to meet with lenders to find alternatives to foreclosures. Another example is yesterday’s weekly MBA Applications Index for the week of 9/7: it rose sharply, by 11.1% with refi’s gaining 12% and purchases up 8.0%. Sweet! The data, however, include an upward adjustment for the Labor Day weekend. (Refi’s are still about 80% of industry volume, mostly on the bank side.) The holiday adjusted numbers “may overstate the level of applications because some lenders who rely on the internet saw little if any decline as compared with the drops for lenders relying on retail offices.”

The Financial Times notes that, “US lenders could be forced to pay Freddie Mac an additional $3.4bn for soured loans that breached underwriting standards, government auditors have said. The size of the payments would be due to more expansive repurchase requests from Freddie Mac to lenders on defaulted mortgages that were originated before the US housing bubble burst. Freddie Mac recently expanded the types of loans it will “put back” to lenders after coming under criticism from lawmakers and the inspector general for the Federal Housing Finance Agency – the regulator that oversees Freddie Mac and Fannie Mae – for not being aggressive enough in pursuing rightful recoveries from banks…Fannie Mae and Freddie Mac, which own or guarantee more than half of all outstanding US home loans, have asked lenders to repurchase nearly $19bn in soured mortgages over the past six months.”

If you’re big enough, of course, you can just not do business with the agency demanding the repurchases. But a contract is a contract, and most firms spend time and resources rebutting repurchases. We all know that Bank of America has severed one business relationship with Fannie Mae because of a multibillion-dollar dispute over repurchase demands. BofA had roughly $11bn in outstanding repurchase requests from Fannie Mae and Freddie Mac as of June 30, according to the bank’s securities filings. And Freddie Mac had been criticized for a $1.35bn settlement it reached in 2011 with BofA to extinguish existing and future claims on roughly 787,000 loans. Well, the agency, investor, and lender updates just keep coming. It is hard to keep up, and I squeeze them in, space permitting. As always, it is best to read the actual bulletin, but these will show you the trends.

Housing must be picking up, since lenders are moving back into the builder biz. (Housing permits in the first half of 2012 are up 25% versus 2011.) Southern California’s Prospect Mortgage announced a new platform to finance new single-family and condominium homes across the country. The division supports homebuyers, home builders, developers, and real estate agents in an improving new construction market. “Prospect is offering a product lineup to assist buyers and builders with new home construction. The extended rate lock program allows eligible buyers to lock in their interest rate at the time a loan application is completed for an unfinished home. With the spec lock program, builders can lock in an interest rate on up to three new home construction projects for up to 120 days, and pass this interest rate on to their customers when the property sells. They also offer builders condo project approval services to alleviate paperwork and expedite projects.”

The fourth edition of the Uniform Loan Delivery Dataset Notification is available on the New Loan Delivery Application page of the Fannie website and contains topical information on certain reports, tips for using the new application, and details on particular business rules users may encounter.  An FAQ on using DU for government loans is also available on www.efanniemae.com and provides clarification on the updates to VA Bankruptcy and Foreclosure messaging, FHA reserves calculation on 3-4 unit properties, Version 3.0 of the FHA TOTAL Mortgage Scorecard, and various other underwriting issues.

In order to comply with the FHFA’s requirements on aligning delinquent management, default prevention, and servicing policies, Fannie has updated its “Uniform Borrower Assistance” form and guidelines on the stay of foreclosure provisions for service members.  It has also been announced that the Home Affordable Foreclosure Alternatives program will be terminated on December 31, 2012, and that all HAFA transactions must be closed or settled on or before September 30, 2013.  For the Second Lien Modification and Home Affordable Modification Program, the submission for borrower eligibility documentation has been extended from December 31, 2012 to December 31, 2013.  Servicers must meet this deadline to ensure that the loan is eligible, and the loan must also have a Modification Effective Date before September 30, 2014. Citibank had amended the FICO adjusters for all VA loans.  FICO scores over 700 are subject to an adjuster of 0.250; scores between 661 and 700, 0.500; scores between 64 and-660, 0.875; and scores between 580 and 640, 1.250. The Ineligible Originator List has been updated and posted on the Citi Correspondent website in the elfno section under “Forms, Misc.”  The Appraiser Monitor/Ineligible List, which is regularly updated, is also available in this section. Citi also released news on the updated gfees.

Well, the financial press says that the markets are waiting to see what the Fed’s announcement says today about further economic stimulus (QE3). Anticipation of Fed news for today remains high. But we just can’t ignore Europe. A favorable German court ruling on the European Stability Mechanism (ESM) provided a “risk on” bid, but yesterday’s 10-yr auction here in the states was mediocre, causing a little sell-off. Agency MBS prices were down/worse about .125 on those coupons that lenders use to set rate sheet rates.

Today we’ve already had the weekly Initial Jobless Claims number (382k up from a revised 367k) and the Producer Price Index was +1.7% for August – quite a pick up versus July’s +.3%. We have a $13 billion 30-yr auction ahead of us, as well as the FOMC’s announcement which may or may not include QE3 or not (12:30PM EST). In the early going the 10-yr T-note, which closed Wednesday at 1.76%, is down to 1.73% and look for MBS prices to improve about .125.

Sometimes I try to interject a little humor here, sometimes not – especially when I feel strongly about something. Here’s 60 seconds that will be hard to get out of your mind: http://biggeekdad.com/2012/07/makeup-crash-course/.

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 new CFPB Rule combining TILA & RESPA disclosures. 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.

Rob

(Check out http://www.mortgagenewsdaily.com/channels/pipelinepress/default.aspx or www.TheBasisPoint.com/category/daily-basis. For archived commentaries, go to www.robchrisman.com. Copyright 2012 Chrisman LLC.  All rights reserved. Occasional paid notices do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.)