May 5, 2011: Deutsche & MortgageIT, BofA & Countrywide; Freddie doesn't need money this time around; lots of investor u/w adjustments
Cinco de Mayo does not mark the discovery of tequila, but instead celebrates the legendary Battle of Puebla on May 5, 1862, in which a Mexican force of 4,500 men faced 6,000 well-trained French soldiers. The 4-hour battle ended in a victory for the Mexican army under Gen. Ignacio Zaragoza. But the other, tragic, fabled story of this date can be found at the end of this commentary.
Lenders should note that the median age of US residents of Mexican descent is about 26 years old versus 37 years old for the general population, among households where the householder was of Mexican origin 35% of them had children younger than 18 (versus 21% of all households), and the average size of those families was 4.2 people versus 3.2 for all families. Going to the Census Bureau's <http://factfinder.census.gov> (gracias Census Bureau) one finds that there are about 32 million U.S. residents of Mexican origin, 10% of the nation's total population and 66% of the Hispanic population. Nearly 20 million of the 32 live in either California or Texas, about one-third of the residents of those two states. The median income in 2009 for households with a householder of Mexican origin is $39,000 versus $50,000 for the population as a whole, and the home ownership rate stands at about 50% versus 65%.
Freddie Mac's employees may want a margarita tonight after reporting a $676 million quarterly profit, and indicated it would not seek additional funds from the US Treasury this quarter for the first time since it was taken over by the government nearly three years ago. But Freddie said that over the long term it was unlikely to earn more than the dividends owed to the Treasury on preferred stock issued as part of its bail-out and therefore expected to request additional funds in future periods. The CEO said, "Continued improvements on the employment front and in early-stage delinquencies were positive signs during the quarter, but we believe large inventories of unsold homes and a high number of distressed sales will continue to put downward pressure on home prices in many neighborhoods." (Does he mean Nevada down 59%, Arizona down 50% and Florida down 49% from 2006 highs?)
Importantly for the industry, Freddie Mac also said that its requests to banks to repurchase faulty loans declined to $3.4 billion at the end of the first quarter, compared with $3.8bn at the end of the fourth quarter of 2010. More than 40% of loans owned by Freddie Mac were originated after 2009 and those loans have far higher equity and lower delinquency rates than those issued in 2006 and 2007.
Some acquisitions tend to work out better than others. (Wells & Wachovia seems to be working out.) On the other hand...Moody's downgraded Bank of America's mortgage servicing ratings because its loss prevention results have deteriorated. The agency lowered the ratings to "above average" from "strong." BofA recently set aside $1 billion to repurchase mortgages and added $352 million to its legal expenses during the period. The company is fighting lawsuits from investors and insurers that claim they were tricked into buying mortgages based on fraudulent documents during the housing boom, the attorneys general from all 50 states are investigating allegations that BofA, and many other banks, submitted erroneous foreclosure documents, and the SEC is conducting a separate probe into misleading mortgage-backed investments.
We also have Deutsche Bank AG, who recently reported good earnings, being sued by the U.S. attorney's office for allegedly lying over mortgages. Deutsche Bank bought MortgageIT in 2006, and both, according to the suit, heedlessly chose mortgages that dishonored the FHA's mortgage insurance program rules. Quality checks and the ability of borrowers to make mortgage repayments were ignored before making the selection. Deutsche later resold those government insured mortgages and made significant gains. MortgageIT endorsed over 39,000 mortgages between 1999 and 2009 with a total underlying principal balance of more than $5 billion for the FHA insurance. Over $386 million have been paid in F.H.A. insurance claims and several more millions of dollars are expected to be paid for MortgageIT home loan defaults in the days ahead.
A segment of the population looks forward to the Special Swimsuit Edition of Sports Illustrated, or Time Magazine's Man of the Year Edition. Somehow, I don't think that the FDIC's answer will garner quite the attention, but it is useful to servicers nonetheless. "Supervisory Insights Special Foreclosure Edition" can be found at http://www.fdic.gov/regulations/examinations/supervisory/insights/sise11/index.html.
This is not good news, but it is not unexpected, for anyone following shadow inventory numbers. The report shows the FHA REO inventory was at 68,801 at the end of February, up 54.2% from February 2010! http://portal.hud.gov/hudportal/documents/huddoc?idFHAComRpt11feb.pdf
Wells' (#1 in the 4th quarter) wholesale channel recently checked in with some changes on "Upcoming Benefit to Borrower Policy" and on Monday instituted a policy stating that on FHA flip transactions second appraisals cannot be charged to the borrower. Wells also gave brokers requirements for Living "Inter Vivos" Trusts, and stated that documentation for these trusts must be submitted prior to requesting closing documents so Wells Fargo can determine if the trust meets the requirements.
Fifth Third Mortgage updated its appraisal management contacts, appraisal management company turn times, and announced a new service a few weeks back whereby it "developed a GFE worksheet that is formulated to accurately feed fees to the correct GFE boxes" and gave clients a process to utilize this tool. Fifth Third told clients that it "is unable to allow a borrower to change his or her compensation option from the Borrower Paid compensation option to the Lender Paid compensation option. Fifth Third will allow a borrower to change from the Lender Paid compensation option to the Borrower Paid compensation option during the processing of the loan. Changing compensation models is an allowable changed circumstance under RESPA, but it is not permissible to increase Block 1 (Origination charge). Therefore, the Borrower Paid compensation option cannot be greater than the amount disclosed under the Lender Paid Compensation option." Fifth Third has also released adjustments to its HomePossible program, rental property management requirements, existing loan subordination policy, and told brokers that it will no longer collect a $150 AMC appraisal ordering fee, but will increase its Funding Fee to offset the AMC expense (which range from $725-780, depending on program).
Earlier this week Union Bank put out a closing guarantee whereby, "on certain purchase transactions, Union Bank will meet or beat the closing date stated in your client's purchase contract or their first month's mortgage payment is on us." (Check the actual bulletin for terms and conditions.) In addition, the Bank is waiving the Lender Origination Charge and offering a one-time interest rate float down at no cost with certain restrictions.
Effective last week Home Savings "will allow 3rd party processing fees to be paid to the broker for loans closed under a lender paid compensation plan. This applies to bona fide contract processing and not for processing that is completed by an employee of the broker. If the processing fee is paid directly to the broker it must be disclosed in Block 1 of the GFE and will be included as income on form 1099."
On May 1 Chase Home Finance LLC merged into JPMorgan Chase Bank National Association ("JPMCBNA"). By now all transactions should have no reference to Chase Home Finance LLC and instead be JPMorgan Chase Bank, N.A. Although the primary impact is to the documents such as the Insurance Mortgage Payee Clause, any document that references Chase Home Finance LLC (or CHF, LLC) should be updated to reflect JPMorgan Chase Bank, NA.
Yesterday the MBA reported what lock desks everywhere already knew, and that was that residential mortgage applications increased 4% from one week earlier. Refinancing apps picked up 6% and purchases were up .3%. With these lower rates refi's are accounting for nearly 63% of apps, and ARM share is up to 6.7%.
And yesterday rates continued to drop, with the ADP private payroll employment numbers yesterday coming in weaker than expected (179k versus 200k) and the ISM Service coming in at their weakest levels since last August ("slumped" is the word one report used). The US continues to need to finance its deficit, which includes selling $72 billion next week ($32 billion 3-yr on the 10th, $24 billion in 10-yr's on the 11th, and $16 billion in 30-yr's on the 12th).
How about these rates this morning? The yield on the 10-yr this is below 3.20%, down to 3.17%. Jobless Claims this morning came out up 43,000 to 474,000 claims last week. Productivity numbers also showed an increase, which is helpful, but stocks and bonds are reacting to the Jobless Claims increase. Agency MBS prices are better by between .125-.250.
Most people don't know that in 1912, Hellmann's mayonnaise was manufactured in England. In fact, the Titanic was carrying 12,000 jars of the condiment scheduled for delivery in Vera Cruz, Mexico, which was to have been the next port of call for the great ship after its stop in New York.
This would have been the largest single shipment of mayonnaise ever delivered to Mexico. But as we know, the great ship did not make it to New York. The ship hit an iceberg and sank, and the cargo was lost forever.
The people of Mexico, who were crazy about mayonnaise, and were eagerly awaiting its delivery, were disconsolate at the loss. Their anguish was so great that they declared a National Day of Mourning, which they still observe to this day.
The National Day of Mourning occurs each year on May 5th and is known, of course, as Sinko de Mayo.