Mortgage Broker Population Dwindling; Loan Buybacks Create Opportunity; FDIC Rebuttal to OneWest Video; GSE Overlays
I was telling my high school kids that when I was a boy, we observed both Lincoln's and Washington's birthdays. They replied, "That's because the Revolutionary War and Civil War were a lot closer to the time when you were a kid than they are now." And the mortgage banking world mourns the unfortunate loss of Doug Fieger, who co-wrote and sang "My Sharona" with The Knack.
One of the repercussions of the Freddie & Fannie announcements last week was the observation that repurchase requests will increase. It is common knowledge that repurchase requests from the large investors negotiate based on individual loan merits, or at times satisfied with market-share agreements - not so with the agencies. The pressure for originators to repurchase loans will grow. The more loans that the agencies buy back, the more loans will get pushed back to the originator. Apparently there are between 4-5 million loans out there that could fall into this bucket. One growth area will be firms that assist mortgage originators in handling these buybacks, either from compliance or a legal perspective.
Last week much of the mortgage industry was abuzz about the video describing the relationship between the FDIC and OneWest Bank, the old IndyMac Bank. Say what you want about whether or not you can stomach the style of the guys doing the video, the FDIC came down hard on them: in a tug-of-war, I wouldn't want the FDIC pulling the rope from the other side of the mud pit.
"It is unfortunate but necessary to respond to blatantly false claims in a web video that is being circulated about the loss-sharing agreement between the FDIC and OneWest Bank...This video has no credibility...It's too bad that the creators of this video opted to premise it on falsehoods." The FDIC goes on to say that IndyMac was competitively bid and the acquisition by OneWest represented the least cost transaction. Besides the assets, OneWest also assumed the liabilities, and has assumed a first loss position on a portfolio of qualifying loans where they take the first 20% of losses before any loss share payments are made. This is a first loss position of over $2.5 billion. The FDIC has yet to make a single loss share payment to OneWest (it is unknown whether claims have been submitted and are being reviewed), and in its agreement with FDIC OneWest is required to adhere to a loan modification protocol for single family loans that meets the approval of the FDIC. If the FDIC determines that OneWest is in violation of this agreement, then the FDIC can repudiate the loss share claims on the covered loans."
One can always go back to the original deal contained in the original FDIC release HERE. You can also view the FDIC press release regarding the video HERE
The latest fraud scheme comes from an indictment of a Chicago lawyer (Charles Murphy) who supposedly was involved in a multimillion-dollar mortgage fraud scheme of buying dilapidated homes to flip for fraudulently inflated prices. They allegedly sold more than 50 homes between 2002 and 2004 and raked in more than $4.2 million in mortgage proceeds from more than $11 million in fraudulent loans. Several others involved have also been indicted or have already pled guilty.
Homeland Federal Mortgage, out of Oklahoma, was a mortgage broker until they recently shut down. Why is this worth mentioning? Interestingly, the owner is a Republican state senator who wrote, "Recent federal legislative initiatives that favor big banks have made it increasingly difficult for small family-owned businesses like ours to survive. Their actions have led to reductions in available funds to lend, approvable borrowers, and a significant increase in the time it takes to close a home loan. This combined with a weakening economy has forced us to close our company."
David Olson, with Access Research & Consulting Inc., estimates that the number of mortgage brokerage firms is down from a peak of 53,000 in 2004 to less than 15,000 now.
The drama over the correct information, in the correct box, on the correct GFE form, continues. Wells Fargo Wholesale told clients "effective immediately with all applications received, Wells Fargo will review the 1003 for the broker's signature/prepared date and require the GFE to be dated no more than three (3) business days after that date. Wells Fargo Wholesale will no longer use the borrower's signature date on the 1003 to determine timeliness of the GFE." And in KY, TN, and WI, to comply with new state requirements, "Wells Fargo will require the broker to sign the 1003" - Wells Fargo will not accept a printed name. Wells also reiterated their stand that although the FHA no longer limits the origination fee to 1% of the mortgage amount for its standard programs, "At this time, Wells Fargo will continue to ensure that fees are reasonable and customary by maintaining the 1% cap on origination fees (the origination portion of Box 1 on the GFE)."
The 155 members of Lenders One have a new parent. Altisource Portfolio Solutions announced the acquisition of The Mortgage Partnership of America, L.L.C. (MPA), and MPA is the manager of the Lenders One Mortgage Cooperative. The CEO of Altisource said, "With the acquisition of MPA, we take a significant step in our evolution in becoming a full service provider in the mortgage services vertical." I wish I could talk like that...
Due to the greater effect "declining markets" have had on housing, U.S. Bank Home Mortgage Wholesale Division adjusted its IO Jumbo Fixed Rate & ARM, products. After the 18th, DU Approved Eligible AUS is no longer allowed - LP only. Cash-out refinances are no longer allowed, and with minimum qualifying household income of $150,000 or minimum reserves totaling $500,000. These loans will have a maximum DTI of 45%, and USBHM raised their reserve requirements by three additional months. Get 'em in, as re-locks and lock extensions will not be allowed.
You know it's a Fannie/Freddie world when investors merely publish their overlays. The latest example of this is the Franklin American Mortgage Company product overlays. The ones listed here are by no means an all-inclusive list of overlays - go to their product guides, manuals, etc. for the complete picture. But to give you a flavor, for the Conventional Conforming Fixed Rate program, FAMC needs a minimum of 2 credit scores for all borrowers, investment property cash out refinance is not eligible for purchase, loans for investment condominiums are not eligible for purchase, and "Payoff HELOC 1st lien is considered a cash-out transaction in all cases." For Conventional Fixed Rate High Balance loans, attached and detached (site) condominiums not allowed, owner occupied 1 unit only, and a maximum 45% DTI regardless of AUS approval. For DU Refi Plus loans, they'd better be clean: 0 x 30 lates in last 12 months mortgage history regardless of DU approval, and have a minimum FICO of 620 regardless of DU approval. FHA & VA fixed rate loans also have overlays.
Ah, back to something simple like the markets. Late last week traders reported a great deal of interest by investors and money managers moving "down in coupon", thus selling their higher coupon holdings. Someone used the word "jittery". I quote: "The stack remains fractured as buyers of higher coupons are hard to find: 6.5s are down 2 ticks and 4s are up 13 ticks with minimal change in the steepness of the swaps curve." Fortunately current production of 6.5% Fannie/Freddie loans is nearly non-existent.
Last week we left off with Retail Sales and with the University of Michigan Consumer Sentiment Survey (which dropped slightly), along with China increasing their reserve requirement (which reduces the capital available for economic growth). This week, besides today seeming like a Monday, the most significant economic data are the PPI and CPI siblings: the monthly inflation reports. The Producer Price Index comes out Thursday, and the Consumer Price Index comes out Friday. Besides those, we have zip of importance today. Tomorrow we have Housing Starts and Building Permits, Industrial Production and Capacity Utilization, along with the FOMC Minutes from the January 27 Fed meeting. Throw in some Import Prices tomorrow, Leading Indicators, Jobless Claims, and the Philly Fed Thursday, and we have a pretty busy week. READ MORE ON THE WEEK AHEAD
An Amish boy and his father were in a mall. They were amazed by almost everything they saw, but especially by two shiny, silver walls that could move apart and then slide back together again.The boy asked, "What is this Father?"
The father (never having seen an elevator) responded, "Son, I have never seen anything like this in my life, I don't know what it is!"
While the boy and his father were watching with amazement, an overweight old lady in a wheel chair moved up to the moving walls and pressed a button.
The walls opened and the lady rolled between them into a small room. The walls closed and the boy and his father watched the small circular numbers above the walls light up sequentially. They continued to watch until it reached the last number and then the numbers began to light in the reverse order.
Finally the walls opened up again and a gorgeous 24-year-old blonde stepped out.
The father said quietly to his son....."Go get your mother."