New FHA Compliance Manager; Long Road of Housing Reform Ahead; Short Sale Primer; PMI Freddie Mac Approved; FHA Delinquencies
"If a loan with rep and warrant violations is modified while being serviced by the investor, is the original broker/originator still obligated to repurchase the loan? If so, are the terms different?" I am going to plead ignorance on this riddle, and frankly I don't know if the major investors have set forth their policies in writing. But it is an issue that we can look forward to resolving somehow.
Who is Michaelson, Conner & Boul Inc.? FHA lenders may become familiar with this firm, as HUD recently announced they will serve as "Mortgagee Compliance Manager". In a few weeks MCB will be responsible for pre-and-post conveyance activity, including the verification and approval of reimbursable expenses for preservation and protection, title reviews, request for time extensions, over-allowable requests, inspection audits, and assurance that conveyed properties meet FHA standards. "Beginning March 31, 2010, Mortgagees may submit these requests electronically using the Department's new on-line, web-based P260 Internet Portal, eliminating the need for mortgagees to submit paper requests for pre-and-post conveyance activities to HUD." Mortgagees are required to attend training, and should do so pronto since the use of the P260 portal is mandatory as of April 7.
Details are available HERE and the original press release can be found HERE
Yesterday the House Financial Services Committee held a hearing to discuss the future of housing finance, trying to start answering questions about what the new system should do. Many people spoke, although Treasury Secretary Tim Geithner was the headline witness with 17 pages of testimony. "It's important as we think about the future to make sure we retain what was good in this system." But Geithner said that the old system, would not be re-created and that Fannie and Freddie's status as shareholder-owned companies with the implicit backing of taxpayers would end. Basically, Fannie Mae and Freddie Mac won't be allowed to return to a pre-crisis structure that rewarded shareholders with big profits for years but ultimately saddled taxpayers with massive losses. Look for this to be a long and involved process.
For example, even if the market is under stress, mortgage credit should be available and distributed on an efficient basis to a wide range of borrowers, including those with low and moderate incomes, to support the purchase of homes they can afford. Affordable housing options should be available, and borrowers should have access to easily understood mortgage products. The mortgage finance system should not contribute to systemic risk or overly increase interconnectedness from the failure of any one institution. If there is government support provided, such as a guarantee, it should earn an appropriate return for taxpayers, ensure that private sector gains and profits do not come at the expense of public losses, and the role and risks assumed must be clear and transparent to all market participants and the American people. Regulations should ensure capital adequacy throughout the mortgage finance chain, enforce strict underwriting standards, and protect borrowers from unfair, abusive or deceptive practices.
HERE
is an outline of the Administration's goals
If your lock desk was busier last week than the week before, you are bucking the trend. The MBAA reported that their sample of applications fell 4.2% last week.
The stock of PMI Group shot up yesterday after Freddie Mac approved PMI Mortgage Insurance Co., or MIC, to guarantee home loans. PMI is the #3 insurer, ranked after MGIC and Radian. MI companies have won approval for subsidiaries to sell policies after main units suffered losses from coverage sold when housing prices were at their peak. In general MI companies have tightened underwriting standards and raised prices to recover from rising claims costs, and are embroiled in questions about rescinding coverage. READ MORE
As California goes, so goes the nation? Yesterday Realtors (with a capital "R") released February sales data showing that the median (half above, half below) house price to $279,840, due in part to increased demand from using the tax credit, and that the prices are 14% above where they were a year ago. Overall, however, nationwide Existing Home Sales fell 0.6% in February about as expected. The median price for an existing home was $165,100 in February, down 1.8% from February 2009. "Stable but fragile" seems to sum things up. And the total inventory at the end of February rose 9.5% to 3.59 million existing homes available for sale, which represents an 8.6-month supply at the current sales pace.
FHA mortgage delinquencies dropped in February, with about 4.8% of FHA-backed loans made in the last two years were at least three months late, down from 5 percent in the two-year period ended Jan. 31. FHA officials expect losses to slow, since the 2007 and 2008 are now passing through their worst years: failures most often occur two to three years after a mortgage is obtained.
I am not an expert on short sales even though they accounted for 12% of all sales last year, but I was fortunate to hear a presentation from the Prieston Group on that topic. What are the minimum requirements before a lender will consider a short sale? Basically the home's value has dropped, the mortgage is in or near default, the seller has fallen on hard times, and the seller has no assets. In the current environment lenders are more willing to negotiate short sales since short sales help the lender avoid the costly and lengthy process of foreclosure (the average loss by a lender is almost cut in half when a short sale takes place instead of a foreclosure) and lenders do not profit from owning & maintaining costly real estate - it is not their primary business line.
Apparently in a short sale, often the 1st lien holder is the only lender who receives any money, and they may or may not pass along proceeds to the junior lien holder and the home owner benefits by resolving the issue without going through foreclosure. Of course, a successful short sale depends on a buyer making an offer to purchase the property and the lender accepting the offer that is close to market value - obviously a point of contention and one that can take a very long time.
And, of course, fraud is a problem. For example, a distressed homeowner can find a prospective buyer and secretly negotiate a low sale price without the lender's knowledge, and/or can use a straw buyer to purchase the property through a short sale and later sell it back. Or lenders of second liens request money from the buyer or the realtor "on the side". This payment is made in cash or by cashier's check and not reflected on the settlement statement therefore illegal and violating RESPA laws. So the Prieston Group recommends lenders obtain a copy of the short sale approval from the lender and that all of the lender's requirements are being met, be careful if there is more than one existing lien on the property, review the credit report carefully for any red flags on previous mortgage history and both the estimated and final Settlement statements for unusual and unauthorized payments. Signers should be authorized, and watch for any suspicious relationship between the parties (like the borrower buying a home that they are or have rented, the house is an REO, the borrower owned the home within the last two years but currently is not in title, etc.).
The National Association of Realtors has squared off against appraisers on the issue of using BPOs (Broker Price Opinions) as a time saving step to benchmark and vet purchase offers for short sales. Realtors believe that rather than a buyer submitting an offer and not knowing whether it was accepted or rejected for one or two weeks, they could have a response in just a few days. The accuracy and methodology of BPO's have improved dramatically in the last year, Realtors claim. But appraiser groups told Treasury Secretary Geithner that real estate agents and brokers have an inherent bias toward quick results that produces a fee for themselves.
Mortgage securities did receive a little boost yesterday from Treasury's Geithner. Rates and prices improved slightly versus Treasury rates, and the current coupon yield spread to the 10-yr Treasury (not exactly accurate, but still used as a benchmark) is sitting around 65 basis points - very strong. We also had Fed Governor Yellen on the tape yesterday, saying that she believes that although the labor market is stabilizing at a high level of unemployment and inflation should stay low, and that the housing market has stalled. And we are in the middle of yet another 3-day period of auctions with $44 billion in 2-yr notes, and $118 billion in all. With inflation expected to be tame, and the Fed expected to leave short-term rates low for an extended period, the argument can certainly be made to own some fixed-rate securities.
(Warning: I try to give equal time to various political views.)
In honor of the 44th President of the United States, Baskin-Robbins Ice Cream has introduced a new flavor: " Barocky Road ."
Barocky Road is a blend of half vanilla, half chocolate, and surrounded by nuts and flakes.
The vanilla portion of the mix is not openly advertised and usually denied as an ingredient.
The nuts and flakes are all very bitter and hard to swallow.
The cost is $100 per scoop.
When purchased it will be presented to you in a large beautiful cone, but after you pay for it, the ice cream is taken away and then given to the person in line behind you at no charge.
You are left with an empty wallet and no change, holding an empty cone with no hope of getting any ice cream.