Two Housing Reports: Underwater Homeowners & Home Values; Chase Updates Flipping Policy; Fannie Mae DU Version 8.1; GSE Reform Bill
Sorry for the typo yesterday. I wrote "the FDIC despot insurance fund took a hit of about $214 million" instead of "the FDIC deposit insurance fund..." A despot, of course is a "king or other ruler with absolute, unlimited power; autocrat; any tyrant or oppressor." I guess that if I had to make a mistake in grammar, that's a pretty good one.
CoreLogic reflected some good news about the housing market. The number of homes where borrowers owe more on the mortgage than the house is worth has dropped to about 11.2 million in the first quarter, down from 11.3 million last year. But we still have about 24% of all residences have negative equity. Given that negative equity and unemployment are the two biggest causes of default, and both are relatively stable, it is good news. CoreLogic bases their numbers on 47 million mortgaged properties out of about 55.3 million using its AVM's value estimation versus outstanding mortgage debt (from public records). There are few surprises in the top negative equity states: NV, AZ, FL, MI, CA, GA, ID, VA, MD, and UT. The top 10 states with lowest negative equity rates are OK, NY, MT, PA, ND, KY, AL, IA, NE, and HA.
Many have opinions about Zillow. But the Zillow Quarterly Mortgage Report indicated that home values continued to decline in the US during the first quarter of 2010. The firm reported that negative equity across the country remained high with 23.3% of single-family homes with mortgages underwater, up from 21.4% in the fourth quarter of 2009. Zillow's chief economist believes that home values are more likely than not to remain above their lowest point last year, with several caveats including factors such as tax credits and inventories.
Kate Berry with American Banker put out an interesting article on a credit-related trend. It used to be common for children to piggyback on their parents' credit to buy a car. Now the opposite is happening with increasing frequency: in some areas where unemployment and foreclosure rates are among the highest, parents are increasingly using their grown children's higher credit scores to lease cars! According to one person in that industry, many of these adult borrowers can afford to take over a lease payment "but have issues qualifying for credit," and are turning to their children for help.
As everyone in the business knows, at this point when Freddie or Fannie makes a change, whichever investors sell the bulk of their products to them are quick to follow. Fannie Mae has posted release notes for DU Version 8.1, which will be implemented during the weekend of June 19. "Among other changes, this release will include updates to the interest-only (IO) feature (a DU-only product), adjustable-rate mortgages (ARMs), and balloon mortgages in support of our ongoing focus on borrower sustainability." HERE are the Release Notes
Fannie also formally instituted its "Underwriting Borrowers with a Prior Pre-foreclosure Sale or Deed-in-Lieu of Foreclosure" eligibility policies that were announced a few weeks ago. The new waiting periods, which depend on LTV, CLTV, etc., range from 2-7 years. The waiting period for bankruptcies remains unchanged.
Fannie and Freddie continue to be in the spotlight. The latest proposed amendment to the financial regulation bill would wind both companies down within 2 years, with F&F reducing the size of their mortgage portfolios and begin paying state and local sales taxes. It is unlikely to pass, but with Fannie's latest loss at $11.5 billion in the first three months of 2010 and needing $8.4 billion from taxpayers to stay afloat, the issue is not dead. READ MORE
Chase made a change to its FHA 90-day Flipping Waiver policy, making a move away from a blanket rule about not purchasing loans where the seller made more than 20%. "Effective immediately, Chase is removing the Chase overlay to FHA policy for transactions when the seller is a Government Entity, Federal or State Regulated Financial Institution or Inheritance." So now Chase overlays to the FHA Flipping Rule waiver apply only to loans if the contract of sale for the purchase of the subject property is executed within 90 days of the prior acquisition by the seller. So if the seller is Fannie, Freddie, any Federal or state regulated financial institution, etc., previously the loan would not be eligible for Chase purchase based on the 90-day waiver. But now those loans are eligible even if the sales price gain is more than 20%.
SunTrust, starting 5/17, will require evidence of the final DO submission status. "Loans submitted through Desktop Originator (DO) must contain evidence of the final submission status. As a reminder, SunTrust requires that all Desktop Originator (DO) submission be in a 'final' status in order for SunTrust to purchase the loan file. To verify this information, the client must provide a print-out of the Loan List screen reflecting the final status." SunTrust also told clients that condominium hazard insurance policies should be for 12 month terms. Lastly SunTrust updated its rate sheet for Agency Fixed & ARM; Agency FLEX/ALT Fixed & ARM; Agency Affordable Fixed & ARM; Agency Plus Fixed & ARM; FHA & VA product lines.
I mentioned this last week, but it bears repeating. On May 19th ING, for their brokers, all loans, will have a one-year prepay penalty equal to 1% of the principal balance at the time of payoff (reduced from 3%). "The prepay penalty will be waived if the borrower obtains a new loan (refinance or purchase) with us at the time of payoff (softer restrictions)."
Nationstar Mortgage announced several changes to its underwriting and MI policies. These included the maximum amount for 15-year term loans is $417,000, for a Rate/Term refinance now 135% maximum CLTV for re-subordination of any existing subordinate financing (new subordinate financing and modified subordinate liens are allowed) and for cash-out refinances a 90% maximum CLTV only re-subordinations of existing subordinate financing is allowed. For more details go to the PRODUCT MATRIX. Nationstar also followed MGIC's loosened guidelines (that took effect 5/1) on loans with greater than 80% LTV's in non-restricted and restricted markets for FICO scores.
With all the interest rate volatility, originators and investors are finding themselves dealing with brokers, agents, and borrowers who are either requesting extensions or renegotiations. Not a bad time to make sure that your staffs know your policies on pricing. Franklin American, for example, sent out their policies and procedures for rate locks.
The dust has settled from the nearly-$1 trillion aid package in Europe, and many agree that while it buys countries time, they still need to fix some deep-seated economic problems. (One could say the same thing about some states here in the US.) The EU legislative and executive power base is a complex behemoth across different national borders, which makes the Euro area far less stable in any crisis times than a traditional national union. The market knows this well and the EUR exchange will surely suffer accordingly.
The press continues to conjecture on the Fed beginning to sell their $1 trillion plus of MBS's. The Fed does not want to create economic instability, or wreak havoc on the housing market, but if rates indeed begin to creep up and our economy continues to strengthen look for the Fed to start nibbling away at the $1.097 trillion that it owns. (Yes, they bought $1.25 trillion, but mortgage portfolios have a way of running off for a variety of reasons, like refinancing, Fannie or Freddie buy outs, etc.). READ MORE
Job opportunities continue. Envoy Mortgage, headquartered in Houston, is not only looking for agents and branches around the country, but is also currently looking for a licensing professional for their corporate office. Ideally this person would have prior mortgage licensing experience and would need to live in the Houston. Envoy's been around a while (13 years), has 500 originators, and is licensed in 40 states. Check out http://www.envoymortgage.com/index.php but for more information on employment contact Karen Lugar at klugar@envoymtg.com.
Once again, overnight news makes it tough to wait on a rate lock overnight, or over the weekend. Volatility never helps the spread between mortgages and Treasuries, and yesterday spreads improved somewhat after being relatively wide last week. The 10-yr Treasury note was down (worse) by about a point. Stocks garnered all the headlines, rallying after the aid package was announced, and the "flight to quality bid" left the US bond market. There is no scheduled news for today, and not too much for tomorrow aside from the MBAA report on applications. We do have a 1PM EST 3-yr auction today. With the dollar rallying, and stocks pointing down, the yield on the 10-yr is unchanged at 3.54% and mortgages are better by about .250.
A mechanic was removing a cylinder head from the motor of a Harley-Davidson motorcycle when he spotted a well-known heart surgeon in his shop.
The surgeon was there waiting for the service manager to come take a look at his bike when the mechanic shouted across the garage, "Hey Doc, can I ask you a question?"
The surgeon, a bit surprised, walked over to where the mechanic was working on the motorcycle. The mechanic straightened up, wiped his hands on a rag and asked, "So Doc, look at this engine. I open its heart, take the valves out, repair any damage, and then put them back in, and when I finish, it works just like a new one. So how come I get such a small salary and you get the really big bucks, when you and I are doing basically the same work?"
The surgeon paused, smiled and leaned over, and whispered to the mechanic......"Try doing it with the engine running."