Checking In On Mortgage Reform Legislation; Mark-To-Market Loan Hedging Concerns; FTC & Countrywide; Subprime The Talk Of The Town?

The Senate voted recently to toughen standards for home loans. Under these new standards, lenders would have to verify that borrowers can repay the loan. Let's just hope China doesn't adopt this policy.

As the time approaches when the House and Senate financial reform bills must be reconciled, many in the industry are wondering not only what will happen to current underwriting and compensation parameters but also is (or can) anything be done to influence the final bill. The Mortgage Bankers Association is officially opposed to the Merkley amendment, for example, but is mostly focused on changes to the underwriting portion and not the compensation piece.

"MBA is extremely concerned that the YSP provisions will markedly lessen the range of mortgage financing options available to consumers. Moreover, the new underwriting provisions will markedly tighten credit so that only the lowest risk borrowers will qualify, and they will increase the rate and costs to consumers of mortgage loans." The MBA's stance on loan officer and broker compensation can be found HERE.

In addition, NAMB has posted a "call to action" for its broker members. Brokers are being urged to write to their representatives to voice objections to current proposed legislation. READ MORE

As an investor would you rather own IBM or Pepsi stock, or subprime loans? Think hard... and buy them while you can. Subprime loans are apparently making a roaring comeback (investing, not originating).  Remember that these older subprime loans are like old cars: the new ones are better, but the old ones that are still working have a place too. Those in the business know that credit risk, appropriately ascertained and valued, is typically a good investment.

From the point of view of anyone originating mortgages, what is occurring in the investor ranks is not too interesting. Any A-paper pools of loans being bought or sold at prices near 107 or 108 or 109, as 30-yr 5.75%-and-above mortgages  don't impact current rate sheets. But investors are grappling with carry and prepayment projections, along with convexity issue. Overall MBS volume was below "normal" although Freddie Mac security volumes have increased recently as Freddie's prepayment speeds have diverged from those of Fannie's.

Rates are great, but how are those mandatory mark-to-market positions looking? You know, the ones where you guaranteed delivery to an investor of the Smith loan, and now prices are a few points better and/or the rate is much lower? As borrowers Mr. & Mrs. Smith are wondering the same thing, perhaps, although with all the hurdles that originators jump through now the process tends to "set the hook" a little more firmly. But large investors are concerned about mandatory mark-to-markets, since all these loans are possibly hundreds of basis points under water, or in the money, depending on how one views them. If the client disappears, an investor is "out" those loans and will lose on its existing hedges.

CitiMortgage told its brokers that starting yesterday, "loans submitted to Citi requiring MI will be directed to an MI company for MI approval. CitiMortgage will continue to underwrite and approve your loan for program eligibility, subject to MI approval" - so make sure loans include proper MI documentation! Citi also reminded brokers of the impending DU update for June 19th - moving to the DU Version 8.1. There are several changes, including IO products will only be available for 1-unite primary residences or second home purchases, or limited cash-out refinances with maximum CLTV's of 70%. Put another way, the IO option is not available for 2-4 units or investment properties, or for the MyCommunityMortgage or Flexible mortgages.

One down, I don't know how many to go... The FTC announced that two Countrywide mortgage servicing subsidiaries have agreed to pay $108 million to borrowers to settle allegations that the companies charged excessive servicing fees to defaulting mortgage borrowers. While most mortgage servicers hire third party vendors directly, Countrywide funneled the default services (inspection, maintenance, etc.) through its two subsidiaries that then marked up the fees, resulting in increased profits for Countrywide. The FTC also alleged that Countrywide unfairly targeted borrowers who had filed for Chapter 13 bankruptcy, misrepresenting to these borrowers the status of their loans, and then tried to collect amounts owed after the bankruptcy case closed and the borrowers could no longer look to the bankruptcy court for protection.

Ah, what a time to be a loan officer. Many companies are searching for loan agents to produce loans to help mortgage companies support their internal operations staff, and cover overhead. And I guess big companies are doing the same, with UBS Wealth Management Americas trying to hire mortgage "consultants" for its branch offices as it bulks up its lending services business. In this company's case, the agents will be selling mortgages to wealthy clients, especially since they often have several homes.

In your opinion, what are the characteristics of the perfect mortgage lending operation? READ MORE

In a story from Reverse Mortgage Daily, there is concern about reverse mortgage defaults. The article mentions that Fannie "reportedly has been reminding reverse servicers they must follow HUD guidelines regarding tax and insurance defaults for HECM customers...Now, however, servicers have been instructed to submit troubled loans to HUD to get approval to start the foreclosure process. Once approved, a demand letter is sent to the borrower(s) who has six months to cure the default. After that, the servicer must start the foreclosure process - one exception is when a borrower refuses to take necessary curative action, at which time the foreclosure process begins immediately."

Yesterday we had the same ol' story: stocks faded at the end of the day, the dollar rallied versus the euro (helping college students heading to Europe) and interest rates stayed low given the flight to quality from around the world. So worries over Europe's fiscal crisis (Greece, and now Hungary - can Germany support them all?) kept up a safety bid for bonds despite this week's $70 billion auction, starting with $36 billion in 3-yr notes being sold today. (Treasury will also sell $21 billion in 10-yr notes tomorrow and $13 billion in 30-yr bonds on Thursday.) But Monday 10-yr Treasury notes improved by more than .5 in price, moving down to 3.14%. Mortgages did well. READ MORE SEE CHARTS

A husband is at home watching a football game when his wife interrupts.

"Honey, could you fix the light in the hallway? It's been flickering for weeks now."

He looks at her and angrily says, "Fix the lights now? Does it look like I have 'GE' written on my forehead? I don't think so."

"Fine." Then the wife asks, "Well then, could you fix the fridge door? It won't close right."

To which he replies, "Fix the fridge door? Does it look like I have 'Westinghouse' written on my forehead? I don't think so."

"Fine." She says, "Then, could you at least fix the steps to the front door? They are about to break."

"I'm not a carpenter and I don't want to fix the steps - does it look like I have 'Ace Hardware' written on my forehead? I don't think so - I'm heading to the bar!"

So he goes to the bar and drinks for a couple of hours. He begins to feel guilty about how he treated his wife, as he should, and decides to go home. As he walks into the house he notices that the steps are already fixed.

As he enters the house, he sees the hall light is working, and when he goes to get another beer, he notices that the door on the refrigerator is working.

"Honey?" he asks. "How'd all this get fixed?"

The wife replies, "Well, when you left I sat outside and cried. Just then a nice young man asked me what was wrong, and I told him. He offered to do all the repairs, and all I had to do was either go to bed with him or bake a cake."

He says, "So what kind of cake did you bake?"

She replies, "Do you see 'Betty Crocker' written on my forehead?"