House Passes Flood Insurance Extension; Servicer Short Sale Timeline Rankings; MERS & Fannie, Waiting Period Update

Good news and bad news. The good news is that CNN just reported that BP replaced the oil well cap with a wedding ring and it has completely stopped putting out! The bad news, depending on one's views, is that in an effort to tie its menu in with the World Cup, a restaurant in Arizona began serving lion burgers. Folks were not pleased.

The MBA should make a t-shirt for the next conference that says, "The beatings will continue until morale improves."Many loan originators wonder if this is statement sums up "the new normal", especially with flood insurance. Sometimes one just has to utter, "What the *&^%$?"

The House of Representatives has passed another temporary extension of the National Flood Insurance Program until Sept. 30, and now its up to the Senate. Reauthorization provisions have been added (legislation on jobless benefits, tax breaks, etc.) that were twice voted down in the Senate. This is the fourth time in the past year that the program has been interrupted due to the failure of Congress to reauthorize it for an extended period, like for 5 years instead of 5 months. READ MORE

Call me naive, but I was surprised by how long it takes to do a short sale. A study put out by Deutsche Bank ranked GMAC ranked as the top servicer among all prime mortgage servicers based on short sale timelines - six months! The investment bank's survey showed that a short sale generated a higher recovery than an REO sale. For "prime" short sales, GMAC was the fastest, followed by CitiMortgage (7.5 months) and Wells (8 months). DB's study showed that BofA was the slowest with a 13 month short sale timeline. For "subprime" Wells came in first (15 months), followed by HomEq and then Saxon. Option ARM short sale speedsters were EMC, Aurora, and GMAC. 

Fannie Mae issued Announcement SEL-2010-08, "Underwriting Borrowers with a Prior Foreclosure", to modify the waiting period that must elapse before a borrower is eligible for a new mortgage loan after a foreclosure. Originally a seven-year waiting period after a prior foreclosure will apply for all borrowers, unless the foreclosure was the result of documented extenuating circumstances, which requires a three-year waiting period with additional eligibility requirements. Fannie also includes a maximum LTV ratio of the lesser of 90% or the LTV ratio per the Eligibility Matrix for all transactions - best to check their grid. HERE IT IS

Speaking of Fannie, last month it was announced that MERS is not authorized by Fannie Mae to conduct judicial or non-judicial foreclosures on a mortgage loan owned or securitized by FNMA, via FNMA's Announcement SVC-2010-05. Anyone examining the chain of title should make sure that it is in compliance. For example, if MERS is original mortgagee or beneficiary under the deed of trust of record or as assignee, the servicer must prepare an assignment from MERS to the servicer, and then bring the foreclosure in its own name, unless FNMA specifically requires that the foreclosure be brought in the name of FNMA. If an assignment has been recorded from MERS to either the servicer or FNMA and the borrower reinstates prior to completion of the foreclosure proceedings, the servicer need not re-assign the mortgage to MERS or re-register the mortgage or deed of trust with MERS.

MERS or no MERS, any foreclosure action had better be well-documented. Because the notes were often sold and resold, unfortunately many companies lost track of the documents, and now claims have arisen that companies may be forging the documents needed to reclaim the properties. For example, in Florida the Attorney General's Office said it was investigating the use of "bogus assignment" documents by Lender Processing Services Inc. and its former parent, Fidelity National Financial Inc. And last week a federal judge in Florida ordered a hearing to determine whether M&T Bank Corp. should be charged with fraud after it changed the assignment of a mortgage note for one borrower three separate times. Things certainly become confusing if the note was sold to a bank that was taken over by the FDIC or another institution. In a notice on its website, the Florida attorney general said it is examining whether Docx forged documents so foreclosures could be processed more quickly. READ MORE

I don't like thinking about where it is "finding" the money, but the Federal government plans on doling out $1.5 billion to five states (AZ, CA, FL, MI, NV) and another $600 million to another 5 (NC, SC, RI, OH, and OR) to help the unemployed and the underwater who owe more than their homes are worth. The Treasury Department okayed the money to subsidize homeowners' monthly mortgage payments and to reduce their principal. Some of the funds will also go to paying off second liens or facilitating short sales in coming months. Stable housing prices versus moral hazard? Critics are quick to point out that in spite of the billions spent by the Federal government to prop up the housing market, it hasn't worked. This latest batch of funds will be administered by state housing finance agencies, not mortgage companies, and involve the use of matching funds from loan servicers (details TBA). But servicers are not anxious to write down principal, and Freddie & Fannie generally don't allow principal reduction on their loans.

The financial reform bill continues to proceed through reconciliation. Critics are claiming that the bill has more to do with "civil rights" than consumer protection. Apparently the bill gives Treasury the power to liquidate banks that pose a threat to financial stability, but it essentially exempts minority-owned banks and those approved by Acorn-style urban organizers. Of course one doesn't want to deny qualified minorities access to credit. In its current form the bill mandates placement of a diversity czar in each federal financial agency - including the Fed and its 12 regional banks, and establishing an "Office of Minority and Women Inclusion" within each agency.

Yesterday's FOMC's announcement was not earth-shattering. "The economic recovery is proceeding and the labor market is improving gradually. Household spending is increasing but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit...Housing starts remain at a depressed level." The FOMC maintained the target range for the federal funds rate at 0 to 1/4 percent and continued to utilize the "extended period" language when characterizing the length of time that "exceptionally low levels of the federal funds rate" will be warranted. So the pace of the economic recovery is faltering - low rates should continue. READ MORE

Yesterday the New Home Sales number surprised everyone, plunging (in this case, that word applies) almost 33% in May to the lowest level since 1963. Of course, it followed two strong months where buyers rushed into the market due to the tax credit, but there is certainly no big rebound going on in the housing market. Year-over-year, the median price for a new home decreased by 9.6% from $222k to $201k. Regionally, new-home sales plunged 23.9% in the Midwest, 53.2% in the West, 25.4% in the South, and 33.3% in the Northeast. (A monthly report by MacroMarkets LLC found that 56% of the 106 economists and other analysts surveyed expect home prices to decline this year.)

After this data rates dropped, prices improved, and the trend continued overnight with the yield on the 10-yr down to 3.095%. Tuesday's $40 billion two-year note sale was stellar, but the $38 billion 5-yr sale did not go well - $30 billion in 7-yr notes will be sold today. The supply of mortgages being sold was about average, and there is still strong demand, so mortgage prices have done well. Just imagine how much profit is in the $1.25 trillion of MBS's purchased by the Fed! Eventually they will begin to sell them... Of course, higher coupons seem immune to prepayment risk due to their credit impairment and high LTVs amidst the tight underwriting conditions.

The kids filed back into class Monday morning. They were very excited - their weekend assignment was to sell something, then give a talk on productive salesmanship.   

Little Sally led off: "I sold girl scout cookies and I made $30," she said proudly, "My sales approach was to appeal to the customer's civil spirit and I credit that approach for my obvious success."

"Very good," said the teacher.

Little Jenny was next: "I sold magazines," she said, "I made $45 and I explained to everyone that magazines would keep them up on current events."

"Very good, Jenny," said the teacher. 

Eventually, it was Little Johnny's turn. The teacher held her breath. 

Little Johnny walked to the front of the classroom and dumped a box full of cash on the teacher's desk. "$2,467" he said.

"$2,467!" cried the teacher, "What in the world were you selling?"

"Toothbrushes," said Little Johnny.

"Toothbrushes," echoed the teacher, "How could you possibly sell enough tooth brushes to make that much money?" 

"I found the busiest corner in town," said Little Johnny, "I set up a Dip & Chip stand, I gave everybody who walked by a sample. They all said the same thing, 'Hey, this tastes like 'sewage'!"

"Then I would say, 'It is. Wanna buy a toothbrush?'"