FinReg Reform and Basel III Compliance; Freddie Mac Cuts Ties to Florida Law Firm; Radian Posts Profit; QEII Time

By: Rob Chrisman •

Yesterday I mentioned some reasons why one might want, or not want, to retire in California. I was sent THIS by a Californian living in Texas. Funny.

And regarding Chinese food, Florida has great Cuban food, but is lacking in other areas. "In Jacksonville, all of the Chinese places use EXACTLY the same menu, with a different name printed on the front.  We believe there is a local Chinese food supplier that prints menus as well." "Rob, you've obviously never had Chinese food in Miami.  Awful!"

And regarding Freddie's Open Access loan program: "I processed one recently. Before starting I went to their website and confirmed that they owned the loan.  The original loan closed Feb 2009.  When we ran LP we kept getting messages that they could not match the property even though I matched it by name, SS# and address.  As it turned out the original lender did not deliver the loan to Freddie until Oct 2009.  Freddie said they would not allow the refinance if they did not own it on or before May 31 2009.  Another good borrower gets the short end."

"Everbank is honoring Open Access, primary and residential to 100% LTV unlimited CLTV. I do about 5 a month with them. It's a nice little niche. Just Mortgage is also going to 125% with no lender overlays on the Fannie/Freddie product."

Why are bank stocks languishing? A story in Financial Times states, "The new regime of financial regulation will hit annual profits, at the US's eight biggest banks, by between $19.5 billion and $22 billion, according to one of the first assessments of the new law. S&P's analysts say there will be a noticeable loss of income as a result of restrictions on proprietary trading, credit card fees and derivatives activity, along with increased compliance costs, at Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, PNC Financial, US Bancorp and Wells Fargo. However, "We think that these banks will eventually be able to offset these deficits by making smaller additions to loan-loss reserves and raising prices for some products and services. A return to more typical banking conditions would, in our view, mitigate most, or even all, of the financial costs of Dodd-Frank for these banks." The analysts acknowledge there are other "significant uncertainties" because much of the rules are still to be fleshed out by regulators following the passage of the Dodd-Frank Act in June.

In a somewhat related issue, U.S. Treasury Secretary Geithner recently agreed with European Union financial markets chief Michel Barnier on a December 2011 date to implement new Basel trading book rules. An agreement was reached a few months ago by the Basel Committee on Banking Supervision in order to toughen capital and liquidity standards. Basel III, although not on the radar screen of many loan originators, will indeed impact them. The value of servicing is a huge question mark right now. Basel III will impact banks' Tier 1 common equity ratios, and whether or not capital would be used for incremental growth or when some of it could be returned to shareholders. One of the policies is for banks to meet higher capital hurdles before using any net new capital for strategic initiatives.

Jamie Dimon, CEO of JPMorgan, says banks would likely become Basel III-compliant quicker than when most people think. The early achievers will be at a strategic advantage, able to first seize new opportunities in the marketplace, as well as make strategic acquisitions and undertake shareholder-friendly measures, such as reinstating dividends or share-buyback programs. Some analysts believe that Goldman Sachs looks to be in the best position to meet the new Basel III minimum targets, as it expects its Tier 1 common to near 8% currently and near 11% by the end of 2012. JPMorgan sees its Basel III Tier 1 common to be 7% by the end of this year and 9% by the end of 2011. Wells Fargo indicated it expects its new Tier 1 common to be 7% sometime in the next few quarters, while Citi guided it would be between 8% to 9% in 2012 and Bank of America indicated it would be greater than 8% in 2012.

Freddie Mac has terminated its relationship with the Law Offices of David J. Stern, in Plantation, Florida. "Freddie Mac had already directed the law offices of David J. Stern, P.A. that it should not accept any new case referrals, and that it should temporarily stop processing all Florida foreclosure and bankruptcy matters on all Freddie Mac mortgages. Servicers may not refer any Freddie Mac foreclosure or bankruptcy cases to the Law Offices of David J. Stern, P.A., whether referred within or outside Freddie Mac's Designated Counsel Program." For Freddie, and I am sure other servicers, "It is critically important that the legal rights of borrowers and the integrity of the foreclosure process are protected and that our Servicers fully comply with applicable law and Freddie Mac's servicing requirements." Freddie Mac is in the process of identifying the law firms to which it will direct the transfer of cases from the Law Offices of David J. Stern, P.A. and that will assume responsibility of these matters.

"Until USDA funds are available, Mountain West Financial will not be accepting locks for Rural Housing loans."

For any Realtors or brokers interested in the high-rise condo market (heck, I didn't even know one still existed!) Fifth Third announced that the pricing bump for High Rise Condos will be improved today, and is reduced from -.500 to -.250.

Radian Group (#2 MI company) saw its stock price shoot up 15% - the most in seven months - after posting its first profit in five quarters. "We continue to see signs of credit-trend stabilization," Chief Executive Officer S.A. Ibrahim said, and "a decline in the delinquency count for the third consecutive quarter." As most know, MI companies pay lenders when homeowners default and foreclosures fail to cover the costs, and per Radian delinquencies continued to decline in October. Most MI company's stock rose, despite continued "less than exciting" performance by Genworth (higher-than-expected losses from Florida mortgages), MGIC (recently reporting a loss of $51 million in the 3rd quarter), and PMI (who posted a loss of $281 million).

We had a nice rally yesterday in both bonds and stocks. MBS prices were better by .5 in price on the lower coupons, and .375 in the slightly higher ones on $1.7 billion in origination. The yield on the 10-yr closed at 2.59%. The election results came in after the US markets closed, but were pretty much as expected - and really have not impacted the markets. In what is viewed as a broad rebuke to President Obama's agenda, Republicans have taken back the House of Representatives, picking up over 60 seats, with the majority in the Senate unchanged but narrowing. And it seems that we have a new Speaker of the House: John Boehner, a republican from Ohio. Although small and large businesses are the engines that create jobs, avoiding political gridlock will be critical to any kind of decent economic recovery.

Today we've had the MBA release last week's mortgage application data, the ADP employment numbers, with Factory Orders, the ISM non-manufacturing index data, and next week's refunding numbers, later on. The MBA numbers showed what lock desks everywhere already knew, and that was the number of mortgage applications in the U.S. fell last week. Apps were down 5%, with refinancing down 6.4% but purchase apps up 1.4%. Refi's are still well above 80%. In the employment arena, ADP's numbers showed private sector jobs were up 43k in October and revised slightly lower in September.

But really, all that pales in comparison to the FOMC meeting results at 2:15PM EST, 11:15AM PST. If one sees a flurry of rate & price changes around then, the FOMC meeting results are the reason. What can one say, that hasn't been said before, about QE2? A trader from Merrill Lynch (BofA) wrote that he expects the Fed to "put forth a plan to purchase around $500 billion of Treasuries over a six-month period, with a commitment to buy more as needed, link policy to their inflation outlook, and explain that they expect these actions to help the economy by improving financial conditions. We're all waiting...but until then the 10-yr is down to 2.56% and mortgage security prices are better by about .125.

You can retire to New York City where...

  1. You say "the city" and expect everyone to know you mean Manhattan.    
  2. You can get into a four-hour argument about how to get from Columbus Circle to Battery Park, but can't find Wisconsin on a map.  
  3. You think Central Park is "nature."  
  4. You believe that being able to swear at people in their own language makes you multi-lingual.
  5. You've worn out a car horn - if you have a car.
  6. You think eye contact is an act of aggression.