Fannie Says No to Re-Repurchases; New Appraisal Guidance; Goldman Sachs Servicing Rumor; FHA Loan Limits
The servicing saga continues today with the story in Financial Times that Goldman Sachs may be open to selling its Litton Loan mortgage-servicing division. Apparently nothing is imminent, but the story once again raises the question about large financial firms owning servicing in light of the approach of Basel III, in addition to the question of whether or not Litton fits in with Goldman's core business. FULL STORY
In somewhat related news Interactive Mortgage Advisors, out of Denver, completed the sale of a $1 billion package of bulk servicing rights. Apparently there were two bulk servicing portfolios - one of Fannie loans and the other of Ginnie (FHA/VA). The Fannie Mae servicing portfolio contains $502 million of mostly-performing loans, primarily in North Carolina. The Ginnie pool has/had roughly 6% delinquent/foreclosure loans, primarily in New York, New Jersey or Massachusetts. So the market for servicing is perhaps "heating up" a little.
On the appraisal front, the Federal Reserve, FDIC, and other agencies issued "final supervisory guidance" on sound practices by financial institutions for real estate appraisals and evaluations. "The Interagency Appraisal and Evaluation Guidelines, which replace 1994 guidelines, explain the agencies' minimum regulatory standards for appraisals. The guidelines incorporate the agencies' recent supervisory issuances on appraisal practices, address advancements in information technology used in collateral valuation practices, and clarify standards for the industry's appropriate use of analytical methods and technological tools in developing evaluations. Financial institutions should review their appraisal and evaluation programs to ensure they are consistent with the guidelines." Of course now it will be up to FHFA, the large mortgage investors, to interpret what changes need to be made to their appraisal processes given these Federal guidelines. GUIDANCE
HUD issued a new Mortgagee Letter covering the FHA single-family loan limits for FHA's basic 1-4 family mortgage insurance program, including condominiums, 203(h) (mortgages for disaster victims), 203(k) (rehabilitation mortgage insurance) and 255 (Home Equity Conversion Mortgages). MORTGAGEE LETTER 10-40
Fannie Mae issued a servicer guide saying it will no longer accept back a mortgage that was repurchased by a secondary market investor, government-sponsored enterprise or private institutional investor, even if the lender cured the defect in the loan. Major banks must repurchase a mortgage from Fannie Mae if it was not written to the GSE's guidelines and went into default. The GSE allows the redelivery of a mortgage loan that was repurchased by the lender so long as the bank corrected the loan to fit Fannie's underwriting standards. But the GSE clarified in the guidance that any mortgage that was repurchased by investors or another GSE such as Freddie Mac are not eligible to be sold back to Fannie Mae.
Fannie Mae also directed approved lenders to begin submitting rehabilitated condominium projects to the government-sponsored enterprise for review before qualifying the loan for secondary market trading. Fannie will use its Project Eligibility Review Service, which includes on-site inspection, to review the project, increase funding reserves, minimize future potential financial hardships for the unit owners, and help ensure a project is sustainable for a longer period of time. FANNIE ANNOUNCEMENT
I had more good reader comments about current events. Regarding the recent Freddie Mac risk-based pricing changes: "One needs to consider the risks to Freddie Mac/investor, not just the risks from the borrower. 80% LTV loans are Freddie Mac's most 'expensive' because there is no MI on these loans. The level of MI coverage on loans above 80% reduces Freddie's/investors' exposure to well below 80%, with the MI covering the exposure in the 80% - 67.5% percent tranche. This is exacerbated by valuations that are 'stretched' to hit an 80% level in order that the borrower doesn't have to pay MI in the first place."
Regarding the increase in all-cash purchases in vacation areas: "Leverage? Here's why 'cash is king.' The first problem is that the large lenders will not purchase a loan on that condo in Park City or - in our case - Vail, Breckenridge, Keystone -- the resort areas of Colorado. Chances are poor to fund a loan unless one can find a real lender who sells directly to FNMA and services their own loans. If the big 4-5 investors can find any condo in your complex for rent, they call it a condo hotel. If there are not separate meters for gas and electric, or if the word 'Lodge" is in the title of the complex, it may be ineligible. Although Fannie will buy them, investor overlays are a huge issue, as is the Fannie condo fee hit: if the borrower does not put down 25%, there is a .75 fee hit. Or if you call the condo is an investment property at 80%, how does a 3.25 fee plus the .75 fee feel?"
In the San Francisco area: "Every all-cash situation I am aware of involves the purchase of an REO or short-sale where either 1) the transaction must be done rapidly or 2) the property is not in sufficient condition for lending. I am currently doing a refi of a NOO for a borrower who buys properties with cash, rehabs them, and then does a cash-out refinance. I think that the all-cash is not any sort of trend (especially with rates so low) but an anomaly caused by the volume of foreclosures and property needing repair. I grant that some of this could be people who in previous years would have done stated income. Also, present u/w guidelines make it so that one has to have a real tenant before you can count rental income on a NOO. This means that some people may pay cash and get a tenant in before they can count the rental income and qualify."
"While leverage is great for those that can afford it and are savvy enough to use it wisely, most people can't. I can see why so many that have cash are buying homes free and clear, with the thought that maybe one day they may cash out or leverage down the road."
This comment was regarding general business conditions. "I've been in this business for over 20 years and have the perspective to say that there is no better place to originate loans if you are a 'hunter.' Product mix, pricing, compensation (we'll see where this goes), management support, underwriting turn times are decent (although volatile), and so forth is top notch. If you are a 'gatherer' then its best if you sit in a Wells, Chase, or BofA bank branch and wait for the customer to walk in to you. These are interesting times, but certainly not a good time to be a rookie in this business."
Returning to interest rates, although the market move today may wipe out the moves over the last few days, it is still worthwhile to look at what happened yesterday, which initially began on Wednesday. Stronger economic news from the US and China, and recovering Euro markets on Wednesday sent stock prices soaring and the 10-yr crashing to 3%, while mortgage rates unfortunately tagged along for the ride. Servicers, originators, hedge funds, and money managers were all selling MBS's, which didn't help prices relative to Treasury prices.
Yesterday MBS prices ended the day nearly unchanged from Wednesday's levels, although MBS selling volume was above "normal." Treasuries benefited by a higher-than-expected increase in Initial Claims and the Fed's buying. But not before Fannie 4% securities (comprised of 4.25-4.625% mortgages) dipped below par (100.00) for the first time since June when the 10-yr traded 3.03%. Obviously higher mortgage rates further reduces the universe of borrowers with an incentive to refinance, amidst tight credit standards, poor home price valuations and a weak jobs market. Pending Home Sales for October were up over 10% (maybe because the darned things are so affordable now?), although the index is still 20% below where it was a year ago. Lastly, the Treasury announced that next week it will auction off $32 billion 3-yr notes, $21 billion in 10-yr notes, and $13 billion in 30-yr bonds - right on the screws. Get your bids in early!
The most important monthly report came in this morning, pointing back to a weak economy. The consensus called for +140k in Nonfarm Payrolls and the Unemployment Rate holding unchanged at 9.6%. November Nonfarm Payrolls were only up 39,000, and the Unemployment Rate jumped from 9.6% to 9.8%. Although there were some back-month revisions, the numbers were disappointing from an economic growth perspective. But from an interest-rate perspective, the news pushed rates down dramatically. HERE IS A RECAP AND A LINK TO MNDs NEW MBS PRICING SERVICE
A six-year-old goes to the hospital with her grandmother to visit her grandpa.
When they get to the hospital, she runs ahead of her grandma and bursts into her grandpa's room.
"Grandpa, Grandpa," she says excitedly, "As soon as Grandma comes into the room, make a noise like a frog!"
"What?" said her grandpa.
"Make a noise like a frog - because Grandma said that as soon as you croak, we're all going to Disneyland!"