BofA Looks to Exit Correspondent, What Next?

Mortgage banking and real estate are typically not physically hazardous professions. In case you're ever tempted to throw down your pen & pencil and pick up a shovel to earn a living, check these out.  (I especially like the guy in the pink shirt.)

Last night news came through the Wall Street Journal that "Bank of America Corp. intends to sell its correspondent mortgage business, as the troubled lender looks to narrow its focus and bolster its financial strength...Employees could be notified as soon as Wednesday that the lender has decided to exit the correspondent channel because it no longer fits with the long-term strategy for its mortgage unit. The company decided to get out roughly four to six weeks ago, following a review led by mortgage chief Barbara Desoer. The business employs more than 1,000 people.

The move represents another repudiation of Bank of America's 2008 purchase of Countrywide Financial Corp. That deal turned the Charlotte, N.C., lender into one of the nation's largest mortgage players but also saddled it with hundreds of thousands of delinquent loans and an array of mortgage-related lawsuits. The bank has already exited the wholesale business, which involves buying loans from independent brokers, and it has stopped offering reverse mortgages....Loans purchased from correspondents accounted for 47% of Bank of America's mortgage originations, or $27.4 billion, in the first quarter of 2011, according to Inside Mortgage Finance. Bank of America had a 24.3% share of the correspondent market in the first quarter, second only to Wells Fargo & Co."

Rumblings of this had been out in the market for quite some time. But the escalation of this from conjecture to print will motivate mortgage companies today to take action. BofA correspondent reps will spend the day not only wondering about their jobs, but also handling phone calls - no mortgage banker wants to take a financial risk if there is no upside, and the difference between "selling its correspondent business" and "closing its correspondent business" may be lost in the shuffle. Many lenders had already scaled back their book of BofA business, either due to poor pricing or in expectation of this happening. Shipping departments and secondary marketing managers will be checking their commitment reports and unshipped funded loans. Pipelines will be analyzed for BofA-only production, with perhaps calls placed to the remaining large investors ("Will you take this type of loan with this underwriting?") Chase does not buy third-party originated loans, so that complicates things somewhat. And many are wondering what will happen to the pricing at Wells, Citi, or GMAC with the loss of a competitor. And write-ups have begun spring.

The latest lawsuit against Bank of America comes from U.S. Bancorp, which wants Bank of America Corp. to repurchase poorly-written mortgages sold by Countrywide Financial in 2005. The suit claims Countrywide sold U.S. Bancorp a pool of over 4,000 loans originally valued at $1.75 billion but ignored its own mortgage underwriting guidelines when issuing those loans. According to the complaint, Countrywide agreed to repurchase loans within 90 days if any of the statements made in the loan contract wound up being untrue. Those statements included an assertion that the loans complied with the bank's underwriting guidelines.

Appraisal news and comments continued in the Wall Street Journal.

But tomorrow is a big day, appraisal-wise. If you don't know why, that is not a good thing. But here's a hint: it involves the initials U-A-D. Read a summary here.

"To be sure of hitting the target, shoot first and call whatever you hit the target." Of course Congress is on vacation, putting any talk of extending loan limits on hold. (Did you know that, according to TheHill.com, 80% of Congress has no background in business or economics?) But there is a rumor about loan limits being reduced even below the $417k level. Could the permanent loan limits go down? In the old days, next year's loan limits would come out around Thanksgiving, and reflect value trends. While there have been median home price declines over the past three years, FHFA followed a policy to 'not permit declines relative to the prior HERA limits.' Several months ago, FHFA and Fannie Mae published the permanent loan limits applicable to loans originated on or after October 1, 2011, and which are acquired by Fannie Mae in 2011. Therefore, no changes are expected to those permanent limits between October 1, 2011, and December 31, 2011.  FHFA has not indicated whether it will continue its policy of not permitting declines in HERA-based limits beyond 2011." More information can be found here.

FHA, of course, is "a whole 'nother animal," and questions regarding its loan changes can be seen here. And, of course, there is the official Mortgagee Letter from last week.

As an example of the loan amount issue, Flagstar recently reminded brokers, "Effective for FHA loans closing October 1, 2011 through December, 31, 2011 and barring congressional intervention, FHA's national loan limit "ceiling" in high-cost areas is decreasing from 175% to 150% of the conforming loan limit. Please see full memo for details."

Data-and-analytics company CoreLogic said it hired investment bank Greenhill & Co. to help with a possible sale, stock buyback or something else that might help the stock price. "Exploring strategic alternatives" comes to mind, especially with the stock down 50% during 2011.

The hurricane did its share of damage across the Atlantic Seaboard, and investors are reacting: it should come as no surprise that, for the most part, additional appraisals with updated photos will be required. Wells Fargo told its correspondent clients, "All appraisals completed prior to the disaster will require an acceptable property inspection report completed after that date. Neither Wells Fargo nor FEMA have yet to issue a declaration specifying impacted areas. It is expected that FEMA will announce a Declaration stating specific disaster areas within the next few days. Reminder: Precautions must be taken for loans originated within affected areas. Regardless of whether FEMA has formally declared a disaster, all transactions showing any indication of damage to the collateral should comply with the published Disaster Policy Guidelines as outlined in Seller Guide Sections 820.19 and 820.20 (Government Loans must follow FHA/VA guidance). States with locations that may have been impacted by this hurricane include: Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, North Carolina, Pennsylvania, Rhode Island, Vermont, Virginia, and Washington D.C."

Fifth Third reminded clients of its Federal Disaster Area policy. "The following applies to all fully approved purchase transactions that are expected to close on or before September 9, 2011: Borrower Property Condition Cert Form, a confirmation in writing from the borrower's insurance company evidencing there is no material damage and they are able to place coverage on the scheduled closing date. Note: If the property is in a flood zone a re-inspection is required. A re-inspection is required on condos and attached PUD's that require a master policy insurance. All purchase transactions not fully approved today or scheduled to close after September 9, 2011 a re-inspection is required. All refinanced transactions are required to provide the following: Re-inspection is required - All damage that impacts the property's value or marketability OR exceeds 2% of the property's value (appraisers to provide cost to cure) must be repaired prior to closing. Note: Required re-inspections are ordered through RealEC and should be completed by the original appraiser; if the original appraiser is unavailable the AMC must have the inspection completed with another appraiser or inspector assigned by the AMC. This will result in a changed circumstance from a disclosure perspective requiring a new GFE reflecting the re-inspection charge."

Rates continue to be historically good, and should be for quite some time. Of course we will see daily fluctuations, but with the Fed firmly in the 0% overnight camp, mortgage rates should continue to sit around these levels for quite some time. But speaking of daily fluctuations, traders and originators are lining up for Friday's unemployment data. The talk of refi.gov has died down somewhat (along with political grandstanding) although there is still conjecture about Obama's speech next week. But for firm news, yesterday, the Conference Board's index slumped to 44.5, the weakest in two years, from a revised 59.2 reading in July. "Sharp deterioration" was the descriptive language, and although stocks had a slight rally, the number does not help the case for a strong economy.

We also had the S&P/Case-Shiller Home Price Indices which showed that national home prices rose in the 2^nd quarter by 3.6% after falling 4.1% in the 1^st quarter. This puts national prices back to their early 2003 levels per this index. And the minutes from the August FOMC meeting showed that some members favored aggressive easing. 10-year notes surged .875 in price and closed around 2.17%. In MBS's, buyer's interest outnumbered sellers despite the higher prices, and current coupon MBS prices improved by about .5.

Today we've already seen the mortgage applications data for last week: -9.6%. Refinancing activity dropped over 12% while the purchase numbers showed a pick-up of about 1%. Refi biz is sitting at about 78% of total volume, but watch that ARM production: its share of activity increased to 7.1% from 6.2% of total applications a week ago. We also have the ADP Employment Change (+91k), and will have the Chicago PMI and Factory Orders. Currently the 10-yr yield is at 2.16% and MBS prices are roughly unchanged.

(From 9/2 through 9/9 I will be out of the country, my access to e-mail will be sporadic at best, and my ability to send out commentaries will be diminished. There will be a slate of guest writers on different perspectives: contract negotiation, insurance, compliance, risk management, and so forth.)

Looking forward to retirement?
Question:  Why do retirees count pennies?

Answer:  They are the only ones who have the time.

Question:  What is the common term for someone who enjoys work and refuses to retire?

Answer:  NUTS!

Question:  Why are retirees so slow to clean out the basement, attic or garage?

Answer:  They know that as soon as they do, one of their adult kids will want to store stuff there.

Question:  What do retirees call a long lunch?

Answer:    Normal.

Question:  What's the biggest advantage of going back to school as a retiree?

Answer:  If you cut classes, no one calls your parents.

Question:  Why does a retiree often say he doesn't miss work, but misses the people he used to work with?

Answer:  He is too polite to tell the whole truth.  
QUESTION:  What do you do all week?

Answer:  Monday through Friday, NOTHING..... Saturday & Sunday, I rest.