MetLife to Bale and Sail on Mortgages? The Fed, PSA's, and Foreclosures; PHH Discusses Agency Repurchases

What are political ads like in Texas?

As was noted in yesterday's commentary, one of the questions that folks in the mortgage conference hallways were asking was, "With BofA leaving correspondent, is someone like Chase going to be next?" There is a big difference between hallway chatter and headlines of "MetLife May Sell Mortgage Business" in Bloomberg! "Chief Executive Officer Steven Kandarian, who took the job in May, is planning to exit a business that expanded in June when it replaced Bank of America Corp. as the preferred lender of builder KB Home...Keeping the mortgage unit could divert "resources away from MetLife's primary focus on its global insurance and employee benefits businesses," the New York-based company said in a statement. The company, the largest U.S. life insurer, plans to keep a so-called reverse-mortgage business that issues home equity-backed loans to people age 62 or older and jumped to No. 2 in the U.S. this year...MetLife will continue to originate mortgages as it seeks a buyer for the business, it said. MetLife Bank made about $4.4 billion of residential home loans in the first quarter of 2011, accounting for 1.5 percent of total mortgage originations...Today's uncertain marketplace and regulatory environment require a tremendous amount of resources." Check it out.

Let's sum things up, given the investor scuttlebutt from the conference and general rumors, possible half-truths, and outright misstatements. MetLife is/was a solid competitor for wholesale broker business in many parts of the nation - maybe someone like Fortress will buy the mortgage group. Bank of America will soon be strictly retail, and only in some states. Chase does not buy third-party originated production, i.e., broker business, from clients. GMAC, PHH, and SunTrust have varying degrees of operational hurdles, and only buy loans on a mandatory basis one at a time or not at all, and have varying degrees of tolerance for buying loans from smaller companies offering correspondent relationships. Are they ready for all this volume? Looking at the top correspondents, volume-wise, so we have Wells Fargo, which is grappling with purchase turn time days into the teens, CitiMortgage, U.S. Bank, Flagstar, Franklin American, and BB&T. Rumors of higher capital requirements for correspondent sellers are rampant. Too much competition is one thing, but does the industry really need fewer players? Besides making things easier for pricing engines, will the borrower be better off? Let's ask the protesters about unintended consequences.

"Recap of 4 days in Chicago:  'All investors suck because of repurchases and all AMCs suck because they overpromise and under deliver.  But isn't Chicago a great place to have this conference?'" So wrote an attendee to me yesterday. But a fair amount of news came out of it, one piece being that, "Fannie Mae and Freddie Mac are increasingly demanding sellers repurchase mortgages that default years after they were made and buy back recent loans that aren't even delinquent, according to PHH." "They're casting the net wider," Luke Hayden, head of PHH's mortgage unit. Read all about it.

People like lists, just like Wall Street likes FICO scores, and Forbes came out with its list of most dangerous cities. Taking MSA's with populations of greater than 200,000, Forbes used the FBI's numbers for four categories of violent crimes such as murder and aggravated assault. (Interestingly, in the past crime tends to rise when economic conditions worsen, but that has not been in the case in the last four years.) Detroit leads the list ("We're #1, we're #1") followed by Memphis, Springfield (where Wells Fargo is a top employer), Flint, and then Anchorage.

HUD announced that it is immediately suspending Michael Primeau, former president of Lend America, from doing any business with HUD following his admission that he engaged in a wide-scale mortgage fraud scheme. He is guilty of directing employees of Lend America, a former FHA-approved lender, to divert mortgage funds intended to pay off borrowers' first mortgages at refinance closings in order to pay company operating expenses. Two years ago, HUD found that Ideal Mortgage Bankers, doing business as Lend America and Lending Key, repeatedly violated the FHA's origination and underwriting requirements, including submitting false certifications and failing to document borrower income and creditworthiness. HUD withdrew the company's FHA approval, and Lend America closed the doors of its Melville, N.Y. headquarters.

Recently Federal Reserve Governor Raskin gave a speech on the challenges in the foreclosure process, specifically related to PSAs and reps and warranties, providing a summary on how the Fed views the foreclosure issues. (About two-thirds of the loans made since 2005 have been securitized. As most know, securitization is a process that involves gathering hundreds of loans into one package and selling that package in the secondary market. Often the purchaser is a trust, and trusts are comprised of investors. After the loans are pooled and sold, the trust hires a service provider to collect monthly payments and distribute that money to the investors. That securitization agreement is called a pooling and servicer agreement or PSA.)

Ms. Raskin noted that the PSA aligns the incentives of borrowers, servicers, and investors reasonably well when mortgage defaults are low, but does not in stressed environments. So Raskin suggested the following: It is imperative to reconsider the compensation structure so that servicers have adequate incentives to perform payment processing efficiently on performing mortgages, and to perform effective loss mitigation on delinquent loans. After the compensation structure is reconsidered, the PSAs need to be amended or renegotiated in order to facilitate more workouts. Finally, PSAs should clarify the situations in which loan modifications and other mitigation strategies should be pursued. One tool that could aid in providing such clarity, and has received substantial attention over the last few years, is the net present value model. Requiring servicers to take mitigative actions that are net-present-value positive to the investor could encourage the fair and consistent treatment of borrowers.

Investors still in business are busy. Chase has revised the Funding Request Form and Submission Checklist to include proof of payment of the VA Funding Fee as a required document, when applicable.

FHA 203(k) loan transactions delivered to Chase must comply with the revised Seasoned Loans policy, namely FHA 203(k) loan transactions are limited to a maximum seasoning period of 7 months from the date of the Note, allowing a maximum of 6 months to complete rehabilitation and 1 month to deliver the loan to Chase.

Are depositories promoting more ARM's? Fifth Third correspondents are facing a new rate sheet. Starting today, the pricing grid for Agency Jumbo loans will be updated, with the fixed rate adjustments worsening by .375 and the arm adjustments are improving by .375.

In the heartland of the U.S., First Financial will buy Freestar Bank for $47mm, or 1.66x tangible book. The move gives First Financial 13 branches and expands its footprint in Illinois. Freestar specializes in agriculture, single family and business lending.

GMAC Bank Correspondent Funding (GMACB) Approved Delegated Clients please note that GMACB has increased the Underwriting Fee from $225 to $400 on all conforming, conventional loans underwritten through GMACB's Prior Approval Department starting 11/1. The underwriting fee for HomePath and Jumbo products will remain at $225. An explanation must be included with the file as to the reasoning for using the Prior Approval process. Please note that under current reps and warrants, the client is held responsible to alert GMACB if the loan may not be eligible for sale to the agencies.

Starting yesterday Bank of America made changes to its VA loan amount adjustments - for anyone still sending loans BofA's way, it is best to consult the schedule of fees.

At least the markets seem to be behaving themselves - somewhat. Any good news out of Europe tends to push our rates higher: the yield on the 10-yr is over 50bps higher than the low of 1.71% posted on 9/22. Mortgage primary-secondary spreads are tightening in here as new locks are slowing down and capacity constraints are becoming less of an issue, at least at the retail level. And the Fed is continuing to buy agency mortgages. Wednesday 10-year Treasury notes ended lower by 19/32s (2.23%), but the lower prices and lower volumes in MBS's were welcomed by the various investor groups. Money managers and insurance companies were noted to be actively buying certain low coupons, as were banks.

Today the Fed will announce how much money it will have to reinvest into the MBS market from mid-October through mid-November. Estimates are around $22 billion which translates to about $1.1+ billion per day. This scenario with mortgage banker supply holding in the $1.5 to $2.0 billion area equates to the Fed taking between 73% and 55% of daily supply. This is a more favorable demand dynamic versus last week when supply hit between $2.5 and $3.0 billion in a couple of sessions.

This morning we'll have Jobless Claims and some trade numbers, and a $13 billion 30-yr bond auction. With that in mind the 10-yr is at 2.13% and MBS prices are up.

Once upon a time there was a very handsome male camel with two huge camel humps.
He fell in love and married a beautiful female camel who had one perfect camel hump.
As time progressed, they became the proud parents of a wonderful baby camel who had no humps.
They contemplated long and hard on what to call their beautiful little boy.
They finally decided on...
'Humphrey'!

If you're interested, visit my twice-a-month blog at the STRATMOR Group web site located at www.stratmorgroup.com. The current blog takes a look at Fannie & Freddie & the FHFA, and the changes they have in the hopper. If you have both the time and inclination, make a comment on what I have written, or on other comments so that folks can learn what's going on out there from the other readers.