How to Manage Repurchases; Loan Limit Fight Not Dead; Surprising Multi-family Statistics

Here is a notable take on Realtors, for better or worse, titled "Five Rules to Remember When Dealing with Real Estate Agents".

Have you commented yet on the possible changes in servicing values? The dust has settled a little, but it is important. The two plans are outlined in these 36 pages. Public input on the proposals and various component parts will be accepted for 90 days and should be e-mailed to: Servicing_Comp_Public_Comments@fhfa.gov.

(Servicing values are only a piece of what Fannie & Freddie are contending with these days. There is continued talk about the long term plans for Fannie & Freddie, but little of substance is expected until 2013: http://www.stratmorgroup.com/

A lot is being made of Tuesday morning's Oct NAHB housing market index increasing to 18 from 14, the highest reading in 17 months. The headline "jump" is nice, but overall the index is still weak. Yesterday's housing starts and building permits numbers also attracted some notice as housing starts increased 15.0% in September. For the third quarter, housing starts are up an annualized 33.3%. But single-family starts rose a modest 1.7%. The big gain was in the multi-family category, which was up over 51%! The Mortgage Bankers Association reported that 2,548 different multifamily lenders provided $68.8 billion in mortgage financing for apartment buildings with five or more units in 2010, which is up 31% from 2009.

In the multifamily area, just 1% of the lenders accounted for 51% of the dollar volume, while three-quarters of the lenders made five or fewer loans over the course of the year. The top 5 were Wells Fargo, CBRE Capital Markets, Berkadia Commercial Mortgage, PNC, and Prudential Mortgage Capital.

Honestly, I lose track of the states trying to sue or settle with the servicing companies. But here is the latest.

The fight is not over on reinstating the jumbo loan limits that expired 10/1. The Community Mortgage Lenders of America (CMLA) spread the word that the Senate the Menendez-Isakson Amendment would address loan limit extensions for FHA, VA and GSE insured home loans. "There will be no further extensions beyond this proposed Amendment extension; This is critical for both high cost and non-high cost states; This will further stabilize the overall mortgage marketplace for at least the length of the extension." The Amendment would temporarily restore conforming loan limits, which expired on September 30^th and "Menendez-Isakson Amendment would restore the recently expired maximum conforming loan limit of 125% of Area Median Home Price (rather than 115%) and $729,750 (rather than $625,000) for two years through December 31, 2013 for FHA, GSE, and VA loans." CMLA is asking the industry to write to their representatives in Congress.

Yesterday the commentary discussed the amounts mortgage companies set aside for reserves. I received this note from attorney Brian Levy with Katten & Temple. "I thought it might be helpful to focus on two common misconceptions about managing repurchases.  Namely, (1) that there is no middle ground between capitulating on a repurchase demand and all out litigation war and (2) originators have to "go it alone" to defend themselves.

"First, despite a lot of tough talk about who's right and wrong, on a loan level basis, most of the issues resulting in impasse fall in some kind of a grey area of interpretation.  There simply have not been a lot of legal decisions to work with and the issues are very fact based anyway, so legal precedent may not matter much.  In any discussion around resolution of an impasse, the challenges are on the one hand, how does the originator articulate the response in way that credibly conveys the position without seeming obstinate or unreasonable and on the other, how do you actually get the other side to take action towards settlement.  Simply denying liability without cause (or, conversely, holding fast to a questionable repurchase demand) can be a sound strategy if the relationship has no value; where the message is "you'll have to sue me to get that demand paid".   Given the dwindling number of correspondents to choose from today (as you have reported in your daily e-mail), however, for most originators, jettisoning relationships can result in unwanted collateral damage to other ongoing business.

"That being said, even in continuing relationships, breaking through clerical staff's desire to resolve what they typically view as a receivable, can be quite challenging.  It can be done, but it takes persistence, tact and above all, substance.  Often, however, originators hand over the repurchase management function to their own clerical staff and miss the opportunity to get creative with the investor in resolution.  Frankly, this is an area that requires high level strategic thinking, access to the right people and strong leadership to get resolved.  The settlement path (as opposed to a collection process) is usually not well defined with most investors and you will need to be patient and help them along.  They typically start from the perspective that it is an all or nothing question.  But repurchase demands that appear at an impasse due to grey areas can be settled without adversely affecting the relationship if the right people get involved on both sides and the parties understand they will each need to bend a little.

"Second, whether or not an originator has the ability to entirely manage these repurchase issues internally, there are resources available to help originators challenge repurchase demands without "going to war".  In addition to QC, appraisal and compliance vendors that can review and challenge specific findings, there are people (yes, this is my plug) who can provide strategic guidance behind the scenes to focus decision-making and craft communications without harming relationship.  Other times, a qualified third party can offer a more balanced discussion with the other side that lends more gravity and credibility to the arguments presented which, in itself moves the needle towards settlement where the direct conversation can't.

"Hiring a lawyer or other qualified third party does not have to mean the originator is going to sue somebody or be sued as the right firm will have access to and utilize strategic industry support to craft the right approach customized for each situation." (For information you can write to Brian at blevy@kattentemple.com.)

Genworth Financial Home Equity Access (GFHEA) sent word that it is immediately eliminating "the following offerings with no new applications accepted until further notice: adjustable Rate HECM LIBOR Standard product, adjustable Rate HECM LIBOR Savor product, fixed rate HECM Saver product, and fixed rate HECM products for manufactured homes" in both its Wholesale Program and Closed Loan Programs."

ClearPoint Funding is offering a 1-2 hour USDA Fundamentals class today at 11AM CST. The session is via Webex, and e-mail Jenda Standley at jStandley@clearpointfunding.com for more information.

GMAC has announced that effective immediately the VA 7/1 Hybrid ARMs have been discontinued. As a result of this change, the following product codes will become inactive: VA Hybrid 7/1 ARM (Y35) and the High Balance VA Hybrid 7/1 ARM (Y37). And folks should know that GMAC honors appraisal waivers on all DU loans including high balance conforming products. "No appraisal is required ever on our Home Path purchase program, up to 97% LTV / max financing. High balance, non-owner, second home and units included! (no condo review either)"

Earnings news has extended past the big 4 banks. U.S. Bancorp posted a 40% gain in the third quarter to a record $1.27 billion by increasing top line revenue by 4.5% (largely through additional marketing and sales), while reducing charge-offs and delinquencies. Bank of New York Mellon released 3Q earnings that were 4.7% higher at $651million. While low rates hurt margins and caused the bank to waive mutual fund fees, an increase in market share and an expense cutting program helped boost net earnings. The residential mortgage banking segment at PNC earned $22 million in the third quarter, less than half of the $55 million it made in the second quarter and one-fourth of the $97 million profit of the third quarter 2010. NYCB's mortgage banking income doubled between the second and third quarters, driven by the drop in interest rates and an increase in refinance applications.

Although we had some volatility in the markets yesterday, we ended nearly unchanged on the day with the 10-yr around 2.16% and MBS prices bumped around by mortgage banker selling (about $1.5 billion), Fed agency MBS purchases (about $1 billion), and rumors about another big refi program & HARP changes. Of course, rates are not a big factor: loan standards are still tight for many classes of borrowers. For those with pristine credit and equity, however, there is increased competition amongst lenders for these borrowers which was leading to lower rates and fees for them.

For rates today, things are again nearly unchanged. We had weekly Jobless Claims, with last week's being revised from 404k to 409k and then dropping to 403k - not earth shattering. The 10-yr is at 2.12% and MBS prices are up slightly from Wednesday.  View Prices

At one point during a game, the coach called one of his 9-year-old baseball players aside and asked, "Do you understand what cooperation is? What a team is?" The little boy nodded in the affirmative.
"Do you understand that what matters is whether we win or lose together as a team?" The little boy nodded 'yes'.
"So," the coach continued, "I'm sure you know, when an out is called, you shouldn't argue, curse, attack the umpire, or call him a pecker-head. Do you understand all that?" The little boy nodded 'yes' again.
He continued, "And when I take you out of the game so another boy gets a chance to play, it's not good sportsmanship to call your coach 'a dumb a--' is it?" The little boy shook his head 'NO'.
"GOOD," said the coach. "Now go over there and explain all that to your grandmother."

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.