Banks to Increase Loan Loss Reserves? SEC's Fannie and Freddie Lawsuit; FHA Anti-Flipping Rule

If you have a few seconds, go to Google and do a search on "Let it snow." There's even a "defrost" button.

I am sure that many originators wish that there was a defrost button for the FHA Anti-Flipping rule. The clock is about to run out (12/31) on the HUD temporary waiver of requirements of the FHA regulation 24 CFR 203.37a (b)(2) FHA Anti-Flipping rule. HUD has not issued an extension of the property flipping waiver and so lenders have shut down on lending for FHA flips. This may be extended, but savvy lenders are taking no chances and telling their LO's to make sure the current owner has been on title for at least 90 days - but at least they don't need the property inspection and the second appraisal.

An AE's broker clients on the East Coast received notes like this late last week from the AE: "It is with deep regret that I inform you that O2 Funding has decided to close its East Coast Operations center and has terminated all of its sales and support staff in the East.  O2 Funding experienced explosive growth in a very short period of time, yet its parent company had problems funding its volume in the secondary market. They have decided to originate loans only on the West Coast via their California HQ at this time." It is certainly a sign of the times. There are plenty of rumors out there about other companies - take your pick: another large money-center bank leaving correspondent lending, another large investor hitting a mid-sized lender in the Southwest with $100 million of buybacks, of a Southern California wholesaler exiting the Midwest, and so on. The only thing that stays the same in this biz is change.

It has been relatively quiet in bank-closure land this month, but on Friday in Florida Premier Community Bank of the Emerald Coast was shut down and the depositors moved to Summit Bank, National Association. (Many believe that the highest summit in Florida is a freeway overpass, but there are actual hills in the north.) Western National Bank of Phoenix, Arizona, was closed by the OCC, the FDIC was appointed receiver, and now the depositors will see Washington Federal of Seattle on their checks.

"U.S. and international accounting rule makers have agreed in principle on a new standard for recording loan losses that may require banks to book some losses more quickly. Under the new plan, banks and other financial companies would shift to an "expected-loss" model, under which they would book losses and set aside loan-loss reserves based on future projections of losses. That would differ from the current system, known as an "incurred-loss" model, which requires evidence that a loss actually has occurred before the loss can be recorded. A move to using future loss projections would have the effect of accelerating the booking of losses" - More.

There are indeed a few products trying to make a go of it. Mortgage Harmony Corp. is actively seeking whole loan buyers that are looking for performing and or re-performing assets with prepayment protection in the form of The HarmonyLoan. "Existing whole loan pools can be easily converted to HarmonyLoans, ensuring continuity of income stream from borrower, with the added protection of interest rate management from the consumer level." Please contact Jay Patel for more information at jpatel@mortgageharmony.com.

If you're in the New York area on January 5th, you should definitely consider attending a free mortgage industry symposium sponsored by Digital Risk, SNR Denton and KPMG. Highlights of their 2 panels of industry heavy weights include "Dodd-Frank and the Consumer Financial Protection Bureau (CFPB): Major Changes Coming" and "Servicing Used to be so Simple before HAMP, HAFA, HARP, Consent Orders, Mods and Other Operational Challenges." After the panels a cocktail reception follows - you may need some. To register, visit this link  or contact Mark Benner at mbenner@digitalrisk.com.

When the SEC charges you with securities fraud, it grabs your attention. Six former top executives of Fannie Mae and Freddie Mac were charged with securities fraud in connection with MBS's issued by the firms.  The Securities and Exchange Commission filed separate suits against each of the government sponsored enterprises (GSEs) while at the same time revealing non-prosecution agreements with Fannie Mae and Freddie Mac in return for the cooperation of the GSE's in the upcoming litigation. Named in the Fannie Mae suit were former Fannie CEO Daniel H. Mudd, its former Chief Risk Officer Enrico Dallavecchia, and the former EVP of Fannie's Single Family Mortgage business, Thomas A. Lund.  The three former Freddie executives are Chairman of the Board and CEO Richard F. Syron, EVP and Chief Business Officer Patricia L. Cook, and former EVP for the Single Family Guarantee business Donald J. Bisenius.

The lawsuits allege that the former executives caused their respective companies to materially misstate their holdings of risky loans, including subprime loans, in periodic and other filings with the SEC and in public statements, investor calls, and media interviews.  Between the suits the time period covered goes from December 2006 through August 2008.

For some good news, GMAC Bank's clients learned that GMACB will be changing the Jumbo ARM incentive for FICO >=720 and LTV <=70 from +.500 to +.750. "This, along with the other jumbo incentives on purchases and on FICO >=720, are being extended through January."

How do foreign nationals obtain loans these days? Apparently New Penn has a program that helps buyers of FNMA-approved condos, even if the borrower has no credit and no housing payment history and does not qualify for conventional financing. "New Penn's Foreign National Portfolio Loan Product: up to $650k loan amounts per property, up to 65% LTV on purchases, self-employed okay, occupancy includes owner occupied & second homes."

Franklin American "is expanding options for the disclosure of itemized lump sum fees and/or any loan fees paid by third parties that are to be excluded from the finance charge. Options for providing itemizations include: attachment or Addendum to the HUD‐1, naming specific fees paid with credit, lender's specific closing instructions itemizing fees and/or credits, accurate itemization of the Amount Financed as outlined in Regulation Z, and lender's system generated itemization of fees (e.g. "Fee Sheet"), which must be transaction specific (includes the lender's name, borrower's name, and loan number). There are restrictions - for example for VA loans, a Fee Sheet or Closing Instructions are not acceptable for documentation of Seller/Lender credits since they are not signed by the borrower at closing (refer to VA Circular 26‐10‐09). FAMC will no longer allow for handwritten notes, asterisks, and other un‐identified non‐system generated methods of itemized fee disclosure. As always, read the bulletin for specific details!

Early last week Wells Fargo Wholesale came out with new Fannie DU Refi Plus and Freddie Relief Refinance Mortgage price adjusters, along with an updated Initial Loan Submission Checklist for Non-conforming loans. In addition, Wells' wholesale came out with new extension costs: "Wells Fargo Home Mortgage currently requires brokers to purchase extensions in 3-, 5-, 7-, 10-, 14- or 21-day increments at a cost of 3 bps per day (3-day increment = 9 bps, etc.). Effective Dec. 12, 2011, WFHM will open those options to any amount of days from 3 to 21 (i.e., 3-, 4-, 5-, 6-, 7-day increments up to 21). WFHM is not changing the 3 bps-per-day cost at this time."

Flagstar Bank announced that "second home and investment properties are now eligible for loans not currently serviced by Flagstar Bank on the Fannie Mae DU Refi Plus and Freddie Mac Relief Open Access II. In addition, Flagstar Bank has lowered the price adjustment cap on the new HARP II products."

Czechs are signing condolence books to pay tribute to their former President Vaclav Havel, who led a peaceful revolution that toppled the communist regime in 1989, while the world markets are reacting to the death of Kim Jong Il in North Korea. (A state television presenter said that the leader died Saturday on a train trip of physical and mental over-work on his way to give "field guidance." I like it.) The death has momentarily taken the spotlight away from Europe, and given the military uncertainty of the situation caused a move toward the dollar - and of course one way to do that is to buy fixed-income securities. Here in the United States, most economists tend to agree that economic data recently shows an economy that is getting steadier after a shaky journey through most of the year.

For action-packed economic news this week, we have a lot of housing news in addition to NAR's re-statement of years' worth of housing stats. Today is the NAHB Housing Market Index, tomorrow is Housing Starts and Building Permits, Wednesday is the usual MBA index and Existing Home Sales, Thursday is the FHFA Housing Price Index, and Friday is New Home Sales. Sprinkle in Jobless Claims and Leading Economic Indicators on Thursday, and Durable Goods, Personal Income, and Personal Consumption on Friday, along with thinly staffed trading desks and mortgage shops, and suddenly everyone is hoping for a very non-volatile week. We find the 10-yr a 1.86% and MBS prices slightly better, perhaps unchanged.


A TOUCHING CHRISTMAS STORY
A couple was doing last minute shopping on Christmas Eve.
Walking through the very crowded mall the wife looked up and noticed her husband was nowhere around.  She became very upset because they had a lot to do.
She used her cell phone to call her husband to ask where he was.

The husband, in a calm voice said, "Honey remember the jewelry store we went into five years ago, where you fell in love with that diamond necklace that we could not afford and I told you that I would get it for you one day?"

The wife, crying, said "Yes, I remember".

Husband:  "Well, I'm in the bar next to that jewelry store."

If you're interested, visit my twice-a-month blog at the STRATMOR Group web site located at www.stratmorgroup.com. The current blog discusses the time frames for borrowers returning to A-paper status after a short sale or foreclosure. 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.