HARP 3.0? California to Change Foreclosure Laws? MGIC and SunTrust Results

From the New York Times Science sections comes, "While baboons can't read, they can tell the difference between real English words and nonsensical ones, a new study reports. Baboons can master a basic element of reading, says a French team. "They are using information about letters and the relation between letters to perform the task without any kind of linguistic training," said one psychologist. He and his colleagues worked with six baboons that were given free access to touch-screen computers, which displayed four-letter sequences. If a baboon tapped the screen when the sequence was a real word, it received a treat. "The animal realizes what to do in order to get a reward," Dr. Grainger said. "And they remember the words; they didn't forget them." A similar study is being done on guys who send out daily mortgage commentaries...

In Arizona, Peoples Home Lending is looking for a senior underwriter who is familiar with FHA/VA/CONV loans per agency guidelines, someone who can support processors and mortgage bankers (originators) on a daily basis. The candidate should have a thorough understanding of Investor, FHA, VA and USDA underwriting guidelines.  If you are interested in exploring this opportunity please send your resume to Monica Zimmer at mzimmer@bankingunusual. com.

In the San Diego area, Mark Robertson with Samuel Scott Financial Group is searching for a top-notch operations person to help him run his origination business and manage his pipeline. The ideal candidate is someone who has experience helping to close 15-20 loans per month, be located in San Diego, and have had experience dealing with clients. (The person will not be processing loans, but instead focus on closing loans.) If you know anyone who might be interested, they should contact Mark at Mark@SamuelScottFG. com.

Lastly, interested in working for HUD?  The agency is hiring Single Family Housing Specialists in Denver and Santa Ana.  See usajobs.gov for more info.

On the opposite side of things, mortgage insurer MGIC Investment Corp. reported its seventh straight quarterly loss (Read: Mortgage Insurer's Quarterly Report is a Litany of Troubles) - and as posted net losses for the last five years - although the loss in the first quarter shrank. MGIC reported its lowest rate of new defaults in five quarters, down 20%, and posted a narrower first-quarter loss of $19.6 million. SunTrust Banks earned $250 million in the first quarter, a 47% jump from $180 million a year earlier although last quarter was revised downward by $81 million. Loans increased 3% in the first quarter, as guaranteed mortgages and student loans contributed to growth. SunTrust mortgage business's production income returned to a $63 million profit from a $1 million loss a year earlier as mortgage originations increased 12% and 33% from a quarter and year earlier. And income from mortgage servicing grew to $81 million for the first three months of 2012 from $72 million a year earlier although the bank's servicing portfolio fell to $155 billion from $164 billion in the first quarter 2011.

News on a possible HARP 3.0? A company owner from California wrote, saying, "I received an email from one of our wholesale sources saying their owner was in Washington DC and met with senior HUD official(s) and member(s) of Senate Finance Committee who indicated a HARP III program by end of June. It will allow conforming loans to be refi'd through FHA regardless of LTV or note holder.  There was no word on when a loan had to have funded to be eligible for refinancing under this rumored program. The timing is same time as FHA MI increases for high balance loans so perhaps this is a way to obtain upside-down notes of Fannie/Freddie and bank balance sheets, and increase capitalization for the FHA?"

If any lender goes down this path, as an FHA approved lender, they are required to have and implement a Quality Control Plan (QCP). The QC review process is not necessarily intuitive and easily discernible as they would like, nor cost effective for many smaller lenders. (For example, the Lender Approval Handbook 4060, Chapter 7, reads that lenders originating less than 3,500 loans are required to do a monthly, 10% sample - are you ready for that? Originations over that total you need either a 10% sample or random samples providing a 95% confidence level with a 2% precision level. What the heck? And all lenders are required to review 100% of the loans that become 60 days past due within the first six payments.) And even if the costs are calculated for carrying out the QC process, some lenders are understandably nervous about the financial and reputational risks of inadequately complying with FHA requirements, such as an audit by the Quality Assurance Division or HUD's Office of Inspector General, a Credit Watch or Direct Endorsement authority termination. Anyway, this is just a small slice of the operational pie with successfully originating FHA loans.

FHA loans often go into Ginnie Mae securities (remember that Ginnie doesn't buy loans like Freddie & Fannie do, it guarantees them), and Ginnie Mae announced that it guaranteed about $29 billion in mortgage-backed securities (MBS) in March. Roughly, issuance for Ginnie Mae II single-family pools led the way with more than $22 billion, while Ginnie Mae I single-family pools hit $5 billion. Total single-family issuance for March was $28 billion. Issuance for Ginnie Mae Home Equity Conversion Mortgage-Backed Securities (HMBS) included in Ginnie Mae II single-family pools came in at less than $1 billion, and Ginnie Mae's multifamily MBS issuance was more than $1.4 billion.

Late last week the National Association of Mortgage Brokers (NAMB, also somewhat confusingly known as the Association of Mortgage Professionals) announced that it has joined a coalition of trade associations and housing interest groups with ties to the mortgage industry in submitting a letter to Richard Cordray (Read: Letter to Cordray Requests Industry Input into Qualified Mortgage) Director of the CFPB concerning the implementation of the Qualified Mortgage (QM) that addresses, among other things, the borrower's ability-to-repay. "NAMB supports a broader QM definition that establishes strong consumer protections while promoting mortgage liquidly and affordability to the consumer seeking mortgage financing," said Donald Frommeyer, president of NAMB. "We need to be careful when defining a borrower's 'ability-to-repay." The release goes on to note that "NAMB believes that verifying a consumers' income, assets and employment is important, but it makes the QM rule narrow. Under the QM rule as written, many potential borrowers do not qualify for a mortgage. A narrow definition of a QM may create higher rates and fees and less access to credit to potential homebuyers." "Our primary concern is for the overall health of the national economy," said John H. P. Hudson, Government Affairs Committee chairman of NAMB. A copy of the letter to the CFPB may be found on the NAMB Web site at NAMB.org.

Simply put, the value of a mortgage is made up of the asset and the servicing. The value of the servicing is made up of many things, one of which is the foreclosure laws of a particular state, e.g., how difficult is it, and how long does it take, to foreclose. States are basically broken down into judicial and non-judicial states, impacting the value of servicing: what investor wants to lend on a home in a state where foreclosures can drag on for years due to the legal process? This also directly impacts mortgage pricing for borrowers.

So when news of the possibility of a state changing legal procedures comes out, investors take note. Out in California Kamala Harris is attempting to transform the state's foreclosure system from non-judicial into a quasi-judicial one with numerous changes to the process and procedures via SB 1470 and another seven bills she is proposing. (Read: California Assembly Looks at Homeowners' Bill of Rights.) Those well versed in California lending say that currently a servicer has the option to perform either a judicial or non-judicial foreclosure. If the servicer were to use a non-judicial foreclosure it speeds up the process but the servicer gives up and ability to obtain losses from the borrower (no recourse). Judicial foreclosures can take longer, but the servicer is able to obtain reparations from the process. Early reports indicate that California's SB 1470 has the potential to both delay the process and also does not allow one to obtain any losses from the borrower. In addition, under scrutiny is the ability of 2^nd trust deed holders to "hold hostage" the 1st TD holders on short sales. As foreclosure timelines lengthen, the urgency of consummating short sales as an exit strategy increases, but since you cannot complete a short sale without "resolving" the 2d, the holders of 2^nd TDs are now gaining increased leverage. Check out CMBA's most current video update, detailing some of the onerous provisions in the "California Homeowner Bill of Rights," which would fundamentally transform California's foreclosure system and thus impacting mortgage pricing, with negative borrower consequences: cmba.com or call the CMBA's Susan Milazzo at (916) 446-7100 for more information. More unintended consequences?

If anyone wanted rates to jump around, Monday was not their day, prompting one trader to note "The MBS market went back and forth over the same spot more times than Sarah Palin taking her SAT's." The yield on the 10-yr sat in the low 1.90% range, finally closing at 1.93%, and MBS prices were better than Friday's close by about .250 all day.  (Read: MBS RECAP: Slightly Improved in Light Volume, Low Volatility)

Today is, of course, a new day. (Read: The Day Ahead: Several Housing-Related Reports; Tight Range Persists) The FOMC meeting convenes, which can spice things up a little although no one is looking for any change to overnight rates. At 9AM EST is February's S&P/Case Shiller home price index, expected slightly higher, and 10AM EST are March New Home Sales, April's Consumer Confidence, February's FHFA home price index, and April's Richmond Fed index. By themselves none of these numbers really move rates, but taken in combination they may. We also have a $35 billion 2-yr T-note sale from the Treasury. In the early going the 10-yr is at 1.95% and MBS prices are worse by about .125.

I went fishing this morning but after a short time I ran out of worms. Then I saw a cottonmouth with a frog in his mouth. Frogs are good bass bait.
Knowing the snake couldn't bite me with the frog in his mouth I grabbed him right behind the head, took the frog, and put it in my bait bucket.
Now the dilemma was how to release the snake without getting bit. So, I grabbed my bottle of Jack Daniels and poured a little whiskey in its mouth. His eyes rolled back, he went limp.
I released him into the lake without incident and carried on fishing using the frog.
A little later, I felt a nudge on my foot. It was that snake, with two more frogs.