Eminent Domain Back in the News; HUD Secretary to Testify; Gold and Mortgages

In real estate and lending, it pays to be aware, and be able to count, as shown in this short video.

I have been asked to help an Orange County mortgage banker that is seeking a senior-level marketing professional to lead the strategic marketing initiative for its retail lending division. The Marketing Director will be responsible for developing and executing on a clearly defined marketing communications, PR, advertising and customer acquisition strategy that supports consistent business growth and enhances brand equity and awareness. The lender is ranked as one of America's Top 100 Mortgage Companies in 2011 and 2012 by volume, and the company is committed to its steady expansion.  Reaching out to consumers nationwide from a central location in Orange County, the company has grown to be an industry leader in both the purchase and refinance markets for FHA, VA, Conventional, HARP2 & Jumbo Loans. Please send your confidential resumes to me at rchrisman@robchrisman.com. (I am in CO this week; please excuse any delays in response.)

Accenture Credit Services BPO is looking for Credit Risk Managers and Team Leads in Charlotte, NC and San Antonio, TX. Accenture is "a dedicated team of people who provide end-to-end mortgage processing capabilities to our clients through long-term partnerships. We not only maintain this key business function for our clients, we constantly seek to improve them to help our clients' move ahead of the competition." The Credit Risk Manager's key responsibilities are to perform prudent analysis of all loan applications to render QC audit results, assist in development and/or enhancements of Underwriter training materials, track and report credit deficiencies to management and make recommendations to improve quality, provide ongoing coaching and mentoring, and review/audit live loans for new underwriters to obtain signing authority.  Relocation assistance may be available.  For more information, visit www.accenture.com/creditservices or apply directly at http://careers.accenture.com.

"Rob, when do you think you'll start putting out advice on when to lock or to float, on a subscription basis? My LOs are the recipients of plenty of blast e-mails about signing up for stuff like that. Are they worthwhile?" I will guarantee you that I personally will never do that. First of all, I enjoy the flexibility of writing something that is loosely tied to the markets, not bolted to them. Sitting there staring at computer screens and watching MBSs trade all day sounds an awful lot like work.  Second, most of the folks I meet in this industry are pretty smart and filled with common sense themselves, and really would only benefit from a service that meets some pretty high standards. I believe a worthwhile service needs to go beyond reporting support and resistance levels, and have the insight and experience to analyze the impact of fundamental news (unemployment, a Fed move, a country's banking system) which can and will move prices through any purported support and resistance levels.  Also, the information and advice needs to be delivered consistently and on a very timely basis, which takes a talented staff, not a single guru who may be doing this as a side business. I don't think late advice or not providing advice when you need to do something is fair for a paid service. And lastly, and nothing to do with me, I have heard rumors that some are actually owned by lenders, which sure seems like a conflict of interest - and if I was an owner would I want my LOs providing their contact information to and paying for advice from a potential competitor?

Today's a big day for Shaun Donovan, HUD Secretary. He will testify before a House Appropriations subcommittee regarding the President's 2014 budget request. Expect the hearing to focus almost entirely on the news that the FHA may need a $943 million draw from the U.S. Treasury in October. The industry wants the FHA (given its traditional lending base of first time home buyers and/or minority lending) but there is a debate regarding FHA reform. Both parties would like to enact FHA reform, but as with most things in this Congress, it's a matter of degrees. Republicans would like to take steps to enhance underwriting criteria (e.g. higher down payments, lower loan limits, and increase mortgage insurance premiums). Democrats, on the other hand, are fearful about constricting mortgage credit and instead would like to enact a tailored set of reforms which would increase the FHA's operational latitude. We can all be guaranteed of a lot of yammering - at least Freddie and Fannie are back in the black!

Eminent domain is back. Apparently has been quietly simmering over the last several months. MRP (with its exact financial backers unknown but led by CEO Graham Williams), in its marketing documents, has said it has investors willing to finance the cost of condemnation so the municipalities do not have to spend any money seizing mortgages. Here is the latest.

The Fed is keenly aware of the eminent domain issue that won't go away. Here is a recently published research piece on the topic titled, "Underwater and Drowning? Some Facts about Mortgages that Could Be Targeted by Eminent Domain". Under the proposal, a city or county would sign on as a client of Mortgage Resolution Partners, and then condemn certain mortgages. The mortgages are typically owned by private investors like hedge funds and pension funds. Under eminent domain, the city or county would be required to pay those investors "fair value" for the seized mortgages. So Mortgage Resolution Partners would find private investors to fund that. Of course, the question is, "What is fair value?" The value to you, or to me? After being seized, and the investor suffering the loss, the mortgages would be rewritten so the borrowers would have significantly lower monthly payments. Without investors willing to take the risk of having loans seized out of pools, where would loans and pools of loans go? Or if investors are willing to take the risk, at what price? If rolled out across the US, the proposal to use powers of compulsory purchase ("eminent domain") could force banks and mortgage investors to realize significant losses on their portfolio of mortgage bonds. And do the markets really need that?

Poor Ed DeMarco - it is almost like the vultures are picking over his bones before he is even taken his last breath at the FHFA. Isaac Boltansky, with Compass Point LLC, observed, "Over the weekend there were numerous press reports that Mark Zandi, chief economist for Moody's Analytics, is in contention for the nomination to become the Director of the Federal Housing Finance Agency (FHFA). The FHFA, which is an independent federal agency charged with oversight of the GSEs and the 12 FHLBs, has been led by Ed DeMarco in an acting capacity since the summer of 2009...Zandi represents a compelling candidate for nomination due to his name recognition and bipartisan appeal. While this is still simply speculation at this point in time, we detail below our answers to the two key questions: (1) Can Zandi be confirmed as FHFA Director? And (2) how would a Zandi Directorship differ from DeMarco's tenure? We are optimistic regarding Zandi's chances during the confirmation process but caution that those expecting a substantive shift in policy at the FHFA if Zandi is nominated and confirmed will likely be disappointed as we believe the biggest policy change would be to incentivize cross-servicer refinancings through the HARP." Mr. Boltansky points out that although he is a registered Democrat he worked for Senator McCain's (R-AZ) 2008 presidential campaign, although the public's opinion of rating agencies is pretty low. "The most likely cause for concern for a Zandi confirmation process would be his tacit support for the use of principal reduction as an element of loan modifications. In May of 2012, Zandi stated before the Senate Banking Committee: "Facilitating more loan modifications, including those involving principal reduction, would be a much larger and costlier step but would bring the housing downturn to a quicker and more definite end. Principal write-downs have economic positives and negatives, but are a net positive if well designed. The main concerns are moral hazard and fairness. To deal with these, modifications must be well targeted, with clearly articulated eligibility requirements."

But would he be any different than DeMarco, who has steadily held his ground against Congress wanting to open the floodgates of modifications & principal reductions? Mr. Botansky writes, "Following a review of Mark Zandi's written testimony and public papers, we believe that he would not represent a significant change from a policy perspective if he were nominated and confirmed to replace Ed DeMarco" based on analyzing positions on private mortgage insurance, the potential for expanding HARP, the potential use of principal reduction, and views on GSE reform. "We believe that Mark Zandi, if he were to be nominated and confirmed to replace Ed DeMarco as FHFA Director, the most significant policy change would likely come in the administration of the HARP. Zandi has aggressively supported the tenets of the Boxer-Menendez bill which would incentivize cross-servicer refi's. There is a difference in opinion between the two over the use of principal reduction but we believe Zandi would likely move towards DeMarco's position if nominated and confirmed. There is little to no difference from a policy perspective in other areas such as GSE reform and the importance of private mortgage insurance." Thank you to Compass Point LLC for this one!

And while we're on the FHFA, its final Foreclosure Report of 2012 showed a continued downward trend in the fourth quarter with starts, sales, and inventory all declining. Over 130,300 foreclosure prevention actions were completed in the fourth quarter, bringing the total to nearly 2.7 million since the start of conservatorship in September 2008. "More than 2.2 million of these actions have helped troubled homeowners save their homes including over 1.3 million permanent loan modifications. Mortgage performance continues to improve as early stage (30-89 days) and seriously delinquent loans continued to decline during the fourth quarter. The number of the Enterprises' delinquent mortgages declined in 2012 in every state except New Jersey and New York (a function of Tropical Storm Sandy). Foreclosures continued a downward trend in the fourth quarter third-party sales and foreclosure sales declined 3 percent and foreclosure starts fell to the lowest level since the third quarter of 2008. Lastly, REO inventory continued to decline as property dispositions outpaced property acquisitions in the fourth quarter.

"Does the price of gold impact mortgage rates?" No, not really, but both move based on supply and demand, political uncertainty, current events, and thoughts of inflation. Recently gold was down over $100 an ounce in one day, and rates barely budged. Why the recent drop? Investors appear nervous about faltering demand, deflation (or disinflation), growing supplies, and are simply allocating money into more productive assets. We have reduced global tail-risks (in particular in Europe), non-existent inflation pressures (and possibly rising deflation/disinflation fears), weaker demand from Asia (in particular the world's two biggest markets, China & India), speculation of central bank sales (on the heels of the Cyprus news from last week where the ECB declared its intent to use the country's gold to cover any ELA losses), anticipation of reduced central bank accommodation, and fiscal progress in the US (a combination of the fiscal cliff tax hikes and sequester will narrow federal deficits going forward).

We did have a bit of news this morning from the MBA. Last week mortgage applications were up 4.8% with purchases up 3.9% and refi's up 5.2%. The average loan size on refi's continued their four week climb increasing by $8k to $215.8k, and conventional refi's increased by 4.3% while GNMA refi's increased by 9.9%.

Meanwhile, rates grind on without much change. By the end of Tuesday prices on 30-year FNMA MBS 3's (containing 3.25-3.625% mortgages, in general) were worse about .125, as were UST 10-year notes (which closed at a yield of 1.72%). Today's highlight may be Fed's Beige Book at 2PM EST (detailing Fed regional economic performance) in preparation for the FOMC meeting on April 30 to May 1. In the early going the 10-yr is at 1.71% and MBS prices are perhaps a hair better.