Hover over this image for caption and link ↓↓↓

Guns & Mortgages
This story speaks for itself, here’s the link and the epic lead paragraph below: Prosecutors: Mortgage Worker Got Drunk, Shot Computer Server

A Salt Lake City mortgage company employee allegedly got drunk, opened fired on his firm’s computer server with a .45-caliber automatic, and then told police someone had stolen his gun and caused the damage. more…

Short Sales Take 6-13 Months
A study put out by Deutsche Bank ranked GMAC ranked as the top servicer among all prime mortgage servicers based on short sale timelines – six months! The investment bank’s survey showed that a short sale generated a higher recovery than an REO sale. For “prime” short sales, GMAC was the fastest, followed by CitiMortgage (7.5 months) and Wells (8 months). DB’s study showed that BofA was the slowest with a 13 month short sale timeline. For “subprime” Wells came in first (15 months), followed by HomEq and then Saxon. Option ARM short sale speedsters were EMC, Aurora, and GMAC.

Can Foreclosed Borrowers Get New Loans?
Fannie Mae issued a bulletin on Underwriting Borrowers with a Prior Foreclosure, to modify the waiting period that must elapse before a borrower is eligible for a new mortgage loan after a foreclosure. Originally a seven-year waiting period after a prior foreclosure will apply for all borrowers, unless the foreclosure was the result of documented extenuating circumstances, which requires a three-year waiting period with additional eligibility requirements. Fannie also includes a maximum LTV ratio of the lesser of 90% or the LTV ratio per the Eligibility Matrix for all transactions – best to check their grid. more…

Rates Up On New Home Sales & Durable Goods Numbers
Today we had Durable Goods (very volatile) and a big New Home Sales number. Durable Goods were expected to be +.3% for March and originally reported as +.5% in February, the third consecutive monthly increase (although most of the gain in February’s number was due to a 4.7% monthly increase in machinery bookings). New Home Sales surged 27% in March, fueled by the Federal homebuyer tax credit which expires April 30. Mortgage bonds are currently down about 25 basis points on these better than expected economic reports. More on why rates are moving up in the last section below.

Varying Home Sales Data
Existing Home Sales rose 6.8% in March to an annualized pace that is the fastest since December. Total housing inventory is now at an 8 month supply. The median price was $170,700 in March, up 0.4% from March 2009. Distressed homes accounted for 35% of sales last month – unchanged from February. Sales have been above year-ago levels for nine straight months, and inventory has trended down from year-ago levels for 20 straight months. But FHFA’s Purchase-Only House Price Index (it covers only conforming loans) fell 0.2% in February and is down by 3.4% from its level in February 2009. The regional indices came in mixed, with declines in the South Atlantic, New England, and West North Central divisions offsetting moderate increases in the Middle Atlantic, Pacific, and West South Central regions. more…

Does A Loan Originator Have To Buy Back A Bad Loan Even After It’s Modified?
Yesterday I mentioned the question about whether or not modified loans could still be forced back to the seller for buybacks. Freddie Mac does indeed say that the seller would still need to buy it back after a modification. At the current time, however, there is the belief that sellers continue to be successful in challenging these because most contracts don’t specifically allow the servicers to modify the loans. And in fact several national law firms are making a run at challenging the large servicers, who find themselves caught between not being able to modify a loan and being forced to modify it by the GSE’s and HAMP. Servicers claim that the reps and warrants stay with the seller, and especially if the loan is modified due to fraud or material misrepresentation then the seller may have to indemnify the loan with some deposit of money to the investor.

BofA To Select Certain Loans To Modify
Bank of America will soon begin offering, by invitation only, loan modifications based on a reduction of the mortgage principal to some of its borrowers. Borrowers with principal balances of 120% or more of the home’s market value or who are confronted with endlessly increasing balances on negative amortization loans will be the target (they must meet the basic qualifications of HAMP), and stories reported that BofA will forgive up to 30% of the mortgage loan balance in two stages: the bank will offer an interest-free forbearance of up to 30% of the principal balance for five years, and if the homeowner stays current on mortgage payments for the period of time, then the amount will be forgiven. Urged by the US Government to do more, we may see that other banks are willing to take some losses now to avoid much greater losses later if the housing markets begin to drop again. Industry observers say that it is a variation on the implementation of HAMP, rather than a new alt-HAMP or HAMP-light program. Say what you want, HAMP volumes have been disappointing, especially for Pay-Option ARMs. Bank of America estimates that 45,000 loans will be affected for about $3 billion in principal reductions ($67,000 per loan). more…

Treasury Auctions Weigh on Markets
Yesterday’s $42 billion 5-yr auction did not go well. It goes back to the “What if we held an auction and nobody bid?” Indirect bids, which in the past indicated a level of interest from foreign entities but in the last year became a little convoluted, have been on a roller coaster: Tuesday’s 2-yr hit over 53% of the auction while yesterday’s was the lowest since July at 40%. Not good. The Bernanke testimony (rates need to remain low), along with the much worse-than-expected New Homes Sales data, muddled the picture somewhat for investors yesterday. The good news for mortgage folks is that dealers are reporting heavy selling, and selling is often powered by locks, so current locks must be picking up.

New Home Sales Down 11%
The New Home Sales data was particularly bad. In January sales dropped 11%, the worst on record and erasing all the gains from last year. Nationwide, inventory represents over a 9 month supply – the highest in almost a year. And year-over-year the median price for a new home fell in January by 2.4%, to $203,500 from $208,600 a year ago. Regionally, January new-home sales dropped 35.1% in the Northeast, 11.9% in the West, and 9.5% in the South. Sales rose 2.1% in the Midwest. more…

ARMs Only 3% Of Total Agency Loans In 2009
An annual report on the ARM market published by Freddie Mac shows adjustable-rate mortgages accounted for just 3 percent of all conventional home purchase loans in 2009. That’s the smallest percentage for ARMs since at least 1982.

Market & Economic News Update
Yes, today we have the 7-yr Treasury Note auction. Yesterday’s 5-yr was “fair-to-pretty-good”. The auction came in at 2.37%, with “indirect buyers” nabbing 53% of it and a strong 2.80 bid-to-cover ratio. And for market news today, we had Jobless Claims and Durable Goods. New orders for durable goods were +.3% in December, less than expected but still better than the -.4% in November. Durable goods orders are a leading indicator of manufacturing activity & a good measure for overall business health, and for 2009 fell a record 20.2 percent. Jobless Claims dropped 8,000, which is good, but the drop was less than expected, which is bad. With these two pieces of news we find the yield on the 10-yr back up to 3.67% and mortgage worse by between .125 and .250. more…

Treasury’s Unlimited Fannie/Freddie Backing
Regardless of whether or not it is good or bad for our industry, or the debate about the timing of the announcement, on Christmas Eve the U.S. Treasury agreed to provide Fannie & Freddie unlimited capital as needed over the next three years. It is an effort to reassure the investors who bought their debt – not the securities backed by mortgages. But the Treasury also said that it would stop buying the F&F’s mortgage-backed securities and end a short-term-liquidity facility set up for both companies and for the Federal Home Loan Banks. (This does not impact the ongoing Fed purchase program.) The government took over both companies 15 months ago, and has put $60 billion into Fannie and $51 billion into Freddie versus the “old” caps of $200 billion each. Opponents say it gives F&F a blank check with no real end, but supporters say it gives mortgage investors assurance and stability.

Warren Buffett To Buy Mortgage Co?
In a story making the rounds over the weekend, Warren Buffett and his staff, along with other holders of Res Cap debt, are rumored to be in talks to buy Residential Capital, the mortgage business owned by GMAC, General Motor’s finance division. Res Cap does have quite a servicing portfolio, but still has lost $9.2 billion over the past eight quarters. Res Cap’s losses were one of the main drivers behind GMAC’s $12.5 billion government bailout. more…

Some days the best thing about my job is that my chair spins! (Sad but true.) But then along comes items like this. Who would have ever thought FHA compliance and underwriting issues would have made it to mainstream videos-–- Youtube bliss not to be missed.

MBAA Selling DC Headquarters Building
The MBAA has been busy. First, the MBAA announced that they have formed a panel to make recommendations to HUD regarding the Federal Housing Administration (FHA) – but probably not in response to that video above. Sensing that the mortgage banking industry needs more abbreviations, the Council on the Future of FHA (CFF) will be chaired by Daniel Crockett, President, CEO, and Chairman of Franklin American Mortgage Company. “The council will be comprised of a small group of leaders in the mortgage banking industry, with representatives from large and small companies.” One can look at their website for a list of 25 or so “who’s who” on the panel. more…

In the 1990’s it was hard to lose money in the stock market. “Don’t confuse brains with a bull market” was a popular slogan, and in fact was printed on a shirt that we wore on the trading desk at Tuttle & Co. Late in the decade, however, stocks did not look so great. When stocks were running out of steam, and in 2000 when the equity market really fell, people looked around and said, “Hey, how about we invest in real estate? Accounting scandals, like Enron, couldn’t happen in real estate, right?” Suddenly, instead of homes, more and more people began viewing real estate as a way to make a quick buck: “flipping”, “no money down”, etc. gained in popularity. The US government cut taxes, and the Fed cut the discount rate from 6% to less than 1% by late 2002. And although this was not the only cause of some of the mess that we’re find ourselves in, it is a contributing factor.

So now we have things like this clip. To end the week, this YouTube clip is making the rounds among the non-depository mortgage banks out there. If you have sound on your computer, check it out. If not, and maybe he was misunderstood, but it seems Barney Frank wants to completely shut down any non-bank financial institutions. Wake me up when this is over! more…

Do mortgage originators consider the future when they are speaking with a client and processing the loan? Perhaps: certainly between 2002 and 2007 originators “appeared” willing to lend to anyone since values were increasing, and any problems might be covered up with appreciation. They weren’t necessarily forcing the borrower to borrow, and investors weren’t being forced to buy the mortgage-backed securities. Low priced homes appreciated more quickly than high priced loans, some believe because subprime lenders were more active in that segment. (After 2006, the prices of low-price homes have fallen faster than high-price homes.) Construction of new homes and apartments rose from 4.2% of GDP in 1997 to 6.3% in 2005, but has since fallen to around 3%. And while we’re comparing GDP with housing, between 2001 and 2005 spending on housing increased by over 30% while GDP growth was about 11%.

Yesterday’s 2-yr auction ($42 billion at 1.11%) was the talk of the town, in spite of generally being considered an average auction, or perhaps a little better. Indirect bidding, with all of its questionable worth but still used as a gauge of non-dealer customer demand, was good at almost 50%. Most believe that today’s 5-yr auction, and tomorrow’s 7-yr auction, will be a better thermometer of general demand for debt. more…