The higher home loan limits currently in place are expected to stick throughout 2010, according to National Mortgage News.
The Obama Administration reportedly supports an extension of the current enhanced loan limits for Fannie Mae, Freddie Mac, and FHA loans.
The maximum conforming jumbo loan limit of $729,750 (in the nation’s most expensive counties) is set to expire on December 31, at which point it would drop to $625,500 per the Economic Stimulus Act of 2008.
The true current conforming loan limit is $417,000 for condos and single-family residences.
Earlier this week, several agencies called on the Senate to move swiftly in dealing with the loan limits, as lenders were uncertain whether to approve such loans pending the extension.
Homebuyer Tax Credit Extension
Senate leaders have also agreed on extending the $8,000 first-time homebuyer tax credit, as well as a $6,500 tax credit for so-called “move-up buyers.”
The tax credit would be extended from its current expiration date of November 30 through to April 30, 2010 and give home buyers with a binding contract an extra 60 days to close.
The first-time homebuyer tax credit extension also comes with higher income eligibility limits, $125,000 for single filers and $225,000 for joint filers, up from $75,000 and $150,000, respectively.
The “move-up tax credit” applies to current homeowners who have used their current property as a primary residence for five of the previous eight years.
To read the original article click here
Other article of interest...
Retro Appraisals Latest Foreclosure Defense
Friday, October 30, 2009
Thursday, October 29, 2009
Saudis don't want oil price set in U.S. anymore
Saudi Arabia on Wednesday decided to drop the widely used West Texas Intermediate oil contract as the benchmark for pricing its oil, dealing a serious blow to the New York Mercantile Exchange.
The decision by the world's biggest oil exporter could encourage other producers to abandon the benchmark and threatens the dominance of the world's most heavily traded oil futures contract. It is the main contract traded on Nymex.
The move reveals the growing discontent of Riyadh and its US refinery customers with WTI after the price of the price of the benchmark became separated from the global oil market this year.
The surge in oil inventories in Cushing, Oklahoma, where WTI is delivered into America's pipeline system, depressed the value of the WTI against other global benchmarks, throwing the global oil market into disarray.
In January, WTI, which usually trades at a premium of $1-$2 a barrel to Brent, fell sharply, leaving it at a discount of almost $12 -- a record gap. This dislocation in the market continued well into the summer.
From January, Saudi Arabia will base the price of oil for its US customers on a new index developed by Argus, the London-based oil-pricing company.
The Argus Sour Crude Index will track the price in the physical market of a basket of US Gulf Coast crudes, including Mars, Poseidon, and Southern Green Canyon.
Argus said the change in policy reflected the "increased importance of the US Gulf coast sour crude market, in which both production and trading activity was rising sharply."
Paul Horsnell, head of commodities research at Barclays Capital in London, said Saudi Arabia's decision was likely to reflect a "wider discontent" from its customers in the US about WTI performance.
ExxonMobil, Marathon, and Valero are among the US's biggest buyers of Saudi crude oil.
Edward Morse, chief economist at LCM Commodities in New York, said: "It is a recognition by large players that WTI sometimes does not reflect the true value of crude oil in the waterborne market."
Saudi Arabia has priced its oil using WTI since 1994.
The price was based on quotes from the physical market which were compiled by Platt's, a unit of McGraw-Hill.
Oil companies then covered their exposure to WTI using the futures market on Nymex.
Bob Levin, managing director of market research at the CME Group-owned Nymex, said the exchange was ready to move with the market.
"We plan to introduce a cash-settled futures contract tracking the new Argus index," he said.
Mike Vinciquerra, equity research analyst at BMO Capital Markets, said the new Argus index would not replace WTI. "It's more a supplement," he said.
To read the original article click here
The decision by the world's biggest oil exporter could encourage other producers to abandon the benchmark and threatens the dominance of the world's most heavily traded oil futures contract. It is the main contract traded on Nymex.
The move reveals the growing discontent of Riyadh and its US refinery customers with WTI after the price of the price of the benchmark became separated from the global oil market this year.
The surge in oil inventories in Cushing, Oklahoma, where WTI is delivered into America's pipeline system, depressed the value of the WTI against other global benchmarks, throwing the global oil market into disarray.
In January, WTI, which usually trades at a premium of $1-$2 a barrel to Brent, fell sharply, leaving it at a discount of almost $12 -- a record gap. This dislocation in the market continued well into the summer.
From January, Saudi Arabia will base the price of oil for its US customers on a new index developed by Argus, the London-based oil-pricing company.
The Argus Sour Crude Index will track the price in the physical market of a basket of US Gulf Coast crudes, including Mars, Poseidon, and Southern Green Canyon.
Argus said the change in policy reflected the "increased importance of the US Gulf coast sour crude market, in which both production and trading activity was rising sharply."
Paul Horsnell, head of commodities research at Barclays Capital in London, said Saudi Arabia's decision was likely to reflect a "wider discontent" from its customers in the US about WTI performance.
ExxonMobil, Marathon, and Valero are among the US's biggest buyers of Saudi crude oil.
Edward Morse, chief economist at LCM Commodities in New York, said: "It is a recognition by large players that WTI sometimes does not reflect the true value of crude oil in the waterborne market."
Saudi Arabia has priced its oil using WTI since 1994.
The price was based on quotes from the physical market which were compiled by Platt's, a unit of McGraw-Hill.
Oil companies then covered their exposure to WTI using the futures market on Nymex.
Bob Levin, managing director of market research at the CME Group-owned Nymex, said the exchange was ready to move with the market.
"We plan to introduce a cash-settled futures contract tracking the new Argus index," he said.
Mike Vinciquerra, equity research analyst at BMO Capital Markets, said the new Argus index would not replace WTI. "It's more a supplement," he said.
To read the original article click here
Wednesday, October 28, 2009
Senate Close to Deal Replacing Homebuyer Tax Credit
U.S. Senate leaders moved closer to an agreement replacing an expiring $8,000 tax credit for first- time homebuyers with a smaller one that would expand access to so-called step-up purchasers, two people familiar with the matter said.
The deal would reduce the size of the tax credit to 10 percent of the sale’s price, capped at $7,290, the people said. The credit would be available on home purchases that are under contract by April 30, and borrowers would have 60 days more to close the sale. The existing credit is due to end Nov. 30.
The new agreement, which is still being negotiated and may change, would grant the credit to borrowers who have lived in their current home for at least five years. Lawmakers want to keep home sales from slipping as the economy struggles to recover from the worst drop in home prices since the Great Depression.
The demand for new homes and condominiums may increase by “more than two times because you’re allowing step-up buyers into the equation,” said Andrew Parmentier, a managing partner at Height Analytics, a research firm in Washington. “ You just opened up a whole new pool of people who can buy into those empty homes and empty condos that were built out.”
The income eligibility for first-time homebuyers would remain the same at $75,000 for individuals and $150,000 for couples. The income criteria for step-up buyers would be $125,000 for individuals and $250,000 for couples.
The credit would be limited to homes costing $800,000 or less. There is currently no price cap on home purchases.
Unemployment-Benefits Bill
Lawmakers are trying to attach the legislation, which is also being considered by leaders in the House, to a bill extending unemployment benefits under debate on the Senate floor, said Richard Durbin of Illinois, the Senate’s No. 2 Democrat.
Senator Bill Nelson, a Florida Democrat, told reporters yesterday of the tax credit that “we should be able to extend that later this week.” Nelson was traveling with President Barack Obama on Air Force One to a speech in Jacksonville, Florida.
Lawmakers are also considering pairing the new homebuyer credit with a broader tax benefit for businesses with net operating losses, and passing that as a separate bill. The tax break, a priority for homebuilders, would allow companies to apply losses incurred in 2008 and 2009 to amend up to five years worth of earlier tax returns to get a refund of taxes paid in years when they were profitable.
That provision, along with the step-up, would be “extremely positive for the homebuilders,” Parmentier said
A version of the benefit was included in February’s economic stimulus bill, though it was limited to companies with receipts under $15 million. Business groups, including the Washington-based National Association of Manufacturers and National Association of Home Builders, lobbied unsuccessfully to have the benefit expanded to larger companies.
To read the original article click here
Other articles of interest...
New home sales expected to rise 2.6 pct
Sales of new homes are expected to post their sixth consecutive monthly gain as builders reap the benefits of a tax credit for first-time owners that expires at the end of next month.
MBA Headquarters for Sale
The MBA has reportedly put its downtown Washington D.C. digs up for sale, according to a letter sent to its members, obtained by Bizjournals.com.
Lawyers Decide SB 94 Doesn't Apply To Them
There appears to be a split of opinion among lawyers about whether or not they can avoid the application of the advance fee prohibition as it is defined by unbundling their services and essentially offering loan modification services a la carte.
False Controversy Over Grayson Comment Detracts From Criticism Of Fed Lobbyist
Comments made by Florida Democrat Alan Grayson on the Alex Jones show have been artificially blown up into a false controversy that detracts from legitimate criticism of the corporate lobbyist the congressman’s statements were aimed at.
The deal would reduce the size of the tax credit to 10 percent of the sale’s price, capped at $7,290, the people said. The credit would be available on home purchases that are under contract by April 30, and borrowers would have 60 days more to close the sale. The existing credit is due to end Nov. 30.
The new agreement, which is still being negotiated and may change, would grant the credit to borrowers who have lived in their current home for at least five years. Lawmakers want to keep home sales from slipping as the economy struggles to recover from the worst drop in home prices since the Great Depression.
The demand for new homes and condominiums may increase by “more than two times because you’re allowing step-up buyers into the equation,” said Andrew Parmentier, a managing partner at Height Analytics, a research firm in Washington. “ You just opened up a whole new pool of people who can buy into those empty homes and empty condos that were built out.”
The income eligibility for first-time homebuyers would remain the same at $75,000 for individuals and $150,000 for couples. The income criteria for step-up buyers would be $125,000 for individuals and $250,000 for couples.
The credit would be limited to homes costing $800,000 or less. There is currently no price cap on home purchases.
Unemployment-Benefits Bill
Lawmakers are trying to attach the legislation, which is also being considered by leaders in the House, to a bill extending unemployment benefits under debate on the Senate floor, said Richard Durbin of Illinois, the Senate’s No. 2 Democrat.
Senator Bill Nelson, a Florida Democrat, told reporters yesterday of the tax credit that “we should be able to extend that later this week.” Nelson was traveling with President Barack Obama on Air Force One to a speech in Jacksonville, Florida.
Lawmakers are also considering pairing the new homebuyer credit with a broader tax benefit for businesses with net operating losses, and passing that as a separate bill. The tax break, a priority for homebuilders, would allow companies to apply losses incurred in 2008 and 2009 to amend up to five years worth of earlier tax returns to get a refund of taxes paid in years when they were profitable.
That provision, along with the step-up, would be “extremely positive for the homebuilders,” Parmentier said
A version of the benefit was included in February’s economic stimulus bill, though it was limited to companies with receipts under $15 million. Business groups, including the Washington-based National Association of Manufacturers and National Association of Home Builders, lobbied unsuccessfully to have the benefit expanded to larger companies.
To read the original article click here
Other articles of interest...
New home sales expected to rise 2.6 pct
Sales of new homes are expected to post their sixth consecutive monthly gain as builders reap the benefits of a tax credit for first-time owners that expires at the end of next month.
MBA Headquarters for Sale
The MBA has reportedly put its downtown Washington D.C. digs up for sale, according to a letter sent to its members, obtained by Bizjournals.com.
Lawyers Decide SB 94 Doesn't Apply To Them
There appears to be a split of opinion among lawyers about whether or not they can avoid the application of the advance fee prohibition as it is defined by unbundling their services and essentially offering loan modification services a la carte.
False Controversy Over Grayson Comment Detracts From Criticism Of Fed Lobbyist
Comments made by Florida Democrat Alan Grayson on the Alex Jones show have been artificially blown up into a false controversy that detracts from legitimate criticism of the corporate lobbyist the congressman’s statements were aimed at.
Tuesday, October 27, 2009
Will Option ARM Loans Still Implode?
For the last year and one-half, there have been projections regarding the coming implosion of Option ARM loans. So far, it has yet to materialize on the scale that was projected. What happened to the implosion? When can it be expected? In order to answer these questions, an understanding of the mechanics of the Option ARM must first be acquired.
What is an Option ARM mortgage?
The Option ARM (sometimes marketed as “Pick-a-pay” or known as “neg-am” loans to industry insiders) was a very specialized mortgage loan program, designed originally to be used only under very specific circumstances. The primary beneficiaries of the Option ARM would be borrowers who had difficulties in documenting income as self-employed persons, or borrowers who had income streams that fluctuated monthly or with the seasons. Such borrowers would include contractors, sales persons, etc. The rationale for using such a loan was that when business was slow, the borrower could make the minimum payment, and when the borrower was busy with greater income streams, then the borrower would “catch up” on the loan by making principal reduction payments.
The Minimum Payment – This payment was based upon the Start Rate of the loan. The Start Rate was a “discounted rate” for usually one month, though it could be three months, six months or a year, depending upon the program.After the end of the one month starting interest rate, often one percent, the loan went to its Actual Rate, which will be explained shortly.
However, the borrower would still be able to make the minimum payment at the one Start Rate (often something like 1%). Since the Actual Rate of interest for second month might be something like seven percent, the loan would become a Negative Amortization (neg-am) loan, where each month that the minimum payment was made, the loan balance would actually increase.
Interest Only Payment – The Interest Only Payment would allow the borrower to only make the Interest due monthly on the loan. The loan balance would remain the same, never increasing or decreasing.
30 Year Fixed Rate Payment – This is the traditional payment on a mortgage loan, which allows for the loan to be paid off in 30 years.
15 Year Fixed Rate Payment – This is a payment amount that would allow for the loan to be paid off in 15 years.
The borrower had the option of determining which payment that he would make on the loan each month. He simply wrote out the check for whatever payment he desired, and mailed out the check.
Actual Interest Rate of the loan
The loan had a very specific methodology for determination of the Actual Interest Rate after the first month at one percent. There were two elements necessary for determination of the rate:
Index – The Index for a loan could be the LIBOR Index, COFI, CODI, COSI, or the MTA Index. The MTA, or Monthly Treasury Average, was the most popular of the Indexes used. It took the Monthly Yield on 1 Year Treasury Notes and averaged them out over a year. The Index Value to be used for each adjustment would always be the value for 45 days prior to the interest rate change date.
The Index changes monthly.
Margin – The Margin was the “markup” on the loan interest rate, which would be similar to marking up goods for purchase in a store. The Margin could be from 2.2% up to 4.5%. It was the loan officer who would determine the Margin for the loan, and not the lender.
The Margin would be added to the Index to determine the Actual Interest Rate of the loan. If the Margin was 3.7% and the Index was 2.2%, then the sum of the two would be 5.9%. However, most Option ARM Notes called for the rate to be rounded to the nearest .125%, so the effective rate for the month would be 5.875%.
Yield Spread Premium
As mentioned above, the loan officer, or broker, determined the Margin on the loan. The loan officer could provide a Margin of 2.2%, 3.00%, or whatever he wanted. One would think that the loan officer would simply give the borrower the 2.2% Margin to keep the interest rate low, but this seldom happened. That is because the higher the Margin that the broker gave a borrower, the lender would “reward” the broker with a Yield Spread Premium. On a $500,000 loan, the broker might charge a Loan Origination Fee of 1 point, or $5,000, and then receive the Yield Spread Premium of up to 4 points. For a $500,000 loan, the broker might receive a total commission of up to $25,000 per loan.
The sad fact is that most borrowers never knew this was occurring. That is because the broker seldom disclosed the Yield Spread Premium on the Good Faith Estimate. When it was revealed, and the borrower asked about this “unknown” Yield Spread Premium”, then the broker would tell the borrower, “Don’t worry about that. This is a bonus I “could” receive, once I reach a certain dollar volume with the lender, if it happens, and it seldom does. I just have to disclose the potential for it. Either way, you do not pay for it.” This was simply a lie by the broker.
Another little stunt that the broker would pull would be to charge no Loan Origination Fee and call the loan a No Point Loan. The borrower thought that the broker was being a “stand up guy”. It was never properly disclosed that the Yield Spread Premium would be paid to the broker by a higher interest rate and payment.
The end result of the broker or loan officer receiving the Yield Spread Premium would be the borrower’s payment going up considerably. On a $500,000 loan, it is common to see the payment being $500 per month or greater than what the borrower actually qualified for.
How the Option ARM really worked...
To read the entire article click here
Other articles of interest...
Goldman Sees U.S. Housing ‘False Bottom,’ Merrill Sees ‘Treat’
The stabilization in U.S. home prices won’t last, according to economists at Goldman Sachs Group Inc. in New York. Their counterparts at BofA Merrill Lynch Global Research see a “treat” rather than a retreat.
Government Agencies Own or Guarantee 95 Percent of New Mortgages
Government-backed agencies, including Fannie Mae, Freddie Mac and Ginnie Mae, own or guarantee 95 percent of new residential mortgage loans, according to a letter from the Federal Reserve Bank of San Francisco.
Ex-A.I.G. Chief Is Back, Luring Talent From Rescued Firm
Maurice R. Greenberg, who built the American International Group into an insurance behemoth with an impenetrable maze of on- and offshore companies, is at it again.
Ron Paul to Federal Reserve: Anything Less Than Full Disclosure Is Unacceptable!
Last week a new bill was introduced in the Senate to audit the Federal Reserve. Some backers of my bill HR 1207 and the existing Senate companion bill S 604 were a little miffed at this, but depending on how you think about it, this new legislation poses no great threat to our efforts.
What is an Option ARM mortgage?
The Option ARM (sometimes marketed as “Pick-a-pay” or known as “neg-am” loans to industry insiders) was a very specialized mortgage loan program, designed originally to be used only under very specific circumstances. The primary beneficiaries of the Option ARM would be borrowers who had difficulties in documenting income as self-employed persons, or borrowers who had income streams that fluctuated monthly or with the seasons. Such borrowers would include contractors, sales persons, etc. The rationale for using such a loan was that when business was slow, the borrower could make the minimum payment, and when the borrower was busy with greater income streams, then the borrower would “catch up” on the loan by making principal reduction payments.
The Minimum Payment – This payment was based upon the Start Rate of the loan. The Start Rate was a “discounted rate” for usually one month, though it could be three months, six months or a year, depending upon the program.After the end of the one month starting interest rate, often one percent, the loan went to its Actual Rate, which will be explained shortly.
However, the borrower would still be able to make the minimum payment at the one Start Rate (often something like 1%). Since the Actual Rate of interest for second month might be something like seven percent, the loan would become a Negative Amortization (neg-am) loan, where each month that the minimum payment was made, the loan balance would actually increase.
Interest Only Payment – The Interest Only Payment would allow the borrower to only make the Interest due monthly on the loan. The loan balance would remain the same, never increasing or decreasing.
30 Year Fixed Rate Payment – This is the traditional payment on a mortgage loan, which allows for the loan to be paid off in 30 years.
15 Year Fixed Rate Payment – This is a payment amount that would allow for the loan to be paid off in 15 years.
The borrower had the option of determining which payment that he would make on the loan each month. He simply wrote out the check for whatever payment he desired, and mailed out the check.
Actual Interest Rate of the loan
The loan had a very specific methodology for determination of the Actual Interest Rate after the first month at one percent. There were two elements necessary for determination of the rate:
Index – The Index for a loan could be the LIBOR Index, COFI, CODI, COSI, or the MTA Index. The MTA, or Monthly Treasury Average, was the most popular of the Indexes used. It took the Monthly Yield on 1 Year Treasury Notes and averaged them out over a year. The Index Value to be used for each adjustment would always be the value for 45 days prior to the interest rate change date.
The Index changes monthly.
Margin – The Margin was the “markup” on the loan interest rate, which would be similar to marking up goods for purchase in a store. The Margin could be from 2.2% up to 4.5%. It was the loan officer who would determine the Margin for the loan, and not the lender.
The Margin would be added to the Index to determine the Actual Interest Rate of the loan. If the Margin was 3.7% and the Index was 2.2%, then the sum of the two would be 5.9%. However, most Option ARM Notes called for the rate to be rounded to the nearest .125%, so the effective rate for the month would be 5.875%.
Yield Spread Premium
As mentioned above, the loan officer, or broker, determined the Margin on the loan. The loan officer could provide a Margin of 2.2%, 3.00%, or whatever he wanted. One would think that the loan officer would simply give the borrower the 2.2% Margin to keep the interest rate low, but this seldom happened. That is because the higher the Margin that the broker gave a borrower, the lender would “reward” the broker with a Yield Spread Premium. On a $500,000 loan, the broker might charge a Loan Origination Fee of 1 point, or $5,000, and then receive the Yield Spread Premium of up to 4 points. For a $500,000 loan, the broker might receive a total commission of up to $25,000 per loan.
The sad fact is that most borrowers never knew this was occurring. That is because the broker seldom disclosed the Yield Spread Premium on the Good Faith Estimate. When it was revealed, and the borrower asked about this “unknown” Yield Spread Premium”, then the broker would tell the borrower, “Don’t worry about that. This is a bonus I “could” receive, once I reach a certain dollar volume with the lender, if it happens, and it seldom does. I just have to disclose the potential for it. Either way, you do not pay for it.” This was simply a lie by the broker.
Another little stunt that the broker would pull would be to charge no Loan Origination Fee and call the loan a No Point Loan. The borrower thought that the broker was being a “stand up guy”. It was never properly disclosed that the Yield Spread Premium would be paid to the broker by a higher interest rate and payment.
The end result of the broker or loan officer receiving the Yield Spread Premium would be the borrower’s payment going up considerably. On a $500,000 loan, it is common to see the payment being $500 per month or greater than what the borrower actually qualified for.
How the Option ARM really worked...
To read the entire article click here
Other articles of interest...
Goldman Sees U.S. Housing ‘False Bottom,’ Merrill Sees ‘Treat’
The stabilization in U.S. home prices won’t last, according to economists at Goldman Sachs Group Inc. in New York. Their counterparts at BofA Merrill Lynch Global Research see a “treat” rather than a retreat.
Government Agencies Own or Guarantee 95 Percent of New Mortgages
Government-backed agencies, including Fannie Mae, Freddie Mac and Ginnie Mae, own or guarantee 95 percent of new residential mortgage loans, according to a letter from the Federal Reserve Bank of San Francisco.
Ex-A.I.G. Chief Is Back, Luring Talent From Rescued Firm
Maurice R. Greenberg, who built the American International Group into an insurance behemoth with an impenetrable maze of on- and offshore companies, is at it again.
Ron Paul to Federal Reserve: Anything Less Than Full Disclosure Is Unacceptable!
Last week a new bill was introduced in the Senate to audit the Federal Reserve. Some backers of my bill HR 1207 and the existing Senate companion bill S 604 were a little miffed at this, but depending on how you think about it, this new legislation poses no great threat to our efforts.
Monday, October 26, 2009
WOW, judges now nixing lenders' foreclosure claims entirely in court
Yves covered this in an earlier post overnight. Here’s my take. This is probably my fourth post on the tangled web woven by securitization, which puts a considerable distance between home owners and mortgagees which own a mortgage. The issue is causing huge problems in bankruptcy and foreclosure in courts around the U.S.
Update: I now see Barry Ritholtz has a piece out on this as well.
This morning, Gretchen Morgenson has another good piece out describing how a judge nixed all claims by mortgagee which refused to modify a home owner’s mortgage.
The debtors’ revolt is on.
For decades, when troubled homeowners and banks battled over delinquent mortgages, it wasn’t a contest. Homes went into foreclosure, and lenders took control of the property.
On top of that, courts rubber-stamped the array of foreclosure charges that lenders heaped onto borrowers and took banks at their word when the lenders said they owned the mortgage notes underlying troubled properties.
In other words, with lenders in the driver’s seat, borrowers were run over, more often than not…
But some judges are starting to scrutinize the rules-don’t-matter methods used by lenders and their lawyers in the recent foreclosure wave. On occasion, lenders are even getting slapped around a bit.
One surprising smackdown occurred on Oct. 9 in federal bankruptcy court in the Southern District of New York. Ruling that a lender, PHH Mortgage, hadn’t proved its claim to a delinquent borrower’s home in White Plains, Judge Robert D. Drain wiped out a $461,263 mortgage debt on the property. That’s right: the mortgage debt disappeared, via a court order.
I see this as a watershed case in jurisprudence surrounding mortgage-related bankruptcies and foreclosures. The reason this is huge is that it echoes the case in Kansas I have written about in two previous posts:
“Why mortgages aren’t modified and what a ruling stopping foreclosures means”
“What are the legal rights of lenders and homeowners in foreclosure?”)
At issue is the question of what legal rights do lenders or their agents have in foreclosure in the new byzantine world of securitized mortgages. In the New York case the judge nixed the entire claim as the mortgagee could not prove it had legal claim to the mortgage note. With the mortgagee unable to show ownership, the homeowner might even be able to stay in his home mortgage-free, Morgenson attests. That’s huge – and we should definitely expect an appeal.
In the Kansas case, MERS, a mortgage registrar, and a second-mortgage mortgagee were not informed of the homeowners bankruptcy and disposition of assets and claims before judgment was made. Nevertheless, the district court, the appeals court AND the Kansas supreme court all upheld the original summary judgment arguing that MERS was not contingently necessary. While I would expect this case to be appealed because of the precedent it could set, I don’t see how it can be overturned after affirmation in every court – that is except through a politicization of the verdict.
Notice how PHH and MERS, the two lender agents in each cases, are not the actual owners of the mortgages. They are the agents of the mortgagees. This is why these cases have a lot to do with securitization.
See also: How much money is Wells Fargo really making? for how some of this affects earnings at money center banks.
Morgenson had another article of merit on this topic last week. See her piece The Mortgage Machine Backfires. This could get interesting.
To read the original article click here
Update: I now see Barry Ritholtz has a piece out on this as well.
This morning, Gretchen Morgenson has another good piece out describing how a judge nixed all claims by mortgagee which refused to modify a home owner’s mortgage.
The debtors’ revolt is on.
For decades, when troubled homeowners and banks battled over delinquent mortgages, it wasn’t a contest. Homes went into foreclosure, and lenders took control of the property.
On top of that, courts rubber-stamped the array of foreclosure charges that lenders heaped onto borrowers and took banks at their word when the lenders said they owned the mortgage notes underlying troubled properties.
In other words, with lenders in the driver’s seat, borrowers were run over, more often than not…
But some judges are starting to scrutinize the rules-don’t-matter methods used by lenders and their lawyers in the recent foreclosure wave. On occasion, lenders are even getting slapped around a bit.
One surprising smackdown occurred on Oct. 9 in federal bankruptcy court in the Southern District of New York. Ruling that a lender, PHH Mortgage, hadn’t proved its claim to a delinquent borrower’s home in White Plains, Judge Robert D. Drain wiped out a $461,263 mortgage debt on the property. That’s right: the mortgage debt disappeared, via a court order.
I see this as a watershed case in jurisprudence surrounding mortgage-related bankruptcies and foreclosures. The reason this is huge is that it echoes the case in Kansas I have written about in two previous posts:
“Why mortgages aren’t modified and what a ruling stopping foreclosures means”
“What are the legal rights of lenders and homeowners in foreclosure?”)
At issue is the question of what legal rights do lenders or their agents have in foreclosure in the new byzantine world of securitized mortgages. In the New York case the judge nixed the entire claim as the mortgagee could not prove it had legal claim to the mortgage note. With the mortgagee unable to show ownership, the homeowner might even be able to stay in his home mortgage-free, Morgenson attests. That’s huge – and we should definitely expect an appeal.
In the Kansas case, MERS, a mortgage registrar, and a second-mortgage mortgagee were not informed of the homeowners bankruptcy and disposition of assets and claims before judgment was made. Nevertheless, the district court, the appeals court AND the Kansas supreme court all upheld the original summary judgment arguing that MERS was not contingently necessary. While I would expect this case to be appealed because of the precedent it could set, I don’t see how it can be overturned after affirmation in every court – that is except through a politicization of the verdict.
Notice how PHH and MERS, the two lender agents in each cases, are not the actual owners of the mortgages. They are the agents of the mortgagees. This is why these cases have a lot to do with securitization.
See also: How much money is Wells Fargo really making? for how some of this affects earnings at money center banks.
Morgenson had another article of merit on this topic last week. See her piece The Mortgage Machine Backfires. This could get interesting.
To read the original article click here
Friday, October 23, 2009
Wells Fargo, JPMorgan Benefit From Servicing Hedging
Wells Fargo & Co. earned almost a third of its pretax quarterly profit by hedging mortgage- servicing rights, producing gains similar to those that have helped some of the biggest U.S. banks offset weaker consumer- lending businesses.
Wells Fargo’s hedges outperformed writedowns it took on the so-called MSRs by $1.5 billion and JPMorgan Chase & Co. came out ahead by $435 million. The two banks, as well as Bank of America Corp. and Citigroup Inc., wrote down MSRs by at least $5 billion in the third quarter as mortgage rates fell by about 0.26 percentage point.
“The earnings level is unsustainable,” Rochdale Securities analyst Richard Bove said yesterday, and cited mortgage servicing as he cut his rating on Wells Fargo to “sell” from “neutral.” Shares of San Francisco-based Wells Fargo dropped 5 percent in New York trading to $28.90, with most of the decline coming after Bove’s report.
Banks’ mortgage units are using gains on mark-to-market adjustments and hedging derivatives to drive earnings as lenders record losses on consumer loans during the worst recession since World War II. Net gains on MSRs and hedges also added $1 billion to Wells Fargo’s earnings in the second quarter and to JPMorgan’s in the first.
The value of the rights depends largely on the expected life of the mortgage, which ends when a borrower pays off the loan, refinances or defaults. When rates drop and more borrowers refinance, MSR values decline. Banks typically hedge the movements using interest-rate swaps and other derivatives.
Writedowns
Wells Fargo wrote down the value of its MSRs by $2.1 billion in the quarter, the result, it said, of model inputs and assumptions. The hedges it used to offset the movement of the servicing rights rose by $3.6 billion, resulting in a pretax gain of $1.5 billion. Wells Fargo reported pretax net income of $4.67 billion and a record $3.24 billion third-quarter after- tax profit.
The net gain was “largely due to hedge-carry income reflecting the current low short-term interest rate environment, which is expected to continue into the fourth quarter,” Wells Fargo said in a statement announcing its earnings.
JPMorgan reported a $1.1 billion writedown of servicing rights, while it earned $1.53 billion on hedges. That helped the New York-based bank’s earnings rise to $3.59 billion from $527 million a year earlier.
‘Inundated’ With Swings
“You are inundated with these swings with the accounting provisions,” Anthony Polini, an analyst at Raymond James Financial Inc., said in an interview. “From a quality of earnings standpoint, you would rather see the growth in net interest income but this is how we bridge the gap. That’s why they are called hedges.”
Bank of America, which posted a $1 billion quarterly loss, wrote down MSRs by $1.83 billion. The Charlotte, North Carolina- based bank didn’t disclose the performance of its hedges. A $1.2 billion decline in mortgage-banking income was driven in part by “weaker MSR hedge performance,” the company said.
The carrying value of Citigroup’s rights fell by $542 million in the quarter. The bank, based in New York, didn’t report how much of the decline stemmed from changes in its valuation models or from the impact of customer payments. Citigroup, which reported a $101 million profit, also didn’t disclose its hedge performance.
56 Percent of Market
The four banks wrote up the value of their MSRs by about $11 billion in the second quarter, according to regulatory filings. Mortgage rates climbed by 0.35 percentage point in that period, according to Freddie Mac.
The four banks control 56 percent of the market for the contracts, according to Inside Mortgage Finance, a Bethesda, Maryland-based newsletter that has covered the industry since 1984. Servicers collect payments from borrowers and pass them on to mortgage lenders or investors, less fees. They also keep records, manage escrow accounts and contact delinquent debtors.
Under U.S. accounting rules in place since 1995, banks should report the value of mortgage-servicing rights on a fair- market basis, or roughly what they would fetch in a sale. A bank must record a loss whenever it sells MSRs for a price below where they’re marked on the books.
Because there’s no active trading in the contracts, there are no reliable prices to gauge whether banks are valuing the rights accurately, analysts said.
Bank of America held the largest amount of MSRs as of Sept. 30, with $17.5 billion. JPMorgan had $13.6 billion, while Wells Fargo owned $14.5 billion and Citigroup $6.2 billion.
IRS Wrongly Gave Homebuyer Tax Credit to Resident Aliens, Minors: Watchdog
The Treasury Inspector General for Tax Administration (TIGTA) believes the Internal Revenue Service (IRS) may have paid out millions of dollars in first-time homebuyer tax credits to individuals not eligible to receive the $8,000 credit.
Bank bonuses are in Fed's cross hairs
The regulator seeks to limit rewards for risky practices at the 6,000 institutions it oversees.
Treasury’s Allison Confirms ‘Foreclosure Alternative’ Plans
In a testimony before the Congressional Oversight Panel (COP), Herb Allison, the assistant secretary for Financial Stability, confirmed the US Treasury Department’s plans to develop a foreclosure alternatives program with funds from the Troubled Asset Relief Program (TARP).
Top States by Mortgage Lending Volume
If you were wondering where all that mortgage lending was taking place, wonder no longer; new mortgage data from Mortgagestats.com, based on HMDA figures released by the Fed, makes it all a little clearer.
Wells Fargo’s hedges outperformed writedowns it took on the so-called MSRs by $1.5 billion and JPMorgan Chase & Co. came out ahead by $435 million. The two banks, as well as Bank of America Corp. and Citigroup Inc., wrote down MSRs by at least $5 billion in the third quarter as mortgage rates fell by about 0.26 percentage point.
“The earnings level is unsustainable,” Rochdale Securities analyst Richard Bove said yesterday, and cited mortgage servicing as he cut his rating on Wells Fargo to “sell” from “neutral.” Shares of San Francisco-based Wells Fargo dropped 5 percent in New York trading to $28.90, with most of the decline coming after Bove’s report.
Banks’ mortgage units are using gains on mark-to-market adjustments and hedging derivatives to drive earnings as lenders record losses on consumer loans during the worst recession since World War II. Net gains on MSRs and hedges also added $1 billion to Wells Fargo’s earnings in the second quarter and to JPMorgan’s in the first.
The value of the rights depends largely on the expected life of the mortgage, which ends when a borrower pays off the loan, refinances or defaults. When rates drop and more borrowers refinance, MSR values decline. Banks typically hedge the movements using interest-rate swaps and other derivatives.
Writedowns
Wells Fargo wrote down the value of its MSRs by $2.1 billion in the quarter, the result, it said, of model inputs and assumptions. The hedges it used to offset the movement of the servicing rights rose by $3.6 billion, resulting in a pretax gain of $1.5 billion. Wells Fargo reported pretax net income of $4.67 billion and a record $3.24 billion third-quarter after- tax profit.
The net gain was “largely due to hedge-carry income reflecting the current low short-term interest rate environment, which is expected to continue into the fourth quarter,” Wells Fargo said in a statement announcing its earnings.
JPMorgan reported a $1.1 billion writedown of servicing rights, while it earned $1.53 billion on hedges. That helped the New York-based bank’s earnings rise to $3.59 billion from $527 million a year earlier.
‘Inundated’ With Swings
“You are inundated with these swings with the accounting provisions,” Anthony Polini, an analyst at Raymond James Financial Inc., said in an interview. “From a quality of earnings standpoint, you would rather see the growth in net interest income but this is how we bridge the gap. That’s why they are called hedges.”
Bank of America, which posted a $1 billion quarterly loss, wrote down MSRs by $1.83 billion. The Charlotte, North Carolina- based bank didn’t disclose the performance of its hedges. A $1.2 billion decline in mortgage-banking income was driven in part by “weaker MSR hedge performance,” the company said.
The carrying value of Citigroup’s rights fell by $542 million in the quarter. The bank, based in New York, didn’t report how much of the decline stemmed from changes in its valuation models or from the impact of customer payments. Citigroup, which reported a $101 million profit, also didn’t disclose its hedge performance.
56 Percent of Market
The four banks wrote up the value of their MSRs by about $11 billion in the second quarter, according to regulatory filings. Mortgage rates climbed by 0.35 percentage point in that period, according to Freddie Mac.
The four banks control 56 percent of the market for the contracts, according to Inside Mortgage Finance, a Bethesda, Maryland-based newsletter that has covered the industry since 1984. Servicers collect payments from borrowers and pass them on to mortgage lenders or investors, less fees. They also keep records, manage escrow accounts and contact delinquent debtors.
Under U.S. accounting rules in place since 1995, banks should report the value of mortgage-servicing rights on a fair- market basis, or roughly what they would fetch in a sale. A bank must record a loss whenever it sells MSRs for a price below where they’re marked on the books.
Because there’s no active trading in the contracts, there are no reliable prices to gauge whether banks are valuing the rights accurately, analysts said.
Bank of America held the largest amount of MSRs as of Sept. 30, with $17.5 billion. JPMorgan had $13.6 billion, while Wells Fargo owned $14.5 billion and Citigroup $6.2 billion.
To read the original article click here
Other articles of interest...IRS Wrongly Gave Homebuyer Tax Credit to Resident Aliens, Minors: Watchdog
The Treasury Inspector General for Tax Administration (TIGTA) believes the Internal Revenue Service (IRS) may have paid out millions of dollars in first-time homebuyer tax credits to individuals not eligible to receive the $8,000 credit.
Bank bonuses are in Fed's cross hairs
The regulator seeks to limit rewards for risky practices at the 6,000 institutions it oversees.
Treasury’s Allison Confirms ‘Foreclosure Alternative’ Plans
In a testimony before the Congressional Oversight Panel (COP), Herb Allison, the assistant secretary for Financial Stability, confirmed the US Treasury Department’s plans to develop a foreclosure alternatives program with funds from the Troubled Asset Relief Program (TARP).
Top States by Mortgage Lending Volume
If you were wondering where all that mortgage lending was taking place, wonder no longer; new mortgage data from Mortgagestats.com, based on HMDA figures released by the Fed, makes it all a little clearer.
Thursday, October 22, 2009
$15,000 Home Buyers Credit Costs $292,000/home
I have long argued that home prices are elevated, and until they normalize, the economy will be stuck in the doldrums. I even wrote a chapter of Bailout Nation, titled “The Virtue of Foreclosure.” I make a basic economic argument that the excess credit of the 2001-07 era is unwinding, and foreclosures are part of that process.
The simple premise is that the abdication of lending standards by both bank and nonbank lenders created an enormous credit bubble. Easy money drove home prices to unsustainable and unaffordable levels. People bought homes far more expensive than they could reasonably afford. Many assumed they would be able to refinance, paying for the excess costs by cashing out the price appreciation everyone knew was sure to follow.
Of course, we know what happened next. Prices rose unsustainably, credit tightened up, and the supply of greater fools abated. So much for the real estate perpetual motion machine.
What we were left with was an oversupply of new homes, and 4-8 million people in homes they couldn’t really afford. When measure by traditional metrics like median price to median income, costs of ownership relative to renting, or Homes as a % of GDP, houses were extremely expensive.
Running 300,000 monthly foreclosures — on pace to do 3 million foreclosures this year — the prior boom process is now unwinding. Excess prices are normalizing — but they still remain somewhat elevated compared to historical ratios. Perverse though it may be, the mass Foreclosures are helping to drive prices back to normalized historic levels.
Although this process is a necessary evil, Politicians of all stripes hate it. Between the NAR and NAHB, they have ready lobby fighting market forces. The lobbyists shamelessly ignore the role their members played in blowing up the bubble, and how they encouraged irresponsible and in many cases illegal behavior. The NAR and the NAHB have yet to offer up their mea culpas for their contributions to the mess, but their roles were substantial.
All of the home mortgage modification programs and foreclosure abatements are attempts by politicos to “ease the pain.” These programs have proven themselves to be ineffective in preventing defaulting mortgages from going into foreclosure. More than 50% of all mods slip into foreclosure again, and in some instances, we see 70-80% delinquency rates.
But the real question is “Why are we trying?” Except for those instances where there has been fraud or predatory lending, we really should not intervene. The foreclosure process is restoring prices to where they should be. (Note I suggested a voluntary program last year that helped banks forestall writedowns, and allowed viable homeowners to keep their houses, but also lowered prices).
Now comes the latest attempt by politicians to intervene in the housing market: Expanding the about to expire, $8,000, first time home buyers tax credit to a $15,000 credit for everyone. This is counter productive. (Won’t that just make prices more expensive?) The lobbyists want to goose the housing market by any means possible — even if it is an expensive and unhealthy method.
A recent Brookings Institute analysis (found via Barrons) demonstrates persuasively that the $8,000 subsidy actually costs $43,000 per extra house sold; worse yet, the new $15k tax credit will ultimately cost $292,000 per home.
How does that math work? :
To read the original article click here
Other articles of interest...
Loan Modifications, Story Of Struggle For Banks And Borrowers Alike
...banks are increasing their capacity for loan modifications and seem to be keeping up with government targets, at least for now. So who is to blame?
U.S. to Order Steep Pay Cuts at Firms That Got Most Aid
...the Obama administration will order the firms that received the most aid to slash compensation to their highest-paid employees, an official involved in the decision said on Wednesday.
How Bad Are Your Credit Card Mistakes?
Nobody's perfect. When it comes to our financial lives, we've all done things we later regretted
Microsoft hopes for a fresh start with Windows 7
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The simple premise is that the abdication of lending standards by both bank and nonbank lenders created an enormous credit bubble. Easy money drove home prices to unsustainable and unaffordable levels. People bought homes far more expensive than they could reasonably afford. Many assumed they would be able to refinance, paying for the excess costs by cashing out the price appreciation everyone knew was sure to follow.
Of course, we know what happened next. Prices rose unsustainably, credit tightened up, and the supply of greater fools abated. So much for the real estate perpetual motion machine.
What we were left with was an oversupply of new homes, and 4-8 million people in homes they couldn’t really afford. When measure by traditional metrics like median price to median income, costs of ownership relative to renting, or Homes as a % of GDP, houses were extremely expensive.
Running 300,000 monthly foreclosures — on pace to do 3 million foreclosures this year — the prior boom process is now unwinding. Excess prices are normalizing — but they still remain somewhat elevated compared to historical ratios. Perverse though it may be, the mass Foreclosures are helping to drive prices back to normalized historic levels.
Although this process is a necessary evil, Politicians of all stripes hate it. Between the NAR and NAHB, they have ready lobby fighting market forces. The lobbyists shamelessly ignore the role their members played in blowing up the bubble, and how they encouraged irresponsible and in many cases illegal behavior. The NAR and the NAHB have yet to offer up their mea culpas for their contributions to the mess, but their roles were substantial.
All of the home mortgage modification programs and foreclosure abatements are attempts by politicos to “ease the pain.” These programs have proven themselves to be ineffective in preventing defaulting mortgages from going into foreclosure. More than 50% of all mods slip into foreclosure again, and in some instances, we see 70-80% delinquency rates.
But the real question is “Why are we trying?” Except for those instances where there has been fraud or predatory lending, we really should not intervene. The foreclosure process is restoring prices to where they should be. (Note I suggested a voluntary program last year that helped banks forestall writedowns, and allowed viable homeowners to keep their houses, but also lowered prices).
Now comes the latest attempt by politicians to intervene in the housing market: Expanding the about to expire, $8,000, first time home buyers tax credit to a $15,000 credit for everyone. This is counter productive. (Won’t that just make prices more expensive?) The lobbyists want to goose the housing market by any means possible — even if it is an expensive and unhealthy method.
A recent Brookings Institute analysis (found via Barrons) demonstrates persuasively that the $8,000 subsidy actually costs $43,000 per extra house sold; worse yet, the new $15k tax credit will ultimately cost $292,000 per home.
How does that math work? :
To read the original article click here
Other articles of interest...
Loan Modifications, Story Of Struggle For Banks And Borrowers Alike
...banks are increasing their capacity for loan modifications and seem to be keeping up with government targets, at least for now. So who is to blame?
U.S. to Order Steep Pay Cuts at Firms That Got Most Aid
...the Obama administration will order the firms that received the most aid to slash compensation to their highest-paid employees, an official involved in the decision said on Wednesday.
How Bad Are Your Credit Card Mistakes?
Nobody's perfect. When it comes to our financial lives, we've all done things we later regretted
Microsoft hopes for a fresh start with Windows 7
Microsoft hopes 7 is a lucky number as it launches new version of the software that runs PCs
Wednesday, October 21, 2009
Homes: About to get much cheaper
If you thought home prices were bottoming out, you may be wrong. They're expected to head a lot lower.
Home values are predicted to drop in 342 out of 381 markets during the next year, according to a new forecast of real estate prices.
Overall, the national median home price is predicted to drop 11.3% by June 30, 2010, according to Fiserv, a financial information and analysis firm. For the following year, the firm anticipates some stabilization with prices rising 3.6%.
In the past, Fiserv anticipated the rapid decline in home-sale prices over the past few years -- though it underestimated the scope.
Mark Zandi, chief economist with Moody's Economy.com, agreed with Fiserv's current assessments. "I think more price declines are coming because the foreclosure crisis is not over," he said.
In fact, those areas with high concentrations of foreclosure sales will experience the steepest drops, according to Fiserv. Miami, for example, is expected to be the biggest loser. Prices are forecast to plunge 29.9% by next June -- after having already fallen a whopping 48% during the past three years.
If Fiserv's forecast holds, Miami real median home price will tumble to $142,000 by June 2011.
In Orlando, Fla., the second-worst performing market, Fiserv anticipates a 27% price collapse by June 2010, followed by a less severe drop the following year. In Hanford, Calif., prices are estimated to drop 26.9% and continue falling 9.5% in 2011; in Naples, Fla., they're expected to fall 26.8% and then flatten out.
Other notable losers include Las Vegas, where prices have already fallen 54.6% and are expected to lose another 23.9% by June 2010. In Phoenix values have already collapsed by 54% and could fall another 23.4%. In both cities, Fiserv anticipates the losses to continue into 2011, but they will be less than 5%.
Prices had stabilized
The latest forecast is at odds with the past few months of the S&P/Case-Shiller Home Price index. That report has given hope that most housing markets may have already stabilized because the composite index of 20 cities rose in May, June and July. Nationally, it found that home prices have gained 3.6%.
Brad Hunter, chief economist for Metrostudy, which provides housing market information to the industry, however, expects a change in fortunes, however.
"I'm afraid Case-Shiller may be just a temporary reprieve," he said.
He pointed out that the tax credit for first-time home buyers helped support prices during the three months of Case-Shiller gains. By the end of November, the credit will have been used by 1.8 million homebuyers, at least 355,000 of whom would not have bought a house without the tax break, according to estimates by the National Association of Realtors. But the market assistance ends when the credit expires on Dec. 1.
Hunter also sees a new wave of foreclosure problems coming from higher priced loans and prime mortgages. He expects a high failure rate for option ARM loans that were issued to prime customers so they could buy homes in bubble markets, such as California and Florida. In those areas, prices for even modest homes had skyrocketed.
Winners
A handful of metro areas will buck the trend, according to Fiserv. Six markets will remain flat, and 33 will actually post gains. The biggest winner will be the Kennewick, Wash., metro area, where home prices have ramped up 8.9% over the past three years and are expected to increase another 3.4% by June 2010.
Fairbanks, Alaska, prices are anticipated to rise 2.5%, while Anchorage will climb 2.1%. Elmira, N.Y., prices may inch up 1.8%.
The nation's biggest metro area, New York City, will underperform the nation as a whole over the next two years, according to Fiserv. Prices, which have already fallen 21.7% to a median of $375,000, are expected to fall 17.4% by June 2011.
To read original article click here
Other articles of interest...
Ahead of the Bell: Wells Fargo earnings on tap
Wells Fargo set to report 3rd-quarter results ahead of market's open; all eyes on loan losses
US task force shocked by state of GM, Chrysler
US auto task force shocked by the poor conditions at GM, Chrysler before bankruptcies
What Will the Secondary Mortgage Market Look Like Going Forward?
B of A seeks $128 million, control of Block 37
A group of lenders led by Bank of America is seeking to take control of Block 37 as part of a $128-million foreclosure lawsuit on the mixed-use project under construction in the heart of the Loop.
Home values are predicted to drop in 342 out of 381 markets during the next year, according to a new forecast of real estate prices.
Overall, the national median home price is predicted to drop 11.3% by June 30, 2010, according to Fiserv, a financial information and analysis firm. For the following year, the firm anticipates some stabilization with prices rising 3.6%.
In the past, Fiserv anticipated the rapid decline in home-sale prices over the past few years -- though it underestimated the scope.
Mark Zandi, chief economist with Moody's Economy.com, agreed with Fiserv's current assessments. "I think more price declines are coming because the foreclosure crisis is not over," he said.
In fact, those areas with high concentrations of foreclosure sales will experience the steepest drops, according to Fiserv. Miami, for example, is expected to be the biggest loser. Prices are forecast to plunge 29.9% by next June -- after having already fallen a whopping 48% during the past three years.
If Fiserv's forecast holds, Miami real median home price will tumble to $142,000 by June 2011.
In Orlando, Fla., the second-worst performing market, Fiserv anticipates a 27% price collapse by June 2010, followed by a less severe drop the following year. In Hanford, Calif., prices are estimated to drop 26.9% and continue falling 9.5% in 2011; in Naples, Fla., they're expected to fall 26.8% and then flatten out.
Other notable losers include Las Vegas, where prices have already fallen 54.6% and are expected to lose another 23.9% by June 2010. In Phoenix values have already collapsed by 54% and could fall another 23.4%. In both cities, Fiserv anticipates the losses to continue into 2011, but they will be less than 5%.
Prices had stabilized
The latest forecast is at odds with the past few months of the S&P/Case-Shiller Home Price index. That report has given hope that most housing markets may have already stabilized because the composite index of 20 cities rose in May, June and July. Nationally, it found that home prices have gained 3.6%.
Brad Hunter, chief economist for Metrostudy, which provides housing market information to the industry, however, expects a change in fortunes, however.
"I'm afraid Case-Shiller may be just a temporary reprieve," he said.
He pointed out that the tax credit for first-time home buyers helped support prices during the three months of Case-Shiller gains. By the end of November, the credit will have been used by 1.8 million homebuyers, at least 355,000 of whom would not have bought a house without the tax break, according to estimates by the National Association of Realtors. But the market assistance ends when the credit expires on Dec. 1.
Hunter also sees a new wave of foreclosure problems coming from higher priced loans and prime mortgages. He expects a high failure rate for option ARM loans that were issued to prime customers so they could buy homes in bubble markets, such as California and Florida. In those areas, prices for even modest homes had skyrocketed.
Winners
A handful of metro areas will buck the trend, according to Fiserv. Six markets will remain flat, and 33 will actually post gains. The biggest winner will be the Kennewick, Wash., metro area, where home prices have ramped up 8.9% over the past three years and are expected to increase another 3.4% by June 2010.
Fairbanks, Alaska, prices are anticipated to rise 2.5%, while Anchorage will climb 2.1%. Elmira, N.Y., prices may inch up 1.8%.
The nation's biggest metro area, New York City, will underperform the nation as a whole over the next two years, according to Fiserv. Prices, which have already fallen 21.7% to a median of $375,000, are expected to fall 17.4% by June 2011.
To read original article click here
Other articles of interest...
Ahead of the Bell: Wells Fargo earnings on tap
Wells Fargo set to report 3rd-quarter results ahead of market's open; all eyes on loan losses
US task force shocked by state of GM, Chrysler
US auto task force shocked by the poor conditions at GM, Chrysler before bankruptcies
What Will the Secondary Mortgage Market Look Like Going Forward?
B of A seeks $128 million, control of Block 37
A group of lenders led by Bank of America is seeking to take control of Block 37 as part of a $128-million foreclosure lawsuit on the mixed-use project under construction in the heart of the Loop.
Tuesday, October 20, 2009
Cash for Mortgage “Clunkers”
It sounds like the next federal incentive program — instead of offering taxpayer funds for new car purchases in exchange for that old gas guzzler, this one promises cash for those inefficient, outdated and nonperforming mortgage loans.
There’s only one, small difference: This cash is not from the government. And neither is the program.
American Homeowner Preservation (AHP) is coining a phrase from recent federal stimulus efforts with its “Cash for Clunkers Mortgages” promotion.
Cincinnati-based AHP began as a non-profit in 2007, pairing distressed borrowers with investors. It became a for-profit in 2009 and facilitates residential property short sales and leases the home with the option to sell back to the previous owner of the property.
In the mortgage “Cash for Clunkers” program, AHP will purchase non-performing mortgages secured by single-family and two- to four-unit multifamily properties from lenders, in single and bulk quantities.
The promotion began Monday, and AHP said it is targeting charge off mortgages, those secured by low-value homes and mortgages owned by borrowers in bankruptcy or litigation. AHP said it will make bids on solicited mortgages within 48 hours and can close deals within three to four weeks.
It may sound like the latest federally-backed incentive program, but the “Cash for Clunkers Mortgages” promotion is one of a myriad of programs that take their names from government initiatives with similar titles. The names invoke a sense of comfort in an implied government backing but are instead privately offered goods or services in no way connected with their namesake programs.
To read the original article click here
Other articles of interest...
The Next Leg Down In Housing
Housing bears have been warning for months that despite a seemingly good summer, the pain would resume come the fall. This may be the first sign of that. The NAHB's builder confidence level slipped in October to a reading of 18, less than the expected 20.
Runner-up in Afghan election seeks interim gov't
The runner-up in Afghanistan's presidential election pushed Tuesday for an interim government to shepherd the country through the winter if it's too difficult or dangerous to organize a runoff in the coming weeks
Wall Street 40% Bonus Rise Feeds Spending on $43 Steak, Co-ops
A 40 percent jump in Wall Street bonuses this year may bring relief to New York City and Albany as the state and its biggest metropolis struggle with a combined $14 billion in budget deficits this fiscal year and next.
Foreclosures Hit New Quarterly High
Foreclosure activity hit a new record high during the third quarter, up five percent from the second quarter and 23 percent from a year ago, according to RealtyTrac.
There’s only one, small difference: This cash is not from the government. And neither is the program.
American Homeowner Preservation (AHP) is coining a phrase from recent federal stimulus efforts with its “Cash for Clunkers Mortgages” promotion.
Cincinnati-based AHP began as a non-profit in 2007, pairing distressed borrowers with investors. It became a for-profit in 2009 and facilitates residential property short sales and leases the home with the option to sell back to the previous owner of the property.
In the mortgage “Cash for Clunkers” program, AHP will purchase non-performing mortgages secured by single-family and two- to four-unit multifamily properties from lenders, in single and bulk quantities.
The promotion began Monday, and AHP said it is targeting charge off mortgages, those secured by low-value homes and mortgages owned by borrowers in bankruptcy or litigation. AHP said it will make bids on solicited mortgages within 48 hours and can close deals within three to four weeks.
It may sound like the latest federally-backed incentive program, but the “Cash for Clunkers Mortgages” promotion is one of a myriad of programs that take their names from government initiatives with similar titles. The names invoke a sense of comfort in an implied government backing but are instead privately offered goods or services in no way connected with their namesake programs.
To read the original article click here
Other articles of interest...
The Next Leg Down In Housing
Housing bears have been warning for months that despite a seemingly good summer, the pain would resume come the fall. This may be the first sign of that. The NAHB's builder confidence level slipped in October to a reading of 18, less than the expected 20.
Runner-up in Afghan election seeks interim gov't
The runner-up in Afghanistan's presidential election pushed Tuesday for an interim government to shepherd the country through the winter if it's too difficult or dangerous to organize a runoff in the coming weeks
Wall Street 40% Bonus Rise Feeds Spending on $43 Steak, Co-ops
A 40 percent jump in Wall Street bonuses this year may bring relief to New York City and Albany as the state and its biggest metropolis struggle with a combined $14 billion in budget deficits this fiscal year and next.
Foreclosures Hit New Quarterly High
Foreclosure activity hit a new record high during the third quarter, up five percent from the second quarter and 23 percent from a year ago, according to RealtyTrac.
Monday, October 19, 2009
Mortgage applicants face new checks on spending habits
Homebuyers applying for mortgages will have to provide much more detailed information about their monthly spending habits under new rules to clamp down on reckless lending.
As part of an attempt to curb irresponisble borrowing, Ministers are also planning new limits on credit card lending.
On Monday, the Financial Services Authority will tell lenders they must carry out in-depth examinations of households' disposable income before granting a mortgage.
Under current rules, lenders are not obliged to ask would-be customers for bank statements or other evidence of spending patterns when they apply for mortgages.
The FSA’s review of mortgages comes after ministers asked the regulator to come up with tougher rules on loans that are many times an applicant’s salary or close to 100 per cent of the value of the property concerned.
Lord Turner, the FSA chairman, has said that the dramatic expansion of mortgage lending and the easy availability of high-ratio mortgages played a significant part in the recent financial crisis, as banks and other lenders ended up with too many bad loans.
The regulator will stop short of a ban on such high-value loans, but it will say that the practice of self-certification – where applicants’ claims about their finances are taken on trust – should come to an end.
In future, mortgage lenders will face a new obligation to investigate their customers’ financial position before granting a loan. Under the current rules, many lenders leave the task to mortgage brokers.
In an audio message on the Downing Street website, Gordon Brown said the new FSA guidelines will make sure such loans can no longer be granted
"I believe lenders should have to carry out proper checks on incomes before agreeing home loans.," he said.
“We need much tougher rules to make sure that high loan-to-value or high loan-to-income mortgages are offered only when the lender has done rigorous checks to ensure people can keep up repayments."
Lord Myners, the City minister, said in future, lenders will have to carry out a “meticulous analysis of the ability of the individual to repay the loan.”
He said: "The FSA is going to tighten up its regulation – we're not going to have a mandatory limit on loans-to-value or income, but a prudential limit that says that banks must ensure it's in the interests of the borrower."
The FSA is also expected to say that that the sale of buy-to-let mortgages should also be regulated for the first time.
And later this month, the Government will announce new rules curbing the activities of credit card lenders.
"We will publish our plans to stop credit card companies increasing credit limits without being asked and we will ban them from sending out unsolicited credit card cheques," Mr Brown said.
Mark Hoban, the Conservative Shadow Financial Secretary said Mr Brown’s actions on mortgages were too little, too late.
He said; "The point about Gordon Brown is he was chancellor for 10 years, he's been Prime Minister for the last two years.
"These problems have emerged on his watch and it's a bit late now to start clamping down. He should have acted much sooner on this."
He added: "What he is doing is closing the stable door when the horse has bolted.”
To read the original article click here
As part of an attempt to curb irresponisble borrowing, Ministers are also planning new limits on credit card lending.
On Monday, the Financial Services Authority will tell lenders they must carry out in-depth examinations of households' disposable income before granting a mortgage.
Under current rules, lenders are not obliged to ask would-be customers for bank statements or other evidence of spending patterns when they apply for mortgages.
The FSA’s review of mortgages comes after ministers asked the regulator to come up with tougher rules on loans that are many times an applicant’s salary or close to 100 per cent of the value of the property concerned.
Lord Turner, the FSA chairman, has said that the dramatic expansion of mortgage lending and the easy availability of high-ratio mortgages played a significant part in the recent financial crisis, as banks and other lenders ended up with too many bad loans.
The regulator will stop short of a ban on such high-value loans, but it will say that the practice of self-certification – where applicants’ claims about their finances are taken on trust – should come to an end.
In future, mortgage lenders will face a new obligation to investigate their customers’ financial position before granting a loan. Under the current rules, many lenders leave the task to mortgage brokers.
In an audio message on the Downing Street website, Gordon Brown said the new FSA guidelines will make sure such loans can no longer be granted
"I believe lenders should have to carry out proper checks on incomes before agreeing home loans.," he said.
“We need much tougher rules to make sure that high loan-to-value or high loan-to-income mortgages are offered only when the lender has done rigorous checks to ensure people can keep up repayments."
Lord Myners, the City minister, said in future, lenders will have to carry out a “meticulous analysis of the ability of the individual to repay the loan.”
He said: "The FSA is going to tighten up its regulation – we're not going to have a mandatory limit on loans-to-value or income, but a prudential limit that says that banks must ensure it's in the interests of the borrower."
The FSA is also expected to say that that the sale of buy-to-let mortgages should also be regulated for the first time.
And later this month, the Government will announce new rules curbing the activities of credit card lenders.
"We will publish our plans to stop credit card companies increasing credit limits without being asked and we will ban them from sending out unsolicited credit card cheques," Mr Brown said.
Mark Hoban, the Conservative Shadow Financial Secretary said Mr Brown’s actions on mortgages were too little, too late.
He said; "The point about Gordon Brown is he was chancellor for 10 years, he's been Prime Minister for the last two years.
"These problems have emerged on his watch and it's a bit late now to start clamping down. He should have acted much sooner on this."
He added: "What he is doing is closing the stable door when the horse has bolted.”
To read the original article click here
Friday, October 16, 2009
Foreclosures On Pace To Hit 3.5 Million
There were over 900,000 foreclosures in the third quarter as Foreclosures rise 5 percent from summer to fall.
The number of households caught up in the foreclosure crisis rose more than 5 percent from summer to fall as a federal effort to assist struggling borrowers was overwhelmed by a flood of defaults among people who lost their jobs.
The foreclosure crisis affected nearly 938,000 properties in the July-September quarter, compared with about 890,000 in the prior three months, according to a report released Thursday by RealtyTrac Inc. That puts foreclosure-related filings on a pace to hit about 3.5 million this year, up from more than 2.3 million last year.
"The sheer scale of the problem is preventing the loan modification programs from having the kind of impact we'd all like" said Rick Sharga, RealtyTrac's senior vice president for marketing.
Some homeowners are in such a massive financial hole that it's hard to design a modification that will actually provide lower payments. And some have avoided paying their monthly bills for a long time.
According to the RealtyTrac report, there were nearly 344,000 foreclosure-related filings last month, down 4 percent from a month earlier but still the third-highest month since the report started in early 2005.
It was the seventh-straight month in which more than 300,000 households receiving a foreclosure filing, which includes default notices and several other legal notices that homeowners receive before they finally lose their homes.
Banks repossessed nearly 88,000 homes in September, up from about 76,000 a month earlier.
On a state-by-state basis, Nevada had the nation's highest foreclosure rate in the July-September quarter. Arizona was No. 2, followed by California, Florida and Idaho. Rounding out the top 10 were Utah, Georgia, Michigan, Colorado and Illinois.
As I have stated before, bailing out the banks did nothing for cash-strapped, unemployed consumers stuck in homes they cannot sell because they are too far underwater.
Supposedly the administration's programs have helped 500,000 but many of them will end up defaulting anyway. Assume a 50% failure rate and 250,000 were "helped". Yet we are on a pace for 3.5 million foreclosures.
Moreover, many of those "helped" were probably better off walking away. Meanwhile unemployment is 9.8% and rising. I expect to see close to 11% next year and stubbornly high unemployment for a decade.
To read the original article click here
Other articles of interest...
Foreclosures Hit New Quarterly High
Foreclosure activity hit a new record high during the third quarter, up five percent from the second quarter and 23 percent from a year ago, according to RealtyTrac.
Banks Still Lacking in Using Risk Information
Moody’s is placing even greater emphasis on its dialogue with banks on how risk information influences the decision-making process at the highest levels of the organisation.
STIMULUS WATCH: Stimulus boon for South, Southwest
Obama recovery plan linked to 30,000 jobs; South, Southwest benefit most
Insurers dropping Chinese drywall policies
Thousands of homeowners nationwide who bought new houses constructed from the defective building materials are finding their hopes dashed, their lives in limbo.
The number of households caught up in the foreclosure crisis rose more than 5 percent from summer to fall as a federal effort to assist struggling borrowers was overwhelmed by a flood of defaults among people who lost their jobs.
The foreclosure crisis affected nearly 938,000 properties in the July-September quarter, compared with about 890,000 in the prior three months, according to a report released Thursday by RealtyTrac Inc. That puts foreclosure-related filings on a pace to hit about 3.5 million this year, up from more than 2.3 million last year.
"The sheer scale of the problem is preventing the loan modification programs from having the kind of impact we'd all like" said Rick Sharga, RealtyTrac's senior vice president for marketing.
Some homeowners are in such a massive financial hole that it's hard to design a modification that will actually provide lower payments. And some have avoided paying their monthly bills for a long time.
According to the RealtyTrac report, there were nearly 344,000 foreclosure-related filings last month, down 4 percent from a month earlier but still the third-highest month since the report started in early 2005.
It was the seventh-straight month in which more than 300,000 households receiving a foreclosure filing, which includes default notices and several other legal notices that homeowners receive before they finally lose their homes.
Banks repossessed nearly 88,000 homes in September, up from about 76,000 a month earlier.
On a state-by-state basis, Nevada had the nation's highest foreclosure rate in the July-September quarter. Arizona was No. 2, followed by California, Florida and Idaho. Rounding out the top 10 were Utah, Georgia, Michigan, Colorado and Illinois.
As I have stated before, bailing out the banks did nothing for cash-strapped, unemployed consumers stuck in homes they cannot sell because they are too far underwater.
Supposedly the administration's programs have helped 500,000 but many of them will end up defaulting anyway. Assume a 50% failure rate and 250,000 were "helped". Yet we are on a pace for 3.5 million foreclosures.
Moreover, many of those "helped" were probably better off walking away. Meanwhile unemployment is 9.8% and rising. I expect to see close to 11% next year and stubbornly high unemployment for a decade.
To read the original article click here
Other articles of interest...
Foreclosures Hit New Quarterly High
Foreclosure activity hit a new record high during the third quarter, up five percent from the second quarter and 23 percent from a year ago, according to RealtyTrac.
Banks Still Lacking in Using Risk Information
Moody’s is placing even greater emphasis on its dialogue with banks on how risk information influences the decision-making process at the highest levels of the organisation.
STIMULUS WATCH: Stimulus boon for South, Southwest
Obama recovery plan linked to 30,000 jobs; South, Southwest benefit most
Insurers dropping Chinese drywall policies
Thousands of homeowners nationwide who bought new houses constructed from the defective building materials are finding their hopes dashed, their lives in limbo.
Thursday, October 15, 2009
Here Be Chickens (And They're Roosting!)
Here Be Chickens (And They're Roosting!)
We got a little problem here.....
A progress report released last week by the Treasury Department showed that only 11 percent (about 95,000) of Bank of America's delinquent borrowers who were potentially eligible for the program had been given a loan modification. That compares with 27 percent, or 117,000, for J.P. Morgan Chase, and 33 percent, or 68,000, at Citigroup, the Treasury reported. The figure for Saxon Mortgage Services, which is owned by Morgan Stanley, is 41 percent, or 32,000.
There are too many conflicting currents here, which is what will ultimately doom this program, as has doomed all the previous ones.
First among them is the simple question: How many of these people who allegedly "qualify" for a modification will wind up with a sustainable mortgage if they get one?
This is a key question, yet one that hasn't been asked in public, nor have there been public answers tendered. The truth is pretty ugly - without significant principal forgiveness (not "forbearance") a huge, perhaps even majority percentage of these loans are not sustainable even if modified.
The problem is simply that on any reasonable set of assumptions the income of the household does not support the principal balance. "HAMP" calls for modifications to reduce principal and interest for all outstanding mortgage liens (firsts and seconds, if any) to 31%.
Here's the "waterfall" process, as shown by MGIC (one of the mortgage insurers who has been hammered severely by this mess)
The problem here is that several of these steps don't do much. If you "capitalize" arrears all you're doing is adding them to the principal balance of the loan. This "cures" the instant default but does nothing to solve the underlying problem that caused it in the first place (unaffordable payments.)
Reducing the interest rate helps only if the owner started with a "reasonable" rate up front. If their original loan was an "OptionARM" with a teaser, and they qualified on that teaser, they're unlikely to get to sustainable payments even with a reduced interest rate.
The third step, extending terms, does little as well. A $200,000 loan @ 5% over 30 years has a P&I of $1,069.19. The same loan over 40 years (the maximum extension) has a P&I of $960.39. $100 matters (it's about a 10% payment reduction) but if the difference of $100 makes it possible for you to pay then you're still one unscheduled calamity (e.g. your car needs a new alternator) away from being delinquent again.
The fourth step, "forbearing" principal, is not principal forgiveness. It is simply deferment, turning your note into what amounts to a balloon. This last step is particularly nasty for homeowners in that it will preclude you from being able to move for a decade or more, making it impossible for the workforce to follow job opportunities, as you would have to pay off the balloon in order to sell the house.
Then you have attitude:
Even as the administration urges lenders to do more to help homeowners, some Bank of America employees continue to express skepticism about whether all of those seeking assistance really need it. "There's a difference between hardship and entitlement," said Jerry Durham, Bank of America's vice president of home retention.
Oh really? Let us remember that Bank of America "acquired" Countrywide Financial, the king of making unsustainable and outrageously risky loans that were pushed like a drug junkie shoves his smack under the nose of debt addicts. Never mind that Bank of America seemed to think it was "entitled" to tens of billions of taxpayer dollars. Now the bank suddenly thinks that other people being "entitled" is such a bad thing? Who set the example?
The article also cites a disturbing trend:
On a recent morning, Tiffany Palmer was on the line with a frustrated borrower looking for help with his mortgage. He was $6,000 behind in his payments.
"Do you have a 401(k) or savings -- liquid assets that can be quickly converted into cash?" she asked him. He was going to have to come up with money for the mortgage. Because his monthly mortgage payments represented less than 31 percent of his income, he made too much to qualify for a modified mortgage under the federal initiative. "You will not be eligible for the program," she said.
This sort of "advice" should be barred under Federal Law and result in criminal sanction, especially for banks that have received taxpayer funds (of which BAC is particularly exposed.) Why? Because 401k and IRA money is protected in the event of a bankruptcy, with few exceptions. As such it is outrageously irresponsible to suggest that a debtor in trouble liquidate retirement accounts to come current, especially when nothing is being done to make the loan sustainable in the long term. Better to file bankruptcy and shove that loan up the bank's behind!
Never mind this sort of advice:
Could she skip her credit card payments, about $400 a month?
Oh, so that's nice - screw someone else so we get ours? Uh huh.
The conflicts of interest here are huge:
The banks have "Servicing Rights" (or MSRs) that require them as servicers to advance principal and interest payments to the noteholders. There are several risks involved in such an enterprise, of course, including the risk that the debtor won't pay at all, but in addition there is "prepayment" risk - that is, anything that causes the loan to terminate early (short sale, refinance, etc) decreases the value of that loan to the bank holding the servicing rights. These "MSRs" were "written up" in a major way in the first and second quarters. Was that a fantasy? Probably.
Forbearance, interest rate reductions and similar games sound good but they decrease cash flow. Remember that the ultimate holders of these notes through securitization have to agree. When this is Fannie or Freddie this simply forces their heads further underwater, but when it is someone else they have no mandate to agree to take less than they contracted for. In most cases securitization documents permit some small percentage of modifications without investor approval (e.g. 5% of the loans in the pool) but once that threshold is crossed the story changes.
In addition, and perhaps most importantly, a loan that is modified but which re-defaults is one where the investor made a good faith change (reducing his or her cash flow) believing that it was cheaper than prosecuting a foreclosure, but then wound up with both the lower cash flow and the foreclosure! This is perhaps the most serious problem and unlike the others it is not really a conflict of interest, it is simply the expression of the fact that in nearly all cases the first loss you can take and clear your board is the best loss; the more screwing around you do the worse things are.
The bottom line is that there is no evidence that HAMP is working or can, and the Congressional Oversight Panel has seen through the ruse:
The Panel found, "The result for many homeowners could be that foreclosure is delayed, not avoided." HAMP modifications are often not permanent: For many homeowners, payments will rise after five years, and although the program is still in its early stages, only a very small proportion of trial modifications have converted into longer term modifications. The Panel is also concerned about homeowners who face negative equity or are "underwater" - that is, the value of the loan exceeds the value of their home. For many borrowers, HAMP modifications increase negative equity, a factor that appears to be associated with increased rates of re-default.
Yep.
At the time I said that these efforts would fail as there is no actual solution other than forcing those who made bad loans to eat them. HAMP, and all other programs like it, are inherently just another gimmick promulgated upon the public by our government - another form of "extend and pretend", that when boiled down to its essence is legally-sanctioned accounting fraud.
The solution to unaffordable mortgages, as I have repeatedly noted, is foreclosure and a forcing downward of housing prices whether Congress and The Administration want to admit it or not. Affordable housing requires not gimmicks but houses that are inexpensive enough for people to be able to purchase and afford on an ongoing basis. We're not there, despite the crooning of The National Association of Realtors and other associated pressure groups.
This is directly contrary to the stated policy of Congress as expressed by Barney Frank, who has said that making bad loans on purpose is A POLICY to prevent home prices from contracting to long-term sustainable values.
In other words the bankers and Realtors have effectively bought Congress and goaded them into keeping home prices unaffordable for the average American. Refusing to reverse course on this policy will guarantee that sustainable economic growth will not return to America.
We will not and cannot, mathematically, exit this crisis until the bad debt is flushed from the system. This same sort of gimmickry and game-playing was attempted in the 1930s and was directly responsible for The Depression extending for a decade, ending only when World War II began.
You would think that we would have learned from this history lesson that all the game-playing in the world will not solve a debt problem, nor will shifting debt from one hand to another (e.g. to the federal government) lead to a sustainable economic recovery.
Those institutions that made bad, unsustainable loans must be forced to recognize their losses, even if it results in business failure. Only through contraction of these asset prices to sustainable levels where people can afford to purchase them on an ongoing basis given the actual employment prospects that exist (including the consequence of offshoring all our call centers and most of our manufacturing!) will we exit this crisis.
Housing prices must come down significantly - very significantly - from here. This will bankrupt many lenders who made unsustainable loans and that must be not only allowed to occur but encouraged so as to result in truly sustainable home ownership.
An environment of excessive debt, fostered by the improper and ridiculously negligent and intentional acts of both Congress and The Federal Reserve, cannot be resolved with more debt, any more than you can solve a drunk's problems by handing him another bottle of whiskey.
To read the entire original article click here
We got a little problem here.....
A progress report released last week by the Treasury Department showed that only 11 percent (about 95,000) of Bank of America's delinquent borrowers who were potentially eligible for the program had been given a loan modification. That compares with 27 percent, or 117,000, for J.P. Morgan Chase, and 33 percent, or 68,000, at Citigroup, the Treasury reported. The figure for Saxon Mortgage Services, which is owned by Morgan Stanley, is 41 percent, or 32,000.
There are too many conflicting currents here, which is what will ultimately doom this program, as has doomed all the previous ones.
First among them is the simple question: How many of these people who allegedly "qualify" for a modification will wind up with a sustainable mortgage if they get one?
This is a key question, yet one that hasn't been asked in public, nor have there been public answers tendered. The truth is pretty ugly - without significant principal forgiveness (not "forbearance") a huge, perhaps even majority percentage of these loans are not sustainable even if modified.
The problem is simply that on any reasonable set of assumptions the income of the household does not support the principal balance. "HAMP" calls for modifications to reduce principal and interest for all outstanding mortgage liens (firsts and seconds, if any) to 31%.
Here's the "waterfall" process, as shown by MGIC (one of the mortgage insurers who has been hammered severely by this mess)
The problem here is that several of these steps don't do much. If you "capitalize" arrears all you're doing is adding them to the principal balance of the loan. This "cures" the instant default but does nothing to solve the underlying problem that caused it in the first place (unaffordable payments.)
Reducing the interest rate helps only if the owner started with a "reasonable" rate up front. If their original loan was an "OptionARM" with a teaser, and they qualified on that teaser, they're unlikely to get to sustainable payments even with a reduced interest rate.
The third step, extending terms, does little as well. A $200,000 loan @ 5% over 30 years has a P&I of $1,069.19. The same loan over 40 years (the maximum extension) has a P&I of $960.39. $100 matters (it's about a 10% payment reduction) but if the difference of $100 makes it possible for you to pay then you're still one unscheduled calamity (e.g. your car needs a new alternator) away from being delinquent again.
The fourth step, "forbearing" principal, is not principal forgiveness. It is simply deferment, turning your note into what amounts to a balloon. This last step is particularly nasty for homeowners in that it will preclude you from being able to move for a decade or more, making it impossible for the workforce to follow job opportunities, as you would have to pay off the balloon in order to sell the house.
Then you have attitude:
Even as the administration urges lenders to do more to help homeowners, some Bank of America employees continue to express skepticism about whether all of those seeking assistance really need it. "There's a difference between hardship and entitlement," said Jerry Durham, Bank of America's vice president of home retention.
Oh really? Let us remember that Bank of America "acquired" Countrywide Financial, the king of making unsustainable and outrageously risky loans that were pushed like a drug junkie shoves his smack under the nose of debt addicts. Never mind that Bank of America seemed to think it was "entitled" to tens of billions of taxpayer dollars. Now the bank suddenly thinks that other people being "entitled" is such a bad thing? Who set the example?
The article also cites a disturbing trend:
On a recent morning, Tiffany Palmer was on the line with a frustrated borrower looking for help with his mortgage. He was $6,000 behind in his payments.
"Do you have a 401(k) or savings -- liquid assets that can be quickly converted into cash?" she asked him. He was going to have to come up with money for the mortgage. Because his monthly mortgage payments represented less than 31 percent of his income, he made too much to qualify for a modified mortgage under the federal initiative. "You will not be eligible for the program," she said.
This sort of "advice" should be barred under Federal Law and result in criminal sanction, especially for banks that have received taxpayer funds (of which BAC is particularly exposed.) Why? Because 401k and IRA money is protected in the event of a bankruptcy, with few exceptions. As such it is outrageously irresponsible to suggest that a debtor in trouble liquidate retirement accounts to come current, especially when nothing is being done to make the loan sustainable in the long term. Better to file bankruptcy and shove that loan up the bank's behind!
Never mind this sort of advice:
Could she skip her credit card payments, about $400 a month?
Oh, so that's nice - screw someone else so we get ours? Uh huh.
The conflicts of interest here are huge:
The banks have "Servicing Rights" (or MSRs) that require them as servicers to advance principal and interest payments to the noteholders. There are several risks involved in such an enterprise, of course, including the risk that the debtor won't pay at all, but in addition there is "prepayment" risk - that is, anything that causes the loan to terminate early (short sale, refinance, etc) decreases the value of that loan to the bank holding the servicing rights. These "MSRs" were "written up" in a major way in the first and second quarters. Was that a fantasy? Probably.
Forbearance, interest rate reductions and similar games sound good but they decrease cash flow. Remember that the ultimate holders of these notes through securitization have to agree. When this is Fannie or Freddie this simply forces their heads further underwater, but when it is someone else they have no mandate to agree to take less than they contracted for. In most cases securitization documents permit some small percentage of modifications without investor approval (e.g. 5% of the loans in the pool) but once that threshold is crossed the story changes.
In addition, and perhaps most importantly, a loan that is modified but which re-defaults is one where the investor made a good faith change (reducing his or her cash flow) believing that it was cheaper than prosecuting a foreclosure, but then wound up with both the lower cash flow and the foreclosure! This is perhaps the most serious problem and unlike the others it is not really a conflict of interest, it is simply the expression of the fact that in nearly all cases the first loss you can take and clear your board is the best loss; the more screwing around you do the worse things are.
The bottom line is that there is no evidence that HAMP is working or can, and the Congressional Oversight Panel has seen through the ruse:
The Panel found, "The result for many homeowners could be that foreclosure is delayed, not avoided." HAMP modifications are often not permanent: For many homeowners, payments will rise after five years, and although the program is still in its early stages, only a very small proportion of trial modifications have converted into longer term modifications. The Panel is also concerned about homeowners who face negative equity or are "underwater" - that is, the value of the loan exceeds the value of their home. For many borrowers, HAMP modifications increase negative equity, a factor that appears to be associated with increased rates of re-default.
Yep.
At the time I said that these efforts would fail as there is no actual solution other than forcing those who made bad loans to eat them. HAMP, and all other programs like it, are inherently just another gimmick promulgated upon the public by our government - another form of "extend and pretend", that when boiled down to its essence is legally-sanctioned accounting fraud.
The solution to unaffordable mortgages, as I have repeatedly noted, is foreclosure and a forcing downward of housing prices whether Congress and The Administration want to admit it or not. Affordable housing requires not gimmicks but houses that are inexpensive enough for people to be able to purchase and afford on an ongoing basis. We're not there, despite the crooning of The National Association of Realtors and other associated pressure groups.
This is directly contrary to the stated policy of Congress as expressed by Barney Frank, who has said that making bad loans on purpose is A POLICY to prevent home prices from contracting to long-term sustainable values.
In other words the bankers and Realtors have effectively bought Congress and goaded them into keeping home prices unaffordable for the average American. Refusing to reverse course on this policy will guarantee that sustainable economic growth will not return to America.
We will not and cannot, mathematically, exit this crisis until the bad debt is flushed from the system. This same sort of gimmickry and game-playing was attempted in the 1930s and was directly responsible for The Depression extending for a decade, ending only when World War II began.
You would think that we would have learned from this history lesson that all the game-playing in the world will not solve a debt problem, nor will shifting debt from one hand to another (e.g. to the federal government) lead to a sustainable economic recovery.
Those institutions that made bad, unsustainable loans must be forced to recognize their losses, even if it results in business failure. Only through contraction of these asset prices to sustainable levels where people can afford to purchase them on an ongoing basis given the actual employment prospects that exist (including the consequence of offshoring all our call centers and most of our manufacturing!) will we exit this crisis.
Housing prices must come down significantly - very significantly - from here. This will bankrupt many lenders who made unsustainable loans and that must be not only allowed to occur but encouraged so as to result in truly sustainable home ownership.
An environment of excessive debt, fostered by the improper and ridiculously negligent and intentional acts of both Congress and The Federal Reserve, cannot be resolved with more debt, any more than you can solve a drunk's problems by handing him another bottle of whiskey.
To read the entire original article click here
Wednesday, October 14, 2009
Fitch Sees 60% of Current RMBS Borrowers Underwater
The majority — 60% — of remaining performing borrowers within ‘06- and ‘07-vintage residential mortgage-backed securities (RMBS) bear negative home equity, meaning they are underwater on their mortgages and owe more than their houses are worth.
This overwhelming presence of negative equity is hampering sustained improvement in RMBS performance, according to Fitch Ratings.
“[N]egative equity reduces a borrower’s inventive to pay their mortgage and limits their options when faced with financial difficulties,” said senior director Grant Bailey in a statement.
The rate of previously performing borrowers rolling into delinquency status showed “notable improvement” in the first half of 2009 and stabilized during the summer at an elevated level. The percentage of previously performing borrowers rolling into delinquency “increased modestly” in September, Fitch said.
The rating agency expects US unemployment to peak at 10.3% in the middle of next year, further pressuring current borrowers. House prices will ultimately decline another 10% over the next year.
“Home price figures in recent months were temporarily helped by the reduced share of distressed property liquidations due to foreclosure moratoriums and servicers’ increased efforts to qualify borrowers for modifications,” Fitch said. “However, the number of distressed borrowers has continued to grow.”
The rating agency noted the number of non-agency borrowers 90 plus days delinquent reached 1.66m in September — the highest level on record.
To read the entire article click here
Other articles of interest...
Freddie Mac redoubles loan modification efforts
Freddie Mac, a dominant provider of housing finance money, sees tough times ahead for the U.S. residential market, even as government programs seek to soften the foreclosure crisis, two top Freddie executives told Reuters.
Home rescue plan delaying, not solving crisis
Ohio/WEST PALM BEACH, Florida (Reuters) - Within weeks of taking office, U.S. President Barack Obama rode to the rescue of homeowners resigned to financial ruin.
Snowe: Health care bill a 'good place to start'
The only Republican who supported advancing the Senate Finance Committee's version of health care reform says she believes that's constituents expected from her.
Reduced Paperwork to Speed Up Loan Modifications
Loan modifications, which have done little to stop the foreclosure train that continues to wreak havoc on the housing market and broader economy, may finally get easier.
This overwhelming presence of negative equity is hampering sustained improvement in RMBS performance, according to Fitch Ratings.
“[N]egative equity reduces a borrower’s inventive to pay their mortgage and limits their options when faced with financial difficulties,” said senior director Grant Bailey in a statement.
The rate of previously performing borrowers rolling into delinquency status showed “notable improvement” in the first half of 2009 and stabilized during the summer at an elevated level. The percentage of previously performing borrowers rolling into delinquency “increased modestly” in September, Fitch said.
The rating agency expects US unemployment to peak at 10.3% in the middle of next year, further pressuring current borrowers. House prices will ultimately decline another 10% over the next year.
“Home price figures in recent months were temporarily helped by the reduced share of distressed property liquidations due to foreclosure moratoriums and servicers’ increased efforts to qualify borrowers for modifications,” Fitch said. “However, the number of distressed borrowers has continued to grow.”
The rating agency noted the number of non-agency borrowers 90 plus days delinquent reached 1.66m in September — the highest level on record.
To read the entire article click here
Other articles of interest...
Freddie Mac redoubles loan modification efforts
Freddie Mac, a dominant provider of housing finance money, sees tough times ahead for the U.S. residential market, even as government programs seek to soften the foreclosure crisis, two top Freddie executives told Reuters.
Home rescue plan delaying, not solving crisis
Ohio/WEST PALM BEACH, Florida (Reuters) - Within weeks of taking office, U.S. President Barack Obama rode to the rescue of homeowners resigned to financial ruin.
Snowe: Health care bill a 'good place to start'
The only Republican who supported advancing the Senate Finance Committee's version of health care reform says she believes that's constituents expected from her.
Reduced Paperwork to Speed Up Loan Modifications
Loan modifications, which have done little to stop the foreclosure train that continues to wreak havoc on the housing market and broader economy, may finally get easier.
Tuesday, October 13, 2009
Writedowns on Mortgage Servicing Make Even JPMorgan Vulnerable
The four biggest U.S. banks by assets may have to take writedowns on $55 billion of mortgage- collection contracts after marking them up by $11 billion in the second quarter, casting a shadow over earnings.
Bank of America Corp., JPMorgan Chase & Co., Citigroup Inc. and Wells Fargo & Co. wrote up the value of the contracts, known as mortgage-servicing rights or MSRs, by 26 percent in the quarter as mortgage rates climbed by about 0.35 percentage point. Net gains on the contracts added more than $1 billion to Wells Fargo’s record earnings in the quarter and $1 billion to JPMorgan’s first-quarter profit.
Mortgage rates fell about 0.26 percentage point in the third quarter, according to Freddie Mac, and servicing costs are rising, meaning the four banks, which handle collections on more than $5.9 trillion of U.S. mortgages, may face writedowns.
“We’re very bearish on MSR valuations,” said Paul Miller, a banking analyst at FBR Capital Markets in Arlington, Virginia. “They are overvalued. There are higher costs associated with the servicing, and we’re very concerned about it.”
The four banks control 56 percent of the market for the contracts, according to Inside Mortgage Finance, a Bethesda, Maryland-based newsletter that has covered the industry since 1984. Servicers collect payments from borrowers and pass them on to mortgage lenders or investors, less fees. They also keep records, manage escrow accounts and contact delinquent debtors.
‘Accounting Game’
The value of the rights depends largely on the expected life of the mortgage, which ends when a borrower pays off the loan, refinances or defaults. When rates drop and more borrowers refinance, MSR values decline. Banks typically hedge those movements using interest-rate swaps and other derivatives.
Under U.S. accounting rules in place since 1995, banks are supposed to report the value of their mortgage-servicing rights on a fair-market basis, or roughly what they would fetch in a sale. A bank must record a loss whenever it sells MSRs for a price below where they’re marked on the books.
Because there’s no active trading in the contracts, there are no reliable prices to gauge whether banks are valuing the rights accurately, analysts said.
“It’s an accounting game,” said Richard Bove, an analyst at Rochdale Securities Inc. in Lutz, Florida. “The deeper you get into the subject, the more items you find that are impossible to determine, and therefore it becomes a give up. Whatever they want to show, they show.”
Hedging MSRs
JPMorgan reports its third-quarter earnings on Oct. 14. Seven analysts surveyed by Bloomberg expect the bank to post a profit of $2 billion, down 27 percent from the second quarter. Citigroup, which reports the next day, is estimated by eight analysts to post a loss of $2.5 billion after recording a $4.3 billion profit in the second quarter when it sold a controlling stake in its Smith Barney brokerage.
Bank of America’s earnings are expected to drop 95 percent from the second quarter to about $165 million when the lender announces results on Oct. 16, according to the mean estimate of 10 analysts. Eight analysts estimate Wells Fargo will post net income of $2.1 billion on Oct. 21, down 34 percent from its record earnings the previous quarter.
Whether the banks will take losses as a result of any MSR writedowns in the third and fourth quarters depends on the level of their hedging. Bank of America, which lowered the value of its rights last year by $6.7 billion, still added $2 billion to its earnings as hedges outperformed the declines. JPMorgan’s hedges earned $1.5 billion more than the $6.8 billion it took in writedowns on its collection contracts in 2008.
‘Inherently Unpredictable’
Bank of America holds the largest amount of MSRs, with $18.5 billion as of June 30. JPMorgan had $14.6 billion, while Wells Fargo owned $15.7 billion and Citigroup $6.8 billion.
The four banks don’t own most of the mortgages they service. Wells Fargo handles $270 billion of its own residential mortgages and $1.39 trillion of loans for others, according to company filings. Bank of America services $2.11 trillion of mortgages, $1.70 trillion of them for investors. Citigroup services $770 billion, including $579 billion of loans it doesn’t own. JPMorgan, which handles $1.4 trillion of mortgages, said it services $1.1 trillion of loans for other investors.
Spokesmen for the four banks declined to comment about how the rights are valued. The companies say in regulatory filings that the assets are volatile and marking them requires making assumptions about future conditions.
“The valuation of MSRs can be highly subjective and involve complex judgments by management about matters that are inherently unpredictable,” San Francisco-based Wells Fargo said in its second-quarter regulatory filing.
Wells Fargo, JPMorgan
Wells Fargo wrote up the value of its MSRs by $2.3 billion in the quarter, the result, it said, of model inputs and assumptions. The hedges it used to offset the movement of the servicing rights fell $1.3 billion, resulting in a net gain of $1 billion to its $3.2 billion second-quarter profit.
New York-based JPMorgan, which wrote up its MSRs by $3.83 billion in the quarter, reported a $3.75 billion loss on its hedges, leaving it with an $81 million profit. Bank of America based in Charlotte, North Carolina, gained $3.5 billion on the increase in value of its collection contracts. The bank didn’t disclose the performance of its hedges. Citigroup, which marked up the value of its rights by $1.3 billion, also didn’t disclose its hedges.
“Nobody wants to point out that the emperor has no clothes,” said FBR’s Miller. “They all took massive hedging losses over the last quarter, mainly coming out of May, when rates shot up 150 basis points, and mysteriously MSRs were written up to match those losses.” A basis point is 0.01 percentage point.
No Market
Banks say there is no liquid market for the securities, as the volatility of the rights has pushed some smaller firms out of the market and record delinquencies have led others to shun mortgage assets. The banks list the rights as Level 3 assets, an accounting term for securities whose value is unclear, and they rely on internal models to determine their value.
“About 75 percent of residential MSR assets are owned by 10 firms, so when you’ve got that supply-demand dynamic that changes, there’s not going to be a whole lot of trading,” said Daniel Thomas, a managing director in asset sales at Mortgage Industry Advisory Corp. in New York. “When the market is dry like it is as far as trading volume, these guys have a lot of latitude for a Level 3 input valuation.”
Servicing rights provide a steady stream of income. The four banks collected about $4.1 billion from fees in the second quarter. Much of that revenue, about $3.2 billion, was already accounted for in the valuations of the rights.
Servicing Costs
Servicers face higher costs as delinquencies rose almost 80 percent in the last year and large banks move to implement President Barack Obama’s mortgage-modification program. Home loans 60 days or more past due climbed to 5.3 percent of loans through June 30, up from 4.8 percent on March 31 and 3 percent a year earlier, the Office of the Comptroller of the Currency and the Office of Thrift Supervision said in a Sept. 30 report.
Contacting and working with borrowers who fall behind on their mortgages is time consuming and costly. Loan-servicing employees can handle as few as one-tenth the number of delinquent loans as performing loans, said Steven Horne, the former director of servicing-risk strategy at Fannie Mae who now heads Wingspan Portfolio Advisors LLC, a specialist in distressed-loan collections in Carrollton, Texas.
First Tennessee Bank National Association, a subsidiary of First Horizon National Corp., saw its servicing costs rise to about $80 a year per loan from $60 a loan a year earlier as delinquencies and defaults rose, said David Miller, head of investor relations at the bank.
Unable to Refinance
While higher servicing costs and falling mortgage rates lower the value of the rights, the weak economy can push them higher. Borrowers who owe more than their home is worth or who have lost their jobs are often unable to refinance, tempering the impact of lower rates on prepayments. Banks’ hedges also often benefit from lower rates.
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Bank of America Corp., JPMorgan Chase & Co., Citigroup Inc. and Wells Fargo & Co. wrote up the value of the contracts, known as mortgage-servicing rights or MSRs, by 26 percent in the quarter as mortgage rates climbed by about 0.35 percentage point. Net gains on the contracts added more than $1 billion to Wells Fargo’s record earnings in the quarter and $1 billion to JPMorgan’s first-quarter profit.
Mortgage rates fell about 0.26 percentage point in the third quarter, according to Freddie Mac, and servicing costs are rising, meaning the four banks, which handle collections on more than $5.9 trillion of U.S. mortgages, may face writedowns.
“We’re very bearish on MSR valuations,” said Paul Miller, a banking analyst at FBR Capital Markets in Arlington, Virginia. “They are overvalued. There are higher costs associated with the servicing, and we’re very concerned about it.”
The four banks control 56 percent of the market for the contracts, according to Inside Mortgage Finance, a Bethesda, Maryland-based newsletter that has covered the industry since 1984. Servicers collect payments from borrowers and pass them on to mortgage lenders or investors, less fees. They also keep records, manage escrow accounts and contact delinquent debtors.
‘Accounting Game’
The value of the rights depends largely on the expected life of the mortgage, which ends when a borrower pays off the loan, refinances or defaults. When rates drop and more borrowers refinance, MSR values decline. Banks typically hedge those movements using interest-rate swaps and other derivatives.
Under U.S. accounting rules in place since 1995, banks are supposed to report the value of their mortgage-servicing rights on a fair-market basis, or roughly what they would fetch in a sale. A bank must record a loss whenever it sells MSRs for a price below where they’re marked on the books.
Because there’s no active trading in the contracts, there are no reliable prices to gauge whether banks are valuing the rights accurately, analysts said.
“It’s an accounting game,” said Richard Bove, an analyst at Rochdale Securities Inc. in Lutz, Florida. “The deeper you get into the subject, the more items you find that are impossible to determine, and therefore it becomes a give up. Whatever they want to show, they show.”
Hedging MSRs
JPMorgan reports its third-quarter earnings on Oct. 14. Seven analysts surveyed by Bloomberg expect the bank to post a profit of $2 billion, down 27 percent from the second quarter. Citigroup, which reports the next day, is estimated by eight analysts to post a loss of $2.5 billion after recording a $4.3 billion profit in the second quarter when it sold a controlling stake in its Smith Barney brokerage.
Bank of America’s earnings are expected to drop 95 percent from the second quarter to about $165 million when the lender announces results on Oct. 16, according to the mean estimate of 10 analysts. Eight analysts estimate Wells Fargo will post net income of $2.1 billion on Oct. 21, down 34 percent from its record earnings the previous quarter.
Whether the banks will take losses as a result of any MSR writedowns in the third and fourth quarters depends on the level of their hedging. Bank of America, which lowered the value of its rights last year by $6.7 billion, still added $2 billion to its earnings as hedges outperformed the declines. JPMorgan’s hedges earned $1.5 billion more than the $6.8 billion it took in writedowns on its collection contracts in 2008.
‘Inherently Unpredictable’
Bank of America holds the largest amount of MSRs, with $18.5 billion as of June 30. JPMorgan had $14.6 billion, while Wells Fargo owned $15.7 billion and Citigroup $6.8 billion.
The four banks don’t own most of the mortgages they service. Wells Fargo handles $270 billion of its own residential mortgages and $1.39 trillion of loans for others, according to company filings. Bank of America services $2.11 trillion of mortgages, $1.70 trillion of them for investors. Citigroup services $770 billion, including $579 billion of loans it doesn’t own. JPMorgan, which handles $1.4 trillion of mortgages, said it services $1.1 trillion of loans for other investors.
Spokesmen for the four banks declined to comment about how the rights are valued. The companies say in regulatory filings that the assets are volatile and marking them requires making assumptions about future conditions.
“The valuation of MSRs can be highly subjective and involve complex judgments by management about matters that are inherently unpredictable,” San Francisco-based Wells Fargo said in its second-quarter regulatory filing.
Wells Fargo, JPMorgan
Wells Fargo wrote up the value of its MSRs by $2.3 billion in the quarter, the result, it said, of model inputs and assumptions. The hedges it used to offset the movement of the servicing rights fell $1.3 billion, resulting in a net gain of $1 billion to its $3.2 billion second-quarter profit.
New York-based JPMorgan, which wrote up its MSRs by $3.83 billion in the quarter, reported a $3.75 billion loss on its hedges, leaving it with an $81 million profit. Bank of America based in Charlotte, North Carolina, gained $3.5 billion on the increase in value of its collection contracts. The bank didn’t disclose the performance of its hedges. Citigroup, which marked up the value of its rights by $1.3 billion, also didn’t disclose its hedges.
“Nobody wants to point out that the emperor has no clothes,” said FBR’s Miller. “They all took massive hedging losses over the last quarter, mainly coming out of May, when rates shot up 150 basis points, and mysteriously MSRs were written up to match those losses.” A basis point is 0.01 percentage point.
No Market
Banks say there is no liquid market for the securities, as the volatility of the rights has pushed some smaller firms out of the market and record delinquencies have led others to shun mortgage assets. The banks list the rights as Level 3 assets, an accounting term for securities whose value is unclear, and they rely on internal models to determine their value.
“About 75 percent of residential MSR assets are owned by 10 firms, so when you’ve got that supply-demand dynamic that changes, there’s not going to be a whole lot of trading,” said Daniel Thomas, a managing director in asset sales at Mortgage Industry Advisory Corp. in New York. “When the market is dry like it is as far as trading volume, these guys have a lot of latitude for a Level 3 input valuation.”
Servicing rights provide a steady stream of income. The four banks collected about $4.1 billion from fees in the second quarter. Much of that revenue, about $3.2 billion, was already accounted for in the valuations of the rights.
Servicing Costs
Servicers face higher costs as delinquencies rose almost 80 percent in the last year and large banks move to implement President Barack Obama’s mortgage-modification program. Home loans 60 days or more past due climbed to 5.3 percent of loans through June 30, up from 4.8 percent on March 31 and 3 percent a year earlier, the Office of the Comptroller of the Currency and the Office of Thrift Supervision said in a Sept. 30 report.
Contacting and working with borrowers who fall behind on their mortgages is time consuming and costly. Loan-servicing employees can handle as few as one-tenth the number of delinquent loans as performing loans, said Steven Horne, the former director of servicing-risk strategy at Fannie Mae who now heads Wingspan Portfolio Advisors LLC, a specialist in distressed-loan collections in Carrollton, Texas.
First Tennessee Bank National Association, a subsidiary of First Horizon National Corp., saw its servicing costs rise to about $80 a year per loan from $60 a loan a year earlier as delinquencies and defaults rose, said David Miller, head of investor relations at the bank.
Unable to Refinance
While higher servicing costs and falling mortgage rates lower the value of the rights, the weak economy can push them higher. Borrowers who owe more than their home is worth or who have lost their jobs are often unable to refinance, tempering the impact of lower rates on prepayments. Banks’ hedges also often benefit from lower rates.
To read the entire article click here
Other articles of interest...
Racing the Clock to Avoid Foreclosures
Bank of America Scrambles to Modify Loans Ahead of Government Deadline
Obama approves 13,000 more troops to Afghanistan
Small U.S. firms face credit squeeze as crisis drags
Monday, October 12, 2009
500,0000 Loan Modifications: Nobel Prize Not The Only Target Obama Hits Early
While everybody is deciding if Obama deserves the Peace Nobel prize on effort and good intent or not, another achievement is not receiving half as much attention. This month (October 09) more than 500,000 troubled home loans have joined a trial modification program, the Obama administration announced this Thursday.
Trial loan modifications last around 3 months and are a requisite to qualify for a final loan modification. If the homeowners pay all their mortgage payments on time they qualify for incentive bonuses and the loan modification.
The short term goal was to reach 500,000 by November. The loan modifications must meet certain requirements to qualify for the program. For instance the monthly payments must be reduced to at least 31 percent of the homeowner’s monthly pre-tax income.
Reports show that 16 percent of troubled homeowners, defined as at least 2 months delinquent have qualified for a loan modification.
Even though these figures are promising and Federal officials claim they are on track to meet the long term goal of helping 3 to 4 million borrowers in 3 years it is still early days to claim victory on the credit crisis.
Many experts accuse the program of being a good medicine for the wrong illness. They claim the problem with the American economy is a credit crisis not a mortgage crisis.
The fact the target of loan modifications was reached doesn’t mean it is easy to get one. Among the local success of the loan modification trial program performance among banks varies widely. The government is continuing to name and shame banks that are not fulfilling the expectations set against them. The percentages of eligible loans that are offered a trial modification in the major banks is as follows:
Citigroup: 33 percent
JPMorgan Chase: 27 percent
Wells Fargo : 20 percent
Bank of America: 11 percent.
JPMorgan Chase and Wells Fargo have increased their percentage heavily while Bank of America remains the worst major bank at providing loan modifications.The main problem with the program that is causing this variety of success rates among banks is that the loan modification program that encourages banks to make the loan modifications happen has no teeth. If the bank decides not to modify loans they should there is nothing specific the government can do. This of course does not promote banks going overboard when trying to meet their loan modifying targets.
To read the original article click here
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The Mortgage Crisis: The U.S. vs. Denmark
Recently, both systems have been stressed by the worldwide financial crisis,
BofA/BONY Versus AIG – No Winners
It would appear that an important court case may go in favor of BofA and Bank of NY in a suit brought by AIG’s wholly owned subsidiary United Guaranty Mortgage Indemnity Co
Trial loan modifications last around 3 months and are a requisite to qualify for a final loan modification. If the homeowners pay all their mortgage payments on time they qualify for incentive bonuses and the loan modification.
The short term goal was to reach 500,000 by November. The loan modifications must meet certain requirements to qualify for the program. For instance the monthly payments must be reduced to at least 31 percent of the homeowner’s monthly pre-tax income.
Reports show that 16 percent of troubled homeowners, defined as at least 2 months delinquent have qualified for a loan modification.
Even though these figures are promising and Federal officials claim they are on track to meet the long term goal of helping 3 to 4 million borrowers in 3 years it is still early days to claim victory on the credit crisis.
Many experts accuse the program of being a good medicine for the wrong illness. They claim the problem with the American economy is a credit crisis not a mortgage crisis.
The fact the target of loan modifications was reached doesn’t mean it is easy to get one. Among the local success of the loan modification trial program performance among banks varies widely. The government is continuing to name and shame banks that are not fulfilling the expectations set against them. The percentages of eligible loans that are offered a trial modification in the major banks is as follows:
Citigroup: 33 percent
JPMorgan Chase: 27 percent
Wells Fargo : 20 percent
Bank of America: 11 percent.
JPMorgan Chase and Wells Fargo have increased their percentage heavily while Bank of America remains the worst major bank at providing loan modifications.The main problem with the program that is causing this variety of success rates among banks is that the loan modification program that encourages banks to make the loan modifications happen has no teeth. If the bank decides not to modify loans they should there is nothing specific the government can do. This of course does not promote banks going overboard when trying to meet their loan modifying targets.
To read the original article click here
Other articles of interest...
Foreclosures Grow in Housing Market's Top Tiers
New data suggest that foreclosures are rising in more expensive housing markets.
Job losses mar recovery, create woes for Dems
The recession may be over, yet job losses endanger recovery, create woes for Democrats
The Mortgage Crisis: The U.S. vs. Denmark
Recently, both systems have been stressed by the worldwide financial crisis,
BofA/BONY Versus AIG – No Winners
It would appear that an important court case may go in favor of BofA and Bank of NY in a suit brought by AIG’s wholly owned subsidiary United Guaranty Mortgage Indemnity Co
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