Foreclosure Law, Advertising Changes, Trigger Leads and ‘Low Rates, Who Can Refi?’


(Sorry the
commentary is a little late today. It took me a long time to wade through all
of the investor price-change e-mails from yesterday. So let’s all take a deep

Q: How many
auditors does it take to change a light bulb? A: Auditors don’t change
anything. They just report that it’s

But auditors catch fraud, which is never a good thing (the fraud, not the
catching of it). HUD is hosting a “Mortgage and Foreclosure Fraud
Awareness Workshop” in Ontario, CA in the morning of August 27 – mostly
for borrowers but also for lenders. “Learn how to keep your home and protect
yourself from fraud. The workshops will be both in English and Spanish. The
workshop will also include the following topics: Impact of Foreclosure Fraud,
Foreclosure 101, Reverse Mortgage Fraud Other Fraud Against Seniors,
Foreclosure Prevention by Neighborhood Partnerships.” Reserve a spot by calling
(909) 902-9606.

Whether it
is due to a backlog, or the improving stability of the remaining borrowers, foreclosure numbers are improving. But
it is still an issue to be reckoned with in our industry. In a Deed of Trust
state (like “Cali”), as opposed to a Mortgage state (like Michigan), foreclosure
is accomplished through a “trustee’s sale” rather than a judicial
proceeding. Trustee sales (and now short sales) don’t allow for subsequent
suits for deficiencies, i.e. the amount by which sale proceeds fall short of
unpaid balances. A recent law in California
makes it clear that mortgagors can “negatively impact” junior lienholders with
. Senate Bill 458 expanded
anti-deficiency protection
to all 1-4 residential mortgages or deeds of
trust where the beneficiary consents to a short sale, whether a first deed of
trust or a junior deed of trust. The headline read, “Short Sale Law Effective
Immediately in California – No Fee to Approve Short Sales and Short Sale Law
Now Applies to Junior Loans.” Interested parties can see the details here:

Speaking of
which, Sterne Agee released a study
showing a comparison of the credit performance of RMBS collateral located in
judicial and non-judicial foreclosure states. “We find that judicial states generally have longer liquidation lags,
slower annualized liquidation rates (i.e. CDR) and higher loss severities
relative to non-judicial states
. The difference in delinquency rates
indicates that non-judicial states will experience credit burnout faster than
judicial states.” (Please don’t ask for the report from me, as permission
is required. But this is, in part, why the value of servicing varies in different

A broker from San Diego wrote, “What is the best way to stop the selling
of leads by credit agencies? We need to address ‘trigger leads’ in our
industry: credit agencies need to stop the practice of selling these leads
now.   I know there are proposals to make the purchase of ‘trigger
leads’ unlawful in many states however this needs to be
accelerated.   Privacy issues and the trust of the client are being
breached.  Some of these lead generation companies are even given access
to client’s cell phone numbers. It is not right that a loan company can pay for
the right to steal a client away from another company that has taken an
application and pulled a credit report.  I am all for getting the client
the best deal and I am not too worried about a loan being stolen from me after
application but the ethics seem skewed.   This practice is not
helping our industry recover from the tainted reputation we currently have with
the public.  Over the past month XXX (a large internet lender) has
contacted every one of my clients after a credit report has been run.”

Understandably, investors are concerned about loans refinancing that they just
purchased at premium prices and expected to have on their books for a while. But while mortgage rates may see a new
record low
, the conditions that are preventing many homeowners from refinancing
remain unchanged: tight credit conditions, poor home values, higher loan costs,
and a weak economy and jobs market. Barclays
Capital points out that the population of good-credit borrowers, defined as
FICOs above 740 and LTV’s below 80%, has declined by more than 20% in the past
year due primarily to declining home prices. “As a result, the balance of
good credit-borrowers more than 50 basis points in the money at a 4.5% mortgage
rate is roughly half the level of August 2010.” J.P. Morgan analysts point out that in conventionals, 40% of the
universe is credit-impaired, 40% were originated within the past two years and
so can’t streamline refi under HARP, which leaves only 20% of borrowers that
can clear the refi hurdles at current rates.

But Wall
Street traders and analysts are quick to point out that the 4.5% coupon
contains plenty of borrowers (who have loans at 4.75-5.125%) that will be able
to refi at a 4.00-4.25% mortgage rate. If this is true, few investors will
want to pay hefty premiums, which is why this MBS coupon, and that of higher
coupons, exhibit more symptoms of “negative convexity.” And “current coupons”
are usually near par, but the production has not crept down into the 3% range
for 30-yr. mortgages, as Dean Brown from MCM
points out. So anyone hedging a pipeline is selling 4% securities for the most
part, and hoping that this coupon is not subject to short squeezes a few months
down the road if there are no loans to fill commitments.

Wright of Bankers Advisory Inc. described recent
changes in advertising as the FTC published the Mortgage Acts and Practices

Advertising Final Rule “relating to unfair or deceptive acts and practices
that may occur with regard to mortgage advertising”. The MAP Rule applies to mortgage lenders, brokers, servicers and others
who engage in mortgage advertising such as real estate agents or advertising
agencies, but does not apply to banks, SL’s, federal credit unions and
other entities that are excluded from the FTC’s jurisdiction. Previously,
mortgage lenders have been subject to advertising regulation through other
regulations including the Truth in Lending Act (TILA), the Home Ownership and
Equity Protection Act (HOEPA) and state specific requirements. The MAP Rule
“prohibits any material misrepresentation, whether made expressly or by
implication, in any commercial communication, regarding any term of any
mortgage credit product.” The detail that Ms. Wright goes into could fill
up this entire commentary, but any mortgage company that advertises should be
familiar with the changes. Ignorance of the law is no excuse, and the FTC’s
Final MAP Rule may be viewed at:

My head is still spinning from all
of the rate changes yesterday
. Lock desks, pricing engines, secondary marketing
staffs… they’ll all be ready for a stiff drink tonight – if they haven’t
started already with Bloody Mary’s. European fears settled down somewhat temporarily, stocks decided
that, since it was Thursday, they’d rally, and a lousy 30-yr bond auction all
conspired to move our fixed-income markets around. The Dow’s range was nearly
500 points, while 10-year notes ranged nearly 2 points between high and low –
it finally closed up around a yield of 2.34%. And investors in mortgage-backed securities don’t seem to know quite what
to do
– buy low coupon production, so it will be on their books for a
while, buy high coupon product, because those folks probably can’t refi anyway
and MBS prices are good, or sit on the sidelines. But by the end of the day,
mortgage prices were worse by about a point, and much of that was passed on to
originators in the form of intra-day price changes.

We are in the midst of BBQ season. Therefore it is important to refresh your
memory on the etiquette of this sublime outdoor cooking activity. When a man
volunteers to do the BBQ the following chain of events are put into motion:

(1) The
woman buys the food.
(2) The woman makes the salad, prepares the vegetables and makes dessert.
(3) The woman prepares the meat for cooking, places it on a tray along with the
necessary cooking utensils and sauces, and takes it to the man who is lounging
beside the grill – drink in hand.
(4) The woman remains outside the compulsory three meter exclusion zone where
the exuberance of testosterone and other manly bonding activities can take
place without the interference of the woman.
Here comes the important part: (5) THE MAN PLACES THE MEAT ON THE GRILL.
(6) The woman goes inside to organize the plates and cutlery.
(7) The woman comes out to tell the man that the meat is looking great. He
thanks her and asks if she will bring another drink while he flips the meat.
Important again:
(9) The woman prepares the plates, salad, bread, utensils, napkins, sauce and
brings them to the table.
(10) After eating, the woman clears the table and does the dishes.
And most important of all:
(11) Everyone PRAISES the MAN and THANKS HIM for his cooking efforts.
(12) The man asks the woman how she enjoyed her ‘night off,’ and, upon seeing
her annoyed reaction, concludes that there’s just no pleasing some women

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