Here’s a rare editorial comment from me if folks care to read it. I found
the MBA’s conference earlier this week to be well attended, informative, and
upbeat. It reinforces what I have believed for much of my career: that the high
percentages of people in this biz are honest, hard-working, and actually care
about doing a good job. Sure the percentage ebbs and flows, but most who
don’t or aren’t have left the industry. And sure the money is very good for
individuals and companies right now – that won’t last, at least not for
everyone. But the people I came in contact with at this week’s conference,
either meeting for the first time or folks I have known since the mid-1980’s,
were optimistic, well informed, and happy to be there. Sometimes conferences
are not much fun functioning on a severe lack of sleep, trying to do one’s
regular job while having the day filled with meetings, or wondering at the lack
of folks under the age of 35 who attended. But if the conference is any
indication, the industry continues on, much to the relief of millions of
Back to the usual “stuff.” Everyone loves the E*Trade baby
commercials (the earlier ones at least), but not everyone loves E*Trade. E*Trade
Financial Corp has hit something of rough patch: the company reported third
quarter losses and is attributing it to third parties’ failure to relay crucial
data about loan holders in a timely fashion. The losses incurred from
July through the end of September totaled $28.6 million, which has impacted the
stock price. It’s been a rather tough road for E*Trade since the housing market
collapsed in 2007, and over the past five years, the company has done its best
to make a dent in its outsized portfolio of bad loans. There are about 50
third-party servicers who are meant to procure bankruptcy data specific to the
portfolio, but one of those servicers, whom E*Trade has declined to name, did a
less than stellar job of reporting that data for $90 million worth of loans,
about 90% of which were current. As such, E*Trade wrote down an extra $50
million in loan-loss provisions, putting the total for the quarter at $141
million-substantially more than the $98.4 million in loan-loss provisions in Q3
of 2011. “Nobody knows the trouble I’ve seen…”
Zillow is now showing foreclosure properties with the launch of its “Foreclosure
Center.” Who needs MLS or asking every bank for its REO list – per Zillow
you can now access pre-foreclosures, foreclosure auctions, bank-owned
properties, and more, alongside their standard listings. Zillow estimates their
pre-market inventory to total more than 1.5 million properties nationwide,
along with another 250,000 properties that have already been foreclosed on.
I am often asked, “Why does it take so flippin’ long for a bank to do a
short sale? You’d think after years of practice they’d be good at it.”
Well, remember that at the root of this, no bank, or person for that matter, is
psychologically prepared to take a financial loss and make it smooth.
With that in mind, California’s real estate agents are grousing: when polled by
the California Association of Realtors, 64% reported “difficulty” closing
short sales, and 34% described the difficulty as “extreme.” They
cited slow lender response time and sub-par lender communication as the two
main reasons for the struggles. As dismal as that may sound, however, those
numbers actually represent an improvement. Back in 2010, 70% of
respondents experienced “difficulty” when trying to closing short sales; in
2011, it climbed to 77%, and 56% report “extreme” difficulty. More real
estate agents are describing their short sales as “easy” or “extremely easy”
these days; 19% responded as such this year, up from 11% in 2011.
Problems with appraisals and dual track issues also abated, and, in general,
real estate agents reported better overall satisfaction with lenders than they
did a year ago.
ResCap has seen its share of short sales, speaking of which, the
Ocwen/Walter partnership won the bidding for ResCap’s mortgage servicing
business with a $3 billion bid. It beat out a competing bid from Nationstar. Ocwen
will get the bulk of the servicing and Walter will get the Fannie Mae MSRs plus
the mortgage origination platform. Other details about the transaction have not
yet been released. Analysts proceeded to run to their calculators to try to
figure out the impact of this on stock prices, but their success will be
limited without knowing the split of the purchase price between Ocwen and
Walter, the economics and duration of the subservicing contract, the financing
costs of the MSRs, and how each company will finance the transaction – both
companies have indicated that they will not need to raise equity. It seems
Ocwen will keep the bulk of the servicing while Walter will take the Fannie Mae
MRSs and the mortgage origination business. Walter could fund its MSRs through
capital partners and it has an estimated $100 million in capital after the
recent raise. The company had also noted last week that it would create an
accordion feature which would allow it to increase its borrowings on its 1st
lien facility. Since the company can’t fund the mortgage bank through servicing
financing facilities, that remains the most challenging piece to fund.
And Warren Buffett’s Berkshire Hathaway won an auction for a portfolio of
Residential Capital LLC’s loans with a $1.5 billion bid, adding to Warren
Buffett’s bet on a housing market recovery. To refresh our collective memory, Ally
Financial allowed its ResCap unit to file for bankruptcy in May to distance
itself from the mortgage lender’s losses and help repay its 2008 bailout money.
The deal has to be approved by the bankruptcy court in late November, but
the two auctions were expected to generate about $4 billion.
ResCap, coupled with Ally’s much smaller business, was the fifth-largest
mortgage servicer in the U.S. in the second quarter, handling the billing and
collections on about $329 billion of mortgages. And Mr. Buffett, through Berkshire,
has been betting on a housing rally by buying a brick maker, owning nearly 10%
of Wells Fargo, expanding a real-estate brokerage (Leucadia – Berkadia), owning
Clayton Homes (manufactured homes), buying, in 2008, a portfolio of loans
backing factory-built homes from CIT Group Inc., another lender that went into
bankruptcy. And let’s not forget his $5 billion bet on Bank of America.
Turning briefly to the elections, Thomson Reuters points out, “As
for the election, Credit Suisse thinks that an Obama win would be neutral to
slightly positive for MBS in the near term as it would be status quo for the
markets which suggests a decline in volatility. A Romney win, meanwhile, could
lead to some knee-jerk widening related to a positive risk-on/rate sell-off
response from the markets. Looking to the longer term impact, they thought MBS
valuations should be similar in a strong economic recovery regardless of who is
elected. In a ‘muddling’ recovery, a risk seen with an Obama win was
replacement of acting FHFA Director DeMarco with someone who is more amenable
to principal reductions on underwater mortgages. Under Romney in this scenario,
they would anticipate increased volatility associated with the possibility of
less Fed support beginning in 2014 under a new Fed Chairman appointed by a
Republican administration. As for the running of the FHFA, odds were deemed
favorable for Mr. DeMarco remaining at the helm under a Romney win.”
a little relatively recent lender news. As always, it is best to read the full bulletin
for comprehensive details, but these should give you a taste of trends.
Pinnacle-approved VA brokers are now able to do IRRRLs when reusing
entitlement on VA-to-VA refinance provided that the borrower has a credit score
of at least 640, no serious delinquencies in the past 12 months, and no late
housing payments (either mortgage or rental) in the past 12 months. The
new loan’s interest rate must be lower than that of the previous loan and the
PI reduced except in cases where an ARM is being refinanced to a
fixed-rate, and the transaction must be manually underwritten. Asset
documentation is not required; income documentation is not required unless PITI
is increasing by 20% or more. Non-owner-occupied transactions and jumbo
loan amounts are not eligible. For more information on reusing
entitlement refinances, see Pinnacle’s VA requirements,
which provide full details of the requirements.
In conjunction with the release of DU Version 9.0, MT Bank will be
allowing simultaneous refinances of second liens. Fannie high balance
purchase/LCO refinance ARMs on 2-4 unit primary residences and premium
conforming 2-unit primary purchases, 1-unit investment purchases, and 1-unit
primary cash-out transactions will all be subject to LTV/CLTV/HCLTV
changes. Limited credit qualifying borrowers, if employed, will be
required to submit a verbal verification of employment within 10 days of
closing and one month’s most recent pay stubs with YTD figures, while
self-employed borrowers must submit the pages of their most recent tax returns
reflecting self-employed income and a verbal verification of self-employment
within 10 days of closing. Assets for closing must be verified by a
Direct Written Verification of Deposit that has been completed by the
repository and the most recent bank statement; for deposits that exceed twice
the borrower’s monthly income, MT will require an explanation and Paper
MT has revised the maximum principal curtailment at closing, which is now
limited to $1,000 or 1% of the loan amount for loans under $100,000. And as of
October 17th, MT will require a tri-merge credit report, a fully executed
4506-T at application and at closing, and a minimum FICO score of 640 for all
non-MT-to-MT VA IRRRL transactions. Borrowers will also be
subject to a maximum DTI of 45%.
Following the USDA announcement about funding, SunWest is now accepting
USDA Rural Housing submissions from all channels for purchase and refinance transactions.
Carrington Mortgage has announced that it will no longer accept FHA
Streamline applications for 3-4 unit properties and that any such refinances
currently in the pipeline require a full appraisal, full income documentation,
and verification of three months’ reserves in order to fund. The property
must also pass a self-sufficiency test confirming that the gross rents less
vacancy factor for all units is less than or equal to the PITI for the subject
property, and the loan must fund by October 26th. For such loans that
locked after October 12th, the lock desk should be contacted for pricing.
Switching over to the markets, Thursday MBS prices were lower and tighter (to
Treasuries) on lower-than-normal. Unlike 10-yr T-notes, that sank .5 and closed
at a yield of 1.83%, “current coupon” MBS prices were off about .250. But with
the Fed buying so much, how much can prices really drop and rates go up?
This morning we’ve had the first look (there are three every time) at third
quarter GDP. It was expected to be +1.9% versus the +1.3% for the 2nd
quarter – the right direction but not very convincing. In reality it came out
at +2.0%, a bit of good news for the current administration. After the news
we find rates slightly better with the 10-yr at 1.78% and MBS prices better.
How about some political part 1 of 3 of
some political quotes, with neither party targeted?
The problem with political jokes is they get elected.
~Henry Cate, VII
We hang the petty thieves and appoint the great ones to public office.
If we got one-tenth of what was promised to us in these acceptance speeches
there wouldn’t be any inducement to go to heaven.
Those who are too smart to engage in politics are punished by being governed by
those who are dumber.