Mortgages and Housing: Tom Brown on Mods, Rates, Seal Beach, Barbara Desoer, Wells Paperwork, Foreclosure Demand Recourse, $97 billion, Rates to Rise, Case-Shiller Charts, GSE Borrowing Rates

 

 

Enough With the Loan Mods! – Thomas Brown  – Subsidizing delinquent borrowers isn’t fair and doesn’t work – BankStocks.com

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MORTGAGE RATE ALERT: Don’t Panic – by Adam Quinones -  Mortgage rates moved even higher today. It’s official, we’re on a losing streak.  The best par 30 year fixed mortgage rates have risen to the 4.125% to 4.375% range for well qualified consumers. 4.25% is "best execution". 4.375% is widely quoted. If you’re seeking a shorter term mortgage loan, the best par 15 year rates are still in the  3.375% to 3.625% range. – Mortgage News Daily

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(read all of this for the history) Real Homes of Genius – Seal Beach home from a price listing of $2,900,000 to selling for $900,000. Chasing the housing market down. – Dr. Housing Bubble

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(about Barbara Desoer)  Managing U.S. Mortgages Makes Desoer Besieged at Bank of America – By David Mildenberg and Lisa Kassenaar – … The foreclosure controversy makes Desoer’s job, already one of the toughest in banking, that much harder. She heads a 50,000-employee unit — 17 percent of Bank of America’s 286,000- person workforce — that handles one in every five U.S. mortgages. More than 75 percent of the loans were inherited from Countrywide, the bank and mortgage company that former CEO Kenneth D. Lewis bought in July 2008 for $2.5 billion. … – Bloomberg

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Wells Fargo to refile paperwork in 55,000 foreclosure cases – By E. Scott Reckard -  The mortgage lender will refile foreclosure paperwork because of mistakes in some of the documents but won’t suspend efforts to seize borrowers’ homes. – LA Times Business

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Homeowners Facing Foreclosure Demand Recourse – By ANDREW MARTIN and MOTOKO RICH – … As lenders have reviewed tens of thousands of mortgages for errors in recent weeks, more and more homeowners are stepping forward to say that they were victims of bank mistakes — and in many cases, demanding legal recourse … Even if the paperwork was faulty, the fact remains that most homeowners in foreclosure have not paid their bills, often because they bought more house than they could afford or because they lost their jobs. As a result, they will most likely lose their homes eventually … – NY Times

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Banks May Face $97 Billion Loss From Mortgage Mess -  By: Kate Kelly – … The specialists—representatives from law firms and mortgage backed securities traders—told a gathering of prominent hedge funds in New York Wednesday that a wave of so-called putbacks was coming from these problematic home loans. … – CNBC

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Mortgage Rates Seen Rising to 5.1% in 2011 – By AMY HOAK – Industry Group Pegs Levels Going From Record Lows to Merely Historic Lows – WSJ Loans & Credit

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(great charts)  S&P/Case-Shiller: August 2010 – by Sold at the Top – … The following chart (click for larger version) shows the percent change to single family home prices given by the Case-Shiller Indices as compared to each metros respective price peak set between 2005 and 2007. …  – Paper Economy Blog 

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read all of this – it’s short – GSE Note Sale: America’s Greatness – David Kotok – “This is some country,” said Comedian Yakov Smirnoff.  Only in America!    Fannie Mae issues a 3-year note yielding 0.76 percent.  Eight billion is the size and the entire issue is subscribed within minutes. The new issue price was 20 basis points above the 3-year Treasury, which yielded 0.56 percent at the time of the sale.  -  Cumberland Advisors

Markets, Trading, and You: Charles Hugh Smith, Negative TIPS, Pension Returns, Michael Lewis, Ending Currency War

 

(read this has 9 observations and a plan)  Trade of the Decade: The Power Elite’s Grand Strategy – Charles Hugh Smith – Of Two Minds

Trade of the Decade, Part 2   – Charles Hugh Smith – Readers’ questions help clarify my thesis that inflation/deflation are consequences of what works for the Financial Power Elites rather than mechanistic processes. – Of Two Minds

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Here’s What It Means That The Interest Rate Was Negative On The TIPS Auction Today – Gregory White – … It would seem that a negative TIPS number means deflation in the short term. But that’s not quite true.  …  This is a product of regular 5-year treasuries having negative real yields. The yields on those treasuries are so low, that they are less than CPI. That means investors are losing money on that investment. So TIPS provide a way to get in on future inflation, and get a final payout linked to that bet. … – Money Game at Business Insider 

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(I see a problem here)  Some Big Companies Assuming Pension Returns of 9%-10% – If someone promised annualized returns of 9% to 10% in today’s economy you’d be right to be skeptical. So why are big companies such as General Mills, First Energy, Johnson & Johnson and Honeywell assuming such a high level of return on their pension funds? Audit Integrity’s Jim Kaplan gives his opinion in this guest post excerpted from his latest Chairman’s Corner. – Research Recap

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Michael Lewis: There Are Three Words That Change Everything In The Dodd Frank Bill – Katya Wachtel – In his latest piece for Bloomberg, Michael Lewis explains why banks that lobbied so exhaustively to make sure Dodd-Frank wouldn’t destroy their prop desks, seem to now be dumping their traders or dispatching them to new homes regardless.  The answer is pretty simple according to Lewis. Apparently the banks have zero intention of halting prop trading practices and are simply camoflaging those ventures by renaming the activity. – Clusterstock at Business insider 

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How to end the currency war – Laurence Copelan – … As long as China keeps its exchange rate more or less fixed, the dollar is not a wholly US currency – it is the currency of two countries, one massively in deficit , and one massively in surplus. The fact that they are separate countries in every other respect makes no difference. De facto, China and USA share a single currency .. more – Financial Post

Fed and Other Government Influences: Age Warfare, Deflation Gone?, Bair’s Solution, Obama’s Bailout?, Matt Taibbi’s Griftopia, TARP Again, QE2, Long Term Yields, Republican Dilemma

 

New CBO Forecast – Age Warfare – Bruce Krasting -  … If you were born in the 1940’s the probability that you will receive 100% of your scheduled benefits is nearly 100%. … If you were born in the Sixties things still do not look so bad. Depending on how long you will live the odds (76+%) are pretty good that you will get all of your scheduled benefits. However, if you were born in the Eighties you have a problem. … – . – Bruce Krasting Blog

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Deflation Disappears With Bond Market Showing Growth – By Daniel Kruger – The bond market is showing Federal Reserve Chairman Ben S. Bernanke will succeed in sparking inflation after the smallest gain in core consumer prices in half a century increased concerns that the economy will deflate.  Expectations for rising consumer prices have increased faster in the U.S. than any other bond market this month as central bankers made the case for monetary easing through additional asset purchases – Bloomberg BusinessWeek

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FDIC’s Bair Proposes ‘Global Solution’ to Foreclosure Mess – By Peter Barnes – … An aide to Bair said any “global solution” would require agreement from banks, mortgage investors and borrowers, as well as the 50 states Attorneys General who are investigating the paperwork scandal.  Under her proposal, banks would get legal protection from lawsuits in exchange for providing a struggling homeowner at least a 25% reduction in the monthly mortgage payment.  Bair said that in mortgage modifications the FDIC has been involved with that reduce monthly payments for homeowners by 10% to 40% cut “redefault” rates in half. … – Fox Business

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(gives 6 conditions)  Obama Now Has No Choice Except To Announce A Major Homeowner Bailout After The Election – Joe Weisenthal – Business Insider 

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Exclusive Excerpt: America on Sale, From Matt Taibbi’s ‘Griftopia’  Our cash-strapped country is auctioning off its highways, ports and even parking meters, finding eager buyers in the Middle East – – Rolling Stone

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Stiglitz: TARP Returns a "Drop in the Bucket" Compared to Damage Done – by Aaron Task – … Moreover, such talk misses the big picture, says Columbia Professor and Nobel Prize-winning economist and author Joseph Stiglitz.  "The fact some of the banks paid back what was given to them on very favorable terms…is just a drop in the bucket compared to damage done to the economy," Stiglitz says in the accompanying video, taped at The Economist’s Buttonwood Gathering.  Including the "enormous hidden subsidies to the banking system," the real economic cost of the bailouts is in the trillions, Stiglitz says. … – Yahoo Finance

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(great summary) Bill Gross Discusses QE2 – Posted by Tom Lindmark – … Strip away all of the economists’ blather about the program and it really amounts to just monetizing our debt and hoping that somehow, someway it will amount to a silver bullet that will save the economy. It may well turn out that the best we can hope for from this program is that it does not due the damage that it inherently could. … – But Then What

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   read both of these

(the Fed asks PDs how big QE2 should be = unbleievable) A Paralyzed Fed Defers Decision On Monetary Policy To Primary Dealers In An Act That Can Only Be Classified As Treason – Submitted by Tyler Durden – … the following stunner just released from Bloomberg confirms it once and for all. According to Rebecca Christie and Craig Torres, the New York Fed has issued a survey to Primary Dealers, which asks for suggestions on the size of QE2 as well as the time over which it would be completed. It also asks firms how often they anticipate the Fed will re-evaluate the program, and to estimate its ultimate size. …. – Zero Hedge

(the problem of QE2 buying and rolling short term USTs) Fed Eats Treasury – Submitted by Bruce Krasting – … Historically the US Treasury Department has been responsible for the Dollar policy and liability management (debt issuance). Both of those responsibilities have been co-opted by Ben Bernanke.  That Treasury has let this happen speaks volumes for the lack of leadership. In my opinion Treasury is allowing the Fed to run wild while the systemic risks are rising. … – Zero Hedge

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Should the Fed try to depress long-term yields further? – James Hamilton – … Our estimates also imply that, in the current environment when short-term rates are essentially zero, if the Fed were to buy about $400 billion in long-term Treasury debt outright with reserves newly created for that purpose, it might still be able to reduce the 10-year yield by about 14 basis points. … – Econbrowser

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What Will the Fed Do When QE2 Fails to Stimulate Economy? – Posted by Larry Doyle – (quotes 5 prominent people that believe this) – Sense on Cents

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Be Careful What You Wish For – by John Mauldin – … Republicans in 2013 will be like the dog that caught the car. What do you do with it? The last time they (embarrassingly, we) really screwed it up. The defining political question of this decade will not be Iraq or Afghanistan, or the environment or any of a host of other problems. The single most important question will be what do you do with Medicare? Cut it or fund it? Reform it for sure, but reform is not enough to pay for the cost increases that will come from an increasingly aging Boomer generation.  There is no free lunch. At some point, you cannot run on "no cuts in Medicare" and "no new taxes" and be honest. At least not this decade. … – – Thoughts from the Frontline Weekly Newsletter

Large mixed bag of earnings, news, and updates from MI companies & lenders; After 4/1 how will agents be paid?

 

It used to be we moved the clocks back in many states this weekend – the last Sunday in October. A few years ago, this was moved to the first weekend in November – so leave your clocks alone Sunday. (In fact, up until the railroads started crisscrossing the US in the late 1800’s, different locations set their own time. Daylight Savings Time first sprang up in WWI, and again in WWII, and was finally standardized by the government in 1966.) Prior to that, it was still left up to regions.

U.S. banks, like other companies, have been releasing earnings. And for banks, they’ve virtually doubled their collective earnings in the third quarter just by injecting $8.1 billion into net income from funds they had set aside to cover loan losses. The 18 commercial banks with at least $50 billion in assets earned an adjusted $17 billion in the third quarter – almost half of which came from reducing their loan-loss reserves and bringing their profits up. Of course, when the banks set aside money for losses, they booked the losses. Optimistic analysts say that the reductions in loan-loss reserves illustrate how banks’ economic forecasts have improved in recent months; pessimists say that the foreclosure mess and buyback lawsuits will be with us for years to come.

Fifth Third Bancorp earned $238 million in the third quarter after releasing $500 million from its loan-loss reserves. KeyCorp earned $219 million after releasing $263 million from reserves. CitiGroup saw 92% of its earnings come from released reserves, Capital One82%, Huntington Bancshares 65%. Others’ losses would have been much worse.Marshall & Illsley lost $144 million in the quarter, but released $128 million. Zions Bancorp in Salt Lake City lost $47 million and released $51 million. SunTrust earned $153 million after releasing $75 million from its reserves.

MetLife, mostly an insurance company but also making waves in mortgage banking, earned $286 million in the third quarter, mostly from improved investment income and strong U.S. annuity sales.

Fidelity National Financial (the largest U.S. title insurer) canceled a requirement for lenders to guarantee proper foreclosure procedures amid "heightened review" processes by banks, and will no longer require an indemnity agreement before insuring individual foreclosed properties. It will continue the arrangement with Bank of America, but apparently other title insurance companies did not follow its lead creating a disadvantage.

PMI, the 3^rd largest MI company, posted its 13^th quarterly loss. The news pushed the stock prices of all the MI companies down. MGIC and Radian (#1 & #2) saw their stocks drop, although for all of 2010 MI company stocks have done very well. PMI said that uncertainty about the foreclosure process faced by many U.S. banks must be eliminated for it to return to a profit. PMI’s CFO stated that PMI would not be responsible for paying interest expenses incurred during the moratorium period if the delay is self- imposed by the lender.

Genworth Financial, based in Virginia and another insurance company with a mortgage presence, made $83 million last quarter. But that was lower than expected, and its stock price dropped 10%. Operating losses at the U.S. mortgage-insurance unit widened to $152 million from $116 million a year earlier as the insurer set aside more reserves. In general, mortgage insurers, which pay lenders when homeowners default and foreclosures fail to recoup costs, have lost money over the past three years.

MGIC, insured 97% LTV loans for first-time homebuyers only, but starting Monday MGIC will insure 97% LTV loans to current or previous homeowners as well as first-time homebuyers. There are some basic requirements, of course, such as the loan must be in a non-restricted market, involve a purchase transaction, have a maximum loan amount of $417,000, and a minimum credit score of 700.

The Federal Home Loan Bank of Seattle reported third-quarter income of about $10 million after losing $144.3 million a year earlier and another $93.8 million in the second quarter. It said lower credit-related charges recorded on private-label mortgage-backed securities helped boost third-quarter earnings. But they are still losses, and the Federal Housing Finance Agency, its conservator, still deems the bank undercapitalized.

In a story from Reuters, Flagstar Bancorp said it priced a common stock offering at $1 a share, a 57 percent discount, wiping out half of the company’s market value and causing the stock to drop 47% yesterday. Flagstar received $267 million in bailout funds. “Proceeds from the offerings, expected to be about $367.3 million, would be used for general corporate purposes including potential dispositions of non-performing assets, or potential restructuring of the balance sheet. Earlier this year, Flagstar saw investment from Greenlight Capital, a hedge fund run by investor David Einhorn, which bought 33 million shares in the bank.”

Yesterday Flagstar Bank lowered the Fannie Mae High Balance and Freddie Mac Super Conforming price adjustments, improving the hit by .375. Flag also told clients that announced its policy for allowing, in addition to all previously exempt veterans, additional veterans to fall under the exemption from paying the VA funding fee. “Veterans who were in receipt of compensation, but, either because they re-enlisted or were recalled to active duty, are receiving active duty pay in lieu of compensation”. VA continues to require veterans to complete the VA Disability Questionnaire, and Flagstar requires veterans to initial each of the responses with a “yes” on any of them leading to other requirements.

Wells Fargo’s wholesale channel adjusted its 2^nd appraisal policy for brokers for the FHA Property Flipping Waiver. A second appraisal, “verifies that the seller has completed sufficient legitimate renovation, repair or rehabilitation work on the subject property to substantiate the increase in value or, in cases where no such work is performed, the appraiser provides appropriate explanation of the increase in property value since the prior title transfer.”

Mountain West Financial followed Fannie and Freddie’s “Appraiser Independence” requirements that are replacing the HVCC. “At this point, the requirements pose no significant changes to the policies and incorporate language to clarify questions that arose during the implementation of the HVCC.” MWF suggested clients see the Fannie, Freddie, and Fed announcements for details: Fannie ishttps://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2010/sel1014.pdf, FHLMC is athttp://www.freddiemac.com/sell/guide/bulletins/pdf/bll1023.pdf, and the Federal Reserve’s can be found at http://www.federalreserve.gov/newsevents/press/bcreg/20101018a.htm.

Blackstone reported a 23% rise in third-quarter profits to $339 million, helped by gains in its real estate portfolio, the value of its private equity portfolio and a strong performance by its GSO credit-investing arm. “Blackstone is looking to take advantage of changes in US law that would limit banks from trading with their own capital.”

Loan originator compensation is still a big question mark out there. The goal is for a broker or agent not to steer the borrower into a higher rate. But basic bond math dictates that, all things being equal – especially risk, an investor will pay a higher price for a higher yield. That’s pretty simple. There are lots of ways to pay a loan producer that are being discussed under the proposed changes coming up next year. They can receive a salary, a flat fee for units, a quality bonus, a portion of the servicing, income based on pull through percentage, a quarterly bonus, matching their 401(k). Loan officers can receive additional marketing money, be paid by the hour, a percent of originations, money based on their "compare score". How about giving originators income based on the long-term performance or servicing of their loans, like insurance agents? After all, insurance agents develop an annuity over time – couldn’t the same be applied to loan officers?

Over the last few weeks rates improved, and then moved higher earlier this week. Folks got nervous, whereas others thought that the market felt oversold and the price action was turning. Sure enough, rates have improved slightly after the auctions, especially after a nice $29 billion 7-yr sale yesterday. Following the better-than-expected auction traders saw buying from money managers, hedge funds, insurance companies, some originators (buying back hedges), and pension funds. MBS prices ended the day better by .250 – .500, depending on rate.

This morning we find the 10-yr down to 2.62% and 30-yr mortgages better by .250-.375 after the GDP and Employment Cost Index numbers. GDP tends to be “backward looking”, and GDP growth has slowed over the past couple quarters leading to the “double dip” talk in the press. No one was expecting much change from the 2^nd to the 3^rd quarter, or perhaps a slight improvement – which is exactly what we received at +2.0%. The ECI also came in about as expected, but both have served to push rates down. Later we have the Chicago Purchasing Manager’s survey and some consumer sentiment numbers from the University of Michigan.

Look for volatility next week: we have the elections on Tuesday (viewed as a gauge of President Barack Obama’s handling of the economy – and Democrats fear the worst already), Wednesday is the FOMC meeting and QEII, Thursday we’ll have some prepayment news for mortgage investors, and on Friday the unemployment data! Phew!

How do witches keep their hair in place while flying? With scare spray!
Why don’t skeletons ever go out on the town? Because they don’t have any body to go out with!
Two men were walking home after a Halloween party and decided to take a shortcut through the cemetery just for laughs. Right in the middle of the cemetery they were startled by a tap-tap-tapping noise coming from the misty shadows.
Trembling with fear, they found an old man with a hammer and chisel, chipping away at one of the headstones.
"Holy cow, Mister," one of them said after catching his breath, "You scared us half to death — we thought you were a ghost! What are you doing working here so late at night?"
"Those fools!" the old man grumbled. "They misspelled my name!"

Rob

Check out

http://www.mortgagenewsdaily.com/channels/pipelinepress/default.aspx or www.TheBasisPoint.com/category/daily-basis. For archived commentaries, go to www.robchrisman.com. Copyright 2010 Rob Chrisman.  All rights reserved.  This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.

Regarding a death in Dave Hurt’s family

 

Dave Hurt knows more people in the mortgage business than anyone I know.  Most people think highly of Dave.  He is also the “Hurt” in the Hurt-Moran Ski trip that so many of you have attended.  Dave did not attend the Atlanta MBA because of the sudden death of his 26 year old niece, who left behind a 9 day old baby and a 3 year old.

Jeff Moran (the Moran in the ski trip) wrote the following for those of you that wish to remember and support Dave’s family during this time.

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Everyone,

Many of you attended the recent National MBA meeting in Atlanta and may also have attended a reunion at STATS bar on Tuesday night.  If you missed the party, you missed a great time!

While at STATS, we wanted to explain Dave Hurt’s absence as well as generate some revenue for a fund (Dave has never missed an MBA reunion party).  The conversations were so active and the noise so loud that we did not have an easy time talking about a recent tragedy involving Dave’s family. The daughter of Dave’s youngest brother died suddenly last Friday at home, shortly after giving birth to Emma (9 days old). 

As you can imagine, Dave has been overcome by grief and was not able to attend the MBA conference.  For those of you who know Dave, you know him to be one of the most considerate and loyal friends that you will ever find anywhere.  Dave’s support of his friends, co-workers, and family in all times, good or bad, is something to be admired.  All of the undersigned are hoping to show Dave and his family that we have learned something from him about how to provide support in times of tragedy.

A fund has been established for the benefit of Elizabeth Hurt Yoensky’s two beautiful children: Daniel (3 ½) and Emma (9 days).

If you would like to make a monetary donation, a temporary solution is in place until such time as the fund is set with some permanence.  Please make your check payable to First Presbyterian Church Preschool – Charlottesville and mark the check “Yoensky Love Fund.”  Their address is 500 Park Street, Charlottesville, VA  22902 – phone number (434) 296-7131.

Also, note there is a Guest Book for Elizabeth at the Hill and Wood Funeral Home, which can be accessed at the following link, should you wish to sign and view Elizabeth’s notice:  http://www.hillandwood.com/index.cfm

Although not posted yet, a similar Guest Book will be available, soon, at the Thomas McAfee funeral home in Greenville, SC.  Their link is: http://www.thomasmcafee.com/_mgxroot/page_10792.php?task=Current&listing=All

Keep Dave and his family in your thoughts and prayers.  We hope to see you in Utah in March, 2011.

Best regards,

Karey Geddes, Jeff Moran, Tessa Baer (CoreLogic) , Lisa Gentilin (CoreLogic), and Natalie Chang (CoreLogic)

PS – many of you already tossed some money in the “hat” on Tuesday night.  THANKS!

Jeff Moran       SVP – Secondary Marketing   Pulte Mortgage LLC 

FRB: Appraisal Independence – Interim Final Rule

MORTGAGE COMPLIANCE

On October 28, 2010, the Federal Reserve Board published an interim final rule in response to revision requirements to the Truth in Lending Act (TILA), pursuant to the mandates of the Dodd-Frank Wall Street Reform and Consumer Protection Act. TILA Section 129E establishes new requirements for appraisal independence for consumer credit transactions secured by the consumer’s principal dwelling.

The amendments ensure that real estate appraisals used to support creditors’ underwriting decisions are based on the appraiser’s independent professional judgment, free of any influence or pressure that may be exerted by parties that have an interest in the transaction. The amendments also seek to ensure that creditors and their agents pay customary and reasonable fees to appraisers.

The interim final rule applies to a person who extends credit or provides services in connection with a consumer credit transaction secured by a consumer’s principal dwelling. Although TILA and Regulation Z generally apply only to persons to whom the obligation is initially made payable and that regularly engage in extending consumer credit, TILA Section 129E and the interim final rule apply to persons that provide services without regard to whether they also extend consumer credit by originating mortgage loans. Thus, the interim final rule applies to creditors, appraisal management companies, appraisers, mortgage brokers, realtors, title insurers and other firms that provide settlement services.

Specifically, the interim final rule applies to appraisals for any consumer credit transaction secured by the consumer’s principal dwelling. Covering consumer credit transactions is consistent with the scope of TILA generally, which only applies to credit extended for personal, family or household purposes. The revisions provide a broader scope, as required by Section 1472 of the Dodd-Frank Act, which does not limit coverage to closed-end loans and also covers HELOCs.

Finally, with a few exceptions, the interim final rule applies to any person who performs valuation services, performs valuation management functions, and to any valuation of the consumer’s principal dwelling, not just to a licensed or certified ”appraiser,” an ”appraisal management company,” or to a formal ”appraisal.”

The Board seeks comment on this interim final rule.

Dates:
Effective: December 27, 2010
Compliance Date:  April 1, 2011
Comments Deadline: December 27, 2010

 

LENDERS COMPLIANCE GROUP is the first full-service, mortgage risk management firm in the country, specializing exclusively in mortgage compliance and offering a full suite of hands-on and automated services in residential mortgage banking.

Mortgages and Housing: Double Dip, MBA Conference, Where to Buy or Rent, GNMA Net Worth Requirement, FHLB Seattle, MBA Says $1T Origination 2011

 

Housing Is Now Clearly Double Dipping – Joe Weisenthal – Clusterstock at Business Insider

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Three great things at the MBA’s annual conference – by RICK GRANT – HousingWire

MBA sees total mortgage originations slipping below $1 trillion in 2011 – by JASON PHILYAW – … MBA officials expect mortgage originations of $1.4 trillion this year, but slow economic growth and no significant job growth will hinder mortgages into 2011. Still, the MBA does expect to see an increase in purchase originations next year led by "modest increases in home sales and stabilizing home prices." … – HousingWire 

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(great primer, also importance of affidavits) How The Mortgage System Works — And How It’s Been Rattled – By Peter G. Miller -  RealtyTrac 

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The Best Cities To Own And Best To Rent A Home – Stephane Fitch – San Francisco renters live like royalty. In Miami it’s better to buy. – Forbes

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Mortgage scandal boosts investors’ campaign to get banks to buy back securities – By Jia Lynn Yang – … Still, the foreclosure debacle represents a turning point for mortgage investors who have long accused banks of misrepresenting the mortgages they issued. For instance, some investors have accused banks of overstating how many loans were taken out by borrowers using their properties as primary residences, which made the mortgages seem less risky than they actually were. … – Washington Post
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GNMA Raises Net Worth Requirement for Single Family Issuers Again – Ginnie Mae announced it’s increasing net worth requirements for Single Family issuers for the second time in three months to ensure its requirements align with the rapidly changing housing finance market.  Ginnie Mae is increasing the current $1 million base net worth requirement to $2.5 million and changing the formula for calculating additional requirements above the base. – Reverse Mortgage Daily

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Is The Clock Getting ‘Close to Midnight’ for FHLB-Seattle? – Posted by Larry Doyle – Sense on Cents

QE2, Money Printing, Stimulus, Bill Gross and More: 9 Posts

 

(several charts) QE2 is not only unnecessary but foolish (cont.) – Scott Grannis – … QE2 would only be justified and warranted if deflation were a serious risk and/or the economy were displaying obvious signs of a liquidity shortage or liquidity crisis. Neither is the case today, and I offer the following as evidence: … – Calafia Beach Pundit

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MORE EVIDENCE THAT QE DOESN’T WORK – Cullen Roche – … One instance that is less well documented, however, is the case of quantitative easing in the UK.  The following chart shows the duration of the program and the interest rate effect: … The conclusion is obvious.  Interest rates do not decline during a program of quantitative easing.  In fact, in all three cases I’ve highlighted interest rates rose throughout the program.  … – Pragmatic Capitalism

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Fed Asset Buying May Reach $2 Trillion, Goldman’s Hatzius Says – By Candice Zachariahs – … The Fed is “almost certain” to announce additional monetary easing next month, Hatzius said. The committee may also announce a monthly purchase rate of perhaps $100 billion that will remain in place until the outlook for jobs and inflation improve “significantly,” he wrote. … – Bloomberg BusinessWeek

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$150 Billion Won’t Solve America’s Problems – While the Fed has no choice but to implement QE2, Mark Daniell, chairman at The Cuscaden Group, says $150 billion isn’t sufficient for jump starting the economy. He speaks to CNBC’s Martin Soong, Karen Tso & Bernard Lo. – CNBC Video

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Deflation, Reflation, Inflation – In our September 28 Salvo, we imagined an opportunity to ask Chairman Bernanke the following question: “What does the Fed do if it expands its balance sheet to $4 trillion or $6 trillion, drives the 10-year yield down to 2% or less, but unemployment still stands around 10%?”  The question reverberates more loudly every day closer to the November 3 FOMC meeting, at which we expect the Federal Reserve to provide more details on its plans for another round of large scale asset purchases (LSAP2). – Annaly Salvos Blog

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Goldman: All The ‘Money Printing’ Talk Completely Misunderstands What Quantitative Easing Will Do – Vincent Fernando, CFA – Each $1 trillion of bond purchases from the Federal Reserve, as part of quantitative easing (QE), will create the equivalent of a 75 basis point (0.75%) interest rate cut, estimates Goldman Sachs’ Jan Hatzius in a new note … If so, it is clear that a decision to sell short-term bills and buy long-term bonds is equivalent to a decision by the federal government to reduce the average maturity of the government debt by selling more short-term bills and fewer long-term bonds and notes. … – Money Game at Business Insider 

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Bernanke Asset Purchases Risk Unleashing 1970s Inflation Genie – By Craig Torres – Bloomberg

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   +  

PIMCO Investment Outlook  Run Turkey, Run – By Bill Gross – Key Points:

1.  The Fed’s announcement of a renewed commitment to Quantitative Easing has been well telegraphed and the market’s reaction is likely to be subdued.
2.  We are in a “liquidity trap,” where interest rates or trillions in asset purchases may not stimulate borrowing or lending because consumer demand is just not there.
3.  The Fed’s announcement will likely signify the end of a great 30-year bull market in bonds and the necessity for bond managers and, yes, equity managers to adjust to a new environment.

QE2 a ‘Ponzi scheme’, says Pimco’s Gross – By Deborah Levine -  The Federal Reserve’s highly anticipated plan to engage in quantitative easing to pump money into the economy is a “Ponzi scheme,” said Bill Gross, who manages the world’s biggest bond fund for Pimco – MarketWatch

Dodd-Frank Act – Part III: CFPB – Bureau and Bureaucracy

COMMENTARY: by JONATHAN FOXX

Jonathan Foxx, former Chief Compliance Officer of two publicly traded financial institutions, is the President and Managing Director of Lenders Compliance Group, the first full-service, mortgage risk management firm in the country.

I think you will be interested in reading my newest article in the National Mortgage Professional Magazine, the national publication that is considered the premier mortgage industry magazine for mortgage originators.

This is the third article in a 3-part series that dissects the landmark financial reform legislation now known as the Dodd-Frank Act.  

In this final article, I consider the new Bureau of Consumer Financial Protection and offer some observations on how the many features of the Act may affect the mortgage industry’s prospects.

This new article is entitled Part III: Consumer Financial Protection – Bureau and Bureaucracy.

In this article, I turn my attention to the very core of the Act itself vis-à-vis the mortgage industry and consumer financial protection: the Bureau of Consumer Financial Protection (known also as the "Consumer Financial Protection Bureau," or "CFPB").  

And, I provide a matrix of the supervisory units and their functions, and respective compliance requirements, that the Bureau’s Director must establish.

EXCERPT

A Thought Experiment:

A vast, entangled array of very small and sleek wires, super strong magnets, and very wide and long cables extend out omnidirectionally  – all of which lines and circuits are laid throughout a network of interlocking, electrically generated devices that are held in place in their respective positions on a shaky iron scaffold by fraying, single-knotted ropes.

The devices are needed to power vital and critical services to a community. But, due to wear and tear on their bindings, some devices are about to break free, threatening to pull down with them the entire array of wires, magnets, cables, and other devices. Any device can plummet at any time. Before it is too late, all the lines must be disentangled, traced to each of the devices, and rerouted to a new and more stable grid; plus, the devices themselves must be transferred, one by one, to the new grid without damaging them, and then reconnected to their lines.

But the collapse can take place at any time. A "crisis" looms!

So, how are you going to accomplish this heroic task quickly and effectively?

Now let’s consider this analogue: the energy source is Constitutional authority; the grid is the financial regulatory framework; wires and cables are the ways and means that implementing regulations affect one another; magnets are the legal foundations (i.e., case law precedents (stare decisis), statutes (federal and state), Constitutional laws or rights) on which all subject enumerated laws rest; devices are the existing regulations; and ropes are the various governmental agencies that are charged with enforcement of and monitoring compliance with specific implementing regulations.

By the end of this article, I hope you will have decided how best to solve the above-described and admittedly convoluted "crisis." This article and the preceding articles in this series outline how Congress decided!

LENDERS COMPLIANCE GROUP is the first full-service, mortgage risk management firm in the country, specializing exclusively in mortgage compliance and offering a full suite of hands-on and automated services in residential mortgage banking.

The Sting – by Pat Cutler

In his October commentary, Pat Cutler discusses:

1. The Tea Party – the Perfect Swarm
2. The Future of Fannie and Freddie, and
3. Steps you can take to overcome the fear that has descended on the mortgage industry.

Attracted to sweet tea, coca-cola, and sour mash whiskey, yellow jackets can be found at fall sporting events and picnics throughout the South. Yellow jackets typically build nests underground, concealed by leaves, pine straw or other ground covering. Known for their aggressive behavior, they are ferocious in defense of their nests. Running and squealing only attracts more of them. When a yellow jacket is hurt, it releases an alarm pheromone that alerts other yellow jackets, which will come to the rescue.

During a recent conversation with my mother, she mentioned that she needed four bales of pine straw to mulch her flower beds. I told her that it was available at Lowe’s for five dollars a bundle. Mom does not like to pay for anything if she can find a way to get it for free. She quickly decided to acquire pine straw from my uncle, who has a yard full of pine trees.

Mom and her 80 year old friend, Maxine, showed up unannounced at my uncle’s house and told him they were collecting pine straw. My uncle was late for a meeting, but told them to help themselves. To speed things along, they gathered pine straw he had recently raked from his yard and placed in his flower beds. Mom held the leaf bag while Maxine removed the straw from the beds and stuffed it in the bags.

They had almost filled the last bag when Maxine stabbed a yellow jacket nest with her pitchfork. Angry yellow jackets immediately poured out. My mother stood her ground. Maxine ran, frantically swatting the black and yellow dive bombers. Mom survived the attack unscathed, but Maxine was stung eight times and suffered a severe allergic reaction. After loading the straw in her car, Mom drove Maxine to the emergency room. She paid $250 for Maxine’s treatment and spent the next three days nursing her back to health. She still hasn’t acknowledged that she would have been better off going to Lowe’s for the pine straw.

The Perfect Swarm

Since they don’t die after stinging, yellow jackets can sting over and over again. The same can be said of the Tea Party, which is stinging every tenured Democrat and moderate Republican in sight. Followers oppose big government, high taxes, large deficits and government controlled health care. Corporate bailouts, stimulus spending and Obamacare stuck a shovel in their nest.

The Tea Party in particular and Americans in general are put out with the current state of the Union. While most people believe something needed to be done about health care, almost no one is happy with Obamacare. Most everyone also believes additional regulations and increased capital requirements are necessary to prevent a financial Armageddon. A regulatory reform bill known as Dodd-Franks was passed in July. At a length of approximately 2,300 pages, one might assume the bill contains detailed rules on the reforms imposed on the financial services industry. That assumption is wrong.

Next up, an auditorium full of academics, statisticians and career government employees will gather to write hundreds of pages of new financial regulations to fill in the blanks on Dodd-Franks. Did we need health care and regulatory reform? Yes we did. Should we have spent the last 18 months passing this legislation while Rome burned? No, we should have focused on the economy first. Our government has failed to provide the leadership required to grow the economy and provide jobs. The administration continues to vilify business leaders, the very people who will lead us to an economic recovery. Right or wrong, the politicians in charge will be held accountable. Regardless of one’s opinion of the Tea Party, it could be the swarm that sinks the Democrats’ boat in November.

If things go as expected, the Republicans will take charge of the House and make gains in the Senate. Will Obama tack to the right as Clinton did following the Republican takeover of 1994, or choose to swat Republican yellow jackets for the next two years? Clinton’s move to the middle cemented his legacy as a good president and perhaps the best politician to ever occupy the Oval Office. Obama’s choice could determine whether he is remembered as the president of hope and change or ends up stung to death.

Fannie and Freddie in Critical Condition Following Stinging Attacks

Fannie Mae and Freddie Mac continue to be chased and stung by talking heads, politicians and other bureaucrats, who believe the time has come to end government involvement in the housing markets. Many are the same people who either directly or indirectly played a role in the current debacle. Like yellow jackets, which aggressively defend their nests if disturbed, they are attacking Fannie and Freddie with a vengeance.

For forty years, Fannie Mae and Freddie Mac have enabled Americans to obtain 30-year mortgage financing at below private market interest rates. Fannie and Freddie products and guidelines are the standard for the mortgage industry in the United States. Along with Ginnie Mae, they are the foundation of the most liquid secondary market for mortgages in the world.

Fannie Mae and Freddie Mac give structure and stability to the mortgage market. The government guarantee to make investors whole in the event of default ensures stable interest rates for housing. This is especially critical today, when the overall housing market is anything but stable.

Near term, it is unrealistic to expect the private market to offer the solutions needed to stabilize the housing market. Investors, faced with the prospect of buying mortgages backed by something other than a government agency guarantee, will require higher down payments and impeccable credit. They will demand rates substantially higher than those currently available using a Fannie or Freddie execution. Tougher underwriting standards and higher rates are not the change we are hoping for.

The agencies should be reshaped and given a new mission. A different fee structure could be instituted to adequately compensate the government for the risks Fannie and Freddie are taking. If these risks are priced appropriately, there is time to make good decisions regarding government involvement in the housing market. Restructuring is ok, administering last rites is not. The government should not withdraw its guarantee for loans backed by Fannie Mae and Freddie Mac. Now is not the time to give up on the best chance we have for realizing a housing recovery.

Trick or Treat

Repurchase goblins, foreclosure witches and ghosts of loans past haunt the cubbies and offices of banks and mortgage companies everywhere. Fear has descended upon the mortgage industry. Prepare now. Don’t wait until regulators, investors and warehouse lenders show up on your door step and yell, “Trick or Treat?”

1) Evaluate Policies, Procedures and Processes. Ensure they are up to date and being adhered to.

2) Conduct a review of current investors. Y-t-d volume, financials, scorecards, funding times, delivery penalties and follow up documentation outstanding should be included in the review.

3) Establish methodology for approving investors. Written guidelines for approving investors should be established. A committee such as ALCO should approve and periodically review all mortgage investors.

4) Evaluate the benefits of Mandatory or Assignment of Trade execution. Turmoil in the mortgage markets puts additional pressure on aggregators to increase their profit margins and tighten guidelines on their best efforts programs.

5) Retained versus released servicing executions should be reviewed and your current execution validated. Costs associated with pending and potential litigation, along with delays in processing foreclosures, could negatively impact already depressed servicing values.

6) Establish a compliance plan. Additional regulatory and investor scrutiny will require additional compliance resources. Cross training or outsourcing may be an option.

To lead is difficult when you’re a follower of fear.  ~T.A. Sachs

This article contains information gathered from numerous sources. The information is considered reliable but is not guaranteed as accurate. The opinions are my own and not deemed appropriate for any purpose other than to provide information to customers and potential customers.

Cutler Consulting is a financial services consulting firm providing mortgage banking advisory services to mortgage lenders. We offer customized solutions to increase profitability, improve performance and manage risk. For more information about Cutler Consulting, visit www.cutlerconsultinggroup.com or call 803.461.0168.