Archive for June, 2009
Motivity Solutions, a software developer that provides a business management platform for mortgage bankers, introduced a new safety net system for lenders at the MBA Government Housing and Loan Production Conference in Washington DC Wednesday.
The new software, Movation FHA Safeguard, is the latest in a string of fixtures to the Movation Business Platform, a web-based installation that sits on top of a lender’s existing software and automates the closing process.
Motivity spent three months developing the Safeguard package. The program patrols the post-closing process catching any oversights within a lender’s system. The loan is then checked against the Federal Housing Administration’s database for any blacklisted mortgage industry players. The software can also check mortgage insurance factors on a loan.
“It’s a way to automate the post-closing aspects of an FHA loan,” said Tyler Sherman, CEO of Motivity Solutions. “Right now, it would save up to thirty minutes on what was the manual loan process.”
Since unveiling Safeguard, two FHA lending firms have run pilots of the automated system: Franklin American and Assurity Financial.
“The response has been overwhelming,” Sherman said. “There have not been a lot of problems. Right now, we’re just adding functionality to it.”
In 2006, Watermark Financial Partners, a top ten FHA lender, launched Motivity Solutions with the development of its Movation Business Platform.
Next month, Motivity plans to release an electronic file delivery system. Before, FHA lenders would have to overnight paper-case binders as part of the manual loan process.
Write to Jon Prior.
[Update 1]
Two lawmakers serving on the House Financial Services Committee introduced HR 3044 late last week in an effort to temporarily lift new requirements from valuations and the way appraisals are ordered.
The bill would impose an 18-month moratorium on the Home Valuation Code of Conduct, which took effect May 1.
Both sponsors of the legislation bring a history in housing. Rep. Travis Childers (D-Miss.), who introduced the bill, bears a background in real estate while cosponsor Rep. Gary Miller (R-Calif.) sports a background in community development and single-family and custom home building.
Childers' aim in introducing the bill focuses solely on a small business issue present in the code. Local appraisers contacted his office saying the code negatively affects their business, according to Ben Lincoln, legislative director at Childers' Washington, D.C. office.
"This legislation is really for the industry to take a step back to see what needs to be done on a national level," Lincoln tells HousingWire. "What's done in New York is not necessarily what needs to be done in Mississippi. The real estate markets are totally different."
Lincoln says the way the code doesn't allow third-party appraisers and instead mandates ordering appraisals through appraisal management companies (AMCs) poses a problem not only for local appraisers, but for the housing market in Childers' district. There is no AMC located within the district, according to Lincoln, which means any appraisers conducting valuations within that district are not local to the area.
An issue emerging among critics of the code — by the National Association of Realtors and other industry groups — is the way lender-owned AMCs pose a disconnect between appraisers and the geographic areas where they are assigned to conduct valuations. One of HousingWire's sources, an industry veteran with nearly three decades of experience in the appraisal business, says he's seen appraisers from AMCs drive up to two and a half hours away to complete an assigned appraisal.
Critics say this situation leads to faulty valuations by appraisers with little or no background in the local housing market and the history of house prices there.
Another one of HousingWire's sources, however — an appraiser that asked not to be named in this article — says the proximity complaints are incredible, as not even an AMC cannot reasonably force its appraisers to travel hundreds of miles to complete a valuation.
HR 3044 along with its HVCC moratorium were referred to the House Committee on Financial Services.
Subscribe here and make sure you receive the forthcoming August issue of HousingWire, which looks in depth at the argument surrounding the HVCC and its effect so far on the industry.
Write to Diana Golobay.
Prepayments seen among securitized mortgage loans slowed in May as mortgage rates ticked upward and overall eligibility for refinance narrowed, according to industry research by Bank of America and Merrill Lynch analysts.
Securitized loans are considered in prepayment when they are refinanced or repaid in full. The effect for a securitization is essentially that the mortgage disappears, taking any future profitability with it, even though the loan itself doesn't vanish. It simply moves into a new securitization.
Since prepayments fundamentally mean reduced payouts for bondholders, sweeping refinance programs signal trouble ahead for investors, despite the help provided to struggling homeowners. The good news to bondholders is: prepayments were relatively slow in May. The bad news to underwater borrowers is: refinance programs appear to be dragging.
Prepayments on securitized loans with high loan-to-value and low FICO scores remain slow in May, indicating refinance programs have had a shaky start, the BofA/Merrill analysts noted.
Overall voluntary prepayments slowed (~ 0.5% conditional repayment rate, or CPR) in May. Voluntary prepayment speeds outside of curtailment — or monthly repayment in excess of the minimum amount due — came in around 2% to 2.5% CPR accross BofA's four indices. Voluntary CPRs after negative curtailments were 0.5% to 1% CPR less. Taken as a whole, the remittance data suggests subprime borrowers are locked out and cannot refinance due to their credit profile and despite mortgage rates near historic lows, the analysts said.
An estimated 37% of the mortgage universe is currently considered "refinancable" by the analysts, compared with 70% in March and April, since mortgage rates rallied over 5% more recently from lows seen early in the year. Even should efforts arise to increase eligibility for the refinance program, the report's authors conclude the effect might prove minimal.
Currently, the administration's Making Home Affordable refinance program applies to mortgages owned or guaranteed by the government-sponsored agencies and bearing no more than 105% of the present market value of the house. Discussion around possible expansion of this loan-to-value (LTV) limit to as much as 125% began last week.
Only an estimated 6% of agency loans bear LTVs between 105% and 125%, however, and analysts said any move by the administration to increase the LTV limits would therefore have no significant impact on prepayment speeds.
But then the problem might lie not with the fundamentals of the refi program, but with the originators involved in facilitating refinancings, according to analysts: "A combination of reduction in the mortgage industry workforce coupled with funding shortfalls for non-bank lenders has hampered origination capacity versus the capacity in 2003."
For instance, borrowers considered to be in the highest tier for refinance — FICO greater than 740 and current LTV less than 80% — are prepaying at about 45% CPR compared with 60% in the '03 refinance wave.
The capacity issues hampering originators' efforts to push refinancings through the pipeline are also affecting modification efforts, the report concluded.
"There was no significant pick up in modification activity across various servicers this month," analysts noted. "We believe that servicers are facing logistical hurdles in transitioning to the new MHA program. Furthermore, it will take some time for the loan modifications under the MHA program to appear in the remittance data because a modification under the MHA becomes permanent only after 3-month trial period."
Write to Diana Golobay.
Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments.
The concept of banks being too big to fail is a concept that should be left in the past, according to the Bank of England's June 2009 Financial Stability Report.
The report is published with regularity and offers guidance on how to stabilize most areas of the economy, though of late the subject matter is typically filled with bank and mortgage information.
In the June submission, the government takes bank strategy to task: "The financial system should be capable of absorbing shocks from the economy and from financial markets rather than generating them. It also needs to be much better able to support economic activity on a sustainable basis, without relying on large-scale publicly funded support to weather shocks," it reads.
The report suggests banks run entirely transparent and make fund movements public, especially in the areas of fair-value reporting of assets, in order to insure that direct regulation would not be a necessity in the future.
However, the report also recommends the adoption of the revision to Basel II accounting regulations, a system likely to be adopted in the Unites States.
The Basel Committee recently proposed revisions to existing Pillar 3 requirements to focus on the following six areas: securitization exposures in the trading book; sponsorship of off balance sheet vehicles; the Internal Assessment Approach for securitizations and other asset-backed commercial paper liquidity facilities; resecuritization exposures; valuation with regard to securitization exposures; and pipeline and warehousing risks with regard to securitization exposures.
In regards to the big banks, though, the report is clear that the government takes the view that a credible threat of bank closure is inherently more difficult to deal with fo firms which are large, complex, or which have international reach.
"There is also an open question in the United Kingdom about whether a different (from the normal corporate insolvency) regime is needed for non-depository institutions to ensure the continuous provision of economically significant services. For example, [the Treasury] is currently consulting on developing effective resolution arrangements for investment banks," says the report. "There may also be a case for a special regime for market infrastructures that could pose a threat to stability."
Write to Jacob Gaffney.
The Federal Reserve and key financial regulators today adopted an interim final rule on loans modified under the Treasury Department's Making Home Affordable Program (MHAP).
The Treasury in early March unveiled guidelines under the program to "promote sustainable loan modifications," according to the Federal Reserve's statement. The rule, which is open to public comment up to 30 days after its publication in the Federal Register, provides that mortgages made under the program must keep the risk weight assigned to the loan prior to the modification.
"The interim final rule would provide a common interagency capital treatment for mortgage loans modified under MHAP," the Fed says in the statement today.
"For example," the Fed adds, "mortgage loans risk weighted at 50% prior to modification would continue to be risk weighted at 50% after modification provided they continue to meet other applicable criteria."
Publication of the interim final rule within the Federal Register is expected soon.
Write to Diana Golobay.
The nomination of Wells Fargo Home Mortgage veteran David Stevens finally picks up steam after a Senate committee approved the nomination.
Stevens, who was nominated back in March to head the Federal Housing Administration, must pass a full Senate vote before his nomination can be considered confirmed. It marks the last step on his months-long path to taking a lead role in the administration.
The confirmation process hit a snag when questions arose over lawsuits involving Long & Foster, a real estate firm where Stevens currently serves as president and CEO. But the nomination appears to be back on track with the Senate committee approval, although it remains unclear when Stevens may face a full Senate vote.
The news comes as the former general manager of the Los Angeles Housing Department, Mercedes Marquez, passed a unanimous confirmation to become an assistant secretary at the US Department of Housing and Urban Development (HUD), the broader regulatory department that houses FHA.
Marquez will head the office of community planning and development — which administers nearly $8bn in programs designed to stimulate community development and affordable housing — for HUD, which has faced criticism in recent months for understaffing issues and outdated technology, most recently from the Office of Inspector General.
HUD is known for a history of staffing issues even before the recent passage of the Omnibus Appropriations Bill, which allocates funds to enhance IT systems and increase personnel to meet processing needs, among other administrative improvements.
Write to Diana Golobay.
Decision management solution provider Loan-Score Decisioning Systems today fills in a key role between lenders and the Federal Housing Administration's TOTAL Scorecard platform.
Loan-Score completed the integration of its automated underwriting system (AUS) into the FHA's platform, allowing lenders to receive results directly from the Scorecard, which uses an algorithm to determine an "accept" or "refer" decision on FHA loans. Those lenders already using Loan-Score's product and pricing engine can take the system a step further, returning decisions immediately to loan officers or brokers and speeding up the process, according to company statements.
“The demand for FHA products has increased rapidly and our integration with TOTAL Scorecard allows clients to more efficiently manage the FHA lending process and provide better service to borrowers,” says David Colwell, executive vice president at Loan-Score.
“In order to attain results from TOTAL Scorecard," he adds, "lenders must use an AUS to connect to the system. Because Loan-Score is now an FHA integrated AUS, our clients’ end users are able to seamlessly hit TOTAL Scorecard for instant, accurate decisioning."
Loan-Score's AUS joins the ranks of Fannie Mae, Freddie Mac, Chase and Countrywide/Bank of America, which also developed systems that are now integrated with FHA's Scorecard. But Loan-Score touts its status as the first commercially available AUS vendor to lay claim to integration.
Write to Diana Golobay.
Wisonsin-based mortgage banker Marshall & Ilsley (MI: 0.00 N/A) today extended its voluntary foreclosure moratorium an additional 90 days.
The foreclosure freeze, initially adopted in December 2008, applies to all owner-occupied residential loans for customers that agree to work toward a repayment agreement. The moratorium is now effective for all applicable loans in all M&I markets through Sept. 30, 2009. September marks the 10th consecutive month the moratorium will have been in effect since its announcement in December.
The freeze is part of M&I's Homeowner Assistance Program, which offers proactive assistance to borrowers identified as "potentially distressed," according to a company statement today. The program's "foreclosure abatement" efforts include refinancing options like term extensions and reduced rates.
The extended moratorium comes as the total mortgage delinquency rate among all product types — 8.49% in May — marks a 50% increase from the rate seen at the year-ago time, according to Lender Processing Services. The spiking delinquency rate indicates worsening overall mortgage performance and a significant opportunity for loss mitigation efforts at mortgage bankers like M&I.
Write to Diana Golobay.
Industry groups participated in a long week of discussion over the Home Valuation Code of Conduct (HVCC), arriving at no sound conclusion but illustrating the depth of contention felt over the code.
The new, revised HVCC took effect May 1, officially changing the way home appraisals must be ordered. The government-sponsored enterprises (GSEs) agreed to the code with their conservator, the Federal Housing Finance Agency.
"The Enterprises have a strong interest in ensuring the soundness of the appraisal practices that lead to appraisal reports supporting the mortgage loans they purchase from lenders,” said FHFA director James Lockhart at the time the code was announced.
"The Code," he added, "strikes a balance of assuring enhanced protections for appraisers while maintaining lender ability to address unprofessional appraisal practices and to perform quality controls on appraisals received."
Fannie Mae (FNM: 0.00 N/A), in a frequently-asked-questions document on its Web site, said adopting the code would "help enhance the integrity of the home appraisal process," but industry sources are raising an outcry against it several months after the effective date.
The contention even resulted in an online petition for the reconsideration of the HVCC, launched June 1 and bearing 35,000 signatures and testimonies as of June 22, according to a statement by Think Big Work Small, the real estate industry group that aims to deliver 100,000 signatures to rescind the code.
Other groups this week began adding to the outcry. The National Association of Home Builders (NAHB) spoke out against the use of distressed sales as a comparison in valuating single-family homes, which it says is needlessly keeping prices low.
“Any home buyer can recognize the difference between a well-kept home and a distressed property that is damaged or not properly maintained," said NAHB chairman Joe Robson. "So it only makes sense that an appraiser should be required to consider the overall condition of a property and the specific factors related to a foreclosure or distressed property sale when selecting and adjusting the value of comparables.”
Robson urged new regulatory guidelines to end this practice of using distressed sales to valuate non-distressed properties.
One of HousingWire's sources, however, says comparing distressed sales is a normal aspect of the business. "Who can deny the competition? You have to represent your market proportionately and not just ignore negative aspects," says the source, a certified appraiser who asked not to be named in this article.
Aside from the way the appraisals are conducted, another hot button issue developing this week involves the value achieved through appraisals under the code.
The National Association of Realtors chief economist Lawrence Yun said a 2.4% increase in existing home sales in May "is less than expected because poor appraisals are stalling transactions.” Further, he claimed contracts fall through due to "faulty valuations" that prevent buyers from obtaining the loan.
In a direct response to his comment, the Appraisal Institute's director, Bill Garber, issued a statement arguing that valuations are objective and fair representations of what a particular house is worth in today's market conditions and in the context of the local market.
"We take offense with the notion that an appraisal is only good if it happens to come in at the sales price," Garber said. "That mentality helped cause the mortgage meltdown to begin with. The fact that the value reflected in the appraisal does not match the sales price is not the fault of the appraisal but a result of the market today."
Subscribe here and make sure you receive the forthcoming August issue of HousingWire, which looks in depth at the argument surrounding the HVCC and its effect so far on the industry.
Write to Diana Golobay.
Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments.
A look at the stories on HousingWire’s weekend desk… with more coverage to come on bigger issues.
Five failed banks on Friday pushed the total for 2009 to 45. The closures are estimated to cost a combined $264.2m to the Federal Deposit Insurance Corp.'s insurance fund.
The Georgia Department of Banking and Finance closed Community Bank of West Georgia and named as receiver the FDIC. The bank had $199.4m in assets and $182.5m in deposits. Beyond an estimated $1.1m of deposits in excess of insurance limits, the FDIC expects the bank will cost the insurance fund $85m.
The Georgia Department of Banking and Finance closed Neighborhood Community Bank and named as receiver the FDIC, which entered an agreement with CharterBank to assume all the bank's deposits and $209.6m of assets. Neighborhood Community held $221.6m of assets and $191.3m of deposits. The bank's failure is expected to cost the FDIC's insurance fund $66.7m.
The California Department of Financial Institutions shut down Mirae Bank, naming as receiver the FDIC, which entered an agreement with Wilshire State Bank to assume all of Mirae's $362m of deposits and approximately $449m of its $456m of assets. The bank's failure is estimated to cost the FDIC's deposit insurance fund $50m.
The Minnesota Department of Commerce shut down Horizon Bank, naming as receiver the FDIC, which entered an agreement with Stearns Bank to assume all the failed bank's deposits. Stearns Bank paid a 0.75% premium to acquire all $69.4m of Horizon Bank's deposits and also agreed to purchase $84.4m of Horizon's $87.6m of assets. The failure is estimated to cost a total $33.5m to the FDIC's insurance fund.
The California Department of Financial Institutions shut down MetroPacific Bank and named as receiver the FDIC, which entered a purchase agreement with Sunwest Bank to assume all of MetroPacific's $73m of deposits, save approximately $6m of brokered deposits. The failed bank also held $80m of assets, and its failure will cost the FDIC's insurance fund an estimated $29m.
Moody's Investor Service confirmed The PMI Group's senior debt ratings of 'B3' and revised the ratings outlook to 'developing.' The ratings action comes after PMI executed its amended and restated credit agreement, which reduces the size of the facility to $125m and eliminates certain financial covenants and events of default contained in the previous revolving credit facility.
"[T]he confirmation of PMI's senior debt rating reflects the reduction in near term default risk as a result of the amended terms of the bank credit facility," Moody's said in its release.
The House of Representatives narrowly passed a sweeping bill that calls for new homes to be built 30% more energy-efficient than currently mandated in a code from 2006. The new requirement would remain in place until 2014, when builders will have to target a 50% more efficient requirement. The target would then increase 5% every three years.
The National Association of Home Builders is already speaking out against the legislation, saying it calls for too great a change without consideration for the materials and equipment necessary to meet the requirements. Chairman Joe Robson's argument boiled down to, higher building costs associated with the new energy efficient standard would drive up new home prices and devastate affordability for working class households.
"The hard truth is that we can't build our way out of this problem," he said. "We need to make sure our utilities more efficiently generate and transmit power. We need to make our existing housing stock more energy efficient."
Write to Diana Golobay.
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