Archive for June, 2009
Taylor, Bean & Whitaker Mortgage agreed to pay out $9m after the conclusion of a multi-state regulator examination of its underwriting, risk management and consumer disclosure practices in the 2006 origination of non-traditional mortgages — including interest-only, pay-option and stated income loans — a now-shuttered practice at the company.
Ocala, Fla.-based Taylor, Bean & Whitaker (TBW) is one of the top 10 national wholesale mortgage lenders, according to company statements, meaning it funds loans originated by third-party brokers.
In addition to instances of potential overcharging of fees to consumers, the state examinations unveiled possible issues in the submission stage by brokers where mortgage applications were submitted multiple times with various information altered until the automatic underwriting system accepted them, according to Andy Grosmaire, a spokesman in Florida's Office of Finance Regulation.
As part of the settlement, TBW will implement a loan modification plan to assist consumers struggling in these non-traditional loans and hire an independent loan review firm to study a portion of its non-traditional mortgages. The mortgage company will also pay $9m total: $4.5m to the Nationwide Mortgage Licensing System, which registers and tracks all mortgage lenders, and $4.5m to the states participating in the examination.
“TBW looks forward to continuing its partnership with the states and its commitment to industry leadership as mortgage business best practices evolve,” said TBW chairman Lee Farkas.
“TBW’s proactive steps in these areas," Farkas added, "together with its financial contribution to mortgage licensing reform, demonstrate its commitment to leadership in the mortgage industry.”
The examination, conducted by 14 state mortgage regulators, began in March 2008, after TBW discontinued the non-traditional products and implemented a "zero-tolerance" fraud policy in 2007, according to company statements.
Write to Diana Golobay.
Cambridge Realty, a debt and equity financing firm dedicated to senior housing and healthcare-linked properties reports that loan origination request volume at the firm trailed off in May, with 25 requests totaling $202,707.
“These numbers compare with 35 requests totaling $546.2m for the same month last year and appear to represent a significant drop. However, in April, the company was reporting the highest level of monthly activity in two years,” Chairman Jeffrey A. Davis noted.
Through the first five months of the year the company processed 137 loan origination requests totaling $1.88bn. “These totals are not far behind the 153 requests that totaled $1.9bn during the same five-month period last year,” he said. Cambridge tracks this information as an indication of changing market trends and directions.
“Given all the turmoil in the banking industry, it’s understandable that borrowers might not be in such a euphoric mood. However, there appears to be a lot of interest in government funding programs and interim loans that bridge to more attractive, recession-proof FHA-insured government loans at some point in the future,” he said.
Privately owned since its founding in 1983 as a real estate investment banker specializing in commercial real estate properties, Cambridge today has three distinctive business units: FHA-insured HUD loans, conventional financing, and investments and acquisitions.
Write to Jacob Gaffney.
New single-family houses sold at a seasonally adjusted annual rate of 342,000 units in May, according to estimates released jointly today by the US Census Bureau and the Department of Housing and Urban Development, down 0.6% from April.
According to the revised annual rate, the total unsold inventory represents 10.2 months of supply at the current rate. Year on year, May's sales rate sits 32.8% below the rate seen in May 2008. Currently, an estimated 292,000 new houses sit on the market available for sale.
New houses sold at a median price of $221,600, meaning half sold for more and half sold for less. Meanwhile, the average price of all new home sales came in at $274,300 in the month.
The majority of new home sales — about 22,000 or roughly 69% of 32,000 homes sold in the month — occurred in the lower price levels, $299,000 and under, indicating affordability remains a key issue even in purchasing a new home.
Another 4,000 or so sales were of homes priced from $300,000 to $399,000, while 3,000 sales were priced from $400,000 to $499,999 and an additional 3,000 sales ranged from $500,000 and above.
Write to Diana Golobay.
[Update 1]
The Securities Industry and Financial Markets Association (SIFMA) correctly predicted the Federal Open Market Committee (FOMC) meeting today would conclude with no change to the 0-0.25% range for the federal funds rate set by the Federal Reserve.
The FOMC also notes subdued levels of inflation and slower overall economic contraction since its last meeting in April, while SIFMA sees as much recovery as growth in real gross domestic product (GDP) next year, but not before the extent of the economic downturn unwinds in 2009.
“The general consensus of the Roundtable is that the US economy will turn positive in the third quarter, although remain at a subpar pace until next spring,” said Kyle Brandon, managing director of research for SIFMA, in a statement.
The roundtable members, influential members of major banking and financial firms, projected a median -2.7% growth in real gross domestic product in 2009 on a year-over-year basis, and a 2.9% recovery growth in real GDP in 2010 on a year-over-year basis, although this growth next year is not expected to keep unemployment from moving higher.
“The US economy remains afloat, although battered, with the passing of the financial market meltdown and the credit market freeze," Brandon added. "This cautiously optimistic outlook is a result of the aggressive and unconventional central bank actions and the fiscal stimulus, which have somewhat alleviated the continuing housing sector weakness, tight credit markets, and widespread economic contraction.”
Most of the round table participants — 85% — viewed the current housing market and growing unemployment as having a negative influence on the broader economy. An 80% majority viewed fiscal policy as the only positive factor.
“[W]ithout fiscal stimulus, there would be no recovery," said one member in the outlook report. "The biggest risk in 2010 is the consumer’s ability to start taking the weight of the economy off the government.”
Write to Diana Golobay.
[Update 1]
Citigroup (C: 30.87 +1.61%) last night put mortgage applications in its correspondent lending channel on hold for eight days, citing a re-engineering and tightening of the standards involved with the loans.
A spokesperson confirmed to HousingWire the company entered the temporary suspension over "quality control" issues surrounding documentation of appraisals or income verification seen in — or missing entirely from — previous mortgages purchased through the channel. Lenders like Citi purchase mortgage loans originated by independent mortgage bankers through correspondent channels.
"We review our quality control practices on an ongoing basis, and we have identified areas of improvement," the spokesperson, Mark Rodgers, tells HousingWire this morning. "We will temporarily suspend the acceptance of correspondent mortgage loan registrations while we work with correspondent customers to make improvements to this important business that will ensure the continued delivery of superior quality loans."
Citi is encouraging its correspondent clients to take the time to also review documentation processes to ensure the quality of loans originated for the lender to purchase. Rogers says the temporary suspension affects no other lending channel at the company.
Regulators and public criticism keep a close watch on Citi's mortgage decisions these days, as the firm was found to lack $5.5bn in the wake of government-initiated stress tests, even with $45bn in Troubled Asset Relief Funds on hand and another $5bn promised in asset guarantees. As of early June, regulators were reported to be pushing for an executive overhaul at the firm.
In mid-May the bank earmarked $1bn to refinance qualifying mortgages.
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.
Weekly mortgage loan application volume rose 6.6% in the week ending June 19 and is 17.2% above the volume seen at the same time last year, according to a survey released today by the Mortgage Bankers Association.
Applications for refinance rose 5.9%, but the refi share of total application activity still fell slightly to 54% this week from 54.1% a week earlier. The four-week moving average for all applications is down 9.3%, while the four-week moving average for purchase mortgages gained 2.2% and the four-week refi average slipped 15.5%.
The MBA, which also studies mortgage rates, found that both 15- and 30-year fixed-rate mortgages (FRMs) saw another decrease in average rates this week. The 30-year FRM averaged 5.44% from 5.5% last week, while the 15-year FRM averaged 4.93% from 4.99%.
The lower rates might account for the influx of application activity this week, which appears to contradict another survey on lower household activity in the application market.
A separate mortgage application survey conducted by Mortgage Maxx adjusts total application data to reflect only household activity. The Mortgage Application Index — or MAX — counts multiple applications from a single household as one participant and as a result reflects the number of households seeking a mortgage or refinance, rather than simply the total number of applications submitted.
While the MBA saw total applications rise 6.6% this week, the MAX fell 9.1%, indicating the number of households seeking loans contracted significantly despite a higher overall number of applications. Or, in other words, 9% fewer households submitted almost 7% more applications than last week.
The MAX specific to the California market saw household activity fall 10.6%.
The MAX publisher Paul Descloux, in his weekly commentary on the index, attributed the declines to a drying out of the refinance wave as mortgage rates moved higher — despite the Federal Reserve's efforts to keep rates low — and the refinance process became too costly with fees and points to do many borrowers any good.
Usually "mortgage rates below five% would have propelled the MAX…[but] this time, the efficacy of the Fed’s rate tonic has been severely diluted with fractional results," Descloux writes. "Now with the bond vigilantes coming to the fore as trillions in US debt begs to be financed, quantitative easing takes a beating and hard pressed homeowners are back where they started last year."
Write to Diana Golobay.
(Update 1)
Housing prices across the nation on average lost a little more than 10% in April when compared to prices one year earlier, according to research from First American CoreLogic, which also said its LoanPerformance Home Price Index saw the pace of price declines slow to their lowest levels this year. Home price declines have been abating throughout the year, peaking at -11.9% during January 2009, according to the firm — the 10.2% decline posted in April represents the smallest year-over-year decline recorded this year thus far.
The LoanPerformance HPI is a repeat-sales index that tracks increases and decrease in sales prices for the same homes over time. It covers 7,677 ZIP codes, 958 Core Based Statistical Areas (CBSA) and 678 counties.
On a month-to-month basis, April’s decline represents a 0.5% improvement over the 10.7% decline posted during March, the company said in a press statement. The improving data is likely to add further fuel to recent speculation that real estate may be nearing a recovery point, although First American CoreLogic chief economist Mark Fleming preaches caution in reading too much into the data.
“There is still a great deal of uncertainty with the housing market and the economy in general," he said. "But the rate of change in home price declines is beginning to show signs of not only a bottoming, but an improvement in both nominal and real terms, which is the more important indicator because real prices adjust for the distortions caused by inflation or deflation."
As expected, the study shows the so-called "sand states" — Arizona, California, Florida and Nevada — suffered disproportionally more than other parts of the nation. Advances in prices in Texas cities, however, helped soften the final result.
According to the study, the shifts among the top five states have continued this month with Nevada (-26.1%) remaining the top-ranked state for annual price depreciation, but Florida (-23.2%) supplanted California and became the second-ranked state for price depreciation. After being the top-ranked state for 20 consecutive months — May 2007 through December 2008 — California’s (-22.7%) home price declines have improved sharply, putting California into third place in April 2009 and just ahead of fourth-ranked Arizona (-20.5%).
The rapid deterioration of home prices in Illinois (-17.4%) put that state in fifth place for the first time during the downturn, indicating that woes in the nation's real estate market may be shifting to other areas.
Since U.S. home prices peaked in July 2006, national home prices have declined -21.2% on a cumulative basis, according to First American CoreLogic data, and are currently down to the lowest price level in more than five years.
Write to Jacob Gaffney.
Lenders One Mortgage Cooperative, an national alliance of more than 130 mortgage bankers, originated $17.3bn of loans in the first quarter of 2009, up more than double from the $7.6bn volume it saw in the year-ago quarter.
“Our Members are determined to originate a high volume of high quality loans to meet the needs of consumers during any economic climate,” said Lenders One CEO Scott Stern. "Achieving production of over $17 billion in the first quarter of 2009 is a clear testament that our members are taking advantage of the power of the Lenders One organization.”
Q109's $17.3bn starts Lenders One on its yearly goal to generate $70bn of originations in all of 2009. The alliance connects members with preferred investor relationships and other market channels to save on origination costs and expand origination shares of the market. If considered a single originating entity, the cooperative would rank fifth in the US for its Q109 origination volume, according to a company statement.
The news of Lenders One's solid quarter comes as the Mortgage Bankers Association (MBA) lowered its expectations of the mortgage origination industry Monday, narrowing its anticipated ‘09 origination volume by $700bn to $2.03trn.
Write to Diana Golobay.
British supermarket giant Tesco successfully marketed the first commercial mortgage backed securitization (CMBS) on the continent in two years with a sale and leaseback deal worth $690m.
It may hardly be a sign that the beleaguered commercial markets in Europe are on a revival, but analysts still believe the move is a positive for the industry.
The CMBS market over there suffers from refinancing difficulties as the investor base eroded away two years ago, in part, as Special Investment Vehicles (SIVs) wound down.
Liquidity on current CMBS platforms, especially those that are UK based, is virtually nonexistent: a concern as some many are due for refinancing by year's end.
Nonetheless, Tesco Property Finance, consists of a single, fixed-rate tranche (single-A minus rated) backed by two loans secured by 12 supermarkets and two distribution properties being leased on long-term leases with upward rent review to Tesco subsidiaries. The supermarket is serving as its own swap counterparty and Goldman Sachs is running the books.
The supermarket does have some flexibility to sell properties and add new properties to the pool. The CMBS bonds are fully credit-linked to the Tesco corporate rating, according to Barclays Capital.
International Financing Review states that the 330 basis point spread priced inside guidance.
"We would expect the pricing to confirm the discrepancy between the fixed rate and floating rate CMBS markets, with the former providing more attractive funding for issuers," said Hans Vrensen of Barclays Capital structured finance research. "Regardless of the misalignment of fixed and floating-rate markets, we would see a successful placing of these bonds as a positive sign for the long-term viability of the European CMBS sector."
Write to Jacob Gaffney.
Denise James is the director of residential mortgage solutions for LexisNexis Risk & Information Analytics Group. She joined the company in 2003, when ChoicePoint owned the Mortgage Asset Research Institute (MARI). LexisNexis bought ChoicePoint and MARI in 2008.
In the latest installment of In This Corner, James discusses her firm's ability to manage mortgage risk for clients, and addresses current challenges facing the market.
HousingWire: Can you please tell us more about the new types of fraud emerging in today's distressed market? We hear about short sales, builder bail-outs even elderly and immigration frauds; What are these? How are they taking root?
Denise: "Sure. Unfortunately, there are newer emerging frauds that are taking advantage of consumers and lenders which adds more fuel to an already blazing fire. These crimes of desperation aim at stealing homes, absconding illicit funds and maximizing profits through deception. Let me provide some examples:
"Short Sales – Given the continuing decline of home values, lenders have developed approval programs that allow homeowners to sell their properties for less than the obligated amount or mortgaged amount. Benefits include more saleable properties in areas of high abandon or foreclosure rates; expanded opportunities for homeowners to remedy mounting mortgage debt and lenders writing off less loan losses.
"One type of fraud would include realtors or mortgage originators, who arrange to secure the property with an option contract with buyers (some willing participants to the fraud) ready to purchase. The short sale approval process includes a BPO (broker price opinion) or CMA (comparable property analysis) which qualifies the request for a lower than mortgage amount sales price. The realtor or originator will have a ready buyer waiting to purchase the property, usually at a higher price, upon approval. Enter the appraiser, who will appraise the property for much a higher value than what was presented in the BPO or CMA and the realtor or originator walks away with a hefty profit and commission. The fraud in this scenario is that the lender based their decision on misrepresented information from an industry insider who ultimately harmed a disadvantaged consumer and lender for a profit.
"Elderly and Immigration Frauds – For the purpose of this discussion, I will focus on identity fraud or theft. Although the industry is experiencing an increase in reverse mortgage fraud. Identity fraud is not new, but it is emerging as a fraud of choice for straw buyer pools. Increased focus on mortgage fraud investigations and prosecutions, fraudsters are targeting consumers who are less likely to notice inconsistencies in their personal information or credit position. Industry insiders leverage the use of the consumer’s information to generate false applications for home purchases or equity lines recognizing that it may be years before anything is noticed by the victim. Elderly consumers are targeted for equity skimming or theft when there is a substantial amount of equity in the property, as well. Falsified applications for equity cash outs are submitted to unsuspecting lenders and unknown to the actual homeowners. This is facilitated by filing false lien releases, purchase liens or deeds in the county clerks’ office so that ownership is qualified prior to the application process.
"Fraud evolves, it is never eliminated. Fraud takes root in environments rich with desperation, easy prey and greed."
HW: Is fraud spreading rapidly and what can banks do to protect against?
Denise: "Rapidly, No. Widely, Yes.
"We expect fraud to increase as more people become desperate and susceptible to fraud opportunities. The industry is saddled with minimizing losses as a result of loan defaults and ARM turnover modifications, while trying to maintain a healthy balance sheet. Lenders must become more vigilant in their efforts to share information and develop consistent methods for funding quality loans. I don’t know how many times I’ve read that lenders believe they are in good shape with fraud detection tools. As lenders attempt to be more productive with less people, so must their processes at the front-end of origination.
"Early focus on key fraud contributors can help minimize the costs associated with due diligence during underwriting and other downstream costs. Identity theft has become much easier with the advent of technology, so this needs to be balanced with direct source verifications. If the identity of the applicant is in question, the entire transaction is a risk. Insiders perpetrate the most devastating financial losses to any lender. Verifying insider credentials and business risk associations is critical for minimizing exposure to adverse activities. Many lenders leverage a performance score as a determining factor for risk exposure.
"Using a performance score on prior loan transactions can indicate a degree of risk, but the level of risk is much greater when through background checking and monitoring processes are not in place. The transaction itself can be a very good indicator for risk exposure as information is often misrepresented at the time of application. Lenders that participate in an information sharing program that protects the lender’s identity can enable greater visibility into misrepresentations across multiple pipelines (internal and external), present data that indicates collusion among participants and provide analytics that reveal potential fraud schemes, etc. While this is not a simple change in business practices, it is required if the industry intends to collectively prevent and better detect fraud."
HW: LexisNexis wears many hats, and getting one's head around all of the things offered can be tough to do and at times confusing. Can you tell us what you do with risk analytics? You obviously aren't a credit rating agency, but without supplying ratings to risk, how do you quantify risk for your clients?
Denise: "LexisNexis Risk Solutions provides information and analytics solutions for multiple industries. In Financial Services, we provide analytic scores to help identify risk associated with identities, application fraud, credit, application misrepresentation, fraud scenarios, etc. Some of our solutions like RiskView can quantify the risk exposure when doing business with a consumer.
"Our InstantID product is used for verifying identity related information and the degree of risk that the identity may be compromised. For high risk scores, the product asserts recommended remedies for mitigating inconsistencies or non-verifiable data as provided by our customers. Fraud incidence in general, is held very closely to the vest by our customers. It is recommended however, that lenders balance the use of analytics with sound verification policies since information can be manipulated and is not always reported accurately."
HW: More importantly how is risk changing in the face of offering mortgage solutions and how are you meeting that challenge?
Denise: "Risk solutions that address mortgage fraud is changing in that they are being leveraged for every transaction. Heightened investor, regulatory and legislative mandates are requiring lenders to own responsibility for their costumers, business partners and balance sheets. That means a significant amount of checks and balances to ensure thorough verification of information and elevated risk confidence."
HW: On your website, it states as a core mission that your department is about "Leveraging cutting-edge technology, unique data and advanced scoring analytics, [so] we are able to provide our clients with total solutions."
How do you strike that of so difficult balance of scoring versus data in order to offer those solutions? Meaning, do you employ some sort of software forecasting equipment, or merely look into the crystal ball on your desk?
Denise: "How do you strike a balance of scoring versus data? That’s the million dollar question! I wish I had a crystal ball. The balance between scoring and data should not change, as one over the other will create imbalance. Scoring is a byproduct of information or data and without one, the other is of little value. Data can be manipulated and technology has provided an path for fraudsters. If the data is inconsistent or manipulated then the scores will reflect that as well. It is for this reason that both must be employed in order to be successful at minimizing risk.
"For example, an applicant may score a low risk on their identity only because they did a great job assuming the attributes of an identity and actually built a seemingly legitimate profile. If the customer uses the score only as the basis for a risk decision, this would quickly become very problematic and they would be targeted by fraudsters. The same scenario above coupled with information tied to a social security number, address and/or name may reveal multiple identities associated with the input information. Or, inconsistencies in the information when compared to the identity thief’s application information. Great scores and questionable information equals a risky transaction"
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