Archive for September, 2009
A team of Senators, who say they are fed up with the mortgage modification efforts of the nation's largest servicers, believe it's time to make the appropriate changes to make lenders modify certain loans and limit the foreclosure practices of those same firms.
Newly introduced legislation, titled the Preserving Homes and Communities Act of 2009, introduced by Rhode Island Senator Jack Reed (D) and cosponsored by Senators Dick Durbin (D-IL), Sheldon Whitehouse (D-RI) and Jeff Merkley (D-OR), may require some lenders to meet face-to-face with certain distressed borrowers to discuss options to foreclosure.
If successful, lenders and servicers must offer modifications to homeowners if the net present value of modification is greater than that of foreclosure. Limits on foreclosure fees will also be limited and a national database tracking foreclosures will be created. Firms that do not comply may face strict penalties that are not yet disclosed, but according to a statement on the subject, will be "meaningful."
"It’s long past time for the Senate to step up to keep families in their homes and to help lead the way toward economic recovery," he added.
"As foreclosure rates continue to climb, a lasting economic recovery becomes harder to reach," said Durbin. "Until we stabilize the housing market, we simply won’t get a handle on the broader economic crisis. Voluntary efforts to keep families in their homes have failed."
Other points of the proposed legislation will authorize state-sponsored mediation programs as well as a system for distributing grant money to borrowers who are struggling to make payments, regardless of the mortgage product they are participating in.
"More and more households are finding that even with a fixed-rate mortgage that they could afford before the recession, they are just one pink slip away from losing their biggest investment," he adds.
"In the last year, the federal government has taken decisive action and devoted substantial financial resources to shoring up financial markets, averting a potential national and global financial meltdown," said Reed. "Despite federal efforts, the number of foreclosures continues to rise at an alarming rate on pace to surpass last year’s foreclosures by a third."
Write to Jacob Gaffney.
Integrated Mortgage Solutions (IMS) provides a full range of asset management services from inspections, repair and preservation, hazard claims recovery, to loss mitigation.
Cheryl Lang is president and CEO of IMS. She brings more than 25 years of broad mortgage servicing experience with several national, top 25 mortgage servicers and a deep knowledge of conventional, sub-prime and HUD/VA mortgage servicing.
For this episode of In This Corner, Cheryl talks about the challenges facing servicers in the midst of the foreclosure crisis.
HW: How has IMS helped servicers adapt to the influx of delinquent borrowers?
Cheryl: "IMS has expanded its suite of services to assist servicers with managing the mass influx of borrower contact – not only delinquent borrower contact, but current borrowers who are looking for a better "deal" by using a modification to get a lower interest rate. Dealing with current borrowers prevents servicers from talking to the borrowers truly in need by adding more volume to an already stressed call center. By using a "divide and conquer" tactic, IMS can handle the heavy lifting, which frees servicers up to focus on their core competencies. Our services can be utilized by a servicer "al la carte" or as a business strategy that takes the loan through a final solution."
HW: What are the biggest challenges facing today's servicers?
Cheryl: "Servicers are working in an environment that allows for greater government oversight and regulation. These well-intended regulators, while attempting to help a vast majority of troubled borrowers, fail to understand the barriers servicers face meeting these mandates. For instance, it takes one servicer we recently spoke to three days to gather information the Treasury requires for month end HAMP reporting. Servicing systems were not engineered to capture the data elements required for HAMP reporting, so a manual process has been developed to meet the Government requirements."
HW: Is it more beneficial for a bank to foreclose a property or modify a loan?
Cheryl: "IMS agrees with servicers that when a property goes through foreclosure, nobody wins. But a modification should only be a consideration if the outcome is an affordable loan. By modifying a loan that the borrower cannot qualify and ultimately afford, servicers are delaying the inevitable. There are solutions to the problem when a modification will not have a positive outcome. Servicers should find ways for borrowers to leave with dignity, e.g. short sales, deed in lieu of foreclosure, borrower to tenant options, etc."
HW: How has IMS adapted the current foreclosure crisis?
Cheryl: "IMS is a very nimble company that can look forward at a pending crisis and then come up with solutions that fit the borrowers' and servicers' needs. We believe strongly that keeping a borrower in the home is the best option for the borrower, the communities and economic recovery. We have designed a wing-to-wing solution to avoid foreclosure, and IMS will continue to add to that suite of services as the landscape of the housing crisis changes. Having an in-house team of technology experts, mortgage industry experts and creative thinkers gives us the competitive edge we need to succeed and add value to our clients as we all weather this very turbulent storm."
Two House Committee on Financial Services hearings Wednesday focused on overhauling financial products at a time when mortgage lenders and credit-rating agencies (CRAs) that assign ratings to securitized mortgages face criticism over their roles in the housing market collapse.
Lenders often face criticism for marketing and selling unsafe and unsound mortgage products to borrowers that did not fully understand the terms and risks. When the unsuitable mortgages were packaged into securities, CRAs assigned ratings to them based on expected performance.
The mortgages failed to perform as the industry expected, and the residential mortgage-backed securities (RMBS) collateralized by those loans faced sweeping downgrades. The borrowers lost homes in the transaction, and investors lost money — and confidence.
The House hearings represent the latest move by lawmakers to consider legislation that would weave stricter regulation of the securitization market and sweeping reform of the financial services sector.
The full Committee early Wednesday heard testimony from banking industry professionals on the proposed Consumer Financial Protection Agency (CFPA), part of the Administration's proposals for sweeping financial regulatory reform.
Despite a broad sense of support for the protection of consumer interests among the witnesses, American Bankers Association (ABA) president and CEO Edward Yingling urged lawmakers to consider community banks that did not contribute to the causes of the financial crisis. Imposing stricter regulation of community bank business and, potentially, the types of products those banks can offer, would inhibit mortgage lending at a time when credit is already tight.
Yingling supported the creation of risk oversight agency, a strong resolution system for financial firms and more robust regulation of derivatives, hedge funds and mortgage brokers. He supported reform in the need for a more direct focus by federal regulators on consumer issues and the need for more enforcement on non-banks.
He also called for major change to create additional enforcement of banks and credit unions and to increase consumer regulatory powers, according to his prepared remarks.
Industry players on the securitization side of the mortgage market had their say Wednesday afternoon as a capital markets subcommittee heard testimony regarding the reforming of CRAs.
The CRA hearing comes at a time when the House is considering legislation by Rep. Paul Kanjorski (D-Pa.). The Accountability and Transparency in Ratings Agency Act would enforce among other regulations a "collective liability" of the rating agencies to provide to one another information forming the basis of a rating action.
Raymond McDaniel, chairman and CEO of Moody's Corp., summed up the testimony of the CRAs present at the hearing when he said Moody's welcomes reform efforts "likely to reinforce high quality ratings and improve market transparency without intruding on the independence of rating opinion content."
Some of the legislation's proposals not only fail to address the fundamental problems, he added in prepared remarks, but may also have the opposite effect and reduce transparency and the availability of diverse, independent opinions.
Stephen Joynt, president and CEO of Fitch Inc., parent company of Fitch Ratings, presented prepared remarks opposing the legislation's provision for "collective liability."
"Much of the information is our own (reflecting our own proprietary intellectual property) or from third-party information vendors with whom we have contracted and do not have redistribution agreements," Joynt said. "We cannot turn that over to every other agency. The idea that we should be responsible for verifying other NRSROs’ information and be liable for the actions of another rating agency even if we did not rate the bond is very problematic."
Robert Dobilas, president and CEO of Realpoint, a rating agency, indicated his concern over the proposal to make all Nationally Recognized Statistical Rating Organizations (NRSROs) "jointly liable" for a civil judgment if the agency facing the suit cannot satisfy the judgment.
"This is an unprecedented concept with respect to the inter-relationship of competing companies and it is particularly inappropriate for smaller companies like Realpoint to be guarantors for our multi-billion dollar competitors," Dobilas said in prepared testimony. "A related proposal essentially would require every agency to review and approve every other NRSRO’s work. To do so, each agency would need to be an expert in every field and every methodology."
The commercial mortgage sector, which is experiencing a credit crisis of its own, would also be affected by the CRA reform legislation. And market participants that believe proposed legislation would hamper the goal of the securitized credit markets — to provide liquidity for private lending — are speaking up.
The Commercial Mortgage Securities Association (CMSA) issued a statement opposing a proposal to require CRAs to be differentiated for certain types of financial products. Differentiation, or the use of "symbology" in ratings, is overly simplistic and provides little value or information about the credit ratings, CMSA said.
"In fact, a broad coalition of market participants – including issuers, investors, and borrowers seeking access to credit – remain overwhelming opposed to differentiation because it will only serve to increase confusion and implementation costs, while decreasing confidence and certainty regarding ratings," CMSA said in the statement. "Such effects would, in turn, create market volatility and undermine investor confidence and liquidity, which could exacerbate the current constraints on borrowers’ access to capital."
Write to Diana Golobay.
After a spike in mortgage interest rates in June, refinancings sponsored by Fannie Mae (FNM: 0.00 N/A) and Freddie Mac (FRE: 0.00 N/A) declined through the summer, the Federal Housing Finance Agency (FHFA) reported.
From May to June, the average interest rate increased 56bps from 4.86% to 5.42%. Despite the increase, the June rate was lower than November 2008’s rate of 6.09%, when the Federal Reserve announced its mortgage-backed securities (MBS) purchase program.
The government-sponsored enterprises (GSEs) have seen about 93,000 refinanced loans through the Making Home Affordable Refinance Program (HARP) this year, a portion of the more than 3.2m total refinancings completed in 2009.
But since reaching a peak of around 600,000 in June, monthly refinancings have trailed off, and there were nearly 359,000 refinancings in August, according to FHFA data.
In August, the average interest rate on conventional 30-year fixed-rate mortgages (FRM) of $417,000 or less decreased 1bp to 5.3%, the FHFA said. The FHFA also reported the average rate for a 15-year FRM increased 3bp to 4.92% in August.
The data is calculated from the FHFA’s monthly interest rate survey. The survey, conducted at the end of August, reflects market conditions in mid to late July due to the lag time between when a borrower locks in a mortgage rate and the loan closes.
While the sample pool of only adjustable-rate mortgages (ARMs) was too small to calculate an average rate, the contract rate on the composite of all mortgage loans — FRM and ARM loans — was 5.23% in August, down 2bps from 5.25% in July, the FHFA said.
Write to Austin Kilgore.
A new bill introduced to the US Senate would establish national heath standards for formaldehyde in Chinese composite wood products used in housing construction. Shipments of certain building products from China, such as fiber board and drywall, popular during the housing boom, are now under increased scrutiny concerning the overall quality of such products.
The bill arrives amid ongoing concerns from homeowners seeking abatement from lenders as their assets are burdened by potentially dangerous products like Chinese drywall. The imports of the dangerous materials have increased dramatically in the past decade – with China as the main source, according to a release from Sen. Amy Klobuchar (D-Minn.), who introduced the bill with Sen. Mike Crapo (R-Idaho).
A Florida attorney negotiated 90-day abatements, which suspended the mortgage payments for clients who could no longer afford the monthly cost of the loan and the temporary living expense of moving away from the "toxic" homes.
With the rise of the housing boom, concerns have grown about the health hazards posed by high concentrations of formaldehyde, and the domestic wood products industry adopted voluntary standards in response. But competing imports – mainly from China – may contain higher amounts the chemical. Formaldehyde is present in resins used as adhesive during the manufacturing of pressed wood products.
The Formaldehyde Standards for Composite Wood Act, would establish national emission standards under the Toxic Substances Control Act (TSCA) for formaldehyde in new composite wood products, but secondhand products and antiques are exempt.
Under the proposed legislation, these products sold in the U.S. would have to meet a formaldehyde emission standards of about 0.09 parts per million by Jan. 1, 2012 – making the regulations the toughest in the world.
“High levels of formaldehyde are a health threat. This bill will establish national standards that, when fully phased-in, will be the strongest in the world. These standards will both protect public health and ensure an even playing field between domestic wood products and foreign imports,” said Klobuchar.
Concerns continue to rise over imported drywall from China. The US Environmental Protection Agency (EPA) tested samples of Chinese drywall imported between 2004 and 2008 and found certain potentially harmful chemicals not present in drywall manufactured in the US, according to EPA analysis.
Write to Jon Prior.
Foreclosure starts fell 21% to 224,000 in August, and workout plans jumped 28% from July, according to the most recent data from Hope Now, the private sector alliance of mortgage servicers, investors, insurers and non-profit counselors.
Foreclosure sales fell 16% to 75,000 in August, and repayment plans increased by 38%. Loan modifications also gained 7% from July.
“Our data suggests a correlation between the drop in foreclosures and the increase in workout solutions to help at-risk borrowers,” said Faith Schwartz, executive director of Hope Now.
The survey suggests the pace of foreclosures slows as tools such as HAMP and other workout solutions gain momentum.
The data also shows a 6% climb in 60-day delinquent homeowners, 3.3m in August compared to 3.1m in July. The delinquencies could include a number of trial modifications under HAMP that are not yet permanent, according to the survey.
According to the most recent progress report from the US Treasury department, 360,000 trial modifications are underway with the Home Affordable Modification Plan (HAMP), which allocates cap incentives to servicers for the modification of distressed loans.
Write to Jon Prior.
The number of homes sales in Portland, Ore. was at its lowest August level in 15 years, according to MDA DataQuick.
There were 3,063 new and resale houses and condominiums sold in the Portland-Vancouver-Beaverton metro area in August. That’s down 9.2% from July and the lowest level of August sales in the area since MDA DataQuick began tracking the region in 1994.
The monthly decline in sales nearly eclipsed July's 9.3% monthly gain and effectively erased July's 5.8% year-on-year gain, which ended a 40-month run of year-over-year declines. The year-on-year loss continued in August, with sales slipping 0.8% below levels seen in August 2008.
The median sale price for homes in the region was $242,200, up a 0.7% from July but down 10.8% from $271,500 a year ago and down 16.2% from the market peak of $288,858 in August 2007.
Previously foreclosed homes accounted for 15.5% of all resales in the region, up from 14.2% in July and up from 6.8% one year ago. During the month, 675 houses and condos went into foreclosure in the region, down 1.2% from July and up 92.3% from a year ago. The number of August foreclosures is 24% higher than the monthly average during the past year.
Write to Austin Kilgore.
The handling of securities fraud complaints by Securities and Exchange Commission (SEC) staff leaves room for improvement, according to a report by the Office of the Inspector General (OIG).
The report (available to download here) involves a recent review of the SEC's enforcement department, which investigates and prosecutes violations of federal securities laws. Violations under the enforcement's jurisdiction include fraudulent securities offerings and other market manipulations.
The OIG's review, prompted by the uncovering of a the multi-billion-dollar Ponzi scheme conducted by Bernard Madoff and involving securities fraud, uncovered a general response from enforcement staff that SEC lacks guidance on how to analyze complaints.
The staffers assigned to investigate the Madoff case were inexperienced, for example, and failed to exercise due diligence or ask assistance from other offices and divisions. In a survey to enforcement staff members, respondents indicated the degree of impartiality required to perform their duties was unclear.
They also expressed concern over case-handling processes and working relationships within the department. Other respondents indicated the degree of impartiality required to perform their duties and the communication of priorities by management were both unclear, according to OIG.
"Priorities change like the flavor of the day," one respondent said in comments OIG included in its report. "Whatever's 'hot in the news' becomes our priority. Often it feels like we're the dog chasing its own tail."
The OIG recommended 21 measures to strengthen management control, including establishing formal guidance for handling complaints, reviewing and testing effectiveness of policies and procedures on an annual basis and forming a new — or using an existing — working group to review staff concerns over case-handling procedures and inter-departmental relationships.
The director of enforcement at the SEC, Robert Khuzami, said in a response letter dated September 24 that the department will implement the recommendations as part of an ongoing effort to develop a more effective program.
Write to Diana Golobay.
Capstead Mortgage Corporation (CMO: 12.91 -0.39%) implemented the financial accounting software suite of TPG Software, the two companies announced.
Capstead is a Dallas-based real estate investment trust (REIT) that manages a portfolio of adjustable-rate and agency-guaranteed residential mortgage pass-through securitizations. TPG is a Houston-based financial accounting software developer.
“We are very pleased to add Capstead to our growing list of REIT clients. TPG offers the functionalities for accounting, managing risk, and reporting that are critical for real estate investment trusts,” said Cory Sokoloski, TPG Software vice president.
“While we wanted to improve the functionality of our core system, we were keenly aware of the record keeping requirements for our investment portfolio, including related borrowing and derivative activities,” said Mike Brown, Capstead senior vice president and treasurer. “Accordingly, we wanted a vendor with extensive experience in designing systems for mortgage-backed securities with a strong accounting background.”
Write to Austin Kilgore.
Recognize the glass wall of that house listing? Maybe the all-around view of lush foliage and green trees?
Add a classic Ferrari and a young Matthew Broderick to the picture, and you may recognize the property as the famous house featured in "Ferris Bueller's Day Off." Yes, the very house where Bueller's friend, Cameron Frye, accidentally sent his father's Ferrari crashing through the full-length windows.
The four-bedroom, four-bath house — 370 Beech Street in Highland Park, Ill. — is on the market for sale. All it will cost you is $2.3m, according to the listing at Realtor.com. And that's without a Ferrari.
It's been on the market for a few months, and multiple calls to the listing agent were not returned.
Why the house has yet to sell is a mystery, especially considering there is no shortage of fanfare around it — including a Facebook page devoted to fans of the film that might be interested in pooling money together for a bid (the page has 69 members and is called Let's Chip in and Buy Cameron's House!)
The film's director, John Hughes, recently died of a heart attack at age 59. Hughes directed not only Bueller, but "Sixteen Candles," "The Breakfast Club" and (my favorite) "Weird Science" in the '80s. The passing of such an influential director must have been lost in the hype around Michael Jackson's death.
At least, it didn't spark enough public interest to get 370 Beech Street off the market.
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