Archive for December, 2010
Metro Phoenix home prices are headed for a new low, if they haven't already hit it.
Median prices for the sale of existing homes have been falling since June, when a federal homebuyer tax credit expired and an increase in foreclosures helped drive down prices that had been steady for nearly a year.
A new low would create a double dip in a market that has already been on a harrowing ride.
Prices rose to about $250,000 during the boom of 2004-06 and then collapsed amid a mortgage crisis and an economic recession. They bottomed out at $119,900 in April 2009, according to the Information Market, a real-estate research firm.
For all the talk about putting people in homes, protecting borrowers from foreclosure and complying with government mandates, the home finance business is still primarily engaged — like any other business — in making money.
Judging from the conversations I've had this year with mortgage professionals, I am sure that industry folk understand this. I'm not so sure about regulators.
I took out a mortgage to buy my home, and I send in my check every month. As a consumer, I don't want to get ripped off on my next mortgage any more than the next guy does. But that doesn't mean that I think it is OK for people in this industry to work without being fairly compensated. So when I read that the Federal Reserve is busy making rules about how loan officers can be compensated in our industry but not providing enough specifics for lenders to know what is acceptable and what is not, it tells me there's a serious disconnect.
It didn't surprise me much to learn that loan brokers are considering filing a lawsuit against the Fed over its rule. Granted, these guys have had much of their trade group support yanked out from under them during the downturn and may not actually have the resources required to have much of an impact, but I sense that their frustration level is at an all-time high.
It will get worse if John Courson, president and CEO of the Mortgage Bankers Association, is right and mortgage lenders pull way back on loan officer compensation in order to mitigate the risk of noncompliance. And Courson is probably right. Bankers are — as I've pointed out many times — risk managers and they excel at mitigation. They'll err on the side of caution if necessary, much to the chagrin of their loan officers.
We are already seeing some innovative wholesale lenders tightening the screws on third-party originators in order to get the loans they need with as little risk as possible. That's translating into lower pay for front-line originators.
The government seems to want to spell out the compensation up front so that borrowers know what they're getting into before they sign the deal. I have no problem with that. I also think it's a great idea to kill compensation platforms that pay originators more for originating riskier loans. But why can't loan officers make more money for originating higher quality loans?
It amazes me that we have a financial services industry that can slice up risk in a million ways in order to find innovative ways to sell it, but they can't seem to slice up the resulting revenue off a loan in a way that can fairly compensate a loan officer or lender that originated the loan. Risk is a subjective measurement. You don't know if it's really there or not until you realize the loss. Revenue, on the other hand, is guaranteed, at least after a check clears the servicer's account.
This is going to be important in 2011 because next year the nation's biggest banks are going to have to admit (again) that they are not in a position to form or maintain the kinds of relationships that lead to steady originations across a national marketplace and wholesale lending will come back with a vengeance. The only question I have is this: Will there be any quality loan originators in the marketplace if the government continues to make it difficult and dangerous for lenders to compensate them?
Rick Grant is veteran journalist covering mortgage technology and the financial industry.
Follow him on Twitter: @NYRickGrant
Americans are missing the biggest opportunity to create long-term economic stimulus.
Consider this: creating a program that could guarantee universal access to low-cost home mortgage refinancing at the current rate of 4.5 percent.
Many now trying to refinance at this historically low rate face major roadblocks — either they don’t have not enough equity in their home or they confront stringent income verifiability standards. But neither should matter if they have a mortgage — a lending institution already took the financial risk by issuing the original loan.
New York prosecutors sued Ernst & Young, accusing the accounting firm of helping to hide Lehman Brothers Holdings Inc's financial problems, the first major government legal action stemming from the Wall Street bank's 2008 downfall.
The civil fraud case seeks more than $150 million in fees that Ernst & Young received from 2001 to 2008 as Lehman's outside auditor, plus other unspecified damages.
Despite nationally recognized efforts to help residents avoid foreclosure, the state of Maryland has been slow to make mortgage payments more affordable for the struggling homeowners whose loans it owns.
Gov. Martin O'Malley and his administration have pressed national loan servicers in recent years to work with homeowners rather than foreclose. But it wasn't until four months ago that the state — which lends money to first-time homebuyers — designed a program to lower monthly mortgage payments to an amount that its borrowers in trouble could afford, The Baltimore Sun has learned.
Only three such modifications have been approved so far.
Servicers started 339,000 foreclosures on Fannie Mae and Freddie Mac mortgages in the third quarter, more than double the 146,507 modifications completed, according to data from the Federal Housing Finance Agency.
Counting short sales, deeds-in-lieu, forbearance, repayment plans and other actions, servicers kept 227,300 homes out of foreclosure during the three months ended Sept. 30, but that's down 16% from the second quarter. Foreclosures starts, however, increased 23% in the same period for the most the FHFA has ever reported.
Meanwhile, modifications dropped 14% in the third quarter with more than two-thirds of those coming from outside the Treasury Department's Home Affordable Modification Program, which has been on the decline on bank portfolios as well.
The Obama administration has applied more pressure on Fannie and Freddie to writedown more loans in recent months, an effort some analysts believe the two companies will remain reluctant to do.
But the GSEs boosted their numbers in the Home Affordable Refinance Program, which allows borrowers who are current on their mortgage to refinance and reduce monthly payments at loan-to-value ratios up to 125%. Fannie and Freddie servicers put 45,000 loans through HARP in September alone, up 55% from the previous month and highest total of any month since the program began in March 2009.
While foreclosures outnumbered prevention methods, the overall health of the government-sponsored enterprises' portfolios has improved. Mortgages in the 60-plus day delinquency bucket declined for the third-straight quarter, this time by 6.8% to roughly 1.5 million loans.
Write to Jon Prior.
In California, where foreclosures are more abundant than in any other state, homeowners trying to win a loan modification have always had a tough time.
Now they face yet another obstacle: hiring a lawyer.
Sharon Bell, a retiree who lives in Laguna Niguel, southeast of Los Angeles, needs a modification to keep her home. She says she is scared of her bank and its plentiful resources, so much so that she cannot even open its certified letters inquiring where her mortgage payments may be. Yet the half-dozen lawyers she has called have refused to represent her.
