Archive for March, 2011
Reforms under the Dodd-Frank Act will go further to benefit smaller community banks than the ineffective rules established just before the crisis, Federal Deposit Insurance Corp. Chairman Sheila Bair said before the Independent Community Bankers Association Tuesday.
Two weeks into her tenure in 2006, Bair finalized a rule that allowed the FDIC to build a reserve during stretches of growth and possibly keep the regulator from having to charge banks during a downturn. The brunt of the initial assessment fell on newer banks, and the executives expectedly complained.
"I remember well the strongly worded comment letters and tense meetings with newer banks, many of whom followed nontraditional strategies through Internet deposits or affiliations with investment banks," Bair said. "They were not happy with us, and I recall many saying we had no need to build the fund because of the health of the industry and lack of bank failures."
Then, the crisis hit. The Deposit Insurance Fund dropped to a negative $20.8 billion balance in the fourth quarter of 2009. Bank failures mounted to an 18-year high of 157 in 2010.
"Yes, they assumed, the good times would go on forever, so why in the world did we need more money? The rest, as they say, is history. We went ahead with the new assessment rate schedule, which was my first major rulemaking just two weeks into my tenure," Bair said. "But as it turned out, it was too little, too late."
But going forward, Bair said the 2,000-plus page Dodd-Frank Act would go toward helping these smaller companies that have taken the brunt of the failures. Had the bill not been enacted, the deposit insurance limit would have reverted back to $100,000, and the "too big to fail" stigma would have lasted.
Though some market commentators maintain "too big to fail" is alive and well, regulators stress they have the tools in place to liquidate such a giant corporation in the next crisis. Bair said Dodd-Frank required large financial institutions to have the same capital cushions as community banks.
Echoing what Elizabeth Warren, the architect of the pending Consumer Financial Protection Bureau said at the same meeting Tuesday, Bair said the crisis cannot be blamed on community banks, and thusly neither should the reforms from that crisis be aimed at them.
"Dodd-Frank is not a perfect law. There are many things in it that I would like to change. But, on balance, it is a good law and one which I think will strengthen, not weaken, community banks," Bair said.
Write to Jon Prior.
Follow him on Twitter @JonAPrior.
Tags: banks, community banks, Dodd-Frank, FDIC, Sheila Bair, smaller, Too big to fail
Posted in Origination/Lending, Top Stories | No Comments »
OneWest Bank will exit the reverse mortgage lending business, a spokesperson for the bank confirmed Tuesday.
The Financial Freedom department it purchased from the failed bank Indymac in 2009 originated a total of $1.4 billion, making it the third largest reverse-mortgage lender that year.
A reverse or Home Equity Conversion Mortgage allows the borrower, who must be at least 62 years old, to convert a portion of the equity in the home for cash.
No repayment is required until the borrower no longer uses the home as a principal residence or does not meet the obligations of the loan, often in the event of death.
OneWest isn't the only bank leaving the business.
In February, Bank of America (BAC: 7.255 -0.62%) ceased making these loans, and Wells Fargo (WFC: 29.3425 +1.01%) moved its reverse lending away from its wholesale or broker channel.
Write to Jon Prior.
Follow him on Twitter @JonAPrior.
Tags: Bank of America, HECM, Indymac, OneWest, reverse mortgages, Wells Fargo, wholesale
Posted in Origination/Lending, Top Stories | 3 Comments »
Two government organizations said it is not necessary to remove all electrical wiring in homes with Chinese drywall during the remediation process.
The Department of Housing and Urban Development and the Consumer Product Safety Commission recently released an updated version of their guidance on Chinese drywall remediation. The change comes after a study by Sandia National Laboratories found there were no correlating hazardous effects.
"After simulating more than 40 years of corrosive conditions that could exist in problem drywall homes, Sandia staff did not observe any acute or long-term electrical safety events, such as smoking or fire," HUD said.
"Accordingly, it is the belief of CPSC staff and Sandia that even simulated long-term exposure of wiring and other electrical components to hydrogen sulfide gases does not indicate a safety hazard to the home’s electrical systems," the Sandia report said.
The National Association of Home Builders released guidance last week, advising members to remove and replace all low-voltage, signal or data wiring, as well as to remove and replace the coils in all air-handling units and all duct work and sheet metal in the property.
Smoke alarms, carbon monoxide detectors, electrical receptacles, electrical switches, circuit breakers, gas service piping and fire suppression sprinklers must still be replaced under the new HUD/CPSC guidance. This is in addition to removing the problem drywall.
HUD hopes the new change will reduce the cost of remediation for many homes. As of Jan. 7, there were 3,770 incidents reported of defective drywall, according to the CPSC. Florida has the most with 2,137 cases, followed by Louisiana with 704 cases and Alabama with 215.
Knauf Plasterboard Tianjin is one of the largest makers of Chinese drywall and began a pilot remediation program in early February.
Write to Christine Ricciardi.
Follow her on Twitter @HWnewbieCR.
Tags: Consumer Product Safety Commission, Department of Housing and Urban Development, HUD, Knauf Plasterboard Tianjin, National Association of Home Builders, Sandia National Laboratories
Posted in Secondary Market/Investors, Top Stories | 3 Comments »
Home sales are expected to remain soft in the near term after mortgage applications fell 7.9% in January and another 3.3% in February, Fannie Mae said in its March Economic Outlook report.
The report also highlighted the pressure excessive housing inventory has placed on prices.
"Sales of existing homes have risen during five of the past six months, and in January were up by 39% since reaching their cycle's low last July," the report said. "However, the bulk of the gain has come from distressed sales."
The spring season, which usually is a robust time for home sales and building activity, could continue to deliver disappointing results with homebuilders' confidence stuck at depressed levels, the report said.
"Underlying trends in homebuilding activity remain weak," Fannie Mae said. "Total housing starts rose sharply in January solely from a surge in starts in the volatile multifamily sector. Single-family starts fell to the lowest level since May 2009."
Total construction spending also remained weak in the first quarter as the industry dealt with severe winter weather.
"The picture for residential spending was seemingly healthy, rising by 5.1%," the report said. "However, the gain was largely a result of a surge in home improvement. Construction spending excluding improvements — a better measure of underlying trends than total construction spending — fell 2.6%."
In terms of the overall economic picture, Fannie said the economy entered 2011 with less momentum than previously estimated.
Looking ahead, Fannie said two fundamental risks remain: shocks from oil prices and further tightening of fiscal policy.
Write to Kerri Panchuk.
Tags: Fannie Mae, home construction, home prices, home sales
Posted in Origination/Lending, Slider, Top Stories | 10 Comments »
A double-dip in housing could arrive this year with national home prices only 1% away from a new "post-crash low," MacroMarkets said in its March 2011 Home Price Expectation Survey.
MacroMarkets compiled the report by gathering the opinions of more than 100 economists, real estate experts and investment and market strategists.
"Overall, the sentiment among our expert panel regarding the U.S. housing market outlook, continues to deteriorate, " said Robert Shiller, co-founder of MacroMarkets. "Now they are expecting only a weak recovery, and even that is not until 2013."
Shiller said only a few of the respondents expect to see a real home price recovery by 2015.
Beyond those few, the majority are bearish on the next few years. Half of those interviewed expect to see a double-dip in housing this year as legal issues stall the foreclosure process. Not to mention the pressure the housing sector is receiving from unemployment, tighter credit guidelines and rising home inventories that push out new home sales, the report said.
Analysts and housing experts interviewed for the survey varied on just how much they expect home prices to decline in the fourth quarter of this year. The sliding scale of predictions runs the gamut, from Dean Baker, co-director at Center for Economic & Police Research, predicting an 11% decline year-over-year in home prices in the fourth quarter of 2011 to National Association of Realtors Chief Economist Lawrence Yun predicting prices will remain flat year-over-year in 4Q.
Other analysts include Chris Whalen with Institutional Risk Analytics, who expects prices will drop 10% year-over-year in the fourth quarter and IHS Global Insight chief economist Nariman Behravesh, who is predicting a 6.70% drop.
Write to Kerri Panchuk.
The table above summarizes the panel’s March projections for home prices for the coming 5 years.
Tags: double-dip, home prices, MacroMarkets, recession
Posted in Secondary Market/Investors, Top Stories | 3 Comments »
Woodward Asset Capital is launching a new business in April to reduce short sale fraud and condense negotiation timelines.
VerifiedShortSale will enable banks to receive short sale offers directly from agents representing buyers and investors, as opposed to listing agents who represent the borrowers.
"The biggest problem in this market is that agents aren't working for the banks, and they realize that," Ron Jasgur, president of Woodward Asset Capital, told HousingWire. "Many times agents will put a property on the market for a price considerably less than it's worth."
He also said some real estate agents purposefully give the bank a deceptive listing price. Meanwhile, they sit with another, higher offer in their back pocket. If the scam is successful, the bank is unaware that it could get a higher price for the property, and sells low to a borrower in cahoots with the agent.
The agent will then get the opportunity to resell the property for the higher, alternate offer. This is a fraudulent process known as flopping.
Considering that big banks such as Wells Fargo (WFC: 29.3425 +1.01%) publicly call for quicker short sales, there is an indication that flopping may increase, as financial institutions push through these deals.
"With our software, flopping virtually disappears, and every sale approval can be defended without question," Jasgur said. "No longer is the listing agent able to hold anything back from the bank," because every and all offers are submitted by buying agents.
The direct communication between banks and investors also will speed up short sale approval timelines, Jasgur claims. Investor approval is a prerequisite to a successful short sale. And since lenders will have all offering information from vendors, they can quickly close a deal and negotiate with any secondary lien holders with interest in the mortgage.
"Banks foreclose on properties all the and borrowers go delinquent all the time. But short sales are becoming a lender's best interest because they are more cost effective," Jasgur said. "This technology finally brings the timeline for resolving an approved short sale in line with that of a private sale. The quicker the sale, the smaller the loss."
Write to Christine Ricciardi.
Follow her on Twitter @HWnewbieCR.
Tags: CoreLogic, short sales, VerifiedShortSale, Wells Fargo, Woodward Asset Capital
Posted in Servicing/Default, Top Stories | 1 Comment »
As regulators stiffen mortgage underwriting requirements, some homebuilders stand to lose more business than others.
Federal regulators will release a proposal in April defining what mortgages securitizers and, by extension lenders, will be forced to maintain 5% risk retention for. Early indications are that the downpayment for these qualified residential mortgages could range from 10% to 20%.
Meanwhile, lawmakers are crafting a new version of a housing finance system that would not only reduce the role of the Federal Housing Administration – which is exempt from QRM requirements – but also tighten the standards on these loans to better mitigate risk to taxpayers.
Analysts expect mortgages written outside of these standards to shrink, which could be a problem for already struggling homebuilders who rely on these loans.
Research released Tuesday by investment bank Keefe, Bruyette & Woods showed homebuilders varied on their reliance on FHA loans in particular.
For most of these companies, FHA mortgages back just over 50% of their volume, but that goes up to as high as 65% for D.R. Horton (DHI: 14.245 +0.89%), KB Homes (KBH: 9.7898 +0.93%) and Lennar (LEN: 21.84 -1.31%).
Less impacted companies would be the luxury builder Toll Brothers (TOL: 22.2401 +0.77%), which already touts an average 30% downpayment from its homeowners. Pulte Homes (PHM: 7.735 -0.83%) has one-third of its mortgages backed by the FHA, and would be spared the brunt of the restriction should it come.
"Recent builder results have noted a tightening in mortgage credit in the fourth quarter, primarily through more stringent documentation but in some cases higher FICO score requirements," KBW said. "This has resulted in an increase in order cancellation rates."
The National Association of Homebuilders addressed these concerns to regulators this month in a joint letter with the National Association of Realtors and two consumer advocacy groups.
"We realize the Administration and the regulators do not need to be told how vital the recovery of the housing market is to the fate of the nation’s economic prosperity," the groups wrote. "But we do feel obligated to tell you that, in our opinions, unnecessarily high down-payment requirements under QRM would make a near-term housing recovery almost impossible."
But KBW analysts expect the companies will be forced to make adjustments, such as reducing the focus on entry-level loans, increase energy efficiency to reduce monthly homeownership costs, and target land development in less FHA-dependent markets.
"While volumes are at historical lows and should trend up over time, in the future builders will have to devise operating strategies to contend with tightening mortgage credit and increasing FHA fees, down payment requirements, and reduced loan limits," KBW said.
Write to Jon Prior.
Follow him on Twitter @JonAPrior.
Tags: Bruyette & Woods, FHA, GSE, homebuilders, KBW, Keefe, mortgage, NAHB, NAR, National Association of Homebuilders, National Association of Realtors, QRM, reform, risk
Posted in Origination/Lending, Slider, Top Stories | 7 Comments »
The Federal Reserve balance sheet shifted dramatically in 2010 as the central bank gobbled up Treasury securities and assets supported by mortgage loans.
At Dec. 31, the Fed reported total assets of $2.43 trillion, up $193 billion from 2009, the Federal Reserve said in its consolidated 2010 financial report released Tuesday. The expanded balance sheet includes an $86 billion increase in mortgage-backed securities acquired from government-sponsored enterprises and federal agencies.
The Fed also added $261 billion in Treasury securities in 2010. The Fed began purchasing Treasury debt late last year as part of its quantitative easing plan, or QE2, which extends through the summer. Under QE2, the Fed is reinvesting $600 billion of maturing securities into Treasury debt.
Those additions to the balance sheet were partly offset by a $96 billion decline in loans to depository institutions and a $23 billion drop in loans extended under the Term Asset-Backed Securities Loan Facility, the Fed said.
On a year-over-year basis, the Fed's income grew by $28 billion from 2009 levels, hitting $82 billion in 2010. The Fed attributes this increase to a $24 billion gain on earnings interest tied to MBS holdings.
Write to Kerri Panchuk.
Tags: Federal Reserve Bank of Cleveland, securities, U.S. Treasury
Posted in Secondary Market/Investors, Top Stories | 2 Comments »
Elizabeth Warren, the special adviser to the Treasury Department, told an audience of community bankers Tuesday that the Consumer Financial Protection Bureau she is working to construct will look to cut regulatory costs for smaller financial institutions.
Created under the Dodd-Frank Act, the CFPB will become the primary regulator for the entire mortgage industry when it opens July 21. Warren is currently in charge of building the agency and is likely to be nominated as its director.
But community bankers are troubled by the arrival of yet another regulator. Conforming to new transparency and reporting requirements would put smaller banks at a competitive disadvantage with those companies that can afford the compliance costs.
But Warren, speaking before the Independent Community Bankers Association in San Diego, addressed this concern and promised the agency would keep those costs to a minimum.
"I appreciate the widespread anxiety and frustration over the future of community banks and other small financial institutions," Warren said. "I know that you want a regulatory structure that doesn’t require an army of lawyers. Big banks may be able to afford to hire all those lawyers, but you cannot."
The CFPB's first order of business is to combine the Trust in Lending and Fairness Act disclosure document with the one required under the Real Estate Settlement and Procedures Act.
"One of the amazing things about this new consumer agency is that it has the opportunity to cut back on regulatory costs. With your help, we have set our first initiative squarely in mortgage documentation," Warren said. "When it comes to piles of paperwork, less is better for you and your customers."
Warren said community banks did not cause the financial crisis, and she vowed to work with these businesses to promote clearer products in the future.
"Some of the complicated papers that consumers receive – at a real estate closing, for example – are required by government regulations," Warren said. "This complicated, duplicative paperwork forces small financial institutions to reallocate precious resources away from serving customers and toward filling out more forms."
But Republicans on the House Financial Services Committee recently challenged not only her credibility but the scope of her authority. Committee Chairman Rep. Spencer Bachus (R-Ala.) introduced a bill that would establish a commission, not a director to head up the CFPB in an attempt to quell the agency's new powers. Committee members even questioned the agency's involvement with the current foreclosure investigation from the 50 state attorneys general.
On CNBC's "The Call" Tuesday morning, Warren addressed the concerns, echoing the same points she made before the committee.
The agency will, according to Dodd-Frank, be the most scrutinized in government because it relies on Congress for budget considerations and that a separate council of federal regulators can overrule the CFPB with a vote. As for the investigation, Warren said her involvement is not out of the ordinary.
"They asked for our assistance, and we told them what we thought," Warren said in the CNBC interview. "When asked by someone else in government to help in a law enforcement matter, I'm proud to assist with that."
Write to Jon Prior.
Follow him on Twitter @JonAPrior.
Tags: CFPB, CNBC, Dodd-Frank, Elizabeth Warren, Independent Community Bankers Association, mortgage, Treasury Department
Posted in Origination/Lending, Top Stories | 2 Comments »













It must have seemed like a brilliant idea, in the beginning. When life isn’t the way you want it to be and your elected officials can’t hear you over the voices of those with more money to contribute, take your case to the courts, plead your case for justice before those who only exist to check the power of the state and balance the needs of the people against the rule of law.
Judges were respected just like rulers, back then. In fact, the first Chief Justice of the United States, John Jay, was the president of the Continental Congress of the United States from 1778 to 1779.
You may recall Jay from his work on the Federalist Papers with Alex Hamilton and Jim Madison. No? Well, it was a long time ago.
This was back when government spoke through statesmen, revolutionaries, diplomats and founding fathers. Today, government speaks mainly through attorneys and bureaucrats. When a politician speaks, you can be sure some attorney somewhere has pre-approved the remarks.
It’s the same with our publicly traded corporations and our entire medical industry. Say the wrong thing, lead someone to believe that they might make a good return or recover from cancer when the opposite occurs and prepare for a legal battle. In a world as complex as ours, there will always be those who feel life didn’t go their way. Our system makes it possible for them to take their case to the courts.
Alas, today, they are not likely to appear before a statesmen or a diplomat. They are very unlikely to have a revolutionary for a judge. Today, they will most likely appear before an attorney. If the case is important enough, they most surely will, as federal judges and judges in the appellate courts all have law degrees. Some lower court judges do not.
The problem I have with attorneys getting involved in every important decision that gets made in this country is one of scope. Attorneys are trained on the details. By choosing which details to focus upon, they can guide the conversation into a corner. They can lead a judge, for instance, to want to throw out a foreclosure proceeding against a borrower who hasn’t made a payment in two years because the signature on a particular document doesn’t meet a certain set of requirements.
I have to believe that a statesman would look at these cases differently.
With millions of Americans bringing their cases before thousands of U.S. courts each year, we’ve refocused the concept of American justice. Instead of a macro-scaled check and balance (as with the other two branches of government), the judiciary turned into a microscope wielding monster tasked with ensuring justice for each individual.
And now even justice is getting micromanaged. In order for justice to be served, individual rulings are rendered given the unique set of circumstances that existed at the time of the alleged infraction and made it into the arguments presented to the court.
Is it unjust that mortgage lenders cut corners to move borrowers who weren’t paying their mortgages more quickly into the foreclosure pipeline? Was it unjust that the same lenders used the same tricks to refinance more borrowers into lower interest rate loans during the historic refinance boom? Is it unjust that all mortgage brokers are lumped into the “criminal” category when some clearly are good people earning an honest wage? Is it unjust that some brokers feel offended when I point out that the vast majority of them were complicit in the acts that led to the financial crash?
I don’t know the answers to these questions. But I’ll bet you every penny I get paid for this column that any attorney you ask will give you an answer. They know justice. It’s their business.
Still, I worry when I hear attorneys going on too loudly about justice in their work. Of course, I don’t believe their work is about anything other than money any more than I believe mortgage brokers (or bankers or investors) got into our business for anything other than the money. And I have no problem with that. But unlike loan originators, attorneys have a venue made especially for them where they can stand up and address the court and possibly a jury of the defendant’s peers.
Protected by a fence and gate to keep the commoners out, lawyers can clutch their breasts and orate on the evils of foreclosure, the vile vulgarity of the mortgage broker and the benefits of a world where everything is first surveyed and approved by the attorneys for the government. This, they will tell you, if they haven’t already, is the only way to ensure justice for all.
That takes me back, too, to the first half of the 16th century and the reign of Ferdinand I, the Spanish born Holy Roman Emperor, who reportedly said, “Let justice be done, though the world perish.”
Rick Grant is veteran journalist covering mortgage technology and the financial industry.
Follow him on Twitter: @NYRickGrant
Tags: foreclosure, justice, mortgages
Posted in Commentary, Rick Grant, Voices | No Comments »