Archive for June, 2011
CitiMortgage, the mortgage servicing arm of Citigroup (C: 30.42 +0.13%) is paying borrowers an average $12,000 after completing a short sale this year.
Justin Rand, the senior vice president of loss mitigation at the bank, said servicers are putting more of an emphasis on streamlining the process and pursuing a short sale ahead of foreclosure. The short sale process in 2009 took an average 120 days from listing to close. But by reaching out to borrowers instead of waiting for them to ask the bank, short sales now take an average 83 days to complete, Rand said at a panel for the REO Expo Conference in Fort Worth, Texas, earlier this week.
"For Citi-held portfolio loans today, we have a little over 16% of delinquent loans in a short sale program," Rand said, adding that increased from roughly 4% two years ago.
Not only are the timelines shrinking to complete these deals, but the incentives paid to qualifying borrowers – again only on loans owned by Citi – increased in recent years as well.
In early 2009, Citi offered an average $1,500 to qualifying borrowers. That went up to between $3,000 and $5,000 in 2010 and finally up to an average $12,000 so far in 2011, Rand said.
"Incentives will be offered to customers experiencing financial hardship who need funds to proceed with the short sale," a Citi spokesman said. "The amount, which is agreed upon up front, varies according to the borrower's individual circumstances and loan characteristics. It is disbursed to the homeowner when the sale is completed."
The key to a successful short sale, just like modifications, is the timely collection of financial documents. Regulators helped move the process along with guideline changes to programs like the Home Affordable Foreclosure Alternatives initiative, which lessened the amount of documents required.
"It took us about 30 days to collect documentation in 2009 to now less than 10 days," Rand said. "A lot of the time, for seriously delinquent loans, all we need is just a letter of authorization from the homeowner."
David Sunlin, the operations executive for short sales at Bank of America (BAC: 7.22 -1.10%) was on the same panel as Rand. He said the entire industry is becoming more proactive. BofA completed more short sales than REO every month for the last year and a half. The short sale department at BofA grew from 150 people to now over 3,000. Each employee handles roughly 75 cases.
"We're past the point where we're bumbling around losing files," Sunlin said.
Rand said the big shift began in 2009 as the Treasury Department was putting together plans for the HAFA, which would launch in April 2010.
"In 2009, we started a proactive approach, reaching through MLS services and reaching out to real estate agents and customers with underwater mortgages, distressed loans," Rand said. "We're not going to turn anybody away if the short sale meets the net requirement we're looking for."
Write to Jon Prior.
Follow him on Twitter @JonAPrior.
Tags: delinquent, documentation, foreclosure, HAFA, modification, mortgage, REO Expo, short sales, Treasury Department
Posted in Servicing/Default, Slider, Top Stories | 27 Comments »
Wells Fargo (WFC: 29.37 +1.10%) will no longer originate reverse mortgages because of unpredictable home values and restrictions on those loans.
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, often in the event of death.
In March, Wells moved its reverse mortgage originations in house and away from brokers. But now it will cease the product line all together. In 2010, reverse mortgages totaled roughly 2.2% of the bank's $392.5 billion mortgage volume.
Wells said it will continue to service existing reverse mortgages, but new rules made it difficult to determine a seniors' ability to meet the obligations of the loan, such as making property tax payments and homeowners' insurance.
"The government’s HECM or reverse mortgage program was designed in a different economic time," Wells said.
Bank of America (BAC: 7.22 -1.10%) ceased its reverse mortgage lending in February.
Wells said the 1,000 member staff of the reverse mortgage department will be able to apply for other positions at the bank.
Write to Jon Prior.
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Tags: Bank of America, brokers, HECM, loans, originations, reverse mortgages, Wells Fargo
Posted in Origination/Lending, Top Stories | 4 Comments »
JPMorgan Chase (JPM: 37.25 -0.64%) Chief Risk Officer Barry Zubrow testified before Congress Thursday detailing the extraneous amounts of cash upcoming Basel III requirements will keep in the vaults of major banks.
In December, the Basel Committee published a framework for new standards, raising the minimum level of capital banks are required to hold. Along with a conservation buffer required of banks that want to pay dividends to shareholders, financial institutions must maintain 7% common equity.
Zubrow said JPMorgan Chase analysis shows the nine systematically important banks could absorb an instantaneous loss equal to two years of their average losses taken during the financial crisis. That's $203 billion, and the banks would still maintain a 5% Tier 1 common capital ratio.
The banks are Citigroup (C: 30.42 +0.13%), Bank of America (BAC: 7.22 -1.10%), Wells Fargo (WFC: 29.37 +1.10%), Goldman Sachs (GS: 109.88 +1.22%), Morgan Stanley (MS: 18.07 -0.44%), U.S. Bank (USB: 27.78 -0.04%), Bank of New York Mellon (BK: 20.08 +0.40%), State Street Corp. (STT: 38.89 +0.28%) and Chase.
The Basel III standards will be phased in beginning in 2013, rising to a final capital requirement of 4.5% – or 7% with the conservation buffer – in 2015. Combined, all parts of the Basel 3 requirements must be implemented by 2019.
"Nowhere has change been more profound than with respect to capital," Zubrow said.
Federal Deposit Insurance Corp. Chairman Sheila Bair said these institutions and others that did not make it out of the crisis were overleveraged and reform such as Basel 3 will keep another liquidity crisis at bay.
"It is clear in retrospect that, during roughly 10 to 15 years preceding the crisis, regulators around the world gave too much weight to promoting competitiveness as it was viewed from the perspective of financial institutions without sufficient regard to the resulting potential for broad economic harm," Bair said in testimony.
Daniel Tarullo, a member of the Federal Reserve Board of Governors testified the Basel 3 rules don't go far enough in some points. He expressed the need to expand implementation of the requirements to assure international standards are incorporated into U.S. legislation and regulation.
"Here it will be essential for international bodies of regulators to adopt effective oversight and monitoring mechanisms, in order to achieve the financial stability benefits that the minimum standards promise: to prevent the emergence of significant competitive disadvantages for internationally active firms, and promote international cooperation in addressing the technical and policy questions that will arise," Tarullo said.
Zubrow said he supported the Basel III requirements for bringing stability to the financial system, but some rules may prove too burdensome.
"It is a potential surcharge on Globally Systemically Important Financial Institutions (G-SIFIs) that is a bridge too far, and creates costs that risk exceeding the diminishing benefits of higher capital requirements above Basel III minimums," Zubrow said.
Zubrow said Basel III rules effectively require Chase to hold roughly 45% more capital than it did during the crisis.
Christopher Whalen, of Institutional Risk Analytics, said if it's assumed there are no extraordinary losses from European debt problems and U.S. housing woes, the banks could be over capitalized.
"The regulators need to focus on solvency instead of capital," Whalen said.
"Overcapitalized? No. Does the added surcharges go to far, yes. Regulators quite frequently become overzealous following any crisis. This is no different," said J.T. Smith, chief investment officer of the boutique investment bank Aristar Funding Corp. "While I believe that the banks have some heavier than expected losses coming their way, only Bank of America worries me about their ability to survive further deterioration in the housing market."
Smith said Chase showed a profit in 2010 because it released these credit reserves. Most banks did while modifying delinquent mortgages, and doing so will force them to rely on all the Basel III 7% just to meet the loss severities on these loans, Smith said.
"That being said Basel III is enough, anything more is over reaching and the unintended consequences would kill an already weak economy," Smith said.
Write to Jon Prior.
Follow him on Twitter @JonAPrior.
Tags: Bank of America, Bank of New York Mellon, Basel III, Christopher Whalen, Citigroup, Congress, FDIC, Federal Reserve, financial crisis, Goldman Sachs, Institutional Risk Analytics, JPMorgan Chase, Morgan Stanley, State Street Corp., U.S. Bank, Wells Fargo
Posted in Origination/Lending, Top Stories | 2 Comments »
The latest housing report from Capital Economics garnered a lot of attention this week for comparing the last few years to the 1930s.
The subject line of one email HousingWire received Tuesday from the Toronto-based firm read: "US Housing Market Monthly – Worse than the Great Depression."
Coverage on CNBC, later aggregated by the Drudge Report, stated "the housing crisis that began in 2006 and has recently entered a double dip is now worse than the Great Depression."
The economist who wrote the note, Paul Dales, said the level of press coverage surprised him. He said the actual eight-page, 24-chart report focused little on the generational comparison, which happened unintentionally, despite taking prominence in the email subject line.
"During the course of my research, I realized that the fall in house prices has been larger and quicker than during the Great Depression," he said. Dales added that the comparison is not a a publicity stunt nor does he believe his research can be extended beyond commentary on housing price volatility.
"Granted data around the Great Depression are sketchy, but in no way am I comparing the macroeconomic conditions of that time to the current recovery," he said. "I don't think unemployment will reach 25%, for example, or that another recession is guaranteed."
According to Capital Economics analysis of the recent Standard & Poor's/Case-Shiller index, housing prices recently fell by 33%, eclipsing the 31% fall in the late 1920s and early 1930s.
Dales believes prices are likely to fall another 3% this year, resulting in a 5% drop for 2011.
Robert Shiller also provided the possibility a doomsday pricing decline of another 10% to 25% fall.
But this is for house prices, and not the housing market as a whole. It is not to say that things are rosy in other aspects of housing, home affordability is reaching new highs, but access to credit remains constricted. For every foreclosure currently on the market, RealtyTrac estimates, there are another three in the pipeline.
It was a different situation, particularly in regard to foreclosures, in the early 1930s.
About half of all mortgage debt was in default during the Great Depression, according to HousingWire research. By 1932, national unemployment reached 25% according to the Kansas Department of Labor.
The Federal Deposit Insurance Corp. estimates about 9,000 banks suspended operations back in the '30s, resulting in losses to depositors of about $1.3 billion. Annual mortgage lending fell 80% and new residential construction dropped by 80% as well.
What's more the types of mortgages common in the Great Depression were phased out, potentially because of the relative ease in which lenders could foreclose.
According to a research report last year from PMI, in the period before the establishment of the Federal Housing Administration, the Federal National Mortgage Association (the government agency that was the precursor to Fannie Mae), and other government housing agencies, virtually all mortgages were shorter-term (less than 10 years), balloon loans that were callable at any time by the lender.
"With depository institutions needing liquidity during the Great Depression, many loans were called — and with prices having fallen sharply, unemployment having skyrocketed, or both, many homeowners could not pay back the principal amounts of their loans or refinance," the PMI note states. "Therefore, many lost their homes even though they could continue to make their payments."
This scenario does not exist today.
Mark Fleming, chief economist at CoreLogic (CLGX: 14.55 +0.55%), said accurate housing price record keeping did not start until the 1970s, and he supports Dales assertion that Great Depression comparisons are speculative.
"Based on the work of Robert Shiller, in real terms, prices fell prior to the Great Depression between 1916 and 1920 and were relatively stable during the Great Depression," Fleming said. "In more broad economic terms, some have estimated the unemployment rate to have been as high as 25% during the Depression, which is significantly higher than in this or any other recent recessionary period."
"By that economic benchmark, this recession is not comparable to the Great Depression," Fleming said.
Follow him on Twitter @JacobGaffney.
Tags: Capital Economics, CNBC, CoreLogic, Fannie Mae, Federal Deposit Insurance Corp., Federal Housing Administration, Great Depression, home price index, housing prices, Kansas Department of Labor, PMI, Standard & Poor's/Case-Shiller
Posted in Origination/Lending, Slider, Top Stories | 8 Comments »
PMI Mortgage Insurance Co. developed a program that recognizes high-performing servicers with a specialty title designation.
"Our new MODEL servicer program is designed to recognize best-in-class servicers for the work they're doing to prevent foreclosures," said Chris Hovery, PMI senior vice president of servicing operations and loss mitigation. "PMI believes servicers that have demonstrated effective use of these best practices deserve recognition for the positive impact they have in preserving homeownership in communities nationwide."
The company, which is a unit of The PMI Group (PMI: 0.00 N/A), said servicers who receive superior marks on its servicer scorecard and service more than 500 PMI-insured delinquent loans qualify to participate in the program. Servicers must apply and then abide by the firm's best servicing practices and customary servicing standards.
Benefits of the new designation include the ability to use the logo for recognition, fewer foreclosure claims reviews by PMI, and exemption from compliance investigations. A full list of eligibility requirements and rewards benefits can be found on PMI's website.
Earlier this week, PMI announced plans to launch a new mortgage insurance unit, as Standard & Poor's analysts lowered ratings on the company.
HousingWire recently recognized several mortgage industry firms, including servicing, for excellent performance in their respective concentration areas at the Pinnacle Awards Ceremony at REO Expo. Wells Fargo (WFC: 29.37 +1.10%) and Vendor Resource Management won the most awards.
Write to Christine Ricciardi.
Tags: MODEL Servicer Program, PMI Mortgage Insurance Co., PMI Servicer Scorecard, Standard & Poor's, The PMI Group
Posted in Servicing/Default, Top Stories | 2 Comments »
Five investor types increased holdings of commercial and multifamily mortgage debt in the first quarter and total debt outstanding in the sector remained unchanged from the fourth quarter at $2.4 trillion, the Mortgage Bankers Association said Thursday.
Investor groups taking on additional debt in this segment include life insurance companies, federal and state governments, agency and government-sponsored enterprise portfolios, and issuers of structured finance products.
The MBA compiled this report after analyzing flow of funds data from the Federal Reserve. Last week, Standard & Poor's analysts said less than $5 billion of new nonagency residential mortgage-backed securities will come to market this year, a mere 0.5% of peak levels.
Commercial banks, which hold 33% of the debt in this space, experienced an $8 billion drop in total outstanding multifamily and commercial debt holdings last quarter.
"New commercial and multifamily mortgage lending offset the amount of debt paid-off and paid-down during the first quarter, leaving the outstanding balance essentially unchanged," said Jamie Woodwell, MBA vice president of commercial real estate research. "Banks and thrifts and finance companies saw declines in the balances of commercial and multifamily mortgages they hold."
Issuers of commercial mortgage-backed securities, credit default obligations, and asset-backed securities hold 26%, or $626 billion, of the debt, while agency, MBS and GSE portfolios hold about $327 billion, or 15% of the market.
When looking at multifamily mortgages alone, MBS, agency and GSE portfolios hold 41%, or $327 billion, of the outstanding debt.
Write to Kerri Panchuk.
Tags: commercial mortgage debt, Federal Reserve, Flow of Funds, Flow of Funds Data, GSE, MBA, Mortgage Bankers Association, multifamily mortgage debt, Standard & Poor's
Posted in Secondary Market/Investors, Top Stories | No Comments »
Federal Deposit Insurance Corp. Chairman Sheila Bair said there is a possibility the servicing standards from both the recently signed consent orders and the ongoing negotiations with the 50 state attorneys general can be combined.
In April, major servicers signed consent orders with the Office of the Comptroller of the Currency, the Federal Reserve and the Office of Thrift Supervision to settle an investigation into mishandled foreclosures. The agreements required servicers to develop plans for how they would handle troubled borrowers in the future.
Servicers and the 50 AGs made progress during their recent settlement talks, specifically on those servicing standards. A group of Senators sent a letter to the OCC this week asking both the regulators and the AGs to work together on the reform. The OCC and the Fed pushed back the deadline for when servicers would have to submit plans for implementing new standards.
"This is being coordinated with the Justice Department and the state AGs," Bair said in testimony before the House Financial Services Committee Thursday. "There's some hope that this can all be packaged together so that there is one set of standards for both the prospective reforms to make sure we don't have these kind of problems going forward and the look back review that would identify which borrowers were harmed and could receive redress."
New Mortgage Bankers Association CEO David Stevens stressed to Congress in May to combine the variety of efforts establishing new servicing standards into one set these companies can more easily comply with. OCC Deputy Comptroller David Wilson testified before Congress on Wednesday that regulators were careful not to interfere with the ongoing negotiations but that they are coordinating with the Justice Department and the states.
Rep. Maxine Waters pressed both Bair and John Walsh, the head of the OCC, on the look-back reviews. Regulators found foreclosure problems spread industry-wide through their own review of 2,800 foreclosure files and required servicers to hire third-party firms to conduct a more robust audit.
"The sampling that was done in those exams was to establish whether there were sufficient grounds to determine if the servicers had failed in significant ways and that remediation actions, cease and desist orders were needed," Walsh said.
Bair said she wanted to see an interagency examination team review these upcoming third-party audits.
"I think everyone is working in good faith here, but an extra set of eyes, given the importance of the project would be helpful," Bair said.
Write to Jon Prior.
Follow him on Twitter @JonAPrior.
Tags: delinquent, FDIC, Federal Reserve, foreclosure, MBA, mortgage, OCC, reviews, robo-signing, servicers, servicing standards, Sheila Bair, Waters
Posted in Servicing/Default, Slider, Top Stories | 2 Comments »
Fixed-mortgage rates remained resilient this past week, staying stable after hitting six-month lows.
Interest on the average 30-year fixed-rate mortgage inched up to 4.5%, staving off fears it would plunge in the midst of inflation reports, Freddie Mac said in its Primary Mortgage Market Survey.
Overall, the 30-year FRM remained virtually unchanged, growing slightly from 4.49% last week to 4.5% for the week ending June 16. Meanwhile, the 15-year FRM remained virtually unchanged at 3.67%, compared to 3.68% last week and 4.2% a year earlier.
Meanwhile, the 5-year Treasury-indexed hybrid adjustable-rate mortgage and the 1-year Treasury indexed ARM averaged 3.27% and 2.97%, respectively.
"Mortgage rates were little changed this week as financial market participants shrugged off the recent inflation reports," said Frank Nothaft, vice president and chief economist of Freddie Mac. "The core producer price index rose just 0.2% in May while the core consumer price index increased 0.3%, both near the market consensus forecast."
Write to Kerri Panchuk.
Tags: 30-year fixed-rate mortgage, 30-year FRM, freddie mac, Primary Mortgage Market Survey, Treasury indexed ARM
Posted in Origination/Lending, Top Stories | 4 Comments »
Housing starts rose 3.5% in May to the highest level in months and well above most analysts' estimates.
The Commerce Department said construction of 560,000 new homes started last month compared to 541,000 a month earlier. Despite the monthly increase, new home construction in May fell 3.4% from last year.
Analysts polled by Econoday were expecting housing starts of 547,000 last month with a range of estimates between 530,000 and 560,000. Economists surveyed by Briefing.com projected starts of 540,000 for May.
In a joint release, the Census Bureau and Department of Housing and Urban Development said single-family home completions grew 2.9% last month to 431,000 from 419,000 a month earlier. The number of new homes completed last month rose a slight 0.4% over April with 544,000 new residences becoming part of the nation's housing inventory. Comparatively, that is down significantly from last year.
The number of building permits issued in May rose 8.7% to 612,000 from a revised 563,000 for April and increased 5,2% from a year ago.
May's decrease in housing starts follows a 10.6% drop in April after a 7.2% increase in March. Housing starts dropped 22.5% in February, which was the largest monthly decline since March 1984.
Write to Kerri Panchuk.
Tags: commerce department, housing starts, new homes
Posted in Servicing/Default, Top Stories | 12 Comments »
Problems are opportunities to change what doesn’t work.
Our housing market is broken and despite what the critics now argue in favor of renting, the economy won’t recover until the housing market recovers and first-time homebuyers become a purchase force again.
In a month traditionally dedicated to celebrating the virtues of homeownership, headlines from the housing sector continue to be grim with news of double dip home values and investor purchases outpacing owner occupants. We’re on track to become a nation of renters and nobody seems to be paying attention to the long-term consequences of that. Many analysts and lawmakers have forgotten that it is the ability of working class families to own land, hearth and home that have distinguished our middle class from the rest of the world.
In the aftermath of World War II, with a still wobbly post-Depression economy, it was a housing expansion fueled by the GI Bill that drove the recovery of the economy. From 1944 to 1952, Veterans Affairs backed nearly 2.4 million home loans for World War II veterans. Before the war, college and homeownership were, for the most part, unreachable dreams for the average American.
The nation needed a shot in the arm then just like it does today. Returning GI youth and desire set the nation on an upward trajectory. What we learned: By helping a group of Americans assimilate back into our world, the rise of the tide helped everyone.
Fast-forward to today’s housing stalemate and the spiral of failed programs, and we’re in a political climate of over correction. Despite good intentions, regulators want to make it harder for creditworthy first-time homebuyers to get into the market with strict qualified residential mortgage regulations. In effect, the rule could essentially lock out first-time homebuyers from everything but the government-insured market. This makes no sense because it cuts off broad access to homeownership. When half of mortgage borrowers said in a recent poll that they would never be able to afford a 20 percent down payment, it’s a crystal clear sign that we’re moving in the wrong direction.
Just like the 1940s, we need to make homeownership attainable, safe and sustainable again for the new generation of buyers at hand. Today the segment of consumers with the purchase power to drive home sales is minorities and, more specifically, Latinos.
The size, birth rate, pace of household formation and buying power of this consumer group are well documented. Their strong family values, passionate worth ethic and entrepreneurial spirit are reshaping the marketplace. Latinos also still have a high desire for homeownership that has not been diminished by the foreclosure crisis. Why does this matter now? Because they represent a growing segment of the consumer group 26 to 46 years of age that are involved in most home sales transactions.
Hispanics and other first-time homebuyer groups can play an integral role in forging a turn around, if we let them. If we make it easier – not harder — for gainfully employed, creditworthy homebuyers to buy a home now we can begin to move the glut of unsold homes and fill shuttered neighborhoods.
The tide can shift with housing as a catalyst. History offers important context to our true problem solving capabilities. If millions of unemployed GI Vets who were given access and opportunity – could help put an economically fragile nation back on track – so can today’s eager young Latino families.
We must not lose sight of the fact that the choices we make today will shape the social and economic opportunities of an entire generation. This much is certain: Without homeownership in the equation, working-class families will not have a financial legacy to leave their children like the World War II Vets did.
Carmen Mercado is the president of the National Association of Hispanic Real Estate Professionals. A copy of the report is available by clicking here.
Posted in Commentary, Open Season, Voices | 1 Comment »