Archive for October, 2011
August and September decisions by Federal Reserve policymakers show they are more inflation-tolerant now than they were a year ago, according to Narayana Kocherlakota, president of the Federal Reserve Bank of Minneapolis.
The Federal Open Market Committee in September said it would buy $400 billion of Treasury bonds in an effort to lower long-term borrowing costs and reinvest principal payments from agency debt into agency mortgage-backed securities. The move, a departure from the Federal Reserve’s previous practice of reinvesting those proceeds into Treasurys, was aimed at lowering mortgage rates.
In August, the FOMC announced that it would keep the federal funds rate at "exceptionally low levels" at least through mid-2013.
Kocherlakota called those actions "inconsistent with the evolution of the economy in 2011" in a speech Friday to the Harvard Club of Minnesota. He was one of three Fed policy makers who dissented from the decisions; the other two were Richard Fisher, president of the Dallas Federal Reserve Bank, and Charles Plosser, president of the Philadelphia Fed.
"There is a cost to adding monetary accommodation: It increases the risk of inflation running above the Committee's objective of 2 percent for multiple years," said Kocherlakota. "The FOMC's actions in 2011 suggest that the Committee is resolving this key cost-benefit tradeoff differently in 2011 from however it viewed the tradeoff in 2010."
Inflation, and the outlook for inflation, has risen markedly since last November, while unemployment and the outlook for the jobless rate have fallen, the Minneapolis Fed president said. These changes "suggest that the committee should have lowered the level of monetary accommodation over the course of the year," instead of increasing it, he said.
While the committee has communicated this year that it views the unemployment rate as high relative to its dual mandate to promote price stability and maximum employment, reducing interest rates to try and boost employment in the short term can lead to higher inflationary expectations and worsening unemployment in the longer term, Kocherlakota said.
"Some have suggested that the unexpected slowness of the recovery is a justification for the FOMC’s increasing the level of monetary accommodation over the past couple of months," said Kocherlakota. "But I disagree with this argument." Instead, a slowdown in the pace of the recovery should be accompanied by a slower reduction in the level of monetary accommodation, he said.
The committee's decision-making this year "has introduced a lack of clarity about its monetary policy mission," said Kocherlakota.
To address this, the FOMC should "explain how it plans to resolve the trade-off between inflation and unemployment in making its future decisions," he said. The committee should also "provide explicit communication about how its chosen actions are indeed consistent with its pre-announced resolution of the inflation-unemployment trade-off."
Write to Liz Enochs.
Tags: dissent, dual mandate, Fed, Federal Reserve, Federal Reserve Bank of Minnesota, FOMC, inflation, maximum employment, monetary accommodation, monetary policy, narayana kocherlakota, unemployment
Posted in Origination/Lending, Top Stories | No Comments »
Congress needs to take the politically risky but necessary move to reform the government-sponsored enterprises to reduce uncertainty in the housing market, according to a report from the Progressive Policy Institute that lays out a plan to reform housing.
PPI lays out a menu of options that it says should be discussed, including calls for "HomeK" accounts to encourage saving for down payments and installment of a permanent homebuyer tax credit.
PPI senior fellows Jason Gold and Anne Kim outline a five-part policy framework for getting the market moving again in a report released Friday, "All of the Above: What to Do About Housing — Now."
Even if solutions to reducing the Fannie Mae and Freddie Mac footprint on mortgage finance aren't readily apparent, Congress needs to at least agree to a process that will lead to near-term certainty, the authors said.
They recommended a bipartisan GSE reform super committee, fashioned after a super panel that is looking at deficit reduction options, to get the ball rolling. The panel would be given a six-month timetable to draw up a proposal that would be subject to congressional approval.
PPI's report said the nation needs a multifacited framework and offered a menu of options that the institute said were all worth discussion, some of which are already under consideration.
"One solution cannot address all," the authors said. "A package of variously sized measures, both big and small, could in the aggregate be enough to provide the boost the market currently needs." But PPI warned that policymakers should be wary of proposals that threaten to dampen demand.
Its five-part plan was split up as follows:
1. Do no harm: PPI warned against a qualified residential mortgage definition in Dodd-Frank that would mandate a 20% down payment. It recommended restoring the conforming loan limits that expired Oct. 1.
2. Throw a lifeline to underwater borrowers: The paper recommends encouraging lenders to write down loans in exchange for a share in future appreciation and a mass refinance of GSE portfolio loans to lower rates, a topic under consideration now by the Obama administration.
3. Soak up supply by sparking new demand: A $5,000 permanent homebuyer tax credit would help low- to moderate-income families. It would require a dollar-for-dollar match by the homebuyer. The "HomeK" account would allow employees to segregate up to 50% of their retirement account into a housing specific sub account. Funds could be withdrawn without penalty and applied toward a down payment. The authors also supports a bulk REO-to-rental program and "homeownership vouchers" that would be targeted toward lower-income, first-time buyers. The report cites American University Professor Robert Lerman who proposes converting the current low-income housing tax credit into 1 million homeownership vouchers to help reduce excess inventory and stabilize prices in hard-hit areas.
4. Fix Fannie and Freddie sooner rather than later: GSE reform is complicated, potentially expensive and divisive, but must be tackled, the report notes. Even if Congress doesn't see an immediate solution, it should get discussions moving.
5. Articulate a new national housing policy: For the last 30 years, housing policy has been driven primarily by the homeownership rate. That thinking needs to be broadened, according to the the PPI paper. The authors suggest appointing a housing policy commission to recommend a national housing policy. "Rethinking federal housing policy cannot be done solely within the confines of (the office of Housing and Urban Development)." The report also suggested creation of a "housing market health index." The new metrics would supplement the homeownership rate as a means of gauging success of federal policy and would includes things such as stability of the housing finance system and affordability of mortgages.
Write to Kerry Curry.
Follow her on Twitter @communicatorKLC.
Tags: All of the Above: What to Do About Housing — Now, American University, bulk REO, Congress, deficit reduction, Dodd-Frank, Fannie Mae, freddie mac, GSE reform, homebuyer tax credit, HomeK, housing, housing policy, mortgage finance, obama, PPI, Progressive Policy Institute, QRM, qualified residential mortgage
Posted in Lead Story, Secondary Market/Investors, Top Stories | No Comments »
President Obama nominated Thomas Hoenig, former chief of Federal Reserve Bank of Kansas City and long-time critic of the largest banks, as vice chairman of the Federal Deposit Insurance Corp.
If the Senate approves Hoenig, he would serve on the FDIC board until December 2015. In March, Hoenig said he would retire from the Kansas City Fed, where he served as president for 20 years. He left Oct. 1.
Leaving freed him up to sharpen his opinions of the largest financial institutions that he said are directly responsible for the financial crisis in 2008. Those institutions have enjoyed unfair preferential treatment since, he said.
"So long as the concept of a (systemically important financial institution) exists, and there are institutions so powerful and considered so important that they require special support and different rules, the future of capitalism is at risk and our market economy is in peril," Hoenig said in a June speech at New York University.
Since 2008, there have been 398 bank failures, of which 326 were smaller community banks.
Jaret Seiberg, an analyst at Washington think tank MF Global, said the nomination is a positive for these smaller institutions. Hoenig has been an advocate for smaller banks and frequently spoke about the cost of regulatory burdens on them, Seiberg added.
"It is hard to find a government official who spoke out more forcefully for breaking up the biggest banks than Hoenig during his tenure as Kansas City Federal Reserve president," Seiberg said. "He believes too-big-to-fail is a serious problem that only can be fixed by making the biggest banks smaller. As FDIC vice chairman, he will have an even bigger platform for this message."
Write to Jon Prior.
Follow him on Twitter @jonaprior.
Tags: big bank, community bank, Dodd-Frank, FDIC, Hoenig, Kansas City Fed, MF Global, obama, SIFI, smaller bank, Too big to fail
Posted in Origination/Lending, Top Stories | No Comments »
The Financial Industry Regulatory Authority and Interactive Data Corp. introduced market activity and pricing-related tables for securitized products that will provide investors with asset and mortgage-backed securities transaction data.
The new tables are similar to MBS indices such as Markit's PrimeX index in that they allow investors to gauge market sentiment around asset-classes and take short or long positions accordingly.
The service represents the full asset-backed and MBS markets and uses transacted prices from TRACE, FINRA's over-the-counter, real-time transaction reporting service. TRACE consolidates transaction data for corporate bonds, agency debentures and asset- and mortgage-backed securities.
Steven Joachim, FINRA executive vice president, said this is the company’s first step to increased transparency in the securitized product market.
"For the first time, securitized products data, including pricing tables and a market activity table — based on actual, consolidated transaction information — will be available to the public,” he said.
The tables display summaries of market activity in the U.S. structured-products markets by product type, number of trades and number of unique securities traded.
The tables are available on FINRA's website and updated every trading day after the market closes.
Write to Justin T. Hilley
Tags: Financial Industry Regulatory Authority, FINRA, Interactive data corporation, Markit, MBS, PrimeX, structured trading activity report, TRACE, transparency
Posted in Secondary Market/Investors, Top Stories | No Comments »
Many mortgage servicers stopped initiating foreclosures in Nevada because of a new law, which carried threats of criminal penalties for faulty filings.
Assembly Bill 284 took effect Oct. 1, making it a felony if a mortgage servicer or trustee made false representations concerning a title. There also will be a $5,000 fine assessed if fraud, such as robo-signing, is detected. The new law requires servicers to provide a new affidavit that provides the amount due on the mortgage, who is in possession of the note and who has the authority to foreclose.
Cathe Cole, vice president of default for Trustee Corps., a designated foreclosure counsel in Nevada for Freddie Mac, and representatives from the law firm Malcolm & Cisneros sat down with the Nevada Attorney General office to voice industry concerns.
"There was a model affidavit provided by attorney general," Cole said. "There was a senior deputy AG there and they were very adamant that there was never an intention for Nevada to be a judicial foreclosure state."
Cole said as long as servicers and trustees show a clear chain of title through to the name of the entity servicers are foreclosing in the name of, there would be nothing to fear. The AG office stressed to her what they are attempting to do is shut down unfair business practices, such as robo-signing, that surfaced last year and they're afraid are still going on.
"They stressed they were not on a witch hunt," Cole said. "They just want to make sure we're doing things correctly. If a homeowner brings a mistake to the court, there's even a 20-day period where we can correct it."
Cases cropped up all over the country during the foreclosure crisis, challenging banks to provide a clear chain of title. Many cases challenged the authority of Mortgage Electronic Registration Systems in foreclosures, a system designed by major lenders and the government-sponsored enterprises to track the chain of title. Cole said the Nevada law was not designed to take on MERS.
"They're intent is not to battle MERS. That's never been their intent. That's for some other court to decide," Cole said. "As long as the assignment chain is in line, that's all they're looking at."
According to RealtyTrac, Nevada has maintained the highest foreclosure rate every month for nearly six years as of August. Home prices in the state have been halved since their peak in 2007, and currently one in every 118 properties is in foreclosure.
Cole said the model affidavit she was provided could be a draft for the one her office is designing for clients. In the end, she said, the industry simply needs to take care of the fundamentals in order to move forward and restore the nonjudicial foreclosure process.
"They talked about mistakes. Never attest to something you don't know. If you're signing an affidavit, make sure you're attesting to what the items are," Cole said. "I'm confident we can move forward with nonjudicial foreclosures. Some are just waiting for what the uniform affidavits are."
Write to Jon Prior.
Follow him on Twitter @jonaprior.
Tags: AG, criminal, foreclosure, freddie mac, Malcolm & Cinseros, MERS, mortgage, Mortgage Electronic Registration Systems, Nevada, robo-signing, servicers, trustee
Posted in Servicing/Default, Top Stories | 3 Comments »
Homeowners hurt by faulty foreclosure practices by the largest mortgage servicers may still get a principal reduction under one potential settlement with the state attorneys general, according to a source familiar with the talks.
The 50 state AGs launched an investigation one year ago when servicers were found to be forging signatures and filing faulty affidavits in state courthouses across the country.
A recent proposal in the settlement talks would force the banks to provide refinancing for underwater borrowers, who are also current on their loan. This new proposal would not take the place of a plan that would use funds from the fine amount to write down principal for some affected borrowers, according to the source, who was not authorized to speak publicly and requested confidentiality.
"The refi plan is in addition to principal reduction, which is still very much a part of this," the source said.
The settlement talks bogged down late in the summer when some AGs grew unhappy about releasing the banks from other liabilities such as harmful securitization practices and alleged documentation problems at Mortgage Electronic Registration Systems.
Some, including the foreclosure saturated states New York and California split off to pursue their own investigations. The Nevada AG is currently pursuing criminal actions against the servicers, and the Massachusetts AG is drawing up plans to go after MERS.
Top Republican AGs railed against the investigation from the start, claiming such a crackdown was beyond the powers of their offices and should be resolved by state and federal regulators. Borrowers in states such as Texas and Florida may not have access to the principal reduction and refinancing offers as these AGs have said such an agreement would only promote strategic default.
But Iowa AG Tom Miller pressed on, asserting in a recent letter the end settlement, which could come with a fine as high as $25 billion, would be narrow and focused on servicing mistakes.
Write to Jon Prior.
Follow him on Twitter @jonaprior.
Tags: banks, foreclosure, MERS, Mortgage Electronic Registration Systems, mortgage servicers, principal reduction, refi, refinance, robo-signing, Tom Miller, underwater, underwtaer
Posted in Servicing/Default, Slider, Top Stories | 3 Comments »
Mortgage delinquencies declined slightly to 8.09% in September from the previous month, according to the Lender Processing Services' (LPS: 16.86 +1.87%) first look at the monthly statistics in its loan-level database of nearly 40 million mortgages.
The rate was down 0.5% from August and 12.7% lower than year-ago figures, according to the Jacksonville, Fla.-based provider of technology, data and analytics to the mortgage and real estate industries.
The foreclosure pre-sale inventory rate was 4.18%, up 1.7% from August and an increase of 8.9% from a year ago.
LPS said 4.2 million properties are more than 30-days delinquent but not in foreclosure, while 1.84 million properties area at least 90 days past due but not in foreclosure. The company said 2.17 million homes are in the pre-foreclosure sale inventory.
The statistics show that more than 6.3 million properties nationwide are either 30 or more days delinquent or in foreclosure.
Florida, Mississippi, Nevada, New Jersey and Illinois have the highest percentages of noncurrent loans while Montana, Alaska, Wyoming, South Dakota and North Dakota had the lowest percentages of noncurrent loans, which include delinquencies and foreclosures as a percentage of active loans in each state.
LPS will provide a more in-depth review of its loan-level data in its monthly mortgage monitor report on Oct. 27.
Write to Kerry Curry.
Follow her on Twitter @communicatorKLC.
Tags: foreclosure, foreclosure inventory, Lender Processing Services Inc., loan, LPS, mortgage delinquencies, Mortgage Monitor
Posted in Servicing/Default, Top Stories | 1 Comment »
Specially serviced home loans are retuning to performing status without reporting current financial data, leaving investors in the dark about the property's performance, according to Fitch Ratings.
Analysts reviewed loans sent back to the master servicer in July and August and found about 60% classified as current on debt-service payments haven't filed appropriate financial data for 2010.
"That special servicers are not collecting operating statements on specially serviced loans and reporting them through the master servicer is disconcerting," according to Fitch Senior Director Adam Fox.
Special servicers take control of some severely delinquent loans and help the borrower through the process, returning the loan to the master servicer after a modification.
Fitch said it has asked special servicers several times to submit financial data for a sample of recently corrected loans that didn't report results.
When a borrower doesn't provide statements "it is usually an indication that the property may be in distress," Fitch said.
While the financial statements aren't always an accurate representation of the property, Fitch said it needs the data to assess and rate loan and property performance.
When financial information is not reported, Fitch Ratings "applies more conservative modeling assumptions, generally resulting in increased default and loss assumptions," according to the ratings agency, which plans to further investigate the matter.
Earlier this month, the Office of the Comptroller of the Currency reported mortgage modifications completed through private bank programs redefaulted at a rate nearly twice as high as federal Home Affordable Modification Program.
Write to Jason Philyaw.
Tags: delinquencies, delinquent loans, Fitch Ratings, home loans, mortgage, mortgage modification, mortgages, Office of the Comptroller of the Currency, performing loans, ratings agency, special servicers, Specially serviced home loans
Posted in Servicing/Default, Top Stories | No Comments »
The Senate voted 60-38 Thursday night to reinstall the elevated conforming loan limits on mortgages guaranteed by the government.
The higher limits expired Sept. 30. Sens. Johnny Isakson (R-Ga.) and Robert Menendez (D-N.J.) introduced an amendment to H.R. 2112, a minibus spending bill. The Senate approved the amendment Thursday, and the Senate will take up the full bill after the recess, according to Isakson's office.
If the Senate approves the bill, it would then go to the House of Representatives for consideration.
The Isakson-Menendez amendment would extend the limits through 2013.
Congress elevated the conforming loan limits in 2008 to allow the Federal Housing Administration, Fannie Mae, and Freddie Mac to insure and guarantee more mortgages when the credit markets froze.
On Oct. 1, these elevated limits dropped to $625,500 from $729,750 in the most expensive neighborhoods. In each area, the cap dropped to 115% from 125% of the area's median home price.
The housing industry has been pushing hard for an extension. The still struggling housing market, they said, still needs financing from the government even on the jumbo level.
Bob Nielsen, chairman of the National Association of Home Builders, applauded the Senate Friday morning and urged the House to reconsider their earlier rejection of the measure.
"Congress must act soon to ensure that this measure is enacted into law," Nielsen said. "Otherwise, the current drop in mortgage loan limits will reduce housing demand and place downward pressure on home prices in major markets. This will exacerbate the current housing downturn, trigger more foreclosures, impede job growth and endanger the fragile economic recovery."
However, the Obama administration stated in its February white paper on the future of housing finance that allowing the conforming loan limits to expire in October would be the preferred first step to reintroducing private capital and spare taxpayers from additional risk.
The Federal Reserve found in a recent study that allowing the conforming loan limit drop would have shut out only 1.3% of purchase mortgages last year.
Write to Jon Prior.
Follow him on Twitter @jonaprior.
Tags: conforming loan limit, Fannie Mae, Federal Reserve, FHA, freddie mac, House of Representatives, housing finance, Isakson, Menendez, mortgage, National Association of Home Builders, obama, private capital, Senate
Posted in Origination/Lending, Top Stories | 3 Comments »
First California Mortgage Co. named L. Andrew Pollock president and chief administrative officer.
Pollock comes from Global Logic Advisors where he was a managing partner. Prior to that, he was president and chief executive of First Franklin, a unit of Merrill Lynch.
Christopher Hart, president of the Petaluma, Calif., mortgage lender, said the addition of Pollock better positions the firm as a significant player in the next cycle of the U.S. housing market
“First Cal will continue to advance our agenda of redefining the mortgage industry, in both the retail and wholesale origination channels.”
Last week, the company said it is joining Pillar Multifamily to create a lending platform to allow the firms to expand into the commercial mortgage-backed securities market.
Pollock has been a First Cal board member as a independent director for the past three years.
Write to Justin T. Hilley
Follow him on Twitter @JustinHilley
Tags: First Cal, First California Mortgage Co., First Franklin, Global Logic Advisors, managing partner, Merrill Lynch, mortgage-backed securities, Pillar Multifamily
Posted in Origination/Lending, Top Stories | No Comments »
