Monthly Archives: January 2012
Administration Revamps HAMP to Reach More Borrowers
The Obama administration has announced changes to its flagship foreclosure prevention initiative – the Home Affordable Modification Program (HAMP) – which officials say will expand its reach to more distressed homeowners.
Among the changes, borrowers who are struggling because of debt beyond their mortgage will be eligible for a secondary evaluation with more flexible debt-to-income criteria, and eligibility will be extended to investor-owned homes that are used as rental properties.
The administration is also giving principal reductions a bigger role within the program, tripling incentives for investors that agree to write down an underwater borrower’s principal and offering these same incentives to the nation’s two biggest mortgage investors – Fannie Mae and Freddie Mac.
The deadline for HAMP will be extended for an additional year through December 31, 2013.
(developing story)
*Additional details have been provided in a blog post by Tim Massad, assistant secretary for financial stability.
Related articles
- Reduce amount due on mortgage, or grant a short sale? (besthouses2go.wordpress.com)
- Secret Docs Show Foreclosure Watchdog Doesn’t Bark or Bite (mainstreetresolutions.com)
- What went wrong with mortgage aid? (georgegmiller.wordpress.com)
- Fixing the Housing Market: The Principal of the Matter (avidlawblog.wordpress.com)
- Obama loan modification program moving slowly (marketwatch.com)
BofA Halts Cash-out Refinancing; Letters From the Trenches; Mortgage Hiring Continues
Hey, if you can’t beat ‘em, join ‘em. I bet many wouldn’t mind making nearly a quarter million a year being a “cutting edge” CFPB regulator – link. Compare that to a story last week in the Wall Street Journal noting, “Government regulators will cut sharply the pay of the executives they hire to succeed the departing heads of Fannie Mae and Freddie Mac, said regulators, which may make it difficult for the struggling mortgage-finance giants to attract and keep qualified chief executives. Some officials even have floated the idea of paying a salary of $1. Whatever ultimate pay arrangement is approved by regulators for Freddie could set a precedent that would be adopted by Fannie.” MBA President David Stevens warns that the pool of CEO candidates will shrink as compensation for the post (which can be difficult to fill given the limitations of being under government control) declines.
In the private job market, Florida Capital Bank Mortgage is expanding its national mortgage operations with the opening of an Operations Center in Northern California. FLCBM is looking for underwriters, processors and closers for this location. In addition, they are looking for AE’s across the country to support its growing broker, mini-correspondent, correspondent and Early Purchase Funding Program allowing brokers to become mortgage bankers. Interested operational candidates can contact Gerhard Naude at gnaude@flcb.co and AE’s can contact Tommy Adkins at tadkins@flcb.com.
In addition, Prospect Mortgage is hiring Loan Officers and Sales Managers who leverage relationships with business referral partners for sales growth. Prospect Mortgage offers nationwide lending and has branches from coast to coast. For rankings, “Prospect is one of the largest independent residential retail mortgage lenders in the US: it is the second largest 203K lender, a top-10 FHA lender and a top-five Fannie Mae HomePath Renovation lender.” So if you know of anyone interested in the retail side of things with Prospect, they should contact Chief Talent Officer Daniel Nieto at Daniel.Nieto@prospectmtg.com.
In other corporate news, SunTrust Bank’s 16% decline in earnings for the fourth quarter highlighted a problem many originators are having: setting aside higher mortgage repurchase provisions. Earnings were down from a year ago, as were revenues. “SunTrust’s mortgage repurchase reserves rose to $320 million from $282 million in the third quarter. The bank received $636 million in repurchase demands, up sharply from $440 million a quarter earlier and $233 million in the fourth quarter 2010.” Management saw it coming, as it warned the industry that repurchases would increase significantly in the fourth quarter. Putting some numbers on the problem, SunTrust holds $120 billion in unpaid balances from loans done between 2006 and 2008, and about $21 billion have gone 120 days or more past due. Of those unpaid legacy mortgages, SunTrust has received repurchase demands on $4.4 billion, with $3.9 billion of those resolved. Repurchase issues were a factor in the mortgage production side of SunTrust swinging to a $62 million loss from a $41 million profit a quarter earlier.
As we move toward having more regulators than originators, in Utah, Primary Residential Mortgage created of a new Enterprise Risk Management (ERM) group that will “manage risk through the entire loan origination process and ensures that the company has the appropriate monitoring and evaluation policies.” Dave Zitting, president and CEO, observed, “While the larger banks all have ERM departments, it’s uncommon for a company of our size to have one but we wanted to take aggressive steps to demonstrate to our customers, partners and employees our commitment to providing a safe and compliant mortgage experience.” The leader of the group noted, “In today’s mortgage environment, lenders must manage compliance and quality issues more closely than ever before. By establishing this new group we are implementing a solution that will sharpen our focus on complying with all mortgage banking laws and regulations, improve on our overall loan quality and help us to better manage risk across all areas of our company.”
Bank of America certainly turned some heads last week when it told its retail loan officers nationwide that the lender will halt, for now, originations of cash-out refinancings, citing what it calls a “surge of refinancing activity” and capacity problems. A memo written by B of A home loans sales executive Matt Vernon notes that “while we regret the inconvenience this will cause to some of our customers in the short term, we are making the responsible choice that is in the best interest of our long-term capabilities to provide a predictable customer experience.” In spite of arguments that this is some of the cleanest product ever to be originated, and profit margins being solid for many in the business, BofA continued to de-emphasize residential loans in the fourth quarter, producing just over $22 billion in mortgages, a stunning 75% decline from 4Q 2010.
At least Bank of America is not expecting to have the FDIC come through its doors on a Friday afternoon…but others had that happen (for the first time in over a month). In PA American Eagle Savings Bank was closed and became part of MD’s Capital Bank, National Association. Down the coast in Florida, Central Florida State Bank became part of CenterState Bank of Florida, National Association. And in neighboring Georgia, the depositors of The First State Bank will soon have the name of Hamilton State Bank on their checks.
Mortgage company transition is expected to continue in 2012. Industry vet Larry Charbonneau, owner of Charbonneau & Associates, wrote to me, saying, “Rob, I’ve been in this business over thirty years, and 2011 was one of my busiest ever. Your readers should know that merger and acquisition activity is picking up. There are some commercial banks looking to acquire well managed mortgage bankers, and the warehouse industry is very liquid now and credit is readily available to those who have the required net worth.” If you want to reach Larry, shoot him an e-mail at larry@charbonneauinc.com.
Regarding recent legal events, David Oldenberg writes, “Attorneys are going to do the same thing to themselves that we did to the mortgage industry. We created better and better loans programs to get people into homes and it back-fired when there were no more buyers left and the bottom dropped out. Attorneys are going to keep creating more and more ways to sue lenders and eventually they will all stop lending, leaving no one left to sue. They will destroy their industry based on greed, the same way the mortgage industry has destroyed itself. When I used to play stock broker and financial advisor on my radio show, I always said, ‘the trend is your friend until the end!’”
Barry S. from Illinois wrote, “I just had another two week fight with one of the top 4 investors. They underwrote the loan – it has MI, is a condo, and an 800 credit score. They have some overlay that says HO6 insurance must be escrowed, we never heard of such a thing, none of our other lenders force you to escrow HO6 insurance. Anyway, loan was cleared to close and the underwriter never said anything about HO6 being escrowed. We closed it and they wouldn’t purchase the loan because the HO6 was not being escrowed on the HUD. So the borrower signed new docs escrowing the HO6 since they had to pay it themselves so they really didn’t care if it was escrowed. Then the original investor refused to purchase the loan because it’s a TILA violation: they say you need to reopen the recession period because the total payment has changed! I asked, ‘What happens each year when escrow analysis are done and servicers increase a borrowers total payment when their taxes or insurance increase, TILA violation? What happens when a borrower calls a bank to add escrows to their mortgage payment TILA violation? What happens when a title company or lender puts the wrong info for the taxes and insurance escrows and has to fix the mistake on the HUD-1, TILA violation?’ These are the same guys who three weeks ago gave me the same song and dance when a digit was reversed on an address in the closing package, fun thing was the borrowers were both big time attorneys in Chicago and couldn’t believe they had missed the mistake while signing. (An investor finally bought that loan after a month of saying you can’t fix a typographical error on a closing package!) But now we have to take the loan elsewhere.”
(For the uninitiated, HO6 insurance is designed for condo owners. The HO6 condo insurance will cover losses to any of your persona property and any structure you own. This policy also covers damages to any fixtures of upgrades you added on since the move-in date. A lot of people have HO6 insurance because they are required to if they have a mortgage on the condo. A regular condo insurance policy does not cover your actual unit or any of your belongings. HO6 does provide liability protection.)
Sometimes it is tough for compliance and QA personnel to stay up on the changes in the market. They should check out the next monthly conference call (free!) of the California Mortgage Bankers Association’s Mortgage Quality and Compliance Committee (MQAC) – you don’t even have to live in California. Call in this Thursday (26th) at 11AM PST (free!). The topic is “Regulatory Forecast for 2012: How Should You Be Prepared?” Let your fingers do the walking: 1-800-351-6802, passcode 43784. For more questions contact Dustin Hobbs with the CMBA at dustin@cmba.com.
Turning to interest rates, which are still pretty low on the radar screen of concerns of originators, they slid higher last week. In fact, Treasuries had their biggest weekly loss in a month with the 10-yr moving to 2.02% and MBS prices (on Friday) worse by about .125. Is the economy really picking up? The current administration sure hopes so, although the president comes in a distant third to stimulating the economy compared to the Federal Reserve and Congress. Existing Home Sales increased 5% in December to an annual rate of 4.61 million units, and were up 3.6% versus a year ago. “Record low mortgage interest rates, job growth and bargain home prices are giving more consumers the confidence they need to enter the market.”
For scheduled economic news in the United States this week doesn’t commence until Wednesday with Pending Home Sales, the FHFA Housing Price Index, and the FOMC’s rate decision. Thursday is Jobless Claims, Durable Goods, New Home Sales, and Leading Economic Indicators; on Friday are GDP and a Michigan Consumer Sentiment number. With things continuing quiet in Europe, and no news here, we find the 10-yr’s yield up to 2.08% and MBS prices worse.
I pointed to two old drunks sitting across the bar from us and told my friend, “That’s us in 10 years”.
He said “That’s a mirror, dummy!”
Related articles
- SunTrust Can’t Shake Pesky Mortgage Repurchases (blogs.wsj.com)
- Who Should You Choose? Mortgage Broker Or Bank? (choiceofhomes.com)
Mitt Romney to Lenders: Take the Loss and Help People Recover, To Government: Get out of the Way
Presidential hopeful Mitt Romney spent nearly an hour talking to struggling home and business owners Monday morning in Florida, the next stop in the Republican primary contest and one of the states hardest-hit by the foreclosure crisis that wrecked the economy in 2007.
At a round table in a Tampa, Fla. hotel, Candice Tammey told Romney about how she’d lost her job in the staffing industry three years ago and eventually stopped paying her mortgage after her bank wouldn’t negotiate a loan modification.
“I’m going to be living in my home until I’m kicked out. I don’t have a choice at this point,” she said, adding that employers seemed “inundated” with other job applicants. She said she had her health and that she’s keeping a positive outlook. “There’s light at the end of the tunnel,” she said. “I don’t see it quite yet but I know that it’s there, so I’m encouraged — I know that there’s something better out there for me and for us as a country.”
“It will get better,” Romney said, according to CNN’s online video stream of the event. “It will not always be like this. This is a detour from America’s history. … I can’t predict when it will get better but if I’m fortunate enough to become president, I will care very deeply about getting it better in a big hurry.”
It’s the first time Romney’s talked foreclosures since he told the Las Vegas Review-Journal that the only thing the government should do is get out of the way.
“Don’t try to stop the foreclosure process. Let it run its course and hit the bottom,” Romney said last October. “Allow investors to buy homes, put renters in them, fix the homes up and let it turn around and come back up. … The Obama administration has slow walked the foreclosure process … that has long existed and as a result we still have a foreclosure overhang.”
Romney stuck to that message as homeowners told him of their struggles.
Richard Wood of Bradenton, Fla., told Romney he’d folded his title insurance company in October 2010. “I invested in some real estate, some rental properties, made what I considered to be very conservative investments during the boom times and right now I am negotiating with the same bank who has mortgages on each of those and an approximate $200,000 deficiency,” he said. “We have been exploring the possibility of moving to another to another country where we might be able to live on our retirement and our Social Security.”
“Yeah. It’s just tragic, isn’t it? Just tragic, just tragic,” Romney said. “We’re just so overleveraged, so much debt in our society, and some of the institutions that hold it aren’t willing to write it off and say they made a mistake, they loaned too much, we’re overextended, write those down and start over. They keep on trying to harangue and pretend what they have on their books is still what it’s worth.”
“Also, Gov. Romney, we got hit with a double whammy,” Wood continued. “My wife, she’s a Realtor — she is in the process of filing for bankruptcy on some debts that she needed to take out in order to try and stay in business the past five years. I’m probably right behind her.”
“That’s tragic,” Romney said. “In some cases, if the debt is not in something you can service, it’s like you have to move on and start over away from those debts. It’s helpful if you get an institution that’s willing to work with you, but if you don’t you have no other option.”
The Sunshine State had the seventh-highest foreclosure rate of any state in 2011, according to RealtyTrac, an online foreclosure marketplace and data firm. All of the homeowners at the table Monday said they owed more than their homes were worth and that their banks wouldn’t negotiate on modifications or refinancing. More than 22 percent of all residential properties in the U.S. are “underwater,” according to housing research firm CoreLogic. In Florida, a full 44 percent of mortgage properties are underwater.
“The banks are scared to death, of course, because they think they’re going to go out of business,” Romney said. “They’re afraid that if they write all these loans off, they’re going to go broke. And so they’re feeling the same thing you’re feeling. They just want to pretend all of this is going to get paid someday so they don’t have to write it off and potentially go out of business themselves.”
“This is cascading throughout our system and in some respects government is trying to just hold things in place, hoping things get better,” Romney continued. “My own view is you recognize the distress, you take the loss and let people reset. Let people start over again, let the banks start over again. Those that are prudent will be able to restart, those that aren’t will go out of business. This effort to try and exact the burden of their mistakes on homeowners and commercial property owners, I think, is a mistake.”
Why it’s time to break up the ‘too big to fail’ banks
January 18, 2012: 10:56 AM ET
Customers would benefit, the U.S. government would benefit, and – believe it or not – the big banks themselves would do better.
By Sheila Bair, contributor
FORTUNE — America is downsizing. Whether it’s the food we eat, the cars we drive, or the houses we live in, Americans are concluding that smaller is better. Even U.S. corporations are starting to see the benefit of more Lilliputian institutions; the impending — and widely hailed — breakups of McGraw-Hill (MHP) and Kraft (KFT) are two examples.
So what about banks? It would surely be in the government’s interest to downsize megabanks. Sen. Sherrod Brown (D-Ohio) continues to push his bill to split apart the largest institutions. Regulators have new authority to order divestitures under the Dodd-Frank financial reform law. From a shareholder standpoint, government breakups have a pretty good outcome. It worked out well for John D. Rockefeller, whose shares in Standard Oil doubled after it was ordered to break up. Ditto for those who owned stock in AT&T (T).
Yet with gridlock in Washington, don’t count on politicians for a solution. Shareholders, however, have an interest in demanding that big banks split apart. Comparing the valuation for the supersize banks (Citigroup (C), Bank of America (BAC), and J.P. Morgan Chase (JPM)) with their simpler, leaner competitors isn’t pretty. Price/earnings per share for the supersizers averages 5.8, compared with 8.1 for smaller, more focused Wells Fargo (WFC) and 8.1 for the bigger regional banks like U.S. Bancorp (USB) and PNC (PNC). More telling is the ratio of share price to tangible book value. For the supersizers, the average is 72% of book, compared with 165% for Wells and 142% for the big regionals. Chase’s strong performance holds up the average for the supersizers, but even its price to book is only 110%. Wells’ superior performance suggests that complexity is a bigger drag on returns than size is. Even though Wells’ assets exceed $1 trillion, it has pretty much stuck to its basic business of taking deposits and making loans, and in the process has consistently delivered solid returns.
Before the financial crisis, the supersizers benefited from high levels of leverage and cheap debt funding costs from their “too big to fail” status. All that has changed. Capital requirements are going up significantly for mega-institutions. The cost of borrowing will rise, too, as bondholders come to realize that Dodd-Frank means what it says: no more bailouts. New rules on liquidity, proprietary trading, and derivatives will also eat into earnings. So it is hard to see how the megabanks’ numbers can improve.
Supersizers argue that their scale is necessary to meet the financial needs of multinational corporations. But it’s not clear that multinationals find it advantageous to do business with a handful of financial titans. Dealing with smaller, more focused institutions provides specialized expertise and less risk of conflicts. If there were really that much value in supersizer services, presumably it would show up in shareholder returns. But it doesn’t.
Supersizers also argue that their economies of scale can lower costs for customers. Studies show that some economies of scale do exist, but they are limited by management difficulties in overseeing many different business lines. So while average overhead costs go down, average revenues go down even more. This effect can be mitigated by strong management, as Chase’s exceptional performance demonstrates. But how many Jamie Dimons are out there?
At the beginning of the year, Citi’s share price was trading at 58% of tangible book value, while BofA was trading at 48%. If Citi and BofA were broken up into smaller institutions that traded at price to tangible book ratios on par with the average of the big regionals, their shareholders would see $270 billion in appreciation. JPM shareholders would see $52 billion in appreciation.
So, shareholders, get ye to the boards that represent you and ask them loudly about whether your company would be worth more in easier-to-understand pieces. The public-policy benefits of smaller, simpler banks are clear. It may be in the enlightened self-interest of shareholders as well.
This article is from the February 6, 2012 issue of Fortune.
Related articles
- Why 2011 Was So Brutal for Big Banks (dailyfinance.com)
- What’s Next for Bank Stocks (fool.com)
- US HUD’s Donovan: ‘Very Close’ To Robo-Signing Settlement (mainstreetresolutions.com)
- 2012 Starts Out As Year of the Banks (JPM, BAC, FAS, WFC, CIT) (247wallst.com)
Call Your Attorney General Today to Oppose Big Obama Push to Get Mortgage Settlement Deal Done
Friday, January 20, 2012
Call Your Attorney General Today to Oppose Big Obama Push to Get Mortgage Settlement Deal Done
We put up a few more stories on the mortgage
mess tonight for a reason. It isn’t that we had a sudden explosion of new information on mortgage abuses. It is instead to remind readers that we could turn this blog entirely over to covering mortgage chicanery and not even scratch the surface.
And the latest bit of corrupt behavior is that the Obama administration has a full court press on to push the heinous “multi-state” settlement deal over the line. We’ve pooh poohed previous reports from Iowa state attorney general Tom Miller that a deal is just around the corner, since he’s been doing his variant on a Chicken Little act for a full year. But it appears the President wants a talking point, ideally for the State of the Union address or as shortly thereafter as possible.
So this time is different: the administration is putting far more pressure on the dissident and skeptical Democratic attorneys general. And precisely because Tom Miller’s efforts have appeared to be going nowhere, particularly after California AG Kamala Harris left the talks, the grass roots effort to oppose the talks has slackened off. The lack of active opposition leave the AGs feeling more exposed, particularly in light of often misleading press stories (for instance, the Wall Street Journal implied over the summer that Harris was wavering when all it was doing was repackaging stale information under a new headline). Similarly, the Administration is ramping up “a deal is almost cinched” reports with Obamabot news outlets like NPR. This is a classic deal/salesmans’ tactic: to create the impression of momentum when there is fact is often none.
The Democratic attorneys general have been invited to meet in Chicago on Monday, and Shaun Donovan of HUD and a member of the Department of Justice will be putting the heat on. The Republican AGs are getting the same documents the Democrat AGs will receive and will confer by phone.
We posted that the Democratic AGs unhappy with the deal has actually enlarged, with 14 apparently meeting (a Huffington Post story said “up to 15″ and we gather that Oregon and Montana participated in addition to the dozen named. However, only 5 so far have officially left the talks: New York, Delaware, Nevada, California, and Massachusetts. In addition, there are at least four Republicans who have said they will not join in any settlement.
Here are some of the reasons to oppose a settlement:
1. There have been virtually no investigations, and the Administration has engaged in cover-ups rather than trying to get to the bottom of the mortgage mess
2. The big argument made in favor of the deal, that it will help borrowers, is patently false. Remember, Countrywide entered into a deal with attorney generals just like this, where they agreed to do mods in return for a settlement on abuses. Guess what? They didn’t do the mods. To add insult to injury, they actually abused homeowners who should have gotten mods. Nevada AG is suing Countrywide now over its failure to comply with the terms of its settlement. And even if some mods miraculously did get done, the settlement is designed to have banks hit a dollar amount. That means they will focus on the biggest loans, which means any relief will go to a comparatively small number of people in (originally) big ticket houses.
3. The Administration has only one chance to get this right. Now you might argue that Team Obama has no intention of getting the mortgage mess right, but the tectonic plates suddenly seem to be moving in elite circles. The Fed realizes that housing is a BIG problem and has even started making noise about it. Yet Obama is moving forward with a plan cooked up in late 2010 that is completely out of whack with the urgency and severity of the problem. Note that this settlement will NOT stop private actions, such as borrowers fighting foreclosures. And we will continue to banks refuse to take losses and drag out foreclosures to maximize fees. That will lead to continued pressure on housing prices in many markets as buyers stay on the sidelines, fearful of buying before a large shadow inventory clears.
Leaving the AGs free to investigate and increase the pressure that is already building up in the system is the best chance we have to deal with widespread fraud.
The attorneys general really need your support. It helps them to hear that their constituents appreciate them standing up to the banks and the Obama administration.
PLEASE call them TODAY. Here is a list of phone numbers. If you can’t get through, send an e-mail.
Please also sign this petition from Campaign for America’s Future (it has some talking points if you need them for the AG calls). Note you can opt out of being put on their mailing list (I know that has been a sore point with some past petitions). I know it is futile to ping Obama, but they will collect the number of people who sign, and that will in turn bolster the dissident AGs.
Please call today. Unlike Congresscritters, who get a lot of constituent mail and phone calls, AGs get much less in the way of messages from state citizens, so your calls will make a difference.
Related articles
- AGs Bolting Foreclosure Fraud Settlement, Holding Strategy Sessions (news.firedoglake.com)
- Attorneys General, Frustrated With National Foreclosure Settlement, Consider Alternate Course (jhaines6.wordpress.com)
- Attorneys General Discuss Mortgage Probes as Bank Talks Drag On (businessweek.com)
