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Volume 16 - Number 1

January 13, 2012

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Bank Mortgage Sales Increased in 3Q11 But Failed to Catch Pace of Prior Years

Banks reported a solid 9.6 percent increase in the volume of home loans sold by their mortgage banking operations during the third quarter, but activity remained at its lowest level since the financial crisis of late 2008. A new Inside Mortgage Trends analysis of call report data reveals that banks sold $248.8 billion of loans through their mortgage banking businesses during the third quarter, rebounding from an especially slow three-month period ending in June. Even with the gain in sales, the third quarter was the second-lowest three-month total since the end of 2008. On a year-to-date basis...

PHH Challenged by Liquidity Issues

PHH Corp. over the last month has felt the pinch of being the largest mortgage banking business not associated with a depository institution as it faced some setbacks in lining up financing for its operations. The company this week priced a $220 million offering of 6.00 percent convertible senior notes that is being co-managed by JPMorgan Securities and BofA Merrill Lynch. That was up from the $150 million offering originally announced, and PHH gave the underwriters the option to purchase an additional $30 million. PHH will use the money to pay off $250 million of 4.00 percent convertible senior...

New UG Product Aims to End Rescission, Buybacks

Mortgage insurer United Guaranty Corp. says it is offering lenders a high-quality, semi-automated independent file review as their first line of defense against rescission and loan buybacks. Dubbed CoverEdge, the product is essentially a second-look tool developed by UG to catch and fix underwriting errors and identify missing documents to avoid denial of payment claims on mortgages gone bad as well as repurchase demands. CoverEdge’s comprehensive credit and documentation analysis at loan origination and post-closing seeks to avoid misrepresentation and fraud. It also provides a repository...

Fed Suggests Agency REO-to-Rental Plan

The Federal Reserve is urging government policy makers to consider more aggressive responses to the housing debacle, including a government-backed program to transform much of the real estate owned overhang into rental housing. In a white paper sent to Congress, the Fed suggested that a government-facilitated REO-to-rental program can boost the housing market and improve loss recoveries on REO. Such a program could take many forms, the Fed noted. “The REO holder could rent the properties directly, sell the properties to a third-party investor who would rent the properties, or enter into a joint...

Buyback Demands Boost Mortgage Fraud Filings

Demands to repurchase poorly performing mortgages have resulted in a spike in the number of mortgage fraud-related Suspicious Activity Reports (SARs) filed by banks in 2011, according to the Department of the Treasury’s Financial Crimes Enforcement Network. In its 2011 annual report, FinCEN said increased buyback demands by investors have forced large mortgage lenders to conduct additional reviews of loans they originated, resulting in higher SARs filings last year. A review of SAR filings in the first quarter of 2011 found that the number of mortgage fraud reports rose to 25,485, up 31 percent from...

Some Improvement, But Still a Long Way to Go

“The simple way to think about the long view is that we’re five years through a 10-year transition,” said Fannie Mae Chief Economist Doug Duncan during a housing conference sponsored by Fitch Ratings in New York this week. 2012 will be “the year of the political economy,” Duncan said. While the moniker partially refers to the election for the White House, as well as on Capitol Hill, it also points to the number of political decisions this year that will help to determine financial fortunes. Stateside, this year will see the expiration of a number of business and household taxes, from the payroll tax cut to...

Mortgage Trends

There is a significant difference in foreclosure timelines depending on whether states require judicial foreclosures. The liquidation probability, according to an Amherst Securities analysis, increased greatly in a non-judicial state, like California, versus judicial states like Florida. “We can work our way through the backlog more quickly in non-judicial states,” said Larry Litton, chairman and CEO of Selene Finance. He noted that some judicial states were easier to work with than others, based on whether the legislature was willing to work with servicers. In other areas of the country, servicers...

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Are current mortgage underwriting standards too tough?

Yes, they don’t reflect current market conditions and need to be adjusted to allow borrowers with below 700 FICO scores and smaller downpayments to qualify for mortgages.
Yes, and something needs to be done to significantly reduce repurchase or buyback risk so that lenders don’t apply even tougher underwriting overlays.
No, the standards are appropriate given current risks and the major default problems the mortgage market has experienced over the past several years.

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