Heard on the NPR radio show "Wait, Wait, Don't Tell Me" from Michael
Feldman: "If the US defaults on their debt and our rating is downgraded and
the US becomes a Third World Nation, will Nike finally open a plant here?"
"Rob, I can't figure out where the government is going with Fannie &
Freddie. Just look at the recent headline stories, like, 'High-ranking
members of the House Financial Services Committee have introduced a
bipartisan bill that encourages banks, Fannie Mae and Freddie Mac to rent
foreclosed properties as a way to reduce REO sales and stabilize house
prices and communities,' and, 'Fannie Mae flushed the multifamily MBS market
with liquidity in the first half by issuing $10.3 billion in commercial
mortgage-backed securities supported by new multifamily purchases.' On the
one hand, some elected officials are asking the agencies to become
landlords, and on the other hand, down the hall, other elected officials are
figuring out how to phase them out. It sure seems obvious that nothing is
going to be decided for another 16 months, if even then."
The inability of the government to come up with a plan for the debt ceiling
and the deficit has forced analysts to ask what may happen to the agencies
when "push comes to shove." From the agency MBS and debt markets
perspective, under the Housing and Economic Recovery Act of 2008, if an
Enterprise's liabilities exceed its assets under GAAP the Treasury provides
sufficient capital to eliminate that deficit in exchange for senior
preferred stock. As we all know, both Fannie and Freddie have received
capital from the Treasury under this agreement over the past several
quarters
- but what happens if one or both lose money in the 2nd quarter, and request
more money and we don't have a higher debt ceiling?
As a few Wall Street research departments point out, HERA 2008 has a
"mandatory receivership" clause for Fannie and Freddie which takes them out
of conservatorship if certain conditions are met concerning assets versus
obligations and lack of ability to pay debts. Fannie's 10-Q for the first
quarter states, "FHFA has an obligation to place us into receivership if the
Director of FHFA makes a written determination that our assets are less than
our obligations for a period of 60 days after the filing deadline for our
Form 10-K or Form 10-Q with the SEC." It is highly unlikely that the debt
ceiling will not be raised before the possibility of Fannie & Freddie moving
from conservatorship to receivership becomes an issue. But every day that
the government fails to put forth a plan, concerns such as this one will
arise, making investors a little more leery.
Others are saying, though, "Without some sort of serious entitlement reform,
we're likely to lose our AAA rating. Does that really matter? Is there
anywhere else for investors to go?" And thus equity and fixed income
investors are pondering and worrying instead of trading. Traders report that
liquidity is very light, and dealers are struggling to handle both sides of
the risk.
Meanwhile, Fannie alerted clients of updates to its seller guide on the
Uniform Appraisal Dataset (UAD) and Uniform Collateral Data Portal
requirements, Qualified participants policy change, Performing modified
loans policy update, Nonstandard payment collection options clarification,
Housing Goals data update, and other miscellaneous updates. Read all about
it at SellerGuide
[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1106816922489&s=8721&e=00118hbhy
zuHZyB3_tmv5CP7RhcZ3qh-ITxoqXzLelDr4k_TRes_FIls2puObRcuteaTYZ9Bi6mHYAJfHCMyz
y-3mw-ku4drwFbxa-BjANhAf-1ZE_2MEdh75DSPllo-97MnUaxS7Bn_NRvJsSEhtZw2cmqQ9xxo3
tSCC709tz0IUNrGQd-6RagBjLhF88s6MaJ].
Fannie also updated its forbearance plan requirements, revised borrower
income eligibility guidelines for mortgage modifications, and reinforced the
availability of Home Affordable Modification Program (HAMP) for FHA-insured
mortgage loans: Forbearance
[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1106816922489&s=8721&e=00118hbhy
zuHZxrVws6CWabLcOei5r6RHgyMv8CjBGs28-T41CTo46B2t43ZGTn58a58AsUcVbROJ9QsfjPir
fcH2YVdYRmXsJ6jKeoteWGEBTHZvt1jDyKCrO2eLizXcqhalNWrG7xgbLDzAzidRUDxFuykvvF4N
5dL1uV_rqSwYzqOZvFOaxUTAvjlwm6NEOU].
In addition, with the rollout of the new DU in August, the new median area
incomes will be updated: DUMAI
[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1106816922489&s=8721&e=00118hbhy
zuHZwJCW2QNwSaQ2Y_PxARIvH1-EH3ttb2RgaM-C9m4q5EVc1i-Iq9ys66BLbGPyytKTbYXr5KBc
sJb3moRLK5Fz5zCfpcW8C0u5Chw0DN9HmQFl1g44w1UJt-BMJEX2WF7RS9TBpx-M0Z35tvFQMlA4
QZirPSjF5Zss0=].
Mortgage REITs have seen their prices improve in 2011, and have been viewed
as a powerful force in buying mortgage-backed securities. But their stock
prices have come under pressure this week due to the potential downgrade of
U.S. government debt. For example, two of the most prominent stocks in the
group, American Capital Agency and Annaly Capital Management, fell as much
as 2.5% on Monday alone. Perhaps this represents a good buying opportunity,
especially with the dividends that some of them pay - around 19% in the case
of AGNC. (They accomplish this through leveraging a strong balance sheet to
buy a portfolio of government-sponsored housing agency paper on margin.)
But if Ginnie, Fannie, and Freddie securities are downgraded, their prices
will drop and yields rise - not good for the REIT. It may find that it needs
to put up more money to replace the value (like a margin call), and
"collateral haircuts" have increased for U.S. Treasuries, agency paper and
foreign sovereign debt.
Mortgages...bankruptcies... are the two of them intertwined? You bet. The
National Consumer Law Center has launched a useful new resource for the
bankruptcy community called the Bankruptcy Mortgage Project. Those likely to
find it handy include judges, consumers, trustees, mortgage servicers,
attorneys, and academics. It collects all sorts of documents related to
mortgage issues in consumer bankruptcy cases and provides easy, free access
to various local rules, forms, general orders, and court opinions:
Bankruptcy&Mortgages
[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1106816922489&s=8721&e=00118hbhy
zuHZxt3qeL__XckykALmG-nqTtowwGK4Kz-kD161entx_UhZ_qIvP1LfVeFhZX7mOLL4G0KKhrjv
nUXWgda8DkjTfkax9yVsbC4_5YDkRnI9Vab7sCv1fuCThPU5XQNNPbUHk=].
Real estate and mortgage fraud - don't do it. They'll hunt you down. And
take ugly mug shots. Huh?WhereAMI?
[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1106816922489&s=8721&e=00118hbhy
zuHZzvluprs1oy4KfQSoPVyLGF9uAHGuDPdp3LAid7eQLV7D8sXZwR-jzTpBRrhx8K6Q_3l9WAVi
xgPi6c68sTqiDj26xBr0FAjfJv_Aqy9Ihf1RB6GL7XNtrIjomoMBeBbL63D_1pF-G4L1ejX_jxgX
TUNEUoDjiRaymaMfCLQzQSwfMrX2sdptw7Me0_ByZM2OQ=]
It has been a while since MERS has been in the mainstream news. But in the
last week MERS (a unit of Merscorp and owned by the agencies and several
large mortgage
investors) forbade members to file any more foreclosure actions in MERS's
name.
It also required mortgage servicers to obtain mortgage assignments and
record them with county clerks before beginning foreclosures. Details can be
found here: MERS
[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1106816922489&s=8721&e=00118hbhy
zuHZy4TrxDrFiP9FWI4PaVhW7CWmbdIVlz9UF7LBjfUT2yyWiOzOGNmiXTjwLU5Z5Tj42dfgxJF_
fIKFWRV3Ur533A8lwL2RYDG-qwY8BuGVbJnUYWVwgHc3meNSJjuPftl_oW93KPPWE4SHGbTcqlIg
44InIPZtxh2AVbtE94ERlCAYRHIbFjq6NlB23ChBusBR0=].
SIFMA provided comments to the Board of Governors of the Federal Reserve
System on proposals relating to amendments to Reg. Z (TIL) that would
implement changes to the TILA made by the Dodd-Frank Act: SIFMAComments
[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1106816922489&s=8721&e=00118hbhy
zuHZz4dyaokXwctbSFLN9ZeEJCIToV64dOYFv8oNLN0su4TF7uYouQZ9aepYwyeixmAbsGsX2yP4
wb3rlA4hHv_c5mFpMTzCNdJeJseWl4cL3bgPVYTnKTuM7Uavxo0KGyR1RXbsZLK2g8hftUR5XH9K
D9].
Loan servicer Ocwen Financial announced the rollout to 33 states of a new
loan modification program for borrowers with underwater mortgages. Its
"Shared Appreciation Modification"
(SAM) program, writes down an underwater borrower's principal balance to 95%
LTV, thereby creating home equity. Then, over three years, the written-down
portion is forgiven in one-third increments, so long as the homeowner stays
current on mortgage payments. Later, when the house is either sold or
refinanced, the borrower must share 25% of the appreciation with the
investor of the loan. Ocwen believes this approach won't reward borrower
delinquency, which is always a concern when offering a loan modification.
In Maryland, WEI Mortgage Corporation announced the creation of "custom term
mortgages that are tailored for each borrower's unique needs. This is a
unique option for qualified borrowers that have already paid a significant
number of years on their existing mortgage and allows the borrowers to
refinance into a lower interest rate without unnecessarily adding additional
term. For example, if a borrower has a 30 year fixed mortgage and has paid
it for 8 years, WEI is able to help the borrower take advantage of the
current low interest rate environment and refinance the remaining
22 years into a custom 22 year term mortgage. This custom option positions
the borrower to pay off the new mortgage in the same time frame as the
original mortgage." Check it out at www.weicorp.com
[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1106816922489&s=8721&e=00118hbhy
zuHZwW3NlkFMCQzfN-9ZQh7RKWXXPNkwgCXwFejMaFieLKQA2H2t9nHUmL9qCu5V8dPrCIJwc1P3
WI7IT4n-c9vLOQzg09DqY6EgZ75vyr8WA2nQ==].
Stocks and bonds both went in the same direction Wednesday, both impacted by
the uncertainty of the budget and the prospect of a ratings downgrade. Gold
prices rose to another record, the DOW was down about 200 points, the 10-yr
T-note down
.250 (2.98%), and MBS prices were down/worse about .250-.375. (It is
unusual for MBS prices to move as much as, or more than, Treasury prices.)
"US obligations are not a pristine a credit as they use to be, but they are
the 'Best Looking Horse in the Glue Factory'", said strategist Jeffrey Ho.
That is a good quote. But wait
- let's not forget Europe!
Yesterday afternoon's released of the Fed's Beige Book wasn't much cause for
excitement, saying that economic activity is continuing to grow but at a
slower pace. "Most residential real estate activity was little changed and
remained weak," and home prices were flat or declining for Districts that
reported this information.
While the markets are focused on the US debt negotiations, we still have
some economic news out today along with a $29 billion 7-year note auction.
(Yesterday's auction did not go so well.) We've already had Initial Jobless
Claims; later we have Pending Home Sales. We find the 10-yr nearly unchanged
at 2.97% and MBS prices are quiet as well.
There was a major league player in the 1930's named Mel Famey. He was a
dominating pitcher but unfortunately he also had a severe drinking problem.
On good days, he was unhittable but on bad days...not so much.
I can't remember what team he was on, but I know they were in series
contention for the pennant, and the race went right down to the wire. Back
in those days, of course, relief pitchers were uncommon, and a pitcher was
expected to go the distance.
As the game went along, Mel's team held a one run lead until the bottom of
the 9th.
Mel had, unfortunately, been downing beer between innings and was clearly
not as sharp as he'd started out.
In the 9th the first batter he faced hit a home run, and the score was tied.
That definitely sobered him up, some, and he got the next two batters out on
sloppy blooper hits that his middle infielders caught, realizing he was
inebriated and stepping up their game. Two outs - but then he walked the
next three batters. His coach was fuming; the crowd was silent.
Bases loaded, he refocused his bleary eyes and managed to throw a few
strikes. Finally, the count was 3-2. Mel came set and threw a wobbly pitch
that went wide - ball 4, the winning run walked in, the game and season
over. As the jubilant winning team walked off the field, they passed the
dugout and saw evidence of Mel's drinking, as beer cans were piled on the
bench and scattered on the ground.
One player shook his head in amazement and pointed the debris out to his
teammates:
"Check it out - there's the beer that made Mel Famey walk us."
If you're interested, visit my twice-a-month blog at the STRATMOR Group web
site located at www.stratmorgroup.com
[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1106435366068&s=4179&e=001SVt-lj
bp53436QjxD9vbwURtIPPjV05jEcEKyBN3SjS2forXe0C_foO8RjEV-Uye0N7Z_Sh1il0SRXPx6P
jQauayNXQjni-Hc9Sseu-hhZcR1ujeZyAEpw==]
. The current blog takes a look at early actions taken by the new CFPB and
the political situation affecting it. If you have both the time and
inclination, make a comment on what I have written, or on other comments so
that folks can learn what's going on out there from the other readers.
Rob
(Check out
[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&t=z878wzgab.0.epg7qedab.zy6u9cdab.8
721&ts=S0660&p=http%3A%2F%2Fwww.mortgagenewsdaily.com%2Fchannels%2Fpipelinep
ress%2Fdefault.aspx]
[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&t=z878wzgab.0.v7uif6dab.zy6u9cdab.8
721&ts=S0660&p=http%3A%2F%2Fwww.thebasispoint.com%2Fcategory%2Fdaily-basis].
For archived commentaries, go to www.robchrisman.com
[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&t=z878wzgab.0.fpg7qedab.zy6u9cdab.8
721&ts=S0660&p=http%3A%2F%2Fwww.robchrisman.com%2F].
Copyright 2011 Rob Chrisman. All rights reserved. Occasional paid notices
do appear.
This report or any portion hereof may not be reprinted, sold or
redistributed without the written consent of Rob Chrisman.)
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