(Sorry the commentary is a little late today. It took me a long time to wade through
all of the investor price-change e-mails from yesterday. So let's all take a deep
breath...)
Q: How many auditors does it take to change a light bulb? A: Auditors don't change
anything. They just report that it's dark.
But auditors catch fraud, which is never a good thing (the fraud, not the catching
of it). HUD is hosting a "Mortgage and Foreclosure Fraud Awareness Workshop" in
Ontario, CA in the morning of August 27 - mostly for borrowers but also for lenders.
"Learn how to keep your home and protect yourself from fraud. The workshops will
be both in English and Spanish. The workshop will also include the following topics:
Impact of Foreclosure Fraud, Foreclosure 101, Reverse Mortgage Fraud & Other Fraud
Against Seniors, Foreclosure Prevention by Neighborhood Partnerships." Reserve a
spot by calling (909) 902-9606.
Whether it is due to a backlog, or the improving stability of the remaining borrowers,
foreclosure numbers are improving. But it is still an issue to be reckoned with
in our industry. In a Deed of Trust state (like "Cali"), as opposed to a Mortgage
state (like Michigan), foreclosure is accomplished through a "trustee's sale" rather
than a judicial proceeding. Trustee sales (and now short sales) don't allow for
subsequent suits for deficiencies, i.e. the amount by which sale proceeds fall short
of unpaid balances. A recent law in California makes it clear that mortgagors can
"negatively impact" junior lienholders with impunity. Senate Bill 458 expanded anti-deficiency
protection to all 1-4 residential mortgages or deeds of trust where the beneficiary
consents to a short sale, whether a first deed of trust or a junior deed of trust.
The headline read, "Short Sale Law Effective Immediately in California - No Fee
to Approve Short Sales and Short Sale Law Now Applies to Junior Loans." Interested
parties can see the details here: SecondsBeGone! [http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1107080409187&s=8721&e=001U8uG2HvoSUkfZn0dLcTGXOoL-taK2ZM4mCcH6XvEdHI7AjIzp2aPB0LQ3X-NFFKtAAL2-cMXbJ4PdkVrgcc6tzGo-sAazVpOtPHFioQ3unT9fknVFvbJvaWPFV64161uDYdf2X5X__5mmvTJzc55mnkUG3XNbZ4fDOe1AVA0BjQbtOkBTgMmTA==]
Speaking of which, Sterne Agee released a study showing a comparison of the credit
performance of RMBS collateral located in judicial and non-judicial foreclosure
states. "We find that judicial states generally have longer liquidation lags, slower
annualized liquidation rates (i.e. CDR) and higher loss severities relative to non-judicial
states. The difference in delinquency rates indicates that non-judicial states will
experience credit burnout faster than judicial states." (Please don't ask for the
report from me, as permission is required. You can visit SterneAgee [http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1107080409187&s=8721&e=001U8uG2HvoSUlPi_68V8SREyJj0MLgI8AzYdzDGyJnCUVYW2OwVMPtiK0DVLbZtvIjM3AI9BaNydHcrl9nruRjeL2Du3RP7wK2-dTr-uT22XJRblHy0XtY-A==].)
But this is, in part, why the value of servicing varies in different states.
A broker from San Diego wrote, "What is the best way to stop the selling of leads
by credit agencies? We need to address 'trigger leads' in our industry: credit agencies
need to stop the practice of selling these leads now. I know there are proposals
to make the purchase of 'trigger leads' unlawful in many states however this needs
to be accelerated. Privacy issues and the trust of the client are being breached.
Some of these lead generation companies are even given access to client's cell
phone numbers. It is not right that a loan company can pay for the right to steal
a client away from another company that has taken an application and pulled a credit
report. I am all for getting the client the best deal and I am not too worried
about a loan being stolen from me after application but the ethics seem skewed.
This practice is not helping our industry recover from the tainted reputation
we currently have with the public. Over the past month XXX (a large internet lender)
has contacted every one of my clients after a credit report has been run."
Understandably, investors are concerned about loans refinancing that they just purchased
at premium prices and expected to have on their books for a while. But while mortgage
rates may see a new record low, the conditions that are preventing many homeowners
from refinancing remain unchanged: tight credit conditions, poor home values, higher
loan costs, and a weak economy and jobs market.Barclays Capital points out that
the population of good-credit borrowers, defined as FICOs above 740 and LTV's below
80%, has declined by more than 20% in the past year due primarily to declining home
prices. "As a result, the balance of good credit-borrowers more than 50 basis points
in the money at a 4.5% mortgage rate is roughly half the level of August 2010."
J.P. Morgan analysts point out that in conventionals, 40% of the universe is credit-impaired,
40% were originated within the past two years and so can't streamline refi under
HARP, which leaves only 20% of borrowers that can clear the refi hurdles at current
rates.
But Wall Street traders and analysts are quick to point out that the 4.5% coupon
contains plenty of borrowers (who have loans at 4.75-5.125%) that will be able
to refi at a 4.00-4.25% mortgage rate. If this is true, few investors will want
to pay hefty premiums, which is why this MBS coupon, and that of higher coupons,
exhibit more symptoms of "negative convexity." And "current coupons" are usually
near par, but the production has not crept down into the 3% range for 30-yr. mortgages,
as Dean Brown from MCM points out. So anyone hedging a pipeline is selling 4% securities
for the most part, and hoping that this coupon is not subject to short squeezes
a few months down the road if there are no loans to fill commitments.
Margaret Wright of Bankers Advisory Inc. described recent changes in advertising
as the FTC published the Mortgage Acts and Practices- Advertising Final Rule "relating
to unfair or deceptive acts and practices that may occur with regard to mortgage
advertising". The MAP Rule applies to mortgage lenders, brokers, servicers and
others who engage in mortgage advertising such as real estate agents or advertising
agencies, but does not apply to banks, S&L's, federal credit unions and other entities
that are excluded from the FTC's jurisdiction. Previously, mortgage lenders have
been subject to advertising regulation through other regulations including the
Truth in Lending Act (TILA), the Home Ownership and Equity Protection Act (HOEPA)
and state specific requirements. The MAP Rule "prohibits any material misrepresentation,
whether made expressly or by implication, in any commercial communication, regarding
any term of any mortgage credit product." The detail that Ms. Wright goes into could
fill up this entire commentary, but any mortgage company that advertises should
be familiar with the changes. Ignorance of the law is no excuse, and the FTC's Final
MAP Rule may be viewed at: DidYouSeeThatAd? [http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1107080409187&s=8721&e=001U8uG2HvoSUlqa9LrI7RRQ1Lk5htJsn0fPPWUL5rSW2g7AciRCa7fdVhmqQYmPaKsZHgbqj8smIWlfFJa8s4sNOk21WH5rWOUFnA0qAChPk5oOqulD-mQEmztNT5RkI5TmWZECfP4ahnYyVuSdt_3C56cP5iTILfdbStCznoYn2-uHFVm6pW4Tw==]
My head is still spinning from all of the rate changes yesterday. Lock desks, pricing
engines, secondary marketing staffs... they'll all be ready for a stiff drink tonight
- if they haven't started already with Bloody Mary's. European fears settled down
somewhat temporarily, stocks decided that, since it was Thursday, they'd rally,
and a lousy 30-yr bond auction all conspired to move our fixed-income markets around.
The Dow's range was nearly 500 points, while 10-year notes ranged nearly 2 points
between high and low - it finally closed up around a yield of 2.34%. And investors
in mortgage-backed securities don't seem to know quite what to do - buy low coupon
production, so it will be on their books for a while, buy high coupon product, because
those folks probably can't refi anyway and MBS prices are good, or sit on the sidelines.
But by the end of the day, mortgage prices were worse by about a point, and much
of that was passed on to originators in the form of intra-day price changes.
Today we've seen Retail Sales for July. Retails Sales (less autos) printed slightly
better than expectations, so equities are moving higher on the news. Currently,
the 10yr yield is at 2.31% - rate sheet prices will be worse, but how much will
be company-dependent (where MBS's are, profit margins, where rate sheets closed
yesterday, etc.) but if you don't like that level, give it a few minutes and it
will be different. Later we have the preliminary August reading on Consumer Sentiment,
and winding up at 10AM EST is Business Inventories.
BBQ RULES
We are in the midst of BBQ season. Therefore it is important to refresh your memory
on the etiquette of this sublime outdoor cooking activity. When a man volunteers
to do the BBQ the following chain of events are put into motion:
(1) The woman buys the food.
(2) The woman makes the salad, prepares the vegetables and makes dessert.
(3) The woman prepares the meat for cooking, places it on a tray along with the
necessary cooking utensils and sauces, and takes it to the man who is lounging beside
the grill - drink in hand.
(4) The woman remains outside the compulsory three meter exclusion zone where the
exuberance of testosterone and other manly bonding activities can take place without
the interference of the woman.
Here comes the important part: (5) THE MAN PLACES THE MEAT ON THE GRILL.
(6) The woman goes inside to organize the plates and cutlery.
(7) The woman comes out to tell the man that the meat is looking great. He thanks
her and asks if she will bring another drink while he flips the meat.
Important again:
(8) THE MAN TAKES THE MEAT OFF THE GRILL AND HANDS IT TO THE WOMAN.
(9) The woman prepares the plates, salad, bread, utensils, napkins, sauce and brings
them to the table.
(10) After eating, the woman clears the table and does the dishes.
And most important of all:
(11) Everyone PRAISES the MAN and THANKS HIM for his cooking efforts.
(12) The man asks the woman how she enjoyed her 'night off,' and, upon seeing her
annoyed reaction, concludes that there's just no pleasing some women 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-ljbp53436QjxD9vbwURtIPPjV05jEcEKyBN3SjS2forXe0C_foO8RjEV-Uye0N7Z_Sh1il0SRXPx6PjQauayNXQjni-Hc9Sseu-hhZcR1ujeZyAEpw==]
. The current blog takes a look at the recent U.S. credit downgrade by S&P, and
whether it really matters. 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://www.mortgagenewsdaily.com/channels/pipelinepress/default.aspx
[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&t=dd7esbhab.0.epg7qedab.zy6u9cdab.8721&ts=S0660&p=http%3A%2F%2Fwww.mortgagenewsdaily.com%2Fchannels%2Fpipelinepress%2Fdefault.aspx]
or www.TheBasisPoint.com/category/daily-basis [http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&t=dd7esbhab.0.v7uif6dab.zy6u9cdab.8721&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=dd7esbhab.0.fpg7qedab.zy6u9cdab.8721&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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