Lots of folks take vacations during the summer, and many have to ration out
their days-off during the year. How does the amount of vacation you have
stack up to the rest of the world? Although there is no corresponding chart
of GDP per person, the chart is at Vacation
[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1106919123041&s=8721&e=001TFxJZ-
xwi9HCSF0em_VTEw88HeAvaKlqC6s3kW_r2odZFp3G50L6fnFg9HIFpnvbIBC5OVT9DcMj9hFz8h
7yYdbxEFfzPTVkzUVu_RNv8iZjHG7mwQXZjhJTiNjDAigc4hZMVRFvNQJ-wy405Pgk84DYoJje0y
ZGJrbjQicWLo-Iezvc5Xj2JZBl9PQOXDobpaA_IASVafl_dOGCehm2ig==].
Lock Desk personnel will wish they had a vacation after the last few
business days.
Beginning last Friday, mortgage prices have been on a tear, with locks prior
to Friday now being way out of the market and everyone reviewing
renegotiation policies and talking about a mini-refi boom. Now, all we need
is some equity and borrowers that qualify!
Current coupon 30-yr Fannie 3.5%'s (containing 3.75-4.125% mortgages) are
around a price of 99. Throw on a little servicing, and suddenly 4%
mortgages are above par (100). As a result of the horrible GDP numbers and
a debt ceiling package that will do nothing to support growth, the market
over the last week has shifted from eventual Fed exit strategies to
potential for what the Fed could do to provide further stimulus.
As investors continued to cut off RMIC (see below), Radian Group (#2 MI
company) swung to a second-quarter profit from a year-ago loss and said it
expects claims to trail down after it reached its peak this quarter. Radian
also reported a decline in mortgage insurance delinquencies for the sixth
straight quarter.
Monday the commentary discussed claims with title companies. "I just wanted
to comment on the subject of claims with the title companies. I can tell
you I had a personal claim against a national title company that missed some
back taxes owed by the previous owner on a short sale. The county contacted
me and said I was responsible for these back taxes, but that it was the
title company's fault and I should contact it.
Even though it was a clear case of the company being at fault the claim was
denied.
I had to eventually hire an attorney and threaten a lawsuit before getting
them to settle. It took a lot of time and resources to get it to admit
fault even though I had clear documentation from the county etc. I just
thought I would share as this seems to back up what you are hearing."
One reader wrote, "As far as I can tell, from over 20 years of experience in
this business, rejection of virtually all title claims by the insurer has
been standard operating procedure. This is not a new phenomenon. In fact,
a similarly jaded former Chairman of a small Midwestern thrift (long since
deceased) once was heard to say that title insurance is "insuring pig iron
underwater...with a rust exclusion".
The economics of title insurance are vastly different from ordinary
insurance with upwards of 80% of all premiums being paid to title agents
merely for delivering the business. Only about 5% of all premium income is
allocated to paying losses (the rest is administrative expense-such as
lawyers to fight claims). The economics of casualty insurance, on the other
hand, are reversed. There is rarely accountability between the purchaser of
title insurance and the person making a claim (consider in many states the
seller buys the insurance), but it's the buyer (or lender) who will have to
pursue the claim. As a result, there is no need to have a good claims
paying history since the buyers of their insurance never have to deal with a
claim denial. In fact, if you think about it, if the title company does a
proper search and knows the applicable law, the risk of loss should be zero.
It is not as if a random occurrence like a tornado can hit your title and
cause it to change. Title insurers are really just insuring their own
negligence (and malfeasance) on the front end. Title losses were covered up
by rising real estate values generally during the first half of the 2000's.
Now, mortgage holders are seeking to hold title insurers liable for title
losses whenever possible, many of which are really the result of fraud.
Title claim volume has no doubt increased, so title insurers are just
continuing their business model (of not paying claims easily) in more
visible fashion."
And Brian Levy from Katten & Temple, LLP, wrote, "The title issue is quite
similar to the mortgage repurchase discussions that have been occurring over
the past few years. Mortgage losses drive repurchases much in the same way
that fraud can drive up title claims and rising real estate values can mask
the underlying liability for both. Nearly 50% of my current work is in
defending mortgage originators from repurchase claims that range from
legitimate fraud by the borrower to immaterial claims that the originator
failed to verify the source of $50 of closing funds or failed to properly
document something that was self-evident. One of the basic problems I face
is that once a position is taken by an investor that a representation or
warranty violation has occurred, there is no room for compromise; only a
full repurchase will resolve the problem regardless of any connection
between the violation and the loss. That is a recipe for litigation unless
high level strategic negotiation can be implemented.
"Title insurance, however, is a bargained for risk transfer. Mortgage loan
sale agreement rep and warrants, on the other hand, were never intended to
be used to pass the entire risk of loss back to the originator except in
extreme cases. In fact, true sale opinions demanded that be the case, lest
sale agreements were viewed with the dreaded "recourse". Rather, the intent
of the representation and warranties was to insure that a properly
underwritten loan was delivered. The difference is subtle, but critical
from a risk allocation standpoint. Case in point: stated income loans. How
can investors that desired to purchase loans without income verification
come back to originators for losses based on the fact that the income was
inaccurate?
Clearly, that risk transfer was not bargained for and, I would argue (and
have in many instances), was specifically waived by the investor. Title
insurers will likely take the position that many of the claims being
brought today are really fraud issues for which they should have no
liability (straw buyers, id theft etc.).
So, they need to fight all claims to separate the wheat from the chaff.
Likewise, the standoffs on repurchase issues generally are not resolved
between investor and originator without escalation to a third party or legal
counsel. Today, everyone is playing a game of "hot potato" by trying to
pass losses to someone else, but there is a paucity of people with authority
or skill to find a reasonable compromise and there is no generally accepted
roadmap to follow to reach those resolutions.
Nevertheless, I have found that with patience, clever and principled
negotiation skills and a healthy dose of persistence that negotiated
resolution of these disputes is possible both on the title front and the
repurchase front." (Katten&Temple
[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1106919123041&s=8721&e=001TFxJZ-
xwi9EQVlRLLlRFlmiIKi0a0W5EO6SqCMzRq6pLwCh3pvV_8NAUwWx5ASuf4ZbKNq2BRBcniUHuN_
FToFa2AHL3ZAXnnsn7jTLTXqhSUUEd99wzms3on0wLYqMW])
Commercial mortgage delinquency rates moved up in July. Per analytics
provider Trepp, "the delinquency rate on commercial mortgage-backed
securities spiked 51 basis points to an all-time high of 9.88%." The news
was better in recent months, but the delinquency rate is certainly higher
than where it was a year ago at 8.71%. Trepp flags a loan as delinquent once
it sees a servicer pursuing a foreclosure although there had always been a
small percentage of loans that were current but heading toward foreclosure.
To the surprise of few, the MBA reported that home mortgage apps were up
about 7% last week. Refi's were up almost 8% and purchase apps up about 5%.
(Watch what happens next week!) But applications are still about 30% lower
than last year's levels.
The fun continues for RMIC. "Effective immediately, Freddie Mac is
suspending Republic Mortgage Insurance Co. and RMIC of North Carolina
(collectively, "RMIC") as approved mortgage insurers. With this suspension,
mortgages insured by RMIC with note dates before May 1, 2011, and on or
after September 1, 2011, will no longer be eligible for sale to Freddie Mac.
To help manage your pipeline, mortgages insured by RMIC with note dates on
or after May 1, 2011, and before September 1, 2011, must be delivered to
Freddie Mac on or before November 30, 2011, whether for borrower-paid or
lender-paid insurance. Please also note the following critical information
as a result of the suspension: As an exception, mortgages with existing
RMIC certificates of insurance will continue to be eligible for sale to
Freddie Mac if they are refinanced under the Freddie Mac Relief Refinance
Mortgages offering, and the coverage is continued through modification of
the existing mortgage insurance certificate. The suspension does not impact
mortgages already sold to Freddie Mac that are insured by RMIC.
There are no changes to the servicing requirements for mortgages insured by
RMIC.
Freddie Mac Servicers do not need to take action on mortgages that have
already been sold to us, whether at renewal of the insurance or otherwise."
Fifth Third Mortgage Company has temporarily suspended RMIC for any loan,
excluding 5/3 to 5/3 DU RefiPlus loans.
As you can imagine, no one is complaining about mortgage rates! The focus is
back to the slow U.S. economy (as one trader put it, "Low rates don't help
too much when the economy is flat-lining"), the global economic outlook, and
debt worries associated with Greece, Italy and Spain. 10-year notes rallied
a point and closed at 2.64%
- its lowest level since early November 2010. MBS prices jumped 28 and 20
ticks, respectively, on 30-year 3.5% and 4.0% coupons; similar coupon 15
yrs. were up
10+ and 6+ ticks.
It was quiet over night, but this morning we learned that the ADP employment
numbers
showed the 18th straight month of job growth, +114k. Later we have Factory
Orders
and the ISM Nonmanufacturing Index. But the next big events are NFP this
Friday
and FOMC next Tuesday - but don't look for anything too different out of the
FOMC.
We find the 10-yr slightly lower at 2.62% and MBS prices pretty much
unchanged.
Two Minnesota mechanical engineers were standing at the base of a flagpole,
looking
up. A woman walks by and asks what they were doing.
"Ve're supposed to find da height of da flagpole," said Sven, "but ve don't
haff
a ladder."
The woman took a wrench from her purse, loosened a few bolts, and laid the
pole
down. Then she took a tape measure from her pocketbook, took a measurement,
announced,
"Eighteen feet, six inches," and walked away.
Ole shook his head and laughed. "Ain't dat just like a voman! Ve ask for da
height
and she gives us da length!"
Sven and Ole are currently serving in the United States Senate!
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 QRM, and doubts about its passage. 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=bd9ky7gab.0.epg7qedab.zy6u9cdab.8
721&ts=S0654&p=http%3A%2F%2Fwww.mortgagenewsdaily.com%2Fchannels%2Fpipelinep
ress%2Fdefault.aspx]
[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&t=bd9ky7gab.0.v7uif6dab.zy6u9cdab.8
721&ts=S0654&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=bd9ky7gab.0.fpg7qedab.zy6u9cdab.8
721&ts=S0654&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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