MBA (3/21/2008 ) Murray, Michael
Industry participants continue to express frustration as capital market panic and negative headlines overshadow relatively strong fundamentals in the commercial real estate and commercial mortgage-backed securities market.
In its March CBRE Viewpoint, Debt Market Panic Overstates Risk in Commercial Real Estate Market, CBRE/Torto Wheaton Research, Boston, said Wall Street credit markets are overreacting to a likely increase in commercial real estate mortgage losses, because investors could be overestimating future default rates by three times higher than the likely result.
“The anticipated increase in commercial mortgage losses has caused the credit markets to significantly overestimate the potential for future default rates,” said Jon Southard, director of debt management and valuation for CBRE/Torto Wheaton Research. “The reality is that commercial real estate markets remain sound, with low vacancy levels and construction moderate in all but a few markets. Despite the slowdown in the economy, all major property types are expected to have positive—if lower—rental growth rates this year, and buildings’ net operating income should continue to improve.”
However, the CMBS market’s frustration stems from a “disconnect” in pricing based on concerns about refinance risk of recent CMBS vintages that would connect these commercial mortgage loans to subprime loans, based on lax underwriting guidelines.
Industry analysts say commercial mortgage loans do not perform in the same manner as subprime mortgages, and recent questionable loans will not be a factor for at least seven years.
“Current CMBS valuation implies ‘doomsday’ loss rates in which the highest loss rates ever recorded—160 basis points in 1992 —continue for a number of years, and loss rates would need to jump unprecedentedly this year and be sustained at high levels for several years to justify current CMBS pricing,” the report said.
The report said A-rated or higher tranches in CMBX—a set of derivatives that provides insurance against defaults—are particularly undervalued from a credit performance perspective. “Based on real estate market fundamentals the widening of CMBX/CMBS spreads is unjustified,” Southard said.
"At current wide spread levels, the heightened volatility in the [CMBS] market makes buying protection all the more dangerous, particularly given that ever-widening spreads implies higher and higher anticipated losses, on top of what many already view as anticipated losses that exceed reasonable expectations," said Lisa Pendergast, managing director of CMBS at RBS Greenwich Capital, Greenwich, Conn.
Jan Sternin, senior vice president of commercial/multifamily at MBA, said in a recent MBA Executive Podcast that MBA is on Capitol Hill with its members and government affairs team educating policymakers on the commercial real estate finance market.
“The restoration of investor confidence is the most important thing in bringing back the capital markets and bringing liquidity to the market. We’re aware of it—all of our members are aware of it,” Sternin said. “The fundamentals on the commercial side remain relatively solid and if we look at that, there should be, again, a rise in investor confidence that will bring liquidity back. We just have to focus on the fundamentals.”
In its weekly report, RBS Greenwich Capital said CMBS delinquencies rose to 0.51 percentin February from 0.47 percent the previous month, and CMBS delinquencies are “poised to continue to show modest monthly increases, with a strong likelihood that the rate will return to the October 2003 high of 2.5 percent over the next 18 to 24 months.”
“The increase will come from a rise in newly delinquent loans and the slower pace at which seriously delinquent loans are disposed,” Pendergast said. “In historical terms, 2.5 percent remains well below the all-time high in monthly delinquencies hit in June 1992 at 7.5 percent.”
CBRE/TWR’s March report said it expects the cumulative 10-year loss rate for the entire CMBS conduit market to hit 2.53 percent. While analysts expect vacancy rates across all major property types to inch upward for the next few years—with the peak vacancy level around 2009—they will still be lower than the peak in 2002/2003, the report said.
In its Research DataNote released yesterday, the Mortgage Bankers Association said the commercial and multifamily mortgage market faces limited exposure to refinance risks stemming from the credit crunch and relatively few commercial/multifamily mortgages will mature in the next two years.
Meanwhile, delinquencies from life insurance companies were at their lowest during the fourth quarter of 2007, based on data from the American Council of Life Insurers. ACLI said retail delinquencies were at .02 percent; office properties were .01 percent delinquent; and all commercial properties were .01 percent delinquent, based on $303 billion of the life insurance industry’s 2006 mortgage portfolio.
Sternin said delinquencies will remain at record low levels as properties continue to perform. “It’s a record low by a lot,” she said. “It’s not just a little bit above what you would say is the lowest we’ve ever seen. It’s like next to nothing in delinquency and it continues to hold solid. We’ve been saying record low delinquency levels for awhile now.”
Thursday, March 27, 2008
Volume of Maturing Commercial/Multifamily Mortgages Low in Coming Years
MBA (3/21/2008 ) Vasquez, Jason
In its latest Research DataNote, the Mortgage Bankers Association said the commercial and multifamily mortgage markets face limited exposure to refinance risks stemming from the current credit crunch. The report said relatively few commercial/multifamily mortgages will mature in the next two years.
"There's been a general impression that a large volume of commercial/multifamily mortgages are coming due this year and next," said Jamie Woodwell, MBA’s senior director of commercial/multifamily research. "The reality is that 2008 and 2009 will see a relatively small volume of maturing mortgages, with the majority of commercial mortgage-backed securities loans not maturing until 2015 or later."
Capturing data from JPMorgan and Wachovia Capital Markets, the DataNote reported more than $600 billion in outstanding loans from CMBS fixed-rate deals. Of this, only $16 billion is scheduled to mature in 2008 and another $19 billion in 2009. The surge in sales and financing volume during 2005, 2006 and 2007, coupled with CMBS loans tending to have a 10-year term, mean that the majority of CMBS loans will not mature until 2015 or later. This means $98 billion of loans are scheduled to mature in 2015; $128 billion in 2016; and $127 billion in 2017.
Of loans due in the coming years, the majority are well-seasoned and have been amortizing. JPMorgan reports that $14 billion of the $16 billion maturing in 2008 are fully amortizing, as are $14 billion of the $19 billion coming due in 2009. According to Wachovia Capital Markets, more than two-thirds of the volume of loans coming due prior to May 2009 was originated prior to 2000.
In addition to fixed-rate conduit deals described above, the DataNote reports that Wachovia Capital Markets identified $30 billion of large-loan floating rate deals that will come due prior to May 2009. The maturity dates of these loans are spread throughout the period, with relatively larger volumes—$3.5 billion and $3.3 billion respectively—coming due in August and October 2008.
The DataNote focuses on maturing mortgages in the CMBS market. Banks and thrifts will be more likely to have shorter-term and adjustable rate loans, while life companies will tend to have longer-term fixed rate loans. Each group's maturity patterns will also be affected by the ups-and-downs of its originations experience.
In its latest Research DataNote, the Mortgage Bankers Association said the commercial and multifamily mortgage markets face limited exposure to refinance risks stemming from the current credit crunch. The report said relatively few commercial/multifamily mortgages will mature in the next two years.
"There's been a general impression that a large volume of commercial/multifamily mortgages are coming due this year and next," said Jamie Woodwell, MBA’s senior director of commercial/multifamily research. "The reality is that 2008 and 2009 will see a relatively small volume of maturing mortgages, with the majority of commercial mortgage-backed securities loans not maturing until 2015 or later."
Capturing data from JPMorgan and Wachovia Capital Markets, the DataNote reported more than $600 billion in outstanding loans from CMBS fixed-rate deals. Of this, only $16 billion is scheduled to mature in 2008 and another $19 billion in 2009. The surge in sales and financing volume during 2005, 2006 and 2007, coupled with CMBS loans tending to have a 10-year term, mean that the majority of CMBS loans will not mature until 2015 or later. This means $98 billion of loans are scheduled to mature in 2015; $128 billion in 2016; and $127 billion in 2017.
Of loans due in the coming years, the majority are well-seasoned and have been amortizing. JPMorgan reports that $14 billion of the $16 billion maturing in 2008 are fully amortizing, as are $14 billion of the $19 billion coming due in 2009. According to Wachovia Capital Markets, more than two-thirds of the volume of loans coming due prior to May 2009 was originated prior to 2000.
In addition to fixed-rate conduit deals described above, the DataNote reports that Wachovia Capital Markets identified $30 billion of large-loan floating rate deals that will come due prior to May 2009. The maturity dates of these loans are spread throughout the period, with relatively larger volumes—$3.5 billion and $3.3 billion respectively—coming due in August and October 2008.
The DataNote focuses on maturing mortgages in the CMBS market. Banks and thrifts will be more likely to have shorter-term and adjustable rate loans, while life companies will tend to have longer-term fixed rate loans. Each group's maturity patterns will also be affected by the ups-and-downs of its originations experience.
Residential Briefs
MBA (3/21/2008 ) MBA Staff
Clinton Calls for ‘Second Stimulus Package’ on Housing
Sen. Hillary Clinton, D-N.Y., a candidate for the Democratic nomination for president, called for a “second economic stimulus” plan that would focus on assistance to at-risk communities and borrowers facing foreclosure.
The proposed package would include a $30 billion emergency housing fund and extension of the Mortgage Revenue Bond program by $10 billion. She also called on Congress to consider temporary measures to help workers, such as extending unemployment insurance.
Interthinx Releases New Fraud Training Film
Interthinx Inc., Agoura Hills, Calif., a provider of risk mitigation, mortgage fraud prevention and regulatory compliance tools for the mortgage industry, announced availability of its latest a fraud-detection training film, Fraud Angels.
The film premiered this month at the Mortgage Bankers Association’s National Fraud Issues Conference in Chicago. The training film at no cost to mortgage industry professionals. The two-disc DVD set contains a 35-minute film that parodies a popular TV series and a disc containing 26 training chapters covering “red flags” in the story, emerging mortgage fraud schemes and the latest technology to combat the crimes.
DocuLex Updates Archive Studio 4 Document Management Software
DocuLex, Winter Haven, Fla., creators of electronic document management software, announces its Archive Studio 4 update. Goby Capture Profiler and Monitor components provide automated, networked paper and electronic document capture (in any file format, including email with attachments), with organization, workflow-enabling and ongoing management capabilities.
The new Goby Query utility provides content export to Profiler from Oracle and SQL databases. XML to PDF conversion is also enabled.
Commonwealth Bank & Trust Co. Selects Optimal Blue
Optimal Blue, Plano, Texas, developer of a Web-based platform that couples decisioning technology with content management for the mortgage industry, announced that Louisville, Ky.-based Commonwealth Bank & Trust Co. implemented Optimal Blue’s product eligibility and pricing engine (PPE) technology.
Prior to Optimal Blue, Commonwealth was using a proprietary price modeling system generated by the bank’s internal IT staff. Optimal Blue’s technology gives lenders the ability to automate management and distribution of products and pricing, enabling originators to then source, manage, price and lock loans.
Clinton Calls for ‘Second Stimulus Package’ on Housing
Sen. Hillary Clinton, D-N.Y., a candidate for the Democratic nomination for president, called for a “second economic stimulus” plan that would focus on assistance to at-risk communities and borrowers facing foreclosure.
The proposed package would include a $30 billion emergency housing fund and extension of the Mortgage Revenue Bond program by $10 billion. She also called on Congress to consider temporary measures to help workers, such as extending unemployment insurance.
Interthinx Releases New Fraud Training Film
Interthinx Inc., Agoura Hills, Calif., a provider of risk mitigation, mortgage fraud prevention and regulatory compliance tools for the mortgage industry, announced availability of its latest a fraud-detection training film, Fraud Angels.
The film premiered this month at the Mortgage Bankers Association’s National Fraud Issues Conference in Chicago. The training film at no cost to mortgage industry professionals. The two-disc DVD set contains a 35-minute film that parodies a popular TV series and a disc containing 26 training chapters covering “red flags” in the story, emerging mortgage fraud schemes and the latest technology to combat the crimes.
DocuLex Updates Archive Studio 4 Document Management Software
DocuLex, Winter Haven, Fla., creators of electronic document management software, announces its Archive Studio 4 update. Goby Capture Profiler and Monitor components provide automated, networked paper and electronic document capture (in any file format, including email with attachments), with organization, workflow-enabling and ongoing management capabilities.
The new Goby Query utility provides content export to Profiler from Oracle and SQL databases. XML to PDF conversion is also enabled.
Commonwealth Bank & Trust Co. Selects Optimal Blue
Optimal Blue, Plano, Texas, developer of a Web-based platform that couples decisioning technology with content management for the mortgage industry, announced that Louisville, Ky.-based Commonwealth Bank & Trust Co. implemented Optimal Blue’s product eligibility and pricing engine (PPE) technology.
Prior to Optimal Blue, Commonwealth was using a proprietary price modeling system generated by the bank’s internal IT staff. Optimal Blue’s technology gives lenders the ability to automate management and distribution of products and pricing, enabling originators to then source, manage, price and lock loans.
Investors See Cost Savings, Transparency Opportunities in Data
MBA (3/21/2008 ) Sorohan, Mike
DALLAS—For industry investors—the government-sponsored enterprises and Wall Street—technology represents an element that not only requires adoption, but leadership as well.
“We’ve talked about the need to really improve data quality and efficiency,” said Ted Adams, director of technology standards at Freddie Mac, McLean, Va., speaking here at the Mortgage Bankers Association’s National Technology in Mortgage Banking Conference & Expo. “It has an impact on our bottom line—every improvement we can eke out is important.”
During 2007, Freddie Mac focused on three key areas: cost, transparency and missed opportunities. “We recognized that we had rising costs and missed opportunities associated with bad data,” Adams said. “We recognized that transparency is critical and we are working on programs that not only ensure that our data are accurate, but transparent.
In taking a renewed approach, Adams said Freddie Mac reached a recognition that data quality is not a technology issue, but a business issue. “We have all the technology support we need, yet we’re still having a data-quality issue—it’s a business issue, not a technology issue,” he said.
As a result, Freddie Mac developed an enterprise data quality program that identifies more than 800 critical data elements and metrics. “One of the things we realized was that to get a better hold of that data, we installed metrics that enabled us to measure the data elements,” Adams said. “As a result, we’ve seen a significant decrease in corrections of data elements, and it’s helped us to manage the entire data set much better.”
Second, Freddie Mac improved its relationship with its seller-delivered data analytics. “We had the same or similar data sets in different areas of the organization,” Adams said. “We expanded our dialogue with our sellers to improve communication.”
Third, in measurement, Freddie Mac kicked off a Six Sigma-like process re-engineering. “We expect that this will reduce and streamline our processes and improve efficiencies,” Adams said.
Additionally, Adams said Freddie Mac has reached out to other industry players, such as MBA, to examine larger-scale initiatives. “Right now, we’re focusing on what we already have and how we can improve those processes,” he said. Adams, a member of the MISMO Governance Committee, said Freddie Mac has had “significant successes” in implementing MISMO standards.
“It’s become a cornerstone of our current environment,” Adams said. “The use of MISMO data set helps us to solve problems and eliminate redundant and contradictory data so that we can use it appropriately and consistently. We’ve reaped benefits of adopting MISMO in Loan Prospector [Freddie Mac’s automated underwriting system]. It’s allowed us to aggregate data and perform functions in-house, which allows us to use data the way we want to use it. We can also change our businesses and terms without it impacting our partners.”
Adams said he expects the GSE to approve more eMortgages this year. “They’re starting to come on pretty strong,” he said. “The numbers are still pretty low, but the growth is pretty dramatic. It looks like we’re going to see a geometric progression. And we’re hearing from our trading partners that the see the cost-savings benefits. One of our customers reports a $75-$100 reduction in closing costs. And it’s being driven by our smaller partners, who are more nimble. And there are a variety of closing solutions out there now that are cost-effective.”
Deborah Holmes, vice president and CIO at Ginnie Mae, Washington, D.C., said her agency has a mandate to expanding eGovernment as part of the President’s Management Agenda, aimed at reducing costs and improving services. Ginnie Mae recently announced an Enterprise Portal, a single-point access point to all of Ginnie Mae’s business applications. The initial phase provides secure, user sign-on and ability to access reporting and feedback services. The first phase expects to implement in November.
“In the future, any business being done by Ginnie Mae will come through the portal,” Holmes said. “We plan for it to be a very simple process.”
Additionally, on April 1 Ginnie Mae will implement unique loan identification numbers for each loan within a pool. “This will improve risk analysis associated with data disclosure,” Holmes said.
Luiz de Toledo, senior vice president and chief administrative officer of technology with Fannie Mae, Washington, D.C., said current market volatility has put pressure on IT initiatives, from both budget and reaction time.
“Lower earnings are causing capital scarcity,” de Toledo said. “At the same time, there is pressure to operate in real time with better analytics. We see three IT priorities: improving credit risk enhancement; providing productivity and infrastructure improvements; and enabling business growth. That requires higher allocations of IT resources.”
Fannie Mae is working on replacing archaic systems with new systems, de Toledo said. Later this year, Fannie Mae will implement a new 10-digit case file system, as well as a new version 7.0 of the GSE’s automated underwriting system, Desktop Underwriter. Other new systems target servicing operations and credit loss management enhancements.
eMortgages continue to be a key strategic initiative for Fannie Mae as well, de Toledo said. Fannie Mae and MBA recently contributed a new Smart Doc® validation method patent to MISMO for broad general use.
The SMART Doc® specification was originally licensed by Fannie Mae to MISMO in 2002, and then developed and released as an open industry standard for electronic documents. The new patent, which was granted to Fannie Mae this past November, defines processes for validating the VIEW and DATA sections of a SMART® document with automated systems. Additionally, the processes can enable "lights-out" post-closing and certification.
“We are committed to seeing eMortgages grow in volume,” he said.
DALLAS—For industry investors—the government-sponsored enterprises and Wall Street—technology represents an element that not only requires adoption, but leadership as well.
“We’ve talked about the need to really improve data quality and efficiency,” said Ted Adams, director of technology standards at Freddie Mac, McLean, Va., speaking here at the Mortgage Bankers Association’s National Technology in Mortgage Banking Conference & Expo. “It has an impact on our bottom line—every improvement we can eke out is important.”
During 2007, Freddie Mac focused on three key areas: cost, transparency and missed opportunities. “We recognized that we had rising costs and missed opportunities associated with bad data,” Adams said. “We recognized that transparency is critical and we are working on programs that not only ensure that our data are accurate, but transparent.
In taking a renewed approach, Adams said Freddie Mac reached a recognition that data quality is not a technology issue, but a business issue. “We have all the technology support we need, yet we’re still having a data-quality issue—it’s a business issue, not a technology issue,” he said.
As a result, Freddie Mac developed an enterprise data quality program that identifies more than 800 critical data elements and metrics. “One of the things we realized was that to get a better hold of that data, we installed metrics that enabled us to measure the data elements,” Adams said. “As a result, we’ve seen a significant decrease in corrections of data elements, and it’s helped us to manage the entire data set much better.”
Second, Freddie Mac improved its relationship with its seller-delivered data analytics. “We had the same or similar data sets in different areas of the organization,” Adams said. “We expanded our dialogue with our sellers to improve communication.”
Third, in measurement, Freddie Mac kicked off a Six Sigma-like process re-engineering. “We expect that this will reduce and streamline our processes and improve efficiencies,” Adams said.
Additionally, Adams said Freddie Mac has reached out to other industry players, such as MBA, to examine larger-scale initiatives. “Right now, we’re focusing on what we already have and how we can improve those processes,” he said. Adams, a member of the MISMO Governance Committee, said Freddie Mac has had “significant successes” in implementing MISMO standards.
“It’s become a cornerstone of our current environment,” Adams said. “The use of MISMO data set helps us to solve problems and eliminate redundant and contradictory data so that we can use it appropriately and consistently. We’ve reaped benefits of adopting MISMO in Loan Prospector [Freddie Mac’s automated underwriting system]. It’s allowed us to aggregate data and perform functions in-house, which allows us to use data the way we want to use it. We can also change our businesses and terms without it impacting our partners.”
Adams said he expects the GSE to approve more eMortgages this year. “They’re starting to come on pretty strong,” he said. “The numbers are still pretty low, but the growth is pretty dramatic. It looks like we’re going to see a geometric progression. And we’re hearing from our trading partners that the see the cost-savings benefits. One of our customers reports a $75-$100 reduction in closing costs. And it’s being driven by our smaller partners, who are more nimble. And there are a variety of closing solutions out there now that are cost-effective.”
Deborah Holmes, vice president and CIO at Ginnie Mae, Washington, D.C., said her agency has a mandate to expanding eGovernment as part of the President’s Management Agenda, aimed at reducing costs and improving services. Ginnie Mae recently announced an Enterprise Portal, a single-point access point to all of Ginnie Mae’s business applications. The initial phase provides secure, user sign-on and ability to access reporting and feedback services. The first phase expects to implement in November.
“In the future, any business being done by Ginnie Mae will come through the portal,” Holmes said. “We plan for it to be a very simple process.”
Additionally, on April 1 Ginnie Mae will implement unique loan identification numbers for each loan within a pool. “This will improve risk analysis associated with data disclosure,” Holmes said.
Luiz de Toledo, senior vice president and chief administrative officer of technology with Fannie Mae, Washington, D.C., said current market volatility has put pressure on IT initiatives, from both budget and reaction time.
“Lower earnings are causing capital scarcity,” de Toledo said. “At the same time, there is pressure to operate in real time with better analytics. We see three IT priorities: improving credit risk enhancement; providing productivity and infrastructure improvements; and enabling business growth. That requires higher allocations of IT resources.”
Fannie Mae is working on replacing archaic systems with new systems, de Toledo said. Later this year, Fannie Mae will implement a new 10-digit case file system, as well as a new version 7.0 of the GSE’s automated underwriting system, Desktop Underwriter. Other new systems target servicing operations and credit loss management enhancements.
eMortgages continue to be a key strategic initiative for Fannie Mae as well, de Toledo said. Fannie Mae and MBA recently contributed a new Smart Doc® validation method patent to MISMO for broad general use.
The SMART Doc® specification was originally licensed by Fannie Mae to MISMO in 2002, and then developed and released as an open industry standard for electronic documents. The new patent, which was granted to Fannie Mae this past November, defines processes for validating the VIEW and DATA sections of a SMART® document with automated systems. Additionally, the processes can enable "lights-out" post-closing and certification.
“We are committed to seeing eMortgages grow in volume,” he said.
Leading Indicator Index Signals Lackluster Growth in 1st Half
MBA (3/21/2008 ) Velz, Orawin
The Conference Board's index of leading indicators—a gauge of future business activity three to six months ahead—fell by 0.3 percent in February, following a 0.4 drop in January (previously reported as a 0.2 percent drop). The index has fallen for five consecutive months.
The last time the index declined for this long was in early 2001, as the economy entered a recession. The 0.3 percent decline puts the index at its lowest level since September 2005, when consumer confidence plummeted following the surge in energy prices as a result of Hurricane Katrina. According to The Conference Board, economic growth will be weak this spring and a small economic contraction is possible.
In a separate report, weekly initial unemployment claims—one of the 10 indicators making up the index of leading indicators—increased by 22,000 to 378,000 for the week ending March 15. This is the highest reading since early October. The Labor Department noted that the claims may have been affected by an auto industry strike that shut down several plants across the Midwest. The four-week moving average also continues to trend up to the highest reading since October 2005.
Continuing claims, which gauge the pace of hiring rather than layoffs, increased by 32,000 to 2.865 million for the week ending March 8. This is the highest level since August 2004. Recent trends in continuing claims suggest that businesses have been reluctant to hire retrenched further, suggesting that employment in March may be weak again.
A separate report from the Philadelphia Federal Reserve showed that the area’s manufacturing sector continued to struggle, as activity declined again in March but at a more moderate pace. The general business index was up 6.6 points to a minus 17.4 in March. (Readings below zero indicate contraction.) Manufacturing in the Philadelphia region contracted for the fourth consecutive month. The last time the index showed negative readings for that long was in 2003.
The Philly Fed survey is the second regional Fed manufacturing survey for March. On Monday, the New York Fed released the Empire State Manufacturing Survey showing the index declining to a record low, surpassing the previous record low reached in November 2001, when the economy was in a recession.
Long-term yields were little changed. The yield on 10-year Treasury note stayed around 3.33 percent on Thursday, about the same as the rate on Wednesday.
The Conference Board's index of leading indicators—a gauge of future business activity three to six months ahead—fell by 0.3 percent in February, following a 0.4 drop in January (previously reported as a 0.2 percent drop). The index has fallen for five consecutive months.
The last time the index declined for this long was in early 2001, as the economy entered a recession. The 0.3 percent decline puts the index at its lowest level since September 2005, when consumer confidence plummeted following the surge in energy prices as a result of Hurricane Katrina. According to The Conference Board, economic growth will be weak this spring and a small economic contraction is possible.
In a separate report, weekly initial unemployment claims—one of the 10 indicators making up the index of leading indicators—increased by 22,000 to 378,000 for the week ending March 15. This is the highest reading since early October. The Labor Department noted that the claims may have been affected by an auto industry strike that shut down several plants across the Midwest. The four-week moving average also continues to trend up to the highest reading since October 2005.
Continuing claims, which gauge the pace of hiring rather than layoffs, increased by 32,000 to 2.865 million for the week ending March 8. This is the highest level since August 2004. Recent trends in continuing claims suggest that businesses have been reluctant to hire retrenched further, suggesting that employment in March may be weak again.
A separate report from the Philadelphia Federal Reserve showed that the area’s manufacturing sector continued to struggle, as activity declined again in March but at a more moderate pace. The general business index was up 6.6 points to a minus 17.4 in March. (Readings below zero indicate contraction.) Manufacturing in the Philadelphia region contracted for the fourth consecutive month. The last time the index showed negative readings for that long was in 2003.
The Philly Fed survey is the second regional Fed manufacturing survey for March. On Monday, the New York Fed released the Empire State Manufacturing Survey showing the index declining to a record low, surpassing the previous record low reached in November 2001, when the economy was in a recession.
Long-term yields were little changed. The yield on 10-year Treasury note stayed around 3.33 percent on Thursday, about the same as the rate on Wednesday.
Fremont Sells 13 Percent of Servicing Rights
Los Angeles Times (03/21/08)
Fremont General Corp. has decided to sell the servicing rights on $1.9 billion of loans to Carrington Capital Management, a hedge fund operator that previously purchased the loans from Fremont. The California-based lender, which was forced by regulators to exit the subprime mortgage business a year ago, reports that these rights represented 13 percent of the mortgages it serviced. Fremont has further disclosed that it will delay an interest payment on $6.6 million of its debt as it negotiated with the principal holder of the debt.
Fremont General Corp. has decided to sell the servicing rights on $1.9 billion of loans to Carrington Capital Management, a hedge fund operator that previously purchased the loans from Fremont. The California-based lender, which was forced by regulators to exit the subprime mortgage business a year ago, reports that these rights represented 13 percent of the mortgages it serviced. Fremont has further disclosed that it will delay an interest payment on $6.6 million of its debt as it negotiated with the principal holder of the debt.
House Passes Mortgage Fraud, Foreclosure Rescue Bills
Washington Post (03/21/08) P. B6; Rucker, Philip
Legislation governing mortgage fraud and "foreclosure rescues" sailed through Maryland's House of Delegates on Thursday with ease. The first bill, in an effort to deter misrepresentation by mortgage lenders, establishes a criminal statute giving authorities the power to prosecute perpetrators of mortgage fraud. The other addresses schemes that deceive homeowners into signing over their property to third parties. Both are part of a package of bills introduced by Gov. Martin O'Malley (D) to curtail the growing epidemic of foreclosures in the state.
Legislation governing mortgage fraud and "foreclosure rescues" sailed through Maryland's House of Delegates on Thursday with ease. The first bill, in an effort to deter misrepresentation by mortgage lenders, establishes a criminal statute giving authorities the power to prosecute perpetrators of mortgage fraud. The other addresses schemes that deceive homeowners into signing over their property to third parties. Both are part of a package of bills introduced by Gov. Martin O'Malley (D) to curtail the growing epidemic of foreclosures in the state.
Fed Loosens Requirements on Collateral
Los Angeles Times (03/21/08)
Under a Federal Reserve program announced on March 11 and designed to help Wall Street deal with the ongoing credit crisis, the central bank is allowing securities firms to pledge more risky mortgage-related assets than initially disclosed. The auction program entails the Fed lending major securities firms Treasury securities and accepting highly rated mortgage holdings as collateral. On March 20, though, Fed officials added that collateral now could include securities linked to commercial real-estate loans and some issues of collateralized mortgage obligations. The amount of the first auction, set for next March 27, has been set at $75 billion.
Under a Federal Reserve program announced on March 11 and designed to help Wall Street deal with the ongoing credit crisis, the central bank is allowing securities firms to pledge more risky mortgage-related assets than initially disclosed. The auction program entails the Fed lending major securities firms Treasury securities and accepting highly rated mortgage holdings as collateral. On March 20, though, Fed officials added that collateral now could include securities linked to commercial real-estate loans and some issues of collateralized mortgage obligations. The amount of the first auction, set for next March 27, has been set at $75 billion.
Frank Urges Overhaul of Business Regulations
Boston Globe (03/21/08); Gavin, Robert
House Financial Services Committee Chairman Barney Frank, D-Mass., speaking before the Greater Boston Chamber of Commerce, said Congress will push for stricter regulation of securities firms and mortgage brokers when it meets next year to prevent another subprime crisis like the one the nation is dealing with now. According to the lawmaker, "We now see a situation that more damage was done by inadequate regulation. What we have is a systemic problem, and that's what we want to address." He noted that mortgage brokers and investment banks, which are loosely regulated, account for many troubled subprime loans. Additionally, Frank underscored the importance of rebuilding the "lender-borrower relationship," which has suffered because lenders have the ability to unload risks by packaging mortgages into securities and selling them to investors
House Financial Services Committee Chairman Barney Frank, D-Mass., speaking before the Greater Boston Chamber of Commerce, said Congress will push for stricter regulation of securities firms and mortgage brokers when it meets next year to prevent another subprime crisis like the one the nation is dealing with now. According to the lawmaker, "We now see a situation that more damage was done by inadequate regulation. What we have is a systemic problem, and that's what we want to address." He noted that mortgage brokers and investment banks, which are loosely regulated, account for many troubled subprime loans. Additionally, Frank underscored the importance of rebuilding the "lender-borrower relationship," which has suffered because lenders have the ability to unload risks by packaging mortgages into securities and selling them to investors
Mortgage Mess Hits Home for Nation's Small Builders
Wall Street Journal (03/21/08) P. A1; Corkery, Michael
The housing slump and mortgage crisis are taking a toll on small home builders, many of which are saddled with unsold inventory and land and are now finding it difficult to make interest payments and keep developments out of foreclosure. Owners of these firms who used recourse debt to pay for construction are at risk of losing homes, cars and other personal assets if they default. Meanwhile, small banks that focused on construction lending because they could not compete with larger lenders in the mortgage arena also are experiencing pain, with Foresight Analytics reporting an increase in single-family construction loan delinquencies to 7.5 percent in the fourth quarter from 2.1 percent during the same period in 2006. Whitlatch & Co., an Ohio builder, is facing bankruptcy; and the company's owner, Bill Whitlatch, already used $2 million of his personal savings to maintain operations. Whitlatch notes he was unable to handle discounts like those offered by the publicly traded builders because his company could not leverage cash and long-term debt tied to operations in other markets.
The housing slump and mortgage crisis are taking a toll on small home builders, many of which are saddled with unsold inventory and land and are now finding it difficult to make interest payments and keep developments out of foreclosure. Owners of these firms who used recourse debt to pay for construction are at risk of losing homes, cars and other personal assets if they default. Meanwhile, small banks that focused on construction lending because they could not compete with larger lenders in the mortgage arena also are experiencing pain, with Foresight Analytics reporting an increase in single-family construction loan delinquencies to 7.5 percent in the fourth quarter from 2.1 percent during the same period in 2006. Whitlatch & Co., an Ohio builder, is facing bankruptcy; and the company's owner, Bill Whitlatch, already used $2 million of his personal savings to maintain operations. Whitlatch notes he was unable to handle discounts like those offered by the publicly traded builders because his company could not leverage cash and long-term debt tied to operations in other markets.
Mortgage Rate Back Below 6 Percent
Tulsa World (OK) (03/21/08)
According to Freddie Mac's data, mortgage rates have dropped back below 6 percent after spending more than a month above that threshold. Thanks to the Federal Reserve's aggressive moves to insulate the U.S. economy by slashing borrowing costs, 30-year fixed home loans averaged 5.87 percent in the latest numbers. That compares to 6.13 percent this time last week and represents the first time since mid-February that the benchmark interest rate has been less than 6 percent. "Slowing consumer spending and weak employment conditions are among the concerns behind the Fed's decision to lower the target federal funds rate," said Freddie Mac chief economist Frank Nothaft.
According to Freddie Mac's data, mortgage rates have dropped back below 6 percent after spending more than a month above that threshold. Thanks to the Federal Reserve's aggressive moves to insulate the U.S. economy by slashing borrowing costs, 30-year fixed home loans averaged 5.87 percent in the latest numbers. That compares to 6.13 percent this time last week and represents the first time since mid-February that the benchmark interest rate has been less than 6 percent. "Slowing consumer spending and weak employment conditions are among the concerns behind the Fed's decision to lower the target federal funds rate," said Freddie Mac chief economist Frank Nothaft.
Home Vacancy Rates Post Sharp Increases
Wall Street Journal (03/21/08) P. A4; Phillips, Matt
The U.S. Census Bureau reports a jump in the national homeowner vacancy rate to 2.8 percent in the fourth quarter from 2.7 percent in the third quarter, leading some economists to believe additional home-price declines are on the horizon. Florida accounts for some of the highest homeowner vacancy rates in the country--including 7.4 percent in Orlando, 5.1 percent in Tampa-St. Petersburg-Clearwater, 4.6 percent in Jacksonville and 4.4 percent in Miami-Ft. Lauderdale. According to Global Insight managing director of regional services Jim Diffley, "The higher the vacancy rate, the greater is the degree of stress on pricing. It's a measure of how far the market is out of whack." Homeowner vacancy rates also are on the rise in some western cities, climbing to 4.2 percent in Sacramento and 3.7 percent in Phoenix-Mesa-Scottsdale, for instance. However, when gauging home-price trends, economists also look at the job market, population growth and the strength of the local economy. University of Pennsylvania Wharton School real estate and finance professor Joseph Gyourko argues that Michigan is more of a worry than Florida because Florida's economy and population growth are robust, while Michigan's economy shows signs of weakness.
The U.S. Census Bureau reports a jump in the national homeowner vacancy rate to 2.8 percent in the fourth quarter from 2.7 percent in the third quarter, leading some economists to believe additional home-price declines are on the horizon. Florida accounts for some of the highest homeowner vacancy rates in the country--including 7.4 percent in Orlando, 5.1 percent in Tampa-St. Petersburg-Clearwater, 4.6 percent in Jacksonville and 4.4 percent in Miami-Ft. Lauderdale. According to Global Insight managing director of regional services Jim Diffley, "The higher the vacancy rate, the greater is the degree of stress on pricing. It's a measure of how far the market is out of whack." Homeowner vacancy rates also are on the rise in some western cities, climbing to 4.2 percent in Sacramento and 3.7 percent in Phoenix-Mesa-Scottsdale, for instance. However, when gauging home-price trends, economists also look at the job market, population growth and the strength of the local economy. University of Pennsylvania Wharton School real estate and finance professor Joseph Gyourko argues that Michigan is more of a worry than Florida because Florida's economy and population growth are robust, while Michigan's economy shows signs of weakness.
Mortgage Insurers, Banks Rewrite Rules
Indianapolis Star (03/21/08); Zibel, Alan; Elphinstone, J.W.
With mortgage insurers now unwilling to insure home loans in almost 25 percent of the nation's ZIP codes, experts say borrowers with good credit are finding it difficult to obtain financing. Some mortgage insurers will not insure loans in any community in Arizona, California, Florida, Michigan, Nevada and Ohio, for instance; and there are concerns that such a move will put the brakes on the spring home-buying season and further injure the housing market and the national economy. Markets experiencing home-price declines or stagnant appreciation are affected; and borrowers are expected to have high credit scores and large down payments, among other requirements, under the new paradigm. Stricter underwriting criteria already has eliminated up to 40 percent of borrowers who would have qualified for financing previously, according to Wholesale Access managing director Tom LaMalfa. Inside Mortgage Finance, meanwhile, reports a 38-percent drop in the value of new mortgages to $450 billion in the fourth quarter, with the subprime niche registering a 90-percent decline to $13.5 billion.
With mortgage insurers now unwilling to insure home loans in almost 25 percent of the nation's ZIP codes, experts say borrowers with good credit are finding it difficult to obtain financing. Some mortgage insurers will not insure loans in any community in Arizona, California, Florida, Michigan, Nevada and Ohio, for instance; and there are concerns that such a move will put the brakes on the spring home-buying season and further injure the housing market and the national economy. Markets experiencing home-price declines or stagnant appreciation are affected; and borrowers are expected to have high credit scores and large down payments, among other requirements, under the new paradigm. Stricter underwriting criteria already has eliminated up to 40 percent of borrowers who would have qualified for financing previously, according to Wholesale Access managing director Tom LaMalfa. Inside Mortgage Finance, meanwhile, reports a 38-percent drop in the value of new mortgages to $450 billion in the fourth quarter, with the subprime niche registering a 90-percent decline to $13.5 billion.
New Windstorm Policies Limit Premiums for Multiple Borrowers
MBA (3/20/2008 ) Murray, Michael
Lenders and servicers could soon find large amounts of windstorm insurance with reduced deductibles and lower rates formultiple borrowerson one policy.
In these new windstorm insurance policies, all borrowers who sign up share the same policy limit—$100 million, for example—when a loss occurs. Generally, these windstorm policies are in the Southeast region of the United States.
“This scenario is tolerable if there are only a few policyholders and the reasonable expectation of a worst-case loss would not exhaust the limit,” said Bernard Brown, president of Insurance Advisors, Stamford, Conn.
The program itself consists of a large limit and deductibles at 2 percent rather than the market norm of 3 percent to 5 percent. The policy includes significantly lower premium rates and appeals to borrowers in windstorm-prone areas, including Florida .
“In this era of single-purpose borrowing entities, borrowers are crossing their fingers and have made the conscious choice to save current premium dollars and hope for the best as long as their lender accepts their insurance certificate,” Brown said. “Lenders and servicers, on the other hand, may not understand the limitations of such an insurance program and are naively accepting them without weighing all the facts.”
While lenders and servicers could find comfort that a borrower has windstorm insurance in the Southeast, with a highly rated insurer and acceptable premiums and deductibles, they might not be aware that multiple borrowers are on the policy.
“Lenders, for the most part, haven’t been able to discern exactly how those programs work,” Brown said. “They don’t know that there are numerous policyholders on the program.”
In reviewing a portfolio of locations in states such as Florida, Insurance Advisors would give an opinion as to whether the insurance limits purchased by a single borrower under a blanket program are reasonable, given the values at risk.
“Such an analysis is fairly straightforward and a lender can make an informed decision about the adequacy of wind insurance,” Brown said. “If, however, there are dozens of policyholders with hundreds of locations that have not been disclosed, then there becomes a serious likelihood that there may be insufficient insurance to go around if and when a large loss occurs.”
Lenders and servicers could soon find large amounts of windstorm insurance with reduced deductibles and lower rates formultiple borrowerson one policy.
In these new windstorm insurance policies, all borrowers who sign up share the same policy limit—$100 million, for example—when a loss occurs. Generally, these windstorm policies are in the Southeast region of the United States.
“This scenario is tolerable if there are only a few policyholders and the reasonable expectation of a worst-case loss would not exhaust the limit,” said Bernard Brown, president of Insurance Advisors, Stamford, Conn.
The program itself consists of a large limit and deductibles at 2 percent rather than the market norm of 3 percent to 5 percent. The policy includes significantly lower premium rates and appeals to borrowers in windstorm-prone areas, including Florida .
“In this era of single-purpose borrowing entities, borrowers are crossing their fingers and have made the conscious choice to save current premium dollars and hope for the best as long as their lender accepts their insurance certificate,” Brown said. “Lenders and servicers, on the other hand, may not understand the limitations of such an insurance program and are naively accepting them without weighing all the facts.”
While lenders and servicers could find comfort that a borrower has windstorm insurance in the Southeast, with a highly rated insurer and acceptable premiums and deductibles, they might not be aware that multiple borrowers are on the policy.
“Lenders, for the most part, haven’t been able to discern exactly how those programs work,” Brown said. “They don’t know that there are numerous policyholders on the program.”
In reviewing a portfolio of locations in states such as Florida, Insurance Advisors would give an opinion as to whether the insurance limits purchased by a single borrower under a blanket program are reasonable, given the values at risk.
“Such an analysis is fairly straightforward and a lender can make an informed decision about the adequacy of wind insurance,” Brown said. “If, however, there are dozens of policyholders with hundreds of locations that have not been disclosed, then there becomes a serious likelihood that there may be insufficient insurance to go around if and when a large loss occurs.”
New Windstorm Policies Limit Premiums for Multiple Borrowers
MBA (3/20/2008 ) Murray, Michael
Lenders and servicers could soon find large amounts of windstorm insurance with reduced deductibles and lower rates formultiple borrowerson one policy.
In these new windstorm insurance policies, all borrowers who sign up share the same policy limit—$100 million, for example—when a loss occurs. Generally, these windstorm policies are in the Southeast region of the United States.
“This scenario is tolerable if there are only a few policyholders and the reasonable expectation of a worst-case loss would not exhaust the limit,” said Bernard Brown, president of Insurance Advisors, Stamford, Conn.
The program itself consists of a large limit and deductibles at 2 percent rather than the market norm of 3 percent to 5 percent. The policy includes significantly lower premium rates and appeals to borrowers in windstorm-prone areas, including Florida .
“In this era of single-purpose borrowing entities, borrowers are crossing their fingers and have made the conscious choice to save current premium dollars and hope for the best as long as their lender accepts their insurance certificate,” Brown said. “Lenders and servicers, on the other hand, may not understand the limitations of such an insurance program and are naively accepting them without weighing all the facts.”
While lenders and servicers could find comfort that a borrower has windstorm insurance in the Southeast, with a highly rated insurer and acceptable premiums and deductibles, they might not be aware that multiple borrowers are on the policy.
“Lenders, for the most part, haven’t been able to discern exactly how those programs work,” Brown said. “They don’t know that there are numerous policyholders on the program.”
In reviewing a portfolio of locations in states such as Florida, Insurance Advisors would give an opinion as to whether the insurance limits purchased by a single borrower under a blanket program are reasonable, given the values at risk.
“Such an analysis is fairly straightforward and a lender can make an informed decision about the adequacy of wind insurance,” Brown said. “If, however, there are dozens of policyholders with hundreds of locations that have not been disclosed, then there becomes a serious likelihood that there may be insufficient insurance to go around if and when a large loss occurs.”
Lenders and servicers could soon find large amounts of windstorm insurance with reduced deductibles and lower rates formultiple borrowerson one policy.
In these new windstorm insurance policies, all borrowers who sign up share the same policy limit—$100 million, for example—when a loss occurs. Generally, these windstorm policies are in the Southeast region of the United States.
“This scenario is tolerable if there are only a few policyholders and the reasonable expectation of a worst-case loss would not exhaust the limit,” said Bernard Brown, president of Insurance Advisors, Stamford, Conn.
The program itself consists of a large limit and deductibles at 2 percent rather than the market norm of 3 percent to 5 percent. The policy includes significantly lower premium rates and appeals to borrowers in windstorm-prone areas, including Florida .
“In this era of single-purpose borrowing entities, borrowers are crossing their fingers and have made the conscious choice to save current premium dollars and hope for the best as long as their lender accepts their insurance certificate,” Brown said. “Lenders and servicers, on the other hand, may not understand the limitations of such an insurance program and are naively accepting them without weighing all the facts.”
While lenders and servicers could find comfort that a borrower has windstorm insurance in the Southeast, with a highly rated insurer and acceptable premiums and deductibles, they might not be aware that multiple borrowers are on the policy.
“Lenders, for the most part, haven’t been able to discern exactly how those programs work,” Brown said. “They don’t know that there are numerous policyholders on the program.”
In reviewing a portfolio of locations in states such as Florida, Insurance Advisors would give an opinion as to whether the insurance limits purchased by a single borrower under a blanket program are reasonable, given the values at risk.
“Such an analysis is fairly straightforward and a lender can make an informed decision about the adequacy of wind insurance,” Brown said. “If, however, there are dozens of policyholders with hundreds of locations that have not been disclosed, then there becomes a serious likelihood that there may be insufficient insurance to go around if and when a large loss occurs.”
Residential Briefs
MBA (3/20/2008 ) MBA Staff
(Editor’s Note: Most of the following news items took place at the Mortgage Bankers Association’s National Technology in Mortgage Banking Conference & Expo this week in Dallas.)
NetOxygen Integrates Reverse Mortgages
Gallagher Financial Systems Inc., Brentwood, Tenn., a provider of enterprise loan origination technology, announced that it now supports reverse mortgage products in the newest version of its flagship product, NetOxygen.
As part of its baseline system, NetOxygen will now handle data entry and calculations required of the major reverse mortgage products, including FHA’s Home Equity Conversion Mortgage (HECM). Reverse mortgages integrate into NetOxygen’s workflow, so no additional third-party interfaces are needed. NetOxygen also populates and generates all needed reverse mortgage documents, including the Amortization Schedule, the Uniform Residential Loan Application, the Total Annual Loan Cost Disclosure and the Important Terms Disclosure documents.
The Mortgage Coach Releases ‘Stimulus Package’ for Loan Officers
The Mortgage Coach, Irvine, Calif., announced its Temporary Stimulus Package, a product and service package that provides education and new software tools to help loan officers uncover and originate new loans.
The package includes web-based classroom education, weekly coaching conference calls, a new software release and The Market Crisis Sales Plan, a new special report designed to educate originators on key strategies that will stabilize their business. Additionally, the package includes release of Opportunity Optimizer, a web-based system providing an automated six-step process that helps loan originators diagnose a homeowner’s financial situation and make a sound mortgage recommendation based on each homeowner’s specific needs.
DocuTech, Gallagher Partner on eDoc Services
DocuTech, Idaho Falls, Idaho, a provider of compliance services and documentation technology for the mortgage industry, and South Miami, Fla.-based Gallagher Financial Systems Inc. announced a contract that will integrate DocuTech’s Web-based document service, ConformX, with GFS’s NetOxygen loan origination software.
GFS’s NetOxygen system allows lenders to work with a rules-based, service-oriented platform that provides automated calculations and auditing capabilities throughout the life of the loan. Since ConformX and NetOxygen are fully Web-enabled, users will be able to access loan data and documents from any computer with an Internet connection, enabling lenders to work with traditional paper mortgages, paperless mortgages and e-signed mortgages. ConformX is also compatible with Category 1 SMART® Documents and eSigned PDF documents.
The combined services will provide NetOxygen customers with document services that reduce loan-processing time by automatically generating compliant state and federal documents. In addition to closing documents, lenders will also have access to initial disclosures and processing documents. DocuTech’s ConformX will also enable NetOxygen customers to transfer data from mortgage documents into electronic forms for reporting and filing.
River Funding Selects OpenClose to Automate Lending
OpenClose Solutions, West Palm Beach, Fla., developers of Web-based mortgage software, announced that West Salem, Wis.-based wholesale lender River Funding Corp. selected OpenClose, a single-source-code, end-to-end automated mortgage system, to provide comprehensive loan processing.
The loan origination software creates a single loan database that creates, processes and tracks a loan application from open to close. Key features include a robust banking operations core, condition writing, search and support for underwriting, closing, post-closing, secondary marketing, funding, shipping and reporting.
(Editor’s Note: Most of the following news items took place at the Mortgage Bankers Association’s National Technology in Mortgage Banking Conference & Expo this week in Dallas.)
NetOxygen Integrates Reverse Mortgages
Gallagher Financial Systems Inc., Brentwood, Tenn., a provider of enterprise loan origination technology, announced that it now supports reverse mortgage products in the newest version of its flagship product, NetOxygen.
As part of its baseline system, NetOxygen will now handle data entry and calculations required of the major reverse mortgage products, including FHA’s Home Equity Conversion Mortgage (HECM). Reverse mortgages integrate into NetOxygen’s workflow, so no additional third-party interfaces are needed. NetOxygen also populates and generates all needed reverse mortgage documents, including the Amortization Schedule, the Uniform Residential Loan Application, the Total Annual Loan Cost Disclosure and the Important Terms Disclosure documents.
The Mortgage Coach Releases ‘Stimulus Package’ for Loan Officers
The Mortgage Coach, Irvine, Calif., announced its Temporary Stimulus Package, a product and service package that provides education and new software tools to help loan officers uncover and originate new loans.
The package includes web-based classroom education, weekly coaching conference calls, a new software release and The Market Crisis Sales Plan, a new special report designed to educate originators on key strategies that will stabilize their business. Additionally, the package includes release of Opportunity Optimizer, a web-based system providing an automated six-step process that helps loan originators diagnose a homeowner’s financial situation and make a sound mortgage recommendation based on each homeowner’s specific needs.
DocuTech, Gallagher Partner on eDoc Services
DocuTech, Idaho Falls, Idaho, a provider of compliance services and documentation technology for the mortgage industry, and South Miami, Fla.-based Gallagher Financial Systems Inc. announced a contract that will integrate DocuTech’s Web-based document service, ConformX, with GFS’s NetOxygen loan origination software.
GFS’s NetOxygen system allows lenders to work with a rules-based, service-oriented platform that provides automated calculations and auditing capabilities throughout the life of the loan. Since ConformX and NetOxygen are fully Web-enabled, users will be able to access loan data and documents from any computer with an Internet connection, enabling lenders to work with traditional paper mortgages, paperless mortgages and e-signed mortgages. ConformX is also compatible with Category 1 SMART® Documents and eSigned PDF documents.
The combined services will provide NetOxygen customers with document services that reduce loan-processing time by automatically generating compliant state and federal documents. In addition to closing documents, lenders will also have access to initial disclosures and processing documents. DocuTech’s ConformX will also enable NetOxygen customers to transfer data from mortgage documents into electronic forms for reporting and filing.
River Funding Selects OpenClose to Automate Lending
OpenClose Solutions, West Palm Beach, Fla., developers of Web-based mortgage software, announced that West Salem, Wis.-based wholesale lender River Funding Corp. selected OpenClose, a single-source-code, end-to-end automated mortgage system, to provide comprehensive loan processing.
The loan origination software creates a single loan database that creates, processes and tracks a loan application from open to close. Key features include a robust banking operations core, condition writing, search and support for underwriting, closing, post-closing, secondary marketing, funding, shipping and reporting.
OFHEO, GSEs Reach Agreement on Liquidity
MBA (3/20/2008 ) Sorohan, Mike; Mechem, John
The Office of Federal Housing Enterprise Oversight, Fannie Mae and Freddie Mac announced an agreement yesterday that will allow the GSEs to use a significant portion of their capital surplus for purchasing mortgages and mortgage-backed securities.
The Mortgage Bankers Association hailed the agreement. "Today's action is a crucial step in the effort to jumpstart the stalled mortgage market,” said MBA Chairman Kieran Quinn, CMB. “This immediate injection of liquidity reestablishes the pipeline of funds flowing from secondary market mortgage purchasers to primary market lenders.”
OFHEO estimated the agreement will result in an immediate injection of $200 billion into the secondary mortgage market. OFHEO said it should allow the GSEs to purchase or guarantee nearly $2 trillion in mortgages this year. “This capacity will permit them to do more in the jumbo temporary conforming market, subprime refinancing and loan modifications areas,” said OFHEO Director James Lockhart.
In turn, Quinn said, the agreement “will enhance lenders' ability to offer financing to a wide variety of borrowers, including those looking to refinance into a more stable and affordable loan. This should help keep some at-risk borrowers in their homes which will help stabilize the real estate market.”
Quinn said MBA “is very encouraged to see that OFHEO and the GSEs have renewed their commitment to GSE oversight reform. This has long been one of MBA's top legislative priorities and we are eager to work with OFHEO, the GSEs, Congress and the Administration to bring it to fruition this year."
Treasury Secretary Henry Paulson Jr. also praised the agreement. “Fannie Mae and Freddie Mac are significant participants in the mortgage market and I am encouraged that today's announcement will make more financing available in this area,” he said. “Additional capital will enable the companies to help more homeowners and will strengthen the underlying fundamentals of the mortgage market. Today's announcement also reaffirms the commitment of all parties to work toward comprehensive GSE reform legislation as soon as possible.”
As a key part of this initiative, both companies announced that they will begin the process to raise significant capital. Both companies also said they would maintain overall capital levels well in excess of requirements while the mortgage market recovers in order to ensure market confidence and fulfill their public mission.
OFHEO announced that Fannie Mae is in full compliance with its Consent Order and that Freddie Mac has one remaining requirement relating to the separation of the Chairman and CEO positions. OFHEO expects to lift these Consent Orders in the near term. In view of this progress, the public purpose of the two companies, and ongoing market conditions, OFHEO concludes that it is appropriate to reduce immediately the existing 30 percent OFHEO-directed capital requirement to a 20 percent level, and will consider further reductions in the future.
Additionally, all parties recognize the need for a world-class regulatory structure and have renewed a shared commitment to work for comprehensive GSE reform legislation.
“Fannie Mae and Freddie Mac have played a very important and beneficial role in the mortgage markets over the last year,” Lochkhart said. “Let me be clear: both companies have prudent cushions above the OFHEO-directed capital requirements and have increased their reserves. We believe they can play an even more positive role in providing the stability and liquidity the markets need right now. OFHEO will remain vigilant in supervising the safe and sound operations of these companies, and will act quickly to address any deficiencies that may arise. Furthermore, we recognize the need to ensure that their capital levels are strong, protecting them from unforeseen risks as the market recovers.”
Fannie Mae President and CEO Daniel Mudd said, “We are working with our customers, regulators and policy makers to minimize foreclosures, increase affordability—and as of today—to restore liquidity in the market. This progressive, sustainable plan will help bring the stability the market needs.”
Freddie Mac Chairman and CEO Richard Syron said, “The recent environment demonstrates the benefits of the GSEs to the U.S. economy. This approach allows us to continue to create these benefits in a way that balances our mission to provide stability, liquidity, and affordability consistent with safety and soundness while enhancing the interests of shareholders.”
The Office of Federal Housing Enterprise Oversight, Fannie Mae and Freddie Mac announced an agreement yesterday that will allow the GSEs to use a significant portion of their capital surplus for purchasing mortgages and mortgage-backed securities.
The Mortgage Bankers Association hailed the agreement. "Today's action is a crucial step in the effort to jumpstart the stalled mortgage market,” said MBA Chairman Kieran Quinn, CMB. “This immediate injection of liquidity reestablishes the pipeline of funds flowing from secondary market mortgage purchasers to primary market lenders.”
OFHEO estimated the agreement will result in an immediate injection of $200 billion into the secondary mortgage market. OFHEO said it should allow the GSEs to purchase or guarantee nearly $2 trillion in mortgages this year. “This capacity will permit them to do more in the jumbo temporary conforming market, subprime refinancing and loan modifications areas,” said OFHEO Director James Lockhart.
In turn, Quinn said, the agreement “will enhance lenders' ability to offer financing to a wide variety of borrowers, including those looking to refinance into a more stable and affordable loan. This should help keep some at-risk borrowers in their homes which will help stabilize the real estate market.”
Quinn said MBA “is very encouraged to see that OFHEO and the GSEs have renewed their commitment to GSE oversight reform. This has long been one of MBA's top legislative priorities and we are eager to work with OFHEO, the GSEs, Congress and the Administration to bring it to fruition this year."
Treasury Secretary Henry Paulson Jr. also praised the agreement. “Fannie Mae and Freddie Mac are significant participants in the mortgage market and I am encouraged that today's announcement will make more financing available in this area,” he said. “Additional capital will enable the companies to help more homeowners and will strengthen the underlying fundamentals of the mortgage market. Today's announcement also reaffirms the commitment of all parties to work toward comprehensive GSE reform legislation as soon as possible.”
As a key part of this initiative, both companies announced that they will begin the process to raise significant capital. Both companies also said they would maintain overall capital levels well in excess of requirements while the mortgage market recovers in order to ensure market confidence and fulfill their public mission.
OFHEO announced that Fannie Mae is in full compliance with its Consent Order and that Freddie Mac has one remaining requirement relating to the separation of the Chairman and CEO positions. OFHEO expects to lift these Consent Orders in the near term. In view of this progress, the public purpose of the two companies, and ongoing market conditions, OFHEO concludes that it is appropriate to reduce immediately the existing 30 percent OFHEO-directed capital requirement to a 20 percent level, and will consider further reductions in the future.
Additionally, all parties recognize the need for a world-class regulatory structure and have renewed a shared commitment to work for comprehensive GSE reform legislation.
“Fannie Mae and Freddie Mac have played a very important and beneficial role in the mortgage markets over the last year,” Lochkhart said. “Let me be clear: both companies have prudent cushions above the OFHEO-directed capital requirements and have increased their reserves. We believe they can play an even more positive role in providing the stability and liquidity the markets need right now. OFHEO will remain vigilant in supervising the safe and sound operations of these companies, and will act quickly to address any deficiencies that may arise. Furthermore, we recognize the need to ensure that their capital levels are strong, protecting them from unforeseen risks as the market recovers.”
Fannie Mae President and CEO Daniel Mudd said, “We are working with our customers, regulators and policy makers to minimize foreclosures, increase affordability—and as of today—to restore liquidity in the market. This progressive, sustainable plan will help bring the stability the market needs.”
Freddie Mac Chairman and CEO Richard Syron said, “The recent environment demonstrates the benefits of the GSEs to the U.S. economy. This approach allows us to continue to create these benefits in a way that balances our mission to provide stability, liquidity, and affordability consistent with safety and soundness while enhancing the interests of shareholders.”
eRecording, eNotarization Continue Digital Journey
MBA (3/20/2008 ) Palaparty, Vijay
DALLAS—The eMortgage world continues to build stronger infrastructure and gain support through recent eRecording and eNotarization developments. Technological progress varies given the traditional paper-oriented nature of notarial and recording practices.
Mark Ladd, technology committee coordinator at the Property Industry Records Association, outlined three models of eRecording here at the Mortgage Bankers Association’s National Technology in Mortgage Banking Conference & Expo. The first model, scanned paper, has been adopted by 43 counties in the U.S. Model 2 scans paper that combines XML data.
“The scanned image is married up with XML indexing data for the county recorder to populate their database,” he said. “It’s packaged and some of the process is automated. Currently 233 counties work with Model 2.”
Seventy-seven counties have adopted a fully electronic document, Model 3, which is a rendered image that is integrated with XML data. “It’s the most powerful automation and paradigm shift—both culturally and technologically,” Ladd said. “It’s about taking the document and digitizing it. However, most often this doesn’t require re-education because closing agents are already electronically storing documents for their own internal sake. We are seeing a lot of traction in this space. Counties that have adopted Model 3 are seeing six percent to eight percent of documents come in electronically. Model 2 is seeing a 50 percent to 60 percent rate of participation.”
eRecording submission methods include a single source point-to-point where vendors provide both submitter and recorder software for preparing and recording eDocs, respectively. An agnostic recording receiver method also exists, where the recorder accepts documents from anyone who conforms to a published standard.
Statewide portals have also emerged—the first, a private sector portal with a single point of entry for all counties supported by a designated portal vendor; and second, recorder-led initiatives where a single point of entry exists for all counties in a particular state. Iowa, New Jersey and Missouri are in production phase of adopting recorder-led initiative. North Carolina, Pennsylvania, Colorado and California are in study and planning phases.
“All document formats and implementation are based on PRIA data and MISMO standards,” Ladd said. “Data standards are interoperable.”
Scheme based version 3.x is under development, which coordinates with MISMO’s core data structures and architecture workgroups, Ladd said.
“The MISMO and Mortgage Bankers Association alliance offers major benefits in the alignment of technology standards such as the efficient use of resources and in the sharing of information,” Ladd said. “It allows joint review and adoption of data specifications, sharing resources for development and tracking specifications, cross-memberships, preparing and testing schemes and joint review and adoption of common security policies.”
Darren Ross, director of eNotarization services and development at the National Notary Association, detailed progress toward eNotarization. “Notaries provide audit trails and electronic services to provide a better transaction for customers, businesses and government,” he said. “They provide better protection from fraudulent transactions and also more assurance and integrity of the notarial acts performed, along with the legal enforceability of such transactions.”
The security tenets of a paper-based notarization hold in the electronic version as well, Ross said. “Security tenets include the physical presence, which is the core of the transaction; requirements, which are different for every jurisdiction; the identification process of what is required; and then willingness and acknowledgment. It’s no different in electronic notarization,” he said.
Electronic notary seals (ENS) and digital certificates have emerged in the push for efficiency. “It’s the electronic counterpart to the notary’s pen and ink seal,” Ross said. ENS is accredited and has security measures built in such as tamper evident notifications.
“The benefits of ENS regulates notaries in the electronic age, supports eNotarization statewide, facilitates certification of documents between states and nations and deters fraud,” Ross said.
DALLAS—The eMortgage world continues to build stronger infrastructure and gain support through recent eRecording and eNotarization developments. Technological progress varies given the traditional paper-oriented nature of notarial and recording practices.
Mark Ladd, technology committee coordinator at the Property Industry Records Association, outlined three models of eRecording here at the Mortgage Bankers Association’s National Technology in Mortgage Banking Conference & Expo. The first model, scanned paper, has been adopted by 43 counties in the U.S. Model 2 scans paper that combines XML data.
“The scanned image is married up with XML indexing data for the county recorder to populate their database,” he said. “It’s packaged and some of the process is automated. Currently 233 counties work with Model 2.”
Seventy-seven counties have adopted a fully electronic document, Model 3, which is a rendered image that is integrated with XML data. “It’s the most powerful automation and paradigm shift—both culturally and technologically,” Ladd said. “It’s about taking the document and digitizing it. However, most often this doesn’t require re-education because closing agents are already electronically storing documents for their own internal sake. We are seeing a lot of traction in this space. Counties that have adopted Model 3 are seeing six percent to eight percent of documents come in electronically. Model 2 is seeing a 50 percent to 60 percent rate of participation.”
eRecording submission methods include a single source point-to-point where vendors provide both submitter and recorder software for preparing and recording eDocs, respectively. An agnostic recording receiver method also exists, where the recorder accepts documents from anyone who conforms to a published standard.
Statewide portals have also emerged—the first, a private sector portal with a single point of entry for all counties supported by a designated portal vendor; and second, recorder-led initiatives where a single point of entry exists for all counties in a particular state. Iowa, New Jersey and Missouri are in production phase of adopting recorder-led initiative. North Carolina, Pennsylvania, Colorado and California are in study and planning phases.
“All document formats and implementation are based on PRIA data and MISMO standards,” Ladd said. “Data standards are interoperable.”
Scheme based version 3.x is under development, which coordinates with MISMO’s core data structures and architecture workgroups, Ladd said.
“The MISMO and Mortgage Bankers Association alliance offers major benefits in the alignment of technology standards such as the efficient use of resources and in the sharing of information,” Ladd said. “It allows joint review and adoption of data specifications, sharing resources for development and tracking specifications, cross-memberships, preparing and testing schemes and joint review and adoption of common security policies.”
Darren Ross, director of eNotarization services and development at the National Notary Association, detailed progress toward eNotarization. “Notaries provide audit trails and electronic services to provide a better transaction for customers, businesses and government,” he said. “They provide better protection from fraudulent transactions and also more assurance and integrity of the notarial acts performed, along with the legal enforceability of such transactions.”
The security tenets of a paper-based notarization hold in the electronic version as well, Ross said. “Security tenets include the physical presence, which is the core of the transaction; requirements, which are different for every jurisdiction; the identification process of what is required; and then willingness and acknowledgment. It’s no different in electronic notarization,” he said.
Electronic notary seals (ENS) and digital certificates have emerged in the push for efficiency. “It’s the electronic counterpart to the notary’s pen and ink seal,” Ross said. ENS is accredited and has security measures built in such as tamper evident notifications.
“The benefits of ENS regulates notaries in the electronic age, supports eNotarization statewide, facilitates certification of documents between states and nations and deters fraud,” Ross said.
Report: State Ranks at Top in Mortgage Crisis
Jackson Clarion-Ledger (MS) (03/20/08); Joyner, Chris
Based on Mortgage Bankers Association data for the 2007 third quarter, a report by the Mississippi Economic Policy Center ranks Mississippi first for mortgage delinquencies and subprime lending and eighth in terms of foreclosures. Center director Ed Sivak says the state was vulnerable to high-risk mortgages because of its poor housing stock and low median income. "I think it was a little predictable when you think that four out of every 10 mortgages entered into (in the state) were subprime," he remarks. With more than 15,000 mortgages in foreclosure across the state, Sivak expects five times as many homes to experience declines in value as a result. While the center suggests that a state task force be established to look into solutions--such as tougher rules against predatory lenders and plans to help borrowers refinance into conventional mortgages--Mississippi House Banking Committee Chairman George Flaggs, D-Vicksburg, says nothing can be done until lawmakers meet again in January 2009.
Based on Mortgage Bankers Association data for the 2007 third quarter, a report by the Mississippi Economic Policy Center ranks Mississippi first for mortgage delinquencies and subprime lending and eighth in terms of foreclosures. Center director Ed Sivak says the state was vulnerable to high-risk mortgages because of its poor housing stock and low median income. "I think it was a little predictable when you think that four out of every 10 mortgages entered into (in the state) were subprime," he remarks. With more than 15,000 mortgages in foreclosure across the state, Sivak expects five times as many homes to experience declines in value as a result. While the center suggests that a state task force be established to look into solutions--such as tougher rules against predatory lenders and plans to help borrowers refinance into conventional mortgages--Mississippi House Banking Committee Chairman George Flaggs, D-Vicksburg, says nothing can be done until lawmakers meet again in January 2009.
Creditors Give Thornburg One Week to Raise Capital
Wall Street Journal (03/20/08) P. C4; Saha-Bubna, Aparajita; Wei, Lingling
Thornburg Mortgage Inc. saw its shares surge earlier in the week after it disclosed a deal with five lenders: Bear Stearns Cos., Citigroup Inc., Credit Suisse Group, Royal Bank of Scotland Group PLC and UBS AG. When it was learned that this pact hinges on the REIT raising nearly $1 billion in the next week, Thornburg's shares plunged 50 percent. Without the new capital, Thornburg will be forced to sell its remaining mortgage assets; and the sale proceeds likely would not be enough to repay its lenders. Thornburg--which specializes in making large loans to borrowers with good credit--reports that its plan now is to sell $1 billion of subordinated notes, issue warrants to the five lenders to buy 47 million shares and suspend its dividend for a year.
Thornburg Mortgage Inc. saw its shares surge earlier in the week after it disclosed a deal with five lenders: Bear Stearns Cos., Citigroup Inc., Credit Suisse Group, Royal Bank of Scotland Group PLC and UBS AG. When it was learned that this pact hinges on the REIT raising nearly $1 billion in the next week, Thornburg's shares plunged 50 percent. Without the new capital, Thornburg will be forced to sell its remaining mortgage assets; and the sale proceeds likely would not be enough to repay its lenders. Thornburg--which specializes in making large loans to borrowers with good credit--reports that its plan now is to sell $1 billion of subordinated notes, issue warrants to the five lenders to buy 47 million shares and suspend its dividend for a year.
Bid to Regulate Reverse Mortgages Stalls in House
Arizona Daily Star (03/20/08); Fischer, Howard
Some state lawmakers in Arizona have joined the mortgage and banking industry in opposing a bill sponsored by Rep. Bill Konopnicki, R-Safford, chair of the House Committee on Financial Institutions and Insurance, that would regulate reverse mortgages. HB 2506--which would require disclosures of all terms, including interest rates and fees, and ban the practice of requiring a homeowner to buy an annuity as part of the deal--stalled in the House. "I just want to be sure they [homeowners] know exactly what they're getting, how long it will last and what the total consequences are," said Konopnicki. Terry Turk, president of Sun America Mortgage Co. in Mesa and a representative of the National Reverse Mortgage Lenders Association, says statutes regulating private reverse mortgages should generally be in line with federal rules.
Some state lawmakers in Arizona have joined the mortgage and banking industry in opposing a bill sponsored by Rep. Bill Konopnicki, R-Safford, chair of the House Committee on Financial Institutions and Insurance, that would regulate reverse mortgages. HB 2506--which would require disclosures of all terms, including interest rates and fees, and ban the practice of requiring a homeowner to buy an annuity as part of the deal--stalled in the House. "I just want to be sure they [homeowners] know exactly what they're getting, how long it will last and what the total consequences are," said Konopnicki. Terry Turk, president of Sun America Mortgage Co. in Mesa and a representative of the National Reverse Mortgage Lenders Association, says statutes regulating private reverse mortgages should generally be in line with federal rules.
Democrats, Bush Square Off Over Housing Relief
Washington Post (03/20/08) P. D1; Birnbaum, Jeffrey H.; Montgomery, Lori
The White House is working closely with Capitol Hill legislators on proposals that would help new home buyers and small investors nationwide by toughening up rules that govern mortgage lending. Meanwhile, House lawmakers reportedly are on the verge of approving a multibillion-dollar program to prevent hundreds of thousands of home foreclosures. The outlook for the plan is uncertain, though, as President Bush continues to balk at broad legislation to bail out strapped homeowners. Democratic congressional leaders believe the president will compromise eventually, at the urging of Treasury Secretary Henry Paulson Jr. and other senior members of his Cabinet. Francis Creighton, a senior lobbyist for the Mortgage Bankers Association, concurs, "There's real fear about where this crisis is going to end up. This administration appears to be ready to do what it needs to address this crisis."
The White House is working closely with Capitol Hill legislators on proposals that would help new home buyers and small investors nationwide by toughening up rules that govern mortgage lending. Meanwhile, House lawmakers reportedly are on the verge of approving a multibillion-dollar program to prevent hundreds of thousands of home foreclosures. The outlook for the plan is uncertain, though, as President Bush continues to balk at broad legislation to bail out strapped homeowners. Democratic congressional leaders believe the president will compromise eventually, at the urging of Treasury Secretary Henry Paulson Jr. and other senior members of his Cabinet. Francis Creighton, a senior lobbyist for the Mortgage Bankers Association, concurs, "There's real fear about where this crisis is going to end up. This administration appears to be ready to do what it needs to address this crisis."
The Affluent, Too, Are Struggling as Mortgages Adjust Upward
New York Times (03/20/08) P. C1; Birnbaum, Jane
A number of affluent households with incomes of $100,000 or more took out adjustable-rate mortgages at the peak of the real estate bubble and are now facing the prospects of mortgage payments that have, in some cases, doubled. Of the estimated 870,000 borrowers who obtained jumbo adjustable-rate mortgages from 2005 to 2007, 8.10 percent were two or more payments late, 2.62 percent were in the foreclosure process and 1.35 percent had been foreclosed by the fourth quarter of 2007--all increases from the third quarter, reports Loan Performance. Eventually, 8 percent of these mortgages of $417,000 or more will be foreclosed, predicts Moody's Economy.com.
A number of affluent households with incomes of $100,000 or more took out adjustable-rate mortgages at the peak of the real estate bubble and are now facing the prospects of mortgage payments that have, in some cases, doubled. Of the estimated 870,000 borrowers who obtained jumbo adjustable-rate mortgages from 2005 to 2007, 8.10 percent were two or more payments late, 2.62 percent were in the foreclosure process and 1.35 percent had been foreclosed by the fourth quarter of 2007--all increases from the third quarter, reports Loan Performance. Eventually, 8 percent of these mortgages of $417,000 or more will be foreclosed, predicts Moody's Economy.com.
Realtors Eye Credit Union, CUs See Ally
American Banker (03/20/08) P. 1; Kaper, Stacy
If the National Association of Realtors' application for an independent federal credit union charter is approved, it will become one of the biggest credit unions in the United States--serving the group's 1.3 million members as well as their families and employees. The credit union would provide mortgages, deposit accounts and other financial services online. The link between NAR and the credit unions is causing some concerns in the banking industry, as it would create a substantial lobbying force on issues opposed by bankers--such as regulatory relief that would allow credit unions with any type of charter to conduct business in underserved areas. When Congress' recess is over, House Financial Services Committee Chairman Barney Frank, D-Mass., says lawmakers will look at regulatory relief legislation.
If the National Association of Realtors' application for an independent federal credit union charter is approved, it will become one of the biggest credit unions in the United States--serving the group's 1.3 million members as well as their families and employees. The credit union would provide mortgages, deposit accounts and other financial services online. The link between NAR and the credit unions is causing some concerns in the banking industry, as it would create a substantial lobbying force on issues opposed by bankers--such as regulatory relief that would allow credit unions with any type of charter to conduct business in underserved areas. When Congress' recess is over, House Financial Services Committee Chairman Barney Frank, D-Mass., says lawmakers will look at regulatory relief legislation.
US Mortgage Lenders to Pump $200 Bln Into Markets
Reuters (03/20/08); Rucker, Patrick
Efforts are being made to pump liquidity into the mortgage markets to ease the credit crunch and head off a recession. A decision by Fannie Mae and Freddie Mac's regulator to ease capital requirements will pump $200 billion into the markets, while additional liquidity is expected if the regulator of the Federal Home Loan Bank System approves a plan to increase some mortgage holdings two-fold to approximately $300 billion. According to RBC Capital Markets currency strategist David Watt, "All hands are on deck to try and prevent this U.S. situation from becoming a dire crisis. They're doing everything they can, making policy on the fly."
Efforts are being made to pump liquidity into the mortgage markets to ease the credit crunch and head off a recession. A decision by Fannie Mae and Freddie Mac's regulator to ease capital requirements will pump $200 billion into the markets, while additional liquidity is expected if the regulator of the Federal Home Loan Bank System approves a plan to increase some mortgage holdings two-fold to approximately $300 billion. According to RBC Capital Markets currency strategist David Watt, "All hands are on deck to try and prevent this U.S. situation from becoming a dire crisis. They're doing everything they can, making policy on the fly."
Residential Briefs
MBA (3/19/2008 ) MBA Staff
(Editor’s Note: Most of these announcements took place at the Mortgage Bankers Association’s National Technology in Mortgage Banking Conference & Expo this week in Dallas.)
Alaska USA FCU Taps Metavante LOS
Metavante, Milwaukee, a provider of banking and payments technology, announced that Alaska USA Federal Credit Union is in production with Metavante’s Loan Origination System (LOS) point-of-sale product for its mortgage operations. Alaska USA FCU, headquartered in Anchorage, is one of the top 10 credit unions in the U.S. and the largest financial institution in Alaska with $2.8 billion in assets.
Alaska USA FCU is using the Web-based LOS to automate its mortgage loan origination process. The LOS provides real-time product eligibility, pricing and underwriting decisions at the point-of-sale. The integrated third-party platform also provides self-service capabilities—ordering credit, automated underwriting, flood insurance and appraisals.
eLynx Delivers Loan Modification Service
eLynx, Cincinnati, a portfolio company of American Capital Strategies Ltd., announced availability of a new on-demand loan modification service, which allows the loan modification process to be completed securely over the Internet in minutes.
The product combines electronic distribution and signatures with an on-demand archiving option. An integrated paper fulfillment option is available for borrowers who prefer paper at any time in the process.
Byte Software Releases ByteSync
Byte Software, Kirkland, Wash., a provider of mortgage software for banks, brokers and credit unions, released ByteSync, a value-added module that synchronizes data between its BytePro loan origination software and LoanToolbox.
Using ByteSync, mortgage professionals can export loan information from BytePro to LoanToolbox, either creating new LoanToolbox contacts or merging data into existing LoanToolbox contacts. The export function sends hundreds of fields to LoanToolbox, including borrower information, first and second loan data and parties' information. ByteSync identifies existing LoanToolbox contacts that are possible matches with the borrower in BytePro. If a match is identified ByteSync can update the existing contact instead of creating a duplicate contact.
Bills.com Launches 'Know Your Limits' Program
Bills.com, San Mateo, Calif., launched "Know Your Limits," a program to help homeowners determine if they are eligible for new, higher-limit loans passed in the economic stimulus package.
Mortgage lenders and brokers can reach homeowners eligible for the new loans through the FHASecure program, which matches lenders and brokers with applicants whose desired loan amount is below the FHA loan limit for their county of residence. A corresponding Stimulus Select program matches applicants who are eligible for jumbo-conforming loans. Both FHASecure and Stimulus Select are activated on a filter-by-filter basis and are optional.
Visionet Launches ESF.NET Rapid Development Toolset
Visionet Systems, Cranbury, N.J., introduced its Enterprise Systems Framework Platform, designed to save time, improve systems and enable rapid re-engineering using built-in database and servicing system connections, single logon capability, SOA based architecture and ready-to-use components.
The platform provides utilities to manage the presentation, business and database layers separately. ESF.NET extends its capabilities through tight integration with Microsoft BizTalk and SharePoint.
IMS Adds Six New Servicers
Integrated Mortgage Solutions, Houston, a collateral protection resource for the mortgage servicing industry, announced addition of six clients, which include traditional mortgage servicers, auction companies, realtors and asset management companies.
Cogent Road Enhances Funding Suite v3.0
Cogent Road, San Diego, a provider of Internet-based applications for the mortgage industry, announced several enhancements to Funding Suite v.3.0, a redesigned database architecture underlying the credit report for brokers.
The enhancements to Funding Suite’s credit proofreading tools is a new Underwriting Conditions Scan, which allows every credit file is scanned to detect conditions and underwriting flags that may be indicated by Fannie Mae’s Desktop Underwriter. Included as a separate tab within the Intelligent Credit Report, all results are listed and enable mortgage originators to resolve conditions before the file is processed through Fannie Mae.
Ellie Mae Launches CenterWise
Ellie Mae, Pleasanton, Calif., a provider of software and services for the mortgage industry, launched CenterWise, an all-in-one electronic document management (EDM) and retail website package, available as a service through the Encompass Mortgage Management product.
CenterWise provides unlimited electronic document management, including all state-specific disclosures, delivery and archiving, along with a scalable and search engine-friendly WebCenter web site and secure online business center that enables communication among staff, borrowers and business partners.
Lydian Integrates to NYLX
Lydian Data Services, Mt. Arlington, N.J., and NYLX, Jacksonville, Fla., announced a partnership that connects Lydian Data Services and Lydian Technology Group clients with NYLX’s point of sale technology.
The partnership equips clients with a front-end service that offers real-time pricing and product selection, as well as customer-facing web portal capabilities. NYLX clients can connect to Lydian’s Mortgage Connectivity Hub to access various lending platforms, package loans for processing or delivery to a wholesale lender and leverage Lydian’s business process outsourcing (BPO) services.
Rapid Reporting Offers Immediate, Real-Time Identity Verification
Rapid Reporting, Fort Worth, Texas, a provider of income and identity verification products to the mortgage industry, announced that DirectChek, the company’s identity verification service, will soon provide instant verification of Social Security numbers from the Social Security Administration. Immediate access to Social Security number verification data by the SSA had never before been available to the private sector.
To get instant identity verification, DirectChek users input the borrower’s name, Social Security number and date of birth into the DirectChek system; the system provides an immediate answer. The instant turn-around times is made possible by new technologies that SSA is implementing to the new permanent consent-based program.
Crescent Mortgage Deploys Avista LOS
Avista Solutions, Orlando, Fla., a provider of web-based mortgage loan origination software, announced that Atlanta-based Crescent Mortgage Co., a national residential wholesale lender, deployed the Avista Agile LOS Wholesale origination platform, Avista’s private labeled, secure and comprehensive web service for wholesale lenders, to fulfill its workflow process from origination through closing.
Avista Agile LOS Wholesale origination platform enables lenders to give broker clients the ability to register and lock loans online and receive immediate confirmation from the lender. Brokers receive decisions from DU or LP in minutes, which include DU or LP findings, as well as lender-specific conditions. The lender’s secondary staff receives immediate notification of locks and registrations; brokers also have the ability to schedule a closing and submit their closing fee sheet online.
PriceMyLoan Joins Xerox's BlitzDocs Provider Network
PriceMyLoan, Atlanta, is now a Certified BPO Provider of Xerox Mortgage Services' BlitzDocs Collaboration Suite, a service for electronic document collaboration.
With BlitzDocs deployed, loans generated from PML are dropped into a collaborative e-folder and transformed into electronic documents for underwriting, auditing, transfer and archiving.
Xerox Enhances Collaboration Suite
Xerox Corp., Rochester, N.Y., introduced new features to its BlitzDocs Collaboration Suite. New to the BlitzDocs suite is Xerox Dataglyphs technology, a security feature that embeds computer-readable data to the paper.
Information regarding the mortgage loan is contained in the DataGlyphs, which act as a portable database, offering increased security and automatic classification capabilities throughout the loan process. DataGlyphs are flexible in shape and size, unlike most bar codes.
(Editor’s Note: Most of these announcements took place at the Mortgage Bankers Association’s National Technology in Mortgage Banking Conference & Expo this week in Dallas.)
Alaska USA FCU Taps Metavante LOS
Metavante, Milwaukee, a provider of banking and payments technology, announced that Alaska USA Federal Credit Union is in production with Metavante’s Loan Origination System (LOS) point-of-sale product for its mortgage operations. Alaska USA FCU, headquartered in Anchorage, is one of the top 10 credit unions in the U.S. and the largest financial institution in Alaska with $2.8 billion in assets.
Alaska USA FCU is using the Web-based LOS to automate its mortgage loan origination process. The LOS provides real-time product eligibility, pricing and underwriting decisions at the point-of-sale. The integrated third-party platform also provides self-service capabilities—ordering credit, automated underwriting, flood insurance and appraisals.
eLynx Delivers Loan Modification Service
eLynx, Cincinnati, a portfolio company of American Capital Strategies Ltd., announced availability of a new on-demand loan modification service, which allows the loan modification process to be completed securely over the Internet in minutes.
The product combines electronic distribution and signatures with an on-demand archiving option. An integrated paper fulfillment option is available for borrowers who prefer paper at any time in the process.
Byte Software Releases ByteSync
Byte Software, Kirkland, Wash., a provider of mortgage software for banks, brokers and credit unions, released ByteSync, a value-added module that synchronizes data between its BytePro loan origination software and LoanToolbox.
Using ByteSync, mortgage professionals can export loan information from BytePro to LoanToolbox, either creating new LoanToolbox contacts or merging data into existing LoanToolbox contacts. The export function sends hundreds of fields to LoanToolbox, including borrower information, first and second loan data and parties' information. ByteSync identifies existing LoanToolbox contacts that are possible matches with the borrower in BytePro. If a match is identified ByteSync can update the existing contact instead of creating a duplicate contact.
Bills.com Launches 'Know Your Limits' Program
Bills.com, San Mateo, Calif., launched "Know Your Limits," a program to help homeowners determine if they are eligible for new, higher-limit loans passed in the economic stimulus package.
Mortgage lenders and brokers can reach homeowners eligible for the new loans through the FHASecure program, which matches lenders and brokers with applicants whose desired loan amount is below the FHA loan limit for their county of residence. A corresponding Stimulus Select program matches applicants who are eligible for jumbo-conforming loans. Both FHASecure and Stimulus Select are activated on a filter-by-filter basis and are optional.
Visionet Launches ESF.NET Rapid Development Toolset
Visionet Systems, Cranbury, N.J., introduced its Enterprise Systems Framework Platform, designed to save time, improve systems and enable rapid re-engineering using built-in database and servicing system connections, single logon capability, SOA based architecture and ready-to-use components.
The platform provides utilities to manage the presentation, business and database layers separately. ESF.NET extends its capabilities through tight integration with Microsoft BizTalk and SharePoint.
IMS Adds Six New Servicers
Integrated Mortgage Solutions, Houston, a collateral protection resource for the mortgage servicing industry, announced addition of six clients, which include traditional mortgage servicers, auction companies, realtors and asset management companies.
Cogent Road Enhances Funding Suite v3.0
Cogent Road, San Diego, a provider of Internet-based applications for the mortgage industry, announced several enhancements to Funding Suite v.3.0, a redesigned database architecture underlying the credit report for brokers.
The enhancements to Funding Suite’s credit proofreading tools is a new Underwriting Conditions Scan, which allows every credit file is scanned to detect conditions and underwriting flags that may be indicated by Fannie Mae’s Desktop Underwriter. Included as a separate tab within the Intelligent Credit Report, all results are listed and enable mortgage originators to resolve conditions before the file is processed through Fannie Mae.
Ellie Mae Launches CenterWise
Ellie Mae, Pleasanton, Calif., a provider of software and services for the mortgage industry, launched CenterWise, an all-in-one electronic document management (EDM) and retail website package, available as a service through the Encompass Mortgage Management product.
CenterWise provides unlimited electronic document management, including all state-specific disclosures, delivery and archiving, along with a scalable and search engine-friendly WebCenter web site and secure online business center that enables communication among staff, borrowers and business partners.
Lydian Integrates to NYLX
Lydian Data Services, Mt. Arlington, N.J., and NYLX, Jacksonville, Fla., announced a partnership that connects Lydian Data Services and Lydian Technology Group clients with NYLX’s point of sale technology.
The partnership equips clients with a front-end service that offers real-time pricing and product selection, as well as customer-facing web portal capabilities. NYLX clients can connect to Lydian’s Mortgage Connectivity Hub to access various lending platforms, package loans for processing or delivery to a wholesale lender and leverage Lydian’s business process outsourcing (BPO) services.
Rapid Reporting Offers Immediate, Real-Time Identity Verification
Rapid Reporting, Fort Worth, Texas, a provider of income and identity verification products to the mortgage industry, announced that DirectChek, the company’s identity verification service, will soon provide instant verification of Social Security numbers from the Social Security Administration. Immediate access to Social Security number verification data by the SSA had never before been available to the private sector.
To get instant identity verification, DirectChek users input the borrower’s name, Social Security number and date of birth into the DirectChek system; the system provides an immediate answer. The instant turn-around times is made possible by new technologies that SSA is implementing to the new permanent consent-based program.
Crescent Mortgage Deploys Avista LOS
Avista Solutions, Orlando, Fla., a provider of web-based mortgage loan origination software, announced that Atlanta-based Crescent Mortgage Co., a national residential wholesale lender, deployed the Avista Agile LOS Wholesale origination platform, Avista’s private labeled, secure and comprehensive web service for wholesale lenders, to fulfill its workflow process from origination through closing.
Avista Agile LOS Wholesale origination platform enables lenders to give broker clients the ability to register and lock loans online and receive immediate confirmation from the lender. Brokers receive decisions from DU or LP in minutes, which include DU or LP findings, as well as lender-specific conditions. The lender’s secondary staff receives immediate notification of locks and registrations; brokers also have the ability to schedule a closing and submit their closing fee sheet online.
PriceMyLoan Joins Xerox's BlitzDocs Provider Network
PriceMyLoan, Atlanta, is now a Certified BPO Provider of Xerox Mortgage Services' BlitzDocs Collaboration Suite, a service for electronic document collaboration.
With BlitzDocs deployed, loans generated from PML are dropped into a collaborative e-folder and transformed into electronic documents for underwriting, auditing, transfer and archiving.
Xerox Enhances Collaboration Suite
Xerox Corp., Rochester, N.Y., introduced new features to its BlitzDocs Collaboration Suite. New to the BlitzDocs suite is Xerox Dataglyphs technology, a security feature that embeds computer-readable data to the paper.
Information regarding the mortgage loan is contained in the DataGlyphs, which act as a portable database, offering increased security and automatic classification capabilities throughout the loan process. DataGlyphs are flexible in shape and size, unlike most bar codes.
Applications Down Again MBA Weekly Survey
MBA (3/19/2008 ) Kemp, Carolyn
Mortgage applications fell again last week, dropping by 2.9 percent despite another yo-yo drop in key interest rates, according to the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending March 14.
The Market Composite Index fell to 652.0, a decrease of 2.9 percent on a seasonally adjusted basis from 671.7 one week earlier. On an unadjusted basis, the Index decreased 2.8 percent compared with the previous week and was down 3.7 percent compared with the same week one year earlier. The four-week moving average fell by 6 percent to 668.4 from 711.1.
The Refinance Index decreased by 4.6 percent to 2335.0 from 2448.2 the previous week. The four-week moving average was down by 10.9 percent to 2452.8 from 2752.5. The refinance share of mortgage activity decreased to 49.7 percent of total applications from 50.6 percent the previous week.
The seasonally adjusted Purchase Index decreased by 1.0 percent to 365.0 from 368.8 one week earlier. The Conventional Purchase Index decreased 3.1 percent, while the Government Purchase Index (largely FHA) increased 7.7 percent and the Government Refinance Index increased by 11.4 percent. On an unadjusted basis, the Purchase Index decreased 1.0 percent to 406.8 from 410.8 the previous week. The four-week moving average is up 0.5 percent to 363.8 from 361.9.
The seasonally adjusted Conventional Index decreased 5.3 percent to 850.1 from 898.0 the previous week; the seasonally adjusted Government Index increased 9.2 percent to 321.7 from 294.5 the previous week.
The average contract interest rate for 30-year fixed-rate mortgages decreased to 5.98 percent from 6.37 percent, with points decreasing to 0.89 from 1.05 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. Rates have fluctuated over the past five weeks, from a low of 5.72 percent the week of Feb. 8 to 6.37 percent last week.
The average contract interest rate for 15-year fixed-rate mortgages decreased to 5.24 percent from 5.72 percent, with points decreasing to 0.97 from 1.06 (including the origination fee) for 80 percent LTV loans.
The average contract interest rate for one-year adjustable-rate mortgages increased to 6.95 percent from 6.72 percent, with points increasing to 1.64 from 1.27 (including the origination fee) for 80 percent LTV loans. The ARM share of activity decreased to 7.9 percent from 15.5 percent of total applications from the previous week.
The survey covers 50 percent of all U.S. retail residential mortgage originations and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts.
Mortgage applications fell again last week, dropping by 2.9 percent despite another yo-yo drop in key interest rates, according to the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending March 14.
The Market Composite Index fell to 652.0, a decrease of 2.9 percent on a seasonally adjusted basis from 671.7 one week earlier. On an unadjusted basis, the Index decreased 2.8 percent compared with the previous week and was down 3.7 percent compared with the same week one year earlier. The four-week moving average fell by 6 percent to 668.4 from 711.1.
The Refinance Index decreased by 4.6 percent to 2335.0 from 2448.2 the previous week. The four-week moving average was down by 10.9 percent to 2452.8 from 2752.5. The refinance share of mortgage activity decreased to 49.7 percent of total applications from 50.6 percent the previous week.
The seasonally adjusted Purchase Index decreased by 1.0 percent to 365.0 from 368.8 one week earlier. The Conventional Purchase Index decreased 3.1 percent, while the Government Purchase Index (largely FHA) increased 7.7 percent and the Government Refinance Index increased by 11.4 percent. On an unadjusted basis, the Purchase Index decreased 1.0 percent to 406.8 from 410.8 the previous week. The four-week moving average is up 0.5 percent to 363.8 from 361.9.
The seasonally adjusted Conventional Index decreased 5.3 percent to 850.1 from 898.0 the previous week; the seasonally adjusted Government Index increased 9.2 percent to 321.7 from 294.5 the previous week.
The average contract interest rate for 30-year fixed-rate mortgages decreased to 5.98 percent from 6.37 percent, with points decreasing to 0.89 from 1.05 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. Rates have fluctuated over the past five weeks, from a low of 5.72 percent the week of Feb. 8 to 6.37 percent last week.
The average contract interest rate for 15-year fixed-rate mortgages decreased to 5.24 percent from 5.72 percent, with points decreasing to 0.97 from 1.06 (including the origination fee) for 80 percent LTV loans.
The average contract interest rate for one-year adjustable-rate mortgages increased to 6.95 percent from 6.72 percent, with points increasing to 1.64 from 1.27 (including the origination fee) for 80 percent LTV loans. The ARM share of activity decreased to 7.9 percent from 15.5 percent of total applications from the previous week.
The survey covers 50 percent of all U.S. retail residential mortgage originations and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts.
Fed Eases Again; Home Building Activity Changes Little; FOMC Statement
MBA (3/19/2008 ) Velz, Orawin
The Federal Open Market Committee cut the federal funds rate by another 75 basis points to 2.25 percent, following a 50 basis point cut on January 30. The rate is now at the lowest level since February 2005.
In the post-meeting statement, the committee acknowledged that economic activity, including consumer spending and employment, has softened further. It noted that financial markets are under “considerable stress.” Tight credit conditions and further decline in the housing market will continued to weigh on growth over the “next few quarters.”
The committee paid more attention to inflation than it did in previous statements. It noted that inflation expectations have risen. While the FOMC expects inflation to moderate, it argued that inflation outlook has become more uncertain. Despite the discussion on inflation, the committee acknowledged the downside risks to growth—keeping the door open for additional cuts in April.
The fed funds rate cut decision was not unanimous. Dallas Fed President Richard Fisher and Philadelphia President Charles Plosser voted for a smaller cut. This is the second consecutive meeting that Fisher dissented and the first time that there have been two dissenting votes during Fed Chairman Ben Bernanke’s time. The Fed also lowered the discount rate by 75 basis points to 2.50 percent.
In other news, home building activity stabilized as a surge in multifamily home building activity largely offset a large drop in single-family starts. Total housing starts edged down 0.6 percent in February to a seasonally adjusted annualized rate (SAAR) of 1.065 million. Single-family starts fell 6.7 percent. This is the 11th consecutive decline in single-family homebuilding, which has now reached the lowest level since January 1991. Multifamily starts were up 14.4 percent, following a 43.6 percent surge in January (an upward revision from an initial report of 22 percent gain). Both starts of 5-and-over units and 2-4 units rose 14.5 percent and 12.5 percent, respectively.
Permits—a leading indicator of starts—fell 7.8 percent in February to 978,000 units (SAAR). This is the largest decline since January 1991 and the first time total starts fell below one million unit mark since November 1991. Single-family permits dropped 6.2 percent. This marks the 11th consecutive monthly decline in single-family permits, which reached the lowest level since January 1991.
Regional performance varied significantly. Total housing starts dropped sharply in the Northeast (27.7 percent). They increased in the South (3.9 percent) and the West (5.1 percent) and flat in the Midwest.
Through the first two months of this year, single-family starts were 38.9 percent lower than those in the first two months of 2007. By contrast, multifamily starts for the first two months of 2008 were 17.1 percent higher than those last year.
While both single-family and multifamily construction declined during the current housing downturn, multifamily homebuilding’s drop has been much more moderate. Since the peak in January 2006, single-family housing starts have declined 62 percent, compared with a 21 percent drop for multifamily starts.
Even with the sizable pullback in single-family homebuilding activity over the past two years, the housing market continues to show considerable imbalance as housing demand pulls back along with the decline in new construction. According to the National Association of Home Builders/Wells Fargo Housing Market Index released on Monday, home builders’ confidence during March continued to hover around record low levels reached in December 2007.
Despite aggressive rate cuts by the Federal Reserve thus far, housing demand continues to be sluggish. Builders reported that many potential buyers are either reluctant to purchase or they are unable to qualify for a mortgage, given tighter lending standards. In addition, the spread between conforming mortgage rates and the benchmark 10-year Treasury yields has widened significantly.
While the number of homes available for sale dropped steadily over the past 10 months, the months’ supply for new home rose to 9.9 months in January, the highest level since October 1981. Given the huge overhang of unsold inventory in many parts of the country and soft housing demand, a sharp pullback in housing starts is necessary to reduce the market’s excess supply.
A separate report showed that both the overall and the underlying (core) wholesale prices picked up. The Producer Price Index (PPI) rose 0.3 percent in February, following a 1.0 percent increase in January. Excluding the volatile food and energy items, the core PPI rose 0.5 percent in February, the biggest increase since November 2006. From a year ago, the core PPI was up 2.5 percent, accelerating from 2.4 percent.
The stock markets rallied before the FOMC meeting, helped by better expected earnings from Lehman Brothers Holdings Inc. and Goldman Sachs Group Inc., alleviating credit concerns. Treasury yields increased as funds moved from Treasuries to stocks. The yield on the 10-year Treasury note stayed around 3.46 percent by mid-Thursday afternoon, 15 basis points higher than the closing rate on Wednesday.
The Federal Open Market Committee cut the federal funds rate by another 75 basis points to 2.25 percent, following a 50 basis point cut on January 30. The rate is now at the lowest level since February 2005.
In the post-meeting statement, the committee acknowledged that economic activity, including consumer spending and employment, has softened further. It noted that financial markets are under “considerable stress.” Tight credit conditions and further decline in the housing market will continued to weigh on growth over the “next few quarters.”
The committee paid more attention to inflation than it did in previous statements. It noted that inflation expectations have risen. While the FOMC expects inflation to moderate, it argued that inflation outlook has become more uncertain. Despite the discussion on inflation, the committee acknowledged the downside risks to growth—keeping the door open for additional cuts in April.
The fed funds rate cut decision was not unanimous. Dallas Fed President Richard Fisher and Philadelphia President Charles Plosser voted for a smaller cut. This is the second consecutive meeting that Fisher dissented and the first time that there have been two dissenting votes during Fed Chairman Ben Bernanke’s time. The Fed also lowered the discount rate by 75 basis points to 2.50 percent.
In other news, home building activity stabilized as a surge in multifamily home building activity largely offset a large drop in single-family starts. Total housing starts edged down 0.6 percent in February to a seasonally adjusted annualized rate (SAAR) of 1.065 million. Single-family starts fell 6.7 percent. This is the 11th consecutive decline in single-family homebuilding, which has now reached the lowest level since January 1991. Multifamily starts were up 14.4 percent, following a 43.6 percent surge in January (an upward revision from an initial report of 22 percent gain). Both starts of 5-and-over units and 2-4 units rose 14.5 percent and 12.5 percent, respectively.
Permits—a leading indicator of starts—fell 7.8 percent in February to 978,000 units (SAAR). This is the largest decline since January 1991 and the first time total starts fell below one million unit mark since November 1991. Single-family permits dropped 6.2 percent. This marks the 11th consecutive monthly decline in single-family permits, which reached the lowest level since January 1991.
Regional performance varied significantly. Total housing starts dropped sharply in the Northeast (27.7 percent). They increased in the South (3.9 percent) and the West (5.1 percent) and flat in the Midwest.
Through the first two months of this year, single-family starts were 38.9 percent lower than those in the first two months of 2007. By contrast, multifamily starts for the first two months of 2008 were 17.1 percent higher than those last year.
While both single-family and multifamily construction declined during the current housing downturn, multifamily homebuilding’s drop has been much more moderate. Since the peak in January 2006, single-family housing starts have declined 62 percent, compared with a 21 percent drop for multifamily starts.
Even with the sizable pullback in single-family homebuilding activity over the past two years, the housing market continues to show considerable imbalance as housing demand pulls back along with the decline in new construction. According to the National Association of Home Builders/Wells Fargo Housing Market Index released on Monday, home builders’ confidence during March continued to hover around record low levels reached in December 2007.
Despite aggressive rate cuts by the Federal Reserve thus far, housing demand continues to be sluggish. Builders reported that many potential buyers are either reluctant to purchase or they are unable to qualify for a mortgage, given tighter lending standards. In addition, the spread between conforming mortgage rates and the benchmark 10-year Treasury yields has widened significantly.
While the number of homes available for sale dropped steadily over the past 10 months, the months’ supply for new home rose to 9.9 months in January, the highest level since October 1981. Given the huge overhang of unsold inventory in many parts of the country and soft housing demand, a sharp pullback in housing starts is necessary to reduce the market’s excess supply.
A separate report showed that both the overall and the underlying (core) wholesale prices picked up. The Producer Price Index (PPI) rose 0.3 percent in February, following a 1.0 percent increase in January. Excluding the volatile food and energy items, the core PPI rose 0.5 percent in February, the biggest increase since November 2006. From a year ago, the core PPI was up 2.5 percent, accelerating from 2.4 percent.
The stock markets rallied before the FOMC meeting, helped by better expected earnings from Lehman Brothers Holdings Inc. and Goldman Sachs Group Inc., alleviating credit concerns. Treasury yields increased as funds moved from Treasuries to stocks. The yield on the 10-year Treasury note stayed around 3.46 percent by mid-Thursday afternoon, 15 basis points higher than the closing rate on Wednesday.
For Architects, a Downturn Is in the Designs
Wall Street Journal (03/19/08) P. C12; Hudson, Kris
According to the American Institute of Architects (AIA), its Architecture Billings Index (ABI) for February dipped to 41.8--its lowest monthly reading since the aftermath of Sept. 11, 2001. Any reading below 50 signals that billings for the industry declined. Jan Hatzius, chief U.S. economist at Goldman Sachs Group, reports that the ABI's decline indicates that the nation's economic slump has now had negative ramifications on commercial construction as well residential and is further confirmation that the broader economy is in recession. AIA researchers, meanwhile, say the index's drop means commercial construction will remain under pressure through at least this year and 2009 as the credit crunch will likely continue.
According to the American Institute of Architects (AIA), its Architecture Billings Index (ABI) for February dipped to 41.8--its lowest monthly reading since the aftermath of Sept. 11, 2001. Any reading below 50 signals that billings for the industry declined. Jan Hatzius, chief U.S. economist at Goldman Sachs Group, reports that the ABI's decline indicates that the nation's economic slump has now had negative ramifications on commercial construction as well residential and is further confirmation that the broader economy is in recession. AIA researchers, meanwhile, say the index's drop means commercial construction will remain under pressure through at least this year and 2009 as the credit crunch will likely continue.
FBI Expands Probe Into Subprime Industry
Toronto Globe & Mail (03/19/08); Mikkelsen, Randall
The FBI announced that 17 companies are now under investigation to determine their roles in the subprime mortgage crisis, with agents examining the mortgage securitization process, insider trading and asset valuation disclosures. According to Neil Power, chief of the FBI's economic crimes unit, "The problem is that banks weren't doing their due diligence." He adds that most of the cases are in New York and California, involve large corporations and could take years to sort out. The FBI has 100 agents looking into corporate fraud allegations, while 153 are examining loan originations and 150 are investigating possible securities fraud.
The FBI announced that 17 companies are now under investigation to determine their roles in the subprime mortgage crisis, with agents examining the mortgage securitization process, insider trading and asset valuation disclosures. According to Neil Power, chief of the FBI's economic crimes unit, "The problem is that banks weren't doing their due diligence." He adds that most of the cases are in New York and California, involve large corporations and could take years to sort out. The FBI has 100 agents looking into corporate fraud allegations, while 153 are examining loan originations and 150 are investigating possible securities fraud.
Lower Housing Starts, Permits Signal Further Slump
Chicago Tribune (03/19/08)
The U.S. Commerce Department reports that builders broke ground on homes at an annual rate of 1.065 million units during February, a 0.6-percent decline from the previous month. Geographically, the Northeast was the only region to show a decline in total housing starts, at 28 percent; while the Midwest held steady. Starts climbed 5.1 percent in the West—the only region where construction of single-family homes rose—while total building activity rose 3.9 percent in the South. Lehman Brothers Holdings Inc. economist Michelle Meyer states, "You're seeing a continued correction in the housing market, where there's still a huge overhang of homes in the market for sale and very weak demand. Demand will continue to stay weak and home building will remain weak."
The U.S. Commerce Department reports that builders broke ground on homes at an annual rate of 1.065 million units during February, a 0.6-percent decline from the previous month. Geographically, the Northeast was the only region to show a decline in total housing starts, at 28 percent; while the Midwest held steady. Starts climbed 5.1 percent in the West—the only region where construction of single-family homes rose—while total building activity rose 3.9 percent in the South. Lehman Brothers Holdings Inc. economist Michelle Meyer states, "You're seeing a continued correction in the housing market, where there's still a huge overhang of homes in the market for sale and very weak demand. Demand will continue to stay weak and home building will remain weak."
Switching Sides
Wall Street Journal (03/19/08) P. B1; Hagerty, James R.
Mortgage Bankers Association chief economist Doug Duncan says real estate finance jobs dropped to 365,000 today from 505,000 in October 2006, and he expects another 15,000 jobs to be lost by the time the market hits bottom around mid-year. In response, mortgage brokers and loan officers increasingly are changing jobs—many of them becoming foreclosure counselors at nonprofit organizations. The federal government has earmarked $180 million for foreclosure counseling this year, with another $25 million set aside for the upcoming fiscal year. Bruce Marks of Boston, Mass.-based Neighborhood Assistance Corp. of America believes that mortgage brokers' commitment to eliminating obstacles that block transactions make them well suited for a job that requires perseverance in getting refinances or loan modifications approved. However, critics argue that mortgage brokers and loan officers should not play a role in foreclosure counseling, as they are viewed as the people who helped to put struggling homeowners in the position they are in today.
Mortgage Bankers Association chief economist Doug Duncan says real estate finance jobs dropped to 365,000 today from 505,000 in October 2006, and he expects another 15,000 jobs to be lost by the time the market hits bottom around mid-year. In response, mortgage brokers and loan officers increasingly are changing jobs—many of them becoming foreclosure counselors at nonprofit organizations. The federal government has earmarked $180 million for foreclosure counseling this year, with another $25 million set aside for the upcoming fiscal year. Bruce Marks of Boston, Mass.-based Neighborhood Assistance Corp. of America believes that mortgage brokers' commitment to eliminating obstacles that block transactions make them well suited for a job that requires perseverance in getting refinances or loan modifications approved. However, critics argue that mortgage brokers and loan officers should not play a role in foreclosure counseling, as they are viewed as the people who helped to put struggling homeowners in the position they are in today.
Mortgage Company Offers Quick, Paperless Application for Home Loans
Pittsburgh Post-Gazette (03/19/08); Green, Elwin
Using software from Dexma, Atlantis Financial Services Inc. of Franklin Park, Pa., offers a paperless mortgage and speedy approvals at ASAPmortgageonline.com. Prospective borrowers simply input income, debts, assets, the type of property they wish to buy, the home price and other requested information; and the software creates a list of suitable mortgage products. Once the consumer chooses a mortgage type, the system reviews the application for HUD compliance and transmits an approval or denial in about 10 minutes. While roughly half of applications do require interaction with a customer service representative, Atlantis CEO Dave Nearhoof says the system eliminates the temptation for employees to "massage an application in order to gain mortgage approval" because all information must be input by the consumer. Harry Gardner, vice president for industry technology at the Mortgage Bankers Association, says paperless systems do not eliminate the need for human interaction. He explains, "What you are doing is leveraging the ability to manage the documents electronically. You now can communicate even better with your borrower—for example, by sending documents in advance so they're not surprised by a 2-inch pile of paper."
Using software from Dexma, Atlantis Financial Services Inc. of Franklin Park, Pa., offers a paperless mortgage and speedy approvals at ASAPmortgageonline.com. Prospective borrowers simply input income, debts, assets, the type of property they wish to buy, the home price and other requested information; and the software creates a list of suitable mortgage products. Once the consumer chooses a mortgage type, the system reviews the application for HUD compliance and transmits an approval or denial in about 10 minutes. While roughly half of applications do require interaction with a customer service representative, Atlantis CEO Dave Nearhoof says the system eliminates the temptation for employees to "massage an application in order to gain mortgage approval" because all information must be input by the consumer. Harry Gardner, vice president for industry technology at the Mortgage Bankers Association, says paperless systems do not eliminate the need for human interaction. He explains, "What you are doing is leveraging the ability to manage the documents electronically. You now can communicate even better with your borrower—for example, by sending documents in advance so they're not surprised by a 2-inch pile of paper."
Fannie, Freddie Lending Power May Rise
Wall Street Journal (03/19/08) P. A3; Hagerty, James R.; Paletta, Damian
At a press conference scheduled for today, Office of Federal Housing Enterprise Oversight director James Lockhart will announce a plan that will allow Fannie Mae and Freddie Mac to infuse the struggling mortgage market with another $200 billion in funding. The plan involves relaxing a rule that requires the government-sponsored enterprises (GSEs) to top off their minimum capital requirements by 30 percent; under the new plan, that mandate will be lowered to 20 percent—dropping the capital requirement at Freddie Mac by $2.6 billion and at Fannie Mae by $3.2 billion. Additionally, it will require the GSEs to sell preferred shares or take other steps to generate billions of dollars in capital this year.
At a press conference scheduled for today, Office of Federal Housing Enterprise Oversight director James Lockhart will announce a plan that will allow Fannie Mae and Freddie Mac to infuse the struggling mortgage market with another $200 billion in funding. The plan involves relaxing a rule that requires the government-sponsored enterprises (GSEs) to top off their minimum capital requirements by 30 percent; under the new plan, that mandate will be lowered to 20 percent—dropping the capital requirement at Freddie Mac by $2.6 billion and at Fannie Mae by $3.2 billion. Additionally, it will require the GSEs to sell preferred shares or take other steps to generate billions of dollars in capital this year.
Democrats Draft Plans for Distressed Homeowners
Washington Post (03/19/08) P. A4; Montgomery, Lori
Senate Banking Committee Chairman Christopher Dodd, D-Conn., believes some officials in the Bush administration are now more open to embracing Democratic proposals to help homeowners avoid foreclosure following their efforts to keep Bear Stearns from sliding into bankruptcy. On April 9, House Financial Committee Chairman Barney Frank, D-Mass., will preside over a hearing on a measure that would increase the role of the Federal Housing Administration in renegotiating distressed mortgages and also provide as much as $300 billion in guarantees to new lenders; Dodd and Senate Majority Leader Harry Reid, D-Nev., plan to bring similar legislation as soon as possible. "I think they're far more supportive of this idea or something like it than they were a while ago," says Dodd. However, Treasury officials said on Tuesday that they have not expressed support for the plan; and Republicans have said they do not want taxpayers to shoulder the burden of a bailout for homeowners or lenders.
Senate Banking Committee Chairman Christopher Dodd, D-Conn., believes some officials in the Bush administration are now more open to embracing Democratic proposals to help homeowners avoid foreclosure following their efforts to keep Bear Stearns from sliding into bankruptcy. On April 9, House Financial Committee Chairman Barney Frank, D-Mass., will preside over a hearing on a measure that would increase the role of the Federal Housing Administration in renegotiating distressed mortgages and also provide as much as $300 billion in guarantees to new lenders; Dodd and Senate Majority Leader Harry Reid, D-Nev., plan to bring similar legislation as soon as possible. "I think they're far more supportive of this idea or something like it than they were a while ago," says Dodd. However, Treasury officials said on Tuesday that they have not expressed support for the plan; and Republicans have said they do not want taxpayers to shoulder the burden of a bailout for homeowners or lenders.
Fed Cuts Key Interest Rate
Los Angeles Times (03/19/08); Gosselin, Peter G.
The Federal Reserve has reduced the federal funds rate by three-quarters of a percentage point, to 2.25 percent, in an effort to lower interest rates across the board, alleviate the credit crunch and prevent the economy from sliding into recession. The central bank also slashed the discount rate to 2.5 percent. The federal funds rate and the discount rate stood at 5.25 percent and 6.25 percent, respectively, last August; but the Fed's cuts since then have not produced the effect policymakers had anticipated because many banks have not respond by lowering rates on mortgages, credit card debt and business loans. "The cuts show they recognize there's almost a lust for panic going on in the financial markets, and the only way to stop it is to make sure there is liquidity available, no matter what," says Roger Kubarych, a former senior official at the Federal Reserve Bank of New York who now is chief economist at UniCredit Global Research. "They've become the liquefier of last resort."
The Federal Reserve has reduced the federal funds rate by three-quarters of a percentage point, to 2.25 percent, in an effort to lower interest rates across the board, alleviate the credit crunch and prevent the economy from sliding into recession. The central bank also slashed the discount rate to 2.5 percent. The federal funds rate and the discount rate stood at 5.25 percent and 6.25 percent, respectively, last August; but the Fed's cuts since then have not produced the effect policymakers had anticipated because many banks have not respond by lowering rates on mortgages, credit card debt and business loans. "The cuts show they recognize there's almost a lust for panic going on in the financial markets, and the only way to stop it is to make sure there is liquidity available, no matter what," says Roger Kubarych, a former senior official at the Federal Reserve Bank of New York who now is chief economist at UniCredit Global Research. "They've become the liquefier of last resort."
Some Good News Regarding Home Sales Comes in NAR Report
In what may be the first fluttering of a recovery in the housing market, sales of existing homes last month actually increased from January levels according to the National Association of Realtors (NAR.)
Sales of previously occupied single-family houses, condominiums, co-ops and town houses rose 2.9 percent in February to a seasonally adjusted annual sales rate of 5.03 million units. The January sales level was 4.89 million. In spite of the encouraging small increase, February's rate was still 23.8 percent below the 6.60 million pace one year earlier.
NAR's chief economist Lawrence Yun said the increase is encouraging. "We're not expecting a notable gain in existing-home sales until the second half of this year, but the improvement is another sign that the market is stabilizing," he said. "Buyers taking advantage of higher loan limits for both FHA and conventional mortgages will unleash some pent-up demand. As inventories are drawn down, prices in many markets should go positive later this year."
Sales of single-family homes increased 2.8 percent to an annual rate of 4.47 units from an upwardly revised estimate of 4.35 million in January but are still 22.9 percent lower than the 5.80 million sales in February 2007. Condo and co-op sales did a little better, rising 3.7 percent to 560,000 units from January's level of 540,000.
Another bit of good news; inventories of existing dwellings fell 3.0 percent in February to 4.03 million homes available for sale. This is a 9.6 month supply at the current rate of sales compared with a 10.2 month supply in January.
Prices did continue to drop, with the median price of all housing types dropping to $195,900 in February 2008, a decrease of 8.2 percent from the median of $213,500 in February 2007. NAR said that the slowdown in sales from a year ago is greater in high-cost areas, so there is a downward pull to the national median with relatively fewer sales in higher priced markets.
The median price of single-family houses was down 8.7 percent year-over-year to $193,900 and the median existing condo price was $211,700, 4.9 percent lower than a year ago.
Readers of the survey were advised to look as well at home prices within metropolitan areas. Roughly half of the metro areas in the U.S. have had price increases with healthy gains in markets such as Oklahoma City and Trenton, New Jersey. "In other areas such as Sacramento, a rapid price decline has induced buyers to come into the market and sales are now rising," Yun said. "The relationship between home prices, interest rates and income has improved to the point where buyers are more serious about making offers."
In virtually every housing report we have seen over the last few months the situation in the Northeast seems to be improving faster than in other parts of the country. That is true of the current existing home sales report wherein sales in the Northeast were up 11.3 over January but are remain 26.4 percent below February 2007. The median price in the Northeast was $264,800, up 0.4 percent from a year ago.
Two of the other regions also showed increases. Existing-home sales in the Midwest rose 2.5 percent last month while lagging behind February 2007 sales by 19.5 percent. The median price in the Midwest was $143,900, which is 7.1 percent lower than February 2007.
In the South, sales increased 2.1 percent but are 22.0 percent below February 2007. The median price in the South was $163,400, down 8.6 percent from a year ago.
Sales in the West slipped 1.1 percent month-over-month and are 29.2 percent below a year ago. The median price in the West was $290,400, down 13.4 percent from February 2007.
Sales of previously occupied single-family houses, condominiums, co-ops and town houses rose 2.9 percent in February to a seasonally adjusted annual sales rate of 5.03 million units. The January sales level was 4.89 million. In spite of the encouraging small increase, February's rate was still 23.8 percent below the 6.60 million pace one year earlier.
NAR's chief economist Lawrence Yun said the increase is encouraging. "We're not expecting a notable gain in existing-home sales until the second half of this year, but the improvement is another sign that the market is stabilizing," he said. "Buyers taking advantage of higher loan limits for both FHA and conventional mortgages will unleash some pent-up demand. As inventories are drawn down, prices in many markets should go positive later this year."
Sales of single-family homes increased 2.8 percent to an annual rate of 4.47 units from an upwardly revised estimate of 4.35 million in January but are still 22.9 percent lower than the 5.80 million sales in February 2007. Condo and co-op sales did a little better, rising 3.7 percent to 560,000 units from January's level of 540,000.
Another bit of good news; inventories of existing dwellings fell 3.0 percent in February to 4.03 million homes available for sale. This is a 9.6 month supply at the current rate of sales compared with a 10.2 month supply in January.
Prices did continue to drop, with the median price of all housing types dropping to $195,900 in February 2008, a decrease of 8.2 percent from the median of $213,500 in February 2007. NAR said that the slowdown in sales from a year ago is greater in high-cost areas, so there is a downward pull to the national median with relatively fewer sales in higher priced markets.
The median price of single-family houses was down 8.7 percent year-over-year to $193,900 and the median existing condo price was $211,700, 4.9 percent lower than a year ago.
Readers of the survey were advised to look as well at home prices within metropolitan areas. Roughly half of the metro areas in the U.S. have had price increases with healthy gains in markets such as Oklahoma City and Trenton, New Jersey. "In other areas such as Sacramento, a rapid price decline has induced buyers to come into the market and sales are now rising," Yun said. "The relationship between home prices, interest rates and income has improved to the point where buyers are more serious about making offers."
In virtually every housing report we have seen over the last few months the situation in the Northeast seems to be improving faster than in other parts of the country. That is true of the current existing home sales report wherein sales in the Northeast were up 11.3 over January but are remain 26.4 percent below February 2007. The median price in the Northeast was $264,800, up 0.4 percent from a year ago.
Two of the other regions also showed increases. Existing-home sales in the Midwest rose 2.5 percent last month while lagging behind February 2007 sales by 19.5 percent. The median price in the Midwest was $143,900, which is 7.1 percent lower than February 2007.
In the South, sales increased 2.1 percent but are 22.0 percent below February 2007. The median price in the South was $163,400, down 8.6 percent from a year ago.
Sales in the West slipped 1.1 percent month-over-month and are 29.2 percent below a year ago. The median price in the West was $290,400, down 13.4 percent from February 2007.
Monday, March 17, 2008
$1.89 billion loss hammers FGIC
Bond insurer, seeking reorganization and capital, blames fourth-quarter loss on writedown of securities backed by mortgages.
March 17, 2008: 9:55 AM EDT
NEW YORK (AP) -- Bond Insurer FGIC Corp. said Monday it lost nearly $2 billion in the fourth quarter and continues to seek a reorganization of its insurance operations and to raise capital to shore up its financial position.
The loss resulted primarily from writing down the value of securities guaranteed by FGIC that are backed by subprime and second-lien mortgages, the company said.
The company, which is owned by mortgage insurer PMI Group Inc., also said it continues to seek a "significant restructuring" of its insurance business. In February, FGIC said would like to organize a new domestic financial guarantee insurer in New York to "provide support for public finance obligations previously insured by FGIC." A restructuring would need New York Insurance Department approval and a large amount of capital, according to FGIC.
FGIC said it has hired Goldman Sachs to advise it "in connection with its capital enhancement initiatives."
The bond insurer reported a quarterly loss after preferred dividends of $1.89 billion compared with a profit of $65.5 million in the prior year.
Net investment income, which reflects the net capital gains the company realized in the quarter, climbed to $41.3 million from $36.7 million.
Net premiums written slid to $69.1 million from $83 million.
For the period ended Dec. 31, FGIC said it reported a revenue loss of $1.59 billion compared with sales of $121.1 million a year earlier.
Total expenses surged to $1.28 billion from $27.8 million as recorded losses and loss-adjustment expenses totaling $1.23 billion because of a severe decline in the value of certain securities it guarantees.
FGIC said it had about $750 million in credit impairments during the quarter as well as $960 million related to the widening of credit spreads. The company said it stopped writing new financial guaranty business for now in order to hold onto capital.
FGIC reported an annual loss after preferred dividends of $1.82 billion compared with a profit of $229.4 million in the prior year.
It reported lthe oss on sales of $1.43 billion compared with revenue of $444.8 million a year earlier.
FGIC Corp. is the parent company of Financial Guaranty Insurance Co. Last month Fitch Ratings cut its rating on 24 classes of mortgage bonds insured by Financial Guaranty Insurance.
March 17, 2008: 9:55 AM EDT
NEW YORK (AP) -- Bond Insurer FGIC Corp. said Monday it lost nearly $2 billion in the fourth quarter and continues to seek a reorganization of its insurance operations and to raise capital to shore up its financial position.
The loss resulted primarily from writing down the value of securities guaranteed by FGIC that are backed by subprime and second-lien mortgages, the company said.
The company, which is owned by mortgage insurer PMI Group Inc., also said it continues to seek a "significant restructuring" of its insurance business. In February, FGIC said would like to organize a new domestic financial guarantee insurer in New York to "provide support for public finance obligations previously insured by FGIC." A restructuring would need New York Insurance Department approval and a large amount of capital, according to FGIC.
FGIC said it has hired Goldman Sachs to advise it "in connection with its capital enhancement initiatives."
The bond insurer reported a quarterly loss after preferred dividends of $1.89 billion compared with a profit of $65.5 million in the prior year.
Net investment income, which reflects the net capital gains the company realized in the quarter, climbed to $41.3 million from $36.7 million.
Net premiums written slid to $69.1 million from $83 million.
For the period ended Dec. 31, FGIC said it reported a revenue loss of $1.59 billion compared with sales of $121.1 million a year earlier.
Total expenses surged to $1.28 billion from $27.8 million as recorded losses and loss-adjustment expenses totaling $1.23 billion because of a severe decline in the value of certain securities it guarantees.
FGIC said it had about $750 million in credit impairments during the quarter as well as $960 million related to the widening of credit spreads. The company said it stopped writing new financial guaranty business for now in order to hold onto capital.
FGIC reported an annual loss after preferred dividends of $1.82 billion compared with a profit of $229.4 million in the prior year.
It reported lthe oss on sales of $1.43 billion compared with revenue of $444.8 million a year earlier.
FGIC Corp. is the parent company of Financial Guaranty Insurance Co. Last month Fitch Ratings cut its rating on 24 classes of mortgage bonds insured by Financial Guaranty Insurance.
Federal Reserve cuts lending rate
Also, financing for Bear Stearns sale is approved
By JEANNINE AVERSA, Associated Press
Posted Monday, March 17, 2008
WASHINGTON -- Federal Reserve Chairman Ben Bernanke said new steps announced by the central bank Sunday should help squeezed financial institutions get cash infusions -- a fresh effort to provide relief to a spreading credit crisis that threatens to plunge the economy into recession.
The central bank approved a cut in its lending rate to financial institutions to 3.25 percent from 3.50 percent, effective immediately, and created another lending facility for big investment banks to secure short-term loans.
"These steps will provide financial institutions with greater assurance of access to funds," Bernanke told reporters in a brief conference call Sunday evening.
The new lending facility will be available to financial institutions today.
It will be in place for at least six months and "may be extended as conditions warrant," the Fed said. The interest rate will be 3.25 percent and a range of collateral -- including investment-grade mortgage backed securities -- will be accepted to back the loans.
The steps are "designed to bolster market liquidity and promote orderly market functioning," the Fed said in a statement. "Liquid well-functioning markets are essential for the promotion of economic growth."
The Fed also approved the financing arrangement announced Sunday in which JPMorgan Chase & Co. will acquire rival Bear Stearns Cos. The deal, valued at $236.2 million, was a stunning collapse for one of the world's largest and most venerable investment banks. The Fed will provide special financing to JPMorgan Chase for the deal, JPMorgan Chase said. The central bank has agreed to fund up to $30 billion of Bear Stearns' less liquid assets.
"This is going to go down in very historic terms," said Peter Dunay, chief investment strategist for New York-based Meridian Equity Partners. "This is about credit being overextended, and how bad it is for major financial institutions and for individuals. This is why we're probably heading into a recession."
Treasury Secretary Henry Paulson said he was pleased by Sunday's developments.
"Last Friday, I said that market participants are addressing challenges and I am pleased with recent developments. I appreciate the additional actions taken this evening by the Federal Reserve to enhance the stability, liquidity and orderliness of our markets," he said.
The Fed's actions are the latest in a recent string of unconventional steps to deal with a worsening credit crisis that has unhinged Wall Street. And, the action comes just two days before the central bank's scheduled meeting on Tuesday, where another big cut to a key interest rate that affects millions of people and businesses is expected to be ordered.
The "discount" rate cut announced Sunday covers only short-term loans that financial institutions get directly from the Federal Reserve.
Even with the Fed's aggressive moves, economic and financial conditions keep deteriorating.
The Fed in recent days has taken extraordinary steps to help banks and Wall Street investment firms survive the stresses of the credit crisis. Financial institutions have racked up multibillion-dollar losses when mortgage-backed investments soured with the collapse of the housing market.
The Fed this past week also said it would pour as much as $200 billion into big Wall Street banks and investment houses and allow them to put up risky home-loan packages as collateral. This maneuver was intended to bring sorely needed relief in the market for mortgage securities. The Fed also has offered as much as $200 billion in short-term loans to banks and large financial institutions.
By JEANNINE AVERSA, Associated Press
Posted Monday, March 17, 2008
WASHINGTON -- Federal Reserve Chairman Ben Bernanke said new steps announced by the central bank Sunday should help squeezed financial institutions get cash infusions -- a fresh effort to provide relief to a spreading credit crisis that threatens to plunge the economy into recession.
The central bank approved a cut in its lending rate to financial institutions to 3.25 percent from 3.50 percent, effective immediately, and created another lending facility for big investment banks to secure short-term loans.
"These steps will provide financial institutions with greater assurance of access to funds," Bernanke told reporters in a brief conference call Sunday evening.
The new lending facility will be available to financial institutions today.
It will be in place for at least six months and "may be extended as conditions warrant," the Fed said. The interest rate will be 3.25 percent and a range of collateral -- including investment-grade mortgage backed securities -- will be accepted to back the loans.
The steps are "designed to bolster market liquidity and promote orderly market functioning," the Fed said in a statement. "Liquid well-functioning markets are essential for the promotion of economic growth."
The Fed also approved the financing arrangement announced Sunday in which JPMorgan Chase & Co. will acquire rival Bear Stearns Cos. The deal, valued at $236.2 million, was a stunning collapse for one of the world's largest and most venerable investment banks. The Fed will provide special financing to JPMorgan Chase for the deal, JPMorgan Chase said. The central bank has agreed to fund up to $30 billion of Bear Stearns' less liquid assets.
"This is going to go down in very historic terms," said Peter Dunay, chief investment strategist for New York-based Meridian Equity Partners. "This is about credit being overextended, and how bad it is for major financial institutions and for individuals. This is why we're probably heading into a recession."
Treasury Secretary Henry Paulson said he was pleased by Sunday's developments.
"Last Friday, I said that market participants are addressing challenges and I am pleased with recent developments. I appreciate the additional actions taken this evening by the Federal Reserve to enhance the stability, liquidity and orderliness of our markets," he said.
The Fed's actions are the latest in a recent string of unconventional steps to deal with a worsening credit crisis that has unhinged Wall Street. And, the action comes just two days before the central bank's scheduled meeting on Tuesday, where another big cut to a key interest rate that affects millions of people and businesses is expected to be ordered.
The "discount" rate cut announced Sunday covers only short-term loans that financial institutions get directly from the Federal Reserve.
Even with the Fed's aggressive moves, economic and financial conditions keep deteriorating.
The Fed in recent days has taken extraordinary steps to help banks and Wall Street investment firms survive the stresses of the credit crisis. Financial institutions have racked up multibillion-dollar losses when mortgage-backed investments soured with the collapse of the housing market.
The Fed this past week also said it would pour as much as $200 billion into big Wall Street banks and investment houses and allow them to put up risky home-loan packages as collateral. This maneuver was intended to bring sorely needed relief in the market for mortgage securities. The Fed also has offered as much as $200 billion in short-term loans to banks and large financial institutions.
That sinking feeling
Mortgage holders who can't keep up with payments have lifelines available, but they need to act quickly
By MAUREEN MILFORD, The News Journal
Posted Monday, March 17, 2008
From the moment in March 2006 when Melissa and Greg Thomas moved into the $445,000 house they built on five acres in Clayton, they knew they could barely afford it.
Because of various problems that arose during construction, the Thomases have been unable to make the full monthly mortgage payment of $4,203 "since Day One," Melissa Thomas said. Initially, they figured the rising housing market would solve their problem. The home would increase in value in a year and they would refinance.
But the bottom fell out of the market. When the Thomases investigated refinancing, they discovered they have a huge prepayment penalty provision in their mortgage, which would cost them thousands of dollars. If they refinance, the Thomases will owe more than the house is worth, said Melissa Thomas, who is nurse. As it is, they are racking up more debt every month because they make only the minimum payment.
"You feel like you're in quicksand," said Greg Thomas, who works for an engineering firm. "We're going under slowly."
Every homeowner caught in today's mortgage crisis has a unique -- and often complex -- story of financial difficulty. Some, like the Thomases, are grappling with a mortgage they can't sustain over the long term. Others are delinquent on their loans, while some are already in foreclosure.
Trouble can start with the loss of a job, a medical problem, divorce, a spouse's death or a resetting of an adjustable rate mortgage, said Nina Heck, director of counseling with Consumer Credit Counseling Service of Maryland and Delaware, in Baltimore. But regardless of how homeowners got into trouble, their predicament is the same: They need help -- now.
Unfortunately, scammers are ready to pounce on distressed homeowners, said Gerry Kelly, deputy bank commissioner with the Delaware Office of the State Bank Commissioner. Some charge huge fees for making phone calls or filling out paperwork, according to the Federal Trade Commission. Others deceive homeowners into thinking they are being brought current on their mortgage when they are, in fact, signing over the deed to their house.
"If there is ever a time when they need a friend who knows the ropes and will advocate on their behalf, it is now. They need substantive help. They need someone who is trained, who knows the lingo, who knows how to go to bat for them," said Gail Cunningham, senior director of public relations with the National Foundation for Credit Counseling, which has managed foreclosure intervention programs since 1993.
Counselors said the first thing to do is face the problem.
Borrowers who did not respond to repeated attempts by their lender to contact them accounted for 23 percent of the foreclosures started in the United States during the third quarter of 2007, according to a January study by the Mortgage Bankers Association.
In Delaware, among borrowers who went into the foreclosure process in the third quarter, 21 percent did not respond to calls and letters from their lender.
"Something has caused them to suddenly not have the income necessary to pay their mortgage, and they don't address it. This is where the shuffle begins -- they pay the smaller bills," said Nina Heck, director of counseling with Consumer Credit Counseling Service of Maryland and Delaware in Baltimore."
Kerry Sheldon, of Brookland Terrace near Prices Corner, understands how that can happen. Sheldon, who refinanced her approximately $200,000 house when the housing market was strong, fell behind on her adjustable rate mortgage payments last year after her rate reset twice. Her payment went from about $900 a month to nearly $1,400.
When the letters arrived from the mortgage lender, Sheldon said, her "first inclination was to hide it.
"You say to yourself: I'll deal with it later, after we do homework and laundry and after we go get groceries. You say: Tomorrow's the day. The next day, you look at it, and you still don't know what to do. So you say: Next week's the week," said Sheldon, who works in customer service.
Now, Sheldon, who managed to modify her mortgage loan by "staying on top of it," is encouraging people to take charge of the situation.
"Open the mail. That seems like such a basic [step], but when you don't have the money to bring it out of arrears, you don't know what to do," she said.
Next, homeowners need to gather information, beginning with an examination of household finances and the mortgage loan.
A financial assessment should include an evaluation of total monthly household expenses and income. Homeowners should assess how much equity is in the house by subtracting what is owed on the mortgage from the market value of the house. Also, check your credit score.
"It puts everything in perspective to say, 'OK, this is where my money is going,' " Kelly said.
Along with knowing their financial situation, homeowners need to understand what kind of mortgage loan they have -- whether it's a fixed-rate mortgage or some other type, such as a hybrid adjustable-rate mortgage. Are there prepayment provisions, which penalize borrowers who refinance during the first few years of the mortgage loan? Homeowners who have trouble understanding the loan's terms should call the mortgage lender and get an explanation.
Consumers also should become familiar with the foreclosure process in Delaware to understand the timetable. A foreclosure takes about eight to nine months from the first missed payment to the sheriff's sale, Kelly said. Lenders generally will start a foreclosure action in Delaware Superior Court after the fourth missed payment, he said. Once an action is in the court, it's about a five month process until the house is foreclosed on and the house is sold at a sheriff's sale, he said.
"It's all about educating yourself," Sheldon said. "If you don't have a computer, go to the public library."
Once all this preparation is done, the homeowner is ready to take action, Kelly said.
The first step is to contact the loan company. The Federal Trade Commission recommends that anyone having trouble making payments should contact the loan servicer "as early as you can," when there are still options available.
Consumers should keep a notebook of their phone calls, including the name of the representative they spoke to and the date. A follow-up to the phone call should be done by certified mail.
Kelly recommends attending the free foreclosure prevention clinics put on by the state and the Federation of State Housing Counselors.
If, after a workshop, homeowners still feel they need help, they can go to one of the housing counseling agencies, he said. Because of the foreclosure crisis, there are many agencies today working to help consumers, Heck said.
"There's plenty of help. They just need to seek it. Again, the key to all of this is: Don't wait. If you can't pay today's mortgage, you can't pay a double next month with fees," Heck said.
A qualified foreclosure prevention advocate may suggest selling the house or transferring the property to the lender, which is known as a deed in lieu of foreclosure. Personal bankruptcy might also be an option.
The most important thing is to reach out.
"Knowledge can really make it a less stressful situation," Kelly said.
Sheldon said homeowners who manage to save their homes may also want to give back and offer assistance to those in need.
"Guaranteed, there's something you can do if you want to," Sheldon said.
By MAUREEN MILFORD, The News Journal
Posted Monday, March 17, 2008
From the moment in March 2006 when Melissa and Greg Thomas moved into the $445,000 house they built on five acres in Clayton, they knew they could barely afford it.
Because of various problems that arose during construction, the Thomases have been unable to make the full monthly mortgage payment of $4,203 "since Day One," Melissa Thomas said. Initially, they figured the rising housing market would solve their problem. The home would increase in value in a year and they would refinance.
But the bottom fell out of the market. When the Thomases investigated refinancing, they discovered they have a huge prepayment penalty provision in their mortgage, which would cost them thousands of dollars. If they refinance, the Thomases will owe more than the house is worth, said Melissa Thomas, who is nurse. As it is, they are racking up more debt every month because they make only the minimum payment.
"You feel like you're in quicksand," said Greg Thomas, who works for an engineering firm. "We're going under slowly."
Every homeowner caught in today's mortgage crisis has a unique -- and often complex -- story of financial difficulty. Some, like the Thomases, are grappling with a mortgage they can't sustain over the long term. Others are delinquent on their loans, while some are already in foreclosure.
Trouble can start with the loss of a job, a medical problem, divorce, a spouse's death or a resetting of an adjustable rate mortgage, said Nina Heck, director of counseling with Consumer Credit Counseling Service of Maryland and Delaware, in Baltimore. But regardless of how homeowners got into trouble, their predicament is the same: They need help -- now.
Unfortunately, scammers are ready to pounce on distressed homeowners, said Gerry Kelly, deputy bank commissioner with the Delaware Office of the State Bank Commissioner. Some charge huge fees for making phone calls or filling out paperwork, according to the Federal Trade Commission. Others deceive homeowners into thinking they are being brought current on their mortgage when they are, in fact, signing over the deed to their house.
"If there is ever a time when they need a friend who knows the ropes and will advocate on their behalf, it is now. They need substantive help. They need someone who is trained, who knows the lingo, who knows how to go to bat for them," said Gail Cunningham, senior director of public relations with the National Foundation for Credit Counseling, which has managed foreclosure intervention programs since 1993.
Counselors said the first thing to do is face the problem.
Borrowers who did not respond to repeated attempts by their lender to contact them accounted for 23 percent of the foreclosures started in the United States during the third quarter of 2007, according to a January study by the Mortgage Bankers Association.
In Delaware, among borrowers who went into the foreclosure process in the third quarter, 21 percent did not respond to calls and letters from their lender.
"Something has caused them to suddenly not have the income necessary to pay their mortgage, and they don't address it. This is where the shuffle begins -- they pay the smaller bills," said Nina Heck, director of counseling with Consumer Credit Counseling Service of Maryland and Delaware in Baltimore."
Kerry Sheldon, of Brookland Terrace near Prices Corner, understands how that can happen. Sheldon, who refinanced her approximately $200,000 house when the housing market was strong, fell behind on her adjustable rate mortgage payments last year after her rate reset twice. Her payment went from about $900 a month to nearly $1,400.
When the letters arrived from the mortgage lender, Sheldon said, her "first inclination was to hide it.
"You say to yourself: I'll deal with it later, after we do homework and laundry and after we go get groceries. You say: Tomorrow's the day. The next day, you look at it, and you still don't know what to do. So you say: Next week's the week," said Sheldon, who works in customer service.
Now, Sheldon, who managed to modify her mortgage loan by "staying on top of it," is encouraging people to take charge of the situation.
"Open the mail. That seems like such a basic [step], but when you don't have the money to bring it out of arrears, you don't know what to do," she said.
Next, homeowners need to gather information, beginning with an examination of household finances and the mortgage loan.
A financial assessment should include an evaluation of total monthly household expenses and income. Homeowners should assess how much equity is in the house by subtracting what is owed on the mortgage from the market value of the house. Also, check your credit score.
"It puts everything in perspective to say, 'OK, this is where my money is going,' " Kelly said.
Along with knowing their financial situation, homeowners need to understand what kind of mortgage loan they have -- whether it's a fixed-rate mortgage or some other type, such as a hybrid adjustable-rate mortgage. Are there prepayment provisions, which penalize borrowers who refinance during the first few years of the mortgage loan? Homeowners who have trouble understanding the loan's terms should call the mortgage lender and get an explanation.
Consumers also should become familiar with the foreclosure process in Delaware to understand the timetable. A foreclosure takes about eight to nine months from the first missed payment to the sheriff's sale, Kelly said. Lenders generally will start a foreclosure action in Delaware Superior Court after the fourth missed payment, he said. Once an action is in the court, it's about a five month process until the house is foreclosed on and the house is sold at a sheriff's sale, he said.
"It's all about educating yourself," Sheldon said. "If you don't have a computer, go to the public library."
Once all this preparation is done, the homeowner is ready to take action, Kelly said.
The first step is to contact the loan company. The Federal Trade Commission recommends that anyone having trouble making payments should contact the loan servicer "as early as you can," when there are still options available.
Consumers should keep a notebook of their phone calls, including the name of the representative they spoke to and the date. A follow-up to the phone call should be done by certified mail.
Kelly recommends attending the free foreclosure prevention clinics put on by the state and the Federation of State Housing Counselors.
If, after a workshop, homeowners still feel they need help, they can go to one of the housing counseling agencies, he said. Because of the foreclosure crisis, there are many agencies today working to help consumers, Heck said.
"There's plenty of help. They just need to seek it. Again, the key to all of this is: Don't wait. If you can't pay today's mortgage, you can't pay a double next month with fees," Heck said.
A qualified foreclosure prevention advocate may suggest selling the house or transferring the property to the lender, which is known as a deed in lieu of foreclosure. Personal bankruptcy might also be an option.
The most important thing is to reach out.
"Knowledge can really make it a less stressful situation," Kelly said.
Sheldon said homeowners who manage to save their homes may also want to give back and offer assistance to those in need.
"Guaranteed, there's something you can do if you want to," Sheldon said.
Old Fraud Schemes Get New Life in Today's Market
MBA (3/17/2008 ) Murray, Michael
CHICAGO—Old schemes are getting new workouts today by fraudsters adapting to a slow-reacting mortgage origination industry.
Jenny Brawley, mortgage fraud investigations manager at Freddie Mac, speaking here at the Mortgage Bankers Association’s National Fraud Issues Conference, noted two common fraud schemes given a new wrinkle: builder bailouts and foreclosure rescue scams.
Builder bailouts, likely to happen in slow market with lagging sales, involve downpayment assistance with an inflated appraisal and a seller “second” that forgives the borrowers' downpayment and gives the lender 100 percent financing on a home.
Currently, builders are providing incentives—cash back at closing; four years of mortgage payments; homeowners association payments; guaranteed income whether the property rents or not. In some instances, borrowers can receive cars, trucks, swimming pools or cash back at closing from builders.
While fine print sugests incentives are fully disclosed, not every party in the process necessarily knows about them. “These are problematic because these incentives are not getting disclosed to the appraisers, to the lenders or to the loan officers,” Brawley said.
Brawley said some fraud schemes involve the property seller and real estate agents—shopping loans and taking them to the loan officers with purchase contracts that compromise loan officers. Retail loan originations—built into a purchase price by inflating values and amounts in reserve accounts—provide cash back or guaranteed mortgage payments. In some cases, excessive real estate commissions are going back to real estate agents, who split the commission with a borrower.
Brawley noted signs of bailouts include a slight drop in sales and volume followed by a spike in both; multiple loans to a borrower and out-of-state borrowers; 80-15-5 loans; excessive real estate agent commissions on HUD-1 forms; homes based on a lower “net” sales price that is the true price before incentives take place; missing purchase contract addendums; and second-home originations to the same borrower within one week.
Some borrowers have other assets and enough cash to keep fraud schemes funded, but occupancy could be misrepresented. “In some cases, commitments made to borrowers for a guaranteed mortgage or if rental payments appear to be coming from proceeds of a sale, they would all be considered signs of mortgage fraud against lenders,” Brawley said. “Many of these schemes take place in condominium conversion deals, as seen in Florida. If we think Florida is bad now, just wait until these start going into default.”
In some cases, incentives are built into the loan to keep the properties and loans current for two to four years, and HUD-1’s show clear incentives. “I applaud lenders and title companies that are looking to the seller’s side of HUD-1s,” Brawley said.
Meanwhile, foreclosure rescue scams “definitely thrive in a down economy,” Brawley said. In these scams, fraudsters—in this case “rescuers”—gain access to property deeds and effectively sell property to someone else; the “rescuers” then take equity from the home and flip it without the borrower knowing they no longer have any legal claim to the house.
Brawley said borrowers fall for these scams because “‘rescuers’ keep borrowers in dark about the foreclosure process. Sometimes, handwriting is used in these scams to perpetuate trust, and affinity groups are prevalent in scams because they will prey on their own based on that level of trust,” she said.
Lenders should be aware of “red flags,” such as an elderly seller or a long-time resident with a large amount of equity; a property purchased in foreclosure; a mail-away or “kitchen” closing; a suspicious “seller” signature on a purchase contract; no real estate agent or realtor commissions or a profit made off of equity.
Today, perpetrators continue on the fraud schemes for longer periods. “They now know what we do. They know our quality control,” said John Gray, senior vice president of fraud prevention at Bear, Stearns & Co. Inc., New York.
In one scheme, perpetrators commit fraud on the front-end and then make short sales on the back-end. “We have people we are trying to help with short sales, and then you have these guys coming through the back door. It’s really sad,” Gray said.
Data mining for development of cases to help recognize patterns and trends is crucial to a successful fraud program, Gray said. Pre-funding fraud prevention tools and reviews are important in today’s market and familiarity with vendors and other business partners is also a key toward prevention. Gray said that the Mortgage Electronic Registry System is the key today as a data reference for ownership to title. He said to check MERS and title records for the correct first or second lien positions.
With a return to full-doc loans for now in the origination arena, fraud prevention training programs are turning back to reviewing files for full document-type misrepresentations in W2 forms, bank statements, verifications of deposits, employment and other documentation, Gray said.
“Guess what? [Underwriters] haven’t looked at a lot of docs,” Gray said. “We have had to revamp or retrain going back to the old days.”
Gray noted some good news, however, that the landscape on penalties from mortgage fraud against lenders is changing. Georgia—the first state to make mortgage fraud against lenders a felony, recently sentenced 50-year old Phillip Hill to 28 years in prison in a fraud scam. In Colorado, Gerald Small was sentenced to 101 months in federal prison; and 63-year-old Laurence Seidenfeld was sentenced to 67 months for generating millions of dollars in fraudulent loans.
Gray said puffing, or “the new flip,” consists of a seller listing property for $100,000 with a borrower wanting to buy it for $150,000, with the $50,000 difference requiring an inflated appraisal.
“Basically, you have all the components of a flip transaction,” Gray said. “A puffing is no different than a flip. All you’re missing is two closing transactions.”
Gray added that puffing is also very popular in today’s market. “This is one of the new types of fraud that is a twist on an old type of fraud,” he said.
CHICAGO—Old schemes are getting new workouts today by fraudsters adapting to a slow-reacting mortgage origination industry.
Jenny Brawley, mortgage fraud investigations manager at Freddie Mac, speaking here at the Mortgage Bankers Association’s National Fraud Issues Conference, noted two common fraud schemes given a new wrinkle: builder bailouts and foreclosure rescue scams.
Builder bailouts, likely to happen in slow market with lagging sales, involve downpayment assistance with an inflated appraisal and a seller “second” that forgives the borrowers' downpayment and gives the lender 100 percent financing on a home.
Currently, builders are providing incentives—cash back at closing; four years of mortgage payments; homeowners association payments; guaranteed income whether the property rents or not. In some instances, borrowers can receive cars, trucks, swimming pools or cash back at closing from builders.
While fine print sugests incentives are fully disclosed, not every party in the process necessarily knows about them. “These are problematic because these incentives are not getting disclosed to the appraisers, to the lenders or to the loan officers,” Brawley said.
Brawley said some fraud schemes involve the property seller and real estate agents—shopping loans and taking them to the loan officers with purchase contracts that compromise loan officers. Retail loan originations—built into a purchase price by inflating values and amounts in reserve accounts—provide cash back or guaranteed mortgage payments. In some cases, excessive real estate commissions are going back to real estate agents, who split the commission with a borrower.
Brawley noted signs of bailouts include a slight drop in sales and volume followed by a spike in both; multiple loans to a borrower and out-of-state borrowers; 80-15-5 loans; excessive real estate agent commissions on HUD-1 forms; homes based on a lower “net” sales price that is the true price before incentives take place; missing purchase contract addendums; and second-home originations to the same borrower within one week.
Some borrowers have other assets and enough cash to keep fraud schemes funded, but occupancy could be misrepresented. “In some cases, commitments made to borrowers for a guaranteed mortgage or if rental payments appear to be coming from proceeds of a sale, they would all be considered signs of mortgage fraud against lenders,” Brawley said. “Many of these schemes take place in condominium conversion deals, as seen in Florida. If we think Florida is bad now, just wait until these start going into default.”
In some cases, incentives are built into the loan to keep the properties and loans current for two to four years, and HUD-1’s show clear incentives. “I applaud lenders and title companies that are looking to the seller’s side of HUD-1s,” Brawley said.
Meanwhile, foreclosure rescue scams “definitely thrive in a down economy,” Brawley said. In these scams, fraudsters—in this case “rescuers”—gain access to property deeds and effectively sell property to someone else; the “rescuers” then take equity from the home and flip it without the borrower knowing they no longer have any legal claim to the house.
Brawley said borrowers fall for these scams because “‘rescuers’ keep borrowers in dark about the foreclosure process. Sometimes, handwriting is used in these scams to perpetuate trust, and affinity groups are prevalent in scams because they will prey on their own based on that level of trust,” she said.
Lenders should be aware of “red flags,” such as an elderly seller or a long-time resident with a large amount of equity; a property purchased in foreclosure; a mail-away or “kitchen” closing; a suspicious “seller” signature on a purchase contract; no real estate agent or realtor commissions or a profit made off of equity.
Today, perpetrators continue on the fraud schemes for longer periods. “They now know what we do. They know our quality control,” said John Gray, senior vice president of fraud prevention at Bear, Stearns & Co. Inc., New York.
In one scheme, perpetrators commit fraud on the front-end and then make short sales on the back-end. “We have people we are trying to help with short sales, and then you have these guys coming through the back door. It’s really sad,” Gray said.
Data mining for development of cases to help recognize patterns and trends is crucial to a successful fraud program, Gray said. Pre-funding fraud prevention tools and reviews are important in today’s market and familiarity with vendors and other business partners is also a key toward prevention. Gray said that the Mortgage Electronic Registry System is the key today as a data reference for ownership to title. He said to check MERS and title records for the correct first or second lien positions.
With a return to full-doc loans for now in the origination arena, fraud prevention training programs are turning back to reviewing files for full document-type misrepresentations in W2 forms, bank statements, verifications of deposits, employment and other documentation, Gray said.
“Guess what? [Underwriters] haven’t looked at a lot of docs,” Gray said. “We have had to revamp or retrain going back to the old days.”
Gray noted some good news, however, that the landscape on penalties from mortgage fraud against lenders is changing. Georgia—the first state to make mortgage fraud against lenders a felony, recently sentenced 50-year old Phillip Hill to 28 years in prison in a fraud scam. In Colorado, Gerald Small was sentenced to 101 months in federal prison; and 63-year-old Laurence Seidenfeld was sentenced to 67 months for generating millions of dollars in fraudulent loans.
Gray said puffing, or “the new flip,” consists of a seller listing property for $100,000 with a borrower wanting to buy it for $150,000, with the $50,000 difference requiring an inflated appraisal.
“Basically, you have all the components of a flip transaction,” Gray said. “A puffing is no different than a flip. All you’re missing is two closing transactions.”
Gray added that puffing is also very popular in today’s market. “This is one of the new types of fraud that is a twist on an old type of fraud,” he said.
Social Security Numbers Easiest Path to ID Theft
MBA (3/17/2008 ) Murray, Michael
CHICAGO—As the mortgage industry resets—getting back to basic loans and underwriting—identity thieves also adapt. And the core source of ID theft remains the same—Social Security numbers.
ID theft ranges from Fictitious ID Fraud—created through constant use of a false Social Security number that winds up on credit reports—to stealing an individual’s real SSN, also known as True Name Fraud, said Larry Ruder, vice president of fraud at Wells Fargo Home Mortgage, Des Moines, speaking here at the Mortgage Bankers Association’s National Fraud Issues Conference. Social Security misrepresentation and collusion—such as a straw buyer purchasing collateral for a fee on behalf of a third party—are other forms of ID theft.
“I believe people are going to start using ID fraud to get out of a property,” Ruder said.
Whether the issue is credit or fraud, Ruder said to find the facts behind case—ask questions on how to stop fraud and put the proper controls in place. “Start gathering the documentation and develop a case file,” he said.
Lisa Binkley, executive vice president of risk strategy and policy development at Rapid Reporting Verification Co., Dallas, said ID policies are critical. “The criminals are not going away,” Binkley said.
Specific ID verification policy and independent information help identify ID theft, including validation or verification with the Social Security Administration. “It would be nice if automated underwriting engines or systems would trigger these red flags,” Binkley said, noting that ID theft affects 10 million people each year at a cost of $50 billion for businesses.
Data from Fannie Mae and the Mortgage Asset Research Institute, Herndon, Va., support reports that ID theft or fraudulent SSNs are rising in the mortgage industry. “It is critical to be proactive with effective policies and procedures to detect ID thieves throughout your organization before funding the loan,” Binkley said.
At Wells Fargo, investigations begin with an alleged victim, meaning that it needs to be seen at the servicing level, and it could conclude a mistake at the credit depository.
“Cost effective tools run on all applications,” Binkley said. “Always run a SSN search against internal data tables to determine if other loans exist. Underwriting should be able to quickly match information against the loan application. And it should be run 100 percent of the time. It’s the only way you’re going to solve the problem 100 percent, if you’re looking at it 100 percent.”
For pre-funding, ID theft is difficult to find if not looking at data and trends, including changes in an individual’s pattern of behavior; multiple individuals on a credit report; and inconsistencies on the loan application that do not match.
“Once again, it’s common sense. Does it make sense? That’s really the most important thing you can do for your organization. Let them see if it makes sense,” Binkley said.
Sometimes, the SSN is a typo; if not, Wells Fargo sends out an ID Theft Fraud Packet for investigation into a potential victim of ID theft. Questions arise about disabling the account to prevent more exposure or loss or having a victim file an affidavit. Ruder and his group process SSNs against sister companies under the Wells Fargo umbrella to identify any other forms of potential fraud within the company.
If borrowers do not respond to the ID Theft Fraud Packet, Wells Fargo waits for 30 days for a complete package, and if it does not receive that fully completed package, they close out the investigation. However, when receiving the package, Wells Fargo notifies the borrower if the SSN is valid and, if not, it notifies credit bureaus to take information off of credit files to fix up credit and provide a form of customer service for the borrower.
“Notify, notify, notify,” Ruder said of internal legal departments, investor clients, sister companies and in creating suspicious activity reports, or SARs.
Customer call-in, third-party notification—including sister companies, attorneys, investigators or relatives—can contribute information on identity theft for mortgage firms.
Wells Fargo also scrubs all closed loans after 30 days against external or internal data sources to identify impossible SSNs based on the SSN Death Index and other indexes. “There can be problems with the credit repositories,” Ruder said.
Rosemarie Wolfe, director of quality control at EquiFirst, Charlotte, N.C., said appraiser ID theft is nearly impossible to detect, while lending in different markets results in low familiarity of the area by underwriters. “We really don’t know the market so that appraiser is our eyes and ears in that market,” she said.
“It’s a real common theme we are seeing, even in full-doc loans,” Ruder said. “It’s time to get back to Underwriting 101.”
Some customers call with a “real SSN” to fix the current one on file, but Wells Fargo’s customer service operations set up an actual process to prove that the caller knows the correct identification. Phone matching tools, such as a voice recognition unit—VRU—provides steps when a caller does not provide the loan number or the last four SSN digits.
In some cases, ID theft is part of a larger scheme: a perpetrator steals an ID and changes a borrower’s information. The perpetrator files for bankruptcy and servicers are unable to call during a bankruptcy filing for legal reasons, giving a fraudster time to sell the property, exit and leave the borrower homeless.
CHICAGO—As the mortgage industry resets—getting back to basic loans and underwriting—identity thieves also adapt. And the core source of ID theft remains the same—Social Security numbers.
ID theft ranges from Fictitious ID Fraud—created through constant use of a false Social Security number that winds up on credit reports—to stealing an individual’s real SSN, also known as True Name Fraud, said Larry Ruder, vice president of fraud at Wells Fargo Home Mortgage, Des Moines, speaking here at the Mortgage Bankers Association’s National Fraud Issues Conference. Social Security misrepresentation and collusion—such as a straw buyer purchasing collateral for a fee on behalf of a third party—are other forms of ID theft.
“I believe people are going to start using ID fraud to get out of a property,” Ruder said.
Whether the issue is credit or fraud, Ruder said to find the facts behind case—ask questions on how to stop fraud and put the proper controls in place. “Start gathering the documentation and develop a case file,” he said.
Lisa Binkley, executive vice president of risk strategy and policy development at Rapid Reporting Verification Co., Dallas, said ID policies are critical. “The criminals are not going away,” Binkley said.
Specific ID verification policy and independent information help identify ID theft, including validation or verification with the Social Security Administration. “It would be nice if automated underwriting engines or systems would trigger these red flags,” Binkley said, noting that ID theft affects 10 million people each year at a cost of $50 billion for businesses.
Data from Fannie Mae and the Mortgage Asset Research Institute, Herndon, Va., support reports that ID theft or fraudulent SSNs are rising in the mortgage industry. “It is critical to be proactive with effective policies and procedures to detect ID thieves throughout your organization before funding the loan,” Binkley said.
At Wells Fargo, investigations begin with an alleged victim, meaning that it needs to be seen at the servicing level, and it could conclude a mistake at the credit depository.
“Cost effective tools run on all applications,” Binkley said. “Always run a SSN search against internal data tables to determine if other loans exist. Underwriting should be able to quickly match information against the loan application. And it should be run 100 percent of the time. It’s the only way you’re going to solve the problem 100 percent, if you’re looking at it 100 percent.”
For pre-funding, ID theft is difficult to find if not looking at data and trends, including changes in an individual’s pattern of behavior; multiple individuals on a credit report; and inconsistencies on the loan application that do not match.
“Once again, it’s common sense. Does it make sense? That’s really the most important thing you can do for your organization. Let them see if it makes sense,” Binkley said.
Sometimes, the SSN is a typo; if not, Wells Fargo sends out an ID Theft Fraud Packet for investigation into a potential victim of ID theft. Questions arise about disabling the account to prevent more exposure or loss or having a victim file an affidavit. Ruder and his group process SSNs against sister companies under the Wells Fargo umbrella to identify any other forms of potential fraud within the company.
If borrowers do not respond to the ID Theft Fraud Packet, Wells Fargo waits for 30 days for a complete package, and if it does not receive that fully completed package, they close out the investigation. However, when receiving the package, Wells Fargo notifies the borrower if the SSN is valid and, if not, it notifies credit bureaus to take information off of credit files to fix up credit and provide a form of customer service for the borrower.
“Notify, notify, notify,” Ruder said of internal legal departments, investor clients, sister companies and in creating suspicious activity reports, or SARs.
Customer call-in, third-party notification—including sister companies, attorneys, investigators or relatives—can contribute information on identity theft for mortgage firms.
Wells Fargo also scrubs all closed loans after 30 days against external or internal data sources to identify impossible SSNs based on the SSN Death Index and other indexes. “There can be problems with the credit repositories,” Ruder said.
Rosemarie Wolfe, director of quality control at EquiFirst, Charlotte, N.C., said appraiser ID theft is nearly impossible to detect, while lending in different markets results in low familiarity of the area by underwriters. “We really don’t know the market so that appraiser is our eyes and ears in that market,” she said.
“It’s a real common theme we are seeing, even in full-doc loans,” Ruder said. “It’s time to get back to Underwriting 101.”
Some customers call with a “real SSN” to fix the current one on file, but Wells Fargo’s customer service operations set up an actual process to prove that the caller knows the correct identification. Phone matching tools, such as a voice recognition unit—VRU—provides steps when a caller does not provide the loan number or the last four SSN digits.
In some cases, ID theft is part of a larger scheme: a perpetrator steals an ID and changes a borrower’s information. The perpetrator files for bankruptcy and servicers are unable to call during a bankruptcy filing for legal reasons, giving a fraudster time to sell the property, exit and leave the borrower homeless.
Subscribe to:
Posts (Atom)