Refinance Free Credit

The Mortgage Bankers Association released the results of a first-of-its-kind survey today that found more than 235,000 workouts were initiated by the mortgage industry during the third quarter of 2007. An estimated 54,000 loans were modified, while servicers established formal repayment plans with another 183,000 borrowers, the MBA said.

By comparison, foreclosure actions were started on approximately 384,000 loans — but of those foreclosures, the MBA said that 63 percent were cases where the borrower did not live in the home, the borrower did not respond to repeated attempts by the lender to contact them, or where the borrower failed to perform on a repayment plan or loan modification that was already in place.

“The mortgage industry took major steps during the third quarter to help those borrowers who could be helped,” said Jay Brinkmann, MBA’s Vice President of Research.

“The numbers of loan modifications, negotiated repayment plans established, and other actions to help borrowers are large and compare favorably with the number of foreclosure actions started, particularly when those foreclosures are adjusted to remove the borrowers who clearly could not be helped.”

HW readers know there are plenty of borrowers who fit into the “cannot be helped” category.

For subprime ARM loans there were approximately 13,000 loan modifications and 90,000 repayment plans established in the third quarter. For borrowers with subprime fixed-rated loans, loan servicers instituted 15,000 loan modifications and 30,000 repayment plans.

The report found that while approximately 166,000 foreclosure actions were started on subprime ARM loans during the third quarter, approximately 18 percent of those were on investor-owned properties, and in 21 percent of the cases the borrower either could not be located or would not respond to repeated attempts by the lenders to contact them. Subprime ARM borrowers who already had a repayment plan or loan modification in place but were unable to avoid default anyway accounted for 40 percent of the subprime ARM foreclosures.

“It is likely that the number of loan modifications for subprime ARMs will continue to grow through the outreach efforts of the industry,” Brinkmann said.

Cases where the borrower could not be located or would not respond to attempts by the mortgage servicer to contact them accounted for 21 percent of subprime ARM foreclosure starts, 21 percent of subprime fixed-rate foreclosure starts, 17 percent of prime ARM foreclosure starts and 33 percent of prime fixed-rate foreclosures started.

I’ll be posting some commentary and analysis on these numbers shortly.

For more information, visit http://www.mortgagebankers.org.

Lehman Brothers today said that it will suspend wholesale and correspondent originations at its Aurora Loan Services subsidiary, citing “dislocation in the mortgage markets.” Aurora will continue to originate via direct lending, and servicing will remain intact, according to a press statement released Thursday.

The move will affect 1,300 employees and will result in the closure of Aurora’s regional operations centers in Lake Forest, CA, Sunrise, FL, and Florham Park, NJ. Aurora’s Colorado operations will be consolidated at its Littleton office, Lehman said.

“While it was necessary for us to structure our mortgage origination businesses in the U.S. to reflect the change in industry dynamics, we deeply regret the impact this action has on our people,” said Ted Janulis, global head of mortgage capital for Lehman Brothers.

“We will continue to make technology and infrastructure investments in this space, as we reposition the business to reflect the changing industry.”

The Wall Street firm last made cuts to its mortgage banking operations in September, when it trimmed 850 positions in both the U.S. and the UK.

Update: It’s verified. I’ve received a deluge of emails from numerous sources since posting this. Thanks everyone.

Here’s just one email I received:

Auroraclosed the Wholesale and Correspondent divisions today. I am telling you this because it has been a pleasure working with you. A few items to note (as far as I understand them):

1. Loans need to registered and locked today and will have a 30 day close period (no extensions). If you have them, register them.
2. Please call your team as usual for loan updates and hopefully they can help you complete the loans in the 30 day period.
3. Enjoy life and try to get through this period in the business. If no, find more enjoyable work.

Here’s another:

I am writing today to inform you of Aurora’s decision to shut down its
Wholesale and Correspondent Lending divisions. Aurora will honor the
current pipeline as well as allow for any new submissions through end of
business tomorrow. Locks will be honored for the next 30 days.

It has been a great pleasure to work with you. After 5pm today I will
no longer have access to this email account. If you have any questions
please be sure to contact me today.

Here’s a copy of the press release issued by Lehman:

Lehman Brothers Suspends Wholesale and Correspondent U.S. Residential Mortgage Origination Activities

NEW YORK, January 17, 2008 ? Lehman Brothers announced today that it will substantially reduce its resources and capacity in the U.S. residential mortgage origination space in light of the dislocation in the mortgage markets. As a result, the Firm is suspending its Wholesale and Correspondent lending activities at its Aurora Loan Services subsidiary. Aurora will continue to originate loans through its direct lending channel, and will maintain its servicing business.

This action affects approximately 1,300 employees and will result in the closure of Aurora’s regional operations centers in Lake Forest, CA, Sunrise, FL, and Florham Park, NJ. Aurora’s Colorado operations will be consolidated at its Littleton office. In connection with the suspension of its Wholesale and Correspondent U.S. residential mortgage activities, the Firm will record a one-time, after-tax charge of approximately $40 million for severance, technology and facilities exit costs.

Today’s traffic to our blog has been driven primarily by the search phrases “aurora loan services closing” and “aurora loan services layoffs.”

We’ve heard lots of unsubstantiated rumors that Aurora is indeed closing as of today; but we have not had anything substantiated from a verifiable source. If you have any information on the situation at Aurora please email me directly.

An email submitted to the Implode-O-Meter read as follows:

Dear brokers and loan officers,

It is with great regret to announce that Aurora Loan Services decided to close its doors effective immediately. The reasons behind this decision is more than evident considering the market situation.

Any files that have been submitted and locked with Aurora will be finalized. For those who want to submit a file, you will have until end of business day tomorrow to submit and lock the file for no more than 30 days.

Again, this is unverified; but there is a lot of activity around the company today out there on the web.

– Morgan

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When you set out to get a mortgage you need to make sure you are getting the best deal. This comes around when you ask your mortgage lender all the right questions. The answers that the lenders provide will give you some insight into how the mortgage process will be handled. Don’t be shy; you need to ask questions. Here are some to help you out.

What Interest Rate Will I Be Paying?

This will be the way that you actually get a true idea of what you will be paying over the life of the loan. You generally will not be offered the lowest figure possible right away. So do not come in and accept whatever they offer automatically. Once you get the rate then you need to compare it with other companies to see who has the best deal.

How Long Will My Application Take to Process?

You want to know how long you will have to be waiting around. There are some factors that come into play. Things can get backed up if their business is really moving. The general idea is that lenders will say it takes about 2 weeks. It is more reasonable to think that it can take as long as 60 days.

What is the Minimum Down Payment?

This will usually be between 3 to 20 percent of the overall buy price. If you put more money down in the beginning, then you may find that you can pay less of a rate. On the other side, if you pay too little then you will probably be required to get mortgage insurance. But know how much of a down payment they are expecting from you.

How Much are the Closing Costs?

The more you know about all the fees the better. So you will want to figure this out as quickly as possible. Mortgages will come with fees and services that the lenders offer. Lenders are required to give you an estimate of how much those closing costs will be. This needs to happen within three days of getting your loan application.

Get Answers You are Comfortable With

If the lender does not give you the answers you feel comfortable with, then go to another lender. A mortgage is something you really need to take seriously. Do not settle for something you are not completely on board with. Ask the questions and keep searching until you find the right mortgage lender for you.

Additional Resources:

• Mortgage Rates Drop Below 6%
• Mortgage Bailout Misdirection

Mortgage rates fell dramatically in the past week as economic concerns have gripped the financial markets in the weeks following the start of 2008. Freddie Mac reported today that 30-year fixed-rate mortgages averaged 5.87 percent for the week ending January 10, 2008, down from last week when the average rate was 6.07 percent.

Rates are at their lowest level since September 2005, Freddie Mac said.

Five-year Treasury-indexed hybrid ARMs averaged 5.63 percent this week, Freddie said, down further from last week’s previous low of 5.78 percent. Other mortgage products, including 15-year and one-year ARMs, also saw rates decrease.

“Weak economic reports renewed concerns about economic conditions in the near future,” said Frank Nothaft, Freddie Mac’s chief economist. “As a result, mortgage rates came down across the board, with 30-year fixed mortgage rates at their lowest level in more than two years.”

No wonder refinance applications are skyrocketing: the MBA reported earlier this week that refinancing activity jumped more that 40 percent in the past week.

In the wake of Moody’s announcement late Wednesday that it would reassess the ratings of Ambac Assurance Corp., the bond insurer released a press statement today that said its recently-announced plan to strengthen capital may not be enough:

In view of the uncertainty generated by Moody’s surprising announcement, Ambac is assessing the impact of this action on the Company’s previously announced capital plan.

Shares of Ambac have been punished in early morning trading — again — and are down more than 50 percent to $6.15 in heavy selling, as of when this post was originally published.

I’m fairly confident I don’t need to explain what it would mean to the mortgage banking industry if a AAA-rated bond guarantor were to see its ratings dropped.

(H/T: Calculated Risk)

Disclosure: The author held no positions in ABK when this post was originally published.

Merrill Lynch reported Thursday morning a net loss of $9.83 billion during the fourth quarter, matching the loss posted earlier in the week by Citigroup — and well below the $2.3 billion earned in the year-ago period. Losses in Merrill’s fixed income business swamped revenue gains made elsewhere, the firm said.

Driving the losses for the quarter were what the Wall Street Journal reported as $16.7 billion in total write downs, although a back-of-the-napkin calculation by HW suggests that number really should be just north of $18 billion:

• $9.9 billion in to U.S. ABS CDOs;
• $3.1 billion in exposure to downgraded bond guarantor ACA Capital;
• $1.6 billion in subprime mortgages;
• $400 million in Alt-A mortgages;
• $500 million in mortgages outside the U.S.;
• $230 million on commercial real estate;
• $126 million on leveraged finance commitments;
• and $2.17 billion in subprime and Alt-A RMBS

To put the write down into industry perspective, it’s worth noting that $14.07 billion of the total write down amount is tied to U.S. residential mortgages. Ouch.

Either way, the total number of write-offs for the fourth quarter ended up exceeding most analysts’ estimates (see an earlier post here), and helped drive Merrill to a full-year net loss of $7.78 billion, versus earnings of 7.5 billion in 2006.

“While the firm’s earnings performance for the year is clearly unacceptable, over the last few weeks we have substantially strengthened the firm’s liquidity and balance sheet,” said John A. Thain, chairman and chief executive officer.

Merrill said its net mortgage exposure fell from $49.2 billion in the third quarter to $43.6 billion in the fourth quarter, as performance in subprime and Alt-A mortgages hurt warehouse lending, whole loans, residuals and RMBS.

For more information, visit http://www.ml.com.

Coming in lower than already-low expectations, the Commerce Department said Thursday morning that housing starts in December dropped 14 percent:

Privately-owned housing starts in December were at a seasonally adjusted annual rate of 1,006,000. This is 14.2 percent (±8.3%) below the revised November estimate of 1,173,000 and is 38.2 percent (±4.9%) below the revised December 2006 rate of 1,629,000.

Single-family housing starts in December were at a rate of 794,000; this is 2.9 percent (±8.7)* below the November figure of 818,000.

The number of December starts was the worst since 1991.

Total starts for 2007 were an estimated 1.354 million, the Commerce Department reported — a 24 percent drop from 2006, and the worst year for housing starts in nearly 30 years. It’s worth noting that November’s starts saw a downward revision, as is common; the revised estimate of 1.173 million is lower than the 1.187 million reported orginally last month.

Bloomberg reported that December starts managed to be worse than economists had predicted; a survey by the news organization found that the median expectation was for starts to fall to a 1.145 million pace.

Permits also dropped, falling 8.1 percent to 1.068 million, the Commerce Department said.

Update: The Associated Press penned an article that made an interesting point: the 2007 decline in total starts is the “second biggest annual decline on record, exceeded only by a 26 percent plunge in 1980, a period when the Federal Reserve was pushing interest rates to post-World War II records in an effort to combat an entrenched inflation problem.”

We’re clearly in uncharted territory now. Interest rates are not high, as was the case in the early 1980s, but extremely low.

Moody’s Investors Service said late Wednesday that it had placed the Aaa insurance financial strength ratings of Ambac Assurance Corporation and Ambac Assurance UK Limited on review for possible downgrade. In the same rating action, Moody’s also placed the ratings of the holding company, Ambac Financial Group, Inc. (senior debt at Aa2), and related financing trusts on review for possible downgrade.

The move comes on the heels of Ambac’s disclosure that it would seek to raise $1 billion in equity, while slashing its dividend in a move to preserve capital; Ambac also warned of massive losses for the fourth quarter, and said its CEO was stepping down.

The possible downgrade of Ambac also put all Moody’s-rated securities wrapped by the bond guarantor — including CDO and RMBS issues — on review for a downgrade.

The move to reassess Ambac comes just one month after Moody’s had previously affirmed the guarantor — and the rating agency suggested in its statement that further review of other monolines may be coming:

Jack Dorer, Managing Director, added, “The market stresses contributing to Ambac’s recent financial and organizational announcements are also evident at other financial guarantors, particularly those with significant mortgage and mortgage-related CDO exposures.” Moody’s will be evaluating, in the near term, the degree to which these issues — including the extent of customer and investor support — affect the ratings of other firms in the industry and communicate with the market as appropriate.

Standard & Poor’s on Wednesday also indicated that it is reassessing various bond guarantors, in light of its revised assumptions on RMBS performance.

For more information, including a full list of impacted securities, visit http://www.moodys.com.

Disclosure: At the time this post was published, the author held no positions in ABK.

In contrast to competing rating agency Standard & Poor’s — who said today that it will review monline bond insurers for a second time — Fitch Ratings said late Wednesday that it had affirmed MBIA Insurance Corp. following a $1 billion surplus note offering.

Fitch placed MBIA’s ‘AAA’ insurer financial strength (IFS) rating on negative rating watch last month following the rating agency’s updated assessment into MBIA’s current exposure to CDOs backed by subprime mortgage collateral and various CDO-squared transactions, as well as the guarantor’s exposure to RMBS.

The affirmation at MBIA also led to a similar affirmation and removal of 172,979 bond issues (172,817 municipal, 156 corporate and six emerging market issues) insured by MBIA from a negative ratings watch, Fitch said in a seperate statement.

For more information, visit http://www.fitchratings.com.