Refinance Free Credit

Seven out of ten seriously delinquent borrowers are not tracking towards a loss mitigation solution, according to a report released today by the Conference of State Bank Supervisors, who said that a rising number of loan delinquencies are outpacing gains in loss mitigation efforts.

The State Foreclosure Prevention Working Group, a task force organized last summer by Iowa AG Tom Miller, said that while servicers have increased staffing and pushed creative outreach efforts, a large gap remains between homeowners most in need of loss mitigation and the number currently receiving assistance.

The working group comprises representatives of the Attorneys General of 11 states (Arizona, California, Colorado, Iowa, Illinois, Massachusetts, Michigan, New York, North Carolina, Ohio and Texas), two state banking departments (New York and North Carolina), and the Conference of State Bank Supervisors.

In line with a report issued late Wednesday by the HOPE NOW industry consortium, the CSBS report did find that servicers have increased their use of loan modifications — among delinquent borrowers in contact with their servicers, 45 percent are working on executing a loan modification. “Servicers are increasing their use of longer-term changes to the mortgage loan, versus their earlier reliance on short term repayment or forbearance agreements,” the organization said in a press statement.

Interestingly, the report also suggested that the largest contributor to loan resolution was homeowners helping themselves: the State Bank Supervisors said their analysis found that it was actions by homeonwers — many of whom caught up on back payments — and not the actions of servicers that actually prevented the majority of foreclosures.

The report also noted that the refinancing option “has nearly evaporated.”

“Despite recent interest rate cuts, the mortgage industry will not be able to refinance its way out of this crisis absent dramatic changes in loan products of a reversal in home price declines,” the CSBS group said.

The full report is available here.

Seventy seven percent of U.S. homeowners believe that the value of their home increased or remained the same during 2007, according to a study released Wednesday by real estate information site Zillow.com.

That’s despite overwhelming evidence showing the nation’s first median price decline since the Depression era.

What’s more, a majority of homeowners — 67 percent — said they will spend the same or more on major home improvements this year, with 35 percent saying they are planning on obtaining a home equity loan and another 36 percent saying they will look to refinance or take out a second mortgage.

“This survey reveals that despite the data to the contrary, people either aren’t paying attention to their housing market or are in denial about their own home’s value,” said Dr. Stan Humphries, Zillow.com vice president of data & analytics.

“This likely reflects the fact that most Americans have not realized home-related losses because they’re staying in their homes. Even in declining markets where a greater percentage of new homeowners are underwater on their mortgage, it’s important to remember most people are not really affected by declining values unless they absolutely must sell or need to immediately refinance or withdraw equity.”

I would have loved to have seen borrowers asked about other people’s homes in addition to their own; I suspect an interesting divergence would have appeared, showing that homeowners understand that prices are falling, but that they perceive the decline isn’t as bad in their particular street or neighborhood.

Cook County, Illinois treasurer Maria Pappas said today that Countrywide Financial Corp.’s tax services subsidiary is attempting to skirt a $5 duplicate bill fee by forcing borrowers with escrowed property tax accounts to mail their original property tax bills to the lender directly.

According to a press statement put out by Pappas’ office, Countrywide Tax Services Corp. sent some 80,000 letters to owners with mortgages claiming that they must send their property tax bills to Countrywide in California, or have a $5 fee charged to their escrow accounts from which it pays their property taxes.

“Countrywide, if this is the way you do business, why would Bank of America want you?” Pappas said. “Get out of Cook County and go back to California.”

Other firms sent similar letters to their clients just before Cook County mailed bills for the first installment of tax year 2007 to property owners, according to the treasurer’s office. Those bills are due March 4, 2008, and Pappas said that lenders want to obtain the original bills in order to avoid paying a $5 duplicate bill fee.

“The firms do not need the original bill to pay out of escrow, and know that federal law requires them to pay on time,” Pappas said.

“These are terror tactics to stampede customers,” she said, going so far as to call for Bank of America to rescind its purchase offer for Countrywide. BofA said on January 11 that it would purchase Countrywide in a deal worth approximately $4 billion.

Pappas said that during the last tax installment in 2007, mortgage firms also tried to avoid the $5 fee, but most eventually rescinded their letters.

Besides Countrywide, the county treasurer’s office said that firms sending letters to consumers included: Aurora Loan Services, LLC; Bank Financial; EverHome; First Horizon; Flagstar; Liberty Lending; Nationstar; OCWEN Loan Servicing; Residential Credit Solutions; Regions Mortgage, Saxon Mortgage; TCF Bank, and West Star.

Mortgage rates were flat last week as investors tried to keep fears of a U.S. recession on the backburner — for now, at least. 30-year fixed-rate mortgages averages 5.67 percent for the week ended February 7, Freddie Mac said today, down 1 basis point from a reported 5.68 percent in the week prior. Last year at this time, traditional fixed-rate mortgages averaged 6.28 percent.

5-year ARMs averaged 5.21 percent, according to the GSE, down from 5.32 percent last week.

“Long-term mortgage rates were little changed this week, largely in sync with the movements in the Treasury bond yields during the same time,” said Frank Nothaft, Freddie Mac vice president and chief economist. “Additionally, economic news released in the past week showed that the economy continues to be weak.”

Nothaft cited The Federal Reserve’s Senior Loan Officer Opinion Survey for January as one point illustrating economic uncertainty. “70 percent of those surveyed expect deterioration in credit quality for prime residential mortgages in the coming year,” he noted.

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

One of the best kept secrets of the mortgage industry is that your mortgage rate is marked up to give the loan originator a commission. This markup is what makes your mortgage interest rate “retail.” Most homeowners have no idea this has happened or what they can do ...

In remarks delivered today to the Senate Banking, Housing and Urban Affairs Committee, Office of Federal Housing Enterprice Oversight director James Lockhart said that the need for GSE reform was “critical” as Congress considers raising the conforming limit as part of a pending economic stimulus package.

“Given the tremendous stresses on the mortgage markets, the American people cannot afford to have Fannie Mae, Freddie Mac, or the 12 FHLBanks incapable of serving their mission,” Lockhart said.

Lockhart’s not kidding — I’d suspect even many mortgage market participants would be surprised to see just how big the GSEs really are; the graph to the right shows GSE debt relative to the entire public debt of the United States.

Lockhart pressed Senate committee members to couple any increase in the conforming loan limit with “quick enactment of comprehensive GSE reform,” citing many of the challenges that have been reported on by HW in the past, including the new capital needed to successfully operate in jumbo lending.

“Underwriting them [jumbos] successfully will require new models and systems to ensure safe and sound implementation,” Lockhart said.

The OFHEO director outlined a key reform measure, suggesting that a new regulator for the housing GSEs be established. “We need a stronger, single and unified regulator for the housing GSEs,” Lockhart said. “That regulator needs to have all the powers of the bank regulators and more given the Enterprises size, systemic importance, and GSE status.”

“We have this strange budget mixture where we are funded by Freddie Mac and Fannie Mae, but yet we are appropriated by Congress as if we were funded by taxpayers,” he said.

“In only two of our fifteen years has OFHEO known how much money we had to spend when the year started. Uncertain funding levels and the resulting under-staffing is not the way to run a regulator.”

Lockhart’s full testimony is available here.

Keeping up with the developments in the bond insurance side of the secondary market has been a trying task this past week, but an important one for anybody working in mortgage banking.

On the heels of Fitch Ratings’ announcement that guarantors would possibly face downgrades regardless of capital levels — Fitch also said capital guidelines were likely to increase — MBIA Inc. said late Wednesday that it would sell $750 million in stock as part of an effort to avert a downgrade. Any shortfall in the sale would be covered by private-equity firm Warburg Pincus, who has already sunk $500 million into the troubled monoline.

Billionaire investor Wilbur Ross, in an interview with Bloomberg on Wednesday, suggested the new capitalization plan comes after consulting with the rating agencies.

“I would be astonished if they hadn’t consulted with the rating agencies before they made this announcement,” Ross said. “To raise this much capital, particularly from the public, and then get a downgrade, I would think people would be extremely upset with that. There would be litigation and God knows what else.”

Deutsche Bank AG CEO Josef Ackermann said Thursday that downgrades at bond insurers would threaten stability at many financial institutions, perhaps eclipsing the initial effects of the subprime mortgage crisis:

“It could be a tsunami-like event comparable to subprime,” Ackermann said in a Bloomberg Television interview in Frankfurt today. Deutsche Bank, Germany’s biggest bank, is “well positioned” on its risk from bond insurers, he said.

Bond investors stand to lose $200 billion should MBIA Inc., Ambac Financial Group Inc. and Financial Guaranty Insurance Co. forfeit their AAA grades because of declines in mortgage-backed securities they insure, according to data compiled by Bloomberg. Ratings on $2.4 trillion of debt that the industry guarantees would be thrown into doubt.

ECB president Jean-Claude Trichet took issue with Ackermann’s comments, according to Bloomberg. Trichet is quoted as saying the market correction “is not something which should surprise us, it’s an ongoing process.”

Back in the States, New York Insurance Superintendent Eric Dinallo has been trying to orchestrate a rescue of some of the troubled insurers, and media reports suggest he may be having more success now than when he first started the effort.

Bloomberg reported Wednesday that Ambac Financial Group, Inc. — who already lost its AAA rating from Fitch — is being targeted for one bank-led bailout effort, including Citigroup Inc. and UBS AG. The Wall Street Journal also reported Wednesday that a unit of Credit Agricole SA is mulling a separate bailout of Financial Guaranty Insurance Co.

Congressman Paul Kanjorski (D-PA), chairman of the U.S. House Financial Services subcommittee, released on Wednesday a series of formal assessments by various regulators to problems in the bond insurance market.

Kanjorski said he is especially concerned about the effects of the recent decisions by ratings agencies to downgrade a number of bond insurers on municipal debt markets. States, counties, and localities often rely on bond insurance to lower their borrowing costs for building bridges, repairing roads, fixing schools, and easing budget constraints.

Among the letters disclosed was a reply from Dinallo that noted his department has “for several months” been looking to “bring in new players” into the bond insurance market.

“The Department in November not only initiated a discussion with Berkshire Hathaway to open a new bond insurance company in New York,” Dinallo wrote, “but … is also talking to others interested in entering this market.”

Numerous market participants have suggested to HW that solving the bond insurer crisis is the single most important aspect to jump-starting the mortgage secondary markets going forward.

Pending sales on existing homes dropped 1.5 percent in December on a monthly comparison basis, suggesting continued weakness in the housing sector. The National Association of Realtors’ pending home sales index registered 85.9 in December, off from a downwardly-revised 87.2 in November, the trade assocation said Thursday.

December’s index was 24.2 percent below the 113.3 recorded in December of 2006.

This month’s reported drop follows a revised 3 percent drop during November — larger than the 2.6 percent originally reported — that had the realtor-led group inexplicably saying at the time that pending sales indicated “broad stabilization” within the housing market. This month, the NAR now says it expects “continuation of soft market conditions,” assumably because evidence of such stabilization has not been forthcoming.

Bloomberg reported that December’s index was — again — worse than economists had predicted; those surveyed by the news organization had expected a median drop of 1 percent on a month-to-month basis.

The Realtors also — again — scaled back their projections for housing sales and prices. Last month, the trade group said it expected existing home sales to total 5.70 million in 2008; this month, that projection was dropped to 5.35 million. Last month, the group said it expected new-home sales to total 669,000 in 2008; this month, that projection was lowered to 637,000. Last month, the NAR said existing-home prices would hold even at a median of $217,600; this month, the NAR said it expects prices to drop to $216,300.

Lawrence Yun, the NAR’s chief economist, remained firm in his assertion that the housing market is being held hostage by poor market conditions.

“Household formation was only half of what it should have been last year given the demographics of a growing population and sustained job growth, so there clearly is a pent-up demand from buyers who are on the sidelines,” he said.

Speaking of jobs, it’s worth noting that the homes data from the NAR coincided with a separate report released Thursday by the Labor Department that found first-time unemployment claims higher than had been anticipated, suggesting that the continued housing slump is negatively affecting job growth.

Senator Charles Schumer (D-NY) is making more than his fair share of headlines today by cranking up the heat on the mortgage industry at a Reuters-sponsored Regulation Summit in Washington.

Beyond suggesting that the GSEs need to consider so-called partial charge-offs for ‘underwater’ borrowers facing difficulty making their mortgage payments, Schumer also vowed Wednesday to pass federal regulation of mortgage brokers, and said that a formal investigation on rating agencies may be in the offing.

From Reuters’ coverage of its own event:

“We will get that passed this year. There will be regulation of mortgage brokers, as there should be, at the federal level,” said Sen. Charles Schumer, a New York Democrat and chairman of Congress’ Joint Economic Committee.

He also called for reform of credit rating agencies. “I am seriously looking at, and our committee is going to hold hearings, on the credit rating agencies …

“Maybe the structure should change. There’s a built-in conflict of interest,” Schumer said in remarks at the Reuters Regulation Summit in Washington.

HW readers know that rating agencies — Standard & Poor’s, Moody’s Investors Service and Fitch Ratings — have been taking plenty of heat as of late from investors and regulators alike. A recent proposal earlier this week by Moody’s to alter how it rates structured finance issuances, part of an attempt to rebuild investor confidence, has led to plenty of eye-rolling among various commentators. Late Wednesday the Wall Street Journal reported that Standard & Poor’s is set to release its own plan aimed at countering conflict of interest claims.

A Senate bill targeting federal regulation of mortgage brokers was introduced late last year by Senator Chris Dodd (D-CT) — the Homeownership Preservation and Protection Act (S 2452) — which would, among other provisions, prohibit the use of yield spread premium on all non-traditional mortgages as well as estalish a fiduciary relationship between brokers and borrowers.

It’s unclear if the current Senate bill has bipartisan support or not; it has been referred to the Senate Committee on Banking, Housing, and Urban Affairs for markup.

Senator Charles Schumer (D-NY) called Wednesday on both Fannie Mae and Freddie Mac to reduce the principal balance of loans for borrowers whose property values have fallen below what they owe on their mortgage, as part of an effort to help borrowers avoid foreclosure, Reuters reported.

Called a “partial charge-off,” Schumer’s not alone in endorsing the idea; Office of Federal Housing Enterprise Oversight director James Lockhart also expressed support for partial charge-offs at a summit sponsored by Reuters on Wednesday:

In a letter to the heads of the two companies, Schumer asked that they immediately state that “when appropriate, servicers can and should make partial chargeoffs available to struggling homeowners.”

… “I have had it with them. They keep saying ‘It will lower our stock price. It’s not as profitable as what else we do.’ Then, ‘Hello!’ Fannie and Freddie, ‘Go become a private company,” Schumer said. “You have a government guarantee. You don’t pay taxes. You have a lot of benefits. Now if ever is the time for you to step up to the plate.”

James Lockhart, the Director of the Office of Federal Housing Enterprise Oversight, told the Reuters summit that he also wanted to see Fannie Mae and Freddie Mac explore “partial chargeoff” as an option.

“I think the GSEs need to look at this issue and we have discussed it with them. Historically, it has not been one of their practices… It is something that they need to look at and that we are encouraging them to look at,” he said.

The idea here is that with loss severity approaching 50 percent on many loans, it’s less costly for lenders to charge-off a percentage of the original principal amount of a mortgage than to take a greater loss in foreclosure. The line of thinking is that if Fannie and Freddie start doing it, the rest of the mortgage industry will begin widely using the approach in loss mitigation.

Stepping outside of Schumer’s press-friendly rhetoric, all this signals is the wider realization that we’re beyond subprime now and into housing leverage. Principal reduction isn’t exactly a new idea — the FDIC’s Sheila Bair has already been stumping for it for some time now.

As others have noted, I just don’t know that it really will matter all that much in the end, even if partial charge-offs end up being “embraced.” Ultimately, we’re talking about servicers modifying loans until they’re squarely straddling the line set by a PSA.

For HW readers looking to read an in-depth analysis of the issue, Tanta at the Calculated Risk blog has already written a novel on the matter.