Refinance Free Credit

The thrift industry posted a record loss of $5.24 billion for the fourth quarter of 2007, as institutions responded to a downturn in the housing market by taking write-downs, recording restructuring costs and setting aside record levels of provisions for anticipated loan losses.

According to data released Wednesday by the Office of Thrift Supervision, thrifts set aside $5.1 billion in loan loss provisions, or 1.35 percent of average assets — up from 0.92 percent, or $3.5 billion, in the previous quarter and 0.45 percent, or $1.6 billion, in the fourth quarter one year ago.

For the year, loan loss provisions totaled $11.3 billion, or 0.75 percent of average assets, compared with $3.8 billion in 2006, or 0.25 percent of average assets

“These are difficult economic times and I expect our thrifts to continue to bolster reserves appropriately for the loan losses anticipated in 2008,” said OTS director John Reich.

“The provisions in the third and fourth quarters of 2007 will position our thrifts for these events,” he said. “The bottom line, as performance this quarter shows, is that the economic distress in the mortgage market is an earnings issue and not a capital issue for our industry.”

About $4 billion of the overall loss resulted from a write-down by a few thrifts in goodwill, necessary to recognize the reduced value of acquired assets, the OTS said.

Troubled assets (noncurrent loans and repossessed assets) were 1.65 percent of assets, up from 1.19 percent in the third quarter and 0.70 percent a year ago.

The full OTS report is available by clicking here.

For more information visit http://www.ots.gov.

Many homeowners that decide to refinance their home mortgage find the process confusing and intimidating. No one wants to be taken advantage of when it comes to their finances and the choices can be overwhelming. Here are several tips to help you get off on the right foot ...

Long-term fixed rates have been on the up escalator as fears over inflation push the market for mortgage loans higher.  Mortgage applications tanked by almost 23% over last week as higher rates on 30-year fixed products; as well as an aversion to better priced mid-term ARM products (such as a 10-year ARM) keep borrowers (those that are left) on the side line.  The application level is still higher by a third over 2007 levels.

From Market Watch on the drop in mortgage applications:

Mortgage applications filed last week dropped a seasonally adjusted 22.6% from the previous week, as interest rates on fixed-rate mortgages increased, the Mortgage Bankers Association reported Wednesday.

Applications for loans to refinance existing mortgages were down 27.9% on a week-to-week basis, while applications for mortgages to purchase homes were down a seasonally adjusted 11.5%, according to the survey.

Market Watch’s average mortgage interest rate watch reported the following aggregated rate information:

Average interest rates for 30- and 15-year fixed-rate mortgages increased last week to 6.09% and 5.55%, respectively, up from 5.72% and 5.18% in the previous week. But the average rate on one-year ARMs didn’t change, remaining at the 5.72% seen in the Feb. 8 week.

Maryland Governor Martin O’Malley said Tuesday that the state has adopted new emergency regulations requiring reports from mortgage loan servicers detailing their efforts to help homeowners facing default and foreclosure. Maryland is only the second state in the nation to require this data, following California.

The emergency regulation requires servicers to provide the state’s Department of Labor, Licensing and Regulation with lists of homeowners who have adjustable rate mortgages that are about to reset to higher interest rates. DLLR will use this information to reach out to those homeowners, providing them with information on resources available to help them, the governor said.

In a press statement, O’Malley said he had summoned loan servicing representatives to an emergency working session designed to “help find real solutions to the foreclosure crisis and protect middle class families from losing their home.”

“It is time to make the loan servicers part of the solution to protect our families,” said O’Malley. “Maryland has committed significant resources to help Maryland families avoid foreclosure and stay in their homes, and we are prepared to work with loan servicers to develop a framework and a model for large-scale relief for homeowners that will keep people in their homes.”

Ocwen under investigation
He said the state has also opened an investigation into the servicing practices of Ocwen Financial, one of the largest servicers of Maryland loans, and may look to revoke the company’s operating license in the state depending on the outcome of a review of individual loan files.

“Everyone in the mortgage industry has said they want to help homeowners avoid foreclosure. We want to ensure their actions are matching their words,” Department of Labor, Licensing and Regulation Secretary Thomas Perez said.

“This data collection will shine a bright light on servicers, and will help DLLR help homeowners.”

The Washington Post, reporting on this story, said that both O’Malley and Perez have accused the industry of being unresponsive to borrowers seeking help:

O’Malley and Perez accused the industry of failing to respond to homeowners trying to renegotiate their mortgages, citing complaints from residents who said they placed calls only to find busy signals, long waits on hold and a lack of assistance.

“We need the loan servicers to join with us, and not from Topeka, Kansas, from some 1-800 number, but here in Maryland so that we can reach out and do a better job,” O’Malley said.

Ninety-two percent of prime borrowers in a 1-year conforming adjustable-rate mortgage chose a conforming fixed-rate loan when refinancing during the fourth quarter, Freddie Mac said Wednesday, compared to 85 percent during Q3. Eighty-nine percent of prime borrowers with a conforming hybrid ARM refinanced into a fixed-rate loan as well, up from 84 percent one quarter earlier.

Freddie Mac’s look at refinancing activity in the fourth quarter underscores how borrowers with high credit are adjusting to market conditions expected to last for some time.

“The turmoil in the financial markets that started in August and continued through the fourth quarter led most mortgage lending institutions to tighten their underwriting standards and thus some ARM products were either no longer available or came with more restrictions,” said Amy Crews Cutts, deputy chief economist for Freddie Mac.

“However, even with the financial market problems in the fourth quarter, conforming mortgage rates on all four of the ARM and fixed-rate products tracked by Freddie Mac’s Primary Mortgage Market Survey fell by roughly one-quarter of a percentage point.”

The GSE said its report also shows that in the fourth quarter 83 percent of borrowers who originally had a 30-year fixed-rate mortgage refinanced into another 30-year fixed-rate mortgage. This rate compares to 79 percent in the third quarter.

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

Mortgage applications took a nose dive during the past week, falling 22.6 percent during the week ended February 15 as inflation surged and mortgage rates rose sharply. The Mortgage Bankers Asssociation reported Wednesday that a widely-watched index of application activity dropped to 822.8 last week, compared to 1063.5 one week earlier.

The application index is calibrated to March 16, 1990; a reading of 822.8 means that application activity was roughly 8.2 times greater than when the index was first established.

Refinance activity fell steeply, dropping 27.9 percent to 3533.8 from 4901.5 the previous week, the MBA reported. Applications for conventional and government-sponsored purchase mortgages dropped as well, as borrowers saw mortgage rates rise while the bond market quickly shifted its focus towards inflationary concerns.

Such concern appears to have been warranted: the U.S. Labor Department reported Wednesday that consumer prices rose a seasonally-adjusted 0.4 percent last month, with core inflation jumping 0.3 percent in January — its biggest gain since June 2006.

The MBA reported that the average contract rate for 30-year fixed-rate mortgages had risen 37 basis points by last Friday to 6.09 percent, as a result. While updated rate surveys from Bankrate and Freddie Mac are set to be released tomorrow, early evidence suggests rates have jumped even further to start this week — erasing nearly all of the rate drops that had driven a mini-refi boom to start 2008.

Holden Lewis at Bankrate.com noted Monday that rates are “far above where they were just a week or two ago.” He suggested that par on a 30-year fixed mortgage was at 6.25 percent or higher.

The sharp drop in refinance activity was reflected in overall application volume mix; the MBA said that refinance share fell to 61.7 percent of all activity, versus 67.4 percent one week earlier.

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

Housing starts for single-family units remained at their lowest level since 1991 in January, according to data released Thursday morning by the Commerce Department. Starts registered a seasonally-adjusted rate of 1.012 million to start 2008, 0.8 percent above December’s revised 1.004 million rate but 27.9 percent of of January 2007’s pace. December’s starts were revised downward from the originally reported 1.006 million last month.

Single family starts came in at 743,000, 5.2 percent below December’s downwardly-revised 784,000 figure, suggesting that builders are continuing to pull back on new building activity amid the worst housing downturn in at least five decades.

Permits fell as well, dropping 3 percent to 1.048 million on a seasonally-adjusted basis; single-family permits fell 4.1 percent to a rate of 673,000. Completions rose 1.8 percent, suggesting that while builders are paring back inventory, there is still some significant ‘overhang’ in terms of inventory; oversupply is cited by most economists as one of the factors most affecting conditions in the primary mortgage market.

The January residential construction report was largely within economists’ expectations, with Bloomberg reporting that the median forecast for starts was 1.01 million, while permits had been forecast to drop to a 1.05 million rate.

Calculated Risk offers great analysis of core economic reports such as this; the graph to the right is used with permission, and depicts starts and completions longitudinally. In assessing January’s numbers, the blog’s eponymous author said that he expects residential construction employment to fall over the next few months as completions drop further.

“The builders are still starting too many homes,” he said, “but they are getting there.”

Subprime borrowers who took out loans in 2007 are defaulting at twice the rate of 2006 loans ten months after issue, underscoring the reality that resets are likely only one small aspect of a multi-faceted mortgage crisis now being felt nationwide. According to Friedman, Billings Ramsey analyst Michael Youngblood, defaults among the 2007 subprime vintage hit 11.2 percent in November, CNN Money reported Wednesday.

That’s roughly 300,000 households defaulting without a reset.

Housing Wire first reported on problems in the 2007 vintage in August of last year, noting that deliquencies even at that early stage in the cycle indicated problematic performance.

From CNN Money:

Defaults are spiking well before resets come into play thanks to the lax lending environment of the past few years. Many borrowers were approved for mortgages that they had little chance of affording, even at the low-interest teaser rates .

“I was rather shocked by the characteristics of the 2007 loans,” said Youngblood …

Perhaps he shouldn’t have been so surprised. In September, HW reported that lender proclamations of tightened underwriting standards were window dressing at best, after looking at loan program changes made by Countrywide Financial at the time. It’s a sentiment that MBA chief economist Doug Duncan gives credence to:

… instead of tightening standards and cutting back on risky loans, lenders kept lending. Why?

“Because investors continued to buy the loans,” said Doug Duncan, chief economist of the Mortgage Bankers Association …

“As long as you could sell the loan, you made the deal,” Duncan said …

“There were very few overt changes in industry underwriting guidelines,” said Youngblood. What did change, he said, was that lenders were making more exceptions to their standard practices. …

“These exceptions generally amounted to no more than 5 percent [of subprime loans] before 2006,” said Youngblood, “but they represented the majority of these loans issued in 2006 and 2007.”

There is, at least, one aspect of the mortgage industry that hasn’t changed amidst the current turmoil — loans are largely still made on the basis of whether or not they can be sold into the secondary market. It’s just that the only major buyers left right now are named Fannie and Freddie.

In a brief statement to the press after markets closed on Tuesday, Flagstar Bancorp, Inc. said that it had suspended its quarterly dividend as the Michigan-based bank reels from mortgage losses.

Flagstar reported a $30.1 million loss for the fourth quarter on January 30th, driven primarily by quick increases in non-performing assets. NPAs rose 43 percent between the third and fourth quarter of last year, leading Moody’s to downgrade the bank’s long-term deposit rating. The rating agency warned that continued losses would likely lead to a “junk” rating.

“Although we are seeing strong loan production, increasing gain on sale margins and improved net interest margins, the Board believes that it is prudent to preserve capital by suspending the dividend until the capital markets normalize and residential real estate shows signs of improvement,” said Mark Hammond, Flagstar’s CEO.

Hammond added that “the Board will reassess the dividend in the second quarter based upon first quarter results and the state of the capital and residential real estate markets.”

Flagstar Bancorp, with $15.8 billion in total assets, is the largest publicly held savings bank headquartered in the Midwest.

Disclosure: The author held no positions in FBC when this story was originally published.

Housing Wire reports on a subject that every broker and lender still kicking after this meltdown will have to contend with - a massive up-tick in litigation.   Wall Street is coming looking to recoup some costs associated with bad loans, and fraudulent activity on the part of brokers who are still standing will be pursued to the fullest.

From the post on mortgage litigation on Housing Wire:

The number of subprime-related cases filed doubled during the second half of 2007, from 97 to 181 (for a total number of 278) cases. These cases included borrower class actions (43 percent), securities cases (22 percent), and commercial contract disputes (22 percent), along with bankruptcy, employment, and other cases.

“This appears to be just the beginning,” said Nielsen. “We are already observing a steady acceleration of continuing litigation activity into 2008. The course of regulatory investigations, the prospect of government intervention and marketplace variables may affect the volume of filings, but the explosion of cases in 2007 suggests a daunting forecast of what is still to come.”

The study found that virtually every participant in the subprime collapse is being sued.

Fortune 1000 companies were named in 56 percent of cases. Mortgage Bankers and Loan Correspondents represent the highest percentage of defendants (32 percent) but defendants also include mortgage brokers, lenders, appraisers, title companies, homebuilders, servicers, issuers, underwriting firms, bond insurers, money managers, public accounting firms and company directors and officers, among others.

It makes sense that correspondent lenders would see the brunt of litigation.  Take a close look at those seller agreements and you’ll see that the language has all been written in a heavy-handed, one-sided manner to allow the maximum recourse for lenders damaged by seller malfeasance, fraud and poor risk management.  The broker agreements aren’t much better; but the theory probably goes something like this: “Correspondents are better capitalized, have more binding guarantees and therefore have more blood” than traditional brokers which are undercapitalized and would quickly captiulate via corporate bankruptcy in the face of buybacks or other litigation.

When was the last time you looked at your seller agreements?  And how many did your legal team redline prior to accepting the terms?