Refinance Free Credit

The Office of Federal Housing Enterprise Oversight on Thursday released the maximum conforming loan limits that will be in effect through year-end, as a result of the Economic Stimulus Act of 2008. The new jumbo limits are a function of median home prices as estimated by the U.S. Department of Housing and Urban Development, and will apply to FHA lending as well.

The Act boosts the GSE conforming limit to as much as $729,750 through the end of this year, and also raises FHA lending limits to the same level for high-cost areas. Two, three and four-unit homes have higher limits as well, OFHEO said.

Seventy-one MSAs nationwide saw their conforming lending limits boosted, including 245 counties and cities. In addition, according to the OFHEO data, there are 21 counties outside of metropolitan or micropolitan areas that show increases, plus Guam and even four municipalities in the Marianas Islands.

The newly-increased limits range from $417,500 in Greeley, Colorado to the highest of $793,750 in Honolulu, Hawaii.

California saw 28 MSAs and related areas added to the eligible list, with Orange and Los Angeles counties now eligible for a conforming loan up to $729,750. Lending limits in California’s hard-hit Riverside and San Bernardino counties were boosted to $500,000, according the OFHEO.

The District of Columbia saw its lending limits raised significantly to $729,750, as well, while Colorado posted 12 MSAs and related areas now eligible for the higher lending limits.

As interesting as what was on the list was what wasn’t: only the Flagstaff area of Arizona saw a boost in the conforming lending limit to $450,000, while Las Vegas, Nevada — one of the hottest areas during the recent housing boom — was deemed ineligible entirely for an increase in lending limits.

For more information, visit http://www.ofheo.gov.

Mortgage rates continued to display higher volatility than most are accustomed to in the past week, thanks to a sudden sell-off in residential mortgage-backed securities that has the secondary market embroiled in its latest round of credit crunching.

Bankrate.com’s weekly rate survey found that the benchmark 30-year fixed-rate mortgage fell 9 basis points, to 6.32 percent by the morning of March 5. Average rates on a 5-year adjustable-rate mortgage rose slightly in that time frame, increasing 4 basis points to 5.72 percent, according to the survey.

But that was before Wednesday’s wild sell-off in RMBS led mortgage rates to jump dramatically. Bankrate.com’s Holden Lewis said Thursday that had the company’s rate data been collected in the afternoon rather than in the morning, the benchmark rate would have been up 15 to 20 basis points.

That’s a swing of nearly 30 basis points in one day. For a traditional fixed-rate mortgage. What kind of mad, mad world is this?

While many are at a loss to explain the swing, sources in the bond market have suggested to Housing Wire that the process of “deleveraging” has picked up steam after UBS AG, Europe’s largest bank by assets, allegedly dumped more than $24 billion of Alt-A U.S. RMBS for 70 cents on the dollar. (See earlier coverage here).

The result, sources say, is a selling spree that’s even reaching into agency-backed securities issued by Fannie Mae and Freddie Mac. Housing Wire reported earlier this week that agency MBS spreads reached levels this week not seen since the mid-1980s.

Reuters’ Al Yoon also picks up the trail, noting that the quickened pace of deleveraging has sent credit markets reeling:

Fund managers with ample cash are holding back from purchases of securities for fear prices will fall further, exposing them to scorn of their shareholders, analysts said.

“It’s a combination of intense scrutiny from regulators and stockholders as to how these solid firms commit their capital, and that people who like valuations have a hard time keeping up with the news flow and pricing,” said Jim Vogel, a strategist at FTN Capital Markets in Memphis, Tennessee.

“It helps explain half of the deleveraging side, which is why people aren’t picking up bargains.”

Agency MBS, which are seen as having little credit risk relative to mortgage bonds sold by other companies, are being sold partly because the $4.5 trillion market is one of the most liquid, or easily traded, next to Treasuries, analysts said.

To put the rate picture into plain English: deleveraging means funds and investors are dumping holdings to prevent themselves from being subject to margin calls they likely can’t meet. Add to the pot some incredibly strong pricing pressure, which widens even option-adjusted spreads to near-record levels, and mix in a general lock-up in the secondary market outside of the GSEs, and you have the perfect recipe for mortgage rate volatility.

A temporary increase to the conforming loan limit in some high cost areas is no longer enough for the National Association of Realtors.

In testimony today before the Committee on Banking, Housing and Urban Affairs, NAR’s public policy chair Vinca Malta said that Congress needed to permanently raise the national GSE conforming loan limits to $625,000, with an additional increase of 125 percent of the local median home-sales price in high-cost areas.

“We believe this move will boost the housing market and the economy by bolstering home buyer confidence and bringing families back into the marketplace,” said Malta, himself a realtor. “That would increase home sales by nearly 350,000, lower inventories and increase home prices by two to three percent. It would also result in as many as 210,000 fewer foreclosures, and more than 500,000 borrowers would be able to refinance into lower interest rate loans.”

The NAR’s latest lobbying effort comes on the heels of strong praise from the realtor-led organization for a recently-passed economic stimulus measure, which temporarily boosts FHA and conforming loan limits to as much as $750,000 in certain high-cost areas.

Both the realtors and the National Association of Home Builders, who also testified to Congress Thursday, recommended that the Senate pass H.R. 1427, the Federal Housing Finance Reform Act of 2007. The bill was passed by the House in May of last year, and would establish a new regulator for Fannie Mae and Freddie Mac to replace the Office of Federal Housing Enterprise Oversight.

“OFHEO is constraining the ability of Fannie and Freddie to do all they can to promote affordable housing and to help strapped borrowers,” said Jerry Howard, CEO of the NHAB.

“At the same time, HUD’s mission oversight over the two GSEs is lacking. HUD should be requiring them to do more, not less, in the present dire mortgage market circumstances,” he said.

While no press statement has been made by the U.S. Department of Housing and Urban Development yet — a formal announcement is expected later today or early tomorrow — officials at Federal Housing Administration say they have boosted the FHA lending limit in 14 California counties, according to a report published Wednesday evening in the Wall Street Journal.

The Journal reported that FHA officials confirmed that the FHA increases will also apply to government-sponsored entities Fannie Mae and Freddie Mac. From the story:

Details for the rest of the country are due to be announced this week. California counties such as Los Angeles and Orange will be eligible for the maximum limit, which was raised from $362,790. Lower- priced regions, such as Trinity and Lassen counties, will qualify for a loan cap of $271,050, up from $200,160 …

The FHA said there would be an appeal process through which the new loan limits could be raised higher for counties that aren’t now eligible for the $729,750 maximum, but none of the limits will be lowered, said Bill Glavin, special assistant for public affairs in the FHA’s Commissioner’s Office. That appeals process could be announced, along with new loan limits for the rest of the country, as early as Thursday.

“From what we understand there are not going to be a lot of areas in the country except for California that are going to be at the maximum,” Mr. Glavin said.

While HUD hasn’t yet publicly released its complete loan limit data, HUD secretary Alphonso Jackson did comment on the FHA increases in California earlier this week.

“Because the FHA loan limits didn’t reflect the housing market in California and other high-cost states, a vacuum was created that was filled by exotic subprime loans. We estimate that nearly 33,000 Californians will benefit over the next 18 months,” Jackson said in speech to the Commonwealth Club of California on Tuesday.

Jackson said that FHA will publish a complete list of new, temporary loan limits this week.

“FHA is back. And we’re letting the American people know about it, sending letters out to 850,000 homeowners with resetting rates, including 54,000 Californians, who might qualify for FHA,” he added.

BMC Software and Investments Inc., a Southeastern-based investment firm, said late Wednesday that it had acquired Loan-Score Decisioning Systems LLC, a provider of automated underwriting solutions. Terms of the deal were not disclosed.

Loan-Score said that its acquisition by BMC will help the firm prepare for increased demand when marketplace liquidity returns.

“We’ve been making various investments in the mortgage banking industry for more than 25 years, and nothing has looked more promising than our purchase of Loan-Score,” said William McCord, CEO of BMC Software and Investments and chairman of Loan-Score.

“What has happened to the mortgage industry over the past year is unprecedented. Several AUS vendors have already closed their doors and a number of others are in trouble, which creates an opportunity for Loan-Score to dominate the AU space given the right investment partner.”

McCord said the investment was intended to provide Loan-Score with “the wherewithal to weather this prolonged storm.”

For more information, visit http://www.loan-score.com.

The Mortgage Bankers Association’s National Delinquency Survey for the fourth quarter of 2007 found foreclosures at an all-time high, while delinquencies were at their highest level since 1985.

The rate of loans entering the foreclosure process was 0.83 percent on a seasonally-adjusted basis, the MBA said Thursday, five basis points higher than the previous quarter and up 29 basis points from one year ago.

The delinquency rate for mortgage loans on one-to-four-unit residential properties stood at 5.82 percent of all loans outstanding in the fourth quarter of 2007, up 23 basis points from the third quarter of 2007, and up 87 basis points from one year ago.

click for larger version

Foreclosures were spread out across the credit spectrum during the quarter, with 38 percent of foreclosure starts involving prime fixed or adjustable-rate mortgages. The table to the right provides a look at the percent of all loans and how each class was represented in overall foreclosure starts.

Since the fourth quarter of 2006, the foreclosure start rate for prime ARMs increased from 0.41 percent to 1.06 percent and the rate for subprime ARMs increased from 2.70 percent to 5.29 percent. The foreclosure start rate for prime fixed loans increased from 0.16 percent to 0.22 percent and the rate for subprime fixed loans increased from 1.09 percent to 1.52 percent.

California and Florida continue to represent a disproportionate share of the foreclosure starts in the country, the MBA said. Those two states represent 21 percent of all loans outstanding, but accounted for 30 percent of foreclosure starts in the US. More importantly, they accounted for 39 percent of all prime ARMs outstanding, but 47 percent of prime ARM foreclosure starts.

“Declining home prices are clearly the driving factor behind foreclosures, but the reasons and magnitude of the declines differ from state to state,” said Doug Duncan, MBA’s chief economist.

“In states like Ohio and Michigan, declines in the demand for homes due to job losses and out-migration have left those looking to sell the homes with fewer potential buyers, particularly with the much tighter credit restrictions borrowers now face. In states like California, Florida, Nevada and Arizona, overbuilding of new homes created a surplus that will take some time to work through.”

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

In a ruling industry insiders said was expected, a judge in a federal bankruptcy court in Houston said that Countrywide and its attorneys wouldn’t face sanctions for improperly attempting to foreclose on borrowers recently discharged from bankruptcy and current on their loans.

The Wall Street Journal reported yesterday that Judge Jeff Bohm would not punish the nation’s largest lender or its associated counsel, on the grounds that he was “unable to say their conduct transcended from merely negligent bungling to full-blown bad faith.”

The Texas case was a putative class-action suit filed last month by five borrowers in Brownsville, who claimed the lender lacked sufficient “policies and procedures” to account for borrower payments. (See earlier coverage here).

The WSJ published a full statement by the lender, released after the court’s ruling, which said that “on occasion employees in Countrywide’s bankruptcy servicing department or attorneys acting on the company’s behalf make individual errors.” Countrywide also said it is working to improve its policies and procedures, and that it has beefed up staff in its foreclosure and bankruptcy processing units as a result.

While the judge did not sanction the nation’s largest lender, he did go so far as to suggest the company and its legal counsel “showed a disregard” for legal process.

Disclosure: The author held no positions in CFC when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

Various published reports this morning are suggesting that UBS AG probably sold $24 billion of holdings backed by Alt-A mortgages in a fire sale earlier this week, exacerbating difficulties in a RMBS market already reeling from a histsoric downturn in the U.S. housing market.

From MarketWatch:

UBS was “highly likely” to have sold the securities in a fire sale, said J.P. Morgan analyst Kian Abouhossein, noting press speculation on the subject.

“We see the speculated level of 70 cents on the dollar as realistic in a fire sale,” he said in a Thursday note to clients, adding the current market price is probably 84 cents on the dollar.

Various sources have suggested to Housing Wire this morning that Europe’s largest bank by assets had dumped the Alt-A securities to none other than PIMCO, a bond-house owned by German insurer Allianz.

Earlier coverage on HW had mentioned the likely fire sale by UBS in discussing the difficulties now facing ultra-prime mortgage lender Thornburg Mortgage, whose failure to meet margin calls on the Alt-A securities it holds have put it on the brink of bankruptcy.

From Bloomberg:

“UBS has set a new strategic direction with the asset fire sale, following a period of mainly orderly asset sales within the global banking system,” Abouhossein wrote, lowering his share-price estimate by 1 franc to 55 francs. “UBS actions have led to a spilling over into credit-market prices.”

No kidding. This is just the sort of run-for-the-hills panicking that few in the market had hoped to see, preferring instead to focus on an orderly wind-down of existing positions. Sources that spoke with HW this morning have said that UBS’ move may force holders of Alt-A securities, as well as other RMBS, to more aggressively mark down their positions — generating larger losses in the quarters ahead for many of the nation’s larger banking operations.

And then there’s the issue of a renewed liquidity crisis.

Beyond Thornburg, which has been sent reeling by the UBS sale, the Wall Street Journal reported Thursday that Carlyle Capital Corp. had failed to meet margin calls on its $21.7 billion portfolio Wednesday. Carlyle holds a portfolio of top-rated agency-backed MBS, for the record, but even holding Fannie and Freddie issues haven’t shielded it from $60 million in margin calls and additional collateral requirements — in less than one week.

All of which means we’ll be hearing plenty of nattering about a “disconnect” between the market and the real value of underlying assets in the coming days. It’s a point that is absolutely true, but one that unfortunately doesn’t lessen the severity of the cash crunch now being thrust on many leveraged RMBS investors.

Disclosure: The author held no positions in any publicly-traded companies mentioned in this story when it was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

In news that may presage bankruptcy for a mortgage lender with otherwise stellar asset quality, Thornburg Mortgage said yesterday that it had received a notice from JPMorgan Chase earlier this week claiming an “event of default” under a repurchase agreement with the Wall Street bank after failing to meet a $28 million margin call.

In a filing with the Securities and Exchange Commission late Wednesday, Thornburg said that JPMorgan will “exercise its rights under the agreement.” The Wall Street firm lent the troubled ultra-prime lender $320 million, Thornburg said.

“The company’s receipt of the notice of an event of default has triggered cross-defaults under all of the company’s other reverse repurchase agreements and its secured loan agreements,” Thornburg said in its filing with the SEC.

Full details were not provided, but the company described its exposure under the now-defaulted repurchase agreements as “material.”

A call to the company for comment was not immediately returned.

On Monday, Thornburg warned that it had received nearly $600 million in margin calls since the middle of February on its portfolio of Alt-A mortgage-backed securities, and that it was unable to meet all of the calls.

Recent industry speculation has centered around rumors that some large holders of RMBS securities have become forced sellers in recent days, driving down the price of mortgage-backed securities like those held by Thornburg.

The company’s stock dropped more than 60 percent in pre-market trading Thursday, falling to $1.36.

Disclosure: The author held no positions in Thornburg when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

In news that may presage bankruptcy for a mortgage lender with otherwise stellar asset quality, Thornburg Mortgage said yesterday that it had received a notice from JPMorgan Chase earlier this week claiming an “event of default” under a repurchase agreement with the Wall Street bank after failing to meet a $28 million margin call.

In a filing with the Securities and Exchange Commission late Wednesday, Thornburg said that JPMorgan will “exercise its rights under the agreement.” The Wall Street firm lent the troubled ultra-prime lender $320 million, Thornburg said.

“The company’s receipt of the notice of an event of default has triggered cross-defaults under all of the company’s other reverse repurchase agreements and its secured loan agreements,” Thornburg said in its filing with the SEC.

Full details were not provided, but the company described its exposure under the now-defaulted repurchase agreements as “material.”

A call to the company for comment was not immediately returned.

On Monday, Thornburg warned that it had received nearly $600 million in margin calls since the middle of February on its portfolio of Alt-A mortgage-backed securities, and that it was unable to meet all of the calls.

Recent industry speculation has centered around rumors that some large holders of RMBS securities have become forced sellers in recent days, driving down the price of mortgage-backed securities like those held by Thornburg.

The company’s stock dropped more than 60 percent in pre-market trading Thursday, falling to $1.36.

Disclosure: The author held no positions in Thornburg when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.