Refinance Free Credit

Citi released some guideline changes in the wholesale changes that can be described easily as the first big step towards killing stated income loans. I’m not sure if these are reflected on the retail side as well. The big changes? 75% max loan-to-value on rate and term refinances with a minimum FICO score of 720. That guideline change essentially narrows the universe of qualified borrowers to a thin sliver of the home-owning population these days.

Other details on the stated income guideline restrictions:

70% max LTV on cash-out refinances

Increased FICO requirements from 660-720 to 680-720 for SIVA

Increased FICO requirements from 660-720 to 700-740 for SISA

Click the thumbnail below for the full details:

Share This

The United States House of Representatives has approved a foreclosure prevention bill. The bill was approved today by more than 266 members of Congress however, 154 members opposed the bill. The bill seeks to help remedy the mortgage meltdown and foreclosure crisis READ MORE

MGIC Investment Corp. said late Thursday that it will pull back the reigns on its mortgage insurance underwriting standards for the second time this year, after announcing sweeping changes to its programs that went into effect March 3. The changes announced yesterday are scheduled to go into effect June 1, and are among the most stringent standards in the industry, based on a review by Housing Wire.

For all markets — so-called restricted markets or otherwise — MGIC said it will essentially no longer provide MI for any Alt-A loan. The company also said that it will no longer allow cash-out refinances in any market, investment properties, multiple units, and option ARMs to be eligible for its mortgage insurance. The insurer also will require a minimum of 3 percent down on any eligible purchase transaction, following a similar underwriting policy at PMI Mortgage Insurance Co.

Underscoring the tough Florida housing market, MGIC also said it will rule out any loan in Florida tied to condos or attached housing.

Perhaps more telling are the insurer’s tough new requirements for conforming jumbos, the name given to loans made temporarily eligible for GSE purchase under the terms of the Economic Stimulus Act of 2008. In certain “high-cost” markets, the GSEs may purchase loans up to $729,500, depending on HUD’s assessment of housing prices.

Loans in the conforming jumbo range — in a non-restricted market — must have a minimum of 90 percent CLTV and a minimum FICO of 700 to qualify for MGIC underwriting; in restricted markets, the CLTV requirement is tightened to 85 percent. MGIC said it will not insure any loan above $650,000 in any market.

Sources told HW that the new guidelines represent a significant shift in approach for the insurer, which until Thursday’s announcement had focused on policy restrictions in markets it identified as problematic (MGIC refers to such markets as “restricted”).

The June 1 underwriting update adds the entire states of Kentucky, New Jersey and Michigan to its list of such markets, Housing Wire’s review of the list found.

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

Citigroup Inc. (C: 24.14, -0.66%) said Friday that it will reduce so-called non-core assets by $500 billion over the next several years as the banking and financial services giant looks to reel in its capital base and divest of riskier assets. The news comes as part of the company’s investor day, and as CEO Vikram Pandit looks to reshape the ailing giant.

A large chunk of that reduction will be set directly in mortgage banking and related businesses, according to CFO Gary Crittenden’s remarks on Friday. $100 billion of the divestiture total will come from the sale of non-core operations, while the remaining $400 billion in divestitures will come from the sale or run-off of a wide range of assets, MarketWatch reported.

Crittenden said that 50 percent of the company’s $400 billion asset reduction target would come from consumer banking, largely by either selling or allowing the run-off of portfolio mortgages and mortgage-backed bonds.

In March, Citi signaled that it would let a large portion of its mortgage portfolio run-off as it shifted its business towards mortgages saleable to Ginnie Mae, Freddie Mac, or Fannie Mae. At that time, the company said mortgage portfolio run off would likely total roughly $45 billion in 2008.

Spokesperson Mark Rodgers said then that the firm wasn’t explicitly planning to sell a portion of its loan portfolio. “If an opportunity to sell came up, however, I’m sure we’d consider it,” he said.

With roughly $200 billion — give or take a few billion — in mortgage-related assets now facing a likely sale or runoff, sources tell HW that it’s probable that Citi is now looking to sell at least a portion of its substantial mortgage portfolio.

“Anything that can be sold without taking a loss would seem to be a viable option [for sale],” said one source, who asked to be named. “Anything impaired is likely to be held to run-off … Pandit’s trying to bolster Tier 1 capital, not deplete it.”

Selling assets at a loss would reduce so-called Tier 1 capital, a key measure of solvency used by bank regulators to gauge the health of a financial institution; conversely, selling non-impaired assets — such as certain mortgages and investment-grade MBS paper — would serve to increase Tier 1 capital.

Materials presented to investors Friday suggested that the $500 billion divestiture total would include 4 percent from auto holdings, 5 percent from subprime collateralized debt obligations, 6 percent from highly leveraged commitments, 11 percent from structured investment vehicles, 35 percent from real estate and 39 percent from other, unnamed assets.

Citibank has been hit hard by the mortgage crisis, most recently reporting a first quarter loss of $5.1 billion and $13.9 billion in write-downs spanning mortgages to leveraged loans.

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

PHH Corp. (PHH: 19.38, +1.31%) said Friday that losses in its mortgage production business narrowed during the first quarter to $8 million, compared to a $39 million loss one year earlier — a smidgen of good news for a battered industry. Unfortunately, the company’s servicing operations swung strongly into the red, posting a $16 million loss for the quarter relative to a $55 million net gain one year ago.

Nonetheless, the company — which also manages a large vehicle fleet management business — reported net income of $30 million, or $0.55/share, compared to $15 million, or $0.27/share, in the year-ago period.

Loan production gains, loan servicing losses
Mortgage production increased at the Mt. Laurel, New Jersey-based company in the first quarter, rising to an even $10.0 billion, up 6 percent from year-ago levels; PHH said that it closed $7.1 billion of loans to be sold during the quarter, 90 percent of which were conforming. PHH, which operates one of the larger private-label origination platforms, said that five news clients had signed up in Q1 as well, including Comerica Bank.

More than half of the company’s closings during the quarter were refinances, as purchase activity remained weak; The company booked $5.2 billion in loans closed during the first quarter, up 41 percent from year-ago volume.

Relatively stronger results in origination activity were offset by losses in servicing activity, however, which lost $16 million during the quarter, after posting a $55 million profit in the first quarter of 2007. The $71 million swing was largely the result of hedging losses, the company said.

Terry Edwards, president and CEO at PHH, said that the company had relied “on the natural business hedge rather than hedging our servicing portfolio with financial instruments.” (In plain English, this means that the company bet — wrongly — that interest rates would post a persistent downward trend in the first quarter; rates instead went on their wildest ride in decades).

PHH’s servicing portfolio remained flat overall, but the company saw a temporary bump in subservicing volume due to the sale of mortgage servicing rights; PHH subserviced $29.5 billion at the end of the first quarter, it said, $18.6 billion of which was being subserviced until MSR transfers were complete to third-party purchasers.

The vast majority of loans serviced at PHH are fixed-rate, traditional mortgages — and it shows in the overall delinquency trends, which have only modestly increased since last year. PHH said that 2.58 percent of loans were delinquent at the end of March, compared to 2.39 percent one year earlier.

It’s worth noting, however, that $4.3 billion of PHH’s $161.2 billion servicing portfolio is comprised of home equity lines of credit.

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

Thanks to reader Bill for this great little Friday fun.  If you’re in the industry, check out the new program guidelines matrix (PDF) and have a laugh on us this Friday.

– Morgan

Share This

Late Thursday, Fremont General Corp. (FGC: 25.10, -0.28%) said that it had agreed to sell its remaining $12.2 billion servicing portfolio to Litton Loan Servicing LP, a well-known subprime and scratch-and-dent mortgage servicer. The sale represents a coup of sorts for Goldman Sachs (GS: 186.98, -0.39%), which picked up Litton from the rubble of former scratch-and-dent giant Credit-Based Asset Servicing and Securitization late last year.

For Fremont’s Investment & Loan subsidiary — once one of the largest subprime lending and servicing operations in the country — the sale likely is the final step before it heads into bankruptcy and liquidation, according to a company statement released Friday morning.

Under the terms of the deal with Litton, Fremont’s servicing rights will be sold at an undisclosed value, and Litton will also pay for any outstanding servicing advances on Fremont’s books. The deal does not involved the Brea, Calif.-based bank’s servicing platform, which it said it intends to wind down after the sale is complete.

While the details of the proposed deal aren’t yet known, industry experts pointed to a recent deal involving Option One Mortgage Corp. and American Home Mortgage Servicing, Inc. as a likely model.

“$980 million of the $1.3 billion negotiated purchase price covered Option One’s servicing advances alone,” said the source, a senior executive at a large bank, who asked that his name not be used. “That means the entire servicing portfolio and platform was sold for just over $300 million — and [the Fremont/Litton deal] doesn’t involve a servicing platform, only the portfolio.”

Fremont entered an agreement with CapitalSource, Inc. (CSE: 15.20, +0.40%) in mid-April covering most of the bank’s assets and deposit liabilities. With the likely sale of servicing assets and wind-down of it’s servicing platform, Fremont said that it will likely file for bankruptcy once both deals have been completed.

“It is the expectation of the board of directors of FGC that it will cause FGC to file a petition for a voluntary bankruptcy proceeding solely with respect to FGC under Chapter 11 of the U.S. Bankruptcy Code following the receipt of all requisite approvals of the Regulatory Authorities of the CapitalSource transaction,” Fremont said in its press statement.

An expected bankruptcy marks the end of the road for a bank that has been faced with regulatory pressure since March of last year, when the FDIC first issued a Cease and Desist order that effectively killed the bank’s once-booming subprime mortgage business. In March of this year, the FDIC issued a so-called Supervisory Prompt Corrective Action Directive to Fremont after the bank warned that it faced severe capital shortages.

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

Reiterating a stance he took in the company’s recent earnings call, JPMorgan Chase & Co. (JPM: 46.14, +0.20%) CEO Jamie Dimon told investors Thursday afternoon that the credit crisis is almost over, after nearly a year of rocking the world’s financial markets.

Via MarketWatch:

“I look at it as like (it is) 75-85% done,” CEO Jamie Dimon told mutual fund executives at the Investment Company Institute’s general meeting here.

Dimon said banks are raising capital and hedge funds have been through massive de-leveraging.
The key aspect of this crisis has been housing, Dimon said. And he said right now there are not any Alt-A mortgages being created.

Dimon said he was less certain about the direction of the U.S. economy. “It really bears of watching,” Dimon said. He said the U.S. needs to invest in infrastructure, including transportation, and health care.

Dimon said the same thing in mid-April, when the Wall Street firm reported a 50 percent drop in net income; shortly after announcing earnings, JPMorgan went and raised $6 billion in fresh capital.

It’s the heat of mREIT earnings season — some folks sizzled, while others sagged. We’ve got the rundown for you in today’s column.

Don’t Call It a Comeback
At least not for the mighty Cohen clan, who control three specialty mREITs – Alesco Financial (AFN: 3.94, 0.00%), RAIT Financial (RAS: 9.06, 0.00%), and Resource Capital Corp. (RSO: 9.51, 0.00%). All three companies delivered solid adjusted earnings, meeting or exceeding their recently declared dividends. RAIT in particular shined, beating estimates soundly on the top and bottom lines. Friedman Billings & Ramsey analyst Merrill Ross noted in a research report after the earnings call that the company has proved its 46-cent dividend is viable. Shares of RAIT soared 22 percent on Tuesday, as a result.

These champs, however, still sustained some heavy blows. Struggling NovaStar — once among the subprime mortgage industry’s brightest stars — admitted in a recent 8-K filing with the Securities and Exchange Commission that it couldn’t pay the quarterly interest on a TruPS included in Taberna Preferred Funding I, a RAIT affiliate. NovaStar has until May 30 to make the payment or Taberna might be forced to accelerate the debt, throwing NovaStar into bankruptcy and damaging the Taberna CDO rating even more.

There was more CDO woe for Alesco (AFN: 3.94, 0.00%) as well. Alesco admitted in its earnings release that it has received written notice from the trustee of its Kleros Real Estate III CDO that the controlling class debtholder has submitted a notice of liquidation. If more than one of Alesco’s four Kleros Real Estate CDOs is liquidated, Alesco may have to quickly obtain additional REIT qualifying assets in order to continue to qualify as a REIT.

Steady as She Goes
Commercial originator and investor Capital Trust (CT: 26.65, 0.00%) missed by a penny, reporting $0.82/share net income, versus the $0.83/share analysts had expected. However, CT’s profit was all core earnings, as the company’s policy of holding investments to maturity prevented the need for significant mark-to-market adjustments. CT’s earnings, despite missing estimates, still exceeded the declared dividend by $0.02.

Diversified REIT CapitalSource (CSE: 15.14, 0.00%) beat the Street by a penny, coming in with $0.51/share in adjusted earnings. CapitalSource, who recently acquired Fremont Investment & Loan’s bank branches, thinks a depository strategy will boost net interest income enough to bring earnings back above its $0.60/share dividend run rate. Brokerage firm Ferris Baker Watts disagreed, however, downgrading the stock from a buy to hold after the earnings call.

NorthStar Realty (NRF: 9.97, 0.00%) missed on revenues, but was nonetheless in-line with earnings estimates. The commercial originator and investor posted an adjusted FFO of $0.35/share, just shy of the $0.36/share first-quarter dividend. The company also announced its intention to begin divesting its healthcare net lease portfolio, which has dragged down its return on equity.

Finally, agency investor Anworth Mortgage hit targets of $0.21/share, in-line with the Street. he company was propelled by an accretive capital raise that allowed for a significant portfolio expansion. Additionally, net interest margins widened sharply, largely due to a falling cost of funds. Keefe Bruyette upgraded the stock on Thursday, as a result, and raised the price target to $8.

Blight Appearing at Redwood?
Residential investor Redwood Trust (RWT: 33.40, 0.00%), which remained strong during the last half of 2007, may be starting to slip. Taxable earnings were hurt by $0.41/share in realized credit losses, coming in just $0.79/share, a 53 percent decline from the year-ago quarter. Redwood execs acknowledged that they anticipate actual credit losses to increase substantially in 2008, which could cause taxable income to be less than the regular dividend rate.

Although Redwood intends to maintain its $0.75/share quarterly payout–and has plenty of spillover from 2007 to do so–the company said it is unlikely to pay a special dividend in 2008, preferring to carry over any excess taxable income to support the 2009 dividend. The stock tanked 9 percent on Thursday.

Busted Loans Swamp BRT
A sour result from BRT Realty Trust (BRT: 15.50, 0.00%) rounds out this week’s earnings overview. A rise in nonperforming loans and foreclosures at BRT drove a $5.3 million increase in the loan loss provision, wiping out GAAP earnings. The company acknowledged that “it has been a very challenging time for us [this quarter].”

Expect to see concern rise further about the viability of the $0.62/share dividend in the face of mounting losses.

Earnings season comes to a close next week with reports from Crystal River Capital (CRZ: 9.01, 0.00%), JRT Investors Trust (JRT: 8.03, 0.00%), and Newcastle Investment Trust (NCT: 10.01, 0.00%) headlining the action. Stay tuned.

Editor’s note: Patrick Harden is a Certified Public Accountant with three years of experience in auditing publicly-traded real estate investment trusts. For the past two years, he has been involved in the mortgage finance industry as a member of the financial reporting group at a publicly-traded mortgage bank. His column covering mortgage REITs runs every Friday.

Disclosure: The author was long shares of RAS and NRF at the time of this writing.

If you or someone you know has received letters from their lender threatening foreclosure, there are alternatives that could stop foreclosure.  Depending on your financial condition and equity position, there are options available based on your personal situation.  You should always consult with a Realtor, Lender, Attorney and Accountant.  I am a licensed realtor in Colorado and practice in the Fort Collins, Loveland, Windsor, Wellington, Greeley and neighboring towns.  But I am NOT an attorney so I am not providing advice, only possible options but your situation is unique so you need to consult your mortgage company and an attorney.

These 3 options are if you have positive equity in your home.

A) If your monthly income exceeds your monthly expenses with some savings.

• Refinance
• Sale

B) If you are meeting your monthly expenses with little or no savings or assets.

• Refinance
• Sale
• Restructure (Work with lender to keep loan in place under new repayment terms)

C) If your monthly expenses exceed your monthly income with no savings or assets.

• Refinance
• Sale
• Bankruptcy (Consult an attorney)

These 3 options are if your home's value equals the amount owed in loans - No equity.

D) If your monthly income exceeds your monthly expenses with some savings.

• Refinance
• Sale
• Restructure (Work with lender to keep loan in place under new repayment terms)

E) If you are meeting your monthly expenses with little or no savings or assets.

• Short sale (Negotiate with foreclosing lender to take less than owed through sale of house)
• Sale
• Refinance
• Restructure (Work with lender to keep loan in place under new repayment terms)
• Bankruptcy (Consult an attorney)
• Deed in Lieu (Deed property back to foreclosing lender if all junior liens release)

F) If your monthly expenses exceed your monthly income with no savings or assets.

• Short sale
• Deed in Lieu (Deed property back to foreclosing lender if all junior liens release)
• Restructure (Work with lender to keep loan in place under new repayment terms)
• Bankruptcy (Consult an attorney)

These 3 options are if your home's value is less than the amount owed in loans - Negative equity.

G) If your monthly income exceeds your monthly expenses with some savings.

• Refinance
• Sale
• Restructure (Work with lender to keep loan in place under new repayment terms)

H) If you are meeting your monthly expenses with little or no savings or assets.

• Short sale (Negotiate with foreclosing lender to take less than owed through sale of house)
• Restructure (Work with lender to keep loan in place under new repayment terms)
• Bankruptcy (Consult an attorney)
• Deed in Lieu (Deed property back to foreclosing lender if all junior liens release)

I) If your monthly expenses exceed your monthly income with no savings or assets.

• Short sale
• Deed in Lieu (Deed property back to foreclosing lender if all junior liens release)
• Bankruptcy (Consult an attorney)

Those are some various options available depending on your unique financial situation.  If you live in the Fort Collins, Loveland, Windsor areas of Northern Colorado then I would be happy to talk with you further about your personal options.  I highly recommend contacting your mortgage company as soon as you think you might be heading towards trouble.  It is never too early to call them but you can be too late.

Email me your questions: Mike@MikeMalvey.com or visit www.SearchFortCollinsMLS.com for my website.