Refinance Free Credit

When does a ‘rescue’ become a ‘bailout’?  I think we’re about to find out.

From Market Watch on the Congressional Housing Rescue bill:

A key House Democrat said that it is now almost certain that Congress will be able to craft a significant housing rescue package after Senate Republicans and Democrats were able to reach a bipartisan compromise. “[I]t is highly likely we will be able to compromise on a significant housing package,” Frank said in a statement after the Senate Banking panel approved the Senate version of the bill. “There are of course some differences between the two bills and we will need to work on these differences, but I look forward to continued cooperation between members of the House and Senate to achieve a mutually agreed housing package sometime next month,” Frank said.

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It’s time the market drew a bright line between the roles of mortgage bankers and mortgage brokers, according to a policy paper released Tuesday by the Mortgage Bankers Association; in it, the banker’s group said more clarity is needed around the roles and responsibilities of mortgage bankers and mortgage brokers.

“Mortgage bankers and brokers are both central players in the effort to provide the opportunity of homeownership to millions of Americans,” said David G. Kittle, CMB, MBA’s Chairman-elect. “Bankers and brokers, however, serve different functions in the mortgage process that demand different regulatory oversight.”

The MBA paper essentially suggests that any legislation of a fiduciary relationship tied to borrowers should extend only to brokers and not to bankers, because brokers are an intermediary working with bankers on borrowers’ behalf; it also suggests that fee-level disclosures and limits on some forms of broker compensation, including yield spread premiums, need not apply to bankers’ own origination activities, because bankers are subject to greater supervision and regulation than brokers.

“Because broker compensation is directly tied to a loan’s interest rate and brokers lack an ongoing
financial stake in loan performance, brokers have a high incentive to get loans closed, maximize fees for origination, and move on to their next transaction,” the report states.

“[M]ortgage bankers have a greater interest in ensuring that borrowers choose products that will give them long-term financial success.”

The MBA’s desire to separate the mortgage banking function from that of brokers comes as legislators at both the state and Federal levels are looking to clamp down on lax oversight of mortgage brokers; the policy paper clearly attempts to segment bankers out as distinct from the broker crowd. According to the paper, efforts to reform the origination process need to take the distinct differences between mortgage brokers and bankers into account.

“As Congress and state and federal regulators look at reforming how mortgages are originated, we want to make sure they understand how bankers and brokers differ and how new regulations ought to reflect those differences,” Kittle said.

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

Houston-based Franklin Bank Corp. — notable because its chairman happens to be Lewis Ranieri, one of the pioneers of the early mortgage-backed securities market — said late Monday that an independent audit found numerous accounting errors at the bank tied loan modifications and foreclosures.

In particular, the audit found that Fanklin did not properly account for certain single family mortgage loan modification programs developed and implemented as part of an effort to reduce delinquencies and mitigate foreclosure losses — a finding that, on the surface, looks similar to a January audit at Downey Financial (DSL: 8.61, -5.80%) that changed how the firm accounted for “troubled debt restructurings.”

Other accounting errors included a failure to charge off second liens, a lack of recording of foreclosure and REO activity in its single-family mortgage portfolio, and improper mark-to-market activity on loans transferred into the bank’s investment portfolio. All are large errors that are likely to at least force the Houston bank to take significant losses when it restates its financial results.

“Franklin’s Board of Directors fully accepts the findings of the independent review,” said Lewis Ranieri, Chairman of the Board of Franklin Bank Corp. “Completion of the investigation is an important milestone for all shareholders as we take the necessary steps to implement the recommendations of the Audit Committee.”

SEC investigation
In addition to investigations by the Federal Deposit Insurance Corp. and the Texas Department of Savings and Mortgage Lending, the company said that the Securities and Exchange Commission had also opened up a new “informal inquiry” into the accounting errors at the firm.

The challenges clearly weren’t what investors, or Ranieri, had envisioned when Franklin first burst onto the scene six years ago. Investors were giddy at the prospects of investing in a bank run by the so-called “godfather of the secondary mortgage market.” Ranieri now serves as temporary CEO, in addition to his chairman duties, as the company said that Anthony J. Nocella, Franklin’s most recent CEO, accelerate his personal plans to retire last month.

“The SEC’s inquiry is ongoing, and there can be no assurance that there will not be additional issues or matters arising from that inquiry,” the company’s press statement said.

Bloomberg covered the bank’s exposure to credit risk:

Franklin said in January it had ample liquidity with more than $1 billion in available funds. By the end of March, Franklin reported $356 million of loans for which it wasn’t receiving interest, up 56 percent from three months earlier. The bank’s allowance for losses was just $63 million.

“It would appear that they are under-reserved,” said Brian Klock, an analyst at KBW Inc. in an e-mail yesterday.

As REO inventory piles up nationwide, more and more servicers are turning to auctions as a disposition method despite the higher loss severity usually associated with the process, Fitch Ratings said in a report released late Monday. By the end of 2007, 60 percent of the nation’s servicers had used auctions to liquidate REO holdings, underscoring the widespread acceptance the model has gained among the servicing and default industry.

Despite widespread usage, usage ranged from as little as 1 percent of inventory to 44 percent of REO inventory, based on Fitch’s survey of servicing operations, and often varied based on geographic location.

Fitch noted that servicers tended to utilize auctions in areas where loss severities are highest, which in part explains why properties sold via traditional means averaged loss severity of 40 percent relative to unpaid principal balance, while auctioned properties registered 56 percent in loss severity.

From the report:

For certain properties such as those located in distressed geographical areas, that are vacant and exposed to higher instances of vandalism, in poor condition and/ or facing huge repair expenses, or are located in areas already saturated with REO properties, traditional REO liquidation methods may significantly increase holding times and repairs, as well as require multiple price reductions. Therefore, taking an up-front loss through an auction, although appearing larger, may indeed be better than incurring an ultimately greater loss through a prolonged REO liquidation effort.

As widespread as auctions now are in the REO marketplace, servicers suggested to Fitch that the use of auctions is likely to increase even further in the months ahead as inventories continue to swell. Of the 40 percent of services not using auctions, nearly all indicated that they would be exploring the option in the near future.

The REO auction marketplace is a hotly-contested and, ostensibly, relatively profitable business. Heavyweights including Williams and Williams and Hudson & Marshall have been aggressively pushing the auction model as an alternative disposition strategy for servicers and investors.

The rating agency said in its report that it expects “servicers to establish a process to identify properties for auction, thereby using auctions as a specific and controlled exit strategy and not simply as a means to lower REO inventories, manage staffing levels, or reduce servicing costs.”

The remarks represent the first best practices guidance from a rating agency on the use of auctions in REO management; servicer ratings provided by agencies such as Fitch are a critical part of the secondary market, because higher-rated servicers can effectively reduce the overcollaterization requirements needed to structure a specific deal.

Sources told Housing Wire Tuesday that Fitch’s recommendations could possibly put some servicers into a tougher position than others, given that some servicers have moved towards a strong reliance on auction-based disposition. Fitch’s apparent view that auctions need to remain one of — but not the only — disposition strategy put into place would seem to contradict such as approach, a servicing manager that spoke with HW suggested.

“It really depends on how their view of best practices in REO auctions flows into rating methods,” said the source.

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

If you’re falling behind on your mortgage payments and are concerned about losing your home, your first step in avoiding foreclosure is to learn how the process works. State laws regarding foreclosure vary widely; however, the rules in “Deed of Trust” States give your lender two options when foreclosing ...

In clarification that market participants said will further embolden servicers to modify mortgages that are likely headed for trouble, the Internal Revenue Service on Monday outlined the tax effects on securitized mortgages that have been modified to avoid foreclosures. Under Revenue Procedure 2008-28, the IRS said that it will not challenge the tax status of securitization vehicles when a servicer modifies a loan — even a performing loan — so long as the modification fits within the new scope outlined by the government agency.

The guidance comes as welcome news for servicers and investors in their attempts to implement foreclosure prevention programs for most subprime mortgages; the vast majority of subprime mortgages are securitized, and the implications of loan modifications prior to default a germane issue for the so-called REMIC election.

Many servicers have been looking to work with borrowers proactively, ahead of potential default activity, but have been unsure about whether doing so might jeopardize the favored tax status of a particular securitization trust.

The reason is tied to IRS rules regarding the favorable tax treatment of REMICs, which mandate not only a static pool requirement but a “passive management” requirement that has served to essentially limits servicers’ ability to modify loans to only those situations where a default is deemed imminent — in other words, to those situations where borrowers have already become delinquent on their payments.

In the past, industry consensus was that getting more aggressive with loan modification — such as modifying performing loans likely to default before they became delinquent — would likely have been seen as “active management” of the underlying pool, jeopardizing the favored tax status of the REMIC.

And that is what makes the IRS guidance released Monday so important, at least from a servicers’ perspective. The IRS said it will now allow servicers to freely modify performing loans when “the holder or servicer reasonably believes that there is a significant risk of foreclosure of the original loan,” a sea-change from earlier industry practice.

This new freedom, however, does come with some restrictions: modifications of performing loans must put the holder in a “less favorable” position, and may only be done when less than 10 percent of initial pool aggregate balance is already delinquent.

Servicers must reasonably believe that the modification will result in a “substantially reduced risk of foreclosure,” as well, the IRS said.

The guidance from the IRS dovetails with January clarification from the Securities and Exchange Commission that suggested fast-tracking loan modifications would not jeopardize the so-called QSPE election, which allows the off-balance sheet treatment of REMICs and other securitization trusts.

There are people out there who are just annoyed by their mortgage. You know who I’m talking about because you have probably come in contact with them before. These people want to take care of their mortgage so much that it almost drives them insane. Well, we are here to tell you that your mortgage should not be something that causes a massive burden on you. Of course you need to pay this off, but you can do it in a way that really benefits you. The following are some reasons that your mortgage should not be a burden on you. This is a big decision that you should only make when you are ready. Your mortgage is so important to handle right.

You Can Stretch it Out

A good part about a mortgage is that you can stretch it out. You will get the option of a 15 year or 30 year mortgage, and sometimes the lender will let you go 20 years. If you take a 30 year mortgage then you are really cutting down on the amount that the payments are. Taking a 15 year mortgage might sound nice because it is done faster, but you will also have to pay more during this time period. That is when the mortgage can become a burden because it might get in the way of other financial obligations. Stretching out your mortgage can really take some of the financial burden away, and it is something you should look into doing.

Your House Can Help You Build Wealth

Another reason why your mortgage should not be a large burden is because your home helps you build wealth. First, hopefully you are building up equity within the home. This equity can be used to help you gain money for projects that you want to finish up. Another good thing is that your house will rise in value. If your house rises in value then you are making money. If you ever get in a tight financial crunch, then you will be able to sell your home for more cash and get out of some debt. You are paying a mortgage, but this mortgage is helping you build some wealth, so in the end it really becomes an even trade. Most people do not realize this.

In the End: Look Out for Your Needs

You need to take steps to make sure that your mortgage does not become a burden. This is why you need to research your mortgage and make sure you are getting the best deal you can afford before you sign on the dotted line. Your needs are so important during this process. You do not need a mortgage, what you need is a mortgage that pays off for you. This is why it is alright if you take some time and really get to know what you are getting into. Do not let the mortgage company rush you into any decision. Make sure you look out for your needs.

Additional Resources:

• House OKs Housing Rescue Despite Veto Threat
• Bush Threatens Housing Aid Veto

financial burden, financial obligations, mortgage burden, Mortgage Planning, mortgage reasons, mortgage research

So much for containment?  What a cute little pipe dream theory that was.  The credit crunch has clearly moved from subprime, to all of residential and is now sinking it’s teeth in to commercial real estate. While year-over-year price gains are barely up the property prices are all off their peaks from 2007 and we expect that the credit and liquidity issues that have put the hurt on residential real estate will begin to manifest themselves more acutely in the commercial markets as well.  

Of course the bubble areas identified by big residential runups such as California and Nevada are seeing the biggest declines in commercial real estate prices as well.

The latest report from Moody’s highlights the 2.3% drop in the Commercial Property Price Index which is the biggest one-month decline since the index’s inception. All commercial product types tracked were down off their 2007 highs.

The graph below shows the CPPI leveling off with the beginnings of a slight downward trend.  

From the Research Recap blog on the price decline in the commercial market:

Quarterly data on of the index’s four property types show all products off their peak prices for 2007. Retail is off the most, down -5.7, while apartments are down -3.4%. Offices, down -2.0%, and industrial, down -2.3, show the least decline.

The West had the dubious distinction of being home to the worst performing asset in the report - offices in the region - where prices dropped by 5.1% from the previous quarter, much steeper than the decline in the national office sector (-1.2%) or in the Top Ten cities (-0.6%).

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Running a global structured credit operation these days is tough work. Just ask Matt Zola, who resigned today as global head of structured credit at Morgan Stanley (MS: 44.79, -3.05%), according to a report by Bloomberg News on Tuesday morning.

Zola left for unidentified personal reasons, and will be replaced by New York-based Brian Neer, according to a Morgan Stanley representative. Neer was previously a managing director at the firm, and head of Asia and North America structured credit products.

Zola had been at Morgan Stanley for some time, and was named to the global post in January, Bloomberg reported.

Morgan Stanley earned $1.55 billion during the recently-completed first quarter, led by record revenues in equity sales and trading. Earnings came despite total write-downs for the quarter of $2.3 billion, including $1.2 billion in net MBS and related securities write-downs and another $1.1 billion in mark-to-market activity on loans.

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

After hammering out a bipartisan agreement yesterday, The U.S. Senate Banking Committee voted in a 19 to 2 landslide to approve a housing relief package that would expand the government’s role in helping troubled homeowners, and provide a new regulator for Fannie Mae (FNM: 27.81, -3.94%) and Freddie Mac (FRE: 26.51, -1.85%).

The sweeping bipartisan approval of the Senate proposal comes as a victory for Committee chairman Senator Chris Dodd (D-CT), who had worked incessantly with Senator Richard Shelby (R-AL), the ranking Republican on the banking committee, to hammer out an agreement over the proposal. The bill now heads to the full Senate for consideration; Dodd has said he expects to have a bill in front of President Bush to sign by July 4.

Beyond GSE reform — a long-stalled measure in Congress, which Democrats included in the housing package in part to win Republican support for a proposed expansion of FHA lending — the Senate version of the housing relief package would backstop a $300 billion expansion of the Federal Housing Administration’s mortgage insurance program with allocations from a GSE-sponsored affordable housing fund.

Initial Republican resistance to the proposal had stemmed from its expected multi-million dollar direct cost to U.S. tax payers, which President Bush said constituted a bail-out of irresponsible lenders and borrowers. Sources on Capitol Hill told Housing Wire Monday that the Senate agreement was implicitly approved by the Bush administration, signaling a potential softening of the President’s stance to the measure.

The President had originally issued a veto threat last week to a similar measure pushed through the House by Financial Services Committee Chairman Barney Frank (D-MA).

The entire affordable housing fund would be allocated to the FHA rescue program in 2009, under the bipartisan Senate plan, scaling down in subsequent years through 2012. Under the proposal included in both the House and Senate bills, the GSEs would required to set aside 4.2 basis points per dollar of unpaid principal balance on new loans purchased for the fund.

Any leftover dollars not used by the FHA would be allocated for the housing fund’s original purpose, under the terms of the Senate proposal.

Fight on affordable housing “brewing”
While the Senate compromise represents a landmark bipartisan agreement, Barney Frank suggested Monday evening that he opposed the use of affordable housing funds as a backstop for the FHA expansion measure.

“A fight is brewing on the affordable housing trust fund,” the Massachusetts Democrat said in a speech, Reuters reported.

The Massachusetts Senator, who has threatened servicers with tougher legislation if they fail to refinance borrowers into FHA-backed loans, made it clear in remarks Monday that the agreement between Dodd and Shelby didn’t extend to House Democrats.

The use of affordable housing funds to pay for FHA expansion “would be one of the most contentious issues between us … so we will deal with that,” he is quoted as saying.

Assuming Dodd’s proposal clears the Senate this week, members of the House and Senate would need to hammer out a compromise bill before sending it to President Bush for consideration. Frank suggested that despite his strong feelings on protecting affordable housing funds, he expected a package would be sent “soon” to the White House.

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