Refinance Free Credit

It turns out that a key branch location of an FHA lender recognized as a prominent “non-imploded” lender at the well-known Mortgage Lender Implode-o-Meter is being sanctioned by HUD for excessive borrower defaults on loans it originated.

According to a notice published in the Federal Register on May 13, Englewood, Colorado-based Assurity Financial Services LLC — a fast-growing FHA lender — saw its authorization to originate further FHA loans suspended for at least six months at the end of March.

Under federal regulations, HUD terminates a lender’s FHA origination approval agreement when it observes a default and claim rate for FHA loans endorsed within the preceding 24 months that exceeds 200 percent of the default and claim rate within the geographic area served by a HUD field office, and also exceeds the national default and claim rate.

It’s unclear how HUD’s sanctions have impacted the firm — if at all — which has numerous regional offices; the termination notice only lists the firm’s Englewood, CO office as party to the termination, and HUD’s enforcement actions limit termination actions to the particular HUD field region in question only. That being said, the Colorado office appears to be Assurity’s corporate headquarters, from a review of available information on the Web.

Assurity is currently “graded” an A on the Implode-o-Meter Web site, and displayed prominently on the home page. A review of the Implode-o-Meter’s procedures for listing “non-imploded lenders” suggests that the decision to list a lender in its “top non-imploded” section lies solely with Web site staff:

Your company will be placed under the requested Top or Featured Lender Section in a position at our discretion. You may use your inclusion on the Non-Imploded list in any sales or marketing materials as long as your company remains on this list. However, you may not claim that your presence on this list is an endorsement by the Mortgage Lender Implode-O-Meter of your company.

While the firm accepts payments for lenders to be included on its “non-imploded list” via a partnership with an online broker-based trade publication, it appears that inclusion in the “top non-imploded list” on the main page is not a paid program.

It’s not clear what the criteria for inclusion on the “top non-imploded” lender list are from a review of an online questionnaire used to start the process; the form notes that Implode-o-Meter staff conduct a telephone interview with prospective firms to determine if a lender is worthy of inclusion on its list.

Implode-o-Meter founder Aaron Krowne said that his firm was “watching Assurity closely,” but that no action to change the firm’s “grade” with the site was immediately forthcoming.

Which is all sort of sort of strange, when you think about it — the Implode-o-Meter, grading lenders on their ability to not implode? And doing so while the major credit rating agencies — common targets of ire on the Implode-o-Meter — are getting set to officially rate lenders using transparent criteria, no less. (There’s irony in there somewhere, I just know it.)

FHA lenders were first to light up the boards with so-called “jumbo light” securities earlier this year, contributing to three Ginnie Mae pools for April settlement amounting to $17.2 million.

Since then, however, Fannie Mae (FNM: 25.71, -6.81%) and Freddie Mac (FRE: 23.96, -5.26%) have have breathed at least some life into conventional lenders’ conforming jumbo efforts, with $301.4 million for May and June-to-date delivery — but they found themselves topped yet again by Ginnie’s $331.1 million in May alone, according to statistics provided by eMBS Inc., a provider of internet-based access to mortgage data and analytics.

Between the GSEs, Freddie has been the larger producer in the jumbo-conforming space, with $223.2 million booked in May, and and another $63.5 million recorded thus far in June.

In contrast, Fannie issued a only handful of pools for May amounting to a paltry $23.7 million. That low total should be offset to some degree, however, by increasing purchases for its own retained portfolio — Fannie announced last month that it would “eat” the so-called g-fee on eligible loans purchased for its portfolio in an effort to jump start the market.

But for Fannie, a more pertinent obstacle to the growth of its jumbo-conforming efforts might be the fact that all such loans must be manually underwritten, a limitation not shared by sister GSE Freddie Mac. According a May seller announcement, a future release of Fannie’s Desktop Underwriter platform will include jumbo-conforming loan limits, eligibility, and underwriting guidelines — but until that release is reality, the truth is that Fannie isn’t playing cards with a full deck.

Freddie’s automated underwriting system, Loan Prospector, has accepted conforming jumbos from inception of its program. In addition, Freddie has opened the bulk transaction path to experienced sellers with existing portfolios of eligible jumbos; so far, Fannie Mae has only indicated that it will consider bulk purchases.

It’s worth nothing that the lead now being taken by FHA mortgage bankers in originating jumbos doesn’t necessarily indicate greater efficiencies in the FHA lending process, or better acceptance in MBS markets. Indeed, the need to modernize and de-bureaucratize the FHA loan process is well-known by most market participants.

Instead, the resurgence of FHA insured lending most certainly reflects the degree to which subprime lending supported (and drove) higher-priced housing.

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

Barry Ritholtz should catch some hell for taking less than three days to be proven VERY wrong on his price of oil prediction. On June 3, he wrote the following, thanks to an Economist cover on oil prices:

For those of us who believe in such things as contrary indicators, this suggests a short term top in Oil to me. I would bet we don’t see new highs in Oil for the next 6 months, and perhaps even 12 months.

Today, oil almost hit $140 per barrel. A new record. Less than three days after Ritholtz’ prediction. (Is that some sort of record for how quickly an economist has been proven wrong?)

Standard & Poor’s Ratings Services decided this week to reignite mortgage market worries surrounding monoline bond insurers, downgrading two AAA behemoths in MBIA Inc. (MBI: 5.44, -9.93%) and Ambac Financial Corp. (ABK: 2.35, -10.31%). But fresh assumptions regarding just how bad the mortgage mess really is led the agency to knock the core ratings of CIFG Guaranty and Security Capital Assurance Ltd. (SCA: 0.67, -5.63%) further down the ratings ladder on Friday — and it warned it may soon do the same to Financial Guaranty Insurance Company, as well.

In other words, if you thought the mortgage mess was nearing an end, it’s probably time to think again.

Take SCA, for example; S&P downgraded both of the firm’s monolines, XL Capital Assurance and XL Financial Assurance, to a BBB- rating on Friday — that’s a junk rating, for the record — from a previous rating at the A- level.

The agency said that its assessment of the firms’ collective 2005-2007 vintage RMBS exposure had increased beyond what it estimated less than four months ago; that’s a pretty short window to see best-laid assumptions head further south. As a result, SCA’s monoline franchises are suddenly short $500 million needed just to maintain an investment grade rating, S&P said in its press statement.

Like Security Capital, CIFG also saw its ratings cut, but more modestly; S&P cut the insurer’s rating from A+ to A-, it said in a press statement on Friday. “The downgrade reflects our view that CIFG has lagged the industry in par volume in recent years and has generally failed to develop a strong franchise,” the agency said.

FGIC was also put on the chopping block Friday, with S&P citing “concern regarding the magnitude of projected RMBS and related CDO losses when compared with claims-paying resources.” The agency put the monoline on credit watch negative and said that the company’s plan to create a good-insurer/bad-insurer, splitting up its municipal and structured finance businesses, would likely disadvantage RMBS and CDO policyholders.

Swift losses, new models, fresh downgrades — and more trouble
Obviously, for CDO and RMBS holders, further downgrades can mean further losses on affected securities — especially for those whose securities are backed by the two latest AAA-rated franchises to fall, MBIA and Ambac.

But the pace at which the agencies are being forced to update their models underscores just how swiftly losses have been mounting in the still-troubled mortgage market. It’s also a source of wear-out and frustration for nearly every bond insurer as well — many of whom have argued that losses will take years to materialize.

“Our frustration stems, in part, from the ever-changing criteria for AAA financial strength ratings,” Ambac said in a press statement late Thursday. “Less than three months ago, S&P affirmed our AAA rating and removed Ambac from Credit Watch Negative, citing our successful capital raise and moratorium on new structured finance business production.”

It’s worth noting that Fitch Ratings began slashing its ratings on the insurers months ago, and received nothing but grief from insurers; many wondered aloud why Fitch would cut their ratings and other agencies did not. It now appears that, if anything, Fitch’s conservative criteria may have also been the most accurate.

Part of the problem is that the underlying collateral — residential home mortgages — are going bad at an increasingly faster rate, as the economy weakens further. Data released this week from the Mortgage Banker’s Association, for example, found foreclosure activity at its highest level since 1979, the first year that foreclosure data is available.

Worse yet, as HW was first to report Thursday, the pace of borrower defaults appears to now be shifting in favor of prime borrowers after more than a year of ravaging those with less-than-perfect credit.

When this mess first started, more than a few sources told HW that at least four monolines would be put out of business by this mess; one source called it a “long, slow race to a bottom that many firms won’t survive long enough to see.”

And while it remains to be seen whether or not any monolines will fail — or at least head into run-off — one thing seems very clear: that mortgage mess we’ve been hearing about for the past year or so isn’t going anywhere. Not yet.

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

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