Rising rates? Not too late to refi

Some see the end of low interest rates. Here's what you need to know to get the best deal on a mortgage refinance.

NEW YORK (CNNMoney.com) -- Interest rates on 30 year mortgages are above 6% - their highest levels since March. Is the end of low interest rates on the horizon? Here are some top tips on what you need to know if you want to refinance.

As trouble in the nation’s housing markets has roiled onward, state legislators have been moving in varied attempts to address a burgeoning crisis affecting key constituents — and with varied success, as well.

In hard-hit California, whose key housing markets are reeling from the mortgage meltdown, state legislators are set to consider no less than ten different bills tied to the housing mess. The bills are in varying states of modification and debate, with consumer groups charging that bankers are watering down the measures, and bankers in turn charging that existing proposals need to be modified to keep lending activity thriving in the state.

State Assemblymember Ted Lieu, a Democrat, has been particularly active in the housing reform push — a review of current bills under consideration in Sacramento show that the majority are sponsored by the chairman of the state Assembly’s Banking and Finance Committee.

One of the key bills jointly proposed by Lieu — AB 1830, the Subprime Lending Reform Act — has been hotly contested by members of the California Mortgage Bankers Association. Housing Wire first broke coverage of the proposed bill in January, which had sought broad reform for lending standards in the state, outlawing negative amortization mortgages and stated income lending, while heavily restricting brokers’ ability to earn yield spread premium.

The measure has since been scaled back to apply only to subprime loans, after protests from banking industry representatives. Other measures have faced similar heat as well, as the Los Angeles Times recently covered in depth.

Depending on your perspective, the changes to various housing proposals are either a good thing or a bad thing — but it’s clear that, regardless of personal perspective, pushing industry regulation through at the state level in California has been a challenge thus far.

Pushing costs sky-high for investors
Outside of California, other measures have seen more success — albeit often at the lender’s and servicer’s expense. The result is that foreclosures, already costly for servicers, are becoming even more costly.

In Philadelphia, HW broke the story of an attempted long-term moratorium on foreclosure activity by the sheriff and City Council members; that effort included an attempt by consumer groups to wrest responsibility for the loss mitigation decision-making process form investors and servicers. That attempt led t oa new city-wide program that requires houses put up for sheriff’s sale to be referred to city officials who would work with lenders with the aim of restructuring the loan so the borrower can stay in the property. Local tax dollars fund the operation.

Getting there meant holding up more than 1,200 foreclosure sales — something that investors have been less than pleased with, according to those that spoke with Housing Wire.

“Cities and state governments are playing with the foreclosure process because they know they can kick it around,” said one hedge fund manager, who asked not to be named. “It’s a risk that we price in on any acquisitions we’re doing at this point.”

Other programs adding to risk for mortgage bankers include a proposal now being considered in New Jersey that would create a fund for mortgage counseling and emergency loans to troubled homeowners by forcing banks to pay the state a $2,000 fee each time it conducts a foreclosure sale. The proposed measures were first reported Tuesday by the Courier Post.

And in Massachusetts, a new law effective on May 1 provides an additional 90 “cooling off period” on foreclosure activity within the state.

The result, according to a story appearing in the Boston Herald on Tuesday morning, is that the number of foreclosures initiated fell to just 390 in the Bay State last month — an 88 percent drop from one month earlier. It’s the first time lenders initiated less than 1,000 foreclosures since January 2006, meaning that legislation has now forced foreclosures below even the levels observed during the housing boom.

“You’re dragging out what’s already a very long process - and the end result is probably going to be foreclosure anyway,” Kevin Cuff of the Massachusetts Mortgage Bankers Association is quoted as saying.

The Associated Press reported Tuesday that North Carolina state Senator Julia Boseman is involved in the foreclosure of a home she once owned with her domestic partner:

Sen. Julia Boseman and Melissa Jarrell have failed to pay the $7,156 monthly payments since last August, according to evidence at a court hearing last week. The home is now scheduled to be auctioned June 25 at the county courthouse, the Star-News of Wilmington reported.

County tax records show $4,700 in taxes are also owed on the property. Jarrell now lives in the house, where they raised a son before separating.

While Boseman transferred title in April to Jarrell, that doesn’t explain why she failed to make mortgage payments before so doing. The good Senator, of course, is saying that it’s a non-issue at this point for her since her name is no longer on the title to the property.

Add another name to the list.

Foreclosures are mainstream now — but have they become too mainstream?

Evidence into the docket Tuesday comes courtesy of discount retailer Overstock.com, which put out a press released touting it’s new foreclosure search engine. We’re not making this up.

Some useless chest-thumping from the press statement is always good for comedic value:

“Consistent with Overstock.com’s relentless commitment to deliver high value to customers, Overstock.com Real Estate is helping customers efficiently browse millions of properties to find deals in their area of interest,” said Patrick Byrne, Overstock.com chairman and chief executive officer. “Our site gives Overstock.com customers information from real estate auctioneers and brokers with direct access and local expertise. This allows us to offer just what our customers have come to expect: great value and wonderful service.”

Look, we’re not slamming Overstock — we use their site all the time to buy watches, sunglasses, and other items. But real estate? What’s next, a discount stock broker called O-Trade?

We’re not always contrarians here at HW, but some recent buzz surrounding yesterday’s pending home sales report from the NAR has caught the eye of a few industry types that we know. In particular, the Calculated Risk blog weighs in with a suggesting that home sales are in much bigger trouble than Monday’s surprisingly good reading might otherwise suggest.

The blog’s eponymous author takes issue with the suggestion that housing markets are stabilizing, and says that a huge surge in REO within key housing markets is skewing the NAR data:

This surge in REO sales suggests that when the Case-Shiller prices are released for May and June, well, look out below for prices in these low end neighborhoods. That is what “aggressive” pricing means!

But what about the market “leveling out” or “stabilizing”? This depends on how you view sales. If we looked at existing home sales ex-REOs, we’d see that sales are still collapsing. And based on the recent MBA data, there is a flood of foreclosures coming. So maybe it will appear that sales are leveling out as the market is taken over by foreclosure sales, but that just puts more pressure on prices.

In other words, foreclosures sales taking off will likely put pricing pressure on non-foreclosure property sales. There is evidence for this theory — Housing Wire was among the only media outlets to parse a recent report from Radar Logic that found clear evidence of a pricing split between “distressed asset sales” and everything else.

Los Angeles, for example, saw motivated/distressed sales make up a whopping 29.2 percent of the local market in March, Radar Logic reported — worth noting, since the price per square foot of motivated sales transactions has declined 11 percent since the start of 2008, while non-motivated sellers have seen prices drop just 1.8 percent in comparison.

In other words, there is alot of REO out there, and much of it is aggressively priced relative to the rest of the housing stock; this stock moving will boost pending sales numbers, but it will also pressure prices on the rest of the housing market as well.

With that in mind, the conclusion at Calculated Risk seems to make sense to us:

So the two key points from the Pending Home sales report are that prices are probably falling quickly, especially in the low end areas, and that sales are being propped up as REO sales start to dominate that existing home market. Neither point is good news for housing.

Let’s face it: being a originator means having a different mind set. Especially in times like these, where the number of troubled borrowers is on the rise, underwriting guidelines are ever tightening, and origination volumes are on the wane. While some firms have folded, those with a strong FHA focus seem to have been pushing hard for growth in an effort to gain share in a side of the market that now matters. Others have been rushing in to fill a void in wholesale lending, as well.

Two such originators touted their growth plans on Tuesday as part of an effort use the downturn as a chance to steal market share, but also in part to suggest that not all lenders are struggling.

Massachusetts-based Mortgage Network, Inc., which bills itself as “the largest independent mortgage company in the Northeast,” said Tuesday morning that it had hired a new manager for its national wholesale lending business and that it would look to expand its wholesale operations in North Carolina, South Carolina, Tennessee, Georgia and Alabama, as a result.

If there’s anything in common among independent lenders still in the origination business, it’s that nearly every one of them touts a conservative business management philosophy as the reason they’re still standing.

“Over the past twenty years our founders carefully managed and grew key areas of the company, resisting high growth speculative opportunities while maintaining high quality services and standards,” said Brian Koss, executive vice president at Mortgage Network. “The result is a company that is profitable, growing and attracting the most respected and experienced professionals in the business.”

Growth at Mortgage Network isn’t a mirage, either: the company has opened 8 new offices and increased its staff by over 33 percent in that past year, it said. It also booked record loan volume during the first quarter of 2008 — up 93 percent from year ago levels, and topping $2 billion in total production.

Columbus, Ohio-based Residential Finance Corporation — not to be confused with the much-better known Residential Funding Corp. afflicted with Residential Capital, LLC — also said Tuesday that it’s growing and plans to hire between 75 and 100 people in the third quarter. The majority of job openings will fill mortgage banking positions in the company’s Columbus, OH headquarters and Tampa, FL location, the company said in a press statement.

The firm touted a training partnership with well-known origination coach Dale Vermillion as a key reason it has been able to weather the storm.

“What sets us apart and helps drive our growth in today’s market is our continual investment in technology, training and marketing,” said company president Michael Isaacs. “We provide these critical resources for new employees to help them succeed immediately.”

To be fair, if there was a company that collected a dime every time an independent lender said that their people were better trained and had better marketing support, that company would probably be making a pretty good profit.

But the company’s plans to ramp up staffing suggest that for Residential Funding, there may be more than hot air behind its claims — and that could be a good sign for the originators determined to stick out the current down cycle.

National City Corp. (NCC: 4.79, +7.16%) CEO peter Raskind went on the offensive Tuesday morning, confirming recent reports that the Ohio-based bank had been subject to sanctions by regulators, but suggesting that agreements with both the Office of the Comptroller of the Currency and the Federal Reserve Bank of Cleveland meant little to the bank’s overall operation.

“Generally, the relationship between a bank and its regulators is characterized by confidentiality,” Raskind said in a press statement. “Unfortunately, however, someone has breached the confidential relationship between National City and our regulators.”

Raskind said that the so-called memoradums of understanding between National City and regulators span “capital management, risk management, asset quality and liquidity management which have already been publicly disclosed and discussed, including in our most recent 10-Q filing,” and said that the agreement with regulators had “no material impact on our ability to serve our customers.”

Shares of National City were up $.35, or 7.72 percent, to $4.82 when this story was published.

In April, National City raised roughly $7 billion in fresh capital in an effort to shore up its balance sheet amid rising mortgage-led losses. Mortgage banking contributed a full $.47 per share loss to the bank’s quarterly performance during the first quarter — an amount nearly double the $.27 per share consolidated loss reported for Q1.

National City set aside $1.4 billion in the first quarter to cover expected losses on its loans, as nonperforming assets jumped to $2.27 billion — an increase of 49 percent within just one quarter. NPAs represented nearly 2 percent of the bank’s loan portfolio at the end of Q1.

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

On the heels of criticism from some market participants, the British Bankers Association on Tuesday announced a series of sweeping changes to the governance of its London Interbank Offered Rate. But it’s the changes that the BBA said it is considering that seem likely to have most relevance for U.S. borrowers going forward.

In a press statement, the BBA said that it would consider “whether the historically transparent rate-setting mechanism is stigmatising contributors and whether a second rate-fixing process for US dollar LIBOR might be set after the US market opening.”

The so-called dollar LIBOR is used to set rates for more than $350 trillion worth of financial products, including adjustable rate mortgages. The BBA also said it would tighten scrutiny of rates contributed by the banks in the wake of allegations that LIBOR had been manipulated by banks’ desire to prevent signaling weakness to market participants, by adding to the group that oversees the LIBOR rate-setting process; and the group said it would increase the number of reporting banks that are used to set the widely-used interest rate benchmark.

Adding a second daily fixing to LIBOR — one tied to the open of U.S. markets — would likely lead to more volatility in the key index used to benchmark many adjustable-rate mortgages in the States, sources told Housing Wire Tuesday morning. Along with tightening oversight of the LIBOR reporting process, the changes being considered by the BBA seem likely to pressure LIBOR rates to increase from their current historical lows.

In fact, the three-month dollar LIBOR jumped 10 basis points to 2.79 percent on Tuesday after the changes were announced, the biggest such increase since August; further sustained increases are likely to reignite concern over ARM resets among lawmakers and consumer groups. ARM resets among subprime borrowers were the chief concern that led to the creation of the HOPE NOW coalition by Bush administration officials late last year.

The dollar LIBOR is used to benchmark a large number of adjustable-rate mortgages in the U.S., and low LIBOR rates throughout most of 2008 thus far has led to a veritable erasing of any potential adjustable-rate payment reset shocks for most subprime and Alt-A borrowers — certainly a positive outcome for millions of potentially troubled borrowers, given that the U.S. is still facing a flood of subprime resets through the end of this year (Alt-A resets don’t begin in earnest until the middle of 2009, according to available data).

Subprime mortgages are more likely to be tied to LIBOR than other adjustable-rate mortgages, sources told HW; prime and Alt-A ARMs tend to be tied to short-term Treasuries.

The last major change to LIBOR came in 1998, when Japanese banks inflated the rates they contributed to the yen LIBOR.

Wachovia Corp. (WB: 19.90, +5.35%), in the headlines more often than not in the past year for its ill-timed acquisition of option ARM specialist Golden West Financial, saw its shares wobble Tuesday in pre-market trading after a team of analysts at Morgan Keegan and Co. took out the proverbial red pen to their estimates of the bank’s earnings for 2008.

According to a report by MarketWatch, analysts lowered their full-year estimate for 2008 to 75 cents a share from $1.70 — a huge cut in expected earnings that was tied to concern over continued exposure to mortgages. Expected per-share earnings for 2009 were also trimmed, from $3 per share to $2.80, the analysts said.

“We believe the risk to the downside remains significant in the near-term at Wachovia as the underlying trends in the option-ARM, $121 billion mortgage portfolio continue to worsen,” Patten wrote in a research note, according to MarketWatch.

“A further dividend cut appears likely and capital adequacy questions remain despite management’s reassurances.”

Concern over Wachovia’s “pick a pay” loans continues to draw analyst worry, as the bank has booked $3.5 billion in deferred interest as income tied to the loans — income that may never materialize as borrowers find themselves upside-down on their mortgages.

Option ARMs generated $240 million in charge-offs during Q1 at Wachovia, by far the largest category of credit losses relative to other sectors. Non-performing assets in option ARMs alone rose to 3.55 percent, up from 2.31 percent just one quarter earlier.

“We’re seeing in our portfolio the most significant declines and defaults activity in California,” Wachovia’s chief risk officer Don Truslow said on an investor conference call in mid-April, “and of course it’s the largest concentration for us in the pick a payment portfolio by far.”

Wachovia shares were down more than 2 percent in pre-market trading Tuesday morning, but rebounded strongly in early trading on the New York Stock Exchange; shares had risen 1.6 percent to $19.20 when this story was published.

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

Battered Swiss bank UBS AG (UBS: 23.10, 0.00%) faces what are expected to be further write-downs on its mortgage related positions when it reports its second quarter results, according to published report Tuesday morning. In the wake of fresh disclosures Monday morning by Lehman Brothers Holdings Inc. (LEH: 29.48, 0.00%) that the value of key mortgage and real-estate holdings had decreased substantially, analysts told the Wall Street Journal that exposure at UBS to similar assets could lead the firm to post a quarterly loss.

News of fresh losses at UBS are arriving at what could be described as an inconvenient time; the bank is in the process of raising 15.97 billion Swiss francs ($15.67 billion) in a rights offering expected to be complete Friday.

In its prospectus for the rights offering, the financial giant pegged its exposure to U.S. subprime mortgages at $27.6 billion, net of hedges. Alt-A mortgage exposure stood at a similar $26.6 billion, as well. Those numbers came before UBS sold $15 billion of its subprime book of business to BlackRock Inc. (BLK: 213.90, 0.00%) in a fire-sale designed to reduce exposure to some of the riskiest mortgage assets.

Javier Lodeiro, Zurich-based analyst with German private bank Sal. Oppenheim, is quoted by the Journal as estimating that UBS will have to take write-downs worth several hundred million francs, a figure that he suggested in the report may rise further before the quarter closes June 30.

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