by Alex Stenback on February 8, 2010
Well, we already have “cash-for-keys,” (where those facing foreclosure are offered a financial incentive to not trash the place on the way out the door,) so I suppose this was inevitable.
Nick Timiraos over at the Wall Street Journal Developments blog reports that an outfit called Loan Value Group LLC is pitching a new program to mortgage investors and servicers who fear strategic default (or “Walk-Aways”) by homeowners with negative equity:
Here’s how the program works: The mortgage investor (possibly joining with other risk holders, such as mortgage insurers or second-mortgage holders) offers a cash reward to borrowers if they agree to keep paying their mortgage. The incentive amount varies by borrower depending on income, negative equity, geography and other risk factors—those who are more likely to cause steep losses receive a bigger carrot. The “responsible homeowner reward” grows for up to five years as the borrower makes monthly mortgage payments.
I’d be astonished if this idea gains broad acceptance – it seems pretty obvious that you’d be paying the people most likely to NOT strategically default in the first place, which is sort of beside the point.
Unless the carrot is very big indeed - as Archimedes is said to have remarked, “With a big enough lever and a place to stand, I can move the earth.”
by Alex Stenback on February 5, 2010
Anyone who’s recently financed a home will attest to the fact that getting a mortgage has gotten a lot tougher than it used to be.
And unless you’ve been under a rock, the main reason is pretty obvious: With over 13% of all mortgages in “non-current” status (from 1 payment behind to in foreclosure) lenders have been furiously tightening standards in an attempt to stop the bleeding.
But the tighter standards and additional scrutinies aren’t entirely about ensuring new loans are made only to higher quality borrowers. There’s more to it than that.
Right now, even the “perfect” borrower eligible for the very best terms now find themselves subject to an examination that may feel more like a financial colonoscopy than a business transaction between consenting adults.
So what gives? A recent piece from the Wall Street Journal provides a clue:
Stuck with about $300 billion in loans to borrowers at least 90 days behind on payments, Fannie and Freddie have unleashed armies of auditors and other employees to sift through mortgage files for proof of underwriting flaws. The two mortgage-finance companies are flexing their muscles to force banks to repurchase loans found to contain improper documentation about a borrower’s income or outright lies.
Translation: Fannie Mae is trying to force feed bad loans (and the losses) back to their source.
At first glance Fannie’s efforts to “put back” clunker loans may seem like nothing more than a shoving match between heavyweights atop the mortgage finance food chain, but it’s more than that, and the impact flows all the way down to main street.
Here’s how:
As these armies of auditors (and not a few attorneys, you can bet) scour files for “underwriting flaws,” understand that they are not exclusively trying to identify loans that should never have been made, but also for loans with highly technical flaws in documentation or violations of the representations and warranties required of Fannie Mae sellers and servicers.
[Quick aside: It's worth understanding that a good many loans simply go bad due to circumstances ( job loss, divorce, terminal illness, etc. etc.) that even the most careful analysis could never predict. Like any veteran pilot will tell you - if you want to find a reason to ground your aircraft during a pre-flight inspection, you will; the Fannie Mae Selling Guide, and seller/servicer representations and warranties are sufficiently detailed that you can almost always find an argument (not always a winning one, mind you, but one that must be answered nonetheless, with postage paid in attorneys fees) to put a bad loan back on a servicer or originator.]
Anyway, every time a loser loan gets crammed back onto a servicer or originator, you can bet that they will immediately put in place additional steps (read: additional hoops for even very creditworthy borrowers to hop-though) to ensure that that particular ‘underwriting flaw” never happens again. Ever.
So when your loan officer is dipping your bank statements in a solution designed to reveal invisible ink, it’s not only about you, but also this high-stakes game of who-shot-john being played out at the top, which sends shockwaves right down to main street.
And by the way, none of this is to defend lenders that are originating bad product or can’t follow the rules – they should absolutely have their raw sewage heated and piped right back into their home offices.
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Editors Note: I am proud to say that Residential Mortgage Group has never been forced to buy back a single loan (that’s zero with a Z folks.) And with something well north of $1 Billion dollars worth of home loans originated in the last five years, there’s not another lender I am aware of that even sniffs that sort of track record. Recognize.
Monday Market Commentary February 8th, 2010: Where Mortgage Rates are Headed
by Alex Stenback on February 8, 2010
Last Week:
30 year mortgage rates improved slightly just about everywhere last week as a volatile stock market and improving but still fairly depressing employment report (employment rate dropped to 9.7%, but revisions to prior reports “found” another 1 Million jobs that were lost in 2009.)
This Week:
What the economic calendar lacks in volume this week, it may make up in impact.
In fact, for the first half of the week, technical factors and the bond markets interplay with stocks and other markets will drive rates (recall: Rates usually move higher when stocks do well, lower when stocks do poorly. Not always, usually.) There’s also some $80 Billion worth of new auctions (Treasury bonds and notes) straddling the middle of the week to contend with.
As for the meat on the calendar? Watch these reports:
Thursday 11 Feb, 8:30AM; Weekly Initial Jobless Claims: Don’t look now, but average weekly jobless claims have been on the rise again, which suggests there could be more job losses to come. Market expects 480K jobless claims this week. Higher than that is probably a rate friendly report.
Thursday 11 Feb, 8.30AM; Retail Sales: As the consumer spends, so goes the economy, and recently the consumer hasn’t been “going” much. last month, retail sales declined .3%, expectations are for a .4% increase this month . This number can be volatile, but anything showing consumers are consuming at a better than expected clip should help stocks and may hurt mortgage rates.
Friday, Feb 12th, 10AM; Consumer Sentiment: See above, only this number measures “feelings & attitudes” rather than, you know, actual sales, so the impact is only moderate compared to Retail Sales and other harder data. Seen as a leading indicator, since sentiment and spending do correlate. Upside surprise here is the one that has the potential to hurt rates.
· This Week’s Economic Calendar [Barron's]
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