Friday, November 4, 2011

Freddie Mac Requests $6B More in Taxpayer Aid

The nation’s second largest mortgage company is asking the U.S. Treasury for another $6 billion in capital support after posting its largest quarterly loss in over a year.

Freddie Mac said Thursday that it recorded a net loss of $4.4 billion for the quarter ended September 30, 2011, compared to a net loss of $2.1 billion over the previous three-month period and $2.5 billion for the third quarter of 2010.
The McLean, Virginia-based GSE explained that while its latest earnings results reflect net interest income of $4.6 billion, the company shouldered a $4.8 billion loss on derivatives and a $3.6 billion provision for credit losses.
Freddie Mac’s CEO Charles E. Haldeman, Jr. pointed out that hundreds of thousands of borrowers refinanced into lower mortgage rates or shorter mortgage terms in the third quarter. Long-term interest rates declined by approximately 125 basis points in the third quarter, compared to a decrease of about 30 basis points in the second quarter.
“[T]he borrowers we helped to refinance will save an average of $2,500 in interest payments during the next year,” Haldeman said.
While the savings bode well for homeowners and should help to ensure those who were struggling to make their payments will remain current, it means less money coming in for the GSE, resulting in higher loss severity rates and thus the recorded increase in Freddie Mac’s provision for credit losses.
Such losses will likely grow over the coming quarters with the administration’s retooling of the Home Affordable Refinance Program (HARP), which is expected to allow another 1 million borrowers with loans backed by Freddie Mac and sibling Fannie Mae to take out new mortgages at today’s rock-bottom rates.
The GSEs’ are expected to issue guidance about the HARP changes to their mortgage servicers by November 15.
Freddie Mac says the increase in its third-quarter credit loss provision was also driven lower expectations for mortgage insurance recoveries, as a result of the deteriorating financial condition of certain mortgage insurers used by the company.
Freddie’s $4.4 billion loss in the third quarter combined with the $1.6 billion dividend payment it made to Treasury for past bailout money left the GSE with a $6 billion net worth deficit as of the end of September. To eliminate this deficit, the Federal Housing Finance Agency (FHFA), as conservator, is submitting a draw request to Treasury for the same amount.
The company’s Q3 draw is the largest quarterly request since the first quarter of 2010, and brings the cumulative amount of Freddie Mac’s taxpayer-supported bailout to $72.2 billion. The GSE has returned $14.9 billion to Treasury in the form of cash dividends.
Freddie Mac’s single-family serious delinquency rate was 3.51 percent as of the end of September, nearly unchanged from 3.50 percent at mid-year, but the company says its rate remains “substantially below industry benchmarks.” The GSE also stressed that new single-family business acquired after 2008 continues to demonstrate stronger credit quality.
Freddie Mac says it helped approximately 48,000 struggling borrowers avoid foreclosure in the third quarter, finding home retention solutions – including loan modifications, repayment plans, and forbearance agreements – for three out of every four. The GSE completed 11,744 short sale and deed-in-lieu transactions over the three-month period.
Freddie carried $127.9 billion in non-performing assets as of the end of September, including single-family and multifamily loans that have undergone a troubled debt restructuring, are seriously delinquent, in foreclosure, and REO. That figure represents 6.6 percent of the company’s total mortgage portfolio.
The GSE’s REO operations expense skyrocketed to $221 million in the third quarter, compared to $27 million for the second quarter. REO operations expense primarily consists of costs incurred to maintain foreclosed properties, valuation adjustments on properties, disposition gains or losses, and recoveries from credit enhancements, such as mortgage insurance.
Freddie Mac says the increase in REO operations expense last quarter was primarily driven by higher REO holding period write-downs as fair values declined during the third quarter, as well as a reduction in projected recoveries on mortgage insurance.

Government Issues Housing Data, Says There's 'Much More Work to Do'

Treasury has released a new progress report on its Making Home Affordable initiative, covering all the “H” acronyms – HAMP, HARP, and HAFA.

Since the program started in April 2009, 857,000 homeowners have received permanent loan restructurings under the Home Affordable Modification Program (HAMP), and 894,000 have refinanced their mortgages through the Home Affordable Refinance Program (HARP). Home Affordable Foreclosure Alternatives (HAFA) transactions tally just under 19,000.
The grand total of homeowners who’ve received assistance through the government’s “H” programs: 1,777,000.
HUD Assistant Secretary Raphael Bostic says “we saw a continued fall in mortgage defaults” last month due in part to foreclosure prevention programs reaching more borrowers upstream in the process. But Bostic is quick to add, “We have much more work to do.”
Treasury’s latest report shows HAMP trials started during the month of September held steady from the previous month at 26,000, while permanent mods increased by nearly 50 percent to 40,100.
Treasury says HAMP continues to exhibit lower delinquency and redefault rates than other modifications, with just 10 percent behind on their payments by 60 days or more after six months in the program.
Homeowners in active permanent HAMP modifications save a median of $526 per month –more than one-third of the median before-modification payment, according to Treasury. To data, homeowners in permanent HAMP modifications have saved an estimated $8.8 billion in monthly mortgage payments.
Treasury says there are now just 974,095 delinquent borrowers eligible for HAMP assistance.
Treasury also highlighted other foreclosure prevention efforts in its report. The Federal Housing Administration’s (FHA) loss mitigation interventions totaled 39,000 in September. Servicers’ proprietary mods, which Treasury listed under the HOPE NOW banner came to 55,800 for the month.
This report is the first to include a data breakdown on HARP. During the month of September, 28,900 homeowners with Fannie Mae- and Freddie Mac-backed loans refinanced through the program at lower interest rates.
Short sales continue to claim the lion’s share of HAFA transactions. Servicers completed 2,512 HAFA short sales in September and 91 HAFA deeds-in-lieu.

National Unemployment Rate Falls to 9.0%

The nation’s unemployment rate slipped to 9.0 percent in October, as employers added 80,000 new jobs to their payrolls, according to data released Friday by the U.S. Department of Labor.

Officials called the rate “little changed,” down from 9.1 percent the month before. The unemployment rate has remained in a narrow range from 9.0 to 9.2 percent since April.
The number of newly employed Americans closely tracked market expectations. Forecasts ranged between 75,000 and 95,000 new jobs for the month, however, analysts were expecting the unemployment rate to remain unchanged.
Figures for the previous two months were revised upward. The Labor Department says the economy added 104,000 new jobs in August, as opposed to the previously reported 57,000.
The change for September was revised from 103,000 to 158,000 new jobs. (September’s numbers benefited from the return of about 45,000 telecom workers who had been on strike.)
Government data shows that there are 13.9 million people out of work in the United States.
Extended unemployment has become the biggest driver of mortgage delinquencies. In October, the number of long-term unemployed (those jobless for longer than six months) declined by 366,000 to 5.9 million, or 42.4 percent of total unemployment.
The number of persons employed part time because their hours had been cut or because they were unable to find a full-time job, decreased by 374,000 to 8.9 million in October.
Officials from the Federal Reserve said this week that they don’t expect the unemployment rate to fall below 9.0 percent until next year, ranging between 8.5 and 8.7 percent in 2012. The rate is not projected to breach the 7.5 percent threshold until 2014.

Wednesday, November 2, 2011

HUD and Ginnie Mae Suspend Allied Home Mortgage

As of Tuesday, HUD’s Mortgage Review Board is suspending Houston-based Allied Home Mortgage Corporation from originating or underwriting new mortgages insured by the Federal Housing Administration (FHA), and Ginnie Mae is suspending the lender from issuing securities in its mortgage-backed securities program.
HUD also suspended James C. Hodge, Allied’s president and CEO and may debar Hodge and Jeanne L. Stell, EVP of Allied Home Mortgage.

At the same time, the U.S. Attorney in Manhattan is pursuing a lawsuit against Allied, Hodge, and Stell for fraud and violations of FHA requirements.
HUD’s Mortgage Review Board alleges that Allied violated several FHA requirements by originating loans at non-FHA-approved branches, submitting untrue information about where certain loans were originated, not making sure that the corporation paid all operating expenses at its FHA-approved branches, and failing to put in place an FHA/HUD-compliant quality control plan.
HUD also alleges the company submitted false certifications between 2006 and 2011 and allowed a suspended individual to hold a position as a principal, officer, and director.
“We will not tolerate mortgage lenders who play fast and loose with FHA’s standards. These defendants demonstrated a pattern of recklessness and utter disregard for how we do business. They’ve harmed FHA, hurt homeowners, and now they’ll be held to account for their actions,” stated HUD’s General Counsel Helen Kanovsky in a news conference.
Allied could not be reached for comment.

Foreclosure Timeline Lengthened by 140 Days Over Past Year: LPS

Mortgages backing homes that were foreclosed on in September had been delinquent for an average of 624 days, according to Lender Processing Services (LPS). That’s up from 484 days in September of last year, just before the processing issues surfaced.

That 624-day foreclosure timeline is the national average. LPS says timelines in judicial states continue to extend at a greater rate. The time from last payment made to foreclosure sale in judicial states is 761 days, which is six months longer than in non-judicial states.
Consequently, the company’s study shows foreclosure sales in judicial foreclosure states remain very low, with only 1.6 percent of their foreclosure inventories moving to sale. The slow pace of liquidation has caused the foreclosure pipeline to balloon, with nearly seven percent of the entire active loan count in judicial states in foreclosure.
Ranked by the percentage of loans that are non-current, seven of the top 10 states are judicial foreclosure states: Florida, New Jersey, Illinois, Ohio, Indiana, Louisiana, and Maryland. Non-judicial states making LPS’ top-10 list include Mississippi, Nevada, and Georgia.
Looking at the national foreclosure population, LPS says almost 40 percent of loans in foreclosure have not made a payment in two years, and 72 percent have not made a payment in a year or more.
Overall, foreclosure starts in September were slightly below the three-year average, LPS reports. Servicers initiated foreclosure on 220,273 homes during the month, down 11 percent from the prior month and 15 percent from a year earlier.
New problem loan rates have increased sharply over the last two months, with 1.6 percent of loans that were current six months ago now 60 or more days delinquent or in foreclosure. LPS says the “sand states” and the Midwest have the highest new problem loan rates.
The company reports that delinquencies are now almost 2x and foreclosures are 8x their pre-crisis levels.
LPS says modification volumes have been falling since June of last year and are continuing to head south. About 2 million mortgage modifications have taken place since January 2010.
On the plus side, modification attributes have changed significantly since the beginning of the housing crisis. From the beginning of 2010, the percentage of mods resulting in payment reductions has held fairly steady at close to 90 percent.
As a result, the performance of modified loans has improved. LPS data show that the percentage of modified loans 60 or more days delinquent after at least 12 months stood at about 24 percent during the second quarter of this year, compared to a redefault rate above 50 percent in early 2009.

Fourteen Servicers Begin Lengthy Foreclosure Review Process

The Office of the Comptroller of the Currency (OCC) and the Federal Reserve Board both announced Tuesday that the independent foreclosure reviews of 14 large servicers issued in April are now under way.

About 4.5 million borrowers could have their loans reviewed and potentially be compensated for imposed financial hardship, according to a previous statement by the OCC.
According to the OCC, the review will take several months due to the volume of potential foreclosures to review.
The foreclosure review is part of a broader list of enforcement actions for the servicers to rectify missteps in the foreclosure process. The enforcement actions mandated by the OCC include improved borrower communications, greater oversight of third-party vendors, updated management information systems, and the elimination of “dual tracking” – which takes place when a servicer forecloses while a borrower is being considered for a modification.
The OCC issued enforcement actions to: Ally’s GMAC Mortgage, Aurora Bank, Bank of America, Citibank, EverBank, HSBC, JPMorgan Chase, MetLife, OneWest, PNC, Sovereign Bank, SunTrust, U.S. Bank, and Wells Fargo.
The Federal Reserve Board issued similar mandates in April and is also requiring the four large servicers it oversees – GMAC , HSBC, SunTrust, and JPMorgan’s EMC Mortgage – to appoint a single point of contact to certain distressed borrowers.
“The independent foreclosure review is a significant component of the mortgage servicers’ compliance with our enforcement actions,” said acting Comptroller of the Currency John Walsh. “These requirements help ensure that the servicers provide appropriate compensation to borrowers who suffered financial harm as a result of improper practices identified in our enforcement actions.”
Independent consultants will begin reviewing cases in which borrowers believe they suffered financial harm due to foreclosure actions that occurred between 2009 and 2010.
Servicers began mailing letters to borrowers Tuesday explaining the process of requesting a review, according to the OCC.
If independent reviewers determine a borrower did face financial harm due to misrepresentations or errors by the servicer, the servicer will be required to compensate the borrower.
“Borrowers are encouraged to carefully consider the information about the review program to determine if they should participate,” stated the Fed in its Tuesday announcement. “There are no costs associated with being included in the review.”
The Fed is also calling on independent reviewers to conduct a comprehensive examination of certain categories of foreclosures. For example, they will look for violations of the Servicemembers Civil Relief Act and review all cases in which a borrower filed a complaint about their foreclosure proceeding.
Borrowers’ requests for reviews will be accepted through the end of April.

First-time Home Buyers Haven’t Vanished

First-time home buyers are snagging up homes at much the same pace they were before the first-time home buyers tax credit created a buying frenzy two years ago. Indeed, for the first seven months of this year first-time home buyers have made up 32 to 36 percent of the market, according to NATIONAL ASSOCIATION OF REALTORS® statistics.

Low interest rates and fallen home values are drawing more first-time home buyers to the market, at a time when rental prices are rising. However, today’s first-time home buyers certainly are being greeted with more market challenges, everything from higher down payment standards, tougher credit requirements, and delays in securing a mortgage.

But first-time home buyers seem to be finding options to curtail some of the challenges. For example, the FHA’s 3.5 percent down payment market share has seen a large increase in the last few years, rising from 3 to 30 percent since 2006, even though tighter credit standards and higher fees took effect a year ago. Also, the USDA guaranteed loan program offers a no-down payment program that more first-time buyers are taking advantage of.

Given fallen home prices and record-reaching interest rates, why aren’t even more first-time buyers taking advantage of home ownership? They lack urgency, particularly since many first-time buyers say they expect home prices to drop further and mortgage rates to stay low. What’s more, they remain concerned about the economy and their personal finances, finds a national housing survey by Fannie Mae.

Source: “First-timers Hang Tough,” RISMedia (Nov. 1, 2011)

Tuesday, November 1, 2011

Domestic Migration Hits Lows Last Seen in the 1940s

he University of New Hampshire's Carsey Institute analyzed data from the Internal Revenue Service and compared the 2005-7 American Community Survey to the 2008-10 data released Oct. 27 by the Census Bureau; it found that domestic migration has hit its lowest level since the 1940s as a result of the economic downturn.

People are staying put, worried that they will be unable to find work elsewhere and unable to sell their existing homes, in many cases, even if they could. Massachusetts, New York, California, and other states that have lost population in recent years retained more residents in 2010; while states like Florida, Arizona, and Nevada that welcomed more new residents than others are seeing fewer people settle there. Florida, for instance, posted a net migration loss of 30,000 in 2009 — its first since the 1940s — compared to a net migration gain of 209,000 in 2005. The report shows that migration within states has slowed as well.

Meanwhile, young professionals between the ages of 25 and 34 are no longer flocking to the Sun Belt states. In terms of migration among young people, Atlanta fell to No. 23 from third place in the 2005-7 survey, while Phoenix dropped to No. 17 from No. 2, and Las Vegas slipped to No. 35 from No. 10. Over the same period, Washington rose to No. 6 from No. 44, Denver rose to No. 1 from No. 12, and Boston climbed to No. 26 from No. 45.

According to Brookings Institution demographer William Frey, "The dynamics of high housing costs on the coasts and relatively affordable inland is starting to change so, in effect, that shuts off the merry-go-round. If nobody can buy or sell their homes, there's going to be stagnancy."

Source: "Economy Alters How Americans Are Moving," New York Times (10/28/11)

Call to Regulators: Come Clean With Foreclosure Reviews

Several members of Congress are urging bank regulators to release the steps that mortgage servicers are taking to prevent illegal foreclosures.

The U.S. Comptroller has been investigating alleged shoddy foreclosure practices among mortgage servicers and is expected to review an estimated 4.5 million foreclosure files—an audit process expected to take a year.

“The only way this claims process will be fair is if the regulators shine a bright light on mortgage servicers, and make them demonstrate to the public how they’re being held accountable,” says Rep. Maxine Waters, D-Calif., who recently drafted a letter signed by 15 House members and sent to regulators urging more transparency. “To date, this entire exercise has been conducted in the shadows. I fear that without greater transparency, we’re setting home owners and foreclosed-upon families up for more disappointment.”

Last summer, several members of the House also had sent a letter to regulators asking for more information on how mortgage servicers were reforming their foreclosure practices. In the most recent letter, they renewed the urgency for for more information about the process.

Source: “Delegation Calls for Mortgage Servicer Reforms,” Housing Predictor (Nov. 1, 2011)

More Borrowers Seek Help With Higher Closing Costs

Closing costs on a $200,000 loan can average $4,070—an 8.8 percent increase over last year due to higher lender fees, according to a survey by In some states, closing costs can be $10,000 or even higher, which has left more home buyers looking for alternatives in covering the high costs of closing.

As mortgage rates hover around record lows, more borrowers are opting for no-closing-cost loans, according to an article at The New York Times. With these loans, borrowers accept a mortgage interest rate that may be anywhere from a quarter to a full percentage point higher than they’d ordinarily qualify for so they can receive a credit toward their closing costs.

The higher mortgage rate can increase a monthly payment for the duration of the loan. Also, the credit on closing costs typically covers fees charged by the lender (origination fee, underwriting expenses, and appraisal), but often doesn’t include the title insurance, mortgage-recording taxes, insurance, and escrow taxes, according to an article at The New York Times.

However, a side-by-side comparison of loans with and without the credit may show borrowers if it may be a good alternative for them in covering the increased closing costs, Neil Diamond, mortgage broker in Commack, N.Y., told The New York Times.

For example, The New York Times article notes: “If you were paying around $50 a month extra in interest charges to cover, say, $6,000 in closing costs, it would take you 120 months, or 10 years, before you began to pay more in monthly payments than you were saving on closing costs.” Therefore, borrowers who stayed in their home for the national average of seven to eight years could come out ahead with the higher mortgage rate using the alternative loan structure, the article notes.

Source: “Handling High Closing Costs,” The New York Times (Oct. 27, 2011)