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Mortgage Headlines
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Last Updated Monday, January
18, 2002 07:49 AM CST
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High Hopes
Freddie Mac reported that the average thirty-year fixed rate mortgage (FRM) fell 23 basis points (BPS) from last week. Freddie reported the average 15-year FRM was 6.31%, down 24 BPS from the prior week. The spread between the thirty-year and fifteen-year FRM edged wider by one BPS to 0.52%. The average one-year adjustable rate mortgage (ARM) fell 18 BPS to 5.08 percent. However, the Mortgage Bankers Association of America (MBA) reported that ARM applications -- which represented 15.6% of total applications -- are at their highest level since October 2000. The majority of the more than 100 mortgage bankers, mortgage brokers and other industry experts surveyed by Bankrate.com this week expect for rates to head down more than 2 BPS during the next 35 to 45 days. However, as pointed out in a recent Wall Street Journal story, a recently improving economy may dash hopes for low mortgage rates.
A look at the recent changes in HOEPA
The Federal Reserve Board (FRB) has changed the requirements under Section 32. The changes are effective as of December 20, 2001. However, you are not required to comply until October 1, 2002. The following are the key changes:
- 1st Lien APR Test Lowered. The APR test for first lien loans has been lowered from 10 points over the equivalent Treasury yield to 8 points over the equivalent Treasury yield.
- Optional Credit Insurance Added to "Points and Fees" Test. Any amount paid at or before closing for credit insurance or related products is now part of the "points and fees" test, even if it is not a finance charge.
- Optional Credit Insurance Deducted to Get "Total Loan Amount." Any amount paid at or before closing for optional credit insurance or related products must be deducted from the Amount Financed to arrive at the "Total Loan Amount," even if it is not a finance charge.
- New Disclosure: "Amount Borrowed." The "Amount Borrowed" is the face amount of the Note. You must include the "Amount Borrowed" in the Section 32 notice.
- New Disclosure: Optional Credit Insurance. If the "Amount Borrowed" includes an amount for optional credit insurance or related products, you must include a statement to that effect in the Section 32 notice.
- Prohibited Acts: New "Flipping" Test. Neither the original creditor nor an assignee may refinance a Section 32 loan into a new Section 32 loan during the first year unless the new transaction is in the borrower's interest.
- Prohibited Acts: Underwriting Presumption. If you make loans without verifying and documenting the borrower's ability to repay, the law now "presumes" that you make loans without regard for the borrower's ability to repay.
HUD Suspends FHA Lending Authority For Two Lenders
The Department of Housing and Urban Development (HUD) announced this week that its Mortgagee Review Board (MRB) withdrew authority for two separate mortgage companies to make or acquire Federal Housing Administration (FHA) insured loans. The MRB also proposed a three-year withdrawal of FHA approval from three other lenders. According to HUD's announcement, the Foundation Funding Group Inc., of Tampa, Florida, permanently lost its FHA approval because of "serious violations of FHA lending requirements that included improper cash-outs when originating streamlined, refinanced mortgages, and the improper refinancing of fixed rate and adjustable rate mortgages." HUD withdrew FHA approval from Whittier, California-based Omega Financial Services, Inc., for three years. HUD said the company used falsified documentation in originating FHA loans, and failed to implement a HUD-required quality control plan.
Applications Jump, Rates Fall
Mortgage loan applications jumped thirty percent from last week, according to the Mortgage Bankers Association of America's (MBA) Weekly Mortgage Applications Survey. Fueling the jump in applications were falling rates; Freddie Mac reported in its weekly Primary Mortgage Market Survey that the average 30-year fixed rate mortgage (FRM) fell eight basis points (BPS) from last week to 7.06%. Bankrate.com said that forty percent of the 100 mortgage bankers, mortgage brokers and other industry experts it surveyed believe rates will fall, while 20% see rates rising and 40% don't see a change of more than 2 BPS during the next 35 to 45 days.
Former Las Vegas Mortgage Broker Sentenced
A former mortgage broker was sentenced to five years' probation and ordered to pay $4.2 million in restitution to 90 investors, according to a story in the Las Vegas Sun (Sun). David Ferradino, the former operator of insolvent Interstate Mortgage of Las Vegas, reportedly pleaded guilty to theft. The story said that Ferradino allegedly collected $5.7 million from mostly local investors for two Las Vegas home-building developments, then passed the funds on to a company that he owned 50% of without the permission or knowledge of the investors. Ferradino reportedly surrendered his mortgage broker's license as part of a plea agreement in September and can no longer be involved in the mortgage broker business in Nevada.
Friends, Lawyers, Guns and Money
Documentation between a lender and other transaction parties, such as mortgage brokers, appraisers and closing agents, determines the level of recovery for a lender that has become a victim of fraud. Because there has not been much case law in most states that provides definition, documents such as the mortgage broker agreement and the appraisal form 439 are the primary documents that establish the duties and responsibilities of those parties. Civil courts in most states tend to hold the settlement agent specifically to the closing instructions. A good condition on closing instructions is a disclosure of whether the settlement agent has closed other loans for this particular borrower in the last 90 or 180 days. Some fraud hot spots are New Jersey, New York, Atlanta, Houston, Seattle, Southern California, South Florida, St. Louis and Detroit.
Washington Mutual Completes Dime Acquisition
Washington Mutual, Inc. (WaMu) completed its acquisition of New York's Dime Bancorp, Inc., according to an announcement this morning. WaMu, which reports assets of nearly one-quarter trillion dollars as of September 30th, said that the acquisition creates a broad-based platform for it's New York retail banking operations. The purchase of Dime -- which is the parent of North American Mortgage Company -- follows a recent mergers and acquisitions including the purchase of Fleet Mortgage Corp., merger with Bank United and the acquisition of PNC's residential mortgage banking business.
Dive, Dive, Dive
Mortgage loan applications fell forty percent from the prior week, according to the Weekly Mortgage Applications Survey by the Mortgage Bankers Association of America (MBA). While refinance applications had experienced the biggest decreases in recent weeks, MBA reported that purchase applications this holiday week were down almost 41% -- a bigger decrease than refinance applications. The average 30-year fixed rate mortgage (FRM) was 7.14%, falling two basis points (BPS) from last week, according to Freddie Mac's weekly Primary Mortgage Market Survey of 125 thrifts, commercial banks and mortgage lending companies. Bankrate.com reported that 46% of its "mortgage experts" believe rates will fall more than two BPS during the next 30-45 days, while 38% believe rates won't change and 16% think they will rise.
COFI Down From Prior Month
The Federal Home Loan Bank of San Francisco (FHLB) announced that the monthly weighted average Cost of Funds Index (COFI) for the 11th District Savings Institutions was down 26 basis points (BPS) in November to 3.368% from the prior month at. Last month the COFI average was reported at 3.628 percent, its lowest point at least since 1970.
The Devil Made Me Do It
There are two primary motivations for fraud: Economic pressure and peer pressure. Fraud for housing is a situation where a borrower -- who fully intends on making the mortgage payments -- fudges on the application ("if I make the payments, who will it hurt?") Fraud for profit involves highly sophisticated schemes and usually involves numerous parties. By the time that loan hits the first payment default, they've made their money. Approximately fifty percent of fraudulent loans had red flags that were missed. Approximately one-third of loans in foreclosure have at least one form of fraud in the file, so the potential is there to prevent one-third of foreclosures.
Record Purchase Activity
The Mortgage Bankers Association of America reported that purchase applications rose 16.5% from last week. The increase helped push purchase applications past the record level reached on November 30, 2001. Applications for refinance mortgages slid for the sixth straight week, falling more than twenty percent from last week. The average thirty-year fixed rate mortgage edged down 1 basis point (BPS) from last week to 7.16%, according to Freddie Mac. Freddie said that the national average 1-year adjustable rate mortgage (ARM) fell 2 BPS to 5.25 percent. One-half of Bankrate.com's 100 "mortgage experts" expect for rates to remain unchanged during the next 35-45 days, while 25% expect rates to rise more than 2 BPS and 25% expect rates to fall more than 2 BPS.
Bah Humbug
The Mortgage Bankers Association of America (MBA) said that refi applications fell almost twenty-eight percent from last week. MBA also reported that overall applications were down 18.9%. Freddie Mac reported that the average 30-year fixed rate mortgage (FRM) rose eight basis points (BPS) from last week to 7.17 percent. Freddie reported that the average one-year adjustable rate mortgage (ARM) was up eight BPS to 5.27%. About a third of Bankrate.com's experts see rates falling, while a similar proportion see rates unchanged and close to a third see rates rising more than 2 BPS from where there are now during the next 35-45 days.
Minnesota Vs. Countrywide, et al
A lawsuit has been filed against subsidiaries of Countrywide Credit Industries, Inc. by the Minnesota Attorney General's Office and the Minnesota Department of Commerce. In its lawsuit, the state said that Countrywide forced borrowers to order appraisals through its LandSafe subsidiary when canceling mortgage insurance. The state alleges that Countrywide profits from this arrangement because LandSafe keeps a portion of each appraisal fee paid by the homeowner. The state also alleges that Countrywide did not meet the minimum state requirements of mortgage insurance cancellation.
Bank of America Launches Record RMBS
Bank of America (BoA) launched a $7 billion mortgage-backed securities (MBS) transaction on December 14th, according to an announcement by ratings agency Standard and Poor's (S&P). The transaction, which S&P says is "the largest subprime home-equity transaction ever sold in the private-label market," is collateralized by fixed-rate loans originated by EquiCredit Corp. S&P noted that EquiCredit was the fourth-largest originator of subprime loans in 2000 and one of the largest subprime originators and servicers in the history of the subprime market. From 1991 until August 1999, the company securitized 39 transactions. After that point, EquiCredit retained its originations in its portfolio.
Keystone Figure Sentenced
Michael Graham received the maximum sentence of more than 12 years in prison and was ordered to pay $515 million in restitution for his role in the failure of The First National Bank of Keystone (Keystone), according to the Associated Press (AP). Graham, a former executive vice president of Keystone, reportedly pleaded guilty earlier this year to embezzlement and money laundering charges. AP reported in 1999 that investigators had recovered 370 boxes of bank records that had been buried in a 100-foot-long trench on property belonging to Terry Church, the bank's senior executive vice president.
The Loyalty Factor
A new study by J.D. Power and Associates found that borrowers' experiences with lender interactions beyond mailing a monthly payment greatly influence their likelihood to use that lender again or recommend the lender to others. The "Home Mortgage Study" was based on more than 6,800 responses from U.S. home mortgage customers. Apparently, the origination process has had "the least impact on the overall, ongoing level of satisfaction a customer has with their lender," said Frank Forkin, who is a partner at J.D. Power. Among the large national lenders in the survey, Countrywide Mortgage ranked highest in overall customer satisfaction. J.D. Power's survey reported that 40 percent of the customers' loans were resold, a practice that "appears to be a recipe for disaster for customer loyalty and advocacy since the customer typically has no idea that their originator is going to sever ties nor who their new mortgage company is going to be."
ARM'd & Ready
The Mortgage Bankers Association of America (MBA) reported that refinance applications were down more than ten percent from last week. MBA said that overall mortgage applications were down seven percent, but purchase applications fell only a little more than two percent from the prior week. The average thirty-year fixed rate mortgage (FRM) jumped a quarter percent from last week to 7.09%, according to Freddie Mac. Sixty-nine percent of the mortgage bankers, mortgage brokers and other industry experts surveyed by Bankrate.com this week say rates will fall more than two BPS during the next 35 to 45 days.
Investment Advisor Hides MBS Losses
The U.S. Securities and Exchange Commission (SEC) charged an investment advisor with overstating the value of his clients' assets by more than $139 million. Yehuda Shiv, an Israeli citizen and a New York resident, allegedly tried to hide trading losses from his clients. The SEC said that Shiv provided clients with sizable returns utilizing a trading strategy in their accounts that involved borrowing foreign currencies to purchase mortgage backed securities (MBS). However, in late 1994 Shiv's trading strategy became unprofitable and clients suffered substantial losses. Because he did not want to disclose the losses, Shiv began creating falsely profitable account statements in 1995 and continued providing them to approximately ten clients until 2001.
Building Blocks
The Department of Housing and Urban Development (HUD) is reportedly taking a close look at incentives used by builders to persuade buyers to use their in-house mortgage companies. The Detroit Free Press reported that interviews with HUD officials and private legal experts last week indicate that builder inducements to use in-house mortgage, title and other services are legal, as long as they constitute true discounts or rebates, and are optional. The story said that under HUD's guidelines, a builder cannot claim to offer a discount for customers who use in-house services when, in fact, the savings are illusory. The Free Press went on to say that HUD officials emphasized that builders "cannot require you to use a specific lender," title company or other builder-controlled entity.
HELP!
CitiMortgage Inc. filed a foreclosure action in Maryland against Linda Tripp late last month, according to a story by the Associated Press (AP). The home is reportedly the same property where Tripp recorded the telephone calls with Monica Lewinsky that ignited the impeachment of President Clinton. AP says that the mortgage balance is $116,098, including late charges. Tripp's attorney reportedly said that she hasn't lived in the vacant house for months but did rent it for a period. The story says she has been out of work since she was fired from the Department of Defense and now lives in Middleburg, Virginia. Tripp's attorney said she hopes to resolve any issues with the mortgage and possibly sell the house on her own, according to AP.
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