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Mortgage Headlines
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Last Updated Wednesday, February 20, 2002 12:46 PM CST
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Inflated Pocono Loans, Appraisals May Cost Chase $10-20 mil
Chase Manhattan Mortgage Corp. is considering reducing the value of more than 200 Pocono-area mortgages after appraisal reviews performed by Lenders Service Inc. (LSI) on about 25 loans indicated the homes were sold at inflated prices, according to the Pocono Record. The "Write Downs," which could reportedly cost Chase between $10 and $20 million, would be on loans originated by Chapel Creek Mortgage Banker, Inc. based in Mount Pocono, Pennsylvania. If enacted, victims would see the balances of their mortgages reduced. The law firm of Seeger Weiss LLP is currently seeking class action certification for a complaint filed last June against Chapel Creek and other defendants, including Chase Vice President William Spaner and Chase itself. All the defendants say they have not been involved with inflating appraisals or defrauding customers, according to the Pocono Record.
ARM Below 5%
According to Freddie Mac's survey, the one-year ARM was 4.98%, six basis points (BPS) lower than the previous week. The Mortgage Bankers Association of America (MBA) reported that ARM applications represented 15.6% of overall applications, compared to 15.5% last week and 7.7% a year ago. MBA said that overall applications were 2.5% higher than last week but seven percent less than the same week last year. Freddie reported that the average 30-year fixed rate was 6.86%, down from 6.88% last week. The 15-year average edged down 1 BPS to 6.35 percen. Forty-two percent of the industry experts surveyed by Bankrate.com this week expect rates to increase more than 2 BPS during the next 30-45 days.
Employee Dies At Cendant Mortgage's Annual Sales Meeting
A Cendant Mortgage employee attending the company's national sales meeting in Cherry Hill, NJ died early Sunday, according an announcement from Kennedy Health System. Seven other employees have been admitted to the hospital after exhibiting symptoms of a respiratory illness. All are reported to be in stable condition. Joanne Hemstreet, 45, of Kingston, Mass., had begun complaining of flu-like symptoms Wednesday afternoon while on her way to the Hilton Hotel, where the meeting was being held. She was taken to the hospital on Saturday night, after periodically complaining of feeling ill during the sales meeting. While the hospital said Ms. Hemstreet received comprehensive medical care for her condition, she died at 3:14 am as a result of Fulminent Bacterial Pneumonia, an aggressive bacterial infection.
ARM At 8 Year Low
The average 1-year adjustable rate mortgage (ARM) fell eight basis points (BPS) from last week to 5.04%, according Freddie Mac's weekly survey of thrifts, commercial banks and mortgage lending companies. A look at Freddie's historical tables indicates that the 1-year ARM has not been this low since early 1994 -- at a time when the industry was at the end of a previous wave of refinances. Freddie reported that the average 30-year fixed rate mortgage (FRM) fell 14 BPS from the prior week to 6.88%. MBA reported that overall loan applications rose 5.3% from last week. Refinance applications, which were reported by MBA this week to have increased about 7 percent, are at about only one-third their November levels. Freddie Mac's chief economist, Frank Nothaft, said "as long as inflation is not an issue in the economy, lending rates should remain around 7 percent."
Cendant 4th Quarter Production $10 Billion
In its announcement of fourth quarter results, Cendant Corporation reported that its mortgage loan production was $10 billion, a 71% increase over the prior year's 4th quarter production level of $5.9 billion. The company said that a 41% increase in revenues from 2000 for the real estate services segment "was primarily driven by a significant increase in mortgage loan production and profitability from higher levels of refinancings."
COFI Continues Tumble
The monthly weighted average cost of funds index (COFI) for the 11th District savings institutions fell in December to 3.074%, according to the Federal Home Loan Bank of San Francisco. In November, the COFI was 3.368%. The COFI, which reflects the interest paid by savings institutions in Arizona, California, and Nevada on their various sources of mortgage money, is at its lowest point in decades.
ARM's Are In, Refi's Are Out
Applications for mortgage refinances tumbled more than 36% from last week, according to the Mortgage Bankers Association of America's (MBA) weekly application survey. The drop in refi's helped push overall loan applications down by 25.5%. MBA said that adjustable rate mortgages (ARM) made up more than sixteen percent of total applications, up from 14.6% last week. Freddie Mac reported that the average 1-year ARM was 5.12%, slightly higher than last week's 5.10%. The spread between the 30-year fixed rate mortgage (FRM), which Freddie reported averaged 7.02%, and the 1-year ARM rose to 1.90 percent from 1.86 percent the prior week. Bankrate.com's survey of mortgage bankers, mortgage brokers and other industry experts gave no clear indication this week of which way rates are headed, with close to 1/3 each either expecting rates to fall, rise or remain unchanged.
Class Action Take Two
A San Francisco-based law firm has filed a class action complaint in Seattle on behalf of a group of nationwide homeowners against Washington Mutual (WaMu) for allegedly improperly servicing its mortgages. According to the complaint filed by the law firm of Green Fauth & Jigarjian, LLP (GFJ), the servicing mistakes allegedly result "in poor customer service in which borrowers spend untold hours attempting to correct Washington Mutual's errors, improper fees paid by borrowers for which they are not reimbursed, and erroneous negative reports to credit bureaus." Kevin Horn, who works in the public relations department for WaMu's home loans and insurance services group, told MortgageDaily.com that the company's shear size will result in more servicing issues even if there are problems on only a small percentage of the loans. WaMu reported that its servicing portfolio was $535 billion as of December 31. aMu, which has yet to integrate the Fleet portfolio, has added servicing centers and taken other steps to increase servicing capacity.
Mortgage Banker, Attorney Sentenced
An Owings Mills, Maryland mortgage banker was sentenced earlier this month in a case that alleged he and another defendant defrauded two lenders of over $8.5 million. The U.S. Department of Justice (DOJ) alleges that the defendants obtained advance funding to make loans on lines of credit from two lenders. Funds were wire transferred to an account at the attorney's title company -- which was supposed to handle the settlements on the loans. The DOJ said both defendants admitted to the requested advances for fictitious loans, and that when the funds were transferred to the title company, it then transferred the funds to Bankers First without holding any settlements.
Loan Officer Sentenced In 'Flipping' Scam
A Chicago-area loan officer has been sentenced in a 'flipping' scam involving twenty defendants. Tamira Smyth is among six defendants already sentenced in the case, with 14 others awaiting sentencing. All twenty defendants have been convicted, according to Randall Samborn from the Department of Justice (DOJ). Samborn said Smyth helped in the investigation of the case as a key informant by performing undercover work. According to indictment, the Chicago scam involved a closing attorney & two paralegals, a loan processor & two loan originators (including Smyth), seven real estate investors, two appraisers, a licensed real estate agent, two straw purchasers and two fraudulent borrowers. Some of the defendants had multiple roles. Smyth was previously convicted in Illinois and Wisconsin for unrelated crimes. She was sentenced to twenty months in prison but could have received up to five years.
Refis Soar As Rates Sour
Applications for refinance mortgages increased by more than forty percent from last week, according to the market composite index of mortgage loan applications by the Mortgage Bankers Association of America (MBA). In its weekly Primary Mortgage Market Survey, Freddie Mac said the average thirty-year FRM was 6.96%, thirteen basis points (BPS) higher than last week. The average fifteen-year FRM was reported at 6.44%, also up 13 BPS. The average adjustable rate mortgage (ARM) edged up by 2 BPS to 5.10%. Don't look for direction this week from the the more than 100 mortgage bankers, mortgage brokers and other industry experts surveyed by Bankrate.com. About 1/3 think that rates will rise, while approximately 1/3 see rates falling and another 1/3 don't see a change.
Job Promotion Keeps Loan Officer Out Of Primary Election
An Illinois loan officer has dropped out of the Democratic race for a House district in Aurora, according to a story at ChicagoTribune.com (Tribune). Charles "Charlie" Zine, 44, reportedly dropped out of the race for the newly drawn state House district because a recent job promotion will not leave him with enough energy to devote to the race. Zine's employer, Platinum Home Mortgage Corp., was the plaintiff in a 90's trademark lawsuit that went to the United States Court of Appeals for the Seventh Circuit, according to the Center for Law and Computers at Chicago-Kent College of Law, Illinois Institute of Technology. Zine would not answer questions from MortgageDaily.com.
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.
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