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Mortgage Headlines
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Last Updated Saturday, December
07, 2001 12:34 PM CST
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Refi Apps Tumble; Purchases Continue Climb
The Mortgage Bankers Association of America (MBA) reported that refinance applications were down almost thirty percent from last week, according to its latest weekly survey of mortgage bankers, commercial banks and thrifts. While refinances were down, MBA said applications for purchase money mortgages rose for the third straight week. Freddie Mac reported in its weekly survey of 125 thrifts, commercial banks and mortgage lending companies, that the average ARM was 5.21 percent, almost unchanged from last week. Freddie said the average 30-year FRM fell 18 BPS from last week to 6.84%. While 40 percent of Bankrate.com's 100 "mortgage experts" believe rates will fall more than 2 BPS during the next 35-45 days, the majority of mortgage bankers, mortgage brokers and other industry experts surveyed believe rates will remain unchanged.
A Closer Look at HUD's Recent YSP Clarification
In the 1990's, hundreds of class-action lawsuits resulted from the lack of a clear, definitive HUD pronouncement about yield spread premiums (YSP's) paid to mortgage brokers. As a result, HUD issued a statement that included a two-part test which appeared to resolve the legal uncertainties and end most of the class action challenges. However, in June 2001, the Eleventh Circuit Court of Appeals upheld class certification in Culpepper vs. Irwin Mortgage Corp. This decision posed a catastrophic threat to the mortgage industry. Industry representatives met with HUD, which led to a statement of policy issued by HUD on October 15 of this year. The policy statement had three pieces:
- Clarification and elimination of ambiguity in the restoration of legal certainty.
Disclosure.
- Section 8B of RESPA involving payments for settlement services and the relationship of the value of those settlement services to the price.
- While the first piece provided the needed clear and definitive pronouncement, HUD did not provide a model for the second piece. HUD is recommending that YSP's should be shown on the HUD-1 Settlement Statement as "lender credits." Also, may require lenders to disclose estimated secondary market profits.
COFI Still Falling
The Cost of Funds Index (COFI) for the month of October fell 34 basis points from the prior month to 3.628%, according to the Federal Home Loan Bank of San Francisco (FHLB). The monthly COFI reflects the actual interest expenses recognized during a given month by all savings institution members of the FHLB of San Francisco, and is one of many indices used by mortgage lenders such as Washington Mutual and World Savings as an ARM index. The COFI has fallen each month since December of 2000, and it has not been this low during any period reported by FHLB since prior to 1970.
Refis Continue Tumble As Fixed Rates Climb past 7%
Freddie Mac reported that the average thirty-year fixed rate mortgage (FRM) rose twenty-seven basis points (BPS) from last week to 7.02 percent. The average 1-year adjustable rate mortgage (ARM) rose slightly to 5.22% from 5.18% last week, according to Freddie. The Mortgage Bankers Association of America (MBA) reported that applications for refinances fell almost fifteen percent from the prior week. Bankrate.com said that nearly sixty percent of the more than 100 mortgage bankers, mortgage brokers and other industry experts it surveyed believe rates will fall more than 2 BPS over the next 35-45 days. Applications for purchase-money mortgages were 9.6% higher than last week.
Yield Spread What?
YSP's occur when a mortgage banker or lender pays an originator a fee for convincing a borrower to pay an interest rate higher than the market rate. For instance, consider a situation where an originator is charging a 1% origination fee on a $100,000 loan, or $1000. Let's say that XYZ Mortgage Wholesaler requires a par rate of 7% on that particular day. With a par rate, the borrower would pay closing costs, a $1,000 origination fee and no discount points at closing. If the originator convinces the borrower to accept a rate of 7.25 percent, then XYZ Mortgage Wholesaler will pay the originator an additional 1%, or $1,000. That $1,000 fee is a YSP. At the higher rate, the loan originator earned $2,000 including the YSP. MBA's Senior Vice President for Government Affairs pointed out that when the Real Estate Settlement Procedures Act (RESPA) was passed in 1974, mortgage brokers as they currently exist were not defined in the law. However, he said mortgage brokers increased their market share significantly in the 1980's, "and by the early 1990's mortgage brokers were initiating a large proportion of the mortgage loans that were made in this country." He added that it wasn't until 1992 that the term 'mortgage broker' was specifically defined under RESPA. Later that year, HUD established rules requiring that brokers disclose all the fees paid to brokers.
Conforming Loan Limit Increased
Fannie Mae and Freddie Mac announced today that their single-family mortgage loan limits will increase to $300,700 for 2002. The conforming loan limit is the maximum size residential mortgage loan the GSE's will buy from lenders. Additionally, Fannie said loan limits for second mortgages are increasing to $150,350. Loan limits in Alaska, Hawaii, and the U.S. Virgin Islands are 50 percent higher than the limits for the rest of the country, or $451,050 for single family properties in those territories next year.
Ouch!
Thanksgiving weekend retail sales were surprisingly better than expected. In a television interview Sunday, U.S. Treasury Secretary Paul O'Neill reportedly said, "the number that I saw early this morning indicated holiday sales on Friday were 4% over a year ago." The interview was reported by Dow Jones Newswires (DJ). While shares of many mortgage companies were up on Friday, mortgage companies are unlikely to be among the beneficiaries of such positive news. The numbers are more likely to encourage a flight from Treasuries to equities, pushing Treasury yields and mortgage rates higher and hurting mortgage production. While the retail sales data will likely push mortgage rates higher, DJ also reported that the National Bureau of Economic Research is poised Monday to declare that the U.S. is in recession and has been for months. Such a declaration is unlikely to put any further downward pressure on mortgage rates and could actually push rates down.
Illegal Referral Fees Cost Lenders $2 Million
The Department of Housing and Urban Development (HUD) announced Friday that it recently entered into several settlement agreements resulting in $2.25 million in payments for violations involving illegal kickbacks and referrals. The settlements are part of HUD's initiative on enforcement of the Real Estate Settlement Procedures Act (RESPA). The settlements include consumer housing counseling and education, refunds to home buyers, and payments to the government. HUD says that so far this year, it has entered into 38 settlements with lenders for violations of the anti-kickback provisions of Section 8 of RESPA. The violations involve the referral of flood and tax servicing in exchange for free review of existing loan portfolios by tax and flood determination servicers. As part of these settlements, $127,000 has been contributed to 30 consumer housing counseling / education agencies.
Woman Pleads Guilty In Michigan Fraud Case
Cheryl A. Swain pleaded guilty to a charge of mail fraud in connection with her conduct as the Vice President for Marketing Syndication of Mortgage Corporation of America (MCA), according to an announcement from the U.S. Attorney's office last week. Swain, 36, admitted that she participated in the marketing and sale of MCA securities knowing that the offering materials contained false information about the performance of the pools and the value of the assets . She also admitted that she kept the Financial Management Committee of MCA informed of the true condition of the pools. The plea agreement between the federal government and Swain, who lives in Beverly Hills, Michigan, leaves her facing up to 46 months' imprisonment and $250,000 in fines. She also could be ordered to pay full restitution to the victims of her offenses in the approximate amount of $66 million.
From The Depths Of A Decade
Mortgage Rates continued to climb from recent historic lows, with fixed rates jumping about a quarter percent, according to Freddie Mac's weekly rate survey. The average thirty-year fixed rate mortgage (FRM) rose 24 basis points (BPS) from last week to 6.75%. Freddie reported the average one-year adjustable rate mortgage (ARM) at 5.18%, up twelve BPS from last week. The more moderate increase in the ARM yield nudged ARM activity up to nine percent of overall applications from 8.30% last week, according to the Mortgage Bankers Association of America's (MBA) weekly application survey. Bankrate.com's mortgage experts were mixed in their outlook for rates, with 42 percent saying rates would rise and an evenly split 58% saying rates would either fall or remain unchanged (+/- 2 BPS) during the next 30-45 days. Reflecting two weeks of rising rates, MBA reported that applications for refinances fell almost ten percent from last week. However, applications for home purchases were up 3.71%, helping overall applications to fall only 6.6 percent.
California Vs Household
The California Department of Corporations (Department) is seeking $8.5 million in civil penalties from Household International subsidiaries Household Finance Corporation and Beneficial, Inc., as a result of alleged violations of the state's laws and regulations. Household "vehemently denies any assertion that it has willfully violated the lending laws that regulate its business." The Department said that to date, Household has "admitted about 36,000 instances in which" it has violated California's lending laws or regulations.
Who Can Originate FHA Loans?
The rule is, and always has been, that FHA-insured loans may be originated, serviced, purchased, held, or sold only by mortgagees that have been approved by HUD. There are three categories of HUD approval: Supervised lender, non-supervised lender, and loan correspondent. A supervised lender is a commercial bank or credit union. A non-supervised lender is a mortgage banker. This category of approval may originate, service, purchase, hold, and sell FHA insured mortgages. A mortgage broker is, in HUD parlance, a loan correspondent. This category of approval may only originate FHA loans; it may neither hold nor service such loans. Furthermore, a loan correspondent must have one or more HUD-approved sponsors (see non-supervised lender above) to underwrite and fund the FHA loans that it originates. HUD correspondents must be licensed corporations with a minimum net worth of $50,000, and with one officer having three years' origination experience and all senior officers having acceptable credit.
NetBank Acquiring RBMG
NetBank, Inc. announced this week that it will acquire Resource Bancshares Mortgage Group, Inc. (RBMG). Terms of the deal call for RBMG shareholders to receive 1.1382 shares of NetBank for each share of RBMG common stock. NetBank's current Chairman, T. Stephen Johnson, and Vice Chairman, D.R. Grimes, will continue to serve in those posts and RBMG CEO Douglas K. Freeman will become CEO of the combined entity. The board of directors will consist of 11 members -- 6 from the NetBank board, 4 from the RBMG board and one member who currently serves on both boards. The combined company will have assets totaling $3.6 billion and approximately 1,950 employees. Following is a snapshot of selected data for both companies.
Rock Bottom?
According to Freddie Mac's weekly application survey, the average thirty-year fixed rate mortgage (FRM) was 6.51%, six basis points (BPS) higher than a week ago, and the fifteen-year rose 4 BPS to 5.98%. The majority of mortgage experts surveyed by Bankrate.com expect mortgage rates to remain within two BPS of current rates during the next 30-45 days. The average one-year adjustable rate mortgage (ARM) -- which Freddie reported was down 24 BPS from last week to 5.06% -- was more than two percent lower than a year ago. While refinance applications were setting records, MBA reported that applications for purchases fell more than ten percent from last week. Government applications fell almost ten percent while conventional applications rose 3.51%.
Improving Online Value
Mortgage companies that operate online need to clarify up front what loan programs they offer, according to a brief released by Gomez. Entitled "Best Practices: On-Site Resources That Keep Clients & Prospects on track & Returning Online," the brief is the third in a four-part series that highlights, by Gomez' Scorecard category, online mortgage best practices that in concert will help firms convert online mortgage shoppers into closed loans. Next, Gomez said that firms must enhance online decision support by adding sophisticated tools, such as "comparenators" and insightful educational content. Gomez also said that lenders should add anchor content to encourage repeat visits. Finally, Gomez suggests creative anchor content that converts shoppers into closed loans.
"Alt A" Guidelines Tightening
Mortgage brokers and lenders are reporting a tightening of credit standards for borrowers that utilize no-income verification loans, jumbo loans and subprime loans, according to a story in the interactive edition of the Wall Street Journal (WSJ). Greenpoint Mortgage reportedly raised its minimum credit score on no-documentation loans to 660 from 640. WSJ reported that Chase Manhattan Mortgage raised its minimum credit score requirements to 680 from 660 on some limited documentation loans last month.
PMI Expects Claim Payouts To Rise 15%-25% Next Year
Dow Jones Newswires (DJ) reported that PMI Group Inc. estimates total domestic primary claims paid during 2002 could be 15% to 25% higher than those paid during 2001, according to a regulatory filing released late Thursday by the Securities and Exchange Commission. The company reportedly also estimates total domestic losses in 2002, including paid claims, loss adjustment expenses and changes in loss reserves, could widen by 25% to 35% from 2001, the filing said.
Rates Slide To 30-Year Low
Fixed mortgage rates slipped to their lowest levels in thirty years, as Freddie Mac reported the average thirty-year fixed rate at 6.45%, down eleven basis points (BPS) from last week. The fifteen-year fixed rate was reported at 5.94 percent, down 10 BPS. Two-thirds of the mortgage experts surveyed by Bankrate.com expect for rates to decline further over the next 30-45 days. Applications for refinance mortgages shot up almost twenty-five percent from the prior week, according to the Mortgage Bankers Association of America (MBA). Total loan applications -- including applications for purchase-money mortgages -- rose twenty-three percent.
Originators Lack Adequate Education
Mortgage lenders and brokers nationwide do not feel that their originators and processors have the knowledge they need to be totally effective in their respective positions, according to a survey conducted by Mortgage-Education.com. The survey of 1,200 mortgage brokers and mortgage lenders was completed in August of this year.
Carolina Title Agency President Pleads Guilty
The owner and president of a North Carolina title insurance agency pled guilty to insurance fraud in federal court, according to an announcement from the U.S. Attorney. Robert B. Herbert, Jr. of Raleigh allegedly "embezzled and misappropriated moneys from Stewart Title from March 2, 2000 to May 31, 2000," according to documents referenced by the U.S. Attorney. The announcement went on to say that an audit of the company that Herbert owned and operated -- Carolina Title Insurance Agency -- revealed that more than $700,000 was missing from various escrow accounts.
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This mortgage news summary reprinted with permission of
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