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Mortgage Headlines
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Last Updated Saturday, December
28, 2001 12:34 PM CST
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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.
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.
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