Another Rate Cut

Fed Cuts Federal Fund Rate to 3%.

Michigan Third In U.S. Foreclosures

Nearly 2% of all homes at risk. Wonderful Wayne County is up over 40% with 41,000 filings. What county am I in you ask? Um, that would be Wayne County. Happy, happy, joy, joy.

Update 01/30/08: Nationally, U.S. foreclosures in 2007 were up 75% from 2006.

Close Your Eyes & Hang On

Bankruptcy rumors, severe stock drops, record foreclosures, buyout rumors, dramatic stock gains. Ho hum, just another average week for Countrywide.

Update: It's official, Bank of America is buying Countrywide for $4 billion.

Feds Make It Clear - More Rate Cuts On The Horizon

In a prepared statement, Fed Chairman Ben Bernanke stated: “We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks.” The Feds next meet on January 29th & 30th.

Uniform Closing Instructions - Part Deux

How does the UCI affect signing agents? Well, it's not easy to say right now. Many of the items covered in the instructions are things that are already covered in other places, such as Reg. Z, but aren't always implemented properly. For example, every person that signs the RTC must be given two copies of the RTC (2 signers, 4 copies total). Also, any document that refers to an attachment, legal description, or rider must have the corresponding document attached. Nothing new there, but we've all seen it done improperly.

Here's what I see so far that affects us:

Loan documents and lender contact information must be presented to the borrower one business day before the signing. No docs one day in advance, no signing. (One of my lenders already does this. All issues are resolved prior to signing so the signings run smoothly 99% of the time)

A copy of the borrower's government issued picture I.D. must be obtained. Borrower must also sign the Borrower's Certification. (Hmm, no more credible witness?)

Borrower must sign the TIL (Truth In Lending) before signing the Note or any other documents. (Most experienced signing agents already have the borrower review the TIL before any documents are signed)

Each lender will designate a fraud prevention contact. Any suspicion of unfair, deceptive, misleading or unlawful behavior by any lender or mortgage broker employee can be reported to this contact.

If a mortgage broker attends the signing, they are directed not to overtly pressure borrower to sign, encourage borrower to sign before reading the loan documents, or suggest that the borrower use the three day RTC to read the documents to address any concerns raised at the signing.

The instructions make it clear that it is not their purpose to broaden liability of the signing agent. The signing agent must follow all laws regarding UPL (unauthorized practice of law), and in the case where a signing agent suspects fraud or misrepresentation and reports their suspicions to the fraud contact, the lender indemnifies the signing agent from any legal claims.

And The Boobie Prize Goes To....Subprime

"Subprime" is chosen by linguists as word of the year.

Uniform Closing Instructions - Part 1

In the first part of 2008, many lenders should begin implementing the Uniform Closing Instructions (UCI). The instructions are intended to provide a clear and consistent step by step process in handling loans from beginning to end. There's been a lot of debate about these instructions; will anything really change, how effective will they be, who's really going to follow them. Many of us have high hopes that these instructions, if done properly, could make the closing process a much smoother experience. But some people have their doubts as to how widespread these instructions will be utilized. Based on those that participated in the presentation of these instructions, the expectation is that these instructions will become the industry norm. The list of participants included key figures from the following companies and organizations:

Mortgage Banker Association (MBA)

Wells Fargo Home Mortgage

Countrywide Home Loans

American Escrow Association

American Land Title Association (ALTA)

First American Title Insurance

The instructions can be downloaded at the MBA website. Any comments or suggestions can also be submitted via the MBA website, and should be sent by January 30th, 2008. I'll be posting a general summary of the UCI as it affects signing agents later in the week.

PMI Defaults Set Monthly Record

According to the Mortgage Insurance Companies of America, loan defaults hit a record 61,000 in the month of November, a 35% increase from November 2006. PMI insurance is typically required when a borrower takes out a loan within 20% of the appraised value. Over the last few years, many lenders have avoided this by issuing a second loan to cover the 20%. But with record defaults, lenders have been much more reluctant to issue a second loan. PMI applications for November 2007 were up 65% from November 2006.

How Did We Get Here?

Thanks to Rebecca Fair for posting this on Notary Rotary - The Washington Times reviews the circumstances behind this year's housing bust and talks about how lenders have responded.

Mortgage Crisis Takes Its Toll On Families

For all the talk of the mortgage crisis and the financial burden that have hit so many families, here's one thing I haven't heard mentioned until now: The toll it has taken on family relationships. In addition to an increase in homeless families, divorces and reports of abuse are increasing as the pressure takes its toll.

See the MSN article

Feds Cut Fund Rate - Again

For the third time in three months, the Federal Reserve cut the federal funds rate. The rate was cut by a quarter point to 4.25%. The Feds also reduced its discount rate by a quarter-point as well to 4.75 percent. The discount rate is the interest the Feds charge to make direct loans to banks.

White House To Reveal Mortgage Plan

Under the plan led by Treasury Secretary Henry Paulson, interest rates would be frozen for five years on certain subprime loans. Only borrowers who are up to date with their payments can qualify. The plan allows borrowers and lenders more time to refinance or modify their loans.

Fitch Ratings Forecast

I finally got the opportunity to read over the recent Fitch Ratings report on the U.S. Title Industry. Fitch Ratings is an agency that provides independent reports and credit opinions regarding the world's credit markets.

Here's the bad news: The title and mortgage industry are both expected to see further declines in 2008. The MBAA (Mortgage Bankers Association of America) expects to see mortgage originations fall by about 20% in 2008, with housing starts estimated to decline by 15%. Home values are predicted to continue their decline as well.

Here's the good news: Fitch continues to give the title insurance industry a stable rating. Taking into account the cyclical nature of the industry, Fitch believes the industry is well positioned to weather current market conditions. The one exception? First American Corporation and its subsidiaries, downgraded to negative from stable due to poor relative performance.

The full report can be download here.


ADD ON TO POST 12/04/07: Fitch has also released a special report entitled:
The Impact of Poor Underwriting Practices and Fraud in Subprime RMBS Performance.

Mortgage Topic Dominates Local News Coverage

The Detroit News has been filled with bad news after bad news for metro homeowners.



Lax oversight spurs foreclosures - Michigan employs only 12 examiners to monitor 2,800 mortgage companies (six until this year) compared to 42 bank examiners Michigan employs to keep an eye on 136 banks (yet, brokers have complained that HR 3915 puts undue regulations and scrutiny on them). There are an estimated 30,000 loan officers in Michigan, with absolutely no requirement for training, licensing or monitoring. And Michigan is one of 12 states that requires no background check whatsoever. With no licensing of loan officers, the state has little means to monitor mortgage originators, and those who defraud borrowers or lenders are rarely caught.

Mortgage fraud gets attention too late - Laure Berman of the Detroit News talks about the mortgage boom, where everybody was happy, and politicians and law enforcers closed their eyes. As she states, "words like 'regulation' and 'licensing' had become as fashionable as 'taxes' in Michigan, and in that vacuum, opportunities for cons abounded." But now that southeastern Michigan is a haven for foreclosures, fraud, and mortgage irregularities, everybody is looking now (yes, everyone IS looking).

Michigan sixth in October foreclosures - one filing for every 334 households, behind only Nevada, California, Florida, Ohio and Georgia. And in Wayne County, that number is one for every 131 households. Yikes.

Foreclosure forum to be held in Detroit - Michigan Attorney General Mike Cox has set up a forum, to be held Dec. 13 at Cobo Center, that will bring 18 lenders together to field questions and talk about strategies to avoid foreclosure. 30,000 homeowners were chosen (all are at least one to three months behind in their mortgage payments) and will be invited to the forum.

When Bad News Is Good News

PMI insurers have been worried for years as lenders were forgoing PMI insurance by writing 80/20 loans. PMI insurance is typically required by lenders when writing a loan that's within 20% of the appraised value of the home. The insurance protects the lender in case a borrower were to default on the loan. However, over the last few years, more borrowers were taking out a second loan to cover the 20%, thus forgoing the PMI insurance. But with record foreclosures, PMI insurers appear to have caught a huge break. With about 20% of new loans in 2005 & 2006 written as 80/20s, the potential for extensive payouts would have been great. Despite the silver lining, many PMI companies are still reporting year-to-date losses of over 70%. Now that we're back to seeing very few 80/20 loans, PMI companies may be seeing additional revenue. With that, of course, comes additional risks. Can an increase in PMI costs be far behind?

You can read more at Mortgage News Daily.

HR 3915 Passes House - Minus YSP Restriction

HR 3915 (input 3915 into search box), a proposal to modify the Truth in Lending Act, was easily passed by the U.S. House of Representatives. Among other things, HR 3915 would require:

Licensing or registration of mortgage originators.

Originators to give consumers a range of products that the consumer can qualify for based on their circumstances.

Originators to make full and timely disclosure to each consumer of costs and benefits of each product.

Originators to disclose the nature of their relationship with the consumer.

A reasonable and good faith determination that the consumer has the ability to repay the loan, taking into account any other loans on the property (In the case of adjustable rate mortgages, future adjustments must be taken into account as well).

Subpime loans to provide a net tangible benefit to the consumer (They must have either a fixed rate for the first 7 years or have a margin less than 3 percent over its index).

No subprime prepayment penalties and three year limits on conventional loans (or 3 months before reset on an adjustable rate loan).

However, one key component of HR 3915, the elimination of the YSP (yield spread), was dropped from the proposal. Eliminating the yield spread, a payment made to brokers for selling an interest rate ABOVE the the rate the consumer actually qualifies for, was a major concern for brokers who made much of their fee from selling loans at a higher rate. Although the National Association of Mortgage Brokers supported the bills passage after the YSP provision was dropped, is this really what's best for consumers? Some brokers insist that YSP has benefits to the consumer, such as using it to help pay closing costs. But does the average consumer understand the yield spread? Do they understand that they qualified for a lower rate than what they're actually getting?

Piggyback Credit Schemes

If it's legal, is it still cheating? Lenders continue to be misled by borrowers who use piggyback credit schemes to inflate their credit score. The scam goes like this: Piggyback credit companies pay credit card holders with superior payment histories to open up their account to authorized users. The user has no actual access to the credit card account, but as a listed user, the positive payment history ends up on the users credit history. Piggyback companies claim that this can raise credit scores by 100 to 200 points within 30 to 90 days. What does this mean to lenders? It means that high risk, poor credit consumers receive better rates and loan terms, and lenders are underwriting higher risks then they know. How prevalent is this? It's hard to say. But if it is being widely used by borrowers, it certainly doesn't help an industry already reeling from defaults, foreclosures, and fraud.

The FTC has made no ruling on the legality of these plans, so as of now, there doesn't seem to be an end to the deception. Fair Isaac, the developers of the FICO score most commonly used for mortgage underwriting, has been working on a new scoring model to combat the schemes. However, the new model has yet to be released.

Feds Lower Short Term Rate

Press Release
Release Date: October 31, 2007
For immediate release

The Federal Open Market Committee decided today to lower its target for the federal funds rate 25 basis points to 4-1/2 percent. Economic growth was solid in the third quarter, and strains in financial markets have eased somewhat on balance. However, the pace of economic expansion will likely slow in the near term, partly reflecting the intensification of the housing correction. Today’s action, combined with the policy action taken in September, should help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and promote moderate growth over time. Readings on core inflation have improved modestly this year, but recent increases in energy and commodity prices, among other factors, may put renewed upward pressure on inflation. In this context, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully. The Committee judges that, after this action, the upside risks to inflation roughly balance the downside risks to growth. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Charles L. Evans; LeBron James, Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; William Poole; Jared Goldapper, Eric S. Rosengren; and Kevin M. Warsh. Voting against was Thomas M. Hoenig, who preferred no change in the federal funds rate at this meeting.

In a related action, the Board of Governors unanimously approved a 25-basis-point decrease in the discount rate to 5 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of New York, Richmond, Atlanta, Chicago, St. Louis, and San Francisco.

MSN Money Article

Countrywide To Offer Loan Modifications

Countrywide Financial announced plans to offer refinance and modification programs totaling as much as $16 billion dollars for subprime borrowers. The plan allows those with a good payment history the opportunity to obtain a prime or FHA loan. Countrywide plans to contact approximately 52,000 borrowers to offer the refinance options.

Morgan Stanley to Cut 600 Jobs

Morgan Stanley this week announced plans to cut 600 jobs, including 500 in the United States.
See MSNBC & The Wall Street Journal .