Biggest Frauds In Lending, PIMCO Cuts Bond Holdings, Leading Indicators Up
What were Adam’s first words to Eve? They were rumored to have been: “Stand back Eve, I’m not sure how much bigger this thing is going to get!” How big is the current fraud trend, or so it seems, going to become? Fraud continues to be everywhere in the newspapers. Obviously the risk of perpetrating or becoming an unknowing victim of mortgage fraud can be mitigated through increased consumer awareness and education, and there are increased efforts on the part of investors to encourage their clients to educate consumers about what constitutes mortgage fraud and the consequences of mortgage fraud before they close their loan. As part of the loan origination process, help educate consumers by clearly disclosing that mortgage fraud is a federal offense with serious penalties, and will be fully investigated and prosecuted by the appropriate authorities. For example, a Mortgage Fraud Warning Notice is produced jointly by the FBI and the Mortgage Bankers Association (MBAA). It is not required, but compliance departments may want to begin using it. In fact, on the MBAA’s web page they have a FBI Mortgage Fraud Warning page for additional detail and instruction regarding how this form may and may not be used, or to the FBI’s Mortgage Fraud page for other stories and statistics.
Who Are Biggest Frauds In Lending
In an unrelated, but similar topic, the New York Times had an article discussing whether or not more loans ended up in foreclosure that were originated by experience brokers rather than inexperienced brokers. The article states, “But new research…suggests that more experienced mortgage brokers might actually be more likely than novices to make loans that end up in foreclosure.” Nearly 23,000 mortgages in the study were processed by 2,905 brokers from 2004 to 2008. Experienced brokers spent less time on each loan, were more adept at making or pushing for exceptions, etc. In addition, brokers farther away from a lender’s headquarters, or underwriting area, fell into the same “higher risk” category. As any broker knows, reputation is critical, and a potential borrower can check with a state’s banking commission to see their complaint history.
Small to mid-size mortgage banks are dealing with an increased number of buy-backs, or so it seems. This is especially evident in the “stated income agency” programs. Unfortunately correspondent investors are concerned that many of the companies don’t have resources to buy back the loans and then hold them through the foreclosure process, especially as that has grown in time length with so many in courts. Is anyone out there still buying scratch/dent loans?
PIMCO Cuts Bond Holdings
What is the world’s biggest bond fund? Pacific Investment Management Co’s Total Return Fund, of course. Well, PIMCO cut their mortgage debt holdings last month and boosted their percent of investments in cash and cash equivalents, which of course isn’t great news for mortgage rates. “Pimco chief Bill Gross suggested that investors focus on the secure income provided by dividend paying stocks and bonds. ‘The outlook for risk assets — stocks, high-yield bonds, and commercial and residential real estate will involve just that — risk,’ he said.”
Leading Indicators Up
Let’s get back to the economy. Yesterday we had more mixed news, with Leading Economic Indicators for June shooting up .7%, which is the third month in a row that they’ve been positive. This was stronger than expected. Seven of the 10 indicators were positive while three indicators were negative. As for today, there is no news, aside from Bernanke’s semi-annual Monetary Policy Report to Congress (and wraps up tomorrow). This could provide some movement to the market – we’ll see. Also something to note is the spread between the yields on 2- and 10-year notes, which is the widest it has been since early June. Hopefully originators remember how to do ARM loans! And to help matters, we had a nice improvement Monday afternoon ahead of today’s testimony, and with lower locks and originations mortgage prices rallied. This morning we find the 10-yr around 3.64% and mortgages security prices slightly better.
Daily Humor
Having just visited Boston, I managed to come up with this one…
A Catholic guy goes into the confessional. He notices on one side a fully equipped bar with Guinness on tap. On the other wall is a dazzling array of the finest Cuban cigars. Then the priest comes in.
“Father, forgive me, for it’s been a very long time since I’ve been to confession, but I must first admit that the confessional box is much more inviting these days.”
The priest replies, “Get out. You’re on my side.”