FHA 100% Loans Won’t Last, Countrywide Sued As BofA Acquisition Approved

Is California on fire? It sure seems that way, with over 1,000 individual fires! And here is the latest story on a subject that always rouses a spirited debate: if one could pay off their mortgage, should they?

OK, if house prices in many markets are continuing to decline, and Consumer Confidence, based on a survey of 5,000 U.S. households, fell to 50.4 in June (the 5th lowest reading ever) why aren’t rates lower? Overnight Fed Funds rates are not directly correlated to mortgage rates, but expect today’s statement from the Fed meeting to be little changed from the one released after the April 29/30 meeting. Developments since then have done relatively little to change the underlying economic picture of weak growth and possible high inflation, and financial market stress. That is the key: the threat of inflation. The other news out this morning – new orders for long-lasting U.S. manufactured goods – did little to move the market. They were unchanged in May after two consecutive months of decline. The 10-yr stands at 4.13% and mortgage prices are about the same as they were yesterday morning.

Fannie and Freddie guarantee payments made by servicers on their securities, similar to GNMA, but they don’t guaranty payments on the underlying collateral. So if a servicer gets a series of checks that bounce those checks are guaranteed, but not any of the future payments due on the loan? The servicer either has to collect from the borrower (a payment plan is usually the answer), or they have to foreclose, and get the money back from the foreclosure sale. FNMA and FHLMC don’t guarantee that the actual loans will pay the servicers. Therefore, if the borrower is simply delinquent, then the servicer is constantly advancing funds to the investors that the borrower hasn’t paid, hence the hesitation on lending to high LTV, low FICO borrowers.

Last Friday HUD sent out a letter to lenders (MORTGAGEE LETTER 2008-17) reminding them of the existing FHA policy regarding the use of non FHA-approved mortgage brokers when originating FHA-insured forward mortgages. “FHA loan origination services must be performed by a FHA-approved lender or FHA-approved mortgage broker (loan correspondent). A FHA-approved loan correspondent may be compensated for the actual loan origination services it performs either directly by the consumer or indirectly by the FHA-approved lender without being in violation of either the Real Estate Settlement Procedures Act (RESPA) statute and regulations or FHA regulations. While FHA regulations permit a borrower to engage a broker who is not FHA-approved to assist him/her in obtaining mortgage financing, the loan origination services may not be performed by that broker and the FHA approved mortgagee shall not compensate the broker for such services. FHA requires that these services be performed by either an FHA-approved lender or loan correspondent[1]. RESPA prohibits the payment of duplicative fees, and the payment to the unapproved broker for duplicated services amounts to an unearned fee in violation of section 8(b) of RESPA.

Speaking of FHA loans, down payment assistance programs are being scrutinized again. Supporters of the down-payment programs say they help the FHA fulfill its goal of assisting first-time home buyers. But critics say the programs will burden the government agency, and taxpayers, with bad loans. To critics, mortgages with down-payment assistance are similar to no-money-down subprime loans, which have high default rates since the borrowers have “no skin in the game”. The FHA renewed a push to eliminate the programs this month, after warning that above-average default rates for seller-assisted down-payment programs will force the agency to request a government subsidy for the first time of over a billion dollars to cover losses.

After Friday, Wells Fargo correspondent will no longer accept loans originated using the following products: Non-conforming 40/30 balloon (40-year amortization term with 30-year balloon fixed rate), Non-conforming 40/30 5/1 LIBOR balloon (5/1 LIBOR with 40-year amortization term with 30-year balloon), Non-conforming LIBOR ARMs with six-month, 1/1 and 3/1 terms, and Conforming LIBOR ARMs with six-month and 1/1 terms.

The Wall Street Journal reported that the Illinois attorney general’s office says it has found enough evidence of wrongdoing that it plans to file a civil suit against the mortgage lender and its chief executive, Angelo Mozilo. Illinois alleges that the company engaged in “unfair and deceptive practices” in the sale of mortgage loans, loosened its underwriting standards, structured loans with “risky features” and engaged in “marketing and sales techniques” that motivated employees and mortgage brokers to push loans whether or not homeowners had the ability to repay them. Countrywide’s actions (like most other lenders) were driven by its desire to boost market share and to satisfy Wall Street’s appetite for mortgage securities.

Supposedly taken from an actual court transcript:
ATTORNEY: Doctor, before you performed the autopsy, did you check for a pulse?
ATTORNEY: Did you check for blood pressure?
ATTORNEY: Did you check for breathing?
ATTORNEY: So, then it is possible that the patient was alive when you began the autopsy?
ATTORNEY: How can you be so sure, Doctor?
WITNESS: Because his brain was sitting on my desk in a jar.
ATTORNEY: I see, but could the patient have still been alive, nevertheless?
WITNESS: Yes, it is possible that he could have been alive and practicing law.