THE BASIS POINT

Hard Times For (Non-FHA) Mortgage Insurance, Ginnie Mae CEO Resigning, CPI Unchanged

I sure am happy that I am not working in the mortgage business anymore! First, Bank of America won a restraining order barring Colonial Bank from selling or otherwise disposing of $1 billion in cash and loans held by Colonial. Colonial, who most think will be taken over by the FDIC any day now (and today IS Friday…), was sued by BofA Wednesday. It seems that Colonial, through a Taylor Bean commercial paper network named Ocala Funding LLC, may be holding the cash and loans as a custodian to the tune of more than 6,000 mortgages worth more than $1 billion. And Freddie Mac, as it turns out, bought some of the mortgages while Bank of America is acting as custodian for the deal. BofA’s lawsuit claims that cash sent by Freddie Mac to Colonial, which was acting as an intermediary and required to pass the money to Ocala Funding, wasn’t delivered.

The original complaint requested that Colonial not sell any of the proceeds that it received from Freddie Mac in exchange for mortgage and other loans, and which were owned by Ocala Funding. Colonial held the proceeds as a custodian, agent and bailee through bailee letters, but according to BofA when the bailee letters were terminated Colonial refused to return them to Bank of America. If Colonial fails, it would be the largest bank failure this year.

Taylor Bean Fallout
Second, in a related and just as ugly story, Housing Wire reported that “Michigan state regulators ordered Taylor, Bean & Whitaker Mortgage Corp. (TBW) to stop doing business in the state. TBW originated nearly 4,000 mortgages worth more than $500m in the state.” As it turns out, according to the story, TBW services about 10,000 mortgages ($1.2 billion) in Michigan, and the government wants the list. If every state does this…

StoneWater Mortgage “reassured” their brokers that they are able to accept loans that may have previously been sent to Taylor, Bean & Whitaker. They won’t, however, accept appraisals which were completed at the request of TBW, and brokers will be required to order a new appraisal in compliance with SWM appraisal policies. As with other investors, all transferred loans must be MDIA compliant. StoneWater sweetens the pot slightly by issuing “a $250 credit at closing for each file that has been transferred to SWM with an appraisal completed at the request of Taylor, Bean & Whitaker. In order to receive the $250 credit at closing, documentation must be provided at time of submission to demonstrate that the appraisal was completed at the request of TBW.”

Mortgage Insurance Saga
The saga of mortgage insurance software continues. I have mentioned MGIC, and Radian, and I was informed that PMI offers their enhanced Rate Quote, including geographic restrictions, complete with their “soft guidelines” built into it. The system will tell clients whether or not the loan qualifies based on the accuracy of the data submitted, and each loan is run through their system for geographic restrictions, FICO, LTV and DTI ratios as well as geographic loan program restrictions. And, like the others, no is password required.

And while we’re talking MI, RMIC tweaked their eligibility guidelines and documentation requirements to match what the investors are demanding. This applies to loans submitted after October 1. For example, the maximum age of credit documents will be 90 days from the date the note is signed on existing properties, 120 days from the date the note is signed on new construction, or 120 days from the date of conversion of a Construction-Permanent loan to permanent financing. For appraisals, the maximum age will be 120 days from the date of the note for existing properties and new construction, or from the date of conversion to permanent financing for Construction-Permanent loans. “If the appraisal is more than 120 days from the date of the note, or the date of conversion, the appraiser must perform an appraisal update, which includes the following: an exterior inspection of the property; and a review of current market data to determine if the property has declined in value since the original appraisal date.” RMIC also addresses qualifying borrowers for ARM loans, buy downs, income documentation, tax returns, reserve requirements, etc.

New Mortgage Disclosure Rules
How are multi-branch originators, who sell to the major conduits, doing with MDIA? One executive wrote to me and said, “MDIA has been a challenge. As a correspondent lender very few of our conduits have come out with anything definitive for guidance on what they will and won’t accept to show compliance. As a company we have hundreds of small branches across the country and coming up with a manageable way to document when the borrower was sent or received the correct re-disclosures is a challenge. Email receipts and fax receipts are one thing but they don’t show what was faxed or emailed and there is no way to know for sure. Until we can get clarification from investors it’s a guessing game.”

Ginnie Mae CEO Resigning
Out of Bloomberg comes the story that Joseph Murin, the president of Ginnie Mae (not the same as HUD!), will soon resign after about a year on the job. Gee, these top mortgage-related companies have trouble keeping CEO’s! As we’ve talked about, Ginnie Mae, who insures bonds made up of FHA and VA loans, has seen astronomical growth lately with the increase in volumes of these loans. Critics say that this is the next subprime debacle. To put it into perspective, debt explicitly backed through Ginnie Mae is almost $700 billion (from $360 billion two years earlier) versus Fannie and Freddie’s guarantee on about $5.3 trillion of U.S. residential mortgage debt.

Fed Mortgage Bond Program
What was the Fed up to last week regarding purchasing our mortgages? They bought another $20.4 billion for the week, mostly 30-yr 5.0% securities (which generally contain 5.25-5.625% loans). They bought very few GNMA securities, and nothing in the way of 15-yr bonds. The Basis Point covers this in detail every week. Click the mortgage bonds topic for more.

Second Mortgages
Just because a borrower has a 2nd mortgage, does that mean that they are a higher credit risk? Perhaps, although it is not the only reason. But by some estimates up to 50% of “at risk” loans have a 2nd on them. Thus the government’s program.

CPI Unchanged
As summer winds down, with vacations increasing and “out of office” replies multiplying, we had the Consumer Price Index news this morning. The CPI was unchanged in July, as expected, and over the last year has fallen by over 2% – the most since 1950. Ex-food and energy, since no one uses either of those, the core rate was +.1%, as expected. The bond market liked the news, and is rallying: mortgage prices are better by about .125, and the yield on the new 10-yr is down to 3.58%. Expect a typical summer Friday in the financial markets…

Daily Humor
Sex After Death
A couple made a pact that whomever died first would come back and inform the other of the afterlife, since they both wondered about life after death.
After a long life together, the husband was the first to die. True to his word, he made the first contact, “Connie ….Connie.”
“Is that you, Joe?”
“Yes, I’ve come back like we agreed.”
“That’s wonderful! What’s it like?”
“Well, I get up in the morning, I have sex. I have breakfast and then it’s off to the golf course. I have sex again, bathe in the warm sun and then have sex a couple of more times. Then I have lunch (you’d be proud – lots of greens) another romp around the golf course, then pretty much have sex the rest of the afternoon. After supper, it’s back to golf course again. Then it’s more sex until late at night. I catch some much needed sleep and then the next day it starts all over again.”
“Oh, Joe you surely must be in Heaven!”

“Well, not exactly. I’m a rabbit on a golf course in Arizona.”