MBS Reactions To BofA & GMAC Resuming Foreclosures
Bank of America and GMAC are the home foreclosure processes that were frozen by documentation concerns. The WSJ reported that “Bank of America Corp. reopened 100,000 foreclosure actions, declaring that it had found no significant problems in its procedures for seizing homes. GMAC Mortgage, a lender and loan servicer, said that it also is pushing ahead with an unspecified number of foreclosures that came under intense pressure.” The paperwork will be submitted to courts by next Monday, and foreclosure sales will resume in those states starting in November. Wells Fargo, Citigroup, and others never imposed moratoriums. A Bank of America spokesman said the bank has found “no cases” thus far of foreclosures that should not have “gone through.” Last week, James Dimon, J.P. Morgan Chase & Co. chairman and chief executive, said that no one has been “evicted out of a home who shouldn’t have been.”
Wall Street trading operations were already assuming this would happen. Bank of America’s traders sent out a note last week saying, “We believe the MBS market will successfully muddle though the current foreclosure problem and that lenders’ right to foreclose on delinquent borrowers will be sustained.” Barclays notes, “Of all the issues, robo-signing seems the most likely to be a procedural matter, but only if all documents are in order. The bigger problem could be if the issues in question are judged to be more than simply technical. For example, if a mortgage note was incorrectly transferred to a trust or never transferred at all, this may be a much deeper problem, making it unclear who can foreclose on the property. Most of the issues with improper documentation should have legal solutions, since the trust has an economic claim on the debt and it is unlikely that a borrower will be able to walk free of a lien simply because of some procedural sloppiness on the part of the lender/sponsor. However, fixing the procedures and establishing standing in these cases could take a long time” – 3-6 months. Today’s announcement of the foreclosure resumption is a good step, but property law dating back to the 12th Century mixing with electronic property processing and trading is difficult to reconcile.
Builders More Confident, Housing Starts Up 3rd Straight Month
For economic news yesterday we learned that Industrial Production unexpectedly fell 0.2% in October, the first decline since June 2009, Capacity Utilization decreased to 74.7% from 74.8%, and the NAHB Housing Market Index increased from 13 to 16 in October. I don’t know exactly what “13” or “16” means, but the NAHB Chairman said “Builders are starting to see some flickers of interest among potential buyers, and are hopeful that this interest will translate to more sales in the coming months. However, because most builders still have no access to credit for building homes, there is a real concern that we will not be able to meet the pent-up demand when consumers are ready to get back in the market.” Any lender in what-used-to-be a new home market knows that the toughest obstacle is financing.
By the end of yesterday, both fixed-income and equity prices improved, mostly based on speculation that the Fed will increase its asset purchases under “QE2”. (That is “Quantitative Easing”, not the “Queen Elizabeth” cruise ship.) Only $1.2 billion of MBS’s were sold, and the demand was strong from the money manager community. MBS prices finished better by .250-.375 in price making up for Friday’s loss. Whether or not accumulators or lenders passed this improvement onto their rate sheets remains to be seen, but that is what the MBS market did. The 10-year note gained .75 in price and moving down to 2.49%.
Today we’ve already had earnings out from Bank of America and Goldman Sachs (both decent, both roughly as expected) and also five Fed District Presidents and one Board Governor speaking. Economic data consisted of Housing Starts and Building Permits. Starts were up .3%, better than expected, but Permits were worse than expected at -5.6%. The 10-yr is up to 2.54% and mortgage prices are worse between .125-.250.