THE BASIS POINT

Mortgage Relief For Oil Spill Homeowners, Short Sale Pitfalls, Loan Modifications Failing?

Fannie Mae Relief For Homeowners Near Oil Spill
CitiMortgage will suspend all foreclosure sales and filings for 90 days on its 1st mortgages within 25 miles of the Gulf coast. Fannie Mae said that servicers of Fannie-backed loans may immediately suspend or lower payments on mortgages for borrowers whose income or property were affected by the spill. Under the Fannie Mae program, servicers can offer to postpone or lower payments for up to 90 days, during which the servicer is expected to verify the borrower’s income loss or the damage the oil spill may have done to their property. Freddie Mac will grant up to six months forbearance to victims of the oil spill.

Re-Defaults of Modified Loans
Fitch Ratings forecasts that most borrowers who get lower mortgage payments under a federal government program will default within 12 months. This is not much of a surprise to anyone involved in modifying mortgages, but in a story by WSJ’s James Hagerty:

“among those with loans that aren’t backed by any federal agency, the re-default rate within a year is likely to be 65% to 75% under HAMP.”

Almost all of those who got loan modifications have already defaulted once. HAMP impacted borrowers still have, on average, a median ratio of total debt payments to pretax income of 64% – run that through your AU system. The news is a little old, however, being based on the performance of non-HAMP loans that were modified in the first quarter of 2009. But it does take time to see the results of the program – most analysts believe that the results of the $50 billion HAMP program are mixed.

Short Sale Pitfalls
In an article from Managing REO, California Real Estate commissioner Jeff Davi issued a consumer alert warning consumers and real estate agents about the “perils and potential pitfalls” of short sales. The alert educates consumers and real estate agents to recognize the elements of a fraudulent or questionable deal. Most define a short sale as one that involves the sale of a property wherein a seller receives an offer from a buyer that is less than the amount of the mortgage loan on the property, and the lender is asked to accept less than what is owed in order to allow the transaction to close. The DRE warns in some instances a seller may be required to pay taxes on the forgiven debt, and warned of unscrupulous agents and straw buyers. Short sale negotiators must be licensed real estate brokers (or a licensed real estate salesperson where that person is working under the supervision of his or her broker). Any and all payments must be fully disclosed and made part of the escrow documents. If there are any fees to be paid “outside” of escrow, this may be the red flag that the payment is illegal.

Failed Mortgage Bank CEO Arrested for TARP Fraud
Taylor, Bean & Whitaker is in the news again. The SEC has charged the company’s former CEO and chairman Lee Farkas, who was arrested in his gym, with fraud in a scheme intended to scam at least $1.5 billion from private investors and the U.S. Treasury’s Troubled Asset Relief Program (TARP). The charge says something about “engaged in a pattern of fraudulent conduct for the purpose of selling at least $1.5 billion of fictitious and impaired residential mortgage loans to Colonial Bank. Those loans were then falsely reported by Colonial to the investing public as high-quality, liquid assets, which allowed Colonial Bank to misrepresent that it had satisfied a prerequisite necessary to qualify for TARP funds.” TBW began to experience cash flow problems in 2002 and to cover the shortfall, the members misappropriated funds from Colonial Bank and from Ocala Funding LLC – both controlled by Farkas. In addition to conspiracy, he is being charged with bank, wire and securities fraud.

Closing Extension For Tax Credit
Investors are plainly backlogged in the processing of loans to be purchased, in part due to the tsunami of loans originated due to the first time home buyer tax credit. These loans must fund by June 30th and this closing deadline has not been extended. It may be, however, through the potential approval of an amendment to the Tax Extenders Bill. Under the amendment, borrowers who signed purchase contracts by April 30 would be given three extra months to close their loan and still qualify for the homebuyer tax credit. The new deadline would be September 30, 2010.

Consumer Inflation Flat, Other Economic Updates
This morning’s Consumer Price Index came out as expected, -.2%, with its core rate +.1%, year-over-year numbers as expected. Initial Claims were up 12,000 from the revised number from the previous week, and continuing claims also rose. Inflation is not an issue. We still have Leading Economic Indicators and the Philly Fed numbers (expected up .5% and slipping slightly, respectively) possibly moving rates a little. We also have next week’s 2-yr, 5-yr, and 7-yr auction amounts announcement. But after this news, the 10-yr is still sitting around 3.25% and MBS prices are better by between .125 and .250.

Mortgage Bond (MBS) Volume Increasing
The supply of mortgages hitting trading desks has picked up a little recently. It is nice to see, although 2010’s volumes are still expected to be significantly less than 2009’s. And some believe that the selling is coming more from money managers and servicers. No originator is complaining about mortgage rates, really, since their energies are focused on the inordinate amount of time and energy is spent in processing the loan and dealing with appraisal issues. That aside, mortgage prices improved nicely yesterday, as were other US fixed-income security prices, after the housing starts & producer price index information was released. After the FHFA directed both FNMA and FHLMC to delist their common and preferred shares, some interest shifted to FHA & VA loans, which go into Ginnie Mae securities. FHA & VA loans, of course, have their own demons to grapple with, but the GNMA bid picked up a little relative to conventional MBS’s.

Rent-Buyback Scams Rising
The FTC has warned us that “Rent-buyback” schemes are on the upswing. Underwriters and law enforcement officials are on the watch for anything that looks like the con artist offers to take title to the property and simultaneously provide an official-looking rental agreement or lease-option contract that purports to give the owner the right to repurchase the house after they regain their financial footing Rentbuyback. Firms like The Prieston Group, however, through its repurchase insurance program, are covering clients from losses.

Daily Humor
A man wanted a $500 loan. He approached his local banker, who asked what he planned to do with the money.

“I’m going to take some jewelry to the city and sell it,” the man replied.

“What do you have for collateral?”

“I don’t know what collateral means.”

“It’s something of value that would cover the cost of the loan. Do you have any vehicles?”

“Yes. I have a 1949 Chevy truck.”

The banker shook his head. “Any livestock?”

“I have a horse.”

“How old is it?” the banker asked.

“I don’t know. It has no teeth.”

Reluctantly, the banker decided to OK the loan.

Several weeks later, the man returned to the bank with a roll of bills. “Here’s the money to pay the loan,” he said, handing over $500 plus interest.

“What are you going to do with the rest of that money?” the banker asked.

“Put it in my pocket,” the man replied.

“Why don’t you deposit it in our bank?”

“I don’t know what deposit means.”

“You put the money in our bank and we take care of it for you. When you want to use it, you can withdraw it.”

The man looked suspiciously at the banker and asked, “What do you have for collateral?”