How Does an ARM Adjust?
Holders of adjustable-rate mortgages across the country are demonstrating to complain that the rate used to calculate their loans has actually gone up. In some cases loan payments went up by 9%. “What is this ‘COFI’?” asked one borrower in California. “Next thing you’ll tell me is that the value of my home could actually go down – no way!” On December 31, the Federal Home Loan Bank of San Francisco, which oversees COFI, first published in 1981, announced without explanation that the rate had jumped 0.835 percentage point to 2.094% from 1.259%. The index is called the 11th District Monthly Weighted Average Cost of Funds Index, or COFI for short. The 11th district covers California, Arizona and Nevada. Click to scroll to our data section to see current and historical COFI data.
When an ARM adjusts, it adjusts to the sum of COFI or whatever index the loan is tied to plus a base rate that’s set at the time the loan is set up. At the time of the adjustment, the base rate (or Margin) is set and the index is taken at whatever the market rate of that index is at the time. So for example, if a loan with a 2.25% Margin and a COFI index was adjusting today, it would be 2.25% + 1.786% for a total rate of 4.036%. Depending on the adjustment intervals of one’s loan contract, this formula would be used at each adjustment.
Wells Fargo Changes Name
In a surprise move, Wells Fargo announced that it will be changing its name back to Norwest Funding. Industry veterans remember that Norwest actually bought Wells Fargo Bank in the late ’90’s, but kept the Wells Fargo name for brand recognition. Wells observed the success that smaller lenders were having going out of business and then changing their names to avoid contract and liability issues. A low-placed spokesman (are there really any highly placed spokesman?) told clients that Wells would be putting all of their assets into Norwest, providing it with “oodles” of capital, and leaving all of its current liabilities in the old company, telling creditors to “have at it – and good luck.” Changing its systems to the new name is straightforward, and should be complete by Monday morning.
After almost four months of nothing but problems, errors, wrangling, and overall confusion, several government agencies announced that they would be lobbying HUD about having revisions to RESPA repealed. It is rumored that the final straw that broke the proverbial camel’s back was when the Secretary of HUD’s neighbor contacted the Secretary to complain, “I didn’t even know how or where to sign the damned form, and does Good Friday count as a rescission day?!” Representatives from Fannie & Freddie were called into a closed-door meeting with Secretary Donovan.
Credit Suisse FU2 Bond
Credit Suisse gave the credit markets something to talk about this morning with the creation of the “F-U-2” bond. The bonds will be backed by mortgages originated at the retail level only, and the mortgages will allow principal reductions in the event that the property value goes down, and interest rate reductions in the event that mortgage rates decline during the life the loan. Therefore investors will have two ways (increased odds) of experiencing market fluctuations. As one trader put it, “Sometimes the market flucs up, sometimes it flucs down, but why should us poor investment bankers bear all the risk?”
US Bank Resumes Operations After Divine Intermission
US Bank’s Operations Center in North Dakota has returned to normal operations after an image of Jesus Christ was seen in a stack of trailing loan docs. “It brought the place to a standstill,” said one shipper. “It was almost as bad as when the new RESPA stuff started up.” Reporters from The Globe, National Inquirer, and Us rushed to the USB’s ops center in Fargo, which is easier said than done. The image, however, turned out to look more like Christopher Walken, and the stack of documents were soon sent off to their destinations.
BofA’s New Option ARMs
Bank of America’s New Product Development Group, many of whom were with Countrywide, apparently have grown tired of the “constant feet dragging” at BofA’s corporate and compliance levels, and rolled out Option ARM’s. BofA was encouraged by the response last week to its “HAMP-lite” program, helping with principal reduction plans. “The Option ARM market is wide open for plunder,” said one of their agents, “It’s time has come – everyone’s already forgotten about the batch from 4 years ago. And besides, now we have the backing of all those BofA deposits. And if they go bad, some company will buy the loans!” The company has not announced whether or not the program will be available in correspondent or wholesale channels.
BB&T To Only Buy Loans From States Beginning With Letters B and T
BB&T told its clients that beginning April 5th, it will only purchase mortgages from states, cities, and town that begin with the letters “B” and “T”. This had been expected for quite some time, since tracking state, county, and city compliance issues, along with licensing in various states, has become ineffective from a cost perspective.
Puerto Rico’s New Loan Regs
Puerto Rico announced its interpretation of the SAFE Act. Many states have already come out with their rules for conforming to the law, restricting agents and brokers with low credit scores, etc. Puerto Rico’s measures may be the toughest yet to meet: brokers will not be approved if they have “car payments of any amount, possession of more than one TV, computer or I-Pod, annual vacation or travel expenses exceeding 5% of gross income, any remodel projects involving granite, excess body fat over 105% of recommended BMI, possession of a “Kindle” or any other type of e-reader, use of Twitter, Facebook or other type of soul-emptying social networking, ownership of any make of vehicle except Honda/Toyota or Nissan, intentional consumption of nicotine, transfats or high fructose corn syrup.”
Jake’s House of Hard Money Merges With Louie’s Pay Day Loans
Jake’s House of Hard Money Lending announced a merger with Louie’s Pay Day Loans. Jake Bianchi has taken the role of president of the new firm, and Louie Pomilia will become the COO. Both were optimistic about the prospects of the new firm, citing the obvious compatibility in business channels, being able to eliminate overlapping departments, and matching infrastructure requirements. The new rate sheet will be published today.
JP Morgan Chase Focuses On Bath Count
JPMorgan Chase rolled out a new program that focused on homes with more bathrooms than bedrooms. Skeptics pointed out that many of the underwriting criteria match Thornburg’s super-high balance program from five years ago, since many houses of the super-wealthy have more bathrooms than bedrooms.
Second Chance Lending Program Uses Realtor Commissions
As reported in American Banker, Prospect Mortgage, a growing lender managed by former Indymac and American Home executives, will be rolling out a program named, “Second Chance” in order to provide loans to borrowers who couldn’t pay them back in the first place. The program will not be funded by taxpayer dollars, but instead by redistributing the 6% Realtor commissions: 4.5% goes to both Realtors (2% for listing agent and 2.5% for selling agent), 0.5% towards consumer counseling and credit repair services, and 1% toward program/transaction facilitation. “All consumers who lose their primary residence as part of the Home Affordable Foreclosure Alternatives (HAFA) initiative because although they are generally eligible, they either do not qualify for or fail an attempted loan modification” will benefit, as will families that were foreclosed on before the government’s MHA loan modification and/or foreclosure alternatives programs were available, got defrauded by a loan modification scam operation who took their money but failed to get them a loan modification, etc. will qualify for the program. Borrowers who were foreclosed upon will be able to borrow money in two years instead of waiting the traditional period, and will be counseled and trained during that period.
Franklin American Cost Cutting Measures
Franklin American, after an extensive study on phone usage, has asked that their clients call them only during off-peak hours, between the hours of 11PM and 7AM EST. In addition, all faxes should be sent to the same fax number, with one fax machine. “Everyone wins in this plan, said the VP of Capital Markets.”Working the graveyard shift will save our employees commute time, lower their food costs by necessitating bag lunches, and lowers our phone bill. And by doing away with the fax machines, we save space, phone bills, and paper.” FAMC explains that it will pass the savings on to its clients, who in turn will definitely pass the savings on to their borrowers. FAMC’s servicing group will be instituting a similar measure, and borrowers will be notified via, uh, fax.
CitiMortgage Bake Sale
CitiMortgage will be holding a bake sale and blood drive. The mortgage unit of Citi has been under increasing pressure to contribute to the bottom line, and this will be the first step. Some analysts believe that TARP funds will quickly be returned to the government, depending on how much blood is given, and if there is consumer acceptance of the lemon meringue pies (which usually have the highest profit margins). Contact your regional vice president for details. In a further cost-saving move, Citi notified correspondent, wholesale, and retail clients that they would be limiting business to fifty clients in each channel, or one per state.
Fed’s Yellen: Money Is Meaningless
In market news, the U.S. economy ceased to function this week after unexpected remarks by Fed Vice Chairman nominee Yellen shocked Americans into realizing that money is, in fact, meaningless. Yellen told the House Ways and Means Committee that cash is “basically no more than five rectangular strips of paper.” What began as a routine nomination Q&A period before the Committee ended with Yellen telling congressmen that when US citizens travel abroad, foreign currencies don’t mean much anyway, so why should ours? With Yellen questioning the entire concept of currency, M-1 volatility increased, and the Fed recommended that banks remain calm before recommending that customers switch to an economy based on the barter system. After the Jobless Claims news this morning (-6,000) suggesting that the economy is continuing to recover, the 10-yr yield is at 3.85% and mortgage prices are worse between .250-.375.
There is no daily joke on this day April 1. One of the stories above, however, is serious.