MortgageNewsClips: Thomas Sowell, Buy Back, Rent vs Buy, Freddie Expands, Wonderful Crisis, David Faber, What it Will Cost, Gap Widens, Bruce Bartlett, Reverse Insight, Bank Capital, AIG, More TARP, MR Mortgage on Option Arms

Another Great Depression? - By Thomas Sowell - With both Barack Obama’s supporters and the media looking forward to the new administration’s policies being similar to President Franklin D. Roosevelt’s policies during the 1930s depression, it may be useful to look at just what those policies were and- more important- what their consequences were. - Capitalism Magazine

Companies buy back debt at depressed prices - Companies with access to cash are increasingly taking advantage of depressed bond prices to buy back their debt at deep discounts. Morgan Stanley recently bought back $12.3 billion in open-market transactions, while a long list of companies have made below-par debt tender offers to bondholders. - Reuters


has interesting math - Rent vs. Buy: Buying Becomes More Attractive by Felix Salmon - 


Freddie’s Portfolio Expands by $42 Billion to Record - Jody Shenn - Freddie Mac’s portfolio of mortgage assets grew at a 66 percent annualized rate last month, its fastest pace ever, as regulators pushed the government-run company to aid the U.S. housing market.  - Bloomberg


Great Piece - It’s A Wonderful Mortgage Crisis - Andrew M. Rosenfield -  What the classic holiday movie “It’s a Wonderful Life” can teach us about the mortgage industry meltdown. - Newsweek


VIDEO - Rates coming down will not help Option Arms Holders - The truth about pay options arms, with CNBC’s David Faber -  with data provided by MR Mortgage , Mark Hansen - thanks Mark

**  Insider’s Practical View of what it will take and cost to fix the mess- Financing The MBS Fix: The 800 Pound Gorilla - by Scott J. Wilson and Anthony M. Freed  - Since the United States Government has decided to go into the MBS business (Mortgage Backed Securities), I have noticed in all of the debate and coverage that there is a serious lack of knowledge on the part of our congressional membership and in the news media regarding the mechanics of such a plan, and no one has even come close to outlining the actual costs that will be incurred. -  Your Mortgage or Your Life

Gap Widens Between Prime, Subprime Borrowers - By PAUL JACKSON - a lot about loan mods - good piece -  housingwire

How to Get the Money Moving - By BRUCE BARTLETT - …Above all, policymakers need to understand that the economy’s fundamental problem is the decline in aggregate spending, which is pulling down both prices and output and rendering the Fed’s usual tools for increasing liquidity useless. To restore the economy to health will require new policies that increase aggregate spending. … - NY Times Op-Ed 


receive more payment and pay more interest? - Reverse Mortgage Rates – John Yedinak - The 10-year Constant Maturity Treasury and LIBOR swap rates keep falling to record lows. We’re in territory where the Principal Limit is maxed out, and the SFSA and tenure conversion factors are the only things moving with rates. Lower rates mean less money since lower rates give higher SFSA’s. -  Reverse Mortgage Daily

What About Bank Capital? - 3 possible lines of thought - The Baseline Scenario


AIG’s rescue has a long way to go - When will the government’s long and costly bailout of the deeply distressed insurance giant be over? Don’t expect it to be anytime soon. - By Carol J. Loomis - Fortune


Treasury adds to investments in U.S. banks The Treasury Department announced on Tuesday that it completed a $2.8 billion equity investment in 49 banks on Friday and invested in 43 more on Tuesday. … - Reuters Yahoo 


Pay Option ARMs - The Implosion Is Still Coming Despite Low Rates -  key point … Pay Options Have a Floor Rate That Always Results in a Payment Spike - MR Mortgage

FHFA comes out with appraisal update, Genworth’s TPO restriction, Quiet market

December 26 is a tough day for employees and companies. Any employee at work is wishing that they didn’t have to work today. They would much rather be skiing, or buying next year’s gift wrap and ribbon, or sleeping in, or running errands. And every company knows it – but those loans need to be set up for month-end funding, right?

Federal Housing Finance Agency (FHFA) Director James B. Lockhart announced that Fannie Mae and Freddie Mac (they’re not the same company yet?) will implement a revised Home Valuation Code of Conduct effective May 1st. The Code is based on an agreement between the Enterprises, the New York State Attorney General Andrew Cuomo and FHFA to “improve the reliability of home appraisals”. The Code applies to lenders that sell single-family mortgage loans to the Enterprises beginning May 1st. Fannie Mae and Freddie Mac will be providing information on the Code to market participants, like you and me, in early January to address implementation questions in advance of the May 1, 2009 effective date.

Did your apps pick up last week? Yes they did, yours and everyone else’s. Applications surged to the highest level in over five years in the latest week, mostly due to lower rates. More lenient underwriting criteria were not cited as a reason. The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended December 19 soared 48%, the highest reading since the week ended July 18, 2003. Let’s hope they fund!

Genworth Mortgage Insurance, for third party originated loans, will make the following changes for all MI applications received on or after January 17, 2009. Loans originated by a Broker Third Party Mortgage Originator “will be subject to the following Third Party Originated Lending Restrictions in addition to our standard guidelines: Maximum Loan to Value = 90%, Minimum Credit Score = 720, Occupancy = Primary Residence Only, Purpose = Purchase, Property Type = 1 Unit - Single Family Dwelling, Manufactured Home, Condominium, or Co-op Unit, Ineligible in Declining/Distressed Markets.” Genworth defines a Broker Third Party Origination as “a loan for which any of the loan origination or processing functions, including taking the loan application and ordering documents, and for which all underwriting and final loan approval are performed by an entity other than the entity closing, funding or ordering the MI (the Insured).”

Market-wise, there is little to report, after closing early on Wednesday, all of the markets were closed yesterday. Today there is no scheduled economic news, and the rates reflect it: mortgages are unchanged in price from Wednesday afternoon, and the 10-yr sits at 2.19%.

Signs that you’re at a “lame” New Year’s Eve party:

The “Party Hats” look suspiciously like stolen traffic cones.

There’s a “Happy 2002″ sticker on the packet of shrimp you’ve been eating all night.

It’s January 6th.

Prison regulations require lights out at 10:00PM.

The guests have decided to start the midnight countdown at 10,000.

At midnight everyone gathers around to watch your Uncle Earl’s pants drop.

You hear a guy doing a count down before using the bathroom.

The ‘ Champagne ‘ tastes suspiciously like apple juice mixed with Alka Seltzer.


MortgageNewsClips: Roots, FDIC on Reverses, Snapshot on Deflation, Junk Thinking, Sacramento, Why are Rates High?, Jumbos, HPI, IndyMac Spam, Brian Wesbury, Ira Has 8


Letter to Editor - The Roots of the Housing Crisis - New York Times


FDIC Publishes Report On What To Know About Reverse Mortgages - John Yedinak - The Federal Deposit Insurance Corporation recently published Reverse Mortgages: What Consumers and Lenders Should Know. The report goes over the the history of reverse mortgages and why the aging population presents such an opportunity to banks. While there is big opportunity in catering to the aging demographic, the report notes that financial institutions have … - Reverse Mortgage Daily


A Daily Snapshot Of Market Moving Developments - by David A. Rosenberg - on deflation and rates - John Mauldin’s Outside the Box E-Letter 

Take Advantage of “Junk” Thinking  -  This article is a follow-up to my last article about fixed income investments. In that article, I discussed how fixed income investments were a key missing piece in many investors’ portfolios. In that article, I also discussed a specific area of fixed income investments – Treasury Inflation Protected Securities or TIPS – which I believe are totally mis-priced. - Oxbury Publishing

Sacramento housing hits seasonal slowdown - Tim Plaehn - Existing home sales in the Sacramento region started the traditional winter slowdown in November. Sales for the month were 24% lower than October but 76% higher than in November 2007. Pending sales decreased 10% from October to November. Available inventory is 32% lower than November of 2007 - Investing Thoughts Blog  

Why Are Mortgage Rates So High? - Michael Steinberg - Click Broker


Can jumbos join the party? - The Associated Press - The average rate on a traditional fixed 30-year mortgage is at its lowest level in more than three decades. But if you need a larger home loan, you may be out of luck. - Seattle Times 


Regulator Let IndyMac Bank Falsify Report - By Binyamin Appelbaum and Ellen Nakashima - Agency Didn’t Enforce Its Rules, Inquiry Finds - … The same regulatory agency, the Office of Thrift Supervision, allowed similar legerdemain by other banks, according to a letter sent yesterday to members of Congress by the Treasury Department’s inspector general, Eric Thorson. The letter did not provide details about the other incidents.  …  - Washington Post

Life In A Recession - Brian S. Wesbury and Robert Stein - Our society is unused to economic pain. - Forbes


   IRA ARTMAN SECTION - thanks Ira: 

Housing crisis worsens as economy weakens - Kim Dixon and Kevin Drawbaugh - on Loan Mods and more … - Reuters



The Story So Far - The economic downturn is routinely billed as the most perilous since the Great Depression. What exactly does that mean?  What is most likely to happen next?  As it happens, fundamental aspects of the situation lend themselves to portraiture.  Sometimes a picture really is worth a thousand words. Have a look at this history of American economic growth and business cycles over the last 135 years. - Economic Principals

Let the Banks Fail: Why a Few of the Financial Giants Should Crash - By Joshua Holland, AlterNet 



NEWS RELEASE         Link to HVCC Code 


Video at John Burns RE Consulting:  Unlocking the Housing Market RecoveryStrategic Building Market Intelligence™    -  has powerpoint, whitepaper, and webinar.



Sandbagging the Sandlers in NYT - Once Trusted Mortgage Pioneers, Now Pariahs - By MICHAEL MOSS and GERALDINE FABRIKANT - NY Times

Welcome to GMAC LLC Bank! - Federal Reserve grants GM a stronger shot at surviving cash crisis - Detroit Free Press        FRB Press release about this 

Learn from History:  MeritorPSFS Shareholders Association, Inc.  - This is about the government changing rules and scr*wing honest businesses retroactively.  TARP people beware. - PSFS was a venerated old savings bank.  They tried to do the right thing and help the government.  They are now out of business.  This site chronicles the whole thing.     FOLLOW THE MONEY:  WHAT HAPPENED TO PSFS AND WHY

Ira Artman’s Sterling Slivers: Mumble-dy Beg

                      Source: Wikipedia  - Taschenmesser, User: Taket, 2 Sep 2007.
                 Mumblety Peg: Game for two people, played with pocket knife.


Thank you all for returning to the District on such short notice.  I understand that this is a holiday weekend, and that all of us had planned to spend this time with our families and loved ones. But I believe that you will fully support my decision when you hear the details.  Please accept my apologies for your inconvenience. I am pleased to announce both an award and an appointment.

The Alexander Hamilton Award is the highest award that the Treasury Department can give, and is named for the founding US Treasury Secretary. Though Hamilton never served in Washington, employees and visitors to our magnificent building are frequently reminded of his historic role - as they walk down Alexander Hamilton Place, pass the statue of Alexander Hamilton on the building’s south side, or see his portrait outside my suite. A select few Americans are recognized for their service to the Department and to our country with the Alexander Hamilton Award.

I am pleased to present the 2008 Alexander Hamilton Award to Associated Press writer Matt Apuzzo for his 22 Dec 2008 expose - Banks mum where bailout money is going.

Mr. Apuzzo’s story appeared in newspapers throughout the country, and provided this Department with the first inkling that we, and the banks that received $350 billion of TARP bailout money, had no idea where the bailout money was going.

If I may quote briefly from Mr. Apuzzo’s groundbreaking story:

“…After receiving billions in aid from US taxpayers, the nation’s largest banks say they can’t track exactly how they’re spending the money …

“The Associated Press contacted 21 banks that received at least $1 billion in government money and asked four questions:

  1. How much has been spent?
  2. What was it spent on?
  3. How much is being held in savings?, and
  4. What’s the plan for the rest?

“None of the banks provided specific answers…

“There has been no accounting of how banks spend that money. Lawmakers summoned bank executives to Capitol Hill last month and implored them to lend the money — not to hoard it or spend it on corporate bonuses,  junkets or to buy other banks. But there is no process in place to make  sure that’s happening and there are no consequences for banks who don’t  comply….

“Representative Scott Garrett, R-NJ, a House Financial Services Committee Member …said the nation might never get a  clear answer on where hundreds of billions of dollars went. ‘A year or two ago, when we talked about spending $100 million for a  bridge to nowhere, that was considered a scandal,’ he said.”

You will find copies of Mr. Apuzzo’s complete story in your press kit.  Thank you again, Mr. Apuzzo.  [Begins clapping]

[General applause ... dies down]

Now, I’d like to announce an appointment for the newly created post of TARP Investigator General.  The Investigator General will be charged with improving the integrity, efficiency, and accountability of future TARP disbursements.  Mr. Apuzzo’s story highlighted the need for this position. 

That’s why I am pleased to present to you a gentleman with years of experience in the handling and tracking of large sums of money.  Right now, we can track nothing. The new TARP Investigator General has promised me that he will establish a world-class financial tracking system for the remaining $350 billion of TARP funds.  

Please welcome a man who truly needs no introduction, the next TARP Investigator General and former NASDAQ Chairman - Bernard L. Madoff.
- - - - - - - - - - - 
I used to work with numbers for a living, but I’m looking forward to tracking future leads as I search for my new job or my next idea.  Till next time. 


Matt Apuzzo, Associated Press/In-Forum News - Banks mum where bailout money is going, 22 Dec 2008.

MortgageNewsClips: Refi Time?, Golden West not Gold, BankUnited Miracle, Warehouse Credit for Refis, CIT Banks, Mods Fail, OCC Metrics, FHFA Responds, Loan Performance, Facing Destiny, Mededith Whitney, I Sure Hope

   Merry Christmas / Happy Holidays

 Refi time? Maybe, if you qualify - With the rates rapidly falling, homeowners are swamping lenders, but check your creditworthiness and the amount of equity in your home. - By Tom Petruno - Los Angeles Times - The Seattle Times

Golden West deal doomed Wachovia in financial crisis - Wachovia saw strength in its Golden West purchase, but the California loans undermined the Charlotte bank as the financial crisis erupted. - By Rick Rothacker - Charlotte Observer


BankUnited Financial Corp. in need of a holiday miracle to survive - by Brian Bandell - South Florida Business Journal 

As Refis Swell, Is There Enough Warehouse Credit? - DIANA GOLOBAY - The volume of warehouse credit providers has fallen recently from 30 to about 10, according to an article featured last week by American Banker, raising the question as to whether there is enough warehouse capacity to handle a refinance boom that has clearly surfaced in the past week. - housingwire


Welcome to our newest bank … CIT -  Approval of proposal by CIT Group - Released by the Board of Governors of the Federal Reserve System


More Than Half of Modified Mortgages Fail Again, Regulators Say - Alison Vekshin - … About 55 percent of loans modified in the first quarter of 2008 were 30 or more days delinquent after six months, the Office of the Comptroller of the Currency and the Office of Thrift Supervision said in a report issued today.  … - Bloomberg 


Comptroller of the Currency, Administrator of National Banks, U.S. Department of the Treasury

read the report - OCC and OTS Mortgage Metrics Report at OCC website 



LoanPerformance HPI December 2008 Data Update  - Nine Month Depreciation May Be Easing - thanks Bob Visini


The Power Players, Facing Their Destiny - By Helen Kearney , Lauren Barack , Elizabeth Wine , and Michelle Lodge January 1, 2009 - This year’s Power Issue is, of course, defined by the meltdown. The powerful players that we highlight in the next four pages are the people at the center of all the turmoil. - On Wall Street 


VIDEO:  hat tip from MR Mortgage - Mark shared this with me, thanks - Meredith Whitney’s recent appearance on CNBC says it all. Her math is a little abstract with respect to why house prices still have a long way to go - it’s much simpler than she thinks. Not being a mortgage expert, however, she has put together the pieces well. This is a good watch that is likely right on the money. - CNBC Video 


I Sure Hope ….  - Economists Predict Worst Recession Since 1930s Will End in Second Half of 2009 - Originator Times

California’s budget issue hits CalHFA loans, GMAC weighs in on restructured loans - uh oh

Is it a safe bet to say that, “rates in the short term will be choppy as the market adjusts to all this news, but then slowly trending lower”? Somewhat – but the downside is limited, since short term Treasury rates are already near 0%. Yes, mortgage rates seem to be taking a pause in the high 4’s or low 5’s, and given historical rates should be lower. And there continues to be that pesky problem that in 2008 the darned borrower and property actually have to qualify to make their payments…

And what about price compression? Investors are worried about their recently purchases inventory with rates in the 6’s. Does anyone want to pay a premium for a car that won’t work after it goes off the lot, or a camera that will soon be obsolete, or a mortgage that is refinanced after 3 months? Large investors have their hands full between going back to smaller originators for repurchases and soon-to-be early pay-off penalties.

Do low Treasury rates really matter anyway? Japan had historically low rates, and it took their economy years to come back. Yes, lower rates are better than higher rates, but financial institutions are not going to start lending money because of lower rates. As analysts point out, they will either have to want to lend it, or liquidity will have to come from the US Government, which is what we’re seeing, through the Federal Reserve and Treasury. The Fed can create money by printing it, and the Treasury can borrow money to buy debt. See how that works?

Low rates have not helped the budget dilemma here in California . CalHFA is suspending (temporarily, we hope) all of their programs, including 30-Year Fixed Mortgage products, for moderate income, low income, “Nonprofits & Affordable Housing Partnership Program (AHPP), Extra Credit Teacher Program (ECTP), California Homebuyer’s Down Payment Assistance Program (CHDAP), Extra Credit Teacher Program (ECTP), and School Facility Fee Down Payment Assistance Program (SFF).” This is the result of the action taken by the Pooled Money Investment Board (PMIB) last week - the PMIB loans money to state agencies to advance program funds which will later be repaid through bond issuances. CalHFA uses a PMIB loan to initially fund its Conventional 30-Year Fixed Mortgage and down payment assistance programs. The recent PMIB action froze all such PMIB loans.

The Census Bureau released state population estimates as of July 1, 2008. Utah is the fastest growing state, with its population climbing by 2.5% in the prior year. It was followed by Arizona , Texas , North Carolina and Colorado . Two states actually lost population: Michigan and Rhode Island.

GMAC defines a restructured loan as, “A mortgage loan in which the terms of the original transaction have been changed resulting in either absolute forgiveness of debt or a restructure of debt through either a modification of the original loan or origination of a new loan.” This can result in forgiveness of a portion of principal and/or interest on either the first or second mortgage, application of a principal curtailment by or on behalf of the investor to simulate principal forgiveness, conversion of any portion of the original mortgage debt to a “soft” subordinate mortgage, or conversion of any portion of the original mortgage debt from secured to unsecured debt. GMAC goes on to say that, “Fannie Mae and Freddie Mac will not purchase or accept delivery of a restructured loan refinance. Therefore, all restructured loans are ineligible for conforming loan financing.” And in addition, “Restructured loans are ineligible for non-conforming loan financing.”

Now for something completely different – like economic news. Yesterday the treasury auctioned off $38 billion of 2-yr notes. The results were mixed, with a bid-to-cover of 2.13 and with indirect bidders comprising 30.4% of the participation. But nonetheless rates worsened. Today we already had Gross Domestic Product, which was unchanged in Q3, still falling at a 0.5% annual rate. Personal Consumption during the 3rd quarter was -3.8%, and the GDP price index was +3.9% - both near estimates. Still ahead, to give air travelers stuck in airports something to watch, will be the housing figures for November New Home sales in November are expected to show a decline of -4.2% month over month adding to last month’s 5.2% decline which brought the index to a 17-year low.  Existing Home sales are expected to have fallen -1.2% in November. After GDP, and pre-housing, we have the 10-yr Treasury at 2.20% and mortgage prices worse than yesterday afternoon by about .250 in price.

Two guys, one old timer and one young, are pushing their carts around Lowe’s Building Supply when they collide.
The old timer says to the young guy, “Sorry about that.  I’m looking for my wife, and I guess I wasn’t paying attention to where I was going.”
The young guy says, “That’s OK.  It’s a coincidence.  I’m looking for my wife, too.  I can’t find her and I’m getting a little desperate.”
The old guy says, “Well, maybe we can help each other.   What does your wife look like?”
The young guy says, “Well, she’s 24 yrs old, tall, with long blonde hair, big blue eyes, long legs, big chest, and she’s wearing tight white shorts and a skimpy halter top.  What does your wife look like?”
The old timer says, “It doesn’t matter — let’s look for yours.”

I’ll be off for a few days – Merry Christmas!


MortgageNewsClips: MUST READ: Forced To Lend, MUST READ pt 2, Reverse Slow Down, OTS Review, CSFB Bonuses Lump of Coal, Tax Break Cause Bubble?, John Mauldin, Bailout Chart, Bond Bubble, Obama’ Fed Pick, ZIRP and Ben, Walk Away, Sheila Bair, Extreme Makeover in Reverse

Today’s MUST READ:  Forced to lend? - How the Fed is Making Banks Lend - Mark Sunshine - The Federal Reserve is forcing banks to lend or face financial disaster. … As a result, banks have the choice of buying bonds that yield less than their cost of funds or lending. Any bank that decides not to lend will suffer losses. … - First Capital Blog


MUST READ PART 2: No one knows what will happen - A different way to look at what is going on - Wall Street Truthiness: A New Series - READ “Starting Agenda”  - Jeff Miller - A dash of Insight


slowdown in reverse mortgages too? - Changes At Senior Lending Network, Revamps Wholesale Strategy - John Yedinak - …  announced it was changing its direction of its wholesale channel to concentrate on a specific market niche and is no longer interested in high volume and low touch business in this economy.  As part of the new direction, the company was forced to lay off some of its employees.  … - Reverse Mortgage Daily


    OTS Annual Report for Fiscal Year 2008

Lump of coal in your stocking? - Credit Suisse bankers are livid over getting bonus payments in toxic debt - original from WSJ - Wall $treet Folly  - thanks Susan Kulakowski


Another cause?  - Tax Break May Have Helped Cause Housing Bubble - VIKAS BAJAJ and DAVID LEONHARDT - “Tonight, I propose a new tax cut for homeownership that says to every middle-income working family in this country, if you sell your home, you will not have to pay a capital gains tax on it ever — not ever.” — President Bill Clinton, … Together with the other housing subsidies that had already been in the tax code — the mortgage-interest deduction chief among them — the law gave people a motive to buy more and more real estate. … - NY Times - thanks Margo 


I Meant to Do That - John Mauldin’s Weekly E-Letter - has interesting rates commentary

nifty chart - Government bailout hits $8.5 trillion - Net Worth - Kathleen Pender - SF  


The Final Episode of Serial Bubbles: T Bonds - … Wishing to lower the long term interest rates so that housing markets will not deflate or collapse, Federal Reserve does not learn from financial history that ALL financial bubbles cannot be reflated. Not a single bubble in human history that I know of was reflated over its peak in the duration of less than 20 or even 100 years.  … - Frugal Millionaire


Obama Takes First Shot at Reshaping Fed by Naming Board Member -  By Neil Irwin - …Thus within 18 months of taking office, Obama will likely have appointed five of the seven Fed governors.  … - Washington Post


Helicopter Ben Goes ZIRP! - Nouriel Roubini - Forbes 


Mortgage: Pay or walk away? - More likely to consider defaulting as economy sinks - By DAVE CARPENTER - The Associated Press - The State


Remarks by FDIC Chairman Sheila Bair to The New America Foundation conference: “Did Low-income Homeownership Go Too Far?”  


The American Dream—Only This Time in Reverse   - Daniel McGinn - … mortgage than their home is worth—every month. Touring a foreclosed home is like watching an episode of “Extreme Makeover: Home Edition” in reverse. … -   Newsweek

Truths, Lies and Loan Modifications, by Dan Cooper

Written by Dan Cooper, Senior Consultant, Mortgage Banking Solutions

There has been an inordinate amount of press lately concerning the viability of loan modifications and whether they really help borrowers. The theory behind modifications is that by helping a distressed borrower stay in their house, a new foreclosure is avoided, thus helping the overall real estate market stabilize faster and allowing the US economy to recover sooner. This discussion is being played out as part of an ongoing soap opera between Sheila Bair and the pundits who feel that loan modifications are a waste of time.   This is a discussion about the lies and truths concerning loan modifications along with some ideas for improving the process.   Also click here to watch FOX Business interview with David Lykken, Managing Partner with MBS, about loan modifications. 

*Accounting Rules discourage loan modifications. Sheila Blair can push all she wants for loan modification programs but as long as the accounting rules, both GAAP and regulatory guidelines, penalize companies for modifying a loan they will not do it on a large scale. Companies can spend hours and hours and hundreds of thousands of dollars trying to get the accounting correct only to be second guessed by regulators and accountants who really don’t understand the mortgage market, collections and what it takes to get a borrower to start paying their mortgage on time. Simplify, clarify and update the rules!! It really will help make the decision easier for those who have to implement the program and those who have to account for it correctly.

*Poor performance of past modifications ignores the fact that all loan modifications are not created equal. Traditional loan modifications actually raised a borrower’s payment or, at best kept them the same. They essentially rolled past due interest into the loan amount, and neither the rate nor the terms changed and so the payment had to go up. So the borrower, who could not afford their payments before the modification, was not going to be helped by these programs and subsequently, defaulted again. Current modification programs try to actually fit the payment to the borrower’s real income giving them a fighting chance to make their payments and improving the overall performance of loan modifications.

*A global modification program will never work in this environment. There are simply too many issues that need to be addressed for a global solution to work. Each modification needs to be processed as a new loan with the needs of the borrower and the concern for the end investor given the appropriate amount of weight. New values, borrowers correct income, the second lien, and their real debt load needs to be used in coming up with an acceptable modification. Any write-down in the mortgage should be addressed by having a shared appreciation component between the borrower, the second lien holder (if applicable) and the first lien holder for the day when residential real estate starts to increase in value again.

*The issue of loans that are in private mortgage backed securities will have to be addressed and solved. The odds are that a loan modification that falls outside a security’s allowable parameters will have an adverse effect on at least one of the tranches in that security. This leaves the servicer with no choice but to follow the strict letter of the contract even though it is not in the best interest of the other investors or in the best interest of the entire market. After all, a contract is a contract and violation of a contract will lead to lawsuits. A combination of legislative action and a minimal allocation of TARP money could solve this issue by guaranteeing that an investor will not be negatively affected by a global modification mandate. While complex, solving this issue would allow for the proper modification of hundreds of thousands more distressed loans.

*The FDIC likes to tout the success of deploying over 5,000 loan modifications in the IndyMac portfolio. This is really just a drop in the bucket. Success will mean tens of thousands modifications, not 5,000.  (Click here to watch David Lykken’s FOX Business interview on “Happy Hour” about Sheila Bair’s “IndyMac” solution.)

*The mortgage business has always been very entrepreneurial. Loan modifications are just another item that proves this point. Companies are springing up that help distressed borrowers negotiate a favorable loan modification. The firms usually have a team of attorneys standing by to help anyone that is willing to fork over $2,000 to $5,000 (upfront of course). The firms hire former and current mortgage loan officers to source business, charge them a flat fee, and allow them to mark up the fee based on what the market will bear. This system is ripe for additional fraud and needs to be regulated but signifies an issue that must be solved in order for modifications to work on a macro scale. Simply put, the mega-servicers cannot handle the number of phone calls and will not pay for the manpower necessary to effectively modify a significant number of loans. Completing a loan modification is a labor-intensive endeavor and in many cases requires more face time with a borrower than completing a brand new loan. For a borrower to make it through the maze of VRU’s and customer service personnel that do not have the skill set or the authority to help anyone is virtually impossible except for those few that have a tremendous amount of time, persistence and motivation.

In conclusion, modifications can be a tool that can really help borrowers stay in their homes. While, it is not the Holy Grail that will fix the US economy, it is certainly a viable weapon in the fight to stabilize real estate values. The problem is that the system that is in place today will never work until some of the fundamental issues are addressed and solved. It will take a coordinated effort between the regulators, accountants, legislators and servicers in order to develop a process that works for all the stakeholders.

“I am a firm believer in the people. If given the truth, they can be depended upon to meet any national crisis. The great point is to bring them the real facts.” - Abraham Lincoln

Dan Cooper can be reached at (713) 893-5219 or by e-mail [email protected]

No economic news, but Lots of investor updates

The rates are great – jump on in!  Remember that next-to-0% short term Treasury rates are helping many ARM loans reset to lower rates. How are we looking in terms of ARM re-sets for 2009? Well, not too bad! Check out the websites below. Some brokers are finding out that with the lower rates (ARM rates actually resetting lower), loan modifications, and people losing their homes, the universe of refinancing is somewhat dimmed.

Large investors have begun to re-evaluate and in some cases change their renegotiation (“re-lock”) policies. Are they making it less expensive to extend a lock? Of course not – why should they, when there is so much demand for extensions. Chase, for example, bumped their extension fees up by roughly .125.

Speaking of Chase, they beefed up the documentation required for TPO originations, in addition to a rumored “backing off” their pricing to brokers late last week. Chase defines a Third Party Origination as “when a party, not the Correspondent Seller, performs a significant portion of the origination process for a fee. A Third Party Originator is any person or entity, not employed by the Correspondent, who is duly authorized to perform all or part of the origination processing, including but not limited to processing a loan application, ordering appraisals and/or credit reports, verifying income and/or employment.”

Fannie Mae has issued Announcement 08-35: Credit Score Requirements for Government Loans, Debt-to-Income Ratio Changes, Community Seconds Rider, and Seller/Builder Affiliation Policy. In it they clarified “Minimum Credit Score of 580 Extended to Government Loans”,  “Implementation of Maximum Debt-to-Income (DTI) Ratio for Manually Underwritten Loans” of 45%, “Elimination of Community Seconds Rider”, and “Clarification of Seller/Builder Affiliation Policy”. Beginning March 1st, all whole mortgage loans purchased by Fannie Mae or delivered into MBS must comply with the 580 minimum credit score for government loans and the maximum DTI ratio for manually underwritten loans.

Fannie Mae also noted that they will no longer provide document certification and custody services effective May 11th, and instead The Bank of New York Mellon Trust Company, will be the designated document custodian for portfolio mortgage loans.

CitiMortgage announced that since both Fannie Mae and Freddie Mac have announced their exit from the Stated Income market, Citi is making some changes. “The Accept Plus documentation level in Loan Prospector will be eliminated with the LP update scheduled for this weekend (12/6-7/08). All loans containing an Accept Plus finding issued before this change must be registered and locked with CitiMortgage no later than December 12, 2008 and purchased by January 9, 2009, regardless of actual documentation used. Loans resubmitted to LP after the scheduled update of LP will not receive an Accept Plus documentation level and the new documentation criteria must be followed.” As a result of the scheduled upgrade to DU Version 7.1 by Fannie Mae, loans processed under DU version 7.0 and containing any of the updated ineligible criteria must be registered and locked with Citi by January 9th and purchased no later than February 6, 2009.

Citi is also requiring, “For FHA loans, the applicable Mortgage Insurance Premium (MIP) is to be disclosed to the borrower on the TIL per RESPA guidelines. If, at the time the FHA case is transferred to CitiMortgage for servicing, it is determined that there was either no disclosure of monthly MIP premiums, or monthly MIP was under disclosed either in term or monthly premium amount per RESPA guidelines, then CitiMortgage will bill the Correspondent for the total amount of the under-disclosed MIP.”

There is no scheduled economic news out Monday. And given folks’ attitudes, and light staffs, maybe that is a good thing. There is some news Tuesday, and we also have $66 billion of 2-year and 5-year Treasury securities to be auctioned today and tomorrow, plus another $54 billion in T-bills. The current 2-year yield is .77%, the 5-yr stands at 1.36%, and the 10-yr is at 2.12% this morning. Mortgages? Worse than Friday afternoon, but only by about .125 in price.

According to the Alaska Department of Fish and Game, while both male and female reindeer grow antlers in the summer each year, male reindeer drop their antlers at the beginning of winter, usually late November to mid-December. Female reindeer retain their antlers till after they give birth in the spring. Therefore, according to EVERY historical rendition depicting Santa’s reindeer, EVERY single one of them, from Rudolph to Blitzen, had to be a girl. We should’ve known… ONLY women would be able to drag a fat-___ man in a red velvet suit all around the world in one night and not get lost.


Ira Artman’s Sterling Slivers: The Housing Dickens


                                  , First and Last House Doorknocker, #D190

With apologies to Charles Dickens’ A Christmas Carol and the Bank of America. See References.


The housing market was dead. There can be no doubt about that. The economist Shiller, and the chief mourner Bernanke, had each signed the burial register. I had signed it.

The housing market was as dead as a doornail.

I knew it was dead? Of course I did. How could it be otherwise? For several years I had placed the peak at ought - five’s end, and the recession at ought-seven’s.

The downturn’s mention brings me back to my beginning. It must be clearly understood that the housing market was dead, or nothing wonderful can come from this story.

There is nothing peculiar about my front door knocker, except it was large. It is also true that I had seen it, night and day; during the more than 20 years I had lived in my postwar tract-built home. And you’ll have to explain to me, if you can, how it happened that I, with my key in the knob, saw in the knocker, not a knocker, but a home.

A house with a yellowish light about it.  It’s mocking quaintness made it more terrible; as if homes had not been the source of both our recent glory and our anguish.

As I looked fixedly at this phenomenon, it became a knocker again.

I was truly startled. But I put my hand on the doorknob, turned it firmly, walked in, and turned on the lights.

After sorting the mail, I picked out the latest housing publication from Bank of America - Outlook for the RMBS Market in 2009, settled into a comfortable chair, flipped on an bowl game, and started to read the 100+ page document…

I awoke with a start, to find that the bowl game was gone, and my television screen filled with a close-up of a middle-aged man. Behind him, I could see rows of houses.  He looked at me intently as he called out my name.

Source:  Ernest Hamlin Baker, Cover, Time Magazine © 3 July 1950; and The Time 100 – William J. Leavitt, 7 Dec 1998.

“Good evening…”   

“Hello,” I said. “What do you want with me, and who are you?”

“Much … in life I was the homebuilder that built your home, and thousands like it, William Levitt.  I am here tonight to warn you that you have a hope to change your fate, so that it is not one with the housing market. You will be haunted tonight,” intoned the vision, “by Three Spirits.”

“Is that the hope for change that you mentioned…?” I queried.

“It is.”

“I-I think I’d rather not,” I said.

Without their visits,” said the image, “you cannot hope to shun the path that the housing market treads. Expect the first at midnight by your cellphone clock. Expect the second at two, and the last at four.  You shall not see me again. For your own sake, remember what I have said.”

And with that, his picture was replaced by an aerial shot of a football field.


When my phone glowed twelve, I sensed an unearthly presence in the room.  In front of the TV screen I saw a man with white hair but a smooth face.  The strangest thing about him was the light streaming from the top of his head, and it filled the room.

“Are you the Spirit, sir, whose coming was foretold to me?” I asked.

“I am.”

“Who, and what are you, and why are you here?” I demanded.

I am the Ghost of Housing’s Past, and I am here to reclaim your welfare.  Let me sit down for a moment.  May I see that booklet you were … reading?”

The Spirit reached over and picked up the BofA publication from my lap, and flipped rapidly through its pages.  After a minute or so, he put it down and began to speak.

“During 2008, existing home sales stabilized after dropping for two consecutive years, while new home sales continued to decline, as the housing downturn spread to more regions of the country.  New home sales have been suppressed by foreclosure sales, and this,” he paused, looking dreamily off to one side for a moment, “…will continue in ’09.”

“Home prices affordability is now close to its historical high due to the decline in home prices and interest rates.  The Fed announced at the end of ’08 that it would buy up to one-half trillion dollars of Agency MBS even as lenders continued to tighten underwriting standards.  The recent sharp increase in the unemployment rate has worsened credit, and it should continue to do so.

“Mortgage originations for ’08 are expected to reach $1.5 trillion.  This would be roughly $1 trillion below the levels of ’07, and only half of that originated in ’06.  Most of the decline is due to the decline in the non-agency sector, caused by the virtual shutdown of the Alt-A and subprime sectors.

“While total mortgage debt outstanding had increased by roughly $800 billion a year, every year, from 2000 - 2007, in 2008 it increased by only $100 billion.

Prepayment speeds have declined to historically low levels across all collateral types.  Conforming loans, had had prepaid at 22% CPR at the peak in ’05, now prepay at only 5% CPR.  GNMA prepay speeds are around 7% CPR, down from the ’05 peak of 30% CPR.  The slightly higher GNMA speeds reflect servicer buyout activity and streamlined-refi programs…”

With that, the Spirit looked at me intently.  “I can see that you’re tired, and I probably should be going. Why don’t you rest a spell?”

Immediately, I was overcome by an irresistible drowsiness, and before I knew what was happening I sank into a heavy sleep.


When the phone shown two, the TV screen began to flicker, and in a moment it glowed orange with the flames of the holiday Yule log, as I stirred.

Out from the screen stepped a glorious giant of a man, with ruddy cheeks.

“Well hello!” said the Spirit.  You should know me better, man. I am the Ghost of Housing’s Present, or soon-to-be.   Listen to me.”

“Spirit,” I said submissively, ” tell me what you will. I learned a great deal at midnight.  If you can teach me, now, let me profit by it.”
“Touch my robe, and hand me that booklet.”

I did as I was told.

The Spirit easily rolled up the thick booklet in his giant hand, until it was a tube.  He held one end under his nose, and inhaled deeply. “I am here to tell you about the year soon-to-come, 2009. Listen to me carefully, man…”

“2009 will be marked by a continued deterioration in unemployment and credit.  Up until this point, the prior housing market decline has been unusual, in that the housing decline occurred while the employment markets had been relatively robust.  In 2009, the customary relationship between unemployment and housing will reassert itself, and drive the next phase of mortgage credit deterioration.

“While there had been concerns that ARM resets in ’09 would lead to a spike in those rates and worsen the markets decline, the Fed should be vigilant in its efforts to keep short rates down.

Loan modifications will be THE issue of 2009. Acting in their own self-interest, or at the government’s … suggestion, lenders will deploy different programs, tailored to the specific characteristics of each outstanding product.  Subprime borrowers will probably be offered rate modifications, to achieve certain affordability ratio targets, while Option ARM borrowers will probably be offered principal foregiveness programs, since their rates are already low.

Total mortgage debt outstanding should decline somewhat in 2009, even as a low rate environment encourages jumbo and Alt-A borrowers to refi into Agency (Fannie, Freddie, or Ginnie) products.  Total mortgage debt outstanding should decline - for the first time since the 1950′s - by roughly $300 billion. Agency loans should account for more than 80% of the $2.1 trillion that could be originated given a favorable rate environment.

“In all of this, the wildcard is the government. What measures will the new Administration undertake to resuscitate the market?How will they be received? How forgiving will the government-controlled Agency’s underwriting standards be?  And will the government be able to keep rates low?”

The Spirit looked at me, as he paused.  “Not even I can tell … you … now.  What time is it?”

I glanced for just a moment at my phone, and saw that it was already 3:59 AM.  When I looked up, expecting to see my giant visitor, he was gone.


A moment later, I beheld a solemn Phantom, draped and hooded, coming, like a mist along the ground, towards me. It was shrouded in a deep black garment, concealing its head, face, and form.  I could see nothing expect for one outstretched hand.

“Am I in the presence of the Ghost of Housing Markets Yet To Come?” I said.

The Spirit answered not, but pointed to me with its hand.

“You are about to show me shadows of the things that have not happened, but might happen in the time before us,” I pursued. “Is that so, Spirit?”

The Spirit nodded its head, and that was the only answer I received.

“Ghost of the Future!’ I exclaimed, “I fear you more than any other. But I know your purpose is to do me good, and I hope to live to be another man from what I was. Will you not speak?”

In reply, the Spirit grabbed my BofA booklet, tilted its shrouded head back, and furiously rammed it down its throat.   A few moments later, after what might have been a dry burp, it pulled out an I-Pod and earbuds from its cloak, and handed these to me. It gestured that I should listen.

Once I had everything in place and on, I heard a hollow, aged voice.

“For the last few decades, mortgage financing was funded by a combination of securitization, insured bank deposits, and FHLB advances. Until 2008, about 70% of mortgage finance came from the originate-to-distribute securitization market.  Fannie and Freddie remain active, but only because they are now clearly government controlled, with investors believing that the government will stand behind them.

“A redesigned mortgage finance system may contain one or more of the following:

  • Fannie and Freddie might be re-privatized, even as a new entity would be created that would specifically support their securitizations during market disruptions.  This might take the form of a government backed bond-insurance company that would insure - during times of stress - GSE’s MBS or debt, or private label MBS, for a fee.
  • Fannie, Freddie, and Ginnie could be combined into one government organization, and the old GSE portfolios would be allowed to run-off.  The government could explicitly back all MBS issued by this new entity, much as it does for Ginnie Mae today.
  • A “covered bond” market might develop.  Investors in covered bonds have recourse to both the assets in the “cover pool” (i.e., on-balance sheet assets) as well as to the issuer to remove some of the problems that developed in the originate-to-distribute securitization business.  This gives investors protection both from the issuer’s insolvency and from degradation in the collateral’s credit quality.  It may be attractive to some of the pools of private capital that have fled the non-agency MBS market.”

I turned off the I-Pod.

“Spirit!” I said, “this is an unfamiliar future, and so different from what was past.  How shall I find my own role in this strange and unforgiving place?  As we foresake securitization, or simple balance sheet funding - which will investors embrace.  Where should I place my own bets and trust?  Where should I go?”

The Ghost pointed at me, and a stiff finger emerged from the cloaked arm, pointing to the I-Pod.

“Oh, you want it back,” I acknowledged. “Here it is.”  I reached toward the Spirit, and a black coldness grabbed the unit from my palm.

In an instant, it was gone.

NOTE:  Views expressed above are not necessarily those of the Bank of America or its staff. 
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I used to work with numbers for a living, but I’m looking forward to the future as I look for my next job or at least an idea.  Till next time. Merry Christmas & Happy New Year.

Sharad Chaudhary, et al., Bank of America - Outlook for the RMBS Market in 2009, 10 Dec 2008.

Charles Dickens, A Christmas Carol, Dec 1843., dickens – The Devil.