COURTESY OF MORTGAGE NEWS DAILY
Foreclosure Filings Hit Record Number of Properties in 2010
by Jann Swanson January 13, 2010
One in every 45 U.S. housing units was the subject of a foreclosure filing in 2010, a year in which a total of 3,825,637 such filings were recorded. Foreclosure filings include default notices, scheduled auctions and bank repossession.
In all, 2,871,891 properties were affected by the filings, a new record. The numbers were reported by RealtyTrac on Thursday in its Year-End 2010 U.S. Foreclosure Market Report. The filings represented an increase of 2 percent from 2009 and 23 percent from 2008.
RealtyTrac, an Irvine California company, compiles a U.S. Foreclosure Market Report each month by tracking documents filed in all three stages of foreclosure:
Figures for the both the fourth quarter of 2010 and for the month of December, also included in the report, were a bit more hopeful.
In December filings of all types were down 2 percent compared to November and down 26 percent from one year earlier. This was the biggest annual decrease since RealtyTrac began reporting the figures in December of 2005 and the lowest single month total since June 2008.
Default notices decreased four percent from November and 35 percent since last December while scheduled foreclosure auctions were down 3 percent and 20 percent from the two earlier periods. Bank repossessions were up nearly 4 percent from November (a month where several lenders had a foreclosure moratorium in place) but were down 24 percent year-over-year. Bank repossessions were up very substantially in several states, with Nevada, Arizona, and California showing December increases 71 percent, 52 percent, and 47 percent respectively compared to November numbers.
The fourth quarter filings were down 14 percent from Quarter Three and 8 percent from the same quarter in 2009. The 799,064 filings registered in the quarter was the lowest quarterly number since December 2008.
"Total properties receiving foreclosure filings would have easily exceeded 3 million in 2010 had it not been for the fourth quarter drop in foreclosure activity - triggered primarily by the continuing controversy surrounding foreclosure documentation and procedures that prompted many major lenders to temporarily halt some foreclosure proceedings," said James J. Saccacio, chief executive officer of RealtyTrac. "Even so, 2010 foreclosure activity still hit a record high for our report, and many of the foreclosure proceedings that were stopped in late 2010 - which we estimate may be as high as a quarter million - will likely be re-started and add to the numbers in early 2011."
Nevada, Arizona, and Florida had the highest foreclosure rates for the year. Despite four years as the number one state for foreclosures, filings were still made on one in every 11 housing units in Nevada during the year.
the GARRETT WATTS REPORT COURTESY OF MORTAGE NEWS DAILY
Mortgage Darwinism: Do You Have a Plan B for 2011
by C.M. "Corky" Watts, CMB January 13, 2011
Many of the mortgage bankers we visited last quarter were projecting an uptick in loan volume in 2011. They realized origination volumes in general would probably decline in 2011, but most were planning to pick up a few new branches and loan officers to offset the industry-wide forecast for a production slowdown. I suppose some companies will find success in their attempts to hire more originators, but not every operation will be able to add production simply by bringing on new loan officers. There just isn't enough business to go around. When the music stops, someone will be left without a chair to sit in.
After mortgage rates spiked in November and December, most companies have already experienced a sharp drop off in production. Making matters worse, some economic forecasters are predicting further depreciation of real estate values in 2011. With the economy said to be picking up steam, eventually the Federal Reserve will start ratcheting up short term rates. All these actions could have a substantially negative impact on mortgage origination volumes in 2011 and 2012. The MBA is forecasting a 36% drop in total originations, with purchase volume going up 30% but refinance originations shrinking by a scary 66%.
From that perspective, while "Plan A" (hire more producers) may be a good one based on certain macro assumptions, a contingent "Plan B" should still be mapped out in advance. How does one prepare for a potential drop in loan volume that might quickly derail your operation? Let's explore what some of the smart operators are doing today...
He who adapts to new market conditions will survive and thrive. Those that don't will die. 2011 may be another year of Mortgage Darwinism.
COURTESY OF MORTGAGE NEWS DAILY
WSJ: "Mortgage Rules Delayed In Regulator Spat"
BY Adam Quinones January 7, 2011
The Dodd- Frank Bill has laid out a pathway for future operations in the financial services arena. However, the road has not yet been paved. The job of laying the pavement has been left to individual industry regulators who had 270 days from the date of passage to develop, write, publish, submit for comment and issue as final the regulation which will govern our business for the foreseeable future. That put regulators on an April deadline.
SURPRISE! Regulators aren't ready. How could we honestly expect regulators to be ready?
The housing finance mechanism is broken. The Federal government has Fannie and Freddie on life support. Seems like it might difficult for regulators to apply and implement new rules without a clear indication of how the housing finance mechanism will operate once the GSEs are reformed. So it comes as no surprise, in the absence of GSE reform, that regulators would pull the emergency chute on the implementation date of SOME of the regs outlined in the Dodd-Frank Wall Street Reform Bill.
The details are a little vague and therefore plenty of unanswered questions, but something is up in Washington!
WSJ: US Mortgage Rules Delayed In Regulator Spat
By Alan Zibel and Victoria McGrane
WASHINGTON (Dow Jones)--The crafting of new standards for mortgage lending has been delayed amid a clash among top U.S. regulators on whether to attach protections for homeowners on the verge of foreclosure.
The holdup is doing little to help the beleaguered market for mortgage-backed securities, which is waiting for the rules. It's also an indication that the implementation of the Dodd-Frank financial overhaul could be messy as a diverse set of regulators try to reach consensus on numerous rules.
At issue are rules dictating which loans should be exempt from the law's so-called risk-retention requirement, which says issuers of mortgage-backed securities must hold on to 5% of the risk. Lawmakers included the provision to avoid a repeat of the housing collapse by making lenders more cautious, since they now stand to lose if a loan goes bad. Previously, mortgage lenders passed the risk to other investors.
Officials set a tentative goal of completing a proposal by the end of 2010, but the spat has contributed to a delay, according to people familiar with the negotiations. The Dodd-Frank financial-overhaul law mandates regulators finalize the rule by April.
Six federal agencies must sign off on the proposal before it is published for comment. One of those--the Federal Deposit Insurance Corp.--has been insisting that the risk rules also contain new standards for mortgage-servicing companies, which collect mortgage payments and distribute them to investors.
Other regulators agree on the need for such regulations, but believe it's better to tackle them through a separate rule or possibly legislation. They are concerned the FDIC's approach wouldn't cover all mortgages. They also say it is unclear whether the risk-retention rules established by the Dodd-Frank law gave regulators the legal authority to impose standards on mortgage servicers.
Industry officials are pressing for a delay. Defining what kind of mortgages are deemed safe, and therefore exempt from risk-retention requirements, is complicated enough and should not be mixed with the servicing standards, said Paul Leonard, vice president of government affairs at the Housing Policy Council, a mortgage industry group. "There should be a discussion on how you look at servicing standards and what
they should be," he said. "We think they should be done separately and take a
little more time to do it."
Industry groups also say a move by regulators to include servicing standards could be challenged. "There's certainly serious concern that this would not be in compliance with the legislative intent of the Dodd-Frank Act," said Tom Deutsch, executive director of the American Securitization Forum, which represents the mortgage securities industry.
The FDIC has the support of some Democratic lawmakers and a number of consumer groups, economists and liberal activists. Supporters argue that servicing standards are critical to fixing the housing market and that the
foreclosure mess is too dire to wait on the federal rule-making process or, even worse, Congress.
"We needed this three years ago; we needed it 20 years ago," said Alys Cohen, a staff attorney with the National Consumer Law Center, a liberal consumer group.
Including standards in the Dodd-Frank mortgage rules guarantees they will be in place by April, "which is lightening speed by federal rule-making standards."
The FDIC published a legal memo last month saying that servicing standards are "clearly permitted" under the risk-retention rules. Andrew Gray, an FDIC spokesman, said Dodd-Frank asked regulators to "help ensure strong underwriting and a safe and stable securitization market, and the FDIC strongly believes that servicing standards are a critical part of this effort."
The need for such standards became apparent, officials say, after revelations in recent months that lenders cut corners when processing foreclosure cases, using so-called "robo-signers" who signed thousands of court documents without reading them. Regulators from numerous federal agencies have completed a review of the mortgage-servicing system. That review has informed regulators' discussions about what fixes are needed, according to people familiar with the matter.
Among the guidelines under discussion: requiring that mortgage servicers set a single point of contact--a person or phone number--for delinquent homeowners. Mortgage servicers also could be required to disclose to investors whether they own any interest in the loans they service, such as a home-equity loan.
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For mortgage bankers this is a big deal. For originators this is a big deal. For consumers this is a big deal. Why? The added costs for banks to originate home loans will surely be passed down the supply chain through smaller mortgage bankers and brokers all the way to the consumer.
READ MORE: Proposed Risk Retention Reform Affects Banker and Broker Loan Pricing
READ MORE: Pending Risk Retention Guidelines Create More Confusion in Mortgage Industry
Noticeably absent from the above story is a comment on the implementation of originator compensation reform, a reg that MND feels should be delayed. A sentiment the MBA shares with us. Without an official press release providing more details, it is unclear exactly what sections of the Dodd-Frank bill are being delayed. But this definitely opens the door for the mortgage business to focus on implementing one reform at a time, in order of importance! GSE REFORM = #1 PRIORITY. Attempting to write any more rules before then sounds a lot like putting the cart before the horse.
Under Post
COURTESY OF MORTGAGE NEWS DAILY
Does the Mortgage Industry Rely Too Heavily on Credit Scoring Models?
by Cindi Dixon January 10, 2010
Few factors affect the mortgage lending process as much as a borrower's credit score. Mortgage bankers and their Wall Street counterparts have long relied on the FICO score to judge the ‘credit worthiness’ of the borrower. When determining pricing on the sale or purchase of millions of dollars of mortgage loans, quantitative analysts known as tape crackers use the individual credit scores as one of the primary data points considered in their pricing models. For individual borrowers, their credit score at the time of loan application has a major influence over the amount of interest they pay or the next 30 years, not to mention the amount of cash required to close and whether or not they even qualify for the loan. Because of this, credit profiles and their impact on risk-based loan pricing to borrowers may be the most important part of the loan approval process. The explanation behind the construction of FICO scores is a not simple concept for borrowers to grasp either. The loan agent must deconstruct available balances and compare to credit limits, they must call attention to the timing and size of payments made since then while not forgetting to include some comments on the number of inquiries and the time since their first trade-line was opened. Sounds like a recipe for confusion. This is not an easy task, in fact, the mythical FICO score formula still evades even the most seasoned professionals and often times leaves borrowers baffled. During the lending boom that took place in the mid to late-2000s, lenders deemed middle FICO scores at or above 680 the imaginary cut off for a borrower to be considered as having a strong ability and willingness to repay debts. As such, borrowers with 680+ middle FICO scores earned the right to be quoted a lower interest rate. Mortgage loans were mass-produced under this national standard. What many outside of the underwriting department’s walls were unaware of was the disparity on what the magic formula entails. For example, each of the three bureaus collect data from a multitude of sources, yet we still see three variations in credit scores even though each provider is given ‘equal access’ to consumer data. Thus when assessing the credit worthiness of a borrower or establishing a long term price for estimated payment performance, reliance on credit scores alone can be not only confusing but deceiving. Today, banks and lenders are making credit decisions that adversely impact credit worthy borrower by decreasing available credit, closing accounts and raising rates on borrowers who have no derogatory history but fall within certain formulaic risk factors established to protect the banks from potential losses. The end result of this knee-jerk reaction to the mortgage crisis is a growing population of prime borrowers whose credit scores have fallen due to no cause of their own. Persistent debate continues to surround loan sale decisioning methodologies heavily weighted on borrower credit scores. The crux of this issue is substantiating the borrower's bottom line when all credit scoring is not created equally. So the question begs to be asked: Should the credit bureaus be held accountable for their role in the mortgage crisis where FICO scores were the predominate factor in loan purchase approval? Do we rely too heavily on the FICO model? Do we need to change the way we judge mortgage credit worthiness
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