Jumbo mortgage holders pose highest risk of strategic default

I'm having trouble reprinting another article.  But is related to the FHA audit that also is coming out.  

In a study released Oct. 31, ratings firm Moody's said that based on its analysis of mortgage-backed bond portfolios, homeowners with jumbo mortgages now constitute "greater strategic default risk" than any other type of borrowers, including subprime.

That's because an exceptionally high number of jumbo loan owners — many located in high-cost markets hit by real estate deflation over the last several years — are stuck with persistent negative equity. More than half of the jumbos analyzed by Moody's in which owners are still making payments are underwater, or have home market values lower than their outstanding loan balances.

Jumbo loans are those that exceed the conventional limits of Fannie Mae and Freddie Mac. Nationally, that ceiling is $417,000, but in high-cost areas between 2008 and Oct. 1 of this year, conventional limits ranged as high as $729,750. The maximum in those high-cost areas is now $625,500.

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Credit getting tighter as Banks become more responsible for bad loans

Lenders are insisting on higher credit scores and more documents than required by the Federal Housing Administration and government-backed Fannie Mae and Freddie Mac. Quicken Loans Inc. and Vision Mortgage Capital are among firms saying they are increasing scrutiny of would-be borrowers in response to pressure to cover losses incurred on U.S.-backed housing debt.

And main reason is that Fannie Mae is making banks cover the cost of bad loans.

You’ve got to take measures now to protect yourself,” John B. Johnson, chief executive officer of Birmingham, Alabama- based MortgageAmerica Inc., said during a panel discussion this month. Demands that lenders repurchase bad mortgages from Fannie Mae and Freddie Mac are “casting a pall over the market. I fear that it will face a much longer recovery because of this.

Lenders’ contracts with Fannie Mae and Freddie Mac allow them to force buybacks of mortgages if the loan originators fail to properly vet debt, such as by accepting inflated borrower incomes or appraisals. Flawed paperwork can lead to pressure from Fannie Mae and Freddie Mac even on performing mortgages.

This is having ripples all over industry, but it's what was required to get a loan in 1998.

Pressure from the GSEs has “definitely stanched the flow of credit to the mortgage market, but we had clearly gone too far,” said Richard Eckert, an analyst in San Francisco at securities firm B. Riley & Co. who wrote research on subprime lenders during the housing boom and then joined a hedge fund betting against property loans during the collapse. “We’ve got to return to some kind of happy balance.”

Bank of America Corp. (BAC) has scaled back mortgage lending as CEO Brian T. Moynihan prepares for new capital requirements and grapples with demands that it compensate investors including Fannie Mae and Freddie for losses.

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Different mortgages default at different times: NBER report

"We find that the relaxation of borrowing constraints dominates early in the life of the mortgage," the authors state, "but default rates become larger than for principal-repayment mortgages late in the life of the mortgage due to the considerably higher probability of negative home equity."

Defaults tend to occur when a home enters a negative equity state, which is usually caused by several factors, including home price declines in a low inflation environment and large mortgage balances with little money down at the time of origination. However, after looking at mortgage default trends in other countries as well, Campbell and Cocco found that there is a variable lag time to when negative equity hits and the borrower stops making payments.

And with FHA 3.5% down payment loans being very popular.

Putting little down at the time of origination greatly increases the probability of default, the report concluded, with that probability increasing even more for loans with LTV ratios in excess of 90%.

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BofA May Face Fraud Claims for Soured Loans

Bank of America Corp. (BAC) should face fraud proceedings after its Countrywide unit submitted faulty data to back up claims for reimbursement on federally insured mortgages, according to an audit by a U.S. watchdog.

Half of 14 loans reviewed had “material underwriting deficiencies” concerning borrowers that resulted in more than $720,000 in losses, according to a Sept. 30 report from the Department of Housing and Urban Development’s inspector general. Kelly Anderson, a HUD regional inspector general, recommended the agency pursue legal remedies against Charlotte, North Carolina-based Bank of America, the biggest U.S. lender.

“Countrywide did not properly verify, analyze, or support borrowers’ employment and income, source of funds to close, liabilities and credit information,” Kelly wrote in the audit. “This noncompliance occurred because Countrywide’s underwriters did not exercise due diligence in underwriting the loans.”

And...

In one instance, Countrywide said a borrower earned $6,192 a month when pay stubs reflected income of $4,377. In other cases, Countrywide failed to properly review bad loans to ensure they met HUD’s guidelines before submitting claims, the department said.

In a 35-page response to HUD dated July 19, Bank of America Senior Vice President Linda Jacopetti acknowledged that “oversights may have occurred in some instances” and said the unit didn’t intentionally disregard FHA guidelines. There were “isolated occurrences in a handful of cases among thousands of FHA loans originated” in that time, she said.

Lemar Wooley at HUD and Michael Zerega of the inspector general office declined to comment on the report.

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What New Jumbo Mortgage Rules Mean for Expensive Zip Codes

On Oct. 1, the size of mortgages eligible for purchase by Fannie Mae and Freddie Mac will shrink. That isn't necessarily a big deal in most parts of the country; the new lower limit of $625,500 — down from today's $729,750 — still is big enough to cover most homes in almost all markets in the United States.

Furthermore, mortgage bankers are stepping up with new money to cover those bigger loans, reports Mortgage Daily. "Programs here and there are popping up," says publisher Sam Garcia. He reports that some new lenders, including TMS Funding and New Penn Financial LLC, are launching programs that will make mortgages as big as $2 million available to lenders with good credit scores and enough cash to keep up with the payments. And many existing mortgage lenders currently will make those so-called "jumbo" loans and just keep them in their portfolios instead of selling them.

But those loans will cost more. Currently the difference between rates on so-called conforming loans and private-made loans is about 0.64 percent. Over the last two years that spread has been as low as 0.48 percent and higher than one percent, says Garcia.

So in some pricey places, the new limits will really pinch borrowers. Those limits vary from market to market and are determined in part by local housing prices. In expensive housing markets where prices have fallen, the limits will drop the most. Hardest to be hit, according to a new analysis by Move.com, will be San Diego, where loans up until $697,500 qualify for Fannie and Freddie until Sept. 30. On Oct. 1, that limit drops to $546,250, a $151,250 difference.

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Housing Slump Hits New Mortgage Loans

In its annual analysis of mortgage data provided by thousands of financial institutions, the Fed found that lenders originated 7.9 million mortgages in 2010, down 12% from 2009. The only year they were lower in the past decade was 2008, when they hit 7.2 million. The Fed analyzed data from more than 7,900 mortgage lenders that are reported to regulators under the Home Mortgage Disclosure Act

The lending drop in distressed areas stems in part from declines in loans to borrowers who don't use the homes as their primary residences, often investors. But the report also found a rising concentration of lower-income borrowers in those communities. Higher-income borrowers accounted for just 29% of all loans in those distressed neighborhoods last year, compared with 52% of loans in those neighborhoods in 2005. In less-distressed neighborhoods, higher-income borrowers accounted for half of all loans in 2005 and 43% of loans last year.

And

Refinancing has been particularly limited in five states that have seen the biggest home-price declines: Arizona, California, Florida, Michigan and Nevada. In those states, some 6.4% of borrowers with credit scores between 680 and 719 refinanced last year, compared with 9.7% of borrowers in the remaining 45 states

And this is the incredible part.  Traditionally, FHA were no more than 2% to 5% of the home loans for purchases.

The study illustrates the mortgage market's continued heavy reliance on government-backed mortgages. Federal agencies such as the Federal Housing Administration, which allows borrowers to make down payments of just 3.5%, accounted for more than half of all loans for home purchases in 2010. Fannie Mae and Freddie Mac accounted for nearly one-quarter of purchase loans and more than half of refinances.

Any increase in FHA down payment requirements or the privatization of Fannie or Freddie means that these borrowers will have to tougher standards to get a loan.  The long term goal is to privatize the government agencies and FHA is in financial trouble.

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Jumbo loans for higher-end homes make a comeback in metro market

A little brief history of Jumbos.

After 2008, the jumbo loan market that finances upper-bracket housing purchases collapsed. Credit restrictions tightened and banks, struggling to regain their footing, were reluctant to back large sums of money.

"We didn't have jumbo loan products after the crash," said Donna Evers, president of real estate firm Evers & Co. "We didn't have $1.5 million loans like we do now, with 20 percent down at 4.25 percent, even a year ago. It took quite a bit of time."

Please be a where this is mostly in the Washington DC area.

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Freddie Mac Extends Mortgage Relief to Borrowers Affected by Hurricane Irene

MCLEAN, Va., Sept. 7, 2011 /PRNewswire/ -- Freddie Mac's (OTC: FMCC) full menu of relief policies for borrowers affected by disaster is being extended to homeowners whose homes were damaged or destroyed by Hurricane Irene and are located in counties that the President has declared to be Major Disaster Areas and where he has made federal Individual Assistance programs available to affected individuals and households. Freddie Mac is one of the nation's largest investors in residential mortgages.
"Freddie Mac has authorized the nation's mortgage servicers to provide a full range of mortgage relief options to affected borrowers with mortgages owned or guaranteed by Freddie Mac," said Anthony Renzi, Executive Vice President of Single-Family Business, Operations and Technology at Freddie Mac. "Forbearance on mortgage payments for up to one year are among the options our servicers have been instructed to offer borrowers on a case-by-case basis."
Freddie Mac disaster relief policies provide a number of ways for mortgage servicers to help affected borrowers in the Major Disaster Areas where federal Individual Assistance programs have been extended.
Freddie Mac, for example, gives servicers the discretion to reduce or suspend mortgage payments for up to 12 months for borrowers with Freddie Mac-owned mortgages that have been affected by a disaster. Each case must be individually assessed to determine what assistance will best fit the homeowner's circumstances.
Freddie Mac also strongly encourages servicers to help affected borrowers with Freddie Mac-owned loans by:

• Suspending foreclosure and eviction proceedings for up to 12 months;
• Waiving assessments of penalties or late fees against borrowers with disaster-damaged homes; and
• Not reporting forbearance or delinquencies caused by the disaster to the nation's credit bureaus.

For more information on mortgage payment relief, homeowners should contact their mortgage servicer -- the company to which they send their monthly mortgage payment -- or call Freddie Mac at 800-FREDDIE.  Freddie Mac's general disaster relief policies are posted online at http://www.freddiemac.com/singlefamily/service/disastermgmt.html.
Freddie Mac was established by Congress in 1970 to provide liquidity, stability and affordability to the nation's residential mortgage markets. Freddie Mac supports communities across the nation by providing mortgage capital to lenders. Over the years, Freddie Mac has made home possible for one in six homebuyers and more than five million renters.
SOURCE Freddie Mac

Mortgage servicers increase private loan modifications in July

Private mods still perform badly.  If you can't afford the house payment, then their is no real options.

Mortgage modifications completed through private programs increased 11% in July, according to the Hope Now alliance of servicers, counselors and investors, but these workouts have proven less likely to last.

Roughly 56,000 mortgages made it through these private programs and into permanent status. Since 2007, servicers completed 4 million private modifications and roughly 763,000 permanent workouts through the government's Home Affordable Modification Program.

So far in 2011, private modifications are more than double those done through HAMP. Through July, roughly 422,000 workouts came through proprietary initiatives, compared to the 183,000 done through the Treasury's program as of June, according to Hope Now. The Treasury Department is expected to release its July numbers in the coming days, but it has averaged roughly between 30,000 and 35,000 permanent mods per month. If the trend holds in July, private programs would still outnumber HAMP more than 2-to-1.

"We are happy to see an increase in permanent proprietary loan modifications for the month of July," said Faith Schwartz, executive director for Hope Now.

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LPS' Mortgage Monitor Report Shows Average Loan in Foreclosure Is Delinquent for Record 599 Days

At what point does the lender just fianlly gives up?

The July Mortgage Monitor report released by Lender Processing Services, Inc. (NYSE: LPS) shows that foreclosure timelines continue their steady upward trend, as a payment has not been made on the average loan in foreclosure in a record 599 days. Of the nearly 1.9 million loans that are 90 or more days delinquent but not yet in foreclosure, 42 percent have not made a payment in more than a year with an average delinquency of 397 days, also a new record. At the same time, first-time foreclosure starts in June were near three-year lows, and first-time delinquencies accounted for only 25 percent of new delinquent inventory.

As of the end of June, 4.1 million loans were either 90 or more days delinquent or in foreclosure, as delinquencies remain two times and foreclosures eight times pre-crisis levels. Foreclosure sales remain constricted, with foreclosure starts outnumbering sales by a factor of almost three to one. The slowdown is most pronounced in judicial foreclosure states, which maintain a foreclosure and seriously delinquent pipeline that is more than three times as long as non-judicial states. On average, at the current rate of foreclosure sales, judicial foreclosure states would require 111 months to work through inventories of loans that are 90 or more days delinquent or in foreclosure as compared to non-judicial states, which would be able to clear the inventories in approximately 32 months. 

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Homeowner Associations are getting tired of banks

Members of the Vintage East Condominium Association in Miami Beach got tired of waiting for JPMorgan Chase & Co. (JPM) to foreclose on unit 9, so they sued the bank in February to take control of the property.

In June, more than four years after the owner stopped making payments, a judge ruled that JPMorgan lost its claim to the $144,000 mortgage. The apartment is now on the market for $87,500, and the association may stave off insolvency with proceeds from the sale and a new owner who pays monthly dues, said Jane Losson, a board member at the complex. Four of the 11 other owners at the property are also behind on dues.

“I find it an outrage that the bank had decided to do nothing and the other owners got stuck,” Losson, who’s had her Vintage East condo since 2004, said in a telephone interview. “If we get this unit sold, we’ll have a little money.”

This is a bigger issue than many people think.

About 60 million people, or one in five Americans, live in residences with condo or homeowner associations, according to the Community Associations Institute, a trade group in Falls Church, Virginia. States with some of the highest foreclosure rates -- Florida, Nevada, California and Arizona -- are also among those with the biggest share of populations in homeowner associations, said Frank Rathbun, spokesman for the 30,000- member trade group. The associations maintain residents’ common interests such as parking lots, roofs, landscaping and trash removal.

“About 50 percent of our members said the housing crisis and economic downturn have had a severe or serious impact on their association,” Rathbun said in a telephone interview.

About one in three Californians live in that state’s 45,000 condo and homeowner associations, said Kelly Richardson, an attorney who specializes in homeowner association law.

“Banks have been slow catching up to reality,” Richardson, with the firm of Richardson Harman Ober PC in Pasadena, said in a telephone interview. “When pushed, they’ll step up to the plate, but you have to push them.”

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FHA mortgage delinquencies resurge in second quarter

This is important since, the FHA program is the main source of low downpayment loans and about 30% of all home sales.  Also, private mortgage insurance (PMI) companies are having financial troubles and can't write as much insurance for these low downpayment loans.

"We believe that an increase in delinquencies in the FHA program was the biggest contributor to the pickup in overall national delinquencies in the second quarter," KBW said.

And

But in the second quarter, the delinquency rate jumped to 11.7%. Seasonally adjusted, the increase was 59 bps to 12.62%.

Mirroring the MBA report, the FHA second-quarter delinquencies increased the most in the early stages of default, according to KBW. For instance, 30-day delinquencies increased 87 bps to 5.27% in the second quarter, while those in 90-day delinquency dropped 5 bps to 4.55%. Seriously delinquent loans, those in 90-plus day delinquency or foreclosure dropped 13 bps to 7.65%.

"FHA delinquency rates fell in 2010 as the FHA loans outstanding grew very sharply. We believe that the moderation in FHA loan growth will likely result in further increases in delinquencies on this portfolio which will likely push up the national averages," KBW analysts said. "However, this credit risk resides with the government since these loans are guaranteed by FHA."

At what point can the government keep financing these losess.

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Wells Fargo Lowers Conforming Loan Limits

The official cut off date is October 1st, however lenders need lead time to process.  So for Wells Fargo the date was August 15th.

The loan limits were raised by Congress in 2008 temporarily from $417,000 to $729,000 in the highest priced markets in order to help bring much-needed liquidity to the mortgage market after the sub-prime meltdown that sent investors fleeing. There has been heavy lobbying by the Realtors, mortgage bankers and home builders to extend the limits, but so far to no avail.

Even though the rule goes into effect on October 1st, all loans have to be funded, sold and shipped to the GSE's by then. Refi volume has been so high lately that it can take 45 days to do a loan, so lenders have to cut off in time.

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FHA/VA insured bonds are in trouble

I hate to post articles that are too technical, but this one is revealing.  FHA/VA bonds are failing, which means FHA and VA mortgages are defaulting.  All of these defaults cost these programs losses, since they insure loans for lenders.  If these defaults continue to grow, then these program might not be able to insure any additional loans.

Moody's admits FHA/VA loan delinquency levels have been relatively stable, but analysts believe that could change with home prices still falling and unemployment consistently high.

"FHA/VA borrowers are typically low-income borrowers with poor credit histories who have been affected by the weak economy and housing market," Moody's said. "Securitized FHA/VA pools typically have high delinquency levels at inception, with the majority of loans being 90-days late or more. Because of the insurance coverage loss severities and overall losses have been fairly low. Loss severities, which have been rising, are now currently around 12% on average."

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More homeowners refinancing into shorter loans: survey

More homeowners prefer to pay off their mortgages sooner as interest rates have stayed near rock-bottom and weak labor conditions have caused them to reduce their debt loads, a survey showed on Monday.

The current trend in refinancing into shorter-loan terms is a stark contrast to the one during the height of the housing boom, when families were taking out bigger mortgages against the rising values of their homes.

Of those homeowners who refinanced a 30-year fixed-rate mortgage during the second quarter, 37 percent moved into a 15-year or 20-year fixed-rate loan. This is the highest since the third quarter of 2003, mortgage finance agency Freddie Mac said.

In the second quarter, interest on the 30-year mortgage averaged 4.65 percent, compared with a 3.84 percent average on 15-year mortgages, the company said.

"It's no wonder we continue to see strong refinance activity into fixed-rate loans," Freddie Mac Chief Economist Frank Nothaft said in a statement.

Refinancing has comprised the bulk of U.S. mortgage activity since the housing bust that led to the 2007-2009 global financial crisis.

During the second quarter, the refinance share of mortgage applications, versus the share of applications for loans to buy a home, averaged 70 percent, Freddie Mac said.

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Fannie Mae more likely to push for foreclosure if you are year behind payments

One year behind!  That's just amazing.

The records cover Fannie Mae's foreclosure decisions on more than 2,300 properties, a snapshot from among the millions of mortgages Fannie handles nationally. The documents show Fannie Mae has told banks to foreclose on some delinquent homeowners -- those more than a year behind -- even as the banks were trying to help borrowers save their houses, a violation of Fannie's own policy.

The Free Press also obtained internal records revealing that the taxpayer-supported mortgage giant has told banks that it expected them to sell off a fixed percentage of foreclosed homes. In one letter sent to banks around the country last year, a Fannie vice president made clear that Fannie expected 10%-12% of homes in foreclosure to proceed to sale.

And...

According to White, the Valparaiso professor, foreclosing on a home typically costs Fannie Mae far more than a successful loan modification. But, he and others say, Fannie is willing to absorb higher losses because it knows taxpayers -- not Fannie Mae -- will eventually reimburse the loss.

What this bank forgot is that if one borrower gets a modification, then all borrowers will want get a modification.  Which will be higher than losses due to foreclosure.

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Fannie Mae is purchasing Bank of America bad assets

Since taxpayers (you and me) own Fannie Mae it means that we are purchasing bad assets that will end up costing us more money.

But apparently the federal government is determined to resurrect BofA: the Wall Street Journal reports the feds have just used Fannie Mae, which is controlled by the U.S. government, to infuse BofA with $500 million and ease one of the bank's biggest headaches.

Yesterday afternoon on CNBC, Bank of America CEO Brian Moynihan mentioned that five of BofA's six businesses were making money. The one black spot was its massive portfolio of problematic mortgages and the liabilities flowing from it. Moynihan also mentioned that BofA had just sold some "mortgage servicing rights" as part of its balance sheet strengthening efforts, but he didn't elaborate.

According to the WSJ, Fannie Mae spent $500 million to buy the servicing rights to a big chunk of the "seven million loans still causing the most problems." Although the $500 million is a paper loss to BofA, in that the rights were "originally worth more," it looks like BofA is still getting a good deal because the portfolio's "value is expected to deteriorate further."

How bad are the loans?

But the loans Fannie Mae now has to deal with are even worse than 13% delinquency rate suggests. According to the WSJ, "more than half of the loans are in troubled U.S. real-estate markets." This likely means markets where a high percentage of the houses are underwater and there's a huge oversupply, driving prices down further and making defaults more likely.

Fannie Mae is purchasing "the servicing rights in order to transfer the day-to-day management of those loans to a different company." That's another huge sign that Fannie Mae is overpaying. If the rights were really worth $500 million, wouldn't a private company pay that for them? Instead, it sounds like Fannie Mae is doing a bailout two-step, one to BofA and one to whomever takes these rights off Fannie Mae's hands.

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Home price recovery slips out of sight

This article confirms that this summers very small bump in prices was just seasonal.  Also, with markets being so volatile and federal reducing it's subsidies it might put off some buyers.

As a result of continued weakness on the jobs front and the debt ceiling fiasco, Fiserv pushed back its projections of a housing market turnaround by three months. Now, it doesn't expect home prices to start gaining any ground until the second quarter of 2012.

Instead, Fiserv expects median home prices to continue to fall by an average of 3.1% between March 31 of this year and March 31, 2012. After that, it expects to see prices increase by 2.7% until the first quarter of 2013

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Bank of America agrees to write down California mortgage principal

Bank of America has begun writing down principal on the mortgages of some troubled borrowers in California through a state program intended to help people facing foreclosure.

The bank has signed on to the principal reduction component of the Keep Your Home California program, which uses federal funds reserved for the 2008 rescue of the financial system to help homeowners behind on their mortgages. For full details of the program, click here.

BofA is the largest of the nation's major banks to join the program, which was launched this year with $2 billion in federal funds. The California Housing Finance Agency, which runs the program, said BofA has been writing down principal on some mortgages as part of a pilot program since February and is now moving into full participation.

“California has been particularly hard hit by reductions in property values,” Rebecca Mairone, national mortgage outreach executive for BofA, said in a statement.

The bank services more than 2.2 million home loans in California, according to the housing agency. Consumer advocates criticized the lack of major mortgage servicer participation when the program was launched this year. Officials said they hope the program will encourage other major financial institutions to join.

“We’re excited to have Bank America on board for one more of the Keep Your Home California programs,” Claudia Cappio, executive director for the agency, said. “We believe principal reduction can be an appropriate tool for helping qualified homeowners obtain an affordable and sustainable modification. We continue to work with other mortgage servicers to offer this to their customers.”

The principal reduction program is aimed at helping cash-strapped Californians who are "underwater" on their mortgages -- those owing more on their properties than what those homes are worth. Those borrowers who qualify could be eligible for a total principal reduction of up to $100,000 through the program.

The program allows for up to $50,000 in aid to troubled borrowers. Banks participating in the principal reduction component are required to match that aid. Mortgages owned or guaranteed by Fannie Mae or Freddie Mac are among those that are not eligible for principal reduction.

Keep Your Home California has several other programs, including one that helps people pay their mortgages as well as provides moving assistance to certain borrowers who lose their homes to foreclosure. State officials hope to fend off foreclosure for about 95,000 borrowers and provide moving assistance to about 6,500 people who do lose their homes.

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What about us? Responsible homeowners left out in the cold

I this might the leading edge of more strategic defaults.  If the bank won't refi the upside borrower, then the borrower just might walk away from their house.

Consider it yet another cruel irony of the housing bust: While hundreds of thousands of mortgage borrowers have been able to squat in their homes without making a single mortgage payment in months or even years, many responsible homeowners who have good credit and consistently meet their monthly obligations haven't been able to refinance in order to avoid losing their homes.

Many of today's homeowners purchased their homes during a time of easy credit, when mortgage products, like interest-only loans and option adjustable-rate mortgages were issued to the marginally qualified. And many were told that -- if they made their payments faithfully -- they could easily refinance out of these products into affordable fixed-rate loans once the payments started to balloon.

But that day has never come for some borrowers -- no matter how good their payment record or credit score.

Many lenders are refusing to refinance underwater mortgages -- loans that are higher than the value of the home -- because it would mean big losses for them if the borrower defaults, said Mark Zandi, chief economist for Moody's Analytics

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