Archive for December, 2011

Today’s Mortgage Process Requires More Patience

December 12, 2011

by Peter Boutell, Santa Cruz Sentinel

A few weeks ago I wrote that today’s mortgage guidelines were more lenient and loan approvals were easier to come by than they were 25 years ago. However, today’s loan approvals are much more complicated. They are taking more time, requiring more documents, and require more explanations to borrowers.

Our government has taken over Fannie Mae and Freddie Mac and in an attempt to prevent another meltdown in the mortgage industry, has instituted a wave [as in tsunami] of regulations that we all must adhere to in order to remain in the mortgage business. These regulations have added an enormous amount of paperwork that must be provided by and produced by lenders and borrowers alike. The regulations were supposed to make it harder for unscrupulous lenders to take advantage of unsuspecting borrowers while at the same time make it harder for fraudulent borrowers to take advantage of lenders. These new rules were also designed to make comparison shopping easier so that borrowers could save money. Needless to say, the consequences of these strict guidelines have not produced the intended results.

Not surprisingly, one of the results of these guidelines is that mortgages are taking much longer to process than in the past because mortgage lenders are overwhelmed with meeting these requirements. The amount of paperwork now required to close a purchase or refinance loan is triple what we used to have to produce. The quality-control systems that we must have in place require  verifying and re-verifying information received, which takes countless employee hours.

While there are always exceptions, the paperwork that must go into a borrower’s file has grown exponentially over the years. With tax returns, bank statements, appraisal, preliminary title report, etc. it is not uncommon to have a file that is 375 pages thick. We recently had a file that grew to 784 pages! These files take time to put together, time to review and time to approve. Once we have all the pages that will be required for a file, the file goes in line to be underwritten [we have heard that some banks are taking 15 or more days just in the underwriting queue]. Once approved by the underwriter, the file goes in line to have the loan documents prepared. The documents are then sent to the title company, where the borrowers sign everything [some 50-60 signatures required just on the loan documents] and then the documents are returned to the lender’s funding department where they are reviewed again and the last minute quality-control checks for employment, credit and bank accounts are conducted.

It is a small miracle if the mortgage process can be completed within a 30-45 day period. Some banks are taking 60 or more days to close. In the days of old we were able to complete this process in as few as 5-10 business days. If we lenders, Realtors, title and escrow people, etc. can all stay calm and support each other by setting appropriate expectations, we will have smoother and more timely escrows.



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HARP Mortgage Refinancing Up 20% in September

December 6, 2011

Jon Prior via Housing Wire

Lenders and servicers refinanced nearly 35,000 Fannie Mae and Freddie Mac mortgages through the Home Affordable Refinance Program in September, a 20% monthly increase just before major guideline changes were announced.

The Federal Housing Finance Agency launched HARP in March 2009 to allow borrowers with mortgages that have loan-to-value ratios between 80% and 125% to refinance their loans if they are held by the government-sponsored enterprises.

Participating lenders and servicers have refinanced 928,600 GSE loans through HARP as of the end of the third quarter, the FHFA said Tuesday. It is an 11% increase from the previous quarter. Nearly 11 million borrowers owe more on their mortgage than their home is worth, trapping them out of refinancing at interest rates hovering around 4%.

"Monthly HARP volume grew in the third quarter as interest rates decreased to new historic lows," the FHFA said.

In October, the FHFA eliminated the LTV cap, upfront fees charged to borrowers and representation and warranty risk in order to provide more assistance to underwater borrowers.

Fannie and Freddie released specific guidelines in November.

Before the changes, borrowers who owed more on their mortgage than their home was worth made up a sliver of HARP totals. In September, 83% of HARP re-financings — nearly 29,000 loans — went to borrowers between 80% and 105% LTV, compared to 5,700 between 105% and 125% LTV, according to FHFA data.

The majority of Fannie and Freddie ‘refis’ go through other programs outside of HARP. In all, lenders refinanced 263,780 GSE loans.

Servicers completed more than 140,000 foreclosure prevention actions for the GSEs, including 83,500 mortgage modifications, in the third quarter. Short sales and deeds-in-lieu of foreclosure added another 30,800 for a total of more than 171,000 foreclosures prevented during the period.

Lenders started foreclosures on more than 224,000 properties, down nearly 11% from the previous quarter, according to the FHFA.


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Fed Uses ‘Dollar Rolls’ in Mortgage-Bond Program Shift

December 6, 2011

Jody Shenn and Caroline Salas Gage, San Francisco Chronicle

The Federal Reserve Bank of New York entered into paired contracts to buy and sell mortgage securities for the first time since it began reinvesting in the debt in October, in a move that may reduce funding costs.

The so-called dollar roll transactions will "facilitate the settlement of our outstanding MBS purchases," Jonathan Freed, a New York Fed spokesman, said in an e-mailed statement.

The central bank is purchasing bonds for December settlement and agreeing to sell the same amount of similar debt in January, said two people familiar with the matter, who declined to be identified because details haven’t been disclosed. Funding costs for mortgage-bond investors, which had risen in anticipation of banks trimming their balance sheets before year-end, fell after the Fed transactions.

"I applaud the Fed," Scott Simon, mortgage-bond head at Newport Beach, California-based Pacific Investment Management Co., which runs the world’s largest debt fund, said in an e- mail. "This both makes them money and helps the MBS market. There wasn’t enough year-end balance sheet."

The central bank began reinvesting proceeds from its holdings of $1.4 trillion in housing debt into government-backed mortgage bonds to help support the real-estate market and homeowner refinancing, shifting from additional purchases of Treasuries. On Nov. 30, the Fed joined with global central banks to cut emergency dollar funding costs for European lenders as the region’s sovereign debt crisis roils markets.

‘Funding Pressure’

The New York Fed says on its website that it "may use dollar roll transactions if needed to facilitate settlement" of its purchases. The Fed posts details on its mortgage bond buying each Thursday.

With dollar rolls, an investor seeking to borrow money enters into contracts to sell mortgage securities in any month and then buy similar bonds the following month; a lender would undertake the opposite trades. Investors entering into transactions for other reasons may be on either side of the contracts.

The transactions are similar to so-called repurchase agreement, or repo, loans.

The Fed’s latest move in the mortgage bonds may help "alleviate some mild funding pressure" in the market, said Bryan Whalen, co-head of mortgage bonds at Los Angeles-based firm TCW Group Inc., which oversees $120 billion in assets.

The implied cost of dollar-roll financing for some of Fannie Mae’s securities rose earlier yesterday to more than 40 basis points, depending on prepayment-speed estimates, according to Whalen. That compared with 27 basis points for similar repo loans, he said. A basis point is 0.01 percentage point.

Backstop Role

That disconnect "implied a little bit of stress" in money markets, he said. "It’s typical to see this type of mispricing of liquidity" around year-end, and Europe’s crisis is exacerbating the situation, Whalen said.

The implied cost of dollar-roll funding for Fannie Mae’s 3.5 percent 30-year securities fell to between 10 basis points and 20 basis points, depending on prepayment assumptions, early today, according to Credit Suisse Group AG analyst Mahesh Swaminathan. It had increased about 25 basis points since the end of October, he said in an e-mail.

The "Fed’s move to buy dollar rolls underscores their backstop role to support liquidity in the market," Swaminathan said. "I don’t think they are going to do these regularly. It is something intended to be done only when liquidity is perceived to be low."

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