Mortgage Industry News

This week in the mortgage industry: Refinance up… rates down. From the MBA:

WASHINGTON, D.C. (February 18, 2009) — The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey for the week ending February 13, 2009.  The Market Composite Index, a measure of mortgage loan application volume, was 875.3, an increase of 45.7 percent on a seasonally adjusted basis from 600.6 one week earlier.  On an unadjusted basis, the Index increased 47.7 percent compared with the previous week and 5.2 percent compared with the same week one year earlier.

The Refinance Index increased 64.3 percent to 4472.9 from 2722.7 the previous week and the seasonally adjusted Purchase Index increased 9.1 percent to 257.3 from 235.9 one week earlier.  The Conventional Purchase Index increased 10.9 percent while the Government Purchase Index (largely FHA) increased 5.5 percent.

The four week moving average for the seasonally adjusted Market Index is down 9.6 percent.  The four week moving average is down 4.2 percent for the seasonally adjusted Purchase Index, while this average is down 12.2 percent for the Refinance Index.

The refinance share of mortgage activity increased to 74.2 percent of total applications from 66.7 percent the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 1.7 percent from 2.5 percent of total applications from the previous week.

The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.99 percent from 5.19 percent, with points increasing to 1.37 from 1.20 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.

The average contract interest rate for 15-year fixed-rate mortgages decreased to 4.66 percent from 5.00 percent, with points increasing to 1.22 from 1.21 (including the origination fee) for 80 percent LTV loans.

The average contract interest rate for one-year ARMs decreased to 6.10 percent from 6.22 percent, with points increasing to 0.23 from 0.22 (including the origination fee) for 80 percent LTV loans.

This blog has been pointing to inefficiencies in the mortgage industry for quite a while now, and to the fact that the industry is slow on the uptake when it comes to software/IT advancements, process change or improvement, or any type of process innovation.

Well, with the new year comes the renewed cry for the industry to catch up with the rest of the business world. With immediate focus on new legislation, bank mergers and bailouts, and consumer confidence at a historic low, the rebound of the mortgage industry and the banking industry are becoming more and more critical each day. Other industries are increasing focus on new pricing and IT strategies, according to the Professional Pricing Society blog, and now software developers in our own industry are shouting “evolve or die”, something outsourced providers and SaaS providers in the industry have been chanting since before the crash. Here is a recent example:

“Sthenia Solutions CEO Paul Piers unleashed a torrent of strong words for his colleagues in the mortgage industry who are unwilling to evolve to meet the needs of a changing market. In a statement available at www.loanmarq.com/benchmarq, Piers said the mortgage industry is “foundationally broken” and challenged professionals must “innovate or exit.”

“After the subprime mortgage debacle, mortgage people should have received a wake-up call,” said Piers. “Mortgage people need to tangibly raise customer service through education, over-disclosure and communication.”

Piers referenced a customer satisfaction survey conducted by J.D. Power and Associates that showed customers are more satisfied and more loyal to a lender when their loan officer provides status updates, communicates proactively and acts transparently and ethically.

“Mortgage people cannot continue status quo when their potential customers are screaming for change,” Piers said.”

Read the full story here.

The next few weeks should be very interesting - more commentary to come.

The homeowner isn’t responsible because they didn’t know they were supposed to read paperwork and were a little fuzzy on that whole fraud thing.  “I totally trusted the guy… and frankly, when the settlement agent pointed out fees and terms… I stopped him and said “shhhhh, I like surprises!”  Then the broker told me I could call it my  primary residence, and it was totally cool to say I make $10K per month selling Amway.”

The broker isn’t at fault because even though they sold the product, how were they supposed to know if people couldn’t afford it.  “I didn’t make the crack, I didn’t fund the crack… I just dealt it.”

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Think only mortgage and homebuilding industries are affected by the current mortgage market situation? Think again. The effects just keep spreading.

For example, students in Massachusetts are being denied college loans due to the current market. As BlownMortgage reports:

“The Massachusetts Educational Financing Authority is unable to grant loans to college students this year as it is unable to secure financing due to the condition of the capital markets.  More than 40,000 college students will be locked out of financing for their college education due to the beating taken on Wall Street.

This is where it gets really unfortunate folks.  Taxpayers bear the burden of a Fannie and Freddie bail out while the companies can still pay out dividends, bear the burden of a Bear Stearns bail out, bail out irresponsible policy and practice and then be shut out of opportunity.  Can you imagine explaining to the parents of those kids that your child won’t get an opportunity at college because of the mortgage mess and their taxes will go towards bailing out those very same people who took away that opportunity?”

Click here to read the full post.

So how do we revive the market and restore investor confidence? Tony Garritano weighs in from the technology side here.

Ruth Lee

A big gripe with consumer groups and regulators of our industry are the subjectivity and arbitrary nature of fee structures, which leaves the system open to discrimination and abuse. On June 12th, Portfolio.com outed Senators Dodd and Conrad for receiving “FOA” loans from Countrywide Financial. Following a vehement denial from Conrad in the Washington Post, one can’t help but feel like you just towel dried with a side of bacon.You may ask… FOA? Fallacious Option Arm? Oh no… nothing so pedestrian… FOA is the internal CWF designation for “Friends of Angelo.” According to Portfolio.com :

“the V.I.P.’s received better deals than those available to ordinary borrowers. Home-loan customers can reduce their interest rates by paying “points”—one point equals 1 percent of the loan’s value. For V.I.P.’s, Countrywide often waived at least half a point and eliminated fees amounting to hundreds of dollars for underwriting, processing and document preparation. If interest rates fell while a V.I.P. loan was pending, Countrywide provided a free “float-down” to the lower rate, eschewing its usual charge of half a point. Some V.I.P.’s who bought or refinanced investment properties were often given the lower interest rate associated with primary residences.”

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This is a great article discussing the effects that tinkering with the CPI and economic indicators in order to give a positive economic outlook have on markets over the long term:

“In 1983 the Bureau of Labor Statistics was faced with an awkward dilemma. If it continued to include the cost of housing in the Consumer Price Index, the CPI would reflect an inflation rate of 15 percent, thereby making the country’s economy look like a banana republic. Worse, since investors and bond traders have historically demanded a 2 percent real return after inflation, that would mean that bond and money market yields could climb as high as 17 percent.

The BLS solution was as simple as it was shocking: Exclude the cost of housing as a component in the CPI, and substitute a so-called “Owner Equivalent Rent” component based on what a homeowner might rent his house for.”

Click here to read the whole article in the Rocky Mountain News.

I will be exploring the changes to the CPI and how they have falsely depressed interest rates which helped lead to the crisis over the next several weeks. Stay tuned!

Ruth Lee

I have said it before:

“…I could not help but cringe when I saw the proposed legislation for FHA to purchase and refinance “underwater” mortgage loans. It would essentially make FHA the largest scratch and dent lender in the market.”

I will say it again.

This story from the Wall Street Journal reinforces how much our industry is interconnected with both the US economy and the global economy. Our industry needs to be educated about global economics and understand just how extensive the effects of our actions are. These types of reports also demonstrate how critical a return to quality in lending and a renewed focus on quality control are to the total recovery and future viability of the mortgage market and our industry:

A new report from Standard & Poor’s indicates that a government bailout of Fannie Mae and Freddie Mac would cost upwards of 10 percent of gross domestic product (GDP) and jeopardize the United States’ AAA rating. According to the credit rater, “Even though . . . credit damage from GSEs is unlikely, the greater risk to the U.S. lies with them than with broker-dealers.” The report notes that a bailout of broker-dealers would cost the government less than 3 percent of GDP, with the bailout of Bear Stearns by the Federal Reserve pegged below 1 percent of GDP.

Titan Lenders Corp was featured in this great Mortgage Technology article highlighting vendors that are utilizing innovative Internet marketing and communications to reach out to the mortgage industry and other markets:

“Not unlike other industries, mortgage businesses are increasingly reliant upon the Internet to find, analyze and gain consensus on resource selection and management, such as the search for lending technology solutions. Lenders and the vendors serving them are increasingly discovering the benefits of online “window shopping” for technology and service solutions as these habits become more natural in their personal lives. As this trend progresses, successful vendors are challenged to communicate effectively with lender prospects via the Internet channel; and to present the “storefront” and product lines that most closely match their target prospects’ desired solution. “

Click here to read the full article.

Ruth Lee

Frankly while not the most conservative amongst my friends in the mortgage world, I could not help but cringe when I saw the proposed legislation for FHA to purchase and refinance “underwater” mortgage loans. This legislation would essentially make FHA the largest scratch and dent lender in the market.

Articles I have been reading note that lenders would have to mark down the principal balance to a 90% CLTV under this program. Writing down this loss is actually considerably better than most can get in scratch and dent market at 40-60 cents on the dollar. What a deal!

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Mary Kladde

This kind of news demonstrates the symbiotic relationship between the mortgage industry and the real estate industry - what affects one affects both - and strongly suggests if not demands that our two industries collaborate more closely on everything from supply/demand forecasting, collateral valuation methodologies and signals of fraud.

“March 24 (Bloomberg) — Sales of existing houses in the U.S. probably fell in February to the lowest level in at least nine years, economists said ahead of a private report today. Purchases dropped 0.8 percent to an annual rate of 4.85 million, according to the median of 63 forecasts in a Bloomberg News survey. That would be the fewest since the National Association of Realtors began keeping records in 1999. The real estate slump will persist as a glut of houses on the market depresses property values and lenders toughen mortgage requirements to stem credit losses. The Federal Reserve last week said the outlook had worsened and pledged to do whatever was needed to keep the economy growing.

“We expect both purchasing activity and pricing to fall for the remainder of the year,” said Joseph Brusuelas, chief U.S. economist at IDEAglobal Inc. in New York.

The National Association of Realtors is scheduled to issue its report at 10 a.m. in Washington. Estimates in the Bloomberg News survey showed sales rates ranging from 4.69 million to 4.9 million.”

Click here to read the full story at Bloomberg: U.S. Home Resales Probably Fell as Prices Slid, Credit Shrank.