TEAM EMPOWERMENT MORTGAGE CHATTER: Jan. 3: BofA settles with Freddie & Fannie but has other legal woes; HUD’s Mortgagee Letters; covered bond chatter; QUANTITATIVE EASING EXPLAINED

“You were born to win, but to be a winner, you must
plan to win, prepare to win, and expect to win.”
Zig Ziglar: Motivational author and speaker



Continuing the trend begun by many large and small lenders, Bank of America spread the word that it settled outstanding repurchase claims with Fannie Mae and Freddie Mac over residential loans sold to them by Countrywide. BofA said its home loans and insurance business is expected to “record a $2 billion, non-cash, non-tax deductible goodwill impairment. It also expects to take a provision of about $3 billion related to repurchase obligations for residential mortgage loans sold by Bank of America affiliates directly to Freddie Mac and Fannie Mae.” The company agreed, among other things, to a resolution amount of approximately $1.52 billion, consisting of a cash payment of $1.34 billion made by Bank of America on 12/31, and credits for payments recently made or to be made by them. The agreement substantially resolves outstanding repurchase requests on 12,045 loans sold to BofA by Countrywide, addresses 5,760 other loans sold to it by Countrywide and permits the #2 lender to bring claims for any additional breaches of our representations and warranties that are identified with respect to those loans.  Fannie Mae continues to work with Bank of America to resolve repurchase requests that remain outstanding. This agreement with Bank of America addresses approximately 44 percent of the $7.7 billion in repurchase requests (measured by unpaid principal balance) we had outstanding with all of our seller servicers as of September 30, 2010.”


But that doesn’t stop other lawsuits. Allstate Corp has sued BofA, its Countrywide lending unit and 17 other defendants for allegedly misrepresenting the risks on more than $700 million of mortgage securities it bought from Countrywide. In a story out of Reuters, “Allstate, the largest publicly traded U.S. home and auto insurer, alleged it suffered ‘significant losses’ after Countrywide misled it into believing the securities were safe and the quality of home loans backing them was high. Allstate said that starting in 2003, Countrywide quietly decided to boost market share and ignore its own underwriting standards by approving any mortgage product that a competitor was willing to offer, in a ‘proverbial race to the bottom.’ Countrywide then passed on the added risks to investors who bought debt backed by the mortgages, Allstate said.BofAAllstate


News hit last week of a “setback” at Bank of America over its lawsuit with MBIA. (MBIA is/was in the business of providing insurance that covered the principal and interest payments to investors if the borrowers defaulted.) “The bank lost a major procedural ruling in a lawsuit over its liability for allegedly toxic mortgages. The ruling will make it harder for the bank to defend itself in that case, and it could set a standard for similar disputes. Bank of America had tried to set a high bar for plaintiff MBIA Insurance by requiring that the files for each of 368,000 or more disputed loans be evaluated individually. That process would have cost MBIA $75 million, and it would have taken a team of 24 people more than four years, MBIA estimated.” But the New York State Supreme Court declared that MBIA can pursue its case by focusing on a statistical sample of 6,000 disputed loans. That could pave the way for a trial to proceed as scheduled in 2011. Of course, the MBIA must still prove its case, which focuses on loans issued by Countrywide.


HUD brought out several administrative actions against mortgage companies and/or their branches. It is not a list you’d want to be on. AdminAction


Late last week HUD sent out two Mortgagee Letters. The first deals with FHA Flood Zone requirements (“FHA now requires that all Mortgagees obtain a flood zone determination on all properties instead of strongly encouraging such action.”) The second Letter focuses on guidance concerning the use of the Federal Home Loan Bank Affordable Housing and Homeownership Set-Aside Programs. Read all about it! HUDLetters 

Anyone involved in VA lending probably knows that the Department of Veterans Affairs requires all VA authorized agents to pay an annual recertification fee to each lender with whom they intend to have an ongoing relationship in the coming year. The $100 recertification fee is due by January 31 of each year.

Will “covered bonds” be the thing of the future in mortgage banking? Unlike regular securities backed by [fill in the blank], where investors have no recourse to the issuing bank, the loans backing covered bonds remain on a bank’s books and are ring-fenced, protecting bondholders even in bankruptcy. Will the added protection take the place of Freddie & Fannie? Worldwide issuance of the bonds was up 20% in 2010 versus 2009, hitting $356.5 billion this year according to data from Dealogic. Most of the issuance has been by European banks. The extra security offered by covered bonds has been particularly helpful for banks in countries that might be considered a little “iffy” by investors.


Well, let’s get back to what is going on with interest rates. Last Thursday we had a fair amount of economic news, but nothing on Friday. The Chicago ISM (Institute of Supply Managers) stats soared in December with its 4th consecutive gain and its highest level since the late 1980s. We also learned that Pending Home Sales, based on signed contracts, were up 3.5% from the previous month, as expected. Pending home sales climbed in the Northeast and West but slipped in the Midwest and South, and were up 10% in October but are still 5% below a year ago. (By the way, NAR’s Pending Home Sales Index measures the number of home purchase contracts that were signed in the monthly reporting period.) Rates are still decent, and houses certainly are more affordable than in previous years! Jobless Claims also dropped significantly, possibly indicating unexpected strength in the employment sector.


MBS prices ended Thursday basically unchanged on very light volumes although the 10-year Treasury notes ended down about .250 in price to 3.37%. But on Friday, in spite of no news, volumes picked up a little bit as the 10-yr rallied with its yield dropping to 3.30%. MBS prices decided to tag along for the ride and current coupon prices improved by about .5.


Today we have Construction Spending at 7AM PST, along with the Institute of Supply Management Index numbers for Manufacturing and Prices Paid. On tap for tomorrow is Factory Orders, along with the minutes from the last Federal Open Market Committee meeting. “Hump day” finds us with the MBA mortgage application data, along with the ADP private payroll numbers and ISM services number. That puts us into Thursday’s Initial Jobless Claims data and then Friday’s Unemployment data. Ahead of that, unfortunately for folks waiting to lock, the 10-yr yield is up to 3.37%, the 30-yr bond is off a full point, and MBS prices are worse .250-.375.


Quantitative Easing Explained – Check out the link below if you haven’t seen it already, enjoy.

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