TEAM EMPOWERMENT MORTGAGE CHATTER: March 14; News & Headlines; Prices Falling, Why Are Rich Buying?; Americans Feel A Little More Rich; GOP and Freddie/Fannie; Banks Pushing Back On Foreclosure Pact; FHA EEM Flyer

Although it’s a rainy day out…it’s still a beautiful day because tomorrow is never promised! Enjoy Your Monday!


“The only thing that stands between a man and what he wants from life is often merely the will to try it and the faith to believe that it is possible.” – Richard M. DeVos


The industry is watching the lawsuits filed by NAMB and NAIHP. I received this note from one industry vet, “Where is the MBA in all of this? The MBA, in my opinion has a conflict of interest. Its biggest members are clearly the largest lenders, who are not mortgage bankers they are banks: the ‘Banks that are Mortgage Bankers Association’. Pure mortgage banks are under-represented. If this Rule goes into effect and it is as bad as expected, the wholesalers are in trouble if they do not have a bank behind them. What are mortgage bankers supposed to do? Clearly, what is in the interest of Chase is not in the interest of any mid-size wholesale investor.”

FHFA will not be giving up HARP for Lent. It announced an extension of the Home Affordable Refinance Program, which is administered by Fannie Mae and Freddie Mac, to June 30, 2012. In addition, Fannie Mae and Freddie Mac will make the following adjustments to their programs: Freddie Mac will exempt HARP loans from their recently announced price adjustments and Fannie Mae will conform their eligibility date to May 2009. The program expands access to refinancing for qualified individuals and families whose homes have lost value. Looking at the stats for loans with LTV’s from 80-125%, HARP did about 190,000 in 2009 and 622,000 in 2010.

What is the bond market focused on? One item that has really turned some heads recently was the letter from PIMCO’s Bill Gross, stating that its Total Return Fund sold all of its Treasury holdings. Mr. Gross has been right and wrong in the past. One quote said, “PIMCO’s not sticking around to see what happens when QE II ends” in June. Currently 70% of the Treasury’s annual bond supply is being gobbled up by the Fed through quantitative easing – what happens if the purchases stop? Even with the turmoil around the world there is little “Flight to Quality” bid for US Treasury debt because the Fed is “busy printing dollars to create Inflation to solve our own debt crisis.

Investors are also worried about the potential impact on global recovery the event in Japan could produce. Japan is the world’s 3rd largest economy, the 4th largest exporter, 3rd largest importer of oil and 5th largest importer overall, so concerns are running high – Japan’s debt is already at 200% of GDP. Even before the earthquake, Japan’s economy had been struggling to recover from deflationary pressures and investors are concerned the government has little room to borrow the funds needed to support massive rebuilding efforts. Look for rebuilding projects to eventually be supportive to economic growth, as disaster cost estimates are nearing $200 billion. Look for central banks worldwide to keep liquidity flowing into the system, as they work together to ensure economic growth and Japan are supported.

Here in the US, there is no scheduled economic news today, but tomorrow we have the Empire Manufacturing number. On Wednesday we have some Export & Import Price data, the Producer Price Index, but also the end of the Fed meeting – don’t look for any change to rates. Thursday is Jobless Claims, Housing Starts & Building Permits, and the Consumer Price Index. On the 17th we have Industrial Production & Capacity Utilization, along with Leading Economic Indicators and the “Philly Fed” numbers. MBS prices ended the day Friday worse by about .250; this morning we find the 10-yr yield sitting around 3.38% and MBS prices +.125.


There is an interesting phenomenon taking place in the real estate market. While house prices are falling, the rich are starting to purchase. DataQuick Information Systems reported last week that sales on homes $1 million or more rose 18.6% last year after four consecutive years of decline. This is at the same time that sales outside of this price point actually fell 2.8%.

And even more amazing is that homes over $5 million have also increased substantially. Housing Wire reported that:

In 2010, 975 homes sold in this bracket, up nearly 14% from the year prior.

Why would the wealthy be starting to purchase especially when everyone is predicting that prices will soften? The people of wealth understand finances. They realize that the COST of real estate is a much more important than its PRICE. With the government attempting to make massive changes to the residential lending business, the wealthy know financing a home may never be better. They realize it is time to buy. They can purchase a million dollar+ home for a rate lower than at almost any time in history.

Rates are at historic lows and the spread for jumbo loans has shrunk dramatically. As CNN Money explained:

Normally buyers have to take out a jumbo loan to finance any mortgage beyond the $417,000 threshold ($729,000 in high-cost cities such as New York). These loans have higher interest rates because they are considered non-conforming – or higher risk – and are not backed Fannie Mae or Freddie Mac.

In 2009 buyers of high-end homes paid 1.8 percentage points more in interest than the average buyer. But in 2010, that spread had shrunk to just 0.6 points more.

They can also fix that rate for 30 years. The 30-year-fixed-rate-mortgage may be a victim of the new lending reforms. Mark Zandi, chief economist of Moody’s Economics addressing the administration’s recent report on reform:

“A private system would likely mean the end of the 30-year fixed-rate mortgage as a mainstay of U.S. housing finance. A privatized U.S. market would come to resemble overseas markets, primarily offering adjustable-rate mortgages.”

Bottom Line

Let’s assume the rich aren’t just lucky. Let’s assume they built their wealth by making good financial decisions. What have they decided about real estate? It’s time to buy.


Americans are getting wealthier: Americans’ wealth increased 3.8 percent in the final three months of 2010, the Associated Press reports. Most of the growth is attributed to gains in stock portfolios.

Overall, household net worth increased to $56.8 trillion last quarter, despite a drop of 1.6 percent in real estate holdings, the Federal Reserve reported Thursday.

Net worth–which is the value of assets such as homes, checking accounts, and investments, but minus debts such as mortgages and credit cards–has increased two consecutive quarters after dropping last spring.

More gains in wealth could prompt Americans to spend more and strengthen the overall economy, experts say.

Meanwhile, companies are also starting to feel a little more rich. The boost to companies’ cash-flow is expected to bring about a boost to job hiring in the coming months.


Republican lawmakers are preparing this week to introduce a series of legislative proposals to gradually reduce the role of Fannie Mae and Freddie Mac.

The effort represents a tactical shift from the comprehensive approach for a speedier wind-down of the mortgage-finance giants that Republicans backed during last year’s negotiations on the Dodd-Frank Act.

That legislation would have started cutting the government’s ties to the mortgage giants or begin winding them down in two years. The bill’s sponsor, Rep. Jeb Hensarling (R., Texas), has said he still plans to reintroduce his legislation later this year, and leading House Republicans say they are still committed to the goal of winding down Fannie and Freddie and handing their role over to the private sector.

The decision to take a piecemeal approach with individual bills reflects the challenge in forging a political consensus—even among Republicans—around overhauling the nation’s housing-finance infrastructure. And as the housing market continues to be vulnerable, deep caution greets any proposal that might pass on higher borrowing costs to consumers.

If Republicans advance individual bills, that could offer more opportunities for cooperation with the White House than if they advance a single bill outlining a more immediate wind-down of Fannie and Freddie.

Others say the risks assumed by Fannie and Freddie could simply move into the federally-insured banking sector or federal loan agencies and that taxpayers would still be exposed to losses in a crisis. “It looks like it’s a more private solution, but it may not be in the end,” Mr. Geithner said at a House hearing earlier this month.

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Bankers are ratcheting up their rhetoric as they fight a mortgage-servicing settlement proposal, predicting lasting damage to the U.S. economy in an effort to force regulators to soften terms of any penalties.

On Thursday, Wells Fargo & Co. (NYSE: WFCNews) Chief Executive John Stumpf said extensive loan principal reduction would increase the U.S. deficit if taxpayers are forced to pay for write-downs of loans held by government-controlled Fannie Mae and Freddie Mac.

“It’s important to the country so that whatever happens does not slow down the recovery,” Mr. Stumpf said.

Bank of America (NYSE: BAC – News) executives issued similar warnings on Tuesday, calling principal reductions “no panacea” and questioning the fairness of the approach. “When you start helping certain people and don’t help other people, it’s going to be very hard to explain the difference,” said Chief Executive Officer Brian Moynihan.

Advocates of tougher sanctions dismiss the bank’s protestations.

‘It Takes Nerve’

It takes nerve to complain about delays when your failures caused them,” said Peter P. Swire, who last year served as a top White House housing adviser. Their argument “boils down to the view that they should get away with all their mistakes because they’re too hard to fix now.”

Privately, though, lawyers for the top mortgage servicers have held private conference calls this week to map out their response and possible areas of compromise, said people familiar with the situation. BofA, for example, would be willing to consider “very limited targeted principal reduction efforts” that help borrowers achieve a more-affordable monthly payment, said a person familiar with the matter.

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The public jockeying comes as 11 federal agencies and 50 state attorneys general begin efforts to determine the appropriate penalties for mortgage-servicing abuses uncovered after the “robo-signing” controversy erupted in the fall. While officials hope to deliver a settlement term sheet by next week, those internal negotiations remain fluid, according to people familiar with the discussions.

“We’re in a classic phase of negotiations in which both sides are trying to strengthen their ability to get what they view as a good settlement,” said Michael Barr, a former assistant Treasury secretary in the Obama administration.

Officials are weighing a range of ways banks could pay those penalties by targeting those sums toward the housing recovery, including by writing down loan balances on first- or second-lien mortgages. Reaching a consensus could be complicated by the fact that some banking regulators are resisting loan write-downs, while other federal and state officials support them, the people said.

Other officials and economists say that existing programs have faltered not because of a failure to address underwater borrowers but because homeowners that receive loan modifications still have high debt loads.

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Still, several banks have touted their efforts to write down mortgages for certain borrowers. On Thursday, BofA rolled out a proposal offering modifications that include write-downs for U.S. soldiers on active duty.

Banks also are resisting some parts of a separate 27-page proposal from state and federal officials to more tightly regulate mortgage servicers. They say that the totality of the provisions would delay an already lengthy foreclosure process, which averaged more than 500 days in January, according to Lender Processing Services.

Doing the Math

To buttress their arguments that the settlement would delay a housing recovery, banks are working up internal estimates of how much extra time the proposal would add to the foreclosure process. BofA’s estimate is 200 days, said a person familiar with the number. At J.P. Morgan Chase & Co. (NYSE: JPM – News), the prediction is as high as 12 months, said people familiar with the estimate.

On Thursday, the Association of Mortgage Investors, an industry group, expressed support for many elements of the proposal, including principal reduction, saying it would “help distressed borrowers and bring some closure to the ongoing housing industry problems.”


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