August 16, 2017

GSEs took better care of foreclosed homes in working- and middle-class white areas than of equivalent homes in black and Latino communities ?

The mortgage crisis that ravaged the economy eight years ago was especially damaging to African-American communities, where homeowners who qualified for affordable mortgages were often steered into high-priced loans that paid rich returns to mortgage brokers and lenders while leaving borrowers vulnerable to default.

The ensuing glut of vacant homes drove down property values almost everywhere. But minority communities suffered disproportionately, widening the already considerable wealth gap between white and minority households.

One big reason for these disparities, according to a federal lawsuit filed by a coalition of fair housing groups, was that companies like the mortgage giant Fannie Mae took better care of foreclosed homes in working- and middle-class white areas than of equivalent homes in black and Latino communities. The plaintiffs, led by the National Fair Housing Alliance, say they reported this problem as early as 2009 and that they filed suit against Fannie Mae only after it continued to neglect foreclosed properties it owned in African-American and Latino neighborhoods.

Continue reading "GSEs took better care of foreclosed homes in working- and middle-class white areas than of equivalent homes in black and Latino communities ?" »

June 10, 2016

How to sell a mortgage

Adam Levitin:

It's axiomatic that a trust's powers are limited to those set forth in the documents that create the trust. In the case of RMBS, that document is the Pooling and Servicing Agreement (PSA). Most PSAs are governed by NY law, which provides that a transaction beyond the authority of the trust documents is void, meaning it is ineffective.

PSAs typically set forth a very specific method of transferring the notes (and mortgages) that goes beyond what is required by Articles 3 or 9. This is perfectly fine under the UCC, which permits parties to deviate from its default rules by agreement (UCC 1-203), which can be inferred from the parties' conduct, including the PSA itself. So what this means is that if a securitization transaction did not meet the requirements of the PSA, it is void, regardless of whether it complied with the transfer requirements of Article 3 or Article 9. The private law of the PSA, not Article 3 or Article 9, is the relevant law governing the final transfer in a securitization transaction.

There is some variation among PSAs, but typically a PSA will have two relevant transfer provisions. First, it will have a recital stating that the notes (and mortgages) are "hereby" transferred to the trust. This language basically tracks the requirements of an Article 9 sale. Second, it will have a provision stating that in connection with that transfer, there will be delivered to the trust the original notes, each containing a complete chain of endorsements that show the ownership history of the loan and a final endorsement in blank. The endorsement requirement invokes an Article 3 transfer, but it imposes requirements (the complete chain of endorsements and the form of the final endorsement) that are not contained in Article 3.

There is a very good business reason for having the full chain of title in the endorsements: it is evidence of the transfers needed to ensure the bankruptcy remoteness of the trusts' assets. Bankruptcy remoteness means that the RMBS investors are assuming only the credit risk on the mortgages, not the credit risk of the originators and/or securitizers of the mortgages, and RMBS are priced based on this expectation.

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January 21, 2016

FDIC's Signs of predatory lending

Signs of predatory lending include the lack of a fair exchange of value or loan pricing that reaches beyond the risk that a borrower represents or other customary standards.

  • Furthermore, as outlined in the interagency Expanded Examination Guidance for Subprime Lending Programs,1 "predatory lending involves at least one, and perhaps all three, of the following elements:

    Making unaffordable loans based on the assets of the borrower rather than on the borrower's ability to repay an obligation;

  • Inducing a borrower to refinance a loan repeatedly in order to charge high points and fees each time the loan is refinanced ("loan flipping"); or

  • Engaging in fraud or deception to conceal the true nature of the loan obligation, or ancillary products, from an unsuspecting or unsophisticated borrower."

January 16, 2016

Caliber mortgage loan modification

Lone Star and its Caliber unit have become a magnet of criticism from housing advocates and housing lawyers who complain that the companies are too quick to foreclose on delinquent borrowers or to refuse to negotiate with borrowers over terms of plans to make loans more affordable.

The private equity firm's practices in dealing with delinquent borrowers was the subject of a recent front-page article in The New York Times.

In particular, critics have taken issue with Caliber's standard loan modification that temporarily reduces a borrower's payments for five years but then reverts back to the original payment terms in the sixth year, often with all the deferred payments added to the back end of the loan. The critics contend the temporary modifications merely enable Caliber to begin collecting payments on a loan that has been delinquent for many months or years, but provide no permanent relief to a borrower whose income has declined because of a financial crisis.

Ellie Pepper, an employee of the Empire Justice Center and regional coordinator for the attorney general's homeownership protection program, said the center had worked with a number of borrowers who have been presented with a temporary five-year loan modification from Caliber.

February 24, 2014

Zillow on race (African-American and Hispanic) and mortgages

African-American and Hispanic borrowers have been largely shut out of the conventional mortgage market, according to a new report from Zillow and the National Urban League. Citing 2012 loan data reported under the Home Mortgage Disclosure Act, along with results from a Zillow poll of 700 mortgage applicants in December, the analysis found that whites accounted for about 69 percent of all conventional mortgage applications. The share of applications filed by blacks was under 3 percent; Hispanics represented only 5 percent.

via NY Times

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October 23, 2013

Chase vs Schneiderman: Why have no top Wall Street executives have been charged criminally for risky acts

Why have no top Wall Street executives have been charged criminally for the risky acts that triggered the crisis. The government also prefers to settle with big companies rather indict them, fearing that criminal charges could unnerve the broader economy.

The government investigations into JPMorgan, which focus on securities the bank sold from 2005 to 2007, raised questions about whether JPMorgan had failed to fully warn investors about the risks of the deals.

One of the largest pieces of the $13 billion deal could come from a settlement with the Federal Housing Finance Agency. The agency sued JPMorgan over loans it had sold to Fannie Mae and Freddie Mac, the government-controlled mortgage finance companies.

The settlement would also resolve a case related to Bear Stearns, the people briefed on the matter said, a lawsuit that has pitted the New York attorney general against JPMorgan.

Eric T. Schneiderman, the New York attorney general, sued JPMorgan last October, saying Bear Stearns and its lending unit, EMC Mortgage, had duped investors who bought mortgage securities assembled by the companies from 2005 through 2007. Through a deal backstopped by the government, JPMorgan bought Bear Stearns in 2008.

Mr. Dimon has called the lawsuit unfair, arguing that JPMorgan should not be penalized for buying Bear Stearns.

Yet JPMorgan's board, faced with regulatory problems, one more vexing than the next, is eager to strike a conciliatory stance. Toward that end, the bank's board approved the payment of about $1 billion in fines to government authorities so it could resolve investigations into the trading loss in London and an inquiry into the bank's credit card products.

August 25, 2013

Peak car

city, state and federal policies that for more than half a century encouraged suburbanization and car use -- from mortgage lending to road building -- are gradually being diluted or reversed. "They created what I call a culture of 'automobility,' and arguably in the last 5 to 10 years that is dying out," Ms. Sheller said.

New York's new bike-sharing program and its skyrocketing bridge and tunnel tolls reflect those new priorities, as do a proliferation of car-sharing programs across the nation.

A study last year found that driving by young people decreased 23 percent between 2001 and 2009. The millennials don't value cars and car ownership, they value technology -- they care about what kinds of devices you own, Ms. Sheller said. The percentage of young drivers is inversely related to the availability of the Internet, Mr. Sivak's research has found. Why spend an hour driving to work when you could take the bus or train and be online?

From 2007 to 2011, the age group most likely to buy a car shifted from the 35 to 44 group to the 55 to 64 group, he found.

Continue reading "Peak car" »

July 19, 2013

HARP for pre 2009 September mortgages with current LTV > 80

So how can you gauge your chances of refinancing your mortgage through the HARP 2.0 program?

First, you need to meet some basic requirements: Your mortgage must have been owned or guaranteed by Fannie or Freddie, and it must have been sold to either one before May 31, 2009. You must also have less than 20 percent equity in your home (that is, a loan-to-value ratio above 80 percent). And you cannot have had any late payments in the last six months, and no more than one late payment in the last year. HARP is also generally a one-shot deal: this has to be your first HARP refinancing.

Continue reading "HARP for pre 2009 September mortgages with current LTV > 80" »

April 15, 2013

Agency Shortcut mortgages

Michael McCoy, a SunTrust spokesman, declined to comment on the whistle-blower's allegations, saying the bank was unaware of the complaint. He said in a statement that the bank's policy was to use Fannie's and Freddie's guidelines when underwriting mortgages that would be sold to them. Nevertheless, the complaint details how it says some SunTrust mortgage sales representatives manipulated an automated loan underwriting system to gain Fannie's and Freddie's approval for mortgages that did not meet those companies' standards. These loans, sold mostly to Fannie, were called Agency Shortcut mortgages.

¶ SunTrust sales representatives entered fabricated income and asset figures into the bank's exclusive version of Fannie Mae's Desktop Underwriting system, the complaint says. Fake numbers, it says, would generate automatic approvals for unqualified borrowers, "at the same time preventing underwriters from exercising proper oversight."

¶ That oversight was thwarted because once the system's approvals kicked in, the complaint contends, underwriters in SunTrust's due diligence department could not stop the loans from being sold to Fannie or Freddie. There was no turning off the assembly line.

¶ The complaint contains several internal SunTrust documents to support its allegations. One is a promotional piece for sales reps that explains the Agency Shortcut mortgage. "It's a SISA (Stated Income/Stated Asset) at full doc pricing," it says. Translation: undocumented loans carried the same interest rate as a fully documented version.

Continue reading "Agency Shortcut mortgages" »

April 14, 2013

Quicken Loans a $100 billion mortgage business, the third-largest home lender in the country, behind Wells Fargo and JPMorgan Chase -- Mortgage Daily

WHEN Dan Gilbert was in the fourth grade, he bought candy at wholesale from the father of a friend and sold it at retail prices to classmates. It was the start of a nearly obsessive quest to create enterprises and earn profits. He estimates that he's either invested in or started 70 companies in his career. One early and ill-fated venture was running a short-lived bookmaking operation with some friends while a freshman at Michigan State University. It ended when he was arrested by an undercover agent. He served probation, the charges were dropped and there was no conviction.

"We were college teenagers," he said.

Subsequent ventures were more mundane, and far more successful. He later earned a real estate agent's license and, while at Wayne State University Law School, worked part time at a Century 21 office. At some point, he realized that the serious money was in selling mortgages, not homes. So he and two partners, including his younger brother, Gary, went into the mortgage-origination business together. Mr. Gilbert and his partners took out ads in those once-ubiquitous free magazines that listed houses for sale, something that none of his competitors did.

"From the very beginning we could make the phones ring," Mr. Gilbert said, "even if we didn't know what to do once they rang."

The company, called Rock Financial because it sounded sturdy, would eventually become Internet-based, selling mortgages in all 50 states. It was acquired by Intuit for $532 million in 1999, says Mr. Gilbert, and renamed Quicken Loans. Three years later, after the dot-com bubble burst, the company was sold to a group of investors led by Mr. Gilbert for a sum he put at roughly $55 million.

This year, Quicken Loans will do $100 billion worth of mortgage business, says Mr. Gilbert, making it the third-largest home lender in the country, behind Wells Fargo and JPMorgan Chase, according to Mortgage Daily.

Quicken Loans now employs nearly 2,500 mortgage bankers. One morning last month, 300 of them were working on the third floor of the Chase Tower, and a swing through the office was like a visit to a frat party at a telemarketing firm. There were many men and some women with headsets, talking to customers and staring at computer screens -- nothing novel there. But a karaoke machine sat in an aisle. Guys threw footballs to one another; one employee shot at colleagues with a Nerf gun. Basketball pennants were draped from the ceiling, as part of a March Madness theme.

"You should have been here last week," said one broker, Nerf gun in hand. "The theme was spring break. I was wearing shorts, a hat, sunglasses."

Mr. Gilbert espouses a philosophy of instilling fun in the workplace, one piece of an elaborate corporate culture that he has fine-tuned over the years, and describes, every few months, in a surprisingly entertaining, seven-hour monologue to new employees. One of more than a dozen core principles described in "Isms in Action," as the lecture is titled, is summed up as "Obsessed with finding a better way."

March 18, 2013

Real Estate title insurance: competitive ?

Title insurance rates vary considerably by state. In New York, insurers belong to a rating bureau that submits a rate schedule for state approval. Depending on the value of the property, costs can easily run into the thousands. On a $500,000 home with a $400,000 mortgage, for example, the premium in the New York City area would be $2,666, according to Rafael Castellanos, the managing partner of Expert Title Insurance Agency in Manhattan. "It's a bargain in the end given the protection title insurance provides," he said.

Yet for years, a debate has raged as to whether premiums are too high, competition too constrained, and the insurers too closely intertwined with the mortgage and real estate professionals who send business their way. Some states have looked into the arrangements between title insurers and referral sources, including New York. In 2006, two title insurers that account for half the New York market -- the Fidelity National Title Group and First American -- agreed to 15 percent rate reductions to settle state allegations of illegal referral payments and rebates.

Continue reading "Real Estate title insurance: competitive ?" »

February 26, 2013

Pregnant and borrowing: maternity mortgage

Mortgage lenders are not allowed to deny or delay a loan to a woman simply because she is on maternity leave. Yet the Department of Housing and Urban Development says it receives complaints that this is happening.

"Where lenders run up against the fair lending law is where they single out pregnant women for a difference in treatment based upon an assumption that either they're not being paid on leave, they don't have a job to go back to, or that they are unwilling to go back," said John Trasvina, HUD's assistant secretary for Fair Housing and Equal Opportunity.

Under the law, lenders may not use parental leave as a basis for denial if the borrower demonstrates that she intends to return to work, and otherwise has enough income to qualify for the mortgage loan.

Continue reading "Pregnant and borrowing: maternity mortgage " »

December 24, 2012

Financial crisis due to more than mortgages

This Mark Adelson article proposes the following deeper
causes beyond US mortgages: securities firms converting from partnerships to corporations, the 30-year trend of
deregulation, the quant movement, the spread of risk-taking culture through the financial
industry, and globalization.

November 30, 2012

FHA condo mixed use mortgages

The trend toward such development has grown in recent years, as younger and older people alike have migrated to urban centers to be close to jobs, cultural amenities and entertainment, said Peter D. Cummings, chairman of Ram, a Florida-based mixed-use developer focused on the Southeast and Michigan.

That "back to the city" movement is now spilling into the suburbs, said John K. McIlwain, senior resident fellow at the Urban Land Institute, a nonprofit research organization.

"We've learned that this mixing of development makes for a better urban design, so towns and cities are designing codes to encourage it, and the market is showing interest," he said. "We're going to see a lot more mixed use, whether it's in the urban central city or suburban town centers."

The F.H.A.'s mixed-use rules date to its inception and the growth of federal housing initiatives, according to the Chicago-based Congress for the New Urbanism, which promotes pedestrian-oriented, mixed-use neighborhoods. The rules stemmed from fears that one component of a mixed-use development could fail and place strain on others to maintain the property, a concern revived by the housing crash in 2007.

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October 28, 2012

Middle class mortgage holders make $100k to $500k

According to Joseph Rosenberg, a research associate at the Urban-Brookings Tax Policy Center, only about 30 percent of taxpayers itemize, rather than take the standard deduction. And the majority of these itemizers are upper-middle and upper-income households.

Within that privileged category, the people who tend to derive the greatest dollar benefit from the mortgage interest deduction are households earning $100,000 to $500,000 a year.

"About two-thirds of the total benefit go to that group in the 80th through the 99th income percentiles," Mr. Rosenberg said.

The plain facts:

For households in the 15 percent bracket, the tax benefit for every $1,000 of mortgage interest deducted is $150. That benefit rises to $350 for households in the 35 percent tax bracket.

Robert Dietz, an economist for the National Association of Home Builders, which opposes cuts in the deduction, points out that households earning up to $200,000 could still be considered middle class in some parts of the country. Taxpayers who benefit the most from the mortgage deduction tend to be concentrated in high-cost metropolitan areas. So although their income levels sound high relative to the rest of the nation's, the incomes reflect a higher cost of living.

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October 18, 2012

Mortgages gone bad -- blockback to underwriters, issuers ?

MBS issuers often assert their own put-back claims against mortgage originators, for instance. But JPMorgan still has an enormous put-back claim by a group of major institutional investors in almost $100 billion of mortgage-backed notes hanging over its head. And lately, the MBS headlines have all been about repurchase claims against JPMorgan. I've said it before: Bank of America's MBS woes are so 2011. These days, at least when it comes to private-label litigation, it's all about JPMorgan.

I told you last week about the hedge fund Baupost's put-back case against JPMorgan's EMC unit in Delaware Chancery Court -- one of the very few cases in which a private investor (as opposed to a bond insurer or government-sponsored entity) has successfully forced an MBS trustee to assert claims on its behalf. But the bond insurers have been busy as well. MBIA filed a new suit against JPMorgan last Friday in federal court in White Plains, New York, claim in g that its predecessor Bear Stearns fraudulently induced MBIA to insure a GMAC securitization. (Okay, it's not a put-back suit, but the claims, as described by MBIA's lawyers at Quinn Emanuel Urquhart & Sullivan, are similar.)

Meanwhile, the bond insurer Ambac and its indefatigable counsel from Patterson Belknap Webb & Tyler are rocketing along in Ambac's sweeping fraud and put-back case against Bear Stearns and its onetime mortgage arm, EMC Mortgage. As the financial writer Teri Buhl was the first to report at her website, last month Ambac brought an action in Connecticut state court seeking to compel the loan reviewer Clayton Financial to produce the Bear MBS documents Ambac has subpoenaed. Clayton was one of the companies (along with Watterson Prime) frequently hired by MBS issuers to re-underwrite loans they purchased from mortgage originators to assess the mortgages' quality before they were securitized. Clayton has been thoroughly scrutinized in the mortgage mess, by former New York attorney general Andrew Cuomo and the Senate's permanent subcommittee on investigations, among others. So it's not news that the company has loan-level information that could support bond insurer claims that Bear bundled deficient mortgages into MBS trusts. But the Patterson Belknap filing included excerpts of deposition testimony from a whistle-blower who worked at both Clayton and Watterson. Like the recently filed, amended Baupost complaint, the whistle-blower deposition excerpts are another example of actual evidence that the due diligence and underwriting shenanigans you see described in complaints against MBS defendants really happened.

Continue reading "Mortgages gone bad -- blockback to underwriters, issuers ?" »

July 18, 2012

Investment schemes to use eminent domain to take mortgages from banks

"Sooner or later," said Mayor Acquanetta Warren of Fontana, who has seen the value of her own home cut in half, "all these people who are upside down on their homes are just going to leave the keys out on the door and say forget it. This was supposed to be the promised land, and now we have people waiting in some kind of hellish purgatory. The people who were so eager to give us money before now won't even talk to us."

The idea to use eminent domain to seize mortgages first came from a group of venture capitalists in San Francisco, Mortgage Resolution Partners, who would collect a fee for each of the restructured loans. The firm is also trying to persuade officials in Nevada and Florida to try the idea. San Bernardino County officials were immediately intrigued, given that roughly half the homes in the area are underwater and the unemployment rate remains at nearly 12 percent. (Last week, the City of San Bernardino voted to file for bankruptcy, saying it would not be able to cover payroll costs through the summer.)

Officials in Suffolk County, N.Y., where about 10 percent of the homes are valued at less than their loans, are also considering the mortgage plan.

Continue reading "Investment schemes to use eminent domain to take mortgages from banks" »

April 5, 2012

Mortgage Professor

Dr. Guttentag will be competing with the likes of better-established organizations, like LendingTree, Zillow Mortgage Marketplace and These so-called mortgage marketplaces have become increasingly popular as a way for borrowers to research loan rates and options. LendingTree, for example, says it has facilitated over 30 million loan requests and $214 billion in closed loan transactions since its inception 15 years ago. And all of the 1,200 mortgage-related Web sites tracked by Experian Hitwise attracted 126 million visitors in February, up 26 percent from a year ago.

The larger sites offer a mix of consumer mortgage calculators and other tools, along with rate quotes or match-ups with one or more of the hundreds of participating lenders. Many are adding other features and functions to stay more competitive.

Zillow Mortgage Marketplace has been focused on mobile applications, and the early ones have seen "tremendous usage," said Erin Lantz, the director of the marketplace. Its mobile mortgage app for the iPhone, which lets borrowers check rates and loan quotes, has been downloaded more than two million times since June. In February it began offering a version for Android phones.

LendingTree, meanwhile, plans to redesign its Web site in the next three months, and added several features, including one called "The Best Loan for Life." It will evaluate homeowners' current loans against new offerings from lenders signed up with LendingTree to see if it would be worthwhile to refinance. In June, site users will be able to add their own information -- that is, rates and terms from other lenders, not just those associated with LendingTree. This will allow them to do a side-by-side analysis "and see which one is better," said Doug Lebda, the founder.At, anyone who wants to talk to a mortgage banker can now access "a call center interface" and eventually connect with a person, said Bruce Zanca, a spokesman. Not all the mortgage lenders have signed on, he said.

The Mortgage Professor's service is tiny by comparison: only six mortgage companies have signed up so far. But Dr. Guttentag said he hoped to teach the bigger shopping sites a few lessons. His mortgage shopping site consists of what he calls "certified network lenders," each of which must adhere to certain standards and post prices in real time. Borrowers may shop anonymously until they select a lender, which saves them from being bombarded with information.

Continue reading "Mortgage Professor" »

January 12, 2012

Metlife Mortgage, RIP

January 10, 2012
MetLife to Close Mortgage Unit

MetLife, the nation's largest life insurer, announced Tuesday that it would close its home mortgage-origination operation, costing the company at least $90 million. Most of the 4,300 employees at the unit will lose their jobs.

"The majority will no longer have a position," said John Calagna, a spokesman for MetLife. Most of the workers at the business are based in Irving, Tex., Mr. Calagna said.

MetLife said in October that it was seeking a buyer for its mortgage unit after announcing plans to sell deposit-gathering operations to reduce federal oversight. The company reached a deal last month to sell about $7.5 billion of its bank's deposits to General Electric.

The Federal Reserve, which oversees MetLife because of its size and banking operations, rejected its plan last year to raise its dividend and resume share buybacks.

The insurer said affected employees include sales representatives and support staff members. The company has not begun dismissals and will give employees 60 days' notice, Mr. Calagna said. Workers can apply for other positions in the company, he said.

MetLife will continue to service current home-loan clients and offer reverse mortgages, the company said. The wind-down may cost as much as $110 million, according to the statement.

Continue reading "Metlife Mortgage, RIP" »

November 6, 2011

Principal reduction to save mortgages

Of the 55 million mortgages in America, more than 10 million are reasonably likely to default. That is a staggering number -- and it is, in large part, because so many homes are worth so much less than the mortgage the homeowners are holding. That is, they're underwater.

Her second calculation is that the supply of housing is going to drastically outstrip demand for the foreseeable future; she estimates that the glut of unneeded homes could get as high as 6.2 million over the next six years. The primary reason for this, she says, is that household formation has been very low in recent years, presumably because of the grim economy. (Young adults are living with their parents instead of moving into their own homes, etc.) What's more, nearly 20 percent of current homeowners no longer qualify for a mortgage, as lending standards have tightened.

The implication is almost too awful to contemplate. As Goodman put it in testimony she recently gave before Congress, the supply/demand imbalance means that housing prices "are likely to decline further. This may recreate the housing death spiral -- as lower housing prices mean more borrowers become underwater." Which makes them more likely to default, which lowers prices further, and on and on.

The only way to stop the death spiral is through principal reduction. The reason is simple: "The data show that principal modifications work better" than other kinds of modifications, she says. Interest rate reductions can lower monthly payments, but the home remains just as underwater as it was before the modification. And the extent to which a home is underwater is the single best indicator of whether the homeowner will default. The only way to change the imbalance between the size of the mortgage and the value of the home is to reduce principal.

Continue reading "Principal reduction to save mortgages" »

September 27, 2011

Jack Guttentag, Mortgage Professor

Jack Guttentag, who runs an advice site called the Mortgage Professor and has retired as a business professor at the University of Pennsylvania Wharton School, likens choosing a lender to picking wild mushrooms. "You don't go out by learning to identify all the bad ones," he said. "You identify some good ones, and you go and pick those." But, he added, "some lenders are not so great, and they have some really good loan officers."

Other governmental and quasi-governmental sites may be helpful. The National Mortgage Licensing System has a consumer access site that allows visitors to check the backgrounds of mortgage professionals. The Federal Deposit Insurance Corporation site has a worksheet to help consumers compare lender policies.

But Mr. Guttentag says you can't always rely on recommendations on review sites or mortgage listings sites. These can be paid for or written by friends of the mortgage lender, he said, adding that the same holds true for complaint sites, which are often created with a particular business as a target.

Another problem with the complaint sites, he said, is that larger companies often draw more complaints simply because of the large volume of business they do. "In many cases they're not justified," he said.

Continue reading "Jack Guttentag, Mortgage Professor" »

September 19, 2011

Consolidation, Extension or Modification Agreement, or Modification, Extension, Consolidation Agreement

New York State charges a mortgage recording tax of 0.5 percent of the loan, and with other special taxes added in, New York City residents pay a total of 1.8 percent on loans under $500,000, state tax included, and 1.925 percent for those at or above that amount. Among the various counties, total mortgage taxes in Westchester and Rockland run 1.3 percent, while in Nassau, Suffolk, Dutchess, Orange and Putnam it's 1.05 percent.

There is no mortgage recording tax in New Jersey or Connecticut, according to Michael Moskowitz, the president of Equity Now, a direct mortgage lender. Co-op owners are also absolved from paying, because they hold shares in a building rather than real property, explained Lawrence F. DiGiovanna, a Brooklyn real estate lawyer.

But for those who are hit with this tax, it can certainly add up at the closing. On a $450,000 refinanced loan, a borrower living in New York City can expect to pay an additional $8,100.

Instead of granting and recording a new loan when a borrower refinances, the assignment process transfers a mortgage to a new lender, which then revises it. Lenders sometimes call the process a "Consolidation, Extension or Modification Agreement," or "Modification, Extension, Consolidation Agreement."

It's important to inquire about a mortgage assignment at the very beginning of the refinancing process, mortgage experts say, because locating and transferring all the necessary paperwork could be time-consuming. If the mortgage has been sold or handed off to a servicing company, the homeowner must get that company to sign on.

Once borrowers have determined that their new and old lenders will work with them on the loan assignment, they must "understand what the potential savings are and weigh that against the overall cost of doing this," said Marc Kunen, the Manhattan branch manager for Mortgage Master, a mortgage banker.

Continue reading "Consolidation, Extension or Modification Agreement, or Modification, Extension, Consolidation Agreement" »

September 5, 2011

Underwater refinance ? Mortgage yes.

If your loan is owned by Fannie or Freddie, you may qualify for the Home Affordable Refinance Program, or HARP. Some 2.5 million to 3 million homeowners may be eligible to use HARP, according to government estimates -- provided, among other things, that they have not been late on their payments more than once in the last 12 months.

Instead of the 80 percent loan-to-home-value required in most initial mortgages today (the remaining 20 percent comes from your down payment), HARP loans offer up to 125 percent, to cover the home's shrunken value. That means a home appraised at $500,000 could warrant a loan of up to $625,000, if the owner's income was sufficient to repay it, instead of the maximum $400,000 in most conventional mortgages.

Federal Housing Administration loans also have refinancing options. One of them, the F.H.A. Short Refinance option, requires the lender to write down at least 10 percent of the remaining balance of the loan and the homeowner to be current on payments, among other requirements. Still other programs are available for people who have lost their jobs.

If your loan is held by a bank or has been bundled up and sold to an investment group, your options may be more limited. "It is case by case," Mr. Hackett said. You may need to call around to locate other lenders willing to refinance underwater loans.

Lenders like Atlantic Home Loans have started offering loans with lender-paid mortgage insurance, and will refinance at 95 percent of the value, Mrs. Sweet-Kostoplis said. She added that one of her clients reduced her mortgage payment by $850 a month when the rate came down to 4.5 percent from 6.7 percent.

Continue reading "Underwater refinance ? Mortgage yes." »

May 6, 2011

Force placed insurance

QBE's sale of unregulated insurance in Florida is something of an oddity. State laws generally give preferential status to admitted carriers with regulated rates, and Florida statutes mandate that surplus coverage should only be purchased when coverage is "not procurable from authorized insurers." Insurance agents must document multiple "diligent efforts" to find a regulated carrier before venturing into the surplus-line market.

To someone outside the Florida industry, finding an admitted force-placed insurer wouldn't seem like a problem. Two large insurers, Assurant Specialty Property and Balboa Insurance Co., sell such coverage. Balboa, formerly owned by Bank of America Corp., is in the process of being purchased by QBE, a unit of QBE Insurance Group Ltd. of Australia, and declined to comment. But while Assurant is the largest operator in the Florida market, agents doing business with QBE aren't seeking Assurant out before placing new coverage by mortgage companies, the company said.

New Questions about Banks' Force-Placed Insurance Deals

QBE, carrier used by Wells Fargo and SunTrust, avoids oversight through 'surplus lines' structure
American Banker | Tuesday, April 12, 2011

By Jeff Horwitz

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March 29, 2011

Without Fannie, Freddie, wither 30 year fixed rate mortgage

Fannie and Freddie also make ownership more affordable by allowing borrowers to repay loans with fixed-interest rates over an unusually long period. A person who borrows $100,000 at 6 percent interest will pay $600 each month for 30 years, compared to $716 each month for 20 years.

The 30-year loan first became broadly available by an act of Congress in 1954 and, from then until now, the vast majority of such loans have been issued only with government support. Most investors are simply not willing to make such a long-term bet. They prefer loans with adjustable rates.

Alex J. Pollock, a former chief executive of the Federal Home Loan Bank of Chicago, said such loans would remain available in the absence of a federal guarantee, but they might be harder to find. And lenders might demand a larger down payment. Or a better credit score.

Continue reading "Without Fannie, Freddie, wither 30 year fixed rate mortgage" »

March 28, 2011

Fannie and Freddie limit to drop to $625,500 in October

Among those borrowers choosing adjustable-rate mortgages are buyers of property costing more than the $729,750 limit at which Fannie Mae and Freddie Mac will buy back loans from lenders, said Mary Boudreau, the owner of Penfield Financial, a mortgage broker in Fairfield, Conn. (Without the government buyback, fewer lenders are willing to make these "jumbo" loans, which carry interest rates one or two points above those of conventional loans. The Fannie and Freddie limit is set to drop to $625,500 in October.)

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March 20, 2011

Remodeling is not heavily financed

WHY THE REBOUND? It may seem counterintuitive that even as the housing market continues to suffer and the economic recovery feels tentative, the renovation market is picking up. But Mr. Baker pointed out that while home sales and construction were linked to mortgage rates, renovations were determined more by income levels and job security.

"Remodeling is not heavily financed," he said. Instead, people are willing to spend cash, Mr. Baker said, because they have "a comfort level that the value of my home isn't depreciating." -- Kermit Baker, director of the remodeling futures program at the Joint Center for Housing Studies.

He said during the peak years of 2006 and 2007, only 30 to 35 percent of renovations were financed through home equity loans or second mortgages. Last year, that number dropped to 15 to 20 percent.

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March 7, 2011

Mortgage market post Fannie/Freddie

The phase-out proposal also calls for a more limited role for the Federal Housing Administration, the insurer of low-down-payment mortgages that have grown popular among first-time buyers and those with weak credit or low income. It suggests raising the minimum down payment to 10 percent from 3.5 percent, and imposing that 10 percent minimum for Fannie and Freddie loans. F.H.A. is raising the mortgage insurance premium already -- it is set to increase next month, to 1.1 or 1.15 percent of the loan amount for 30-year fixed-rate loans. The agency was considering a jump to 2.25 percent.

The proposal also calls for lowering the size of loans that Fannie Mae and Freddie Mac can insure; the limit, for loans in high-cost areas, is already set to drop, on Oct. 1, to $625,500 from $729,750. Larger, "jumbo" loans typically carry higher rates.

Hey, S.E.C., That Escape Hatch Is Still Open
Published: March 5, 2011
Although the S.E.C. calls itself "the investor's advocate," it's still not enforcing a rule governing credit ratings agencies.

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March 6, 2011

Georgia's anti-predatory-lending law: issuers and investors in mortgage pools held liable for abusive loans.

Back in 2003, for example, Georgia's legislature enacted one of the toughest predatory-lending laws in the nation. Part of the law allowed issuers of and investors in mortgage pools to be held liable if the loans were found to be abusive. Shortly after that law went into effect, the ratings agencies refused to rate mortgage securities containing Georgia loans because of this potential liability. The law was soon rewritten to eliminate the liability, allowing predatory lending to flourish.

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December 28, 2010

Credit risk lurking inside Fannie and Freddie

In addition to shielding taxpayers from having to backstop an ever-expanding financial safety net for errant bankers, we also need protection from ballooning losses at Fannie and Freddie. This will require the F.H.F.A. to take other crucial steps.

Janet Tavakoli, president of Tavakoli Structured Finance, a consulting firm in Chicago, has provided a to-do list for officials at F.H.F.A.

In a presentation to the agency's supervision summit meeting last Wednesday in Washington, Ms. Tavakoli said that if the agency hoped to determine the credit risk lurking inside Fannie and Freddie, it needed to ascertain two things: the probability of default on those loans and the loss rates when probable defaults actually occur.

"They have to do their own statistical sampling of their portfolios to get a realistic idea of what those numbers are," Ms. Tavakoli said in an interview. "And it has to be rigorous because we don't know what kinds of impairments to expect from risky new mortgage products combined with a damaged economy and housing market."

The F.H.F.A. cannot rely on estimates from the credit ratings agencies about the extent of those losses, Ms. Tavakoli said. "The whole idea of relying on third parties has not worked," she said. "Once you feel better about the quality of your information, you'll feel more confident about making your next decision."

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December 24, 2010

Angelo Mozilo and Countrywide's legacy

The problem facing Bank of America is stunning, both on an economic and on a human scale. Among its 14 million mortgage customers, nearly 1 in 10 is past due. Another 190,000 have not been able to make a payment in at least two years, and one-third of the homes facing foreclosure are vacant, making them harder to maintain and sell.

Batting Cleanup at Bank of America
Published: December 11, 2010
Since taking over as C.E.O., Brian Moynihan has stabilized Bank of America, but he is still grappling with his predecessors' acquisitions, like Countrywide.

December 17, 2010

Canadian mortgage bubble ?

Finance Minister Jim Flaherty of Canada had proclaimed that "there does not appear to be a bubble in the country's housing market and that the level of consumer defaults has not increased in any significant way."

via whispersfromtheedgeoftherainforest, Canada Bubble, and Mish.

What will happen to the typical mortgage when rates adjust up ?

November 28, 2010

The F.H.A. set a minimum FICO score of 500 for borrowers

Conventional loans, which conform to Fannie and Freddie underwriting guidelines, do not require upfront mortgage insurance. But some may require monthly private mortgage insurance, if the borrower puts less than 20 percent down toward the purchase, or has less than 20 percent equity in a refinancing.

F.H.A. borrowers, meanwhile, can stop paying the monthly mortgage insurance only after five years and when their loan-to-value ratio reaches 78 percent, at which point they have 22 percent equity in their home.

F.H.A. loans are typically offered by niche direct lenders, and because of the insurance, they often carry interest rates equal to or slightly below those of conventional loans.

In October, the F.H.A. set a minimum FICO score of 500 for borrowers who want an F.H.A.-insured loan -- the first time a minimum was set. It also introduced a new minimum down payment of 10 percent for borrowers with FICO scores below 580. (Those above 580 still pay a minimum 3.5 percent.)

The issue for the F.H.A, Mr. Harriott said, is that the realm of borrowers has widened. "We see executives of little companies, teachers, people making $200,000 a year, doing an F.H.A. loan, because they've gotten into a financial situation," he said, adding that F.H.A. loans are perceived as safe by investors because of the insurance.

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November 15, 2010

a type of mortgage fraud known as "shotgunning," in which borrowers take out multiple loans on one or more properties, unbeknownst to the lenders.

The final weeks before a mortgage closing can be nerve-racking for any borrower, but new guidelines from Fannie Mae calling for an 11th-hour inspection of finances may mean even more headaches.

These new quality-control guidelines were rolled out this summer and call for a second credit review. They are designed to ferret out borrowers who, in the weeks between applying for a mortgage or refinancing and closing on it, might have changed jobs, taken out additional consumer loans or fallen behind on monthly bills. Such activities could affect their credit rating -- and delay or torpedo a new loan.

Even having an informal credit inquiry before the purchase of a big-ticket item like a washer and dryer could affect the closing, or prompt the mortgage lender to change the loan terms.

Freddie Mac has similar new guidelines for lenders that go into effect in February.

"We've heard of many instances of a loan not closing or of having to be reunderwritten," said Karen Deis, a real estate agent and mortgage broker in Hudson, Wis., who publishes Loan Officer Magazine, a trade publication.

Continue reading "a type of mortgage fraud known as "shotgunning," in which borrowers take out multiple loans on one or more properties, unbeknownst to the lenders." »

November 7, 2010

Pay for foreclosure defense with a second mortgage ?

Foreclosure defense is a new legal specialty whose strategies and techniques are still being worked out. Mr. Ticktin, who has some 3,000 foreclosure clients, says his plan to collect fees by taking another mortgage on his clients' properties has already been copied by other firms.

The Ticktin mortgages resemble the loans that the clients originally got from Countrywide, GMAC and other lenders. Each will be a contractual obligation with the law firm, labeled as a mortgage and structured like one, too, with the client paying a certain sum every month and using the house as collateral.

Unconventional payment structures are becoming popular in the foreclosure hotbed of Florida. Whether they yet have caught on elsewhere is unclear. Certainly, Mr. Ticktin is far from the only lawyer being forced to innovate.

"We can put in $100,000 of our time but over the length of a case be paid only $6,000 in monthly fees," said Thomas E. Ice of Ice Legal in Royal Palm Beach.

Mr. Ice, Mr. Ticktin and many other Florida foreclosure lawyers typically receive a few hundred dollars a month from each client. To supplement that, they seek legal fees from the banks they successfully challenge as well as contingency fees.

Contingency fees are standard in cases in which the client has little money but there is the possibility of a large payout. A slip and fall on a store's wet floor or a medical malpractice claim are classic contingency cases. If the plaintiff wins, insurance companies ultimately foot the bill.

In foreclosure cases, however, the client pays the contingency fee. While such an approach is sometimes used in commercial litigation, this is a first for consumer cases, said Lester Brickman, a professor at Cardozo Law School in New York.

"For a lawyer to supplement or replace the banks as a long-term mortgage creditor of homeowners leaves me a little queasy," said Mr. Brickman, an expert on contingency fees. "It's an invitation for the public to say, 'There go the lawyers again.' "

If the Ticktin lawyers -- there are 19 now and will be two more soon -- cause the original mortgage to be nullified or reduced because of the bank's misdeeds, the client must take out a new mortgage for 40 percent of the savings.

For instance, if the mortgage was $500,000 and is reduced by the bank to $200,000, the client would owe Ticktin 40 percent of $300,000, or $120,000, minus any legal fees paid by the losing bank as well as any monthly sums paid to the law firm.

Clients would be attracted to this arrangement because they might save nearly $200,000 and avoid foreclosure. They can either stay in their house or -- after another legal hurdle -- sell it.

Mr. Ticktin conceded there were potential problems with this "pay later" plan, starting with the uncertainty over whether the clients could and would pay the debt over a period of many years and what Mr. Ticktin's response would be if they did not.

"We would never enforce the mortgage and foreclose," he said. "We're not in that end of the game. We're not money lenders. We're charging a small amount of interest" -- four percent -- "just to make it legal."

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November 6, 2010

Fannie: check credit at closing, not just at application

New guidelines from Fannie Mae calling for an 11th-hour inspection of finances may mean even more headaches.

These new quality-control guidelines were rolled out this summer and call for a second credit review. They are designed to ferret out borrowers who, in the weeks between applying for a mortgage or refinancing and closing on it, might have changed jobs, taken out additional consumer loans or fallen behind on monthly bills. Such activities could affect their credit rating -- and delay or torpedo a new loan.

Even having an informal credit inquiry before the purchase of a big-ticket item like a washer and dryer could affect the closing, or prompt the mortgage lender to change the loan terms.

Freddie Mac has similar new guidelines for lenders that go into effect in February.

"We've heard of many instances of a loan not closing or of having to be reunderwritten," said Karen Deis, a real estate agent and mortgage broker in Hudson, Wis., who publishes Loan Officer Magazine, a trade publication.

Continue reading "Fannie: check credit at closing, not just at application" »

September 27, 2010

Government wants people to keep paying on underwater mortgages -- Dean Baker

Banks want the government to get people to keep paying on underwater mortgages as long as possible. While this may make little sense for these homeowners, since they will never accumulate equity and are likely paying more in ownership costs than they would pay to rent a similar house, it does help the banks' bottom line. Each additional month that underwater homeowners stay in their homes paying the mortgage the banks are getting money they would not otherwise receive.

This explains the value of a program like the Home Affordability Modification Program (HAMP). Only a small fraction of the people who enter this program will end up with a permanent modification that will actually allow them to accumulate equity. However, the entire time that they work with the program, they keep sending a mortgage check to the bank -- and the government kicks in some taxpayer dollars as well. This is a real win-win from the standpoint of the banks as they get more checks from the homeowner than would otherwise be the case, plus the subsidy from the government for stringing homeowners along.

-- Dean Baker

August 13, 2010

Mortgage Servicing Conflict of Interest Elimination Act

Bar servicers of first loans they do not own from holding any other mortgages on the same property ?

Companies operate as the back office for the mortgage lending industry. In good times, their tasks are fairly simple: they take in monthly mortgage payments and distribute them to whoever owns the loans. In many cases, large institutions like pension funds or mutual funds own the mortgages, and servicers are obligated to act in their interests at all times.

When borrowers are defaulting in droves, as they are now, loan servicing becomes much more complex and laborious. Servicers must chase delinquent borrowers for payments and otherwise manage these uneasy relationships, possibly into foreclosure.

So where does the conflict of interest lie? Often, the same bank that services a primary mortgage owned by another institution also owns a second mortgage or home equity line of credit on the same property. When that borrower has trouble meeting both payments, the servicer has an interest in making sure that amounts owed on the second lien, which it owns, continue to be paid even if the first loan, which it has no interest in, slides into delinquency. About two-thirds of primary mortgages are serviced by banks who do not own them but hold the accompanying seconds.

This conflict is a crucial reason that the government's loan modification program has been so woefully ineffective. The Treasury Department never forced the second-lien holders who service troubled primary mortgages to reduce the amount they are owed by borrowers, even though such a move would give them a better shot at keeping their homes.

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July 23, 2010

Fannie Mae and Freddie Mac, the two mortgage always require enough income to pay for the loan on closing day

Fannie Mae and Freddie Mac, the two mortgage financing giants, have always required that borrowers have enough income to pay for the loan on closing day and that lenders document that the income is likely to continue for at least three years.

But since disability payments typically do not continue for that long, some lenders will not count it as qualifying income, several mortgage brokers have said. Some lenders may require new mothers, or others on short-term disability, to reapply for the mortgage once they return to work.

Continue reading "Fannie Mae and Freddie Mac, the two mortgage always require enough income to pay for the loan on closing day" »

July 6, 2010

Fannie Mae to punish people who walk away from a mortgage that they could still pay (Strategic defaults)

One of the sanctions is that Fannie Mae will refuse to buy a mortgage by anyone who had strategically defaulted for 7 years. This could have a big impact on a person's ability to get a loan if Freddie Mac adopts the same policy and the two companies still dominate the secondary market 7 years from now. However, if the companies are shut down, as many people advocate (perhaps more will now), then this sanction will be meaningless.

Fannie's secondary-market ban is not part of that contract. It may be (almost certainly is) aimed at stopping people from strategically defaulting on mortgages that Fannie already owns.

Read more:

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May 24, 2010

Johnson hit on a solution -- privatize Fannie, so that its expenditures would be somebody else's problem.

Fannie and Freddie developed as tools of credit enhancement; direct handouts offended laissez-faire sensibilities, whereas loan guarantees were nearly invisible. The practice of disguising government aid dates to the rescue of farmers and homeowners during the Depression. Mortgage capital barely existed and so, in 1934, the New Deal chartered the Federal Housing Administration to stimulate mortgage lending. Within a generation, the government was operating 74 separate programs to bolster credit through guarantees, insurance or outright loans, according to Sarah Quinn, a Ph.D. candidate at the University of California, Berkeley, who researched these programs. The point, Quinn says, was nearly always the same: "to camouflage, hide, or understate the extent to which [the U.S. government] actually intervened in the economy."

President Johnson was perfectly willing to let Fannie backstop investors, but he had a problem. Every mortgage Fannie purchased went on the government's books, which were already strained by the Vietnam War. After valiant efforts to manipulate the budget, Johnson hit on a solution -- privatize Fannie, so that its expenditures would be somebody else's problem.

The clever twist was that Fannie, which exited the public sector in 1968, wasn't wholly separate. Investors viewed Fannie, and its new sibling, Freddie, as having the implicit backing of the Treasury. This lowered the companies' costs and arguably led to lower interest rates for borrowers.

As long as Fannie and Freddie stuck to conservative underwriting, the arrangement seemed to work. But Congress was eager to use the twins for political purposes, like increasing homeownership and affordable housing. As Dwight Jaffee, a professor at the Haas School of Business at Berkeley, observed, legislators persuaded themselves that Fannie and Freddie could further such causes "basically at no cost."

When Fannie and Freddie began to face competition in their business of securitizing loans and providing liquidity to the mortgage market, their profits and stock prices took a nosedive. Seeking to recoup, the firms took more risk. And thanks to their implicit Treasury support, they could borrow virtually at will. Eventually, their debts reached the absurd level of 100 times their capital. When mortgage values tanked, a bailout was unavoidable.

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May 1, 2010

Fannie Interest_Only (IO) FICO > 720, LTV < 70

Fannie is also going to change criteria on interest-only mortgage loan products, capped at 70% loan-to-value ratio with the borrower FICO at 720 or higher. Balloon mortgages will no longer be eligible under the new guidelines.

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April 5, 2010

Bankruptcy filing as a prototype mortgage cramdown

At the heart of the existing process is a strategic choice between liquidation under Chapter 7 or rehabilitation under Chapter 13. Under Chapter 7, households give up all of their nonessential assets (as determined by the law of the state where they live), but pay nothing out of any future income to clear their debts; those debts are simply erased. Under Chapter 13, households make payments out of future income, but are more likely to retain their homes and automobiles.

The 2005 reforms, driven by an exaggerated concern that debtors might game the system, instituted a series of paper-intensive procedural safeguards. All debtors must produce documents that estimate potential increases in expenses or income during the year to come, a monthly net income statement and a complex "means test calculation" that certifies expenditures in a large number of specific, carefully defined categories.

the bankruptcy system was doing its job, the mortgage-driven financial crisis should then have led to a sharp increase in filings under Chapter 13. Homeowners unable to keep up with their mortgages should have been able to file for relief under Chapter 13, resolve their problems and move on with their lives. Yet the share of Chapter 13 filings fell in 2009 to only 28 percent of all filings, from 42 percent in 2006.

That's another perverse result of the 2005 reforms: Chapter 13 does not let people avert foreclosure by paying the actual value of their homes, even when their bubble-era mortgages far exceed realistic market prices. In fact, a "special rule" for home mortgages allows lenders to prevent normal bankruptcy relief for borrowers. Thus, the reforms created a system that makes it harder to file for Chapter 7 while doing nothing to make Chapter 13, once the savior of homeowners, useful in this sort of mortgage crisis.

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April 4, 2010

Slowing down foreclosures

It can take a borrower six to seven months to find out whether he or she qualifies for a permanent mortgage loan modification under the federal foreclosure relief program, Making Home Affordable, according to Barclays Capital.

In Maryland, for example, lawmakers extended the foreclosure process from 15 days to 135 days in 2008 and are considering emergency legislation to force lenders into mediation with a borrower before foreclosing on a property. But other states and jurisdictions have even more drastic measures to slow down the foreclosure process. "There were cases where sheriffs were refusing to file foreclosure notices," said Jay Brinkmann, chief economist for the Mortgage Bankers Association.

After a temporary foreclosure moratorium in 2008, the backlog of homeowners facing foreclosure in Maryland has surged. The number of Maryland homeowners who are seriously delinquent or in the midst of the foreclosure process nearly doubled during the fourth quarter of 2009 compared with the same period a year earlier, according to data from the Mortgage Bankers Association.

"Lenders are deluged by late-stage delinquencies. The pent-up foreclosure inventory is there," said Massoud Ahmadi, director of research for the Maryland Department of Housing and Community Development

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April 3, 2010

Short sales vs foreclosures

The lenders' thinking, said the economist Thomas Lawler, went like this: "I lend someone $200,000 to buy a house. Then he says, 'Look, I have someone willing to pay $150,000 for it; otherwise I think I'm going to default.' Do I really believe the borrower can't pay it back? And is $150,000 a reasonable offer for the property?"

Short sales are "tailor-made for fraud," said Mr. Lawler, a former executive at the mortgage finance company Fannie Mae.

Last year, short sales started to increase, although they remain relatively uncommon. Fannie Mae said preforeclosure deals on loans in its portfolio more than tripled in 2009, to 36,968. But real estate agents say many lenders still seem to disapprove of short sales.

Under the new federal program, a lender will use real estate agents to determine the value of a home and thus the minimum to accept. This figure will not be shared with the owner, but if an offer comes in that is equal to or higher than this amount, the lender must take it.

Mr. Paul, the Phoenix agent, was skeptical. "In a perfect world, this would work," he said. "But because estimates of value are inherently subjective, it won't. The banks don't want to sell at a discount."

There are myriad other potential conflicts over short sales that may not be solved by the program, which was announced on Nov. 30 but whose details are still being fine-tuned. Many would-be short sellers have second and even third mortgages on their houses. Banks that own these loans are in a position to block any sale unless they get a piece of the deal.

"You have one loan, it's no sweat to get a short sale," said Howard Chase, a Miami Beach real estate agent who says he does around 20 short sales a month. "But the second mortgage often is the obstacle."

Major lenders seem to be taking a cautious approach to the new initiative. In many cases, big banks do not actually own the mortgages; they simply administer them and collect payments. J. K. Huey, a Wells Fargo vice president, said a short sale, like a loan modification, would have to meet the requirements of the investor who owns the loan.

"This is not an opportunity for the customer to just walk away," Ms. Huey said. "If someone doesn't come to us saying, 'I've done everything I can, I used all my savings, I borrowed money and, by the way, I'm losing my job and moving to another city, and have all the documentation,' we're not going to do a short sale."

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March 14, 2010

Now is a good time to buy a house

many real estate agents said it was time to buy as prices began to drop -- and continued to say it over the past several years as prices fell by an average of 33 percent in America's 20 largest cities.

Mr. Lereah would acknowledge that he had gotten it wrong. But from the perspective of many real estate agents, it is always a good time to buy.

"What they are really saying is that it is a good time to be involved in a transaction that generates a commission," says Barry Ritholtz, C.E.O. and director of equity research at FusionIQ, a quantitative research firm. He's also author of "The Big Picture," an irreverent blog on markets.

If agents are always motivated to make a deal, buyers are often asking an impossible question: "Will the price of this house go up?"

Although the National Association of Realtors said for many years that home prices historically don't fall, actually they do, and sometimes quite sharply. The housing market is complicated, and the future unknowable. Still, for clues to the overall direction of prices, Mr. Ritholtz advises buyers to look at three metrics: the ratio of median income to median home prices, which suggests whether people can afford a house; the cost of ownership versus renting; and the value of the national housing stock as a percentage of gross domestic product.

All those measures were aberrationally inflated during the housing bubble. And they still aren't back to historical norms. We can get back to the norm in either of two ways, Mr. Ritholtz says: home prices can either drop an additional 50 percent or go sideways for seven years or so, while G.D.P. and income presumably grow.

To complicate matters, even if home prices rise or fall nationally, they may not follow that pattern in Las Vegas or South Florida or Maine, to say nothing of the neighborhood where you want to buy.

There may be a better way, however, for potential buyers to approach the problem. "Predicting interest rates is a whole lot easier than predicting home prices," says Glenn Kelman, chief executive of Redfin, a multistate discount online real estate brokerage company based in Seattle. "Before you buy the house, you buy the money," he says.

It's a little like walking into a dealership to buy a car, and finding the saleswoman immediately jotting down what your monthly payments will be and starting the negotiations there. That's absolutely the wrong way to buy a car. But for a prospective homeowner, it's a good place to start the analysis to determine how much house you can buy.

Instead of betting on home prices, you make a bet on whether money will become cheaper or more expensive, allowing you to buy more or less house.

March 12, 2010

Banks reject Condo, Co-op properties

But even the best-qualified buyer can be denied a loan if the building he or she wishes to buy into is deemed a risk.

Melissa Cohn, the president of Manhattan Mortgage, said, "The biggest issue that we have is that a large number of buildings in the city don't meet Fannie Mae guidelines."

Over the last two years, Fannie Mae and Freddie Mac have tightened the regulations that govern the loans they buy from lenders.

Fannie now requires that some condominiums carry more insurance, for example, and a new I.R.S. requirement keeps the agency from acquiring mortgages made in buildings where more than 20 percent of the square footage is commercial -- space that is used for, say, a hotel or a doctor's office.

But many of the guidelines that New York City apartment buildings don't meet have been in place for years. Fannie and Freddie guidelines have long held, for example, that no single person or entity can own more than 10 percent of the units in an established condo or co-op building. During the boom, that didn't matter much. Investors were hungry to buy bundled residential mortgages, and banks could bypass Fannie and Freddie and sell the loans elsewhere. Now, Fannie and Freddie are by far the biggest game in town, so on conforming loans, their rules are gospel.

Andrea Mottola ran into the problem of a building cold-shouldered by banks last year, when she was trying to sell her daughter's two-bedroom apartment in a condo on West 58th Street.

Continue reading "Banks reject Condo, Co-op properties" »

March 7, 2010

Sonyma will help if income under $146,420, home less than $637,640.

In sharp contrast to all the mortgages out there with stiff underwriting guidelines, New York's Low Interest Rate mortgages have no minimum credit score. Borrowers can also qualify for a Sonyma mortgage if their total monthly debt payments reach 45 percent of their monthly income -- and sometimes more. That's about 5 percent higher than the amount allowed by conventional lenders, and higher than the threshold recommended by many financial counselors.

Still, Mr. Leocata maintains that borrowers default on these loans less frequently than those with conventional mortgages. Borrowers must pay monthly mortgage insurance premiums. For a 3 percent down payment, the monthly premium is 0.8 percent of the loan amount; for 5 percent, it's 0.67 percent; and for 10 percent, 0.42 percent.

Borrowers must also fall within the household income limits -- $107,520 in Manhattan, $142,520 in Long Island and $146,420 in Westchester -- and the purchase price cannot exceed $637,640.

Continue reading "Sonyma will help if income under $146,420, home less than $637,640." »

February 3, 2010

Letting your house go to foreclosure because you are out of money and purposefully defaulting on a mortgage to save money: murky

The difference between letting your house go to foreclosure because you are out of money and purposefully defaulting on a mortgage to save money can be murky. But a growing body of research indicates that significant numbers of borrowers are declining to live under what some waggishly call "house arrest."

Using credit bureau data, consultants at Oliver Wyman calculated how many borrowers went straight from being current on their mortgage to default, rather than making spotty payments. They also weeded out owners having trouble paying other bills. Their estimate was that about 17 percent of owners defaulting in 2008, or 588,000 people, chose that option as a strategic calculation.

Continue reading "Letting your house go to foreclosure because you are out of money and purposefully defaulting on a mortgage to save money: murky" »

December 28, 2009

Predatory loans: uncollectable fo B of A / Countrywide ?

"This is a first step in a decision by a federal judge that says even after the servicers' safe harbor was enacted and even after all the wrangling in Congress, we are still going to allow people to enforce their contract rights when it is appropriate," said Owen L. Cyrulnik, counsel at Grais & Ellsworth in New York, which is representing investors in the suit against Countrywide.

The lawsuit was filed in December after Bank of America struck a predatory lending settlement with attorneys general in 11 states. In that deal, the bank agreed to modify thousands of mortgages written by Countrywide, providing $8.4 billion in loan aid to an estimated 400,000 Countrywide borrowers.

Under the terms of the settlement, Countrywide said it would cut principal balances on some loans and reduce interest rates on others. Rates could decline to 2.5 percent
depending upon a borrower's ability to pay, and remain at that level for five years.

Continue reading "Predatory loans: uncollectable fo B of A / Countrywide ?" »

December 12, 2009

American Consumers Owe, Borrow Less

Figures released this week by the Federal Reserve showed that Americans owed $10.8 trillion on home mortgages at the end of the third quarter, down 2.2 percent from a year earlier and the lowest level since mid-2007.

Similarly, the Fed said that outstanding credit card bills in October totaled $888 billion, down 8.5 percent from a year earlier. That number was the lowest since March 2007.

Those trends do not, however, necessarily indicate that Americans have paid down their debts and are starting to lead the more frugal lives that some financial planners have been recommending for years. There has undoubtedly been some of that, but the declines also indicate that banks have been forced to write off a lot of bad debts and have grown more stingy in granting credit.

As can be seen from the accompanying charts, banks' credit card write-offs have soared, to an annual rate of 10.2 percent in the third quarter of this year.

And the Mortgage Bankers Association reported that at the end of the third quarter, 4.5 percent of all mortgages were in foreclosure -- one in 22 mortgages. It said another 6.1 percent -- one in 16 -- were at least two months overdue. Those figures are for all mortgages, not just subprime ones.

Continue reading "American Consumers Owe, Borrow Less" »

October 12, 2009

Foreclosure until 2014 ?

Wells Fargo researchers said investors can instead look for a return to longer-run measures. Existing home sales excluding foreclosures are likely to cap at around 3m units annually. foreclosure sales are likely to contribute 1m transactions to total sales, with a peak in foreclosure rates likely to occur in mid- to late-2010 between 1.8m and 2m units.

"Overall, our forecast implies a total of 7.2 million foreclosure units by 2014," researchers wrote. "Although the foreclosure inventory will likely dampen home price appreciation, we believe most of the home price damage due to foreclosure inventory is done and that home prices will likely remain stable over the period."

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October 4, 2009

Low-income housing in New Orleans stokes long-simmering tensions

James Perry, executive director of the housing center and a candidate for mayor of New Orleans, said class animosity might be at the root of much of this anger, though discrimination against the poor is not a violation of the Fair Housing Act. It is illegal to discriminate against minorities, however, and given that a disproportionate number of those who need affordable housing in the area are black, he said, these arguments almost inevitably involve race.

Continue reading "Low-income housing in New Orleans stokes long-simmering tensions" »

August 28, 2009

Negative home equity predicts defaults

Negative equity is the best predictor for loan defaults, said Sam Khater, a senior economist for First American. Still, "a majority of people who are underwater probably will not default," he said, "because if you have your job and don't encounter economic shock, you'll most likely keep paying your mortgage on your home."

Real estate values in the greater New York area may suffer less from underwater mortgages than in other parts of the nation, said Mr. Khater, of First American, because homeowners are less likely to fall into foreclosure.

That is because this area was less popular among people who bought homes as investments rather than for their own use. In Arizona, Nevada, California and Florida, where speculative buying was much more common, homeowners who owe much more than their homes are worth generally have less incentive to keep paying the mortgage.

Continue reading "Negative home equity predicts defaults" »

August 5, 2009

Making home refinance eligibility

Once you have determined if you are eligible for a Home Affordable Refinance or Modification, the next step is to contact your mortgage servicer to discuss your situation. A wide array of servicers have agreed to participate in the Home Affordable Modification program and have already engaged borrowers and expanded capacity to begin the modification process for eligible homeowners. In addition, all servicers for loans owned by Fannie Mae and Freddie Mac are required to participate.

makinghomeaffordable via CNBC and Clusterstock.

July 9, 2009

Urging mortgage refinance -- Obama ?

Mortgage refinance is available.


Is mortgage refinance it really urged by Barack Obama ? Sorry we cannot better filter or screen the Google Adwords.

Update: Loan modification is a big topic now, but is President Obama really blogging about it ?


We think these sites are running some google adwords arbitrage strategy.

In a later press Q&A, Eric Schmidt talked significantly tougher when it came to assessing advertiser quality, with specific reference to ads taking users to misleading landing pages full of ad links--commonly known as click arbitrage. In that session, he sounded annoyed at the prospect of users landing on such "arbitrary agglomerations of ad links," and asserted that "we don't believe it is healthy.

-- Danny Sulivan

July 7, 2009

Between $250,000 and $500,000 is middle income, mortgage-wise

David Adamo, the chief executive of Luxury Mortgage in Stamford, Conn. likened the current mortgage market to a barbell, with pockets of availability for borrowers at both ends of the income spectrum but less for those in between. Those with annual incomes up to about $250,000 have access to mortgages insured by the Federal Housing Administration, while the very affluent can obtain loans from private banking institutions.

For middle class borrowers with household incomes between $250,000 and $500,000, however, mortgages are not as easy to get, Mr. Adamo said. "These people are living in places where starter homes might be $1 million," he said, "and it's really affecting them."

Fannie Mae and Freddie Mac will accept only loans below $729,500 in the highest-cost markets like New York City and northern New Jersey. For mortgages larger than that, mortgage brokers and bankers must find other investors who want to take the loans. (Mortgage brokers process the applications on a lender's behalf, while mortgage bankers will finance the loan and sell it shortly thereafter.)

Continue reading "Between $250,000 and $500,000 is middle income, mortgage-wise" »

June 30, 2009

Danger of home equity, home appreciation

"The conventional view is that housing appreciation is good because it reduces (default) risk. Not according to my theory, which is housing appreciation is bad. It encourages junior-lien borrowing. When appreciation stops, somebody is going to be left in a bad position."

-- Michael LaCour-Little, finance professor at Cal State Fullerton.

June 24, 2009

Money in search of home owners ?

So tells Alyssa Katz' Our Lot: How Real Estate Came to Own Us in an engaging economic history.

How and when did home mortgages become Wall Street's playthings?
Who invented subprime loans - and how did they remain legal?
Who won the presidency promising to help as many Americans as possible buy a home?
What did Fannie Mae really do?
How did renters become second-class citizens?
Could your house be a target for mortgage fraud?
Why do new homes generate more greenhouse gases than all the nation's cars, trucks and buses combined?
Through stories about ordinary Americans who did their part to make the United States a nation of homeowners, Our Lot reveals how real estate turned into a fatal national obsession.

May 25, 2009

Third Wave of US Foreclosures


1. Subprime
2. Rate resent
3. Unemployment

Under a program announced in February by the Obama administration, the government is to spend $75 billion on incentives for mortgage servicing companies that reduce payments for troubled homeowners. The Treasury Department says the program will spare as many as four million homeowners from foreclosure.

But three months after the program was announced, a Treasury spokeswoman, Jenni Engebretsen, estimated the number of loans that have been modified at "more than 10,000 but fewer than 55,000."

In the first two months of the year alone, another 313,000 mortgages landed in foreclosure or became delinquent at least 90 days, according to First American CoreLogic.

"I don't think there's any chance of government measures making more than a small dent," said Alan Ruskin, chief international strategist at RBS Greenwich Capital.

Last year, foreclosures expanded sharply as the economy shed an average of 256,000 jobs each month. Since then, the job market has deteriorated further, with an average of 665,000 jobs vanishing each month.

Each foreclosure costs lenders $50,000, according to data cited in a 2006 study by the Federal Reserve Bank of Chicago, so an additional two million foreclosures could mean $100 billion in lender losses.

Continue reading "Third Wave of US Foreclosures" »

May 11, 2009

MEW: mortgage equity withdrawl

From 2004 to 2006, Americans took almost $700 billion per annum of net equity out of their homes through borrowing and spent as much as 50% of it on consumables. The most highly regarded study on mortgage equity withdrawals (MEW) is "Estimates of Home Mortgage Originations, Repayments, and Debt On One-to-Four-Family Residences," by Prof. James Kennedy and none other than Alan Greenspan (Federal Reserve Board FEDS working paper No. 2005-41); Kennedy has been updating his numbers.

Also: The Rise of A New Asset Class

Without MEW, we would have had 2 years, 2001 and 2002, with negative GDP growth. We're not going to go get those levels of mortgage equity withdrawals today - not in this environment. We're still seeing some cash-out borrowing, but it's getting more and more difficult; as home values drop, there are going to be fewer and fewer people pulling less and less money out of the "home ATMs." As Paul McCulley says, your home ATM is starting to spit out negative twenty-dollar bills

May 9, 2009

The Giant Pool of Money / TAL Mortgageland

This American Life revisits the mortgage world: TAL.

Continue reading "The Giant Pool of Money / TAL Mortgageland" »

April 26, 2009

Loan modifications are complicated for invetsors

The danger, some investors and securitization lawyers say, is that these provisions might allow some financial companies that engaged in improper lending -- and also happen to be loan servicers -- to escape legal punishment.

For example, if the servicer of an abusive loan was also the initial lender, the bill would take that company off the hook for any future predatory lending suits. The safe harbor, therefore, could encourage servicers to modify their most poisonous loans, even if they are not yet near default, just to reduce their legal exposures.

And allowing servicers to void buyback requirements on loans they modify would eliminate any liability for breaches in representations and warranties on the loans they made to investors who subsequently bought into the pools.

"Main Street investors need to know that banks who received their tax money through government bailouts are going to profit again from the safe-harbor loan modification provisions at the expense of their mutual funds, 401(k)'s and pension investments," said Thomas C. Priore, chief executive of ICP Capital, an investment firm that specializes in credit markets.

Another perverse incentive that the bill would create involves the problem of conflicting interests among investors who own the first mortgage on a property and holders of the second liens. First liens of any kind take priority and are supposed to be paid off before secondary obligations are. But many of the companies servicing loans today own second liens on the same properties whose first mortgages are held by investors in securitizations.

By removing any liability associated with modifying the first mortgage, the banks that own the second liens can expose invest

Continue reading "Loan modifications are complicated for invetsors" »

April 14, 2009

Mortgage fraud rings

Federal prosecutors indicted 24 people in a massive mortgage fraud scheme that they said was led in part by a gang member from San Diego and netted participants $11 million in profits.

In an indictment unsealed yesterday, prosecutors laid out a wide-ranging racketeering conspiracy that ran from 2005 to 2008 and targeted homes across the county. Among the identified leaders was Darnell 'Stringer' Bell, a documented member of the Lincoln Park street gang.

Bell, 38, used his status in the gang to recruit other members for the scheme and "maintain discipline," according to the indictment.

March 23, 2009

Worker housing includes $40,000 annual mortgage assistance

Property records show that the Edward R. Morrison, a law professor and economist at Columbia University, had some help financing the purchase. They obtained a $1 million first mortgage from Countrywide Bank, now a subsidiary of Bank of America, and a second mortgage directly from Columbia University for $1,039,000.

Elizabeth Schmalz, a spokeswoman for the law school, said the Columbia mortgage was provided by the law school as "one-time compensation assistance" to help Mr. Morrison complete the sale. The first mortgage was provided by Countrywide through another university program that provides mortgages at "favorable rates" to some faculty members. That program also provides a one-time $40,000 payment and an additional $40,000 a year in housing assistance.

"The greatest challenge to recruiting and retaining faculty in New York is housing," Ms. Schmalz said.

Mr. Morrison is a practitioner of empirical legal studies, analyzing the impact of the law on people and institutions. In 2007, another Columbia law professor specializing in empirical techniques, Catherine M. Sharkey, was recruited by the law school of New York University, whose foundation provided $4.2 million toward the purchase of an apartment for her use on Central Park West and West 106th.

Continue reading "Worker housing includes $40,000 annual mortgage assistance" »

March 21, 2009

Debt to Income for Mortgages, Historically 28 % after tax ?

One weeks' wages on housing, three weeks' wages spent elsewhere
was the tradition before income tax.

Several financial advisers recommend reverting to an old standard known as the 28/36 rule. Using that rule, households should spend no more than 28 percent of their gross income on housing costs -- including mortgage payments, property taxes and insurance -- and less than 36 percent on all debt. The total includes obligations like car payments, student loans, credit cards and medical debt.

There is some debate about whether you should base your calculations on gross income or take-home pay. While some advisers said using gross income was reasonable enough, Mr. Birkofer said he told his clients to apply it to net pay.

"I want people to have more than a house, I want them to have a life, too," Mr. Birkofer said. "The application of the 28/36 rule can be an eye opener and a 'go slow' or 'reform now' sign." The original maxim of a week's pay for a month's rent was also based on take-home pay, given that it predates the federal income tax system, which formally started in 1913, said Danilo Pelletiere, research director at the National Low Income Housing Coalition.

Many people are spending much more than that. According to the Census Bureau's American Community Survey in 2007, the latest available, 38 percent of homeowners with mortgages spend more than 30 percent of their monthly gross income on all housing costs.

And a swath of homeowners was even more thinly stretched. In 2007, nearly 9.17 million homeowners, or about 12 percent of all owners, spent more than half of their gross income on housing costs, according to tabulations of Census data by the Joint Center for Housing Studies of Harvard University.

Continue reading "Debt to Income for Mortgages, Historically 28 % after tax ?" »

February 22, 2009

Mortgage Rescue: diagnosing delinquency

On Obama's housing plan was on CNN last night (AC 360 2/20/2008; transcript accessed via Lexis/Nexis):

"TOM FOREMAN: Many who oppose the bill, however, seem to understand it fine. They just think it's wrong.

(on camera) Opponents argue this plan simply has no clear way to determine if a troubled homeowner added to his mortgage problems by spending too much money on other things, for example, sending his kids to private school or buying expensive cars or taking lavish vacations."

Continue reading "Mortgage Rescue: diagnosing delinquency" »

February 18, 2009

Bank burndown analysis

So here's a strong first step: the Treasury Department needs to hire out-of-work bankers to conduct what investors call a "burndown analysis" of banks' financial positions. This is what private investors do as they go foraging for gems hidden amid the wreckage in the banking system.

A burndown analysis, because it is a worst-case exercise, typically requires very pessimistic estimates for loan performance early on and higher-than-average loss estimates for loans in later years. A bank's prospects also derive primarily from its deposits, not its loan book, in such an assessment. To reiterate: Any examination of a troubled financial institution needs to determine what its assets are truly worth, how much can it earn and how much capital it needs to operate at a profit.

Continue reading "Bank burndown analysis" »

February 16, 2009

Mortgage Insurers dodged 100% LTV bullet

Traditional home mortgage finance structure options:

A. 20 % down, 80 % LTV mortgage, no Insurance
B. 10 % down, 90 % LTV mortgage, with Insurance

Circa 2005:

C. 0 % down, 80 % LTV mortgage, 20 % LTV HELOC (total LTV = 100 %), no Insurance

The mortgage insurers thereby missed taking risks on some of the most leveraged homeowners.

The mortgage insurers were cut out of the worst deals (lucky for them!), because Wall Street happily securitized 100% financing with 2nds and no MI (mortgage insurance) . But the losses are still piling up.

Continue reading "Mortgage Insurers dodged 100% LTV bullet" »

January 3, 2009

Market discipline has come to subprime

Primary Market - Loan Originations

Fannie Mae and Freddie Mac do not originate mortgages. More than 80% of subprime loans still outstanding were originated in 2004 through 2007. The top ten subprime loan originators in 2006 were: HSBC Finance, New Century Financial, Countrywide Financial, Citimortgage, WMC Mortgage, Fremont Investment and Loan, Ameriquest, Option One, Wells Fargo Home Mortgage and First Franklin Financial. Seven of the ten (the nonbank lenders, who were not regulated by the Community Reinvestment Act) no longer exist, or were merged into banks. The lists for 2005 and 2004 were similar, but also included Washington Mutual. The top ten lenders accounted for about 60% of ALL subprime loans in 2006.

Secondary Market - Wholesale Loan Buyers

In 2004, 2005 and 2006, securitized mortgages were 73%, 79% and 81% of all subprime mortgages. So for practical purposes the wholesale market was the securitization market. For the same three years, the total volume of subprime loans securitized was $521 billion, $797 billion and $814 billion respectively.

Almost none of those securities were issued by Fannie and Freddie. They were not in the business of purchasing and securitizing subprime mortgages, although they purchased some subprime mortgages to hold in portfolio, and issued about $6 billion in subprime securities in 2004 to 2006 (one-third of one percent of the market.) The top fifteen issuers of subprime mortgage-backed securities, accounting for about 75% of the market, in 2006 were: Countrywide, New Century, Option One, Fremont, Washington Mutual, First Franklin, Residential Funding (GMAC affiliate), Lehman Brothers, WMC, Ameriquest, Morgan Stanley, Bear Sterns, Wells Fargo Securities, Credit Suisse and Goldman Sachs.

Continue reading "Market discipline has come to subprime" »

January 2, 2009

Opposing the interventionism of the Ownership Society: Who ?

There's several lines of thought here.

First, clearly, there were regulatory failures. The fact of the matter is that teaser mortgages were the result of the overriding of usury laws and preemption of state lender laws in favor of lax federal regulations that favored "the free market". And we don't have regulations of Credit Default Swaps and Hedge Funds because some powerful lobbies made "free market" arguments that libertarians accept. All these things contributed a lot more to the crisis than whether Fannie and Freddie guaranteed some loans they should have (remember, most of the bad mortgages were securitized by the private sector) or whether the government was overzealous in promoting minority homeownership.

Second, while Ilya is right about the governmental promotion of homeownership not being a libertarian idea, it is also not really one that libertarians spent a lot of effort trying to fight. Indeed, libertarians were promoting the "Ownership Society" along with conservatives, because libertarians tend to believe that property ownership has several beneficial effects on society. This doesn't mean that libertarians were necessarily supportive of efforts to lean on lenders, but it does mean that libertarians weren't exactly policing this issue (because it meant going after political allies as well as taking on an ideological contention about ownership that they had some sympathy with or mixed feelings towards).

Third, I think it's too broad to blame anything like this on libertarianism. Libertarians don't have a lot of political power; conservatives do and liberals did and will. But what Ilya seems to be really after is to counter any efforts to blame this crisis on laissez faire policies or free market policies. And that position seems untenable. Of course you can point to actions of the government that weren't good ideas which may have contributed to this. But the reality is that one of the problems with the free market is that if people can take their money out in the very short term, they don't have much of an incentive to price in longer term risk. And these mortgages lasted for 15 or 30 years. Thus, as long as someone else was going to be able to internalize the risk of a default, it made sense to make bad loans. This was true even without any pressure from the government or any "ownership society" programs.

The free market did this, because there are not any market mechanisms in the mortgage backed securities market to ensure the mitigation of long-term risk.

-- Dilan Esper responds to Ilya Somin

Continue reading "Opposing the interventionism of the Ownership Society: Who ?" »

December 29, 2008

NYC Co-ops Apartments: sticky on credit and price, flexible on renting

With financial markets in crisis and unemployment rising by the hour, many co-op boards are looking very skeptically at buyers who have large stock portfolios or who earn much of their income in year-end bonuses that may not materialize.

To counter that and to satisfy the concerns of co-op boards, these buyers are finding that they must either increase their down payment to 50 percent of the sale price or more, or put six months' to two years' worth of maintenance into an escrow account.

Some boards have also made it clear that they prefer buyers with fixed-rate mortgages over those with adjustable-rate mortgages; buyers with interest-only mortgages need not apply. These are not the sorts of requirements that appear in the bylaws or the house rules, but in this market, word gets out quickly after a board rejection.

"If you get a board turndown, you can ask how to improve the application," said Richard Grossman, the executive director of downtown sales for Halstead Property. "I've seen some approvals lately where the board tried to work with the buyer, either by asking for money in escrow for maintenance or for additional down payment to increase the equity in the apartment."
Robert J. Rosa, an executive vice president at Century 21 NYC, said that's exactly what happened in a recent deal. He represented a father buying an alcove studio for his daughter on East 21st Street. The father, an investment banker, planned to take out an interest-only mortgage even though he had about $10 million in liquid assets and could easily have paid cash for the studio.

Continue reading "NYC Co-ops Apartments: sticky on credit and price, flexible on renting" »

December 1, 2008

Tanta (Doris Dungey), RIP

Tanta of Calculated Risk, dead at 47.
A scathing yet joyous nerd.

Best of: On automated underwriting systems (AUS), underwriting cheat sheets, dogs.

First, there's the old "let's retrain a bunch of subprime loan officers to be prime GSE loan officers." You civilians might think this should be fairly easy, but the fact is that training a lot of these people to be prime loan officers basically means training them to be loan officers. If they had any basic depth of understanding of the business they're in, they could move to prime origination by just reading that other rate sheet. The reality is that they've been doing no-doc no-down no-sweat stuff for so long--some of them have never done anything but--that they're sitting around with the PlayStation waiting for someone to tell them how a 30-year fixed rate loan with a down payment and verified income actually works. Which is to say, their bosses are sitting around in the busier conference rooms trying to figure out if it's possibly worth the time and money to turn these people into mortgage experts instead of corner-cutting order-takers.

Continue reading "Tanta (Doris Dungey), RIP" »

October 21, 2008

Mortgage meltdown diagnoses

In 2006, the question was the canary in the coal mine question, 'Will the subprime mortgage industry meltdown, and would the meltdown spill over to other financial sectors ? '

In 2007, the question became, 'What started the meltdown ?'. Chris Whalen has an excellent summary of what we know in autumn 2007.

Continue reading "Mortgage meltdown diagnoses" »

September 28, 2008

OCC's second Mortgage Metrics Report

The OCC's second Mortgage Metrics Report shows that not only are mortgage repayment plans and especially modifications increasing, they are increasing at a faster rate than new foreclosure starts. One metric in the report is the number of new loss mitigation actions as a percentage of all seriously delinquent loans.

OCC's second Mortgage Metrics Report

September 9, 2008

Josh Rosner, Graham Fisher: leverage amplifies losses

As Josh Rosner, an expert on mortgage securities at Graham Fisher in New York noted in a research piece last week, the leverage used to put such securities pools together can amplify losses. For example, a 4 percent loss in a mortgage-backed security held by collateralized debt obligations can turn into almost a 40 percent loss to the holder of the C.D.O. itself.

Continue reading "Josh Rosner, Graham Fisher: leverage amplifies losses" »

August 13, 2008

Mortgages in America, a people's History

A breif history of subprime mortgage.

But any industry this big was soon irresistible to speculators. In several waves of deregulation, the industry set out to fix something that wasn't broken and managed to slip outside the bounds of government banking supervision. In each of these cycles, free-marketers promised greater efficiency and more plentiful credit, if government regulators would just get out of the way. In each episode, however, the result has instead been increased speculation followed by huge losses and costs to the public.

Robert Kuttner

August 4, 2008

Housing Wire

Housingwire is a lively news source for the mortgage and residential real estate industries.

July 8, 2008

Mortgage Lender Implode-O-Meter tallies failed lenders

The Implode-O-Meter is the brainchild of Aaron Krowne, a former researcher
at Emory University in Atlanta. A computer scientist and mathematician,
Mr. Krowne, 28, started the site in 2007, believing that the troubles in the
housing market, and by extension the mortgage industry, would worsen.

He was right -- and the Implode-O-Meter took off. Traffic on the site soared,
reaching as many as 100,000 regular visitors, and advertising dollars rolled in.
Mr. Krowne quit his day job and hired 10 people for his company, Implode-Explode Heavy Industries.

"The crisis has come in waves," Mr. Krowne said. "It just keeps coming."

Business: Loan Pains Turned Site Into a Hit
Published: July 8, 2008
The Mortgage Lender Implode-O-Meter, a Web site, is gleefully tallying the
number of lenders that run into trouble.

July 6, 2008

FDIC bank data of loans secured by real estate

The RC-C section in a FDIC CALL report shows loans secured by
real estate. Manually add up the various detail lines in RC-C,
subheading 1, to get the totals.

Total Assets - $2.118B
(RC-C.1) Loans secured by real estate $1.360B ( 64.2% )

Where does one get the RC-C.1 data?

Each bank submits CALL data to the FDIC on a quarterly basis.
The data usually becomes available 15-30 days after the quarter

Search for banks and download/view as PDF data at the FDIC
Institution Directory

[Via CR/Comments]

May 21, 2008

ARMs in Wachovia's closet

ARM (negative amortization option pay adjustable rate mortgages)
sales training at World Savings:

"So if I'm paying that minimum payment, I'm not actually
putting a dent in my principal though right? My principal and
interest they're just going to keep climbing up right?" the
borrower asks in the video tape. "It's optional," the broker
in the video replied.

Oakland, California's Golden West Financial Corp., the No. 2 U.S.
savings and loan specialized in ARMs, which comprise about
99 percent of its mortgage lending.

World Savings and Golden West are both now part of Wachovia.

October 22, 2007

Converting ARMs to fixed rate mortgages: required ?

"Save the borrower" legislative proposals abound. And,

Sheila Bair, chairman of the FDIC, who proposed yesterday
that mortgage servicers freeze all adjustable rate mortgages
facing resets at their current rates.

Naked Capitalism thinks such
forbearance is doomed.

September 22, 2007

Subprime fixed rate mortgage performance

Subprime fixed rate mortgages are performing OK.

Continue reading "Subprime fixed rate mortgage performance" »

September 21, 2007

piggyback ratings reconsidered

The firms say that since first asked to rate securities based on subprime
loans more than a decade ago, they've done the best they could with the
data they've had. "The housing market has proven to be weaker than a
lot of expectations," says Warren Kornfeld, co-head of residential
mortgage-backed securities at Moody's. This summer, the firms
downgraded hundreds of mortgage bonds built on subprime mortgages.
They say those bonds represent only a small part of the subprime-mortgage

Continue reading "piggyback ratings reconsidered" »

August 13, 2007

Federal Reserve 'purchases' mortgages backed securities ?

Q. Over the last couple of days the Times and other publications
have reported that the Federal Reserve has injected $68 billion
into the equities markets and that foreign central banks, such
as the ECB, have pumped even larger amounts of capital into
their markets.

Could you tell me precisely how this is done? Are the central
banks simply printing money to purchase the CDO’s other debt
that nobody else wants to touch? If so, isn’t this
just a way of socializing the costs of bad investment through
inflation? Finally, didn’t this whole mess begin with too much
liquidity and reckless lending practices?

The Fed injects money into banks by lending dollars on the
security of high quality assets held by banks. Under the
rules central banks now follow, this is almost an automatic

The Fed sets a target on the federal funds rate — the rate
on loans between banks. If the market rate rises above that
rate, it is a sign that demand for funds is greater than anticipated,
and the Fed meets the demand. Similarly, it withdraws loans if
the rate falls below that level. There was an interesting twist
on one day, in that the Fed asked that the security for loans be
mortgage securities, but those are of the type issued by Fannie
Mae and Freddie Mac, not the ones that are now questionable.
Because the Fed is not lending against bad securities, it is not
bailing out anyone. But that move enables banks to lend to
customers who own securities that cannot be sold right now.

Floyd Norris

August 2, 2007

Mortgage Rate Rest Peak, 2007-2008

The peak month for the resetting of mortgages will come this October,
according to Credit Suisse, when more than $50 billion in mortgages
will switch to a new rate for the first time. The level will remain above
$30 billion a month through September 2008. In all, the interest rates
on about $1 trillion worth of mortgages, or 12 percent of the nation’s
total, will reset for the first time this year or next.

A couple of years ago, by comparison, only a marginal amount of
mortgage debt — a few billion dollars a month — was resetting each

Continue reading "Mortgage Rate Rest Peak, 2007-2008" »

July 21, 2007

ABX Mortgage Index

A way to measure the effects of problems in the sub-prime mortgage
sector is to look at Credit Default Swaps (CDS). Remember that these
CDS contracts effectively work as a kind of insurance policy for banks
or other holders of bad mortgages. If the mortgage goes bad, then
the seller of the CDS must pay the bank for the lost mortgage payments
(alternatively ... if the mortgage stays good then the seller makes a lot
of money).

The index that measures the CDS market for home equity is called
the ABX.HE index. The sub-variation of this index that refers to risky
sub-prime loans is called the ABX.HE BBB index.
Markit's ABX catalog.

Continue reading "ABX Mortgage Index" »

July 15, 2007

Bond Market Association, Securities Industry and Financial Markets

SIFMA, the Securities Industry and Financial Markets Association
represents the industry (eponymously)..

Born of the merger between The Securities Industry Association and
The Bond Market Association, SIFMA is a 'single powerful voice'.

Example publication: Mortgage Prepayment Projection Tables,
PSA Median, CPR average, etc.

More in Quant Finance, mortgage.

July 12, 2007

Morgage Doom by Roubini

Nouriel Roubini preaches doom for the mortgage world.
Quantified doom is rather small though.

July 8, 2007

Mortgages for nerds

Tanta's ubernerd tour of the mortgage business.

Mortgage Servicing
Negative Amortization
Private Mortgage Insurance
Foreclosure and REO
Delinquency and Default
Reverse Mortgages

June 30, 2007

Subprime Mortgages Meet Stricter Federal Rules

“Stated income and reduced documentation loans to subprime
borrowers should be accepted only if there are mitigating
factors that clearly minimize the need for direct verification
of repayment capacity,”

“However,” the regulators added, “a higher interest rate is
not considered an acceptable mitigating factor.”

Federal Financial Regulatory Agencies Issue Final Statement on Subprime Mortgage Lending. [PDF]

Posted in mortgage.

Continue reading "Subprime Mortgages Meet Stricter Federal Rules" »

June 15, 2007

Bankers Online

bankersonline resource for banking regulation and practices.
Example: HMDA tour (eg Borrower Isn't
Homeowner, HMDA Reportable ? )

Continue reading "Bankers Online" »

June 11, 2007

Cash back at closing -- Mortgage fraud ?

First he built a dictionary of 150 keywords in real estate
ads — “creative financing,” for instance — that might
signal a seller’s willingness to play loose. He then looked
for instances in which a house had languished on the
market and yet wound up selling at or even above the
final asking price. In such cases, he found that buyers
typically paid a very small down payment; the smaller
the down payment, in fact, the higher the price they
paid for the house. What could this mean?

Either the most highly leveraged buyers were terrible
bargainers — or, as Ben-David concluded, such anomalies
indicated the artificial inflation that marked a cash-back deal.

Having isolated the suspicious transactions in the data,
Ben-David could now examine the noteworthy traits they
shared. He found that a small group of real estate agents
were repeatedly involved, in particular when the seller was
himself an agent or when there was no second agent in the
deal. Ben-David also found that the suspect transactions
were more likely to occur when the lending bank, rather
than keeping the mortgage, bundled it up with thousands
of others and sold them off as mortgage-backed securities.

This suggests that the issuing banks treat suspect mortgages
with roughly the same care as you might treat a rental car,
knowing that you aren’t responsible for its long-term outcome
once it is out of your possession.

-- Freakonomic pf the week.

June 5, 2007

House flipper fraud: Flip This House, Sam Leccima in Atlanta

'Flip This House' Star Accused of Fraud

On an episode of A&E's popular reality series "Flip This House," Atlanta
businessman Sam Leccima sits in front of a run-down house and calls
buying and selling real estate his passion.

Now authorities and legal filings claim that Leccima's true passion was
a series of scams that included faking the home renovations shown on
the cable TV show and claiming to have sold houses he never owned.

"This is, indeed, a con artist," said Sonya McGee, an Atlanta pharmaceutical
representative who says Leccima took $4,000 from her in an investment

Continue reading "House flipper fraud: Flip This House, Sam Leccima in Atlanta" »

June 4, 2007

ARM Handbook

Adjustable Rate Mortgage Handbook by the Federal Reserve.

May 28, 2007

What is Sub Prime Today ?

MacroBlog opines on the state of sub-prime lending today.
More at Federal Reserve's April Survey of Senior Loan Officers [pdf].

Continue reading "What is Sub Prime Today ?" »

May 16, 2007

When to refinance: a financial engineer's optimal mortgage refinance

Kalotay's perspective on personal finance planning.

See previously Kalotay on mortgage option theory, formal modelling of
optimized mortgage refinancing, and option theoretic prepayment models.

May 15, 2007

Wallstfolly on subprime meltdown

The meltdown in sub-prime mortgages explicated by Wall Street Folly.

May 4, 2007

Home Equity Conversion Mortgage (HECM)

The bulk of reverse mortgages funded today are
so-called Home Equity Conversion Mortgages,
known as HECMs, which are insured by the
federal government and cap the amount
homeowners can borrow.

To cater to people with higher-value homes,
lenders increasingly are creating their own
products that don't have loan limits.
Meanwhile, the increased competition
among lenders also is driving down the
overall costs for consumers.

Continue reading "Home Equity Conversion Mortgage (HECM)" »

April 20, 2007

FHA mortgage limit should be $600,000

The government has fairly low limits on how big a mortgage
it will insure, so borrowers in New York City, for instance,
can receive a loan of about $363,000, far less than the
area’s median home price of about $470,000.

In Fairfield County, Conn., the maximum F.H.A. loan for a single-family
home is about $363,000, but the median price in the county’s largest
municipalities is $473,000.

Congress is considering raising the maximum loan to about $600,000, which
“would obviously help a lot of borrowers, especially in the Northeast.”

-- Brian J. Chappelle, founder of Potomac Partners in Washington,
consultants to the mortgage industry.

Continue reading "FHA mortgage limit should be $600,000" »

April 17, 2007

Predatory borrowers

Am I the only one who wonders how a person who borrows
money he can't repay, buys a house he can't afford, and then
stiffs his creditors, is allowed to play the victim?

-- Michael Lewis

April 16, 2007

Mortgage delinquency vs job growth/unemployment

As problem mortgages increase, lenders have tightened their
standards, adding further to pressures on the housing market.
As long as job growth remains strong, the housing downturn
will not derail the economy
, but the impact on consumer
spending is likely to be "more pronounced".

-- Mark Zandi, chief economist of Moody's

Continue reading "Mortgage delinquency vs job growth/unemployment" »

April 10, 2007

Owning a home is for debtors, not just the rich


By Toothpaste for Dinner.

Owning a home is for debtors, not just the rich.

March 24, 2007

Safe from Sub-prime in the suburbs ?

Even affluent suburbs have their share of such borrowers.

Steven Habetz, chief executive of Threshold Mortgage, a
broker based on Westport, Conn., says subprime loans
account for about 5 percent of his business. That could
drop, though, as lenders leave the market.

March 19, 2007

Mortgage rate reset: Cagan and First American

First American CoreLogic projected the impact of ratereset as it relates
to mortage payment increases and foreclosure.

"Mortgage Payment Reset: The Issue and the Impact," is available at

March 6, 2007

Few loans cause many losses

About 20% of the loans in the subprime market "cause more than half the losses.

-- Goldman Sachs Group Inc. fixed-income strategist Michael Marschoun.

We hope this is an ex ante statement. Ex post, we would think that fewer
than 8% of all mortgages cause 100 % of losses.

Continue reading "Few loans cause many losses" »

February 8, 2007

Risk-based Capital Requirements for Mortgage Assets

Risk-based Capital Requirements for Mortgage Assets, by the Federal Reserve. [ PDF ]

January 2, 2007

FDIC Summer Outlook 2006

Historical developments in mortgage loan volume and underwriting trends.
The significance of recent market and institutional innovations in light of
historical trends, reviews mortgage loan performance trends, discusses
the role of regulation, and considers the near-term outlook for the
mortgage lending cycle.

FDIC Summer Outlook 2006 PDF.

Continue reading "FDIC Summer Outlook 2006" »

December 16, 2006

Shared Appreciation Mortgages: Lessons from the UK

The recent rise in shared appreciation mortgage (SAM) availability motivates
careful consideration of underlying borrower incentives. The lender's share
of appreciation in SAMs (share) is essentially a dynamic prepayment penalty
imposed on the borrower. However, the borrower faces a moral hazard
due to his ability to affect the penalty by reducing maintenance.

We adapt a competing risks mortgage-pricing model to calculate SAM
theoretical equilibrium rates. Our borrower possesses rational expectations
of both the house price market and interest rates. Our simulation results may
help explain the lack of secondary market interest for the UK SAMs containing
extreme contract terms.

Shared appreciation, mortgage pricing, options, prepayment penalty, default

JEL Classifications: G21

Sanders, Anthony B. and Slawson Jr., V. Carlos,
"Shared Appreciation Mortgages: Lessons from the UK" (July 2005).
Available at SSRN.

Continue reading "Shared Appreciation Mortgages: Lessons from the UK" »

December 15, 2006

Moody's Commercial Mortgage Metrics (Moody's CMM)

Moody's Commercial Mortgage Metrics (Moody's CMM)


Commercial Mortgage Metrics from Moody’s and TWR,
the leading source for commercial real estate performance
and valuation forecasting.

Risk Measures provided by CMM:

Probability of Default,
Loss Given Default,
Expected Loss,
Value at Risk,
Yield Degradation,
Risk Adjusted Yield,
Distance to Default.

December 14, 2006

Anatomy of mortgage prepayments, Hayre L.S., Chaudary S. et

Hayre L.S., Chaudary S. et Young R.A. : "Anatomy of prepayments",
Journal of Fixed Income, 10, 2000. [PDF]
The paper is actually in chapter 4 of Hayre's book:
SSB's guide to MBS and ABS.

December 8, 2006

Option Adjusted Spreads: The OAS Trilogy

Trilogy by Andrew Davidson and Co (AdCo)
1. Active Passive Decomposition
2. Prepay risk and option adjusted valuation concept
3. prOAS Valuation model with refinancing and turnover risk

November 21, 2006

Who's Who: mortgage economists: Frank Nothaft, Freddie Mac

"What really increases the risk of mortgage
default is if you have this payment shock coupled
with a weak economy, because a weak economy
means unemployment,"

"Family incomes are lower. And then if you layer
on top of that a payment shock, that's a trigger
event that may very well lead to a default."

quote, Frank Nothaft, chief economist at Freddie Mac.

Economic commentary, 2003-2005

Continue reading "Who's Who: mortgage economists: Frank Nothaft, Freddie Mac" »

October 30, 2006

Tranched mortgage pools

The fun is tranching pools of mortgages into different securities.
You take a package of mortgages, preferably from different areas
of the country, and then you create different tranches with
different credit qualities, and then one zero coupon that bears
all the residual risk.

The first tranch, naturally, gets all the guarenteed income stream
(mortgage payments) and bears *no* (or actaully, very little)
prepayment risk (it is good to maturity).

The next tranch gets income stream, and bears some prepayment
risk (if there are a lot of prepayments, it gets a swath if the other
tranches are fully repaid), and on down the line.

The last tranch before the zero gets income, but bears risk
if the income falls short (mortgages default), and also bears
*the most* risk for prepayment (it has a call option owned
by the mortgage holders, they can repay the loan if the
interest rate changes). If you own this last tranch, you have
lots of duration and gamma risk, whereas if you own the
first tranch you have a very different profile.

The 'residual zero' tranch is practically binary.

Either it pays off, or it defaults and gets the (last) bit of
recovery value in liquidation. Lots of folks use equity
models to calculate expected return on these.

Freddie and Fannie do this, but also Morgan Stanley and Goldman.
If you want to play, you can call them and they can cobble toghether
a structured deal that will match pretty much any flavor you want.
Some of their customers are developers who are highly exposed
to one geographic area (say, Toll Brothers) and need hedging.

A good intro book is Collateralized Mortgage Obligations
by Chuck Ramsey and Frank Fabozzi
. It goes beyond CMOs and
talks about a lot of the risk horizons and what traders of these
do and play with. Lots of former interest rate traders apparently
do well in this field.

As far as point three: you are talking 'real options' theory here,
and you have to look for a lot of asset value delta to overcome
the (identified) barriers to exit and entry and transactions costs.
I have yet to see a good book on the real options of real estate,
but the ones that come close deal with mineral rights and land
and mostly were developed for energy exploration. Not really
'commercial' or 'residential' real options.

Continue reading "Tranched mortgage pools" »

October 9, 2006

Interest rates, what moves mortgage rates?

So what moves mortgage rates ? Supply. Demand.
Competition for money. Inflation. The Economy.
Expectations. And you, of course.

September 1, 2006

Mortgage economists, who's who 1: Scott Anderson at Wells Fargo

Scott Anderson at Wells Fargo: bio.

Scott Anderson holds a doctorate in economics with an
emphasis in monetary theory and international trade
and finance from George Washington University. He is
responsible for analysis and forecasting of international,
national and regional economic trends. His areas of focus
include macroeconomic and interest rate forecasting,
financial markets, and international economics.

Mr. Anderson provides daily analyses of U.S. economic
news, and produces the Wells Fargo Economics macroeconomic
forecasts. He authors the bi-monthly Wells Fargo California
Outlook report and co-authors Wells Fargo’s weekly Financial
Market Strategies report and the monthly Economic Indicators
report. In addition, he covers the United Kingdom, China, South
Korea, Japan, Hong Kong, and Singapore as part of our
bi-monthly international report.

Mr. Anderson's research is widely read by the financial
and business community and he has appeared in
numerous media including: CNN, Bloomberg, MSNBC,
CBS MarketWatch, BBC, NPR, Wall Street Journal, New York
Times, Financial Times, Washington Post, Los Angeles
Times, Chicago Tribune, USA Today, San Francisco

Mr. Anderson joined Wells Fargo as senior economist in 2001.

Citation: decade of flat home prices.

August 8, 2006

Rent to mortgage payment ratio

Rent to mortgage payment ratio.

Mortgage payments are senitive to interest rates.
Are rents less sensitive to interest rates ?

Then why would we exprect a constant
mortgage payment to rent ratio ?

August 7, 2006

TBMA Mortgage Prepayment Projection Tables

TBMA Mortgage Prepayment Projection Tables: Questions and Answers

TBMA = The Bond Market Association.

Continue reading "TBMA Mortgage Prepayment Projection Tables" »

August 6, 2006

Hedging beyond duration and convexity

Hedging beyond duration and convexity.

By considering a representation using a Fourier-like harmonic,
empirical evidence that such a series provides our hedging
strategy on a mortgage-backed security (MBS) with the first
four principal components of yield curve.

Continue reading "Hedging beyond duration and convexity" »

August 5, 2006


Mortgage Bankers have an association; news on refinancing, prepayment,
orginations, servicing, delinquency, foreclosures, MBS, ABS, securitization.

More like this: mortgage.

July 16, 2006

Two-Factor Mortgage Valuation Model: How Much Do House Prices Matter?

An Empirical Test of a Two-Factor Mortgage Valuation Model:
How Much Do House Prices Matter?

Mortgage-backed securities, with their relative structural simplicity
and their lack of recovery rate uncertainty if default occurs, are
particularly suitable for developing and testing risky debt valuation
models. A two-factor structural mortgage pricing model in which
rational mortgage-holders endogenously choose when to prepay
and default subject to
i. explicit frictions (transaction costs) payable when terminating
their mortgages,
ii. exogenous background terminations, and
iii. a credit related impact of the loan-to-value ratio (LTV) on

We estimate the model using pool-level mortgage termination data
for Freddie Mac Participation Certificates, and find that the effect of
the house price factor on the results is both statistically and
economically significant. Out-of-sample estimates of MBS prices
produce option adjusted spreads of between 5 and 25 basis
points, well within quoted values for these securities.

Chris Downing, Richard Stanton, and Nancy E. Wallace,
An Empirical Test of a Two-Factor Mortgage Valuation Model:
How Much Do House Prices Matter
(link to 406 K, PDF file)

Chris Downing, Federal Reserve Board, Washington, DC
Richard Stanton, Haas School of Business, University of California, Berkeley
Nancy E. Wallace, Haas School of Business, University of California, Berkeley

Continue reading "Two-Factor Mortgage Valuation Model: How Much Do House Prices Matter?" »

July 12, 2006

Mortgage Valuation and Optimal Refinancing, Pliska

An equilibrium valuation of fixed-rate mortgage contracts in
discrete time -- the mortgagor’s prepayment behavior
described by intensity process and with exogenous mortgage
rates, the value of the contract is derived in an explicit form
that can be interpreted as the principal balance plus the
value of a certain swap.

A nonlinear equation for what the mortgage rate in a
competitive market, and thus mortgage rates are endogenous
and depend upon the mortgagor’s prepayment behavior.

The complementary problem, where mortgage rates are
exogenous and the mortgagor seeks the optimal refinancing
strategy, is then solved via a Markov decision chain.

Finally, the equilibrium problem, where the mortgagor
is a representative agent in the economy who seeks the
optimal refinancing strategy and where the mortgage
rates are endogenous, is developed, solved, and analysed.

Mortgage Valuation and Optimal Refinancing, Stanley R. Pliska:
shorter and longer versions.

Continue reading "Mortgage Valuation and Optimal Refinancing, Pliska" »

June 14, 2006

Landholders, Residential Land Conversion, and Market Signals

In some metropolitan real estate markets, large land dealers
considerably influence the conversion of land for residential
use. Their activities may affect the timing, direction, and type
of new development. This study uses the Cleveland, Ohio
metropolitan region to consider whether large landholders
play a major role in residential land conversion in suburban
markets and the extent to which their actions are driven by
market signals.

Continue reading "Landholders, Residential Land Conversion, and Market Signals" »

June 13, 2006

The Complexities of Mortgage Options (Prendergast)

Mortgage option prices behave quite differently than the prices of
options on underlying securities that do not exhibit significant
convexity. As a result, the intuition of many market participants
about option risk characteristics does not typically apply to
mortgage options.

The risk characteristics of these options: negative convexity of
the underlying mortgage and the positive gamma of the option
impact call option convexity in opposing directions. As a result,
call option convexity can be either positive or negative,
depending on the interest rate scenario and option specification.

On the other hand, a mortgage put option is always positively convex.
A quantitative understanding of these risk characteristics is critical
for money managers and broker/dealers who use mortgage options.

The Complexities of Mortgage Options
Prendergast, Joseph R.
March 2003

June 1, 2006

Mortgage Low Down

mortgagelowdown: looks like automated private label mortgage
related content, but closer to squidoo than domain parking site. [ * ]

May 30, 2006

Best-Practices in Mortgage Default Risk Measurement and Economic Capital

Best-Practices in Mortgage Default Risk Measurement and Economic Capital

Each of the major processes used by industry participants to measure
so-called “credit risk” for first mortgage products. The study has three

Section I provides a discussion of the general concept of Economic
Capital (“EC”), how EC is measured and used by best-practice banks,
and how EC concepts used by industry practitioners differ from
regulatory definitions of capital.

Section II discusses the various types of theoretical “credit risk
models” that are used by practitioners to measure EC for mortgages.

Section III conducts several empirical experiments in which large
historical databases are used to estimate the credit risk models
described in Section II. The empirical work is aimed at helping
the practitioner and the regulator to evaluate the results of
alternative models.

David Kaskowitz, LoanPerformance
Kyle Lundstedt, LoanPerformance
Alexander Kipkalov, Washington Mutual Inc.
John Mingo, Mingo & Co.

May 28, 2006

Mortgage handbook at Treasury

Mortgage Banking, Comptroller’s Handbook (March 1998)

Sample entry:
Price level adjusted mortgage (PLAM). A mortgage loan in
which the interest rate remains fixed, but the outstanding
balance is adjusted for inflation.


May 10, 2006

Mortgage Payment Reset: only a 1% problem

Mortgage Payment Reset: The Rumor and the Reality.

Our nation is a $10 trillion-per-year economy currently possessing
$19 trillion in household asset value and $11 trillion in homeowner’s
equity. Losses of $110 billion – spread over several years – would
come to only about one percent of the total national homeowners’

Currently the economy is growing at about 3 percent per year,
adding about $300 billion per year to our national income. Losses
of $30 billion in a year would consume only one-tenth of this
increase, the equivalent of slowing the growth rate from 3% to 2.7%.
According to the Mortgage Bankers Association of America, mortgage
lending totals from $2 trillion to $3 trillion per year. The yearly reset
losses anticipated by this paper would constitute only about one
percent of the total annual lending amount.

Christopher Cagan, director for research and analytics at
First American Real Estate Solutions. PDF
[via NYT]

May 4, 2006

Mortgage refinancing, optimized

Mortgage Valuation and Optimal Refinancing, Pliska (2006)

Landholders, Residential Land Conversion, and
Market Signals
, Margulis (2006)

Mortgage Payment Reset: The Rumor and the Reality,
Christopher Cagan (2006)

Option-Theoretic Prepayment Model for Mortgages,
Fabozzi, Kalotay and Yang. (2004)

The Complexities of Mortgage Options,
Prendergast (2003)

Optimal Recursive Refinancing and the Valuation of
Mortgage-Backed Securities
, Longstaff (2002)

Best-Practices in Mortgage Default Risk Measurement and
Economic Capital
, Kaskowitz, Lundstedt (2002)

Mortgage Banking, Comptroller’s Handbook (1998)

Subprime mortgage rate spread at origination

Residential Mortgage Termination and Severity,
De Franco. (1994)

November 9, 2005

Real estate sentiment at Miller Samuel Soapbox

Real estate sentiment and appraisal of the New York market at
Miller Samuel's Soapbox. [*]
2005 Dec: Promoted to blogroll2.

October 10, 2005

infoproc / Stephen (Steve) Hsu

Infoproc (Steve) is a physicist interested in economic inference.

Example: exporting risk, Redmond visit.

July 25, 2005

Optimal Recursive Refinancing and the Valuation of Mortgage-Backed Securities (Longstaff)

The optimal recursive refinancing problem where a borrower minimizes
his lifetime mortgage costs by repeatedly refinancing when rates
drop. Key factors affecting the optimal decision are the cost of
refinancing and the possibility that the mortgagor may have to
refinance at a premium rate because of his credit.

The optimal recursive strategy often results in prepayment being
delayed significantly relative to traditional models. Furthermore,
mortgage values can exceed par by much more than the cost of
refinancing. Applying the recursive model to an extensive sample of
mortgage-backed security prices, we find that the implied credit
spreads that match these prices closely parallel borrowers’ actual
spreads at the origination of the mortgage. These results suggest
that optimal recursive models may provide a promising alternative
to the reduced-form prepayment models widely used in practice.

Francis A. Longstaff, Anderson School of Management.

Continue reading "Optimal Recursive Refinancing and the Valuation of Mortgage-Backed Securities (Longstaff)" »

July 9, 2005

Subprime mortgage rate spread at origination

Effects largely captured by a single variable: spread at origination
(SATO). SATO measures the difference in the mortgage rate between the
specified loan and a constant-quality subprime mortgage rate. Assuming
that lenders price borrower risk efficiently, a higher SATO
implies a poorer-credit borrower.

Search for more .

June 3, 2005

Handbook of Fixed Income Securities (Fabozzi)

The Handbook of Fixed Income Securities
Edited by Frank Fabozzi

Hardcover: 1500 pages
Publisher: McGraw-Hill; 7 edition (April 1, 2005)
ISBN: 0071440992

Part 1. Background.
1. Overview of the Types and Features of Fixed Income Securities.
2. Risks Associated with Investing in Fixed Income Securities.
3. A Review of the Time Value of Money.
4. Bond Pricing and Return Measures.
5. Measuring Interest Rate Risk.
6. The Sturcture of Interest Rates.
7. Bond Market Indexes.

Part 2. Government and Private Debt Obligations.
8. U.S. Treasury and Agency Securities.
9. Municipal Bonds.
10. Private Money Market Instruments.
11. Corporate Bonds.
12. Medium-Term Notes.
13. Inflation-Indexed Bonds (Tips).
14. Floating-Rate Securities.
15. Nonconvertible Preferred Stock.
16. International Bond Markets and Instruments.
17. Brady Bonds.
18. Stable Value Investments.

Part 3. Credit Analysis.
19. Credit Analysis for Corporate Bonds.
20. Credit Considerations in Evaluating High-yield Bonds.
21. Investing in 11 and Other Distressed Companies.
22. Guidelines in the Credit Analysis of General Obligation and Revenue Municipal Bonds.
23. High-Yield Analysis of Emerging Markets Debt.

Part 4. Mortgage-Backed and Asset-Backed Securities.
24. Mortgages and Overview of Mortgage-Backed Securities.
25. Mortgage Pass-Throughs.
26. Collateralized Mortgage Obligations.
27. Nonagency CMOs.
28. Commercial Mortgage-Backed Securities.
29. Securities Backed by Automobile Loans.
30. Securities Backed by Closed-End Home Equity Loans.
31. Securities Backed by Manufactured Housing Loans.
32. Securities Backed by Credit Card Receivables.

Part 5. Fixed Income Analytics and Modeling.
33. Characteristics of and Strategies with Callable Securities.
34. Valuation of Bonds with Embedded Options.
35. Valuation of CMOs.
36. Fixed Income Risk Modeling.
37. OAS and Effective Duration.
38. Evaluation Amortizing ABS. A Primer on Static Spread.

Part 6. Portfolio Management.
39. Bond Management. Past, Current, and Future.
40. The Active Decisions in the Selection of Passive Management and Performance Bogeys.
41. Managing Indexed and Enhanced Indexed Bond Portfolios.
42. Global Corporate Bond Portfolio Management.
43. Management of a High-Yield Bond Portfolio.
44. Bond Immunization. An Asset/Liability Optimization Strategy.
45. Dedicated Bond Portfolios.
46. Managing Market Risk Proactively at Long-Term Investment Funds.
47. Improving Insurance company Portfolio Returns.
48. International Bond Investing and Portfolio Management.
49. International Fixed Income Investing. Theory and Practice.

Part 7. Equity-Linked Securities and Their Valuation.
50. Convertible Securities and Their Investment Characterics.
51. Convertible Securities and Their Valuation.

Part 8. Derivative Instruments and Their Portfolio Management Applications.
52. Introduction to Interest-Rate Futures and Options Contracts.
53. Pricing Futures and Portfolio Applications.
54. Treasury Bond Futures Mechanics and Basis Valuation.
55. The Basics of Interest-Rate Options.
56. Controlling Interest Rate Risk and Futures and Options.
57. Interest-Rate Swaps.
58. Interest-Rate Caps and Floors and Compound Options.

June 2, 2005

Fixed Income Securities: Tools for Today's Markets (Tuckman)

Fixed Income Securities: Tools for Today's Markets,
Second Edition by Bruce Tuckman.

# Bond Prices, Discount Factors, and Arbitrage.
# Bond Prices, Spot Rates, and Forward Rates.
# Yield to Maturity.
# Generalizations and Curve Fitting.

# One-Factor Measures of Sensitivity.
# Measures of Price Sensitivity Based on Parallel Yield Shifts.
# Key Rate and Bucket Exposures.
# Regression-Based Hedging.

# The Science of Term Structure Models.
# The Short-Rate Process and the Shape of the Term Structure.
# The Art of Term Structure Models: Drift.
# The Art of Term Structure Models: Volatility and Distribution.
# Multi-Factor Term Structure Models.
# Trading with Term Structure Models.

# Repo.
# Forward Markets.
# Eurodollar and Fed Fund Futures.
# Interest Rate Swaps.
# Fixed Income Options.
# Note and Bond Futures.
# Mortgage-Backed Securities.

May 17, 2005


Inmann, mortgage blogger, is barkerishly spammy.

Useful listing of mortgage headlines; links are to pay-per-view versions
of what can was distributed by wire services.

May 15, 2005

Mortgage business complements auto business

  auto lending
+ real estate lending

”We find the mortgage business to be very complementary with our
auto business,” said Bob Brisco, chief executive of CarsDirect.

Continue reading "Mortgage business complements auto business" »

April 26, 2005

Residential Mortgage Termination and Severity, De Franco

Modeling Residential Mortgage Termination and Severity
Using Loan Level Data

Three essays on modeling residential mortgages.

Chapter 1 presents and estimates a new model of loss given
default using a new dataset of prime and subprime mortgages. The
model combines option theory proxies with information on the loan
contract and the cash flow position of the borrower. The results
suggest that severity on subprime and adjustable rate mortgages are
similar to losses on fixed rate prime loans, but that investor owned
properties have significantly higher losses than owner occupied
houses. The results also suggest systemic overappraisals on refinanced

Chapter 2 uses option pricing methodology to value the prepayment and
default options associated with a residential mortgage, if house
prices are mean reverting.

Numerical solutions compare the results from the mean reverting house
price model to the results from a model where house prices follow a
geometric Brownian motion process.

The main contributions are:

(1) the value of the implicit rent (service flow) is derived as a
function of the house price process instead of assumed to be constant,
as in prior research;

(2) the mean reverting model has additional factors that may help
forecast mortgage termination; and

(3) the house price process is shown to have a significant effect on
the value of a mortgage over a wide range of parameter values.

Chapter 3 presents a modeling framework for residential mortgages that
has separate models for each loan payment status (Current, 30 Days
Late, 60 Days Late, 90+ Days Late, in Foreclosure, in REO, or Paid
Off). It is shown that several classes of traditional mortgage
prepayment and default models are restricted forms of this model, and
that the restrictions are rejected empirically.

Continue reading "Residential Mortgage Termination and Severity, De Franco" »

April 24, 2005

Option-Theoretic Prepayment Model for Mortgages: Fabozzi , Kalotay and Yang

A new approach for modeling the prepayments of a mortgage pool
shows how to value mortgage pools and agency mortgage-backed
securities. A notion of refinancing efficiency describes the
full spectrum of refinancing behavior.

The approach has two distinguishing features:

(1) The primary focus is on understanding the market value of a
mortgage, in contrast with standard models that strive (often
unsuccessfully) to predict future cash flows, and

(2) we use two separate yield curves, one for discounting mortgage
cash flows and the other for MBS cash flows.

An Option-Theoretic Prepayment Model for Mortgages and Mortgage-
Backed Securities

To appear in International Journal of Theoretical and Applied Finance
Dec 2004, jrg 7, nr 8, december 2004, pages 949-978.

April 20, 2005

Calculated Risk

Calculated Risk offers nicely illustrated economics.

There has been a significant increase in mortgage brokers. There
has been a similar increase in residential building trades, appraisers,
home inspectors and other housing related occupations. The
impact of a housing slowdown on employment will be significant.

What will the end of the refinance boom and the housing boom
do to the mortgage industry ?

Continue reading "Calculated Risk" »

April 14, 2005


thehousingbubble, not to be confused with housingbubble track
over financed, over mortgaged real estate.

April 5, 2005

Housing bubble bloggers

housingbubble, moderately frequent. not to be confused with
thehousingbubble. Both track home of those who over finance,
over mortgage their real estate.

January 9, 2005

Mortgage Blogs

The Mortgages Blog (by weblogsinc) is frequently updated with
mortgage industry news mixes some news items and more outside
links with descriptions.

Bankrate is potpourri of mortgage and consumer finance content,
more written for consumers than lenders, and syndicated onto
many consumer sites.

November 20, 2004 searches refereed publications searches refereed publications.
Sample search mortgage prepayment modlleing.