An Unfinished Chapter at Countrywide

Reports indicate that the U.S. Department of Justice could file a civil lawsuit against Countrywide Financial co-founder and former CEO Angelo Mozilo, who has largely avoided accountability for his role in the mortgage crisis. It remains to be seen whether the department actually will file the lawsuit, as it dropped a criminal case against Mozilo in 2011 following a two-year investigation. The lawsuit would come seven years after the company reported that it was drawing down its entire $11.5 billion revolving credit line, which marked the beginning of the end for the subprime mortgage lender, which was acquired by Bank of America in 2008. If the department does file a civil suit, it remains uncertain whether it would also pursue former Countrywide directors, who should have known about the company's abuses and were paid between $345,000 to $539,000 in 2007 -- a year that was not an anomaly -- for their service.

From "An Unfinished Chapter at Countrywide"
New York Times (08/24/14) P. BU1 Morgenson, Gretchen

Home Buyers Overwhelmed by Loan Info

A Discover Home Loans survey of 1,037 home buyers reveals that many struggle to determine how much they will owe on their mortgages. Eighty-seven percent of those polled determined the type of property they could afford, but just 52 percent had calculated their projected monthly payment. Additionally, 41 percent of borrowers had not determined their down payment, and 48 percent were unaware of how much their mortgage payments would increase or decrease based on the cost of the home. To better understand the mortgage process, 59 percent of buyers sought help from mortgage bankers, 42 percent from real estate agents, 38 percent from financial advisers, 37 percent from family or friends, and 30 percent from online financial tools or calculators. "Regardless of whether you're an experienced or inexperienced home buyer, there's a lot of information out there, and it's difficult to discern what's important," says Cameron Findlay, chief economist at Discover Home Loans.

From "Home Buyers Overwhelmed by Loan Info"
Wall Street Journal (08/21/14) Martin, Anya

Mortgage Applications Increase

Mortgage applications increased 1.4 percent from one week earlier, according to the Mortgage Credit Availability Index. The Market Composite Index, which is a measure of the mortgage loan application volume, increased for the week ending Aug. 15. The refinance share of mortgage activity increased from 54 percent to 55 percent and the adjustable-rate mortgage share of activity increased to 7.8 percent of total applications.

Economy: Mortgage Lenders

The results of a Fannie Mae poll reflect strong belief among home lenders that new underwriting rules will impact their costs and processes. About 80 percent of survey respondents said they would avoid making loans that fall short of post-crisis regulations. Roughly 84 percent, however, expect nearly all of their dollar volume to fall into the "qualified" category. Credit criteria will have to tighten to satisfy the new standards, according to 36 percent of those polled.

From "Economy: Mortgage Lenders"
Investor's Business Daily (08/15/14) P. A2

How the New FICO Score Model Will Affect Banks

It remains to be seen how much Fair Isaac Corp.'s recent change to its credit score model to exclude paid and unpaid medical debt will affect banks, as some bankers say they already exclude medical debt if the consumer has a strong credit background otherwise. Barry Harvey, chief credit officer and executive vice president at the $12.8 billion-asset Trustmark Corp. in Jackson, Miss., says, "This change of how FICO is viewing unpaid medical bills really doesn't change the actual decisions that are being made by underwriters when it comes to evaluating consumer credit requests. However, for those institutions operating in an automated credit decisioning environment, the new score may result in more automatic approvals and less automatic declines due to the higher score." Additionally, bankers note that it will take at least a year to implement the new model, as it first must be adopted by the three main credit bureaus. Meanwhile, Fannie Mae and Freddie Mac continue to use a FICO scoring model that is two systems behind the new one, and banks generally follow their lead.

From "How the New FICO Score Model Will Affect Banks"
American Banker (08/14/14) Witkowski, Rachel

The Refi Boom Is Officially Over -- And Won't Return Soon

A year after other economists made the same call, Freddie Mac has declared an official end to the refinancing boom that kicked off in the third quarter of 2008. The company determines the termination of a refi boom based on when purchase loans make up 50 percent or more of all mortgage applications. The threshold was reached the week of May 8 this year. Although refi volume has since crept back up, Freddie Mac chief economist Frank Nothaft acknowledges, "Even with recent home price gains and rock-bottom interest rates, American households are not cashing out equity at rates we've seen historically."

From "The Refi Boom Is Officially Over -- And Won't Return Soon"
American Banker (08/13/14) Finkelstein, Brad

Fewer Loans Falling Into Foreclosure, Delinquency

Lenders initiated foreclosure proceedings on just 0.4 percent of home loans in the second quarter, down from 0.45 percent in the previous three months, according to the Mortgage Bankers Association. The rate of so-called foreclosure starts is far below the 1.42 percent pace seen at the peak of the financial crisis in the third quarter of 2009. The second quarter of 2006 was the last time the rate was this low. The mortgage delinquency rate was a seasonally adjusted 6.04 percent, the lowest since the end of 2007 and down from 6.11 percent in the first quarter. Home price appreciation and the rebounding job market helped drive down delinquencies, says MBA chief economist Mike Fratantoni. Still, banks must work though more than 1 million loans already in the foreclosure process, which will likely take two to three more years, estimates Moody's chief economist Mark Zandi. "Ten years later, the already-painful foreclosure crisis is finally coming down to an end," he says.

From "Fewer Loans Falling Into Foreclosure, Delinquency"
Wall Street Journal (08/08/14) Light, Joe

Friday Rate Update

Mortgage Rates Edge Up Slightly

The rate for a 30-year fixed-rate mortgage edged up slightly to 4.14 percent from the previous week’s 4.12 percent, and the 15-year FRM rate rose from 3.23 percent to 3.27 percent, Freddie Mac said yesterday. At this time in 2013, the 30-year rate averaged 4.40 percent and the 15-year rate averaged 3.43 percent.

--ABA Daily Newsbytes

Mortgage Closing Costs on the Rise, National Survey Says

Based on survey responses from lenders in all 50 states and the District of Columbia, Bankrate.com reports that the expense of closing on a home loan has climbed from last year. U.S. mortgage closing costs rose 6 percent to $2,539 in June from $2,402 a year earlier, assuming a $200,000 loan and a 20 percent down payment. While third-party fees for appraisals and other services inched up 1 percent, origination fees charged by the lenders themselves increased 9 percent. The highest closing costs were documented in Texas, at an average of $3,046.

From "Mortgage Closing Costs on the Rise, National Survey Says"
Los Angeles Times (08/04/14) Khouri, Andrew

Fed Survey: ATR/QM Rule Lowers Mortgage Approvals

About half of the banks participating in the Federal Reserve’s latest senior loan officers survey reported that the CFPB’s ability-to-repay/qualified mortgage rule had reduced approval rates on applications for prime jumbo home-purchase loans and for nontraditional mortgages.

A majority of large banks but only about half of all other banks said the rule has had no effect on approvals of prime conforming mortgages, in part because they qualify for the safe harbor for mortgages that pass the GSEs' automated underwriting models.

The survey also found that banks continued to ease lending standards and terms for many types of loan categories amid a broad-based pickup in loan demand. A small percentage of respondents reported having eased standards on commercial and industrial loans over the past three months, while moderate to large fractions of banks reported having eased various terms on such loans.

On the demand side, a significant fraction of banks reported stronger demand for C&I loans from firms of all sizes. They attributed the increased demand to customers' need to finance investments in plant or equipment, accounts receivable, inventories, or mergers or acquisitions.

---ABA Daily Newsbytes

Second Liens Grow Again as Other Mortgage Lending Dwindles

Since home loans rates increased from record lows in 2013, lenders have found it more difficult to originate first lien loans. However, Phil Rizzuto, senior vice president of home lending at the $129 billion-asset Citizens Financial Group in Providence, R.I., says second lien loans have become more attractive to homeowners as home values rise. MortgageStats.com reports that $4.6 billion of second lien mortgages were written by the top 10 funders of these loans in the first quarter, up 44 percent from the same period in 2013. While second liens were difficult to work out when many types of home loans originated between 2005 and 2007 went into default, Rizzuto says underwriting criteria is stricter now. These days, new second liens typically are not securitized, with Rizzuto noting that Citizens holds most of its new second liens in portfolio. Moreover, the ability to repay rule does not apply to home equity lines of credit, only closed-end home equity loans. Becky Walzak, executive vice president of Mortgage TrueView in Media, Pa., says this gives second liens some advantages over low-down-payment first liens.

From "Second Liens Grow Again as Other Mortgage Lending Dwindles"
American Banker (08/01/14) Sinnock, Bonnie

Friday Rate Update

Mortgage Rates Largely Unchanged

The rate for a 30-year fixed-rate mortgage edged down to 4.12 percent from the previous week’s 4.13 percent, with an average 0.6 point for the week, Freddie Mac said yesterday. At this time in 2013, the 30-year FRM rate averaged 4.39 percent.    --ABA Daily Newsbytes

 

 

 

 

 

 

 

 

 

 

 

 

The Cost of New Banking Regulation: $70.2 Billion

According to a recent Federal Financial Analytics Inc. analysis, financial reforms cost the six largest U.S. banks $70.2 billion between the end of 2007 and the end of 2013. Regulatory costs for Bank of America Corp., Citibank Inc., Goldman Sachs Group Inc., JPMorgan Chase, Morgan Stanley, and Wells Fargo rose more than 100 percent, or $35.5 billion. The costs are tied to a mix of new regulations and capital surcharges that apply to banks with assets of more than $50 billion. Of the $35.5 billion in added costs, the study indicates that $29.07 billion came from capital costs, $2.06 billion from interchange fee restrictions, $3.95 billion from FDIC premiums, and $407.1 million from supervisory assessments. However, the analysis does not include costs related to product restrictions, liquidity costs, or penalties paid by the banks since the 2008 financial crisis. SNL data reveals the legal costs for credit-crisis and mortgage-related settlements at the six largest U.S. banks rose 62 percent in nine months to over $107 billion.

From "The Cost of New Banking Regulation: $70.2 Billion"
Wall Street Journal (07/30/14) Chaudhuri, Saabira