Better than BOGO for Genworth

What's better than "buy one, get one" free? How about "buy one, get more" free. That's the kind of deal Genworth Financial is looking for.

On Sunday the Richmond, VA based Fortune 500 company announced that they were applying to the Office of Thrift Supervision to become a savings and loan. Genworth isn't a bank or a thrift but a self proclaimed "financial security" company. And one of their main businesses is mortgage insurance - they are, in fact, the spinoff of GE's mortgage insurance unit.

So why does the company want to be a federally regulated bank? Because it wants to qualify for government assistance through the TARP (Troubled Assets Relief Program). As you can imagine the mortgage insurer hasn't been doing well lately, after an abysmal 3rd quarter and recent credit rating downgrade. I would guess that management is depending on government funding to stay afloat. And they know they they need to get in the handout line ASAP.

But in order to get money they need to spend money. In the same press release they announced that they have reached an agreement to buy a bank. Specifically, they're going to purchase Interbank FSB of Minnesota, which has $1b in assets.

At this point the sales price has not been disclosed and we don't know how much Genworth would receive (if any) from the US Treasury. But I doubt that they would go through the trouble just to break even.

Here's the Bloomberg story.

Final RESPA rule issued

HUD ISSUES NEW MORTGAGE RULES TO HELP CONSUMERS SHOP FOR LOWER COST HOME LOANS: New 'Good Faith Estimate' will help borrowers save nearly $700 (HUD press release, 11/12/2008)

"For the first time in more than 30 years, the U.S. Department of Housing and Urban Development today issued long-anticipated mortgage reforms that will help consumers to shop for the lowest cost mortgage and avoid costly and potentially harmful loan offers. HUD will require, for the first time ever, that lenders and mortgage brokers provide consumers with a standard Good Faith Estimate (GFE) that clearly discloses key loan terms and closing costs. HUD estimates its new regulation will save consumers nearly $700 at the closing table."

And from Inman News, HUD: New Respa rule out this week:

"The new rules are intended to help borrowers avoid paying excessive loan origination and closing costs, and understand potential issues like payment shock from adjustable-rate mortgage (ARM) loans, balloon payments, and prepayment penalties for refinancing.

Preston said HUD plans to publish the new regulations under the Real Estate Settlement Procedures Act, or RESPA, in Friday's Federal Register. If Congress does not stand in the way, the RESPA rule changes would take effect within 60 days after publication."

(bolding mine)

The final rule deals primarily with the new Good Faith Estimate and revised Settlement Statement.

New Standardized Good Faith Estimate (GFE)

• Make GFE easier to read/understand
• Increased up front disclosures
  
• Makes it easier to compare offers
  
• Increased from 1 page to 3 pages
  

Revised Settlement Statement (HUD-1)

• Easier comparison of charges between the GFE & HUD-1
  
• Will limit the amount fees can change from GFE
  
• HUD-1 terminology conforms more with GFE terminology
• Increased from 2 pages to 3 pages.
  

The requirements on the new GFE and HUD-1 would not go into effect until January 1, 2010. Other provisions will be effective January 16, 2009


No complaints here about the changes. If it provides more consumer protection, more transparency and a clearer understanding of the loan product(s), we're all for it. Besides, as an UpFront Mortgage Broker, we're ahead of the curve.

The 341 page rule is HERE.

Remember our Veterans

Today is Veteran's Day

Visit a charity and give if you can:

Wounded Warrior Project
Operation Shoebox
Fisher House
Disabled American Veterans

2009 Conventional Loan Limits Announced

Fannie Mae confirms conventional loan limits for 2009 (Announcement 08-29 issued 11/7/2008)

Limits are unchanged from FNMA's previous announcement on the introduction of high cost loan limits and the elimination of jumbo conforming.

2009 Loan Limits

Fannie Mae's new minimum income doc requirements

Just thought I should reiterate the minimum income and employment documentation requirements coming down the pike. Listed as #5 in Monday's post on the new FNMA guidelines, effective December 13, 2008.

Income & Employment Documentation Requirements (click for FNMA announcement)

• Salary/Bonus/Overtime: The minimum documentation level required will be one current paystub and a verbal verification of employment.
• Commission/Self Employment: The minimum documentation level required will be one year’s personal federal income tax return.

Believe it or not, until recently, many of our files have only required a verbal VOE (salary/wage borrowers) or verbal VOE & independent verification of business address/phone # (self employed borrowers).

MBS WOW!

MBS Update 11/04/2008:

The FNMA 30yr opened up approx. -20bps from yesterday, and by 3:30pm we were up 109bps from the open. That's almost 110bps in a single day, and we're heading higher. This is the largest single day climb since the FNMA/FHLMC takeover in September. The 30yr fixed has improved ~1/4% since yesterday.



We have seen 2-3 rate improvements (depending on the lender) so far today and we might see one more by 5pm. The 30yr fixed was 6.5% last Thursday. Currently we are at 6.125%. What (or who) is moving today's market? Unsure at this point, but obviously buyers have entered the market in a big way.

Do you want to know how mortgage rates are moving? Sign up for our free daily rates email - No obligation.

You can also contact us if you want up-to-date analysis on the MBS market and how it's affecting mortgage rates.

Fannie Mae guideline changes coming

FNMA announced guideline changes on October 16, 2008, effective December 13, 2008.

The changes:

1.) High Cost Area Loan Limits - Phase out of Jumbo Conforming and implementation of Permanent High Cost Area Limits. The general loan limits will continue to be used, although it is unclear if the limits will change. In the past, FNMA increased the limits as home prices rose. But even now that we have seen a 25% decline in the national average home price since peak in 2006, I doubt FNMA will reduce the limits. In fact, some industry groups (including the Mortgage Bankers Association) are pushing FNMA to lift the limits altogether.

Permanent High Cost Area Limits will be a loan feature (add on charge to conforming limit product) instead of a separate product like the Jumbo Conforming. The 2009 High Cost Limits will be announced by the FHFA, expected November 7. Jumbo Conforming will be phased out on December 31, 2008.

2008 Limits:


2.) Bankruptcy policy change - extended the minimum allowable time period between a bankruptcy file date and the date of the credit report from 24mo. to 48mo. The bankruptcy still must be satisfied prior to the date of application.

3.) LTV Eligibility Requirements - new LTV limits for specific transaction types. Most notable:
Primary Residence
** Cashout Refi --> from 90 to 85%
2nd Home
** Purchase/rate & term refi --> from 95 to 90%
** Construction --> from 95 to 90%
** Cashout refi --> from 90 to 75%
Investment
** Purchase --> from 90 to 85%
** Construction --> from 90 to 85%
** Rate & term refi --> from 90 to 75%
** Cashout refi --> from 85 to 75%

Here is the fully updated Eligibility Matrix.

4.) Mortgage loans with interest only feature - interest only period must be for 10 or more years.

5.) Income & Employment Documentation Requirements

• Salary/Bonus/Overtime: The minimum documentation level required will be one current paystub and a verbal verification of employment.
• Commission/Self Employment: The minimum documentation level required will be one year’s personal federal income tax return.

6.) Miscellaneous

• Verification of rental income (crackdown on "buy & bail")- "If the property was formerly a primary residence, a fully executed lease agreement, receipt of a security deposit, and documented equity in the property of at least 30 percent must be provided.
• Disputed credit report tradelines - lenders must confirm accuracy of disputed tradelines.
• Borrowers without traditional credit (no credit scores) - ineligible for interest only loans
  

FNMA requirements effective January 1, 2009:
Homebuyer education for first time home buyers (FTHB) on all MyCommunity Mortgage loans and all borrowers relying on non-traditional credit to qualify.

An Apples to Apples look at House Deflation

In the local appraisal business for over five years, Troy Johnson has seen the market reach the heights of the housing bubble.  He has also held a front row seat to its recent rapid decline.  Johnson owns and manages Charlottesville-based Absolute Appraisals.  His team not only valuates properties in Albemarle but in the surrounding counties.

His experience in this market gives a clear picture of what is happening in our area with declining real estate values. 

In that time, he has seen a 15-30% decline in housing values. 

His figures aren’t hard and up to a statistician’s rigor, but they have great illustrative merit.  His approach gives an apples to apples comparison.  Absolute uses the same criteria and methods to assign value to the same property over the same period of time.

“Of all the orders we get,” Johnson says, “20% are reappraisals.”

Seeking more cash out of their homes for one reason or another, many homeowners go back to their loan officer for a new mortgage.   The loan officer contacts Absolute to redo the appraisal for the new mortgage.

Having a lot of repeat customers, Johnson has assessed the same homes over and over, some up to four times in the last two years alone.  “The same people keep coming back until they can’t come back.”

Curiously with all the press of the housing bust, many still believe their houses to be at the peak of their value.  Johnson finds that many, “still think their houses have risen in as much value as they heard about homes going up in Northern Virginia.”

So often, Johnson has to deliver the bad news.  It comes with a shock.  “What do you mean the house is only worth $250,000? That’s impossible.  I owe $270,000.”

Reporting the results back to loan officers who have ordered the appraisals, Johnson gets a now familiar response that sounds like Kubler-Ross’s stages of facing death. 

First is denial.  “How can that possibly be?  They did up grades.”

Then there’s the negotiation stage.  “See what you can do.  I got 55 loan officers in my office.  I’ll pass your name on to them.  You’ll get plenty of business.”

Finally, there’s desperation.  “This old lady is so nice.  She’s going into bankruptcy.  And she lost her son in an auto accident last year.”

Johnson doesn’t doubt the pitiful stories.  Many of these homeowners are desperate.  “But you can’t put that into an appraisal.”

In the present market loan officers know when they get a possible deal that it may not work.  They want him to check comparables before he even goes out to inspect the property.  They tell him, “If the value’s not there, stop immediately.”

He notices the most heavily declining areas are where there is excess supply.  These days, that is in condos and in new construction neighborhoods.  Builders who have gotten in over their heads have been dumping their excess inventory to the detriment of their previous customers.

Older neighborhoods have seen less decline.

Not only has this deflation led to less loan activity, Johnson has also seen it lead to the uglier side of this bubble bust – foreclosures.

“In 2006, not many people in this business [appraisers] knew what REO’s were.”

REO’s, short for Real Estate Owned, are properties that have reverted back to the mortgage lender/bank after a foreclosure sale has failed. 

In late 2007, Johnson started seeing REO business come in the door.  Banks hire his company and others like Absolute to make accurate assessments of how much their repossessed houses are worth in the present market.  The lenders use the numbers so they can wisely consider offers made by potential buyers on the properties.

Does he see a typical pattern in REO’s?  “It’s all across the board, except for the demo that pay cash for their higher-priced homes.”

But if it cuts across all racial and most demographic lines, the middle-class seems to be particularly hard hit.  The homes going into REO’s are mostly in the “$190,000 to $350,000,” range.

Now, between ten to fifteen percent of Absolute Appraisal’s business comes from REO work.  And Johnson sees no slow down in this area. 

The unfortunate fact is that it seems to be accelerating.

The rate rollercoaster

Lately, watching the action in the mortgage backed securities (MBS) markets has been like watching a car full of screaming teenagers hang on through the peaks and valleys of a world class roller coaster. In other words, it's been wild ride.

Just since September, we have seen the 30yr fixed mortgage rate fluctuate nearly 3/4 1 percent - between 5.625% and 6.375% 6.5% (stay up-to-date with our free daily rates email).

In normal markets, one can often get a general sense of the direction. Fundamentals can be followed and trends can be observed. But what we're witnessing in MBS is not the gradual inclines or declines of a functioning market. We're seeing wild swings in prices and reversals that occur in a matter of days.

Yesterday, Bloomberg reported on the difference in yields on MBS vs. US Treasuries. Fannie-Freddie Mortgage Bond Spreads Hit Widest Since March. The recent increased spreads have been driving MBS prices down and rates up.

"Agency mortgage-bond spreads have fluctuated since their record drops on Sept. 8 after the U.S. seized control of Fannie and Freddie. The spreads have widened on days when concern mounted that buyers relying on borrowed money including banks and hedge funds will have less demand for the debt -- including the past five trading sessions. Spreads have tightened when investors heeded a government pledge to support the market."

Predicting the direction of mortgage rates with accuracy in a stable market is a difficult task. But in current conditions it's nearly impossible.

So how does how does this translate for consumers? If you have a purchase contract on a home and plan on closing within the next 60 days, go ahead and lock your rate. Waiting for a particular rate that may or may not come is not worth the risk to your plans or your deposit. And the same goes for those who plan to refinance within the next 6 months - take advantage of the current historically low rates. Keep in mind that the average 30yr fixed rate since 1978 is 9.5% (Freddie Mac)

I'm not trying to "talk up my book" (giving advice or making an argument that bolsters one's position). Just pointing out what I see.

Visual evidence:

FNMA 30yr

We All Could Use Some Good News.

CNNMoney reports that new construction home sales rose in September.   From August, the sales increased 2.7% to an annualized aggregate of 464,000.  

The significance of this number may be diminished by the fact that most of these sales were in process before the bulk of the public front of the financial crisis began.  However, it is good news in that the increase was in new homes – not just existing residences.

The rash of bargains created by foreclosure sales have pumped up other home sales numbers.  And not many people are cheered that there are a lot of foreclosures going on.

We all wait with baited breath to see what October sales look like.