Friday, March 18, 2011

Home Prices Still Falling

CoreLogic released its monthly U.S. Home Price Index (HPI) report yesterday, according to a report in Reverse Mortgage Daily.

According to the report, home prices fell again in January, making that the sixth month in a row that property values have fallen across the country. I don’t think we’ve reached the bottom yet. Home values will continue to fall.

January’s index fell 5.7% on a year-over-year basis, according to the company, following December's fall of 4.7% over the previous year. CoreLogic said that its recent data showed a continued downward pressure on home sales, according to the news outlet.

Reporter Elizabeth Ecker quoted CoreLogic chief economist Mark Fleming in her story:
“A number of factors continue to dampen any recovery in the housing market. Negative equity, which limits the mobility of homeowners, weak demand and the overhang of shadow inventory all continue to exert downward pressure on housing prices. We are looking out for renewed demand in the coming months as the spring buying season gets underway to hopefully reduce the downward pressure.”
This is going to put more borrowers underwater, and that’s going to put more pressure on servicers. How much farther do you think this index will fall?

Tuesday, March 15, 2011

REO Inventory, a Long-Term Problem

As news and rumors continue to circulate that the federal government is ready to pull back from its role as the savior of the U.S. housing market, I see many players rubbing their hands together and smiling. The Treasury winds to wind down Fannie Mae and Freddie Mac and the GOP is ready to close down the failed HAMP program for good. Whether or not we agree that these things should happen, anyone who is holding their breath is acting the fool.

There are a number of reasons the government will not step away from the industry right now and couldn’t if it wanted to, something I’m not convinced is true. The first reason has to do with alternative disposition of REO.

It was Jim Sinclair on his excellent blog who first brought the Washington Business Journal news to my attention.
“Bank of America Corp. is segregating almost half its 13.9 million mortgages into a ‘bad’ bank comprised of its riskiest and worst-performing ‘legacy’ loans, Bloomberg News reported, citing Terry Laughlin, who is running the new unit.”
Laughlin says he plans to deal with the problem over the next 36 months. That’s 3 years!

There is no question in my mind that the government would opt for another TARP program before it would let BofA, the nation’s largest lender, stew for three years in a soup of bad loans. And if for some reason the government doesn’t step up, then I’ve got some great investment advice for you: leverage your entire portfolio and short BofA, because they won’t make it.

Let’s not fool ourselves, the government knows that the industry is awash in defaulted and toxic mortgage assets and the economy can’t take the stress caused by having these assets on the banks’ books.

That’s why you can expect loan modifications and alternative disposition methods for defaulting or defaulted properties to continue to be an important industry focus, most likely mandated by the federal government. And you can expect plenty of people to continue to be involved in telling the industry exactly how to do our jobs.

In a recent Financial Bulletin, Grant Thornton pointed to some key changes servicers had better be prepared to implement if state attorneys general and federal regulators get their way, including:

  • Changes to required foreclosure and bankruptcy information and documentation
  • More complete evaluation of borrower’s loss mitigation-related options
  • Providing borrowers a single point of contact for communication
  • Development of comprehensive loan portals
  • Restrictions on servicing fees

Servicers still have a lot of work ahead of them. It’s going to take some innovative thinking and some great technology and we’re ready to help with that. Alternative disposition methods are not going to go away and that’s why Mortgage Cadence is focused on continuing to invest in that space and to support not only the workflow requirements to make it easy for servicers to handle these new and alternative methods of disposition, but also the borrower-facing communication technology required to get the job done.

We’re going to be in the midst of trying to sort through all of this inventory for at least the next three years, if not longer. But that doesn’t mean that every market in the country will remain depressed. The downturn did not affect every market to the same degree. So rather than looking only at the situation in the aggregate, like the mainstream media loves to do, we need to use models that allow us to understand the real value of each individual property.

I have to say that I agree with most regulators in saying that the Appraisal Management Company/vendor management model is the best way to bring lender confidence back into the collateral valuation business. This is critical if we want to return to a robust origination market, for both forward and reverse mortgages. But it will also allay fears of a resurgence of valuation fraud, something our industry (and economy) can ill afford.

As we continue to get a better handle on collateral valuation, you’re going to start seeing news stories about markets that are performing better than anticipated. Sure, we’ll still have markets that are struggling--like Detroit, Phoenix, Las Vegas. But you’ll also see some pleasant surprises, if you’re watching for them.

Waiting for the government to get out of the way and let us do our jobs is not going to be an effective strategy for survival in the future. It will take innovation and solid technology and a willingness to work hard to dispose of existing inventory for years before we return to anything close to a normal housing market. I’m fine with that. My company is in it for the long term. What about you?

Saturday, March 12, 2011

What I'm Listening to Now

Hope you're all having a good weekend. I find myself pulled into this song. Excellent question.

Wednesday, March 9, 2011

Reverse Mortgage Wholesale Vol Up, As Expected

Reverse Mortgage Daily came out with a story yesterday about wholesale volume for reverse mortgage products up by 9.3% and more brokers getting involved in this business. According to the publication:
"Wholesale endorsements totaled 2,413 units in January, a near 10% increase over the previous month, but still down 45.8% from January 2010. Retail endorsements lost 6.8% month-over-month, totaling 4,049, but gained 27.7% from last year, according to [Reverse Market Insight (RMI)].”
Readers of this blog heard about that here some time ago. I mean “heard” because it’s in my 2011 projections podcast you’ll find here.

We began talking to lenders who were interested in securing loan origination technology that could be used in the wholesale channel for reverse mortgages last year and it doesn’t surprise me at all to see that more of them are using it.

Photo Credit:
Like most mortgage products, reverse mortgages are complicated and they require some skill to originate. While younger home buyers may be comfortable with walking into a branch and working with a loan officer they don’t know or even originating their own loan online one day, older Americans that qualify for reverse mortgages are not going to do those things. They’ll continue to work with people they know and trust and that means local folks, like mortgage brokers.

Lenders that want to capitalize on this trend will continue to invest in tech that will allow them to empower brokers to reach out to these prospects and close the deals.

Tuesday, March 8, 2011

Why We Need Home Price Stabilization Now

A recent story on highlighted an issue I’ve been talking about for a long time now. As the baby boomers continue to retire, it’s becoming clear that the 401(k) plans that many thought would carry them through retirement won’t even come close. According to the story:
“The median household headed by a person aged 60 to 62 with a 401(k) account has less than one-quarter of what is needed in that account to maintain its standard of living in retirement, according to data compiled by the Federal Reserve and analyzed by the Center for Retirement Research at Boston College for The Wall Street Journal.”
Some retiring homeowners will be able to tap equity in their homes through a reverse mortgage, giving them the benefit of an asset they’ve spent much of their lives buying. But that won’t provide much support if home prices across the country continue to erode.

Some baby boomers are putting off retirement, hoping that they can save up enough money to eventually retire. Costs for healthcare are going up even as the government contemplates cutting benefits.

I’ve said before in this space that home prices are critically important to the recovery. This is what I was talking about. I’m looking forward to your take on this.

Monday, March 7, 2011

Large Investors Lining up to Sue Lenders

One thing everyone I’ve spoken to recently believes is that we must have a robust secondary market in order to have enough liquidity in our system to serve borrowers and maintain industry profitability. This cannot be argued. But neither can it be attained until the downturn has made its way through the courts and the dust settles.

Unfortunately, as long as the courts entertain lawsuits from larger investors (not investors like you and I, but some of the nation’s largest companies with money to burn), this will drag out, possibly for years.

When the news broke that Allstate was suing JP Morgan over loans it used to back securities, the investor said that JP Morgan executives new the mortgages were bad, but went on to point out that the securities were rated “triple-A” by the ratings agencies.

At the time the story broke, the lender said it was setting aside an additional $1.5 billion just to cover legal expenses. CEO Jamie Dimon told analysts on a conference call that the “litigation is going to fought almost securitization by securitization.”

Other top lenders, including Bank of America, are also facing litigation over their past securitizations.

Every day we take fighting over these old deals is one more day new investors will avoid mortgage-backed securities. That hurts everyone.