Compliance & Regulation

New home sales plunged 11.3% in November from the previous month, but some experts are brushing it off as an aberration due to the expiring of the first-time homebuyer tax credit. Weiss Research real estate analyst Mike Larson noted that November sales fell to the lowest level in seven months. "Some giveback was to be expected given the feared expiration of the tax credit (on Nov. 30) and the pull-forward of some demand." But Congress has extended the tax credit and expanded it to repeat buyers, "I suspect sales going forward will find support," Mr. Larson said. The U.S. Census Bureau reported that sales of new single-family homes fell to a 355,000 seasonally adjusted annual rate in November from 400,000 in October. The bureau also revised downward the sales numbers for the previous three months. IHS Global Insight economist Patrick Newport noted that the inventory of unsold new homes has fallen for 31 consecutive months. And the tax credit has focused buyers on purchasing completed homes and less expensive homes. Now there are only 101,000 completed units for sale. "The decline in inventories implies that builders, at some point soon, will need to ramp up housing starts, or they will lose sales," Mr. Newport said.

Barbara Alexander, one of three Freddie Mac directors the Federal Housing Finance Agency left in place after the company was placed into a conservatorship, will step down from the GSE's board once her term ends in March. She is currently chairwoman of the business and risk committee and serves on the compensation and executive committees. Since 2004, Ms. Alexander has been an independent consultant. Before that, she was a senior advisor at UBS Warburg LLC and managing director of the North American construction and furnishing group in the corporate finance department at UBS. She is also an executive fellow at the Joint Center for Housing Studies at Harvard University.

The Federal Housing Administration is telling consumers to continue making their monthly mortgage payments to the recently shuttered Lend America of Long Island but is warning that this advice could change. Lend America controlled the servicing rights to roughly $1.3 billion worth of FHA-backed loans. Late last month the agency suspended the company which promptly laid off most of its 650-person work force. Mortgage attorney Robert Lotstein said he has several vendor clients that are owed money by the company and confirmed earlier reports that while refinancing existing loans, the company has failed to pay off the prior lien. In a "frequently asked question" memo on the HUD website, FHA says mortgagors should continue making monthly payments to the company "until you receive notice that your loan has been transferred to a new servicer." Mr. Lotstein said he expects Lend America to file for bankruptcy protection. A company spokesman declined to comment.

The Department of Housing and Urban Development expects lenders to provide consumers with a just-updated consumer booklet when they start using the new good faith estimate disclosure and the newly designed HUD-1 Settlement sheet on Jan. 1. But some lenders are ticked that HUD did not give them more notice about the newly revised "Settlement Closing Booklet" that was released on Dec. 18. "We were startled to learn that HUD expects us to begin using the new Booklet on Jan. 1, 2010 - 10 business days from its publication," the Consumer Mortgage Coalition said in a letter to HUD. The mortgage industry group is asking HUD to go easy on lenders that don't have the new booklet until May 1. "This would allow an orderly transition, and would help reduce unnecessary expenses," CMC executive director Anne Canfield says in the letter. Mortgage banking attorney Robert Lotstein said the new settlement cost booklet will be "really helpful" to consumers. It goes over the various sections of the four-page GFE and explains how mortgage brokers' fees (yield spread premium) works and what the tolerances are for certain settlement services. It also tells the consumer in plain English that origination fees charged by the lenders cannot change, unless certain circumstances arise, he said. Mr. Lotstein is the managing attorney at Mortgage Banking Advisors in Washington.

The Federal Reserve has purchased more than $1 trillion in agency mortgage-backed securities to support the mortgage market this year and Fed officials are trying to wind down its $1.25 trillion purchase program by March 31. The New York Federal Reserve Bank purchased $1.09 trillion in Fannie Mae, Freddie Mac and Ginnie Mae MBS this year, according to the Federal Housing Finance Agency. At the start of the program in early January, the New York Federal Reserve Bank was purchasing $20 billion to $25 billion in agency MBS a week. Now the Fed is purchasing agency MBS at a $16 billion weekly rate, which means it could continue at that pace for another 10 weeks. At the conclusion of its monetary policy meeting on Dec. 16, Fed officials said they are "gradually slowing" the pace of MBS purchases so the last transactions will be completed by the end of the first quarter of 2010. Mortgage strategists at Credit Suisse say the slowdown in Fed purchases will not affect MBS spreads to any large degree. "The Fed's exit from the MBS purchase program will likely be well absorbed by the market," according to a weekly Credit Suisse "Market Watch" publication. After March 31, the "Fed will likely assume a backstop role for the MBS market to prevent a double dip in housing," Credit Suisse strategists say.

The Treasury Department has purchased over $200 billion in Fannie Mae and Freddie Mac mortgage-backed securities to support the mortgage market, but now it has to decide if will continue that support. "We expect to provide guidance by the end of the year," Treasury spokeswoman Meg Reilly said. Treasury began the MBS purchase program after the two government-sponsored enterprises were placed in conservatorships in September 2008. At the time, Treasury said it would terminate the MBS purchase program by the end of 2009. During the summer, Treasury reduced its MBS purchases and it is currently buying about $10 billion a month. The Federal Reserve is slowing its $1.25 trillion agency MBS purchase program at the same time and plans to end the program by March 31.

The serious delinquency rate on prime loans has doubled over the past year and hit 3.6% in the third quarter, up 20% from the previous quarter, according to the Office of the Comptroller of the Currency and Office of Thrift Supervision. Overall, 87% of the loans in the servicing portfolios of large banks and thrifts are performing and 6.2% are 60-days or more past due (seriously delinquent), according to the OCC/OTS quarterly Mortgage Metrics Report. The third quarter report also shows continued deterioration in the performance of payment-option adjustable rate mortgages. Only 67.7% of options ARMs are performing, 16% are seriously delinquent and 11.9% are in the process of foreclosure. In the second quarter, 15.2% were seriously delinquent and 10% were in the process of foreclosure. The national bank and thrift servicers completed more than 130,000 loan modifications in the third quarter. In total, more than 680,000 home loan modifications and payment plans (including those done on a trial basis) were implemented during the period. Despite the growth of loan modifications, more than half of all modifications are 60-days or more past due after six months. In cases where the monthly principal and interest payment is reduced by at least 20%, the redefault rate is only 26.7%. After 12 months, the redefault rate is 38.6%, compared to 66% where the modification leaves the borrower's payment unchanged. In the third quarter, more than 80% of the loan modifications resulted in some reduction in monthly payments.

The Federal Reserve has purchased more than $1 trillion in agency mortgage-backed securities to support the mortgage market this year and Fed officials are trying to wind down its $1.25 trillion purchase program by March 31. The New York Federal Reserve Bank purchased $1.09 trillion in Fannie Mae, Freddie Mac and Ginnie Mae MBS this year, according to the Federal Housing Finance Agency. At the start of the program in early January, the New York Federal Reserve Bank was purchasing $20 billion to $25 billion in agency MBS a week. Now the Fed is purchasing agency MBS at a $16 billion weekly rate, which means it could continue at that pace for another 10 weeks. At the conclusion of its monetary policy meeting on Wednesday (Dec. 16), Fed officials said they are "gradually slowing" the pace of MBS purchases so the last transactions will be completed by the end of the first quarter of 2010. Mortgage strategists at Credit Suisse say the slowdown in Fed purchases will not affect MBS spreads to any large degree. "The Fed's exit from the MBS purchase program will likely be well absorbed by the market," according to a weekly Credit Suisse "Market Watch" publication. After March 31, the "Fed will likely assume a backstop role for the MBS market to prevent a double dip in housing," Credit Suisse strategists say.

The Federal Deposit Insurance Corp. is contemplating securitizing at least $10 billion of delinquent and underperforming whole loans belonging to failed banks in the first quarter, according to investment banking sources who have been briefed about the plan. These sources, requesting their names not be used, said the bond issuance could rise to as much as $30 billion. The FDIC will be the issuer of record on the MBS. "Right now it's a prototype they're talking about," said a source. At press time, the agency had not returned telephone calls about the matter. The FDIC has hired former secondary market executives that worked for UBS Securities and Option One Mortgage to advise them on the securitization process, said one advisor. "These are smart guys who know their way around the securitization business," he said.

Federal Open Market Committee minutes released Wednesday suggest the Federal Reserve is still on track to complete its mortgage securities purchases by the end of the first quarter while keeping the target for the short-term federal funds rate exceptionally low for an extended period. The minutes noted the housing sector has shown moderate improvement in recent months and household spending has been expanding at a moderate rate. But lower housing wealth and tight credit continue to constrain that spending, according to the Fed. The Fed's purchases have helped keep long-term rates extraordinarily low this year.