Loan Think

We are reaching the end of 2010 and it is typical for many people to use this period to take stock of their actions and develop their strategies for the coming year. For Art Sobczak, the president of Business By Phone Inc., this means sales people asking what he called "the end-of-year cleansing question."

California is the short sales capital of the world. According to CoreLogic, which made a big study of the field earlier this year, more than a quarter of all short sales in the years 2008 and 2009 happened in California.

Perhaps, all that hand wringing about higher rates killing the mortgage market was overblown. This morning the yield on the benchmark 10-year Treasury bond was nearing 3.2% from 3.55% last week. But is the yield headed higher or lower? As I've noted before, if I were that smart I'd be a bond trader. But the key to the housing market turning around does not rest solely on the shoulders of rates. The other 'pillar' of determination is employment, and with most states facing huge budget deficits it only stands to reason that more states will shed workers in the year ahead. And there's still plenty of carpenters and construction workers seeking work — and without a prayer (I'm sorry to say) because home building is in the basement, thanks to an inventory "overhang"...

Loan brokers of many different stripes have been contemplating suing the Federal Reserve over its loan officer compensation rule. And it appears that if the Fed doesn't start communicating a little better with the mortgage industry, the central bank may find itself in court some time next year. (Or not.) The situation is very fluid right now. The strange thing about the whole mess is the Fed's stubborn position of refusing to put any type of LO compensation guidance in print. The central bank's point man on the issue is senior attorney Paul Mondor, who used to work at the Mortgage Bankers Association. As National Mortgage News' Brian Collins reports on our website, "If guidance is not forthcoming, many lenders may be forced to be very conservative and implement compensation and loan pricing structures that provide for fixed compensation for originators at a level that can only be supported by high loan prices to consumers." The quote comes MBA president John Courson. Stay tuned…

If you missed the recent story we published on Wells Fargo's letter regarding the 'qualified residential mortgage' test, don't feel bad. The issue isn't going away. In a letter to six different regulators, Wells' suggests the QRM definition should be "simple and balanced" and that such a mortgage would be one with a loan-to-value ratio of 70% or below. On the surface it appears that Wells may've lost its mind. As one MBS investor told me, "Nice try, Wells." But keep in mind a few things: Wells suggests this ratio as an "example" and argues in its Nov. 16 letter to FDIC, FHFA and others that if the QRM definition is too broad it will cause a problem where "loans may have undetected processing defects." It appears that the bank's logic is this: a narrow QRM definition will actually create a large segment of borrowers outside the safe category, thus increasing liquidity to this market. Huh? At least that's how I read it. But is Wells dreaming here? And it should come as no surprise that many in the industry believe the bank is upping its power grab on the mortgage banking business. I ask readers this: how many of the loans that you are funding have LTVs of 70% or lower?

I know the holidays are a busy time for most of us but I’m proposing that with a little planning and leg work, I’m going to share with you three things that you can do for the next three months so you’ll be ready to take on the world.

Mortgage bankers have been living off of refinancings the past six months with applications for the loans running at about 70% of all new business. This, of course, is not a sustainable business strategy for the industry and every mortgage banker in the nation knows it. But with the yield on the benchmark 10-year Treasury now solidly over the 3.5% line, fear is starting to set in. One mortgage banker in Southern California had this to say late last night: "Four — count them, four rate changes to the worse today. Refinances are dead for now. We had $45 million [in loans] floating. Bye bye." He added that production in the new year will be devastated if rates stay above 5%." Then again, rates can fall as quickly as they rose, but right now it doesn't feel that way.

Don't panic. Mortgage rates are rising but maybe it won't turn out to be such a disaster after all. Mark Savitt, who runs a small brokerage in West Virginia, said the rate move is actually driving some consumers to buy a house because they fear rates have already hit bottom and could go even higher. This morning, Savitt was offering a 30-year conventional FRM at 5.25% and no points. The former president of the National Association of Mortgage Brokers also said he is seeing more buyers walk away from REO and short sales because it takes too long to get those deals done because banks are dragging their feet and being unresponsive…

The holidays are now just a short time away. Many will be traveling to be with family and friends. There are parties with your neighbors and co-workers. Then of course there are the business parties you get dragged to with your spouse and significant other.

Trying to size the nonperforming loan market is a little like trying to nail Jello to the wall. We know that of the nation's $10 trillion in outstanding home mortgages, roughly 10% are delinquent which means $1 trillion in "late" mortgages need to be resolved through sales or workouts.