Loan Think

THIS JUST IN: A (somewhat) large investor in scratch and dent and nonperforming loans is about to close down. At press time details were still sketchy. The company, backed by private equity money (what other kind is there?) is based in the Western U.S. Any unused money will be returned to investors. Its holdings will be liquidated. Interestingly enough, sources told me this past week that some investors are now paying upwards of 85 to 90 cents on the dollar for performing loans that have been sent back to the originator because-for one reason or another-they violated Fannie Mae or Freddie Mac underwriting standards. Have any information about all this? Drop me a line at Paul.Muolo@SourceMedia.com or comment at the end of this column...

It being April 15, a day in which many rich Americans gladly pay Uncle Sam what is rightly owned to the Treasury Department, we present this bit of tax-related news: distressed homeowners no longer have to pay California state income tax on debt forgiven in a short sale, foreclosure, or loan modification. According to one reader, enacted into law recently was California Senate Bill 401 which aligns the state's tax treatment of mortgage debt relief income with federal law. He writes that, "For debt forgiven on a loan secured by a 'qualified principal residence,' borrowers will now be exempt from both federal and state income tax consequences. The existing federal exemption is for indebtedness up to $2 million, whereas the new California exemption is for indebtedness up to $800,000 and forgiven debt up to $500,000." At press time, I could not verify this information but it sounds about right...

Life's too short to work with whiny, negative, abusive and condescending real estate agents. You know who some of them are already! But, how do you reasonably determine if you can create a partnership-like relationship if you don't know them very well?

Higher mortgage insurance premiums being charged to FHA borrowers are hammering the origination market. The Mortgage Bankers Association cited the recent hike in premiums while discussing its just-released application index. In other news, former Washington Mutual CEO Kerry Killinger was on the Congressional hot seat Tuesday and -- as I anticipated -- he blamed everyone but himself for that mega thrift's downfall. His most ludicrous assertion entailed saying WaMu would not have been seized if only the institution had been part of some type of Wall Street/financial services "club." Killinger seems to think club membership would've spared WaMu. JPMorgan Chase CEO Jamie Dimon was asked about Killinger's club comment during the bank's earnings call this morning. He insisted that he is "unaware" of any such club. (JPM bought WaMu in a federally assisted transaction during the fall of 2008.) Memo to Dimon: if Killinger is right, you'd better join that club quick, just in case...

With all the pricing changes that have occurred over the last few weeks, I've had to calm down a good number of reverse mortgage originators. They are saying, "I've never had to deal with this in the reverse space." Yes, I'll admit the current environment is not something we in the "reverse world" are used to, but guess what, it's here.

The rumor mill keeps throwing out names of additional firms that are toying with the idea of coming to market with a new jumbo securitization. Most of the firms working on a jumbo MBS hope to originate recently funded loans. These are not (I'm told) "re-securitizations." Anyway, these firms are said to be toiling in the jumbo lab: Chimera Investment Corp., The Carlyle Group, PIMCO, and Goldman Sachs. (See the National Mortgage News website later today for an update on the jumbo MBS situation.) Keep in mind that any new jumbo loans being originated today are being held on the balance sheet of the funder or sold to a mega bank. But just because many firms are toying with jumbo MBS structures doesn't mean it will happen. The biggest boost to a jumbo deal getting done is this: with the Dow at 11,000 wealthy Americans that invested in Dow 30 stocks a year ago are sitting on phenomenal gains. At some point, certain "rich" investors will cash out and plow that money into their abode. And that means 'high end' homes will move. But will the financing be there to aid in the market's revival? Stay tuned...

NATIONWIDE FORECLOSURES AND DEFAULTS STILL PREDICTED TO GO UP AND HOUSING PRICES STILL PREDICTED TO GO DOWN

Marketing expert Joy Gendusa, the chief executive of PostcardMania, recently posed the following question "Have you started thinking about your 4th of July promotion?"

Readers of National Mortgage News know that we've been covering the loan buyback crisis extensively. Most of the 'mega' lenders that have been on the receiving end of buyback requests from Fannie Mae and Freddie Mac have not been saying much about the issue but they've been kind enough (sometimes) to disclose the dollar volume of their buyback requests. One executive at a top ranked lender recently told me that mortgage insurance companies, to some degree, are driving buybacks. He explained the situation like this: "MIs aren't paying on nearly all they insured and instead are finding any creative way to back out." He explained that this suddenly leaves a GSE-purchased loan without a mortgage insurance policy which is a charter violation for both Fannie and Freddie. He noted that this instantly turns a loan into a buyback candidate...

During the height of the financial crisis it was thought that nonbank mortgage lenders might be looking at a dim future. But over the past month I've been hearing increased reports about nonbanks kicking many tires of ailing commercial banks. Profit margins have been so fat the past 18 months that several highly profitable nonbanks are looking at taking control of depositories that are (shall we say) "capital challenged." The play is this: take over the bank and use it as a source of warehouse funds. Of course, it's not all that simple. The buying nonbank must pass muster with the Federal Deposit Insurance Corp. But the real challenge, I'm told, is this: if a nonbank is successful in purchasing an ailing depository, how will it manage the "real estate" risk on the books of that bank?