Loan Think

The 96th Annual Mortgage Bankers Convention in San Diego is quickly approaching. As both lenders and vendors seek to maximize their return on investment from trade shows, they may want to turn to social media technology. Social media technology uses the Internet and Web-based tools to encourage and facilitate online communication and social interaction.

Mortgage vulture funds that have been buying non-performing residential loans the past year may soon have a new problem to deal with -- portfolio run-off. According to one active bidder -- who refuses to overpay for NPLs -- "not a whole lot is trading out there right now." As already reported by National Mortgage News, banks that own large (and small) NPL portfolios increasingly seem reluctant to sell their damaged goods these days. However, there is hope that come year-end some banks and Wall Street firms might grin-and-bear it and finally unload some of their "toxic" assets to clean the slate for next year. Meanwhile, we understand that DebtX is instituting a new policy in regard to "vetting fees" for certain bidders. See the exclusive on the NMN website later today...

ARIZONA MORTGAGE LOAN ORIGINATORS MUST BE LICENSED AND LOAN MODIFICATION ORIGINATORS MUST BE LICENSED-LIMITED EXCEPTIONS FOR ARIZONA ATTORNEYS

More than one expert in our online and print publications has declared that to have sales success, there must be follow-up.

Appraisal management firms have attracted a lot of attention — and a similar volume of complaints — since Fannie Mae and Freddie Mac first implemented the Home Valuation Code of Conduct in May.Designed to shield appraisers from pressure and undue influence from loan officers and mortgage brokers, the code has increased the cost of originating loans while raising questions about the quality of the appraisals being performed."It's a good idea to separate the ordering of the appraisal from the loan officer," said Scott Stern, chief executive of Lenders One, a mortgage banking cooperative with 130 member firms. However, Mr. Stern believes AMCs are hiring appraisers based on price — appraisers who have little knowledge of local market conditions. "I don't think it's fair that AMCs are hiring the cheapest appraisers," he said.Lenders One, the National Association of Realtors and appraiser groups are hoping new appraisal policies recently adopted by the Federal Housing Administration will correct some of the problems associated with HVCC and AMCs.While it is likely to lead to higher appraisal costs, FHA's approach allows appraisers to disclose their fee. Currently, the appraisal and AMC fees are combined and disclosed as a lump sum.FHA also addressed the portability issue that allows a lender to transfer an appraisal to another lender. (Fannie and Freddie have not addressed this issue.) "It seems like FHA is trying to eliminate some of the problems [associated] with the implementation of HVCC," said Mr. Stern.Starting Jan. 1, FHA appraisers can record their fee on the appraisal report. A source close to the issue noted that a consumer, for instance, might see that an appraiser was paid $200 by the AMC but that the consumer was charged $350, a markup of $150. "It will hold the AMCs' feet to the fire," he said.Appraisers contend that FHA's current policy essentially caps their fee and allows AMCs to fund their operations on the backs of appraisers. "Our members have reported widespread and consistent cramdowns of their fees," said Bill Garber, director of government and external relations at the Appraisal Institute.FHA's new policy allows the appraiser's fee and the management company's fee to float separately at market rates. The Appraisal Institute is hoping Fannie and Freddie adopt a similar policy, Mr. Garber said.Patrick McEvoy, vice president of First National Appraisal Management, said some AMCs are cramming down fees. "They broadcast to the lowest bidders and they have systems to detect the lowest price," he said.Mr. McEvoy started FNAM two and a half years ago with a fellow certified appraiser. The Hicksville, N.Y.-based AMC pays on a "higher scale," Mr. McEvoy said, which ensures a “little bit of loyalty” from the independent fee appraisers. "We want a good product to give our clients."He expects consumers will be "confused" by FHA's new policy when they see the appraiser's fee on the report and a different number on the HUD-1 settlement sheet.The AMC executive noted the appraisal fee on a FHA transaction is generally higher than a conventional Fannie/Freddie mortgage appraisal because it takes more work. But he said he didn't know if the new FHA policies will increase the price. "Appraisals on conventional loans have gone up at least $100 to $150 since the HVCC went into effect," Mr. McEvoy said.Donald Blanchard, chief compliance officer for Lender Processing Services, which owns LSI, said the fees his AMC pays appraisers "have been relatively stable for five years." He noted LSI is the oldest AMC and works with 20,000 fee appraisers. "The average tenure on our appraiser panel is 13 years. There are thousands of appraisers that understand the value added that AMCs bring," Mr. Blanchard said.AMCs and their trade group have a lot of questions about FHA's new appraisal policies and will be seeking clarifications, especially with regard to the fees AMCs can charge. "There is no clear direction yet on how the fees are going to be disclosed on the HUD-1," Mr. Blanchard said.Nevertheless, the LSI senior vice president expects FHA's policies will lead to higher fees for appraisals and more appraisers will be willing to work with LSI. "If this will satisfy those appraisers that argue about the fees AMCs pay — that's a good thing," he said. But he noted that lenders will have to pass the costs onto consumers. "I am not sure that the consumer is going to want to pay more," Mr. Blanchard said.The National Association of Realtors has been highly critical of the HVCC and the use of inexperienced appraisers. But the Realtors like FHA's approach. "FHA comes right out and says you don't have to use an appraisal management company," NAR's chief spokesman Lucien Salvant said.FHA lenders (like Fannie/Freddie funders) can move the ordering of appraisals into a separate department, away from their loan officers and other commissioned staff, as an alternative to hiring an AMC. But for compliance reasons, a lot of lenders choose AMCs.NAR also likes the FHA approach because of the new fee disclosure and the ground rules for transferring appraisals to another lender. The Realtors want FHA and the GSEs to issue joint question-and-answer guidance, bringing their appraisal policies closer together.The Lenders One CEO also wants better coordination. "FHA, Fannie and Freddie have a vested interest in ensuring that AMCs or other independent third parties hire experienced in-market appraisers. Otherwise, HVCC will continue to negatively impact home sale transactions," he said.

Government lending is the only game in town.That fact was underlined by the agenda at the recent New England Mortgage Bankers Conference I went to in Providence, RI. All the energy seemed directed at the federal agencies, with sessions featuring speakers from Fannie Mae, Freddie Mac, the Federal Housing Finance agency, and the Federal Housing Administration. (Throw in the Veterans Administration and the Rural Housing Service for good measure!)When I cover government regulators, I tend to concentrate on the hard numbers they provide, not the poetry and finesse they tend to indulge in when generalizing. Luckily, at NEMBC, there was a fair amount of hard data.This was especially true for FHA, which had closed out its fiscal year the day before its presentation and thus had a big number it could talk about.FHA is starting a new fiscal year with a high target to shoot for-two million loans insured during FY 2009, making it the agency's best year ever.That's more volume than FHA did for calendar 2005, 2006 and 2007 combined.Gerald Glavey, director of processing and underwriting at the Department of Housing and Urban Development, told NEMBC that a good year for the insurer would be about one million loans.Mr. Glavey said the agency now has 25% of the country's mortgage market, up from 3% a few years ago, and that it has an 80% share for first time home buyers.FHA borrowers' FICO scores now average 693, he said, up from 633 two years ago. Then, nearly half of FHA borrowers had FICO scores under 620. Now, just 7.5% do.For calendar 2008, FHA insured nearly 1.5 million loans, more than double the 580,000 it did in 2007. In 2006, volume was just above 500,000 loans, and in 2005, 523,000 mortgages.According to data Mr. Glavey gave the mortgage bankers, FHA's reverse mortgage program insured 115,000 Home Equity Conversion Mortgages in 2008, more than double the 48,000 it did in 2005.The agency insured 810,000 purchase mortgages last year, and 542,000 refinancings, of which 431,000 were originally non-FHA loans.The 2008 refis were more than the agency did for 2005, 2006 and 2007 combined.Iliana F. Ghanen, vice president of community lending for Freddie Mac, also had some hard numbers to give the mortgage bankers.She said her agency had purchased $319 billion in mortgages in January through June of this year-compared to $460 billion for all of 2008. And its refi program racked up $3.8 billion in total savings, or an average of $2700 per family.The average loan-to-value ratio at Freddie now stands at 65%, she said, and the average FICO at 760.Freddie has doubled its call center staff, to handle 2,000 calls a day, she said, and it has boosted its in-house servicing staff by 60%.Jennifer Whip, vice president of single-family marketing, Fannie Mae, noted her agency has handled 1.7 million refis this year -- a near-record number. And she said its 60,000 properties currently in foreclosure is a record for Fannie.The defect rate has been increasing at Fannie since 2003, rising to 8% on books of business originated in 2007 and early 2008.Fannie's Delegated Underwriter technology is due for an update in December, and Whip said there will be several important changes, like increasing minimum FICOs to 620 from 580, and decreasing the debt to income ratio from 45%.

Do Democrats differ from Republicans on the issue of "strategic defaults"? In other words, do Dems or GOPers take the moral high ground on the issue of whether people should intentionally default on their mortgages even if they can continue paying them? Not really, says a new academic study. In fact the study -- done by researchers at Northwestern University, the University of Chicago, and the European University Institute says independent voters are the most immoral on the issue. Translation: Independents -- more than Republican or Democrats -- think it's okay for a consumer to walk away from their mortgage even if they can continue paying. According to the researchers, 26% of all delinquencies are strategic...

More and more venture capital firms (including one in Cleveland) are starting to kick the tires of well established non-bank mortgage lenders -- the key ingredient being a strong historical track record and experienced management. We keep hearing anecdotal reports that profit margins continue to be fat even for non-banks that depend on warehouse lines of credit. As long as the difference between short and long term rates remains wide, profits should continue to be robust. Of course, one concern is what will happen next year. Today, the government released new employment figures showing that employers cut a deeper-than-expected 263,000 jobs in September, lifting the unemployment rate to 9.8%. If the economy is supposed to be recovering why aren't more companies hiring -- and what will it take to spur hiring? See the NMN website later today for an update on mortgage employment...

Editor's note: Today we are rerunning one of favorite Joel Pate columns. We hope you enjoy it.Have you heard the story of the donkey that falls into a well? The story is that the old donkey had been a part of the farmer's life since birth. The farmer loved the donkey and the donkey was a great donkey. One day, the donkey got too close to the well and fell in. The farmer was very dismayed. He knew if he didn't get the donkey out of the well, the much beloved donkey would die and ruin the water well at the same time.

THIS JUST IN: PNC Financial Services is fielding phone calls on the availability of the warehouse lending division of National City. (PNC - which has never been crazy about the mortgage business - inherited it when it acquired the Cleveland-based bank late last year.) It's hard to say if a deal will be struck but some sources close to the situation are optimistic that a home might be found for the unit. The full story is in the Monday paper edition of National Mortgage News. Don't subscribe? Call 800-221-1809...