Archive for December, 2011


The Sacramento Bee via Mortgage Daily

Activity climbed on mortgage fraud cases being prosecuted in California, leaving the state with more fraud than any other. New York also saw acceleration, while Florida’s mortgage fraud index topped the list and Minnesota remained prominently perched among the worst locales. But as a whole, the country’s case activity was slower.The Third-Quarter 2011 Mortgage Fraud Index from MortgageDaily.com came in at 1170. The index represents activity on civil and criminal cases. Victim lenders were deceived by fraudulent documentation or inflated appraisals. Cases were tracked from the mortgage fraud blog FraudBlogger.com."The Mortgage Fraud Index reflects current efforts by law enforcement officials to prosecute defendants who typically committed mortgage fraud three to five years ago," said Mortgage Daily founder and Publisher Sam Garcia said. "Many of the recently opened cases were uncovered by mortgage bankers who were forced to repurchase the loans."The index fell 7 percent from the second quarter but climbed 16 percent from a year earlier.On a dollar basis, the aggregate balance of mortgage fraud cases was $1.3 billion — lower than the second quarter and the third-quarter 2010.

The number of cases with activity in Florida climbed, giving it the worst state fraud index. California had the second-highest index, followed by Minnesota.

Based solely on the dollar amount of cases with third-quarter activity, California’s $204 million was highest. New York was a close second, while Minnesota maintained its standing among the five-worst states.

"While mortgage fraud has historically been more prevalent in states hit hard by the housing crisis, Minnesota and New York — two states that have not suffered as badly from foreclosures — have recently emerged as active states for prosecutors," Mr. Garcia added.

 

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Relative yields on mortgage-backed securities that guide new loan rates have fallen to the lowest in five months as investors wager the Federal Reserve is on standby to expand its holdings if the U.S. economy or Europe’s debt crisis worsens.

Yields on Fannie Mae’s current-coupon, 30-year bonds ended last week at 94 basis points more than 10-year Treasuries, the narrowest since July 8, according to data compiled by Bloomberg. The spread widened to 98 basis points yesterday after reaching 121 basis points, or 1.21 percentage points, on Nov. 24.

The Fed is already bolstering the market, adding "dollar roll" trades this month that lower financing costs for investors, after starting in October to recycle proceeds from past investments in housing-related debt to help real estate escape its worst slump since the 1930s. While a smaller share of economists predict the central bank will add to its $1 trillion of holdings as the U.S. grows, bond buyers may benefit regardless, said Dwight Asset Management Co.’s Paul Norris.

"Let’s say that something bad happens in Europe," said Norris, a senior money manager whose Burlington, Vermont-based firm oversees about $50 billion. "Initially mortgages may widen out a bit but what that would likely lead to is a really quick implementation of QE3," he said, referring to what would be the third round of Fed asset purchases called quantitative easing.

If the situation is reversed and "Europe gets its act together," benchmark interest rates would probably rise, benefiting mortgage-bonds spreads partly by reducing refinancing and the supply of new securities, Norris said.

Economists Forecast

While Federal Reserve Vice Chairman Janet Yellen, Governor Daniel Tarullo and Fed Bank of New York President William C. Dudley have signaled more mortgage-bond purchases are possible, economists say it’s growing less likely.

About 49 percent surveyed by Bloomberg News see the Fed announcing next year additional debt buying, down from more than two-thirds before the central bank’s November meeting. The Federal Open Market Committee meets today in Washington. Money managers are "overweight" on agency mortgage bonds by the most in at least two years, according to JPMorgan Chase & Co.

Elsewhere in credit markets, Caterpillar Inc. sold $600 million of bonds after the cost to protect the debt of the world’s largest construction and mining-equipment maker rose to the highest level in more than two years. U.S. interest-rate swap spreads widened as Moody’s Investors Service and Fitch Ratings said Europe’s leaders did little last week to fix the region’s debt crisis. Blue Coat Systems Inc. sought $465 million in loans as prices fell for a fourth day.

Caterpillar Swaps

Bonds of Charlotte, North Carolina-based Bank of America Corp. were the most actively traded U.S. corporate securities by dealers yesterday, with 77 trades of $1 million or more, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Caterpillar’s offering consisted of $400 million of 1.125 percent notes due in December 2014 that yield 85 basis points more than similar-maturity Treasuries and $200 million of two- year, floating-rate debt that pays 30 basis points more than the London interbank offered rate, Bloomberg data show.

Credit-default swaps on Peoria, Illinois-based Caterpillar’s debt traded yesterday at 149.3 basis points, the highest since July 2009 and up from 118.5 at the end of October, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately- negotiated market.

Markit CDX Index

Benchmark gauges of company credit risk in U.S. and Europe rose after Moody’s said a European Union summit offered few new measures and doesn’t diminish the risk of credit downgrades on European nations. Fitch said a comprehensive solution hasn’t yet been offered and predicted a "significant economic downturn" in the region.

The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, added 3.5 basis points to a mid- price of 125.4 in New York, according to data provider CMA. The gauge has climbed from 79 on Feb. 8.

The Markit iTraxx Europe Index of 125 companies with investment-grade ratings dropped 1.5 basis points to 184.25, according to JPMorgan at 11 a.m. in London.

Risk Gauges

The indexes typically rise as investor confidence deteriorates and fall as it improves. Credit-default swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.

The difference between the two-year swap rate and the comparable-maturity Treasury note yield increased 1.54 basis points to 43.93 basis points, the widest since Dec. 2. The measure, which rises when investors favor government bonds, has expanded from 41.55 on Nov. 30.

The Standard & Poor’s/LSTA U.S. Leveraged Loan 100 index fell 0.3 cent to 90.39 cents on the dollar, the lowest level since Nov. 29. The measure, which tracks the 100 largest dollar- denominated first-lien leveraged loans, has declined from 90.83 on Dec. 6.

Blue Coat, a provider of web security solutions, is seeking funding to back its buyout by Thoma Bravo LLC. The financing will include a $415 million term loan and a $50 million revolving line of credit, according to a Dec. 9 regulatory filing. Investment bank Jefferies Group Inc. is arranging the financing for the Sunnyvale, California-based company.

Emerging Markets

Leveraged loans and high-yield bonds are rated below Baa3 by Moody’s and lower than BBB- by S&P.

In emerging markets, relative yields rose for a second day, up 1 basis point to 409 basis points as of 10:08 a.m. in Hong Kong, according to JPMorgan’s EMBI Global index. The measure has ranged this year from 259 on Jan. 5 to 496 on Oct. 4.

The Fed, which under QE1 bought $1.25 trillion of mortgage securities and $172 billion of other agency debt through March 2010, has purchased a net $56.1 billion since October to offset prepayments and maturities, Bloomberg data show. The acquisitions are focused on the $5.3 trillion market of home- loan bonds guaranteed by government-supported Fannie Mae and Freddie Mac or U.S.-owned Ginnie Mae.

Anticipation of more transactions may be boosting demand among private investors. About 64 percent of money managers surveyed by JPMorgan are "overweight" agency mortgage securities, or holding a greater percentage than found in benchmark indexes, the highest since at least mid-2009, according to a Dec. 9 report by the New York-based bank.

QE3 Potential

Because of the potential for QE3, government-backed mortgage securities "offer that rare beast: positive exposure to event risk," Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, wrote in a Dec. 7 report. He recommended the bonds over other debt "within the interest rate sphere," such as Treasuries, in his 2012 outlook.

Chairman Ben S. Bernanke and his fellow policy makers will start another QE program next quarter, 16 of the 21 primary dealers of U.S. government securities that trade with the central bank said in a Bloomberg News survey last month. The Fed may buy about $545 billion in home-loan debt, based on the median of the firms that provided estimates.

A majority of 51 percent of the 41 economists polled by Bloomberg from Dec. 7 through Dec. 9 said the central bank will refrain from QE3. That contrasts with a survey before the Fed’s November meeting that showed 69 percent forecasting the action. This month, 13 percent of the economists said they expect the move will be announced in January and 21 percent in March.

Jobless Rate Falls

The likelihood has fallen after the unemployment rate declined to 8.6 percent from 9.1 percent, U.S. manufacturing expanded at the fastest pace in 5 months and vehicle sales climbed to their highest level in over 2 years.

A program may include $700 billion of home-loan securities, Citigroup Inc. analysts said. That figure reflects how much would be needed to "tangibly influence" mortgage rates without disrupting functioning in the market, analysts Inger Daniels and Mayank Singhal wrote in the Dec. 9 report.

Tarullo, in an October speech, said additional mortgage- bond purchases should "move back up toward the top of the list of options" because "the aggregate-demand effect should be felt not just in new-home purchases, but also in the added purchasing power of existing homeowners who are able to refinance."

Dollar Rolls

Yellen said in a Nov. 29 speech that she sees "see a strong case for additional policies to foster more-rapid recovery in the housing sector." If the Fed opted to buy more bonds, "it might make sense" for much of those to consist of mortgage securities to boost the housing market, Dudley said Nov. 17.

During the week ended Dec. 7, the Fed engaged in $4.35 billion of paired purchases and sales of mortgage securities in different months for the first time since starting to reinvest in the market along with its "Operation Twist" for Treasuries.

Those so-called dollar rolls boosted mortgage bonds last week, JPMorgan analysts led by Matt Jozoff and Morgan Stanley analysts Vipul Jain, Janaki Rao and Zofia Koscielniak said. The implied cost of financing Fannie Mae 3.5 percent bonds, which had climbed in a few weeks from about 30 basis points to almost 50 basis points, retraced that advance, according to JPMorgan.

Financing Rates

"Although funding markets in MBS have not shown significant signs of stress, financing rates have gone up in tandem with other funding rates, especially around year-end, and the Fed action helps alleviate some of those pressures," the Morgan Stanley analysts wrote in a Dec. 9 report.

With dollar rolls, an investor seeking to borrow money enters into contracts to sell mortgage securities in any month and then buy similar bonds the following month; a lender would undertake the opposite trades. Investors entering into transactions for other reasons may be on either side of the contracts.

The transactions will "facilitate the settlement of our outstanding MBS purchases," Jonathan Freed, a New York Fed spokesman, said in a Dec. 6 e-mailed statement.

The Fed’s use of the trades underscored the central bank’s commitment to supporting the market, Dwight Asset’s Norris said. "All of their speeches that I’ve read and all of the anecdotal evidence points to them being fully involved," he said.

While the central bank probably isn’t ready to announce additional mortgage-bond buying, it may provide new aid to the market if it details changes to its so-called communication strategy in a way that reduces expected interest-rate volatility, he added. Higher forecasted volatility damages investors by increasing doubt about when the debt will be repaid as projected homeowner refinancing fluctuates and by boosting hedging costs.

 

 

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Kenneth R. Harney, Seattle Times

Got a beef with your mortgage lender? Is your bank unresponsive when you complain that your escrow account is fouled up and making your monthly payments needlessly high?

Did your loan officer bait-and-switch you into a more costly home loan than originally promised? Or worse yet: Did your loan servicer ignore you when you told him you’ve had an unexpected drop in income and needed a modification to avoid missing payments?

If any of this sounds familiar, here’s a heads-up about the newest and least-publicized source of federal help: the Consumer Financial Protection Bureau’s home-mortgage complaint and dispute-resolution hotline.

Never heard of it? That’s not surprising since it only went live Dec. 1 and the CFPB hasn’t said much about it, preferring to ease into the potential snake pit of mortgage issues that American consumers have with their lenders rather than get overwhelmed.

The complaint hotline is accessible online at the CFPB’s website (www.consumerfinance.gov), by toll-free phone between 8 a.m. and 8 p.m. Eastern (855-411-CFPB) as well as by regular mail and fax.

The bureau was created by last year’s Dodd-Frank financial-overhaul legislation and is supposed to look out for your interests in banking, financial products, home loans and all other forms of consumer credit. Its mortgage-complaint service is an extension of the agency’s hotline for credit-card-related disputes and inquiries, which began July 21.

Already Busy

So far, according to the bureau, the card hotline has handled 5,074 complaints. Of this total, it referred 84 percent directly to the card issuers — mainly big banks — for resolution.

Some complaints came with incomplete information or were referred to other agencies for action.

Approximately 74 percent of all the complaints were subsequently reported back from banks as resolved, and 71 percent of total resolutions were not disputed by the consumers who lodged the original complaints.

Just under 13 percent of all credit-card complainants reported that they were not satisfied with the card issuer’s actions.

The credit-card complaint service is likely to provide a template for the agency’s approach to mortgage problems, which are expected to be more voluminous.

When a borrower submits a formal complaint to the bureau, the information will be sent to the lender or mortgage servicer named in the complaint via a secure Web portal.

The lender must review the information, contact the customer if needed and determine what action to take to resolve the matter.

Next, the lender is supposed to report its action, if any, to the bureau, which sends it on to the borrower for review.

Throughout the process, according to the CFPB, borrowers "can log onto the (agency’s) secure ‘consumer portal’ or call the toll-free number to receive updates, provide additional information, and review responses" from the lender.

If the dispute focuses on a matter of state regulation or is beyond the CFPB’s scope, the dispute may be referred to other agencies.

Similarly, if the dispute points to fraud or identity theft, the bureau is likely to refer it to either a federal or a state law-enforcement authority.

For the time being, the CFPB is referring all complaints involving small banks or their subsidiaries that have less than $10 billion in assets to other agencies.

In the mortgage field, however, the majority of loan originations and servicing is controlled by the top 10 largest banks or their subsidiaries, which means a high percentage of the complaints will likely be handled by the CFPB.

Groups Optimistic

How is this going to work in practice? Though consumer groups are optimistic, and the CFPB says it’s staffed up and ready to go, some mortgage-industry leaders worry that the agency could be taking on more than it can realistically handle, and raising borrower expectations that can’t be met.

David H. Stevens, president and CEO of the Mortgage Bankers Association, said in an interview that while he has found the CFPB to be "fairly thoughtful" in its approach to date, he is "concerned that they are moving too quickly too soon."

If they are not properly equipped to handle large volumes of emails and calls, the service could be "an investigatory black hole" where complaints are filed but not addressed quickly or adequately, and it could be "a net negative" for borrowers who have genuine problems, Stevens said.

Since the agency is expected to report on the initial months’ results sometime in early 2012, Stevens and consumers should have answers fairly soon. Meanwhile, if you’ve got a legitimate complaint, give the hotline a shot.

 

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