Archive for the ‘Mortgage Information’ Category

Citigroup Inc. will provide $7 billion in cash and consumer relief to settle federal and state investigations into the sale of defective mortgage investments during the subprime housing boom, the Wall Street giant and federal officials said Monday.

California is among several states that will share in the settlement, which includes a record $4 billion in civil fines and $500 million in repayments for public pension fund and other losses, plus $2.5 billion in consumer relief.

The billions paid by JPMorgan Chase and Citicorp will pay California $102.7 million to offset losses in its public pension funds, according to Atty. Gen. Kamala Harris’ office. California also is guaranteed at least $90 million in consumer relief, the most of any state.

The agreement follows a series of similar settlements by Wall Street firms that packaged high-risk loans during the housing boom to create bonds they sold to investors around the world. Buyers included public employee retirement funds, which suffered significant losses, as well as smaller financial firms that failed.

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JPMorgan Chase & Co.’s $13-billion settlement of mortgage-related claims, announced in November, was the largest of these settlements so far. U.S. Atty. Gen. Eric Holder said more are to come.

“Citi is not the first financial institution to be held accountable by this Justice Department, and it will certainly not be the last,” Holder said at a Washington news conference.

The federal civil penalty is twice what JPMorgan Chase paid. Justice Department officials said it was the largest such penalty levied under a 1989 federal financial fraud law. The settlement came after a two-year investigation and extensive negotiations.

Holder: Citigroup ‘Shattered Lives, Livelihoods’
Citigroup announced Monday that it will pay roughly $7 billion to settle a federal investigation into risky subprime mortgages,
Holder said Citigroup learned of serious and widespread defects among the increasingly risky loans its employees were using as the basis to create securities but, nonetheless, “concealed these defects” from investors.

In an internal email quoted by federal officials, a Citi trader said that “we should start praying” after a review of a sample of thousands of mortgages the bank bought in 2007 showed a large amount of them had “material defects.”

“It’s amazing that some of these loans even closed at all,” the trader said.

The settlement “does not in any way absolve Citigroup or its individual employees from facing any possible criminal charges in the future,” Holder said.

“The bank’s activities shattered lives and livelihoods throughout the country and also around the world,” he said. “They contributed mightily to the financial crisis that devastated our economy in 2008.”

The consumer relief will come from principal reductions and other assistance for struggling borrowers as well as financing that the bank will provide for building and preserving affordable rental housing, Citigroup and federal officials said.

Will Citigroup Agreement Spur Further Bank Fines?
Bloomberg’s Keri Geiger and Phil Mattingly examine Citigroup paying $7 billion in fines and consumer relief to end a U.S. government claim that it misled investors.
The settlement “goes beyond what could be considered the mere cost of doing business,” Holder said. But although the settlement would help many victims, he said it would not completely make up for the damage the bank’s actions caused.

“The reality is that for substantial numbers of people, we will not be able to make them whole,” he said.

The settlement socked Citigroup with a 96% decline in second-quarter earnings. Officials at the New York bank said in a call with analysts that the great majority of its settlement payments would not be deductible from its taxes — a feature of some previous settlements. Consumer groups and legislators had criticized settlements that allowed banks to deduct some penalties and fines from taxes.

“We believe that this settlement is in the best interests of our shareholders and allows us to move forward and to focus on the future, not the past,” said Citigroup Chief Executive Michael Corbat.

Because of the settlement, Citigroup took a charge of $3.8 billion on its second-quarter earnings. Net income to the bank’s common shareholders fell to $80 million, or 3 cents a share, from $4.1 billion, or $1.34 per share, in the second quarter of last year.

First-lien mortgages serviced by large national and federal savings banks are 93.1% improved in the first quarter of 2014 and foreclosures have been cut in half, according to a report released today by the Office of the Comptroller of the Currency.

Servicers initiated 90,852 new foreclosures during the quarter, a decrease of 49.1% from a year earlier.  The number of completed foreclosures also decreased 33.9% to 56,185, compared to a year ago.

Factors contributing to the decline in foreclosure activity include improved economic conditions, foreclosure prevention assistance, and transfer of loans to servicers not included in this report.

The mortgages in this portfolio comprise about 48% of all mortgages outstanding in the United States — 24.5 million loans totaling $4.1 trillion in principal balances.

The improvement in first-lien mortgages contrasts with 91.8% at the end of the previous quarter and 90.2% a year earlier.  The percentage of mortgages that were 30 to 59 days past due decreased 19.8% from a year earlier to 2.1% of the portfolio, the lowest level since the OCC began reporting mortgage performance in 2008.

Seriously delinquent mortgages — 60 or more days past due or held by bankrupt borrowers whose payments are 30 days or more past due — decreased to 3.1% compared with 4% a year earlier.

The percentage of mortgages that were seriously delinquent decreased 22.4% from a year earlier and is the lowest level since June 2008.

At the end of the first quarter of 2014, the number of mortgages in the process of foreclosure fell to 432,832, a decrease of 52.3% from a year earlier. The percentage of mortgages that were in the process of foreclosure at the end of the first quarter of 2014 was 1.8%, the lowest level since September 2008.

Servicers implemented 237,133 home retention actions (modifications, trial-period plans, and shorter-term payment plans) in the quarter compared with 71,678 home forfeiture actions (completed foreclosures, short sales, and deed-in-lieu-of-foreclosure actions).

The number of home retention actions implemented by servicers decreased 32.1% from a year earlier. Almost 91% of modifications in the first quarter of 2014 reduced monthly principal and interest payments, and 58.6% of modifications reduced payments by 20% or more. Modifications reduced payments by $292 per month on average, while modifications made under the Home Affordable Modification Program reduced monthly payments by an average of $312.

Servicers implemented 3,460,476 modifications from January 1, 2008, through December 31, 2013. Of these modifications, 60% were active at the end of the first quarter of 2014 and 40% had exited the portfolios of the reporting institutions, through payment in full, involuntary liquidation — completed foreclosure, short sale or deed-in-lieu of foreclosures — or transfer to a non-reporting servicer.

Of the 2,071,078 modifications that were active at the end of the first quarter of 2014, 69.9% were current and performing at quarter end, 23.9% were delinquent, and 6.1% were in the process of foreclosure.

Applications for U.S. home mortgages declined last week as both refinancing and purchase applications decreased, an industry group said on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, fell 3.1 percent in the week ended May 30.

The MBA’s seasonally adjusted index of refinancing applications fell 2.9 percent, while the gauge of loan requests for home purchases, a leading indicator of home sales, dropped 3.6 percent.

Fixed 30-year mortgage rates averaged 4.26 percent in the week, down 5 basis points from 4.31 percent the week before.

The survey covers over 75 percent of U.S. retail residential mortgage applications, according to MBA.

Some jumbo lenders are targeting a new wave of luxury-home shoppers in the U.S.—buyers from Asia.

Global bank HSBC found in a 2013 survey of its affluent customers in Asian countries that more than one-third owned a property abroad, with the U.S. being one of the top destinations. The survey found that the largest proportions of Asian home buyers for U.S. properties were in China, Taiwan, India and Indonesia.

Many Asian buyers for luxury U.S. homes pay all cash, but more are seeking mortgage financing as the market swings from the superrich to the affluent, says Ryan Gonsalves, HSBC’s head of global mortgage proposition. An estimated one-third of HSBC’s U.S. jumbo-mortgage lending—loans above $417,000 in most U.S. markets and $625,500 in some high-price areas like New York and San Francisco—goes to foreign nationals, he says.

Down-payment requirements for foreign nationals at HSBC range from 20%—similar to jumbo mortgages for U.S. citizens—to 50%, depending on the credit-risk profile and home location, Mr. Gonsalves says.

Interest from Asia in luxury New York City-area properties has been growing for the past five to six years, says Kathy Tsao, an associate broker with Douglas Elliman Real Estate. One reason, especially for Chinese buyers, is a desire for children to receive a U.S. college education, but many families plan years ahead, she adds.

Other motives include buying second homes, vacation homes and investment properties, she adds. Many affluent Chinese buyers own or are seeking to acquire multiple properties in the U.S. and other countries, with the U.K., Canada and Australia also popular destinations, Ms. Tsao says.

“They have an apartment in Manhattan and a house on Long Island or in Westchester County,” she says.

Lower prices in the U.S., favorable currency-exchange rates and overheated property markets in their home countries have increased the appeal of home-buying overseas for Asians, Mr. Gonsalves says. For example, in Hong Kong, luxury condos go for more than $4,100 a square foot, compared with $2,100-plus in Manhattan, according to Knight Frank’s Prime International Residential Index.

A 2013 report from the National Association of Realtors showed China ranked second, behind Canada, among countries of origin for foreign buyers of U.S. homes. Canada is expected to remain on top when new data are released this year, says NAR spokesman Walt Molony. But he says the gap between them appears to be narrowing, with Chinese buyers gaining in market share.

Many U.S. banks won’t lend to foreign nationals because borrowers may lack a U.S. credit score, and verifying income and assets across borders can be difficult.

But financing options are increasing to meet the rising demand, says David Adamo, chief executive of Stamford, Conn.-based Luxury Mortgage Corp., which serves the New York area.

Luxury Mortgage has issued jumbo mortgages to foreign borrowers who can document income and assets, such as people relocating to the U.S. to work, Mr. Adamo says. While some national lenders remain reluctant to issue jumbos to foreigners, more regional and commercial banks are willing to lend to well-documented home buyers, Mr. Adamo says. “Since these loans have a lower loan-to-value ratio and higher interest rates, regional banks find it very attractive to have some of these loans on their balance sheet,” he adds.

Other issues sometimes arise for newcomers to the U.S. housing market. Asian customers may not be accustomed to needing proof of financing when making an offer on a home, Mr. Gonsalves says. Sellers can request verification from a lender that a buyer’s payment will be received on time and for the right amount. “One of the big things we tell our Asian customers is to start to finance before they leave home,” he says.

Most borrowers from Asia prefer adjustable-rate mortgages because they don’t expect to be holding property for more than five years, Mr. Gonsalves says.

Loans by domestic lenders to non-U.S. citizens/residents typically have interest rates at least one-quarter of a percentage point higher than jumbo loans to U.S. citizens; they also typically require a bigger down payment, up to 35%-40%.

Here are other considerations for affluent borrowers from Asia and other countries.

Establishing credit: One reason affluent Asians may borrow is to help build a credit rating for children who plan to remain in the U.S. after their education is complete, Ms. Tsao says.

Additional hurdles: Asian buyers may face restrictions by their home country’s government on the amount of currency they can transfer quickly. An international lender may be able to assist with dealing with these restrictions. Some buyers may need to transfer funds years in advance.

 

First-time buyers know owning is a better investment than renting, but the type of homes first-time buyers are looking for are being kept off the market in part because nationally, those homes are almost three times more likely to be stuck underwater than more expensive homes.

That’s the finding of the Zillow  negative equity report for the first quarter.

The national negative equity rate fell to 18.8% in the first quarter, with almost 9.7 million American homeowners with a mortgage underwater, owing more on their mortgage than their home is worth.

Specific to the challenges of first-time buyers in terms of affordability, among all homes with a mortgage nationwide, roughly one in three (30.2%) priced within the bottom third of home values were underwater in the first quarter, compared to 18.1% of homes in the middle third and 10.7% of homes in the top third.

It is very difficult for an underwater homeowner to list their home for sale without engaging in a short sale or bringing cash to the closing table, which is a major contributor to inventory shortages across much of the country, even as negative equity slowly recedes.

More than one-third of homeowners with a mortgage (36.9%) are effectively underwater, unable to sell their homes for enough profit to comfortably meet expenses related to selling a home and afford a down payment on a new one.

“The unfortunate reality is that housing markets look to be swimming with underwater borrowers for years to come,” said Zillow chief economist Stan Humphries.  “It’s hard to overstate just how much of a drag on the housing market negative equity really is, especially at the lower end of the market, which represents those homes typically most affordable for first-time buyers. Negative equity constrains inventory, which helps drive home values higher, which in turn makes those homes that are available that much less affordable.”

Negative equity has fallen for eight consecutive quarters, but fell at its lowest pace in almost two years in the first quarter as home value growth slowed.

Negative equity fell from 25.4% in the first quarter of 2013 and 19.4% in the fourth quarter, while the pace of annual home value growth slowed to 5.7% in the first quarter, from 6.6% at the end of the fourth quarter. Looking ahead, the national negative equity rate is expected to fall to 17% of all homeowners with a mortgage by the first quarter of 2015, according to the Zillow Negative Equity Forecast.

At the end of the first quarter, the number of homes foreclosed nationwide fell to 4.9 homes per 10,000, from 5.4 homes per 10,000 at the same time last year. As foreclosure activity continues to fall, the pace of negative equity improvement will also slow, as homeowners’ debt is wiped from lenders’ books following foreclosure.

Long ago they were the punching bags of American real estate, accused of rank incompetence, wrecking home sales and failing to pick up on signs of the housing turnaround.

That was then. Today appraisers are suddenly getting much more favorable reviews.

But wait a minute: Have appraisals actually improved in accuracy in any measurable way over the last several years? Nobody really knows. There are no nationally published statistical audits that gauge appraisal accuracy. But one major industry group regularly surveys its members’ sentiments on appraisals, and lately things have been looking up.

When the National Assn. of Realtors conducted polls sampling its million-plus members in the spring and summer of 2010, more than 40% of respondents reported having problems with appraisals.

Within the realty field, criticism of appraisers was rampant and scathing. Appraisers allegedly too often:

•Used rock-bottom-priced foreclosures and short sales as “comparables” for valuing houses that had no financial distress. Those low appraisals blew up perfectly good sales or forced angry sellers to renegotiate prices with buyers.

•Traveled long distances beyond their areas of geographic competence and inevitably were out of touch with local conditions.

•Paid scant attention to evidence that local home prices were on the increase, such as pending contracts, and numbers of properties that sold for above list or that experienced multiple bids.

Worst of all, critics charged, poorly trained appraisers who had flooded the industry during the boom years now were getting the bulk of the valuation assignments from appraisal management companies — primarily because they would work for cut-rate fees.

In the latest monthly survey, NAR pollsters found that 24% of members reported having significant issues with appraisal results. Granted, that’s still nearly a quarter of all agents in the sample. But it’s down significantly from where it was a few years ago.

What to make of this? Have there been changes in the appraisal industry itself that might explain the better reviews out of former critics? Appraisers I interviewed in various parts of the country agree on one key fact: The dramatic decrease in foreclosures and short sales during the last 18 months has cut the number of houses with depressed prices that appraisers can choose — or justify — as comparables for any given sale.

In places such as Las Vegas, Phoenix and California’s Central Valley, where distressed properties once accounted for large percentages of all sales in the wake of the housing bust, today they are far fewer. Gary Crabtree, an appraiser in Bakersfield, says such sales now “only comprise about an 11% share” of transactions. As a result, “there are plenty of arm’s-length” sales for appraisers to use as “comps.”

Pat Turner, an appraiser in the Richmond, Va., area, said the sheer number of appraisers has plunged in recent years “and a lot of the less-competent, poorly trained [appraisers] have left” the business in the wake of the recession. One industry group, the Appraisal Institute, estimated the number of appraisers is declining 3% a year. The steady shrinkage of the industry, Turner believes, could be contributing to perceptions that appraisals are more accurate today.

Gary Kassan, a Los Angeles-area realty agent with Pinnacle Estate Properties, disagrees.

“My personal belief is not so much that the incompetent appraisers are gone,” he said in an email, “but rather that they have better comps to work with.” With prices on the rise, “they have more latitude and are more comfortable stretching the comps to bring the appraisal in at sales price.”

Whoa. Stretching the comps, eh? Appraisers insist that’s not the way it works — they’ve got to justify every conclusion in their valuation reports and are subject to reviews by lenders and underwriters.

But Jayne Allen, an appraiser in Charlottesville, Va., says realty agents’ views on what constitutes a “good” valuation and what’s a deal-killer are keyed to whether the appraisal supports the contract price.

“At this point,” she said, “I do not believe that … appraisers [are] providing ‘better’ valuations.” Rather it’s that more appraisals are validating the number on the contract, thanks in large part to the sharp decline in distressed sales sitting on the market as potential comparables.

Bottom line for you as a seller or buyer: Though there are no guarantees that an appraiser will confirm the price on your sales contract, the odds are better this spring that your deal won’t fall apart because the appraiser came in with a low-ball valuation tied to distressed comps.

Are lenders’ credit score requirements for home buyers this spring too high — out of sync with the actual risks of default presented by today’s borrowers? The experts say yes.Kenneth R. Harney

What experts? The developers of the credit scores used by virtually all mortgage lenders. Executives at both FICO, creator of the dominant credit score used in the mortgage industry, and up-and-coming competitor VantageScore Solutions confirmed that mortgage lenders could reduce today’s historically high score requirements without raising their risks of loss. In the process, many prospective buyers who currently can’t qualify might get a shot at a loan approval.

Consider this: Consumer behavior in handling credit is subject to change over time, often keyed to regional or national economic conditions. Credit scores that were acceptable risks in the early 2000s — say FICOs in the 640-to-680 range — turned into larger-than-anticipated losers when the recession hit. Now that the housing rebound is well underway and federal regulators have imposed tighter standards on income verification and debt ratios, the high credit score “cutoffs” that virtually all mortgage lenders imposed in the scary aftermath of the crash are stricter than necessary.

FICO scores run from 300 to 850. Lower-risk borrowers have high scores, and higher-risk consumers have low scores. Early in the last decade, a FICO score of 700 was good enough for an applicant to get a lender’s best deals or close to it. Today a 700 FICO just barely makes the grade — 50-plus points below the average score for home purchase loans at Fannie Mae and Freddie Mac, the big investors.

Joanne Gaskins, senior director of scores and analytics for FICO, said that statistical studies by her company have demonstrated that “the risk of default on more recent mortgage vintages is better than at the onset of recession” — essentially real risk has reverted to the early 2000s. A lot more people pay on time. As a result, she said, lenders can afford to “take a look” at their current strict scoring requirements and consider lowering them without sacrificing safety.

To illustrate how consumer behavior has improved, Gaskins cited one internal study that examined mortgage default data through 2011. At a FICO score level of 700 in 2005, roughly 36 borrowers paid their loans on time for every one who went into serious default. In 2011, by contrast, for every one defaulting mortgage borrower, roughly 91 paid on time. That’s a huge decrease in risk to the lender.

VantageScore Solutions has documented a similarly dramatic improvement in mortgage borrower payment behavior. In an article scheduled for publication this week in Mortgage Banking, a trade journal, Barrett Burns, president and chief executive of VantageScore, offers an analysis based on scores of 680 and 620 from 2003 through 2012. VantageScore’s latest scoring model uses a high risk to low risk scale of 300 to 850.

According to Burns, the probability of default at both score levels was lowest in 2003-05, then soared between 2006 and 2008 as the economy began deteriorating. By 2012, both scores were just slightly higher than 2005’s.

Burns notes that although auto lenders and credit card banks have adjusted their underwriting standards to these important changes in borrower risk, “the mortgage industry has been hesitant.” In an interview, Burns emphasized that mortgage lenders could expand home purchase possibilities for large numbers of consumers simply by lowering score cutoffs. They wouldn’t have to loosen up on their standards on down payments or debt ratios — just their scores.

A study last year by the Urban Institute and Moody’s Analytics estimated that every 10-point reduction in mandatory credit scores on mortgages increases the pool of potential borrowers 2.5%. A 50-point cut in score requirements, researchers found, would increase potential home purchases 12.5% — more than 12.5 million households.

At least one major bank has concluded that lowering scores is the way to go. Wells Fargo recently announced reductions in minimum acceptable scores for conventional loans to 620 from 660. The bank earlier lowered the acceptable score threshold for FHA loans to 600.

Could this signal the start of some fresh thinking on credit scores, a trend that other large lenders will pick up on? Let’s see. If they do so, it should be a win for everybody involved.

 

By: Ken Harney