Daily Archives: September 6, 2014

Opinion: When the next housing bust hits, blame the bankers

The U.S. economic recovery is being endangered by a slowing housing market, as prospective homeowners with lower incomes and credit scores are finding it nearly impossible to get a mortgage.

Six years after the collapse of home prices, the mortgage-lending industry is going through an upheaval. Wells Fargo & Co. WFC, +0.16%  has the largest share of the mortgage market, but CEO John Stumpf in an interview with the Financial Times last week said his company would be unwilling to lend to lower-income borrowers and those with relatively low credit scores. That is, unless regulators made it more difficult for investors to force banks to repurchase securitized loans.

“If you guys want to stick with this program of ‘putting back’ any time, any way, whatever, that’s fine, we’re just not going to make those loans and there’s going to be a whole bunch of Americans that are underserved in the mortgage market,” Stumpf said.

He was referring to loan-repurchase demands by Fannie Mae FNMA, +1.41%Freddie Mac FMCC, -0.28%  and private investors.

J.P. Morgan Chase & Co. JPM, +0.33%  CEO James Dimon, during a July conference call, said the bank’s volume of loans insured by the Federal Housing Administration was “way down,” and that the bank had “lost a tremendous sum of money on the FHA,” which had disputed roughly a third of all insurance claims.

“We want to help the consumers there, but we can’t do it at great risk to J.P. Morgan, so until they come up with some kind of safe harbors or something, we’re going to be very, very cautious in that line of business,” Dimon said.

Even Federal Reserve Chairwoman Janet Yellen said in June: “It is difficult for any homeowner who doesn’t have pristine credit these days to get a mortgage,” which was one of the causes of the limp housing recovery.

The pace of home-price increases has slowed for the first time since 2008, according to the latest data from Case-Shiller released last week.

Hovnanian Enterprises Inc. HOV, +0.71% which builds homes in planned communities, said today that for its fiscal third quarter ended July 31, net contracts for new homes declined 6.3% from a year earlier, and its cancellation rate increased to 22% from 18%. CEO Ara Hovnanian said “the housing industry remains in the early stages of a recovery,” which is a remarkable statement, considering how many years have passed since the financial crisis.

Mortgage lending is slowing as well. The Mortgage Bankers Association forecasts a 74% decline in mortgage originations this year to $1 trillion, with a 61% drop in refinancing volume to $431 billion.

 

Read on.

Is the FHA Distressed Asset Stabilization Program Meeting Its Goals?

In the summer of 2012, the Federal Housing Administration, or FHA, announced it was launching a new program to auction off pools of delinquent mortgages that had not yet gone through foreclosure but for which foreclosure was inevitable.

According to FHA, selling these loans prior to foreclosure would save the agency money and provide a better financial outcome for taxpayers. Selling would also provide homeowners more options than were available under FHA rules due to statutory limitations, helping families and stabilizing neighborhoods. In short, the Distressed Asset Stabilization Program, or DASP, “creates the opportunity for everyone—the homeowner, the new mortgage holder, FHA and the community—to walk away a winner.”

Since September 2012, FHA has made available for auction nearly 100,000 loans. According to the Department of Housing and Urban Development’s, or HUD’s, new report on DASP outcomes, the program has helped reduce FHA’s loss rates from 63.5 percent in the first quarter of 2010 to 52.9 percent in the second quarter of 2014, although the report does not disaggregate the impact of a variety of FHA policy changes, including improvement of its loss-mitigation options for servicers. Additionally, bids on these auctions have risen from approximately 40 percent of the loans’ unpaid principal balances to an average closer to 60 percent.

The report also suggests that homeowners have benefited from the program as well. Of the 50 percent of DASP loans that have reached resolution, 34 percent have avoided foreclosure, including the 11 percent of loans that are classified as “reperforming,” which means that homeowners are again paying their mortgages regularly. The outcome report contains no information on what enabled these mortgages to reperform, such as whether the homeowner obtained a permanent modification, a forbearance, or simply became reemployed. These numbers are significantly higher for the pools with specific neighborhood stabilization requirements, in which 58 percent have avoided foreclosure and 23.5 percent are reperforming.

As DASP reaches its two-year anniversary, it is time to evaluate its performance and explore ways to strengthen it. FHA still insures more than half a million seriously delinquent loans, meaning there are still many loans potentially eligible for the program. Moreover, the program serves as a critical model for the Federal Housing Finance Agency as Fannie Mae and Freddie Mac begin to sell nonperforming loans. Indeed, Freddie Mac auctioned its first pool of nonperforming loans this past August, so this possibility is now more than theoretical. Between them, Fannie Mae and Freddie Mac still hold close to 700,000 seriously delinquent loans.

This report provides an overview of DASP, including information on how it facilitates loan sales, who buys loans through it, and the information FHA has released concerning the outcomes of the purchased loans. The report then offers recommendations to enable DASP to better serve homeowners and neighborhoods while continuing to strengthen the FHA insurance fund.

 

Read on.

JPMorgan Chase will write fewer FHA mortgages

JPMorgan Chase, the country’s second largest mortgage lender, caught attention in financial circles in July when its CEO said the bank may scale back the number of FHA loans it produces.

Jamie Dimon said that the bank’s FHA business has cost it money.

“So the real question is should we be in the FHA business at all? We’re still struggling with that,” Dimon said, adding “Until they come up with some kind of safe harbors or something, we’re going to be very, very cautious in that line of business.”

Dimon aired his opinion in a conference call with analysts following the release of its second quarter earnings report. The report noted that the bank’s second quarter loan originations were down 66 percent over the same quarter last year.

The CEO’s complaint comes after the bank was fined $614 million in February to settle claims that it had improperly approved thousands of government-backed mortgages during the housing boom, including those approved by the bank as a participant in the FHA’s Direct Endorsement Lender program.

Under the program, lenders that have direct endorsement power can consider single-family FHA mortgage applications without first submitting paperwork to HUD. Skipping that step allows FHA mortgages to be processed as rapidly as other mortgages.

It also allowed the bank to skip a step in checking that the mortgages it originated were not fraudulent.

– See more at: http://suncoastnews.com/su/list/pasco-press/jpmorgan-chase-will-write-fewer-fha-mortgages-20140905/#sthash.TWbSHKio.dpuf

Ex-JPMorgan Execs Can’t Nix Claims In SEC Pay-to-Play Suit

Law360, New York (September 05, 2014, 9:10 PM ET) — A federal judge denied two former J.P. Morgan Securities Inc. directors’ bid for summary judgment on claims concerning a pay-to-play scheme to win business from Alabama’s Jefferson County, finding Friday that his court had jurisdiction over swaps deals involved in the U.S. Securities and Exchange Commission’s suit.

U.S. District Judge Abdul K. Kallon denied a partial summary judgment motion brought by former JPMorgan Managing Directors Douglas W. MacFaddin and Charles E. LeCroy, rejecting their argument that the court lacked jurisdiction because the interest-rate swaps transactions in…

Source: Law360