Marc's Mortgage Matter's

Baseball fans will know the answer to this one: What's the difference between a hot dog at Fenway Park and a hot dog at Yankee Stadium? Answer: You can get a hot dog at Yankee Stadium in October.

CoreLogic has announced the availability of its 2011 Mortgage Fraud Trends Report: a look at over 10 million loan applications from the first quarter of 2005 through the first quarter of 2011. It is hardly the golden era for mortgage lending. CoreLogic fraud experts predict that fraud-related U.S. residential mortgage originations will total $7.4 billion in 2011, down from the estimated $12 billion in mortgage fraud-related originations experienced by the industry in 2010. (And yes, there are trends, so for example property fraud is up 262% - flipping and flopping - but identity fraud is down 45%.) The dollar drop is nice, but it is primarily due to lower mortgage origination volume in 2011. And it isn't time to let down your guard, as "new fraud schemes are constantly evolving to infiltrate weaknesses and vulnerabilities in lenders' fraud prevention programs," said a CoreLogic exec. Per the firm, the five riskiest areas of the country for fraud-related originations based on the first three digits of the ZIP code are Chicago, Ill. (606); Washington, D.C. (201); Brooklyn, N.Y. (112); Atlanta, Ga.(303) and Jamaica, N.Y. (114). (Jamaica? Nah, she wanted to...)

And, people, there is no such word as “alot.” The correct spelling is two words, “a lot.” It would be incorrect to say, “The OCC Examiner-in-Charge didn’t know alot about mortgage banking.” The correct grammar would be, “I question myself a lot these days as to why I didn’t go into a different line of work.”

The leader of America’s consumer watchdog agency for financial products explained his view of problems plaguing the mortgage servicing industry on Tuesday, and gave some hints about what changes his agency might make to ensure that homeowners are protected in the legal system.

Raj Date, interim director of the Consumer Financial Protection Bureau, said in a speech to American Banker magazine’s regulatory symposium that the current system harms homeowners by encouraging mortgage insurers to cut costs and, when necessary, cut consumers off.

“A servicer can, in a sense, ‘fire’ a borrower; but a borrower can’t fire a servicer,” Date said. “That reduces the incentive for servicers to treat borrowers properly.”

Mortgage servicers function as unseen but immensely powerful members of the mortgage industry. They handle the monthly payments from home buyers, pay the taxes and insurance, and pass on the rest to investors. They also are charged with handling the foreclosure process when loans go into default.

A main problem, Date said, is that borrowers and their servicers often have competing interests. In some mortgage servicing contracts, servicers actually make more money by forcing homeowners into foreclosure than by helping them modify their mortgage and stay in the home, because in foreclosure the servicer gets to charge excessive fees to maintain the property. Also, in most states, a house falling into foreclosure changes the order of payment. Instead of waiting for the lender and city property taxes to get paid, in foreclosure the servicer usually gets paid first, as we detailed here.

As a result, servicers didn’t invest in the technology and staffing required to handle the onslaught of foreclosure cases that came their way after the housing bubble burst, Date said.

For years, federal regulators operated on the assumption that companies would play by the rules, Date said. The robosigner scandal showed that wasn’t true, since many of the largest mortgage servicing companies employed people to forge thousands of court documents a day in a last-ditch effort to cover up missing paperwork.

After that experience, regulators can no longer depend on companies’ good intentions, Date said.

“Consumer finance is a $20 trillion business, and you should not pretend that every actor in the business is playing by the rules,” he said. “If there is not adequate enforcement, you should not expect rules to be abided by.”

Date didn’t announce any rules that the bureau is considering to rein in alleged servicer abuses. But he did point out that the bureau’s mere existence is a step in the right direction, since the previous regulatory scheme was so complicated, and varied so much from state to state and agency to agency, that it allowed corporations to shop for the cheapest regulator.

Now that the bureau’s consumer protection rules apply evenly, across all states and all major financial institutions, such shopping around should come to an end, Date said.

“During the housing bubble, our fragmented system of mortgage regulation, supervision, and enforcement produced an unlevel playing field that encouraged irresponsible lenders to shop for the most permissive legal regime. The opportunity for regulatory arbitrage accelerated a race to the bottom in lending standards,” he said. “Fortunately, the Bureau has been charged with making consumer financial markets work better for all consumers, regardless of who they do business with.”

It might or might not meet FHA standards, but isn’t this a cool house?

Continuing with the international flavor, who is buying a significant percentage of homes in Florida? NAR, through the Miami Herald, reports that almost 25% of Florida homes sold last year went to an international buyer. The report found that South Florida was a top destination for foreign, non-U.S. resident, buyers versus 3% for the entire nation. "Half of the international buyers planned to use the home as a vacation home, while 21 percent planned to use it as an investment property. Four out of five used all cash for the purchase."

In the aftermath of the initiation of the Fed's "Operation Twist", mortgage rates moved down somewhat. Last week's knee-jerk market reaction after the announcement saw a more pronounced downward dip for rates which proved fleeting, giving way to a slight firming since then. The Fed's program should ultimately foster lower interest rates, but no one should expect the effects to happen all at once, since the program will be taking place on an ongoing basis though next June.

Even with record low mortgage rates, sales of new homes remain weak. The annualized 295,000 homes sold by builders in August was a step down of 7,000 from July but not all that far from the range of the last six months, all which hung around the 300,000 mark. At this sales pace, there is a 6.6 month supply of homes ready for sale, which translates into about 162,000 actual units completed and ready for occupants. The 162,000 units available is a record low and a continuation of a slow dwindle in the stockpile. At some point, builders will need to begin to replenish inventories, but that seems to be well off in the future at the moment.

The sooner we get some hiring, the faster that day will come. While the nation's September employment report isn't due until next Friday, perhaps the best news on the labor front in a while came out Thursday, when initial filings for new unemployment benefits soundly broke below the 400,000 mark for the first time since July. The 391,000 new applications for benefits was the lowest figure since the Spring, and a welcome sign, but the large downshift from last week (a decline of 37,000) seems a little suspect and likely to be revised. Still, any move downward is welcome, and perhaps the employment report next week may beat market forecasts which expect a only very slight increase in hiring.

We've noted here many times before that bad news and doom and gloom is good news for mortgage seekers, since it tends to push interest rates lower. It's worth keeping in mind that this weakness is exactly what the Fed's program is intended to counter, and if the program succeeds in stanching the economic bleeding, interest rates will ultimately firm. It's also worth noting that Treasuries and mortgages both used to benefit from flight-to-safety buys in times of global or domestic economic strife, but that is much less the case today. Treasuries remain highly liquid investments with a guaranteed return and willing investor audience; the same cannot be said for mortgage-related investments, given all the risks which continue to face the market and the relatively puny returns for taking on that risk.

This is precisely why the Fed's MBS purchasing program was revived, and the reason that we expect lower mortgage rates as a result of Operation Twist.

Next week comes a cascade of new data about the economy, and four or five of them will set the tone for rates during the week, including the ISM manufacturing and ISM service indicators, weekly unemployment claims and of course the September employment report. Surprises to the downside would see rates fall and new calls for Federal or fiscal support to arise; surprises to the upside might firm rates ever so slightly. If we flipped a coin and had to call it, we'd hopefully (and with little confidence) call for a better-than-expected overall tenor, and a minor increase in average interest rates next week.

The tribal wisdom of the Lakota Sioux, passed on from generation to generation, says that, "When you discover that you are riding a dead horse, the best strategy is to dismount."
However, in government, education, and in corporate America, more advanced strategies are often employed, such as:
1. Buying a stronger whip.
2. Changing riders.
3. Appointing a committee to study the horse.
4. Arranging to visit other countries to see how other cultures ride dead horses.
5. Lowering the standards so that dead horses can be included.
6. Reclassifying the dead horse as living-impaired.
7. Hiring outside contractors to ride the dead horse.
8. Harnessing several dead horses together to increase speed.
9. Providing additional funding and/or training to increase dead horse's performance.
10. Doing a productivity study to see if lighter riders would improve the dead horse's performance.
11. Declaring that as the dead horse does not have to be fed, it is less costly, carries lower overhead and therefore contributes substantially more to the bottom line of the economy than do some other horses.
12. Rewriting the expected performance requirements for all horses.
And of course the most common:
13. Promoting the dead horse to a supervisory position.