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President Obama urged federal regulators to hasten reforms called for under the Dodd-Frank Act; currently only about 40 percent of the new rules have been implemented, Reuters reported Aug. 19.
The President told officials from the Federal Reserve, the Federal Deposit Insurance Corporation and the Consumer Financial Protection Bureau, among other agencies, that they need to do a better job coordinating reforms with one another and advised them to resist pressure from big banks to water down rules.
Among the sticking points for regulators is finalization of the Volcker rule, which would prevent banks from making risky trades with their own money. Implementation of the rule already is a year late because of the number of federal agencies involved in approval and because of intense pressure from lobbying groups working for the financial industry. They say that stiff rules could further tighten credit availability, Reuters reported.
Some Congressional Republicans also fear Dodd-Frank is too strict. In a statement issued Aug. 19, Rep. Jeb Hensarling, R-Tex., chairman of the House Financial Services Committee, said, “Dodd-Frank is an incomprehensively complex piece of legislation that is harmful to our floundering economy and in dire need of repeal,” Reuters reported.
The Consumer Financial Protection Bureau announced Aug. 21 that it has launched an investigation of alleged faulty mortgage servicing practices at banks and other financial firms accused of continuing “robo-signing” practices, The Washington Post reported.
The names of the accused institutions were not revealed, but the CFPB found that many engaged in sloppy payment processing that resulted in homeowners getting hit with extra fees and many failed to tell borrowers that their loans had been sold to other companies. Some firms also were found to have no formal procedures for addressing customer complaints or a dedicated consumer contact.
The CFPB noted that examiners have alerted servicers to their findings and offered remedial measures. However, in some instances, examiners referred cases for investigation, which could lead to enforcement actions and fines, the Post reported.
Financial firms already have been hit with billions in settlement fees for faulty mortgage practices. The nation’s biggest banks had to pay $25 billion to compensate victims of foreclosure, but some of those banks are alleged to still be dragging their feet.
“A lot of homeowners feel they are not getting the kind of response they need and deserve from their servicers to be able to stay in their homes,” Norma Garcia, manager of the Financial Service Program for Consumers Union, the policy and advocacy division of Consumer Reports magazine, told the Post.
Wells Fargo, JPMorgan Chase and Bank of America hold about 40 percent of the nation’s mortgage servicing business, the Post reported. When the housing crisis hit, these banks lacked the infrastructure to handle the volume of paperwork that resulted from delinquent payments and foreclosures.
The CFPB has issued new mortgage servicing standards to require banks to be more transparent with borrowers and to provide better customer service. Those rules formally take effect January 2014, the Post reported.
The Federal Housing Finance Agency’s inspector general reported that Fannie Mae and Freddie Mac are covering up billions of dollars in losses due to a substantial number of delinquent loans in their portfolios, Reuters reported Aug. 19. The FHFA demanded that they immediately acknowledge those losses.
The FHFA had required the government-sponsored enterprises to account for the bad loans within two years — a timeframe the inspector general said was unacceptably long. The FHFA said that the two-year window would correspond with its plans to implement new regulations and reporting standards that would result in the charging off of “billions of additional dollars related to loans,” the inspector general’s report noted.
While both GSEs have returned to profitability, they have cost American taxpayers $188 billion in bailout money since being brought under government conservatorship in 2008.
Fannie reported a $10.1 billion profit for the second quarter, and Freddie posted a second quarter net income of $5 billion, Reuters reported.
The FHFA reported that Fannie and Freddie losses on loans that are 180 days or more delinquent are at “reasonable” levels, and the inspector general’s sense of urgency is unwarranted.
The Federal Reserve may require large banks to increase their capital reserves or cut their dividend payments and share buybacks if they continually fail to accurately assess their own potential risks and financing needs, The Wall Street Journal reported Aug. 19.
The Fed has been increasingly vigilant about tying a bank’s strong capital plans to its ability to provide investors with dividends and share buybacks.
The Fed’s August 2013 report “Capital Planning at Large Bank Holding Companies: Supervisory Expectations and Range of Current Practice” noted that most banks have made sufficient progress in preparing for another major economic downturn, but noted that there still is significant room for improvement when it comes to passing stress tests.
Each of the 18 banks that submitted capital plans to the Fed showed flaws, including unrealistic loss projections, failure to show how they account for risk in making capital decisions and failure to explain how they would maintain capital buffers in times of economic stress. The Fed’s report said many banks were overly optimistic about losses in the event of another financial crisis.
Financial institutions have complained that the Fed’s annual stress tests have pressured them to meet ever higher capital levels that have adversely affected their ability to make loans to businesses and to consumers. They also claimed that the Fed’s evaluation of their capital plans has been inconsistent.
According to the Journal, the Fed has proposed additional requirements for the nation’s largest banks, including an increase in leverage ratio, which is the amount of capital that banks hold against their total assets. Banks also may be required to hold minimum amounts of long-term debt and banks that rely on short-term funding may be required to hold greater capital.
The 2013 Inc. 5000 list released Aug. 20 ranked America’s fastest-growing companies, and an appraisal management company came in as the fifth-highest ranked mortgage-related company.
ACT Appraisal Management, based in Dundee, Ill., reported that its revenue increased 1,388 percent over the previous three years to $15.3 million in 2012, landing it at No. 310 out of 5,000 companies. The 46-person firm was ranked 273 on the 2012 list.
Landmark Network, based in Sherman Oaks, Calif. came in as the third-highest ranked mortgage-related company. The firm, which provides valuation and other post-closing services, reported a 2,004 percent three-year growth rate, with revenues that totaled nearly $8 million in 2012.
Among all industries, tech company Fuhu was ranked the fastest-growing U.S. company. The El Segundo, Calif.-based company is the creator of the Nabi, an Android tablet for kids, and Fooz Kids, an Adobe Air application that allows children to become familiar with the Internet in a password-protected, parent-controlled environment. The company generated $117.9 million in revenue in 2012 with only 104 employees; in 2009 it had just $279,000 in revenue, which placed its three-year growth rate at 42,148 percent.
View the complete Inc. 5000 list.
The U.S. Court of Appeals for the Ninth Circuit reversed a dismissal that originally was granted to Wells Fargo in a case alleging faulty mortgage servicing practices, HousingWire reported Aug. 19.
In early August the Northern District Court of California granted the bank a dismissal in a case brought against it by homeowners Phillip Corvello and Karen and Jeffrey Lucia. Both sets of homeowners applied for loan modifications under the federal Home Affordable Modification Program, and they claim the bank unfairly foreclosed on them.
Wells Fargo spokesman Tom Goyda told HousingWire that the Ninth Circuit Court did not rule on the merits of the case. Rather it ruled that the district court should include the arguments of Corvello and the Lucias. The Ninth Circuit Court argued Corvello could prove he made the necessary payments in his HAMP trial, although Wells Fargo claimed the homeowner did not meet other criteria for a HAMP modification.
The Ninth Circuit Court noted, however, “No purpose was served by the document Wells Fargo prepared except the fraudulent purpose of inducing Corvello to make the payments while the bank retained the option of modifying the loan or stiffing him.”
Goyda told HousingWire, “Wells Fargo has strong defenses to the plaintiff’s arguments and is ready to present our case in district court.”
With refinancing business dwindling, lenders increasingly are encouraging homeowners to once again buy into adjustable-rate mortgages, particularly hybrid ARMs, which set at a fixed rate for five to seven years before readjusting, National Mortgage News reported Aug. 19.
Applications for ARMs currently account for 6 percent of mortgage loan requests, a 3 percent increase since the beginning of the year. At their peak in 2004, ARMs accounted for 32 percent of the market.
The spread between average ARM starting rates and 30-year fixed-rate mortgages is widening, making ARMs more attractive to borrowers interested in cutting monthly expenses. Bob Caruso, an executive managing director at mortgage services firm Lender Processing Services, told National Mortgage News that buyers are doing what they did before the bust — looking for a low monthly payment without understanding the potential future consequences.
Many ARM borrowers were among the first to default during the housing bust when their payments reset at rates they could not afford.
Lenders argue that things will be different this time because of tougher underwriting standards. Plus, regulators have almost completely banned interest-only and balloon mortgages.
National Mortgage News reported that the average fixed-rate 30-year mortgage has gone up 110 basis points, dropping the number of conventional borrowers eligible for refinancing from 90 to 30 percent.
“The low-hanging fruit is gone, so lenders have to dig a little deeper,” Scott Buchta, head of fixed-income strategy at asset management firm Brean Capital, told National Mortgage News. “Lenders are pushing ARMs right now because so many fixed-rate borrowers are out of money.”
Quicken Loans is offering five-year hybrid ARMs at 2.99 percent compared to a 15-year fixed-rate mortgage at 3.37 percent, and a 30-year fixed-rate at 4.5 percent. ARMs now account for around 20 percent of Quicken’s business.
“For many folks, it makes a lot of sense to take a shorter-term product,” Bob Walters, Quicken’s vice president of capital markets, told National Mortgage News. “If the borrower is in a situation where they're not going to be in that home for more than seven years, it would be incorrect for them to take the fixed-rate when the ARM is giving them a benefit of lower monthly payments.”
The National Association of Home Builders reported that most homeowners stay in their homes an average of 13 years, down from 20 years in 2009.
Today lenders have to qualify ARM borrowers at the initial low rate plus 2 percentage points higher or the fully indexed rate, whichever is higher, National Mortgage News reported.
Foreign investors who purchased U.S. real estate at a brisk pace from 2007-09 are now shying away from the American market, Reuters reported Aug. 18.
During the housing crisis, the U.S. market attracted many international investors pursuing low-cost properties, especially in the Sun Belt markets, but that trend is changing. Real estate brokers told Reuters that they have noticed reduced international interest, particularly in the Las Vegas, Miami, Phoenix and San Francisco markets.
Those markets have now stabilized, and the rise of the U.S. dollar against some foreign currency has made the American real estate market less attractive to foreign buyers, particularly investors.
Reuters reported that international sales of U.S. residential real estate dropped by $14 billion to $68.2 billion for the 12 months ending in March, the most recent data available from the National Association of Realtors. Foreign purchases accounted for 6.5 percent of the $1.050 trillion in total existing U.S. home sales.
NAR recorded purchases from buyers from 68 countries, with Canada, China, Mexico, India and the United Kingdom comprising nearly 53 percent of the sales for the year ending in March. Canadian buyers accounted for the biggest share at 23 percent.
Analysts told Reuters that they expect the U.S. dollar to rise in the coming months and years as the economy improves and the Federal Reserve cuts back on its bond buying program. However, interest rate increases will not affect many foreign buyers who pay cash for their properties.
Michelle Meyer, senior U.S. economist at Bank of America/Merrill Lynch in New York, told Reuters that declining demand from foreigners will help moderate home-price appreciation in the coming years. She expects prices to rise 6.5 percent in 2014, following annual price increases of more than 10 percent through May, according to S&P/Case-Shiller.
The Financial Crimes Enforcement Network reported a 25 percent drop in mortgage loan fraud suspicious activity reports in 2012, marking the first year since FinCEN began reporting mortgage fraud statistics in 2001 that the number of reports dropped, according to FinCEN’s mortgage fraud analysis released Aug. 20.
FinCEN’s data showed that reports on suspected mortgage fraud declined from 92,561 reported during calendar year 2011 to 69,277 in 2012. According to the report, 57 percent of SARs received during 2012 reported mortgage loan fraud activities that started more than five years before the SAR was actually filed.
The majority of FinCEN’s mortgage loan fraud SARs, regardless of filing date, referenced suspicious activity that began in calendar years 2006 and 2007. The data showed there was an “extraordinary concentration” of suspicious mortgage origination activity that started in 2006 and 2007 leading up to the housing crisis in 2008.The report said depository institutions filed 37,457 SARs in 2006 and 52,862 in 2007.
“At the time, those numbers represented huge increases over previous years, but they seriously underrepresented the amount of suspicious mortgage fraud activity that could have potentially been reported in those years if the suspicious activity had been detected closer to loan origination,” FinCEN stated in a news release accompanying the report.
The report noted that, while the number of SARs received by FinCEN dropped in 2012, filings grew every year between 2001 and 2011. An unusually high spike in SARs in 2011 was attributed to mortgage repurchase demands on banks.
Read FinCEN’s 2012 Mortgage Loan Update.
Existing home sales increased significantly in July, with the median price maintaining double-digit year-over-year increases, the National Association of Realtors reported Aug. 21.
Total existing home sales, comprised of completed transactions that include single-family homes, townhomes, condominiums and co-ops, were up 6.5 percent to a seasonally adjusted annual rate of 5.39 million in July from a downwardly revised 5.06 million in June, and 17.2 percent higher than at the same time last year.
“Mortgage interest rates are at the highest level in two years, pushing some buyers off the sidelines,” Lawrence Yun, NAR chief economist, said in a news release. “The initial rise in interest rates provided strong incentive for closing deals. However, further rate increases will diminish the pool of eligible buyers.”
Total housing inventory at the end of July increased 5.6 percent to 2.28 million existing homes available for sale, a 5.1-month supply at the current sales pace and on par with June. However, listed inventory is down 5 percent from a year ago when a 6.3-month supply existed.
“Tight inventory in many areas means above-normal price growth for the foreseeable future,” Yun said.
NAR reported that the national median existing-home price for all housing types was $213,500 in July, an increase of 13.7 percent from a year prior. The median price has risen at double-digit rates for the last eight months and is 7.3 percent below the all-time record of $230,400 in July 2006.
Read the NAR news release.
Fixed mortgage rates increased the past week, reaching new highs for the year, Freddie Mac reported Aug. 22 in its weekly Primary Mortgage Market Survey.
The 30-year fixed-rate climbed 0.18 percent to 4.58 percent (up from 3.66 percent a year ago). The 15-year fixed-rate rose 0.16 percent to 3.60 percent (up from 2.89 percent a year ago).
The one-year adjustable-rate mortgage held steady at 2.67 percent (up from 2.66 percent a year ago). The five-year Treasury-indexed decreased 0.02 percent to 3.21 percent (up from 2.80 percent a year ago).
“Fixed mortgage rates continued to follow bond yields higher leading up to the Aug. 21 release of the Federal Reserve monetary policy committee's minutes for July,” Frank Nothaft, Freddie Mac vice president and chief economist, said in a news release. “In its July 30 and 31 meetings, the committee members were broadly comfortable with a plan to start reducing its bond purchases later this year, although a few emphasized the importance of being patient. Meeting participants acknowledged mortgage rate increases might restrain housing market activity, but several members expressed confidence the housing recovery would be resilient in the face of higher rates,” Nothaft said.
View Freddie Mac’s weekly Primary Mortgage Market Survey.