My Perspective

FINALLY, and in spite of the Government doing it’s very best to smoother private capital from re-entering the residential real estate mortgage lending industry and controling it themselves (while punishing all of you who have to deal with those crazy people, wacky standards & new processes at Fannie,Freddie & FHA) , there was a HUGE, SIGNIFICANT, MAJOR, EARTH-SHAKING MEGA NEW PIECE I saw yesterday:

First let me please translate it into English for some of you: Even though this is a baby step, it is the FIRST real tangable sign that the Government’s total control of the entire industry is coming to an end; that is the best news I have heard in a couple of years – here it is:

Arch Bay in Private-Label Nonperforming Subprime MBS

‘Arch Bay Capital has issued a $57.4 million MBS backed by seasoned performing and delinquent subprime loans, garnering a AAA rating on the bond, a sign that the private-label market could come back but only if issuers are willing to make little money on their deals. The mortgage-backed security was rated by DBRS and the end investor is a bank, said one official familiar with the transaction. Quincy Tang, senior vice president of structured finance/RMBS for DBRS, told National Mortgage News that because of the credit enhancement put on the security by Arch Bay, the investor in the AAA bond will not suffer any losses unless delinquencies on the underlying loans exceed 75%, an astronomical number. The loans — originally funded a few years back by such subprime firms as Accredited Home Loans, NovaStar Mortgage and others — have a 30-day delinquency rate of 21%. The collateral for the bond are loans with a principal balance of $229 million. One NPL investor, requesting anonymity, said based on what he knows of the deal, Arch Bay doesn’t stand to make much money, if any, on the transaction. The Irvine, Calif.-based hedge fund could not be reached for comment. Its profit will be determined by how much it paid for the NPLs — which it bought in the secondary market — and the cost of the credit enhancement on the bond. Roughly 19% of the loan pool has been modified, according to DBRS.’

I was speaking with my lawyer yesterday morning about my extreme degree of frustration at having been trying to raise $2.5 Million for a consumer residential real estate mortgage lending financial services family of companies, from a potential equity partner/investor these last 8 months. I was telling him I had aggressively gone after investment bankers, private equity funds, angel investors, and mortgage banker lawyers (hedge funds are my next target) – as possibilities of folks who could aim me in the right direction to acquire these funds so I can re-start my old firm and do (for the fifth time in my career) a non-bank holding company with several related wholly – owned industry subsidiaries who’s synergy and cross quality control works perfectly together. It’s been a homerun for me and a handful of my clients in the past. I even reminded him (even though we’ve known each other for 25+ years) about the vast network of industry big-shots I have come to know and the numerous connections I still have within the ranks of the executive offices here in America, and yet I haven’t yet come up with one!

He’s a real sharp guy, he listen carefully to me, then he told me a story about Charles deGaulle … years before he was a General, back when as a young officer, he developed the concept of armored warfare just after the First World War, as a means to break the stalemate of trench warfare. Everyone else was still looking backwards trying to figure out how to improve trenches. He was fairly ridiculed at the time. A few years later, when everybody was still working on how to build better more effective trenches, the Germans had read about the papers deGaulle had written and said ‘… hey that’s it – TANKS, that’s a great idea’ … the German Blitz creed was born!

De Gaulle was famous for ‘fighting the next war’ and not the last one, the mistake so many old Generals tend to do (looking the wrong way), and that’s the core advice he gave me. To get out of this mess and invest in our industry’s future – you’ve got to have forward looking vision. He said, “… Peter it’s all about timing, maybe next week you come across a half dozen of them, the changing landscape needs to get one of those forward looking Generals to think and then Bingo!”

We need more Generals who are looking to fight the next war and not the last one for our industry to turn around.

This popular column in the National Mortgage News is a piece it’s editor Paul Muolo publishes each week (here it is http://nationalmortgagenews.com/columns/hearing/) today I saw a Comment I had left published ….:

“Posted: 2010-02-13 11:36:23
by Peter Samuel Cugno

Paul had said “…the money that is looking to enter the industry only wants to fund Fannie/Freddie/FHA loans….” (I replied) and if you think about that, how stupid could they be? Fannie/Freddie’s future existance is questionable at best, their delinquencies & REO’s exceed subprime (as you’ve reported), and FHA continues to be way in over its head and is all but DONE … and those “bright guys/investors” think the Government’s future hand in our industry is wise, steady, or even a good idea with almost 90% of the (small) market controlled by them or maybe 20 more minutes (when securitization come roaring bck). Did you even wonder Paul, what about those ZILLION Americans the NEED non-government loans to come back? Think they’re gonna wait for ever, or maybe just go away? All this Fannie/Freddie FHA control is just nonsense, says me (one of the pioneers of subprime – back when it made sense)

Boy oh Boy, that sure does me proud. It’s also sooo nice to see we’re Number One amongst all the thugs in America … really wish we had egregious aggressive intense harsh punishment for wrong doers! Something like Water Boarding would be just fine with me!

California now has the highest risk of mortgage fraud with an index value of 222, according to a report from Interthinx. Nevada, which had the highest index for the previous five quarters, drops to second place with an index of 220, and is closely followed by Arizona with an index of 211, according to the Mortgage Fraud Risk Report for the fourth quarter of 2009. Florida remains in fourth place at 179, while Colorado is fifth at 153. The occupancy fraud risk index rose 16% since last quarter, the first significant increase in the index since the fourth quarter of 2006. The magnitude of the quarter-on-quarter increase suggests that occupancy fraud risk will be a serious issue going forward, as continuing price declines and get-rich-quick schemes lure investors back into the market and as builders face continuing difficulty in moving unsold inventory. Despite a 4% quarter-on-quarter decrease, the property valuation fraud risk index is up 40% over last year and up more than 100% from two years ago. Schemes involving short sales, real estate owned inventories, wholesale flipping, and refinancing by borrowers whose equity has been impaired by falling real estate values continue to drive this index. Interthinx analysts expect lenders to focus more closely on fraud risk mitigation as they work to emerge from the downturn. This will help guard against the potential for fraud as a large number of adjustable rate mortgage loans, especially option adjustable rate mortgages with negative amortization features which reset between now and the first quarter of 2012.

Just one more baby step in the news, signaling me the securitization market is fixin’ to come roaring back pretty soon

“Royal Bank of Scotland, which is controlled by the U.K government, has expanded its residential and commercial MBS/ABS team by two. Gregory Reiter, previously a portfolio manager at the World Bank, joins RBS as managing director in charge of agency residential security strategy. Jeana Curro, previously a director in fixed-income strategy at UBS, was named vice president, agency MBS/collateralized mortgage obligations. Both will be based in Stamford, Conn.”

In today’s industry news:

“The Federal Deposit Insurance Corp. is pushing back its plan to securitize troubled mortgage assets into the second quarter, according to officials close to the situation. “It’s still very much in process,” said one source speaking on background, “but it won’t happen in the first quarter.” The FDIC recently confirmed that it is working on securitizing certain mortgage assets but has offered little guidance to date. The agency and some of its advisors are exploring ways to issue bonds backed by troubled residential loans that are subject to “loss sharing” agreements. There also has been talk in the market place of FDIC doing a “re-REMIC” of outstanding MBS or ABS. At press time, a telephone call to the FDIC’s press office had not been returned. The federal government was officially closed for business Wednesday because of a snowstorm.”

Isn’t that pretty much what TARP was for? But, no hurry … go ahead and continue to let our industry’s secondary market stagnate, while we all choke on it.

Lenders originated $86.1 billion in FHA-insured single-family loans in the fourth quarter, up 21% from same quarter in 2008. The Federal Housing Administration reported that 60% or $51.8 billion of the endorsements involved home purchase loans during the final quarter of calendar year 2009. Meanwhile, FHA insurance-in-force grew by 24% during in the calendar year to $752.6 billion as of Dec. 31. But the percentage of singe-family loans 90 days or more past due grew by 34%. FHA ended the year with a 9.12% default rate, up from 6.82% at yearend 2008. Housing officials are raising the FHA upfront mortgage insurance premium 50 basis points to 2.25% this April to cover rising claims and losses. Foreclosures involving FHA-insured loans totaled 20,650 in the fourth quarter, up 41% from the same quarter in 2008. The use of short sales to avoid foreclosure shot up 140% from a year ago to 2,925 in the fourth quarter of 2009.

Let me please Beg you to listen … IF you have your family budget/income/future tied to the FHA wagon, you need to ‘run for the hills’ right now!

This is just one more news article I have seen SCREAMING to me the FHA hay-day of big origination numbers and fat paydays is heading for an abrupt STOP.

I’m no hater, just seen this play before, please listen …

Don’t you wish, as I do, that we could somehow make this out to NOT be the train-wreck it’s going to be? Ya know, probably 19+ months in the making, only to end up doing two things we should actually AVOID. (1). Being one Big reason to keep the consumer residential real estate mortgage lending from bouncing back in the mean-time because of this ‘unknown’ and, (2) The new legislation ultimately being confused, weak and generally worthless when it’s completed because the Congress won’t get real input from people who actually understand … unlike them.

Housing Finance Future Hearing Scheduled for March

The House Financial Services Committee will hold its first hearing on the future of the housing finance system on March 2. Treasury Secretary Timothy Geithner and Housing Secretary Shaun Donovan are scheduled to testify. “The hearing will focus on all the private and public entities that support the housing market,” the committee said. “It is the first step in a legislative process to determine the future of housing finance and the federal government’s role in responsible homeownership and the supply of affordable rental housing.” On Feb. 10, the committee will hold a hearing on the Federal Reserve’s mortgage-backed securities purchase program and other Fed liquidity programs. The hearing is entitled “Unwinding Emergency Federal Reserve Liquidity Programs and Implications for Economic Recovery.”

The Federal Trade Commission said it is proposing a new rule that would make up-front fees illegal. It would also bar modification firms from advising borrowers to stop making their payments or stop communicating with their lenders. The move is being made “so companies can’t take the money and run,” the FTC’s chairman said in the statement.

Boy, this is sure long overdue – but better now than never I guess!

More than 7.2 million mortgage loans are now behind on payments and one million properties are now in real estate-owned status, according to the January 2010 Mortgage Monitor report from Lender Processing Services in Jacksonville, Fla. Home delinquency rates have surpassed 10%. The total foreclosure inventory rate is 3.2%, and the total non-current rate, which combines foreclosures and delinquencies, sits at 13.3%. The percent of “new” serious delinquencies is 4.64%, higher than any other year analyzed for the same period. Of loans that were current as of Dec. 31, 2008, by Dec. 2009 there were 2.3 million new loans that were considered seriously delinquent. Prime loans, including agency, non-agency and jumbo, have experienced deterioration at a worse pace on a relative basis than subprime, FHA and all loans as a whole. Within the prime category, loans with current unpaid principal balances between $417,000 and $600,000 have performed the worse, LPS said. States with most non-current loans include Florida, Nevada, Mississippi, Arizona, Georgia, California, Indiana, Michigan, Illinois and Ohio. States with fewest non-current loans are North Dakota, South Dakota, Alaska, Wyoming, Montana, Nebraska, Vermont, Colorado, Oregon and Washington.

So … how about that?