BofA’s new way to delay the economic recovery

BofA’s new way to delay the economic recovery

By Jeffery Marino • Oct 15th, 2010 • Category: real estate newsflash

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Bank of America (BofA) has announced it will bow out of the wholesale mortgage lending business, confining its funding of loans to direct-to-consumer lending from its mortgage centers and community banks. BofA insists this decision was not made in light of the recent discovery of faulty foreclosure documents and the ensuing public relations fallout. Rather, the decision to focus on retail lending purportedly stems from a passion for personalized customer service.
BofA is not the only banking giant to cease the funding of loans generated by mortgage loan brokers (MLB). JPMorgan Chase announced last year that it would only be dealing in direct-to-consumer lending through its mortgage centers as well. This means Wells Fargo & Co. is currently the primary source of all wholesale mortgage-lending funds.
Regardless of whether or not BofA has closed its wholesale lending department as a personal relations maneuver, the effect on the real estate market (and the economy as a whole) is of great concern.

first tuesday take: As thousands of BofA mortgage customers suffer through protracted foreclosures, this veiled attempt to appear dedicated to consumer protection is an effort to reassure homebuyers they should borrow from BofA since their paperwork will not get lost in the mortgage loan application machine. [For more information on foreclosure delays in California, see the October 2010 first tuesday article, 2Q California foreclosure data.]
While BofA receives considerable financial benefit by halting wholesale lending and funding of broker-generated mortgages, borrowers will suffer the consequences of the Secure and Fair Enforcement for Mortgage Licensing (SAFE) Act, the actual effect of which is to eliminate MLBs from the highly lucrative consumer loan market. By subtracting the MLB from the loan origination equation, BofA will retain a greater profit on each loan that would otherwise be shared with a MLB who packaged and sold them the loan.
Although borrowers may potentially save as well (if BofA is benevolent enough to pass these savings on), there will simply not be as many choices on the mortgage loan market since the system for distributing mortgage money to buyers is reduced by eliminating the MLB and the Federal Deposit Insurance Corporation (FDIC) closing the small, politically impotent banks. As we have already witnessed, this will drive up loan charges as the effect of the SAFE act and barring MLBs kills competition.
The Federal Reserve (the Fed) is now using new strategies, untested in the U.S., to pump fresh cash into the economy via quantitative easing (buying 30-year T-bonds), which will ostensibly drive mortgage rates down even further. BofA’s strategy to lock MLBs out undermines the Fed’s efforts to introduce greater quantities of cash into the mortgage market and stimulate money lending.
As the Fed purchases billions of dollars worth of BofA’s stockpiled T-bonds, the nation’s largest private bank has decided it will be the sole administrator of those funds, opting to consume a bigger piece of the pie (comprised of front-end fees) while elbowing the MLB away from the table and interfering with the distribution of funds to California’s vast and geographically widespread homebuyer market. [For more information on the Fed’s new strategy to stimulate the economy, see the October 2010 first tuesday article, The Fed purchases treasuries, fights inflation.]
The hurdles to Real Estate Settlement Procedures Act (RESPA) MLB activity, which lenders placed in their way by guiding the SAFE Act into law, have been raised even higher by refusing to fund or purchase the loans they package. It looks like those of you who just earned your Nationwide Mortgage Licensing System (NMLS) registration and endorsement may not need it after all. Lenders do not want your assistance in locating homebuyers and homeowners who need financing.
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P.O. Box 20069, Riverside, CA 92516
Readers are encouraged to reproduce and/or distribute this article. Copyright © 2010 by first tuesday Realty Publications, Inc. Readers are encouraged to reprint or distribute this information with credit given to the first tuesday Journal Online — P.O. Box 20069, Riverside, CA 92516.

What’s Ahead For Mortgage Rates This Week : October 18, 2010

Mortgage markets worsened last week in back-and-forth trading, pushing conforming mortgage rates higher on the week.
Despite the uptick, however, Freddie Mac reports that rates in California still managed to make new, all-time lows for the third week in a row. The benchmark 30-year fixed rate mortgage is now down 1.02% since April 2010.
The United States is experiencing a Refi Boom.
As compared to 6 months ago, a new, $200,000 home loan costs $124 less per month in principal + interest.
This week, monthly payments may fall some more. It all depends on data.
Early in the week, housing data takes center stage. The National Association of Home Builders releases its Housing Market Index this morning, and, Tuesday, the government prints September’s Housing Starts figures.  Both reports figure to influence the bond market.
Strong readings should lead mortgage rates higher; weak ones should lead them lower. Economists expect weakness.
That said, the biggest story of the week — and the one with the best chance of changing rates — could stem from the Federal Reserve.
Federal Reserve officials, including Chairman Ben Bernanke, have observed the recent U.S. economy and have openly discussed the use of “non-conventional means” to spur it forward. As the rhetoric increases, it’s widely believed that the Fed will act soon, and that the central bank’s plan will include new commitments to U.S. Treasury debt, and, possibly, to mortgage-backed bonds.
Speculation of the Fed’s next move has sparked mortgage bond demand which, in turn, has helped drive down mortgage rates. An official Fed announcement could push rates lower still.
For now, though, mortgage rates are as low as they’ve been in history. Rate shoppers have two choices. (1) Lock in a today’s low rates, or (2) Wait and hope that rates fall further. Ultimately, rates may fall, but once they start rising, they’ll likely rise quickly.
It’s a gamble you may not wish to take.

Bank Reposessions Top 100,000 In A Month For The First Time Ever

The number of foreclosure filings rose 3 percent in September, according to foreclosure-tracking firm RealtyTrac. The term “foreclosure filing” is a catch-all word for housing, comprising default notices, scheduled auctions, and bank repossessions.
September marked the 19th straight month that the number of filings topped 300,000, and the first month in which 100,000 repossessions were logged.
As usual, a small number of states dominated the national foreclosure figures, accounting for more than half of all repossessions.

1. California : 17% of all repossessions
2. Florida : 13% of all repossessions
3. Michigan : 7% of all repossessions
4. Arizona : 7% of all repossessions
5. Texas : 5% of all repossessions
6. Georgia : 5% of all repossessions

Thankfully for home sellers, mortgage servicers appear to be metering the pace at these newly bank-owned homes are made available to the public. RealtyTrac notes that, in doing so, servicers prevent “the further erosion of home prices”.
That said, distressed properties still sell at a steep discount.
In the second quarter of 2010, the average sale price of homes in the foreclosure process was 26 percent lower than the average sale price of homes not in the foreclosure process. It’s no surprise, therefore, that, based on RealtyTrac’s preliminary data, 31 percent of all homes sold in September were “distressed”.
There’s lot of good deals out there, in other words, but they come with certain risks.
Buying a foreclosed home is not the same as buying a non-foreclosed home. Specifically, you’re buying from a corporation and not from a “person”. Contracts may vary, and so may terms.
Therefore, Laguna Beach home buyers — even experienced ones — should talk with a real estate agent before making an offer. It’s important to understand the foreclosure-buying process.

October 14th, 2010 in Foreclosures | tags: RealtyTrac,Foreclosures,REO

Avoiding Common Mortgage Scams

Despite tougher mortgage guidelines and better loan disclosures for consumers, mortgage fraud is on the rise, according to the FBI.
Fraud has many varieties and it’s estimated cost to the nation is between $4-6 billion annually.  Today, common mortgage fraud scams target homeowners behind in their mortgage payments and/or facing foreclosure. And, despite the hordes of legitimate organizations that dedicate themselves to helping consumers, mortgage fraudsters proliferate.
In this 3-minute piece from NBC’s The Today Show, you’ll learn to spot common frauds, and to avoid them.
Some of the frauds highlighted include:

1. The Rent-to-Buy arrangement
2. The Bait-and-Switch
3. The “Phantom fees”

With respect to mortgage paperwork, it’s always wise to read what you’re signing, and to take time to understand what it means. If you’re uncomfortable reading mortgage documents, ask for an attorney’s help. And don’t worry if you don’t have the budget — many states offer free or discounted help via advocacy groups.

Credit Scores

Scorecards, Buckets and Points, The Anatomy of a Credit Scoring Model

There are four primary components to any credit score; the scorecards, the characteristics, the variables and the weights.

Scorecards – The scorecards are actually scoring models but cannot stand alone as a freestanding credit scoring system. All properly designed scorecards are built to evaluate the risk of a homogenous population. Bankrupt consumers is one example. “Consumers with thin credit reports” is another example. There are many more examples of scorecards but FICO and other model developers don’t generally disclose the exact definitions.

The purpose of having multiple scorecards in a model is to optimize it’s performance for all different consumer credit file types. If your credit score just had one scorecard then it would likely do well for one group of consumers and perform substandard for all others. That’s not a good credit scoring system. The better your developer is at defining a unique population, one that support it’s own scorecard, the better results from your credit score. Currently the FICO scoring system has 10 scorecards (for older versions) and 12 (for FICO 08). The following three components all reside within the scorecards.

Characteristics – A characteristic is simply a question the models asks your credit report. So, for example, “how many inquiries do you have in the past 12 months?” or “what is your revolving utilization?” or “what is the oldest account on your file?” Each scorecard has a different set of characteristics, but many of the same characteristics reside across multiple scorecards.

No model developer discloses all of their characteristics but we do know some of them and we do know that there are thousands of possible characteristics to choose from when building a model. There’s actually software designed to think up characteristics.

Variables – If the characteristic is best described as a “question” then the variable is best described as “the answer.” So, if the model asked you “how many inquiries do you have in the past 12 months” then the variable could be “none” or “one” or “15.” That’s why it’s called a variable, because the answer to the question can vary.

Each of your answers is going to place you neatly into a bucket or bin or class, they’re all the same thing so don’t get confused by the term. For example, here’s how inquiries COULD be bucketed, binned, or classed…THIS IS AN EXAMPLE.

Variable Buckets for “Number of Inquires in the Past 12 Months Characteristic”

0 inquiries

1 inquiry

2-5 inquiries

6-10 inquiries

>10 inquiries

The decision on how to break up those buckets is made by the model developer. He or she is trying to come up with the best scenario, which yields the most predictive model. This is an important step because you can’t simply choose how to break up your buckets based on common sense or anecdotal evidence. It has to be based on science. Just because you “think” 5 inquires is worse than 2 inquiries it doesn’t mean that it’s actually true. In the example above, 2, 3, 4, and 5 inquires all mean the same thing, which is why they’re all in the same bucket.

This “bucketing” process is going to apply to almost every characteristic in your scoring model. NOTE: Just because your bucket looks one way in one of the scorecards it doesn’t mean it’s going to look the same way in the others. It could easily look like this in a different scorecard…

Variable Buckets for “Number of Inquires in the Past 12 Months Characteristic”

0 inquiries

1 inquiry

2-4 inquiries

5-8 inquiries

9-12 inquiries

>12 inquiries

Weights – Weights, or point values, is where your scoring model is most visible to lenders and consumers. This is where your final score is going to start coming together. The weight is the point value given to your variable. So, if I used the above example here’s what it could look like…

Variable Buckets for “Number of Inquires in the Past 12 Months Characteristic”

0 inquiries = 50 points

1 inquiry = 45 points

2-4 inquiries = 40 points

5-8 inquiries = 20 points

9-12 inquiries = 5 points

>12 inquiries = 0 points

Just as it is with characteristics and variables, the point values will be different in different scorecards. So, using my first example for inquiry bucketing your weights could look like this…(remember, this is the same characteristic just in a different scorecard)

Variable Buckets for “Number of Inquires in the Past 12 Months Characteristic”

0 inquiries = 60 points

1 inquiry = 55 points

2-5 inquiries = 50 points

6-10 inquiries = 20 points

>10 inquiries = 0 points

This is what confuses so many “credit expert pretenders’ because they generally want to assign a fixed point value to each item on a credit report. When you look at these inquiry examples you quickly realize there is not a fixed value per inquiry. The value or points you earn is based entirely on what bucket you fall into. You don’t lose 5 points per inquiry. That’s not how scoring works.

There ended the lesson!

From Credit CRM blog by Jamison Law