House Panel OKs Bankruptcy Bill

The House Judiciary Committee approved a narrowly targeted bankruptcy bill by a 17-15 vote 12/12/2007 that would give subprime and nontraditional mortgage borrowers facing foreclosure one last chance to get their mortgage restructured so they could stay in their homes.

Only homeowners who have received a foreclosure notice could seek a Chapter 13 restructuring under a compromise worked out between committee Democrats and Rep. Steve Chabot, R-Ohio.

Under the bill, bankruptcy judges could waive prepayment penalties and reduce the mortgage amount to the fair market value and reduce the interest rate to a conventional rate plus a risk premium.

This restructuring would be limited to both subprime mortgages and nontraditional mortgages originated from 2000 through the date of enactment of the legislation.

The Mortgage Bankers Association and the American Bankers Association oppose the bill.

Congress Debates Subprime Legislation. Barney Frank Proposes Mortgage Brokers to be Treated Like Mortgage Bankers

If bankruptcy judges begin to reduce or “cram down” the principal amount of residential mortgages, Federal Housing Administration servicers would have to absorb the losses because the government cannot pay a claim on a cramdown, according to the Mortgage Bankers Association.

Passage of the bankruptcy bill (H.R. 3609) to permits cramdowns and loan modifications would make it riskier for lenders to originate FHA insured and Department of Veterans Affairs guaranteed loans, MBA chairman-elect David Kittle warned a House Judiciary Committee panel.

As a result, lenders would have to charge higher interest rates and fees. The MBA also noted that Fannie Mae and Freddie Mac would be required to purchase loans out of mortgage-backed securities pools if loans are modified.

“If this bill becomes law, we believe mortgage rates would jump significantly, going up 1 1/2 to 2 points for everyone taking out a loan,” Mr. Kittle told the commercial and administration law subcommittee.

The government is suppose to foot this???…that REALLY means you and I!

Just a thought, maybe the banks should absorb the costs, after all, the DID underwrite the mortgages.

The housing recovery is still a long way off, a panel of mortgage industry executives agreed at the Mortgage Bankers Association annual convention in Boston.

“The overall picture is not a great one,” Patti Cook, chief business officer at Freddie Mac, told a ballroom packed with anxious conference attendees.

Paul Bibb of National City Mortgage didn’t do much to ease the industry’s anxiety, either, noting that while some markets are OK, others “are train wrecks.” These are places where price corrections could be quite severe, and it may take until 2010 to return to normal, Mr. Bibb said.

David Lowman of Chase agreed. Because “fearful” homebuyers are staying away in droves, it will “easily be into ‘09 and maybe even ‘10″ before the market begins to turn around, Mr. Lowman said. “I think we’re in for quite a ride.” To weather the storm, the Chase official said his company is returning to sound underwriting fundamentals in all its origination channels and doing everything else it can to draw investors back into the fold.

National City, on the other hand, is redirecting its lending around agency products. “If it’s not saleable,” Mr. Bibb told the session, “we don’t want to originate it right now.”

Mortgage originations will fall below the $2 trillion level in 2008 for the first time since 2000, Mortgage Bankers Association chief economist Doug Duncan told reporters.

Originations were $2.7 trillion in 2006 and are projected to be $2.3 trillion for this year. Next year, volume will fall to $1.9 trillion, the MBA economist said.

Regarding the credit crunch, “if it is all about subprime, why did Cerberus have a problem” getting the funding for its eventual acquisition of Chrysler, Mr. Duncan asked. The real issue, he said, is leverage, although issues with subprime mortgages were the trigger.

Mortgage industry job losses will top 100,000 and possibly go as high as 110,000, he predicted. Back in 2004, when there was a brief market slowdown, Mr. Duncan predicted there would be job losses of 80,000.

It is an obvious fact Mr Duncan, not a crystal ball prediction, with the decrease in mortgage production, there will be a need for fewer originators.

While there were some initial job cuts back then, growth in the asset backed business led to an increase in employment. Now we are seeing those cuts being made, enhanced by the new hires, he said.

MBA: Average Loan Lost $50 in ‘06

Mortgage bankers lost an average of $50 on every loan they produced in 2006, compared with profits of $258 per loan in 2005, according to the Mortgage Bankers Association’s annual cost study.

“Production profits began to slip in 2004, and we see a continuation of this trend in 2006,” said Marina Walsh, a senior director in MBA’s research and economics department. “Despite some companies’ best efforts to boost production revenues through the origination of higher yielding mortgage products, several factors worked against the industry as a whole.

The negative yield curve which increased the cost of funds, lower sales productivity and higher per loan sales and fulfillment costs, particularly personnel related costs. Servicing profits in 2006 partially offset production losses, but even these profits declined from 2005 levels due to mortgage servicing hedge losses.” Production revenues increased, but so did production operating expenses, which were up 17%.

The net cost to originate increased to $2,476 per loan in 2006, compared with $2,049 per loan in 2005. On the servicing side, per-loan financial profits averaged $58 in 2006, down from $104 in 2005.

The legal and regulatory playing field between nonbank and bank originators has been leveled, according to Ruth Dillingham, an attorney working for a division of First American Title Insurance.

Ruth told attendees at the New England Mortgage Banking Conference that today’s market is one where both banks and brokers face largely the same legal and regulatory restrictions. Among the changes that nonbank players must now adjust to are stricter requirements about having a buyer for loans before they can take certain actions, she said.

The only two major differences are that mortgage brokers fully disclose terms of a mortgage loan to their clients and banks do not have to.

Another very important frame of difference is that a consumer will benefit from dealing with a mortgage broker more than directly with a bank. The reason that are stated are that a mortgage broker typically has hunders of lenders to choose from, this allow for the best mortgage interest rates to be found, the best program and terms to choose from. All of which should save a consumer thousands of dollars.

Typically, a mortgage bank can only offer to their one set of guidelines.

The Office of Thrift Supervision is suggesting to Congress that it is time to impose some level of federal supervision over independent mortgage banks and that the OTS has the “expertise” to do it.

“The OTS has extensive expertise in the oversight and supervision of mortgage banking operations that I believe would benefit the currently unregulated mortgage banking market,” OTS Director John Reich told the Exchequer Club in Washington.

Mortgage banks do NOT have to share the same disclosures that mortgage brokers do. Mortgage brokers have to tell the client EXACTLY what all the fees are in a mortgage transaction BUT mortgage bankers do not have to - for some reason. Currently, bankers are able to ‘hide’ their fees from consumers.

The number of mortgage loans entering the foreclosure process in the second quarter set another record, according to the latest data from the Mortgage Bankers Association.
According to the group’s quarterly mortgage delinquency survey, a seasonally adjusted 0.65% of loans on one to four unit residential properties entered the foreclosure process during this period. This was the highest level in the surveys 55-year history.

Impac Mortgage Holdings has laid off approximately 350 people as part of its previously announced plans to reduce operating expenses.

Impac blames the volatility in the secondary and securitization markets for nonconforming mortgages. Joseph R. Tomkinson, chairman and chief executive of Impac, commented, “We are deeply saddened by the displacement of these employees, many of whom have been loyal to the company for more than a decade.

During this very difficult time, the company is hosting a variety of seminars, career days, daily lab environments and a job fair to assist our employees in their job searches.

Further, we have engaged multiple business partners within the industry to place infrastructures in various sale regions either partially or in their entirety.”