Obama, Donovan Challenge Republicans on Mortgage Refinancing

By Kevin Wack

MAY 8, 2012 5:21pm ET

WASHINGTON – The Obama administration used a speech by the president and an appearance on Capitol Hill by his housing secretary Tuesday to launch a push for legislation that would allow more Americans to refinance into lower interest rate mortgages.

The new legislative effort met immediate resistance from Republicans on the Senate Banking Committee, who complained that Democrats may ruin a chance at forging bipartisan legislation by bypassing a committee vote on the matter.

President Obama, using a speech in Albany, N.Y., to unveil what he called a job-creation to-do list for Congress, pressured Republicans to support the refinancing plan as one of the five ideas on the list.

“This would make a huge difference for the economy. Families could save thousands of dollars, and that means they’ve got more money in their pocket,” Obama said. “We estimate they’d save at least $3,000 a year. So that’s on our to-do list. It’s not complicated.”

In Washington, Housing and Urban Development Secretary Shaun Donovan told the Senate Banking Committee that now is the time to pass three refinancing bills, which would benefit different groups of homeowners.

“There is a real urgency here because interest rates today are at the lowest level they’ve ever been for a 30-year mortgage,” Donovan said. “But as the economy continues to improve, I think all expectations are that this window of record-low interest rates may not last a significant period of time. And therefore, it is particularly urgent that we take advantage of this.”

But none of the three proposals have even been introduced as bills yet.

On the first proposal, the Obama administration has been working with Democratic Sen. Dianne Feinstein on a measure that would allow homeowners whose mortgages are not owned by Fannie Mae or Freddie Mac to refinance into a government-backed loan.

Obama originally rolled out this idea during the State of the Union address, and he proposed paying for it with a fee on the largest financial institutions, but that idea garnered little support in Congress. Donovan has said more recently that the administration is open to other ideas for covering the estimated cost of up to $5 billion, but he made clear Tuesday that the issue has not yet been resolved.

Donovan’s testimony did include some new details about the proposal. He stated that the Federal Housing Administration, which would operate the program, would establish a second insurance fund, separate from its existing mortgage insurance fund, to better track and manage the risk that results from the new program.

The HUD secretary also announced that mortgages that are worth 40% more than the value of the home will not be eligible for the program.

“Lenders interested in refinancing deeply underwater loans would therefore need to write down the balance of these loans before they would qualify,” he said in written testimony.

The second proposal, which is being developed by Democratic Sens. Robert Menendez and Barbara Boxer, may be easier to sell on Capitol Hill because it does not require the federal government to take on any additional exposure to the mortgage market.

The proposal, which according to Menendez will be introduced as a bill in the next few days, would remove certain existing barriers to refinancing for homeowners whose loans are already backed by Fannie or Freddie. For example, it would allow new servicers to use the same streamlined underwriting process that servicers of existing mortgages are already using under an existing administration refinancing program.

“What we’re seeing in a lot of cases is that because there’s essentially a monopoly on refinancing, whoever holds their current loan, whoever is the servicer, they can charge them, and we’re seeing this, very high fees,” Donovan said.

A third refinancing bill, which had not previously been announced, would provide a financial incentive for borrowers to rebuild equity in their homes by taking out a shorter-term loan when they refinance. That measure is expected to be introduced by Democratic Sen. Jeff Merkley.

Homeowners who qualify for the program would have their closing costs covered, for an average savings of $3,000, according to administration estimate.

The fate of the Democratic refinancing proposals will rest with Republicans in both the House and Senate, and they got off to a rocky start with the GOP on Tuesday.

Republican Sens. Richard Shelby and Bob Corker warned during Tuesday’s hearing that any attempt to bypass the Senate Banking Committee will not be received well by the GOP.

“I’m hearing rumors that some of these bills may go straight to the floor and not come through the committee,” Corker said. “I hope that the chairman will not let the rumors that we’re hearing become reality.”

Shelby agreed: “The committee is the best forum – I believe, right here – to facilitate careful deliberations and the needed compromises. In contrast, bypassing the committee and proceeding directly to the floor with any legislation will almost certainly result in partisan gridlock.”

Following Tuesday’s hearing, Banking Committee Chairman Tim Johnson declined to comment on his plans for moving the refinancing bills. “I have not talked to the leadership about this issue,” he said.

The proposal to refinance privately owned mortgages into government-backed loans appears to face the toughest fight with Republicans, who object to expanding the government’s exposure to the mortgage market.

But at Tuesday’s hearing, GOP senators indicated that they are also not happy with the way that Democrats are proposing to deal with the impediment to refinancing posed by second liens.

“Candidly, shouldn’t the second lien automatically be extinguished first, period, gone?” Corker said. “Why would we give any credit at all to a second lien when you’re writing down any portion, even a penny, of the first lien?”

Competition Fierce, Profits Ample for Harp 2.0 Refis: Fifth Third

By Kate Berry

MAY 8, 2012 2:01pm ET

Competition is heating up among banks in the government’s revised Home Affordable Refinance Program, which has helped spark a refi boom and contributed to strong mortgage profits at most banks.

“We’ve been pretty aggressive” with direct mail solicitations and newspaper ads, says Bob Lewis, a senior vice president and the head of mortgage lending at Fifth Third Mortgage. His loan officers also are combing through files and encouraging past customers to refinance if they haven’t already.

The unit of $117 billion-asset Fifth Third Bancorp (FITB) in Cincinnati was the sixth-largest Harp lender in the first quarter. Refinancings through Harp 2.0 now make up 49% of the bank’s total refinancing volume, Lewis says.

The bank’s first quarter originations resulted in gains of $174 million on mortgages sold to Fannie and Freddie, a 180% increase from gains of $62 million in the first quarter a year earlier.

Lenders were given plenty of sweeteners to participate in Harp 2.0, and critics have argued that rather than offering the lowest interest rates possible, these lenders are raking in outsized profits.

Lewis says the program has been quite profitable for lenders, but that this reflects the vagaries of the market.

“Everybody’s stealing it,” Lewis says, referring to gain on sale margins. “Several things go into that activity. Rates have moved around over the last six months, in a 50 basis point range, and that can create opportunities when you’re selling to the secondary market.”

The purpose of Harp 2.0 was to expand access to refinancing so underwater borrowers with loan-to-value ratios greater than 125% could take advantage of low interest rates and lower their monthly mortgage payments, reducing the potential for strategic defaults.

Still, Lewis framed the issue as one in which banks are simply doing their part to aid the housing recovery.

“We see it as an opportunity to help the communities in our footprint and help consumers maintain homeownership in a challenging environment,” he says. “I don’t know if it’s helping the housing market recover but if borrowers get more affordable payments, there will be fewer foreclosures and the glut of inventory on the market will decline.”

Volume of Harp 2.0 refinancings has been so high that some large lenders, lacking capacity to handle so many requests, are tightening underwriting just to keep from being inundated. For example, Wells Fargo (WFC) has capped loan-to-value ratios at 105% for loans it does not service itself.

Fifth Third is bucking that trend. It accepts borrowers with LTVs as high as 150% LTVs – and may go even higher.

“We’re confident at 150%,” says Lewis. “We selected 150% as a starting point and will evaluate this continually and explore it going forward.”

Lenders are in stiff competition for refinancing largely because the revised program removed the liability for buyback requests from Fannie and Freddie. Borrowers also are not required to get a new appraisal on their home, a major impediment to past attempts to aid consumers who owed more on their mortgage than their home is worth. Also, lenders are required to verify employment only on refis of loans they already service.

Lewis called the release from liability for repurchases “really huge,” though he admits there are “challenges” for lenders that refinance loans currently held by another servicer. Still he thinks refis could remain strong over the life of the program, which was extended through next year.

He also praised the revised program for allowing borrowers to transfer private mortgage insurance policies from one lender to another.

“We were an aggressive Harp lender, we worked out our own portfolio pretty well and so one of our bigger opportunities is going to be with the open access because borrowers can choose the lender they want to deal with,” Lewis says.

Fifth Third’s mortgage banking revenue doubled in the first quarter to $204 million from a year earlier. Mortgage originations jumped 64% to $6.4 billion.

Lenders “have built big pipelines, including us, and baring any economic or world-changing activity, rates could stay down for a while,” Lewis says.

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B of A to Make Short Work of Short Sales with New Web Portal

By John Adams

MAY 7, 2012 2:24pm ET

Mortgage pipelines are like cholesterol – they have good and bad versions. The good version is the pipeline of new loans and the bad one is the pipeline of distressed mortgages.

Bank of America (BAC) is trying to unclog its buildup of distressed mortgages by using a new Web portal it developed with Equator Financial Solutions, a real estate document software firm. The portal is designed to be accessible to the numerous parties involved with a short sale, a recession-era staple in which a borrower who is delinquent on his or her mortgage sells the property for less than the mortgage’s outstanding balance.

“We’ve automated quite a few steps in the process. One of the benefits of being on a Web-based system is we have the ability to interact very easily in real time with our customers and our vendors,” says Lancia Herzog, a senior vice president at Bank of America who provides technical support for the bank’s short sale program.

Short sales normally result in financial losses for the bank, servicer and borrower. Such sales are an alternative to foreclosures, which are more costly to both the bank and borrower.

Short sales can be complex, given the negotiation and document transfer between servicers, borrowers, and the myriad lien holders that are affected by the resale of a distressed property. Banks are using a number of strategies to speed short sales, which are also encouraged by the government.

By providing web access to the short sale process, Bank of America hopes to make short sales more efficient. It predicts that it can handle most transactions, which typically take a month or more to close, in as little as 20 days.

The time savings will come from eliminating the need for the borrower to fax copies of the same document or disclosure to multiple parties.

“Any vendor or title firm would have the ability to transact through the system and send new information back into the same loan file,” Herzog says. “One of the things the system offers is the ability for documents to be uploaded in real time and be transparent to those who need it.”

Equator developed a Web-based application framework that’s used by lenders, servicers and government agencies to receive and return data tied to servicing. The application is layered on top of a company’s servicing system to provide configurable automation of daily activity. The tech is used for loan segmentation, modifications, expense management, settlement, foreclosure, real estate owned management and short sales.

The short sale market’s complexity lends to a centralized portal as an alternative to a cumbersome paper-based process, says John Vella, Equator’s chief operating officer. There are also benefits on fraud prevention, a major problem in short sales.

“There could be thousands of negotiators and third-party outsourcers working on behalf of the servicers,” Vella says. “The technology connects everyone involved.”

Digital signatures remove the need for different parties to be at the same location at the same time.

“If a customer is only available to supply information at midnight, they can do that,” Herzog says.

Each party uses a pre-registered credential to view documents and access the short sale’s workstream. Any registered party involved in the short sale can upload or move documents.

Bank of America hopes the speed of closings will be an incentive for participation. The program’s still relatively new, and the Charlotte banking company did not quantify how much time it saves using the portal.

“I would say it’s made improvement for our timeline,” Herzog says.

The Tampa Bay Times recently reported that nearly 25% of the mortgages the bank serviced in Florida alone in the fall of 2011 were delinquent.

Given the rise of short sales over the past couple of years, Equator faces competition as a service provider. Its rivals include Wingspan Portfolio Advisors, which offers products for servicers, real estate professionals and lawyers. Working with primary servicers that are struggling to handle large volumes of distressed loans, Wingspan presents short-sale offers that have been pre-screened for errors and other red flags. It tracks processing through its own Web-based platform.

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