Showing posts with label mortgages. Show all posts
Showing posts with label mortgages. Show all posts
Sunday, January 26, 2014
Wells Fargo Sells Servicing Rights on $39 Billion in Mortgages
In another sign of the banking industry’s retreat from the mortgage market, Wells Fargo is selling servicing rights on $39 billion of home loans to a nonbanking firm.
Wells Fargo said on Wednesday that it sold the rights to service 184,000 mortgages to the Ocwen Financial Corporation, a rapidly expanding company known for its expertise in dealing with subprime borrowers.
The deal represents about 2 percent of all the mortgages that Wells Fargo services, and comes as other banks have been selling this business to specialty servicers like Ocwen, which is based in Atlanta.
Last week, Citigroup announced that it had transferring servicing rights for 64,000 mortgages to Fannie Mae, which, in turn, plans to pay an outside firm to service the loans.
The deals represent a significant shift for homeowners, whose mortgages are increasingly being serviced by firms outside the traditional banking system.
Industry officials estimate as much as $1 trillion of mortgages could be transferred to specialty servicers over the next two to three years.
Large banks are looking to trim their servicing activities, particularly of subprime loans, because the costs and regulatory headaches are too high. New banking rules will require banks to set aside more capital against the loans they service, further weighing on profits. The value of the servicing rights can also fluctuate based on shifting interest rates, causing unwanted volatility for the banks’ balance sheets.
That’s where Ocwen and other large nonbank mortgage servicers come in. Banks and investors in mortgage-backed securities pay Ocwen fees for servicing the loans they own. In exchange, the firms communicate with borrowers who fall behind on their mortgage payments and try to get them back on track. Servicers are also typically paid extra for getting delinquent homeowners caught up on their payments. Specialty servicers usually don’t hold the loans.
Analysts say Ocwen has been able to keep its costs low by operating call centers in places like India. The company also boasts about using “artificial intelligence, designed and tested by Ph.D.’s in psychology and statistics to develop dialogues with the homeowner,’’ according to a recent investor presentation.
“They have two decades of experience and are second to none in efficiency,’’ said Daniel Furtado, an analyst at Jefferies.
In some cases, housing advocates say Ocwen has been more responsive to homeowners than the large banks, which had to pay billions to settle regulatory issues related to servicing problems. The company has earned plaudits for working with homeowners to make principal reductions for underwater loans, which are for more than the house is worth.
But Ocwen’s track record is far from perfect. Last month, Ocwen agreed in a consent order with the Consumer Financial Protection Bureau, various state attorneys general and other regulators to provide $2 billion in mortgage principal reductions to underwater borrowers and refund $125 million to borrowers who had already been foreclosed on. The federal agency said, “Ocwen took advantage of borrowers at every stage of the process.”
The company said in a statement at the time that that the agreement “is in alignment with the same ultimate goals that we share with the regulators — to prevent foreclosures and help struggling families keep their homes.”
A Wells Fargo spokesman declined to comment on how much Ocwen paid for the bank’s servicing rights.
In the Citigroup deal, the bank paid Fannie Mae to settle outstanding fees it owed to the government-sponsored enterprise. The sale included nearly 20 percent of the total loans serviced by Citigroup that are 60 days or more past due.
Five Takeaways: Treasury Official Outlines Mortgage-Market Priorities
A top Treasury Department adviser on housing policy outlined a series of initiatives that the Obama administration could undertake in 2014 to overhaul the nation’s mortgage market, even if Congress doesn’t succeed in shepherding a bipartisan overhaul of Fannie Mae and Freddie Mac.
Michael Stegman, a senior Treasury adviser, offered greater detail in a speech Wednesday about what kind of mortgage infrastructure should be built to take the place of Fannie and Freddie, and he outlined transition steps that could become a priority for the Federal Housing Finance Agency, which has a new director in former Rep. Mel Watt.
Here are some of the highlights of the speech he delivered at an industry conference in Las Vegas:
REFINANCING, PART ONE: The Treasury Department doesn’t support changing the cut-off date for the Obama administration’s Home Affordable Refinance Program, or HARP, which allows homeowners with a mortgage backed by Fannie Mae or Freddie Mac to refinance even if they have no equity. HARP is only open to loans originated before June 2009, and some Democrats have pushed for extending that cut-off date to June 2010. Bond investors would lose money if more borrowers were allowed to refinance, which could lead them to demand slightly higher prices in the future given the potential for other policy changes:
Some have suggested that the eligibility date for HARP should be changed so that borrowers who took out mortgages after the May 31 2009 cutoff date could also obtain a HARP refinance. Treasury believes there should be no change in the HARP eligibility date. Very few homeowners whose loans were originated after the cut-off date are underwater and advancing the date would do more harm than good by prolonging market and investor uncertainties.
REFINANCING, PART TWO: Mr. Stegman endorsed creating a HARP-like program for loans that aren’t backed by Fannie and Freddie, which he said could reduce the urgency in a handful of hard-hit communities to seize those loans via eminent domain. Such a plan, for which he also voiced support last year, would require congressional action, which seems difficult in the current political environment:
We must not forget about the inability of performing underwater borrowers whose loans are held in private-label security trusts to access refinancing. This has motivated some communities whose housing markets have yet to recover to consider using eminent domain to help families refinance and “right size” their mortgage debt. While we understand their frustration, we think refinancing legislation is a better way to go.
OVERHAULING FANNIE AND FREDDIE: Mr. Stegman said that the status quo in which Fannie and Freddie remain in some form of government-controlled limbo shouldn’t be allowed to continue, even as the crisis becomes a distant memory now that companies are hauling in huge profits. For one, many of those profits are either one-time gains or they’re being generated by the firms’ large investment portfolios that are being wound down, he said:
It is good news that [Fannie and Freddie] have generated record earnings over the past several quarters…. But we believe that their recent financial results may significantly overstate the true financial condition of the enterprises, especially on a go-forward basis…. Recent financial results at the enterprises have also benefited significantly from strong home-price appreciation and low interest rates, both of which may moderate in future periods.
Part of an overhaul, he added, should address price differences between the securities issued by Fannie Mae and Freddie Mac, which have resulted in higher costs for Freddie.
A good first step … that could be taken during the transition is to reduce the price gap at which Freddie Mac securities trade relative to Fannie Mae’s securities by linking the two securities. This would reduce the cost to taxpayers and improve liquidity in the [mortgage bond] market. We think it is worth pursuing and are looking to find a workable solution that would not disrupt markets.
BROADENING ACCESS TO MORTGAGE CREDIT: The Obama administration continues to argue that mortgage standards are too inflexible—potentially locking creditworthy borrowers out of the mortgage market. Overhauling Fannie and Freddie, Mr. Stegman said, would be an important way to address some of these rigid credit standards:
We believe that keeping [Fannie and Freddie] in a conservatorship whose contours and restrictions were defined by emergency legislation is not the best framework for broadening the availability of mortgage credit over the longer term. The [companies] in conservatorship have done an exceptional job of maintaining a deep and liquid secondary market in and following the recent crisis. However, we believe that continued uncertainty about their political future will continue to be a headwind impeding access to credit especially for average families with less than pristine credit. For all these reasons, comprehensive housing finance reform remains a top administration priority.
RESTARTING PRIVATE MORTGAGE SECURITIZATION: Mr. Stegman has suggested in the past that the lower cost of government-backed lending isn't the only reason privately-issued securitizations have been slow to restart. Other technical barriers remain unaddressed:
In the absence of an apparent leader, Treasury plans to coordinate a series ofconversations with relevant regulators, market participants, and other stakeholders to help accelerate necessary reforms in the non-agency space.
Michael Stegman, a senior Treasury adviser, offered greater detail in a speech Wednesday about what kind of mortgage infrastructure should be built to take the place of Fannie and Freddie, and he outlined transition steps that could become a priority for the Federal Housing Finance Agency, which has a new director in former Rep. Mel Watt.
Here are some of the highlights of the speech he delivered at an industry conference in Las Vegas:
REFINANCING, PART ONE: The Treasury Department doesn’t support changing the cut-off date for the Obama administration’s Home Affordable Refinance Program, or HARP, which allows homeowners with a mortgage backed by Fannie Mae or Freddie Mac to refinance even if they have no equity. HARP is only open to loans originated before June 2009, and some Democrats have pushed for extending that cut-off date to June 2010. Bond investors would lose money if more borrowers were allowed to refinance, which could lead them to demand slightly higher prices in the future given the potential for other policy changes:
Some have suggested that the eligibility date for HARP should be changed so that borrowers who took out mortgages after the May 31 2009 cutoff date could also obtain a HARP refinance. Treasury believes there should be no change in the HARP eligibility date. Very few homeowners whose loans were originated after the cut-off date are underwater and advancing the date would do more harm than good by prolonging market and investor uncertainties.
REFINANCING, PART TWO: Mr. Stegman endorsed creating a HARP-like program for loans that aren’t backed by Fannie and Freddie, which he said could reduce the urgency in a handful of hard-hit communities to seize those loans via eminent domain. Such a plan, for which he also voiced support last year, would require congressional action, which seems difficult in the current political environment:
We must not forget about the inability of performing underwater borrowers whose loans are held in private-label security trusts to access refinancing. This has motivated some communities whose housing markets have yet to recover to consider using eminent domain to help families refinance and “right size” their mortgage debt. While we understand their frustration, we think refinancing legislation is a better way to go.
OVERHAULING FANNIE AND FREDDIE: Mr. Stegman said that the status quo in which Fannie and Freddie remain in some form of government-controlled limbo shouldn’t be allowed to continue, even as the crisis becomes a distant memory now that companies are hauling in huge profits. For one, many of those profits are either one-time gains or they’re being generated by the firms’ large investment portfolios that are being wound down, he said:
It is good news that [Fannie and Freddie] have generated record earnings over the past several quarters…. But we believe that their recent financial results may significantly overstate the true financial condition of the enterprises, especially on a go-forward basis…. Recent financial results at the enterprises have also benefited significantly from strong home-price appreciation and low interest rates, both of which may moderate in future periods.
Part of an overhaul, he added, should address price differences between the securities issued by Fannie Mae and Freddie Mac, which have resulted in higher costs for Freddie.
A good first step … that could be taken during the transition is to reduce the price gap at which Freddie Mac securities trade relative to Fannie Mae’s securities by linking the two securities. This would reduce the cost to taxpayers and improve liquidity in the [mortgage bond] market. We think it is worth pursuing and are looking to find a workable solution that would not disrupt markets.
BROADENING ACCESS TO MORTGAGE CREDIT: The Obama administration continues to argue that mortgage standards are too inflexible—potentially locking creditworthy borrowers out of the mortgage market. Overhauling Fannie and Freddie, Mr. Stegman said, would be an important way to address some of these rigid credit standards:
We believe that keeping [Fannie and Freddie] in a conservatorship whose contours and restrictions were defined by emergency legislation is not the best framework for broadening the availability of mortgage credit over the longer term. The [companies] in conservatorship have done an exceptional job of maintaining a deep and liquid secondary market in and following the recent crisis. However, we believe that continued uncertainty about their political future will continue to be a headwind impeding access to credit especially for average families with less than pristine credit. For all these reasons, comprehensive housing finance reform remains a top administration priority.
RESTARTING PRIVATE MORTGAGE SECURITIZATION: Mr. Stegman has suggested in the past that the lower cost of government-backed lending isn't the only reason privately-issued securitizations have been slow to restart. Other technical barriers remain unaddressed:
In the absence of an apparent leader, Treasury plans to coordinate a series ofconversations with relevant regulators, market participants, and other stakeholders to help accelerate necessary reforms in the non-agency space.
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