Bank Of America to buy Countrywide

NEW YORK(MarketWatch)– Massachusetts congressman Barney Frank (Dem), the Chairman of the House Financial Services Committee, said Friday that Bank of America’s CFC) “could be a positive development in the subprime crisis.” However, Frank urged Countrywide to be more aggressive in working with borrowers to help avoid foreclosures. He also urged Countrywide CEO Angelo Mozilo, who is reportedly eligible to walk away from the deal with $115 million, to donate a “substantial portion of the $150 million he has collected over the last several years to non-profits and other institutions that are helping us deal with the problem he helped to create.”

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Nova Star Sub Prime Lender Selling Off

SAN FRANCISCO (MarketWatch) — NovaStar Financial Inc. shares tumbled 38% on Monday, selling off after the company said it will lay off most of its remaining staff and let its mortgage licenses lapse.

The company (NFI:

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NFI 2.08, -0.84, -28.8%) , once a leading subprime mortgage lender, said it was taking the steps because it couldn’t satisfy some minimum requirements to keep its licenses. The moves will also help preserve cash and reduce debt, Kansas City-based NovaStar explained in a regulatory filing late Friday.

In addition, NovaStar shares will lose their New York Stock Exchange listing on Thursday, the exchange said late Friday.

The company has been hit hard by the nation’s crisis playing out in subprime mortgages: It’s lost more than 98% of its market value since the beginning of 2007. NovaStar’s shares fell as much as 45% and changed hands at $1.86 during midday trading on Monday.

NovaStar will cut roughly 170 positions out of a total of about 200 during the first quarter. The moves will cost $1.3 million to $1.8 million, on a pre-tax basis.

NovaStar got another waiver on a financing agreement with Wachovia Corp. (WB:

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WB 36.29, -0.22, -0.6%) earlier this month. That expires on Feb. 4.

Alistair Barr is a reporter for MarketWatch in San Francisco.

Deutsche Bank Reviewing Entire Mortgage Biz

Deutsche Bank, a top-ranked issuer of subprime mortgage-backed securities, will conduct a top-to-bottom review of its entire mortgage business in the first quarter, according to officials at the company. A spokeswoman for the bank confirmed that a review will soon be under way, adding that, “there may be a reallocation of assets.” Like many Wall Street firms, Deutsche Bank has both an active trading desk and a warehouse lending group that caters to the nonprime sector, a business that is in the throes of a historic correction. Deutsche Bank’s trading desk is overseen by Michael Commaroto, who is listed in Securities and Exchange Commission documents as president of Deutsche Mortgage Securities. In 2006 Deutsche Bank purchased Chapel Funding Corp., Lake Forest, Calif., a privately held nonprime lender. It also acquired the publicly traded MortgageIT Holdings Inc., New York, the nation’s 21st-largest lender, for $429 million. Deutsche Bank can be found online at http://www.deutsche-bank.com.

Rates Decline

The average 30-year fixed mortgage rate fell from 6.17% to 6.07% over the seven-day period ended Jan. 3, according to Freddie Mac’s Primary Mortgage Market Survey. The average 15-year fixed mortgage rate fell from 5.79% to 5.68%, the average rate for five-year Treasury-indexed hybrid adjustable-rate mortgages declined from 5.90% to 5.78%, and the average rate for one-year Treasury-indexed ARMs decreased from 5.53% to 5.47%, Freddie Mac reported. Fees and points averaged 0.5 of a point for 30-year fixed-rate mortgages and ARMs and 0.6 of a point for 15-year FRMs. “The latest home sales data … sent mixed messages on the direction of housing activity towards the end of 2007,” said Frank Nothaft, Freddie Mac’s chief economist. “The mostly grave home sales reports came with a few light notes. While new-home sales fell in November to the slowest pace since April 1995, existing-home sales rose by a small margin to an annual pace of 5 million units.” A year ago, the average 30-year and 15-year fixed rates were 6.18% and 5.94%, respectively, and the average hybrid and one-year ARM rates were 6.02% and 5.42%, Freddie Mac said. Freddie can be found online at http://www.freddiemac.com.

NatCity Exits All ‘Broker-Based’ Lending

National City Corp., Cleveland, said Wednesday that it will exit all “broker-based” mortgage lending and will shut down its wholesale unit, resulting in layoffs of 900 workers. The company also said it will not fund any mortgage unless it is “agency eligible.” According to the Quarterly Data Report, NCC’s National City Mortgage division ranked 10th among residential wholesalers in the third quarter. It will remain a residential lender, but only through the retail channel. The bank announced companywide layoffs of 1,700. National City chief executive officer Peter Raskind said, “[I]t is clear that origination volumes will be lower going forward, and we are configuring our mortgage business to operate profitably in that environment.” The bank also issued $500 million in hybrid capital securities in a move to bolster liquidity. The company can be found on the Web at http://www.nationalcity.com.

Dismal 08 Forcast for Homebuilders

Fitch Sees ‘Dismal’ ‘08 for Homebuilders
Tighter mortgage standards and significant inventories of new and existing homes for sale portend “another dismal year” for homebuilders in 2008, according to Fitch Ratings. The rating outlook for the homebuilding sector is negative, Fitch said. “If mortgage rates should rise or credit terms further tighten, then Fitch’s housing forecast could turn even more pessimistic,” the rating agency said. “And, of course, if the economy slides into recession then the downturn would not only deepen, but possibly extend further into 2009.” Bob Curran, a managing director and the lead homebuilding analyst at Fitch, said homebuilders will need to manage their balance sheets and liquidity. “Companies have to continue to downsize to the point where they can remain profitable, excluding nonrecurring real estate charges, which means further cuts in staffing and other overhead as well as other cost reductions,” Mr. Curran said. Fitch can be found online at http://www.fitchratings.com.

YSP..

Breaking News: Fed’s proposal has YSP provision all wrong, brokers say
Mortgage brokers are uneasy about revisions to Regulation Z — released Dec. 18 by the Federal Reserve Board — which includes a prohibition of yield spread premium without a broker/borrower written agreement. While the provision “should improve the transparency of broker compensation, as well as the role of brokers,” industry professionals say the move is just another example of “misguided politicians who are seeking to make a name of themselves.” Are YSPs seeing their last days and should you be concerned?

Mortgage brokers are uneasy about revisions to Regulation Z — released Dec. 18 by the Federal Reserve Board — which includes a prohibition of yield spread premium without a broker/borrower written agreement. While the provision “should improve the transparency of broker compensation, as well as the role of brokers,” industry professionals say the move is just another example of “misguided politicians who are seeking to make a name of themselves.” Are YSPs seeing their last days and should you be concerned?

Personally I think this is not an issue, I have always taught my clients about yield spread or servicing release premium… For selling the client a higher rate the lender pays a premium or points, also called Yield Spread Premium…  The 0 cost loans, or no closing cost loans are loans with higher interest rates and the lender pays the third party fees.. There is nothing in life free… I think all clients should have all options presented to them so they can make a better decision when choosing a mortgage.  Bill

Market Update

December 20, 2007

Some more evidence this morning that the economy is slowing; weekly claims for unemployment jumped 12K to 346K last week. The last two recessions hit when the 4-week average rose above 362K as the new two year high of 343K rides an upward trend. 

There wasn’t much initial reaction to the 8:30 weekly claims report, but it did add some minor support as prior to 8:30 the 10 yr was trading down about 5/32. Global equity markets are doing better today, causing interest rates to soften a little. This morning the US stock market opened better but as has been the case, the trading activity is becoming less and less each day. Tomorrow and Monday should be some of the lightest volumes of the year. The 10 year is currently at 4.014.

Market Update

December 19, 2007

Treasuries and mortgages started better this morning on more slight weakness in most global equity markets. The markets are increasing the outlook for economic weakness across the globe in the first two quarters of 2008 sending stock prices lower and supporting the rate markets. However, it is still the credit squeeze in the bank-to-bank sector that has investors’ and traders’ focus. While short-term funding measures taken by the banks have provided some relief to Libor rates, it seems finicky investors are parking their capital in treasuries into year end.

Once again a regulatory body is trying to paint mortgage lenders and originators with a black brush and completely ignoring the real crux of how the sub prime loan calamity actually developed. Once again, it wasn’t mortgage lenders at the origination level (with a few exceptions) that lead to this—it was Wall Street and the banks that chucked all concerns of risk out the proverbial window to achieve greedy returns.

Countrywide Subpoenaed As Two State Probes Launched

Lending practices at Countrywide Financial Corp. have become the subject of probes by attorneys general in California and Illinois with particular scrutiny given to the origination of pay-option mortgages.

The Calabasas, California-based company has been targeted by the offices of California Attorney General Jerry Brown and Illinois Attorney General Lisa Madigan for the approval of loans that homeowners can no longer afford.

The investigations come as the nation’s top lender has already begun to face more intense scrutiny of its business practices.

Federal regulators overseeing the bankruptcy court system are looking into Countrywide’s role as the servicer of loans in two cases involving South Florida borrowers for possible abuses of the bankruptcy system.

Additionally, the Securities and Exchange Commission (SEC) has opened an insider trading probe into the accelerated sale of hundreds of millions of dollars worth of company shares by CEO Angelo Mozilo.

The Illinois probe comes on the heels of an investigation into a collapsed mortgage company which led to a lawsuit filed by Madigan charging the broker with deceptive lending practices in the origination of pay-option mortgages.

“This company’s conduct is a prime example of unscrupulous mortgage brokers that has led to a foreclosure crisis for many Illinois homeowners,” said Madigan upon filing the lawsuit.

According to the lawsuit, One Source promised borrowers low teaser rates without properly informing them of a sharp jump in the rates soon after the closing of the loan.

The lawsuit names Countrywide as the primary lender of the collapsed mortgage broker.
Investigators were told by a former employee of One Source that option-ARM loans were the only type Countrywide tried to push because of the significant rebates.

The second-largest lender to One Source was Fremont Investment and Loan, a company which agreed to a cease-and-desist in March after the Federal Deposit Insurance Corporation (FDIC) charged it with unsound lending practices which violated laws and regulations governing the company.

Like the California investigation, the Illinois probe is looking at the way Countrywide determined loan approvals across the state.

Countrywide indicated that it has received subpoenas from the attorneys general and will cooperate with both investigations.

Last week, the company reported a delinquency rate of 6.34% for the loans in its servicing portfolio, up from 4.57% one year earlier.

According to RealtyTrac, California had the second highest foreclosure rate in the nation in October as Illinois reported the 10th highest rate of foreclosure.

California reported the highest total filings of any state for the ninth consecutive month with 50,401 total foreclosure filings.