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RELEASE TODAY:
As much as the administration discusses about staying out of housing, it can't. President Obama is expected to make public a new refinance plan today in Virginia. Whatever plan it is, no one expects it to pass through Congress, IF Congressional endorsement is required. Recall that this plan was previewed by Obama during his State of The Union address last week. The plan would allow mortgages not backed by Fannie or Freddie (conventional Mortgages) who are current to refinance into a lower-interest federally insured mortgage (via FHA). Borrowers could qualify even if they had no equity. The plan could help as many as 3.5M homeowners refinance. The plan is expected to cost $5-10 Billion and Obama will call for a new fee to be charged to banks to pay for the proposal - because they have all the money, right?
Rates can do whatever they want, but if large investors go away, and the government does away with Fannie & Freddie, is the borrower better off? (Remember borrowers?)
Needless to say with all this, mortgage lenders are getting scared. Competitors are watching, not really wanting a huge increase in volume coming their way. And smaller shops are wondering, "When is this going to end?" Or "What am I supposed to do?" Some lenders with a minimum net worth of $2.5 million have begun selling loans directly to Fannie and Freddie, with the servicing either being retained (in house or with a sub servicer) or sold released to a servicing counterparty of F&F (such as Central, USB, PHH, and so on). But that is not a sure thing either, as the FHFA, not content to leave well enough alone, has offered two options to revamp the economics of mortgage servicing rights - which brings up the issue of how the market values servicing versus how the lender values servicing.
Retaining mortgage servicing isn't a matter of just saying, "Sounds good, let's crank it up." CFO's and owners need to be fully aware of the capital it requires, both in pricing the loans, in carrying them on the books, and in setting aside reserves for delinquencies. Depending on the arrangement (actual-actual or scheduled-actual) the servicer must fund principal and interest payments to investors, which can quickly eat up cash. The saga continues......
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