Bank of America putting David Sambol in charge of its mortgage business

David Sambol, president & chief operating officer of Countrywide has been placed in charge of Bank of America's combined mortgage business.

But this decision has raised some eyebrows as he was the spearhead of Countrywide's lunge for growth. Sambol embraced company's pursuit of subprime mortgage loans which had turned Countrywide into largest mortgage lender in the country.

According to 4 current & former executives at the company, David Sambol had brushed aside warnings by company's risk-control managers that Countrywide's lending standards were too laxed.

Right now it is too soon to tell what Mr. David Sambol will be doing at BofA. Some people are sceptical of his appointment with Bank of America.

In a statement CEO of Center for Community Self-Help, Martin Eakes said -

Merger of mortgage companies

In East Bay 4 mortgage companies have merged with BWC Mortgage Services, situated in San Ramon to form a retail mortgage lender which will now have yearly origination greater than $2 billion. With this merger BWC Mortgage Services will be operating in 21 branches with more than 200 mortgage loan agents.

BWC Mortgage Services which is a former division of Bank of Walnut Creek provides multi-state licensing, FHA loans & mortgage banking.

The 4 mortgage companies that have merged with BWC Mortgage Services are; Paragon Mortgage Bankers of Alamo, Bay Area Funding Group of Danville (it was lending division of Re/Max Accord), Stonecastle Land & Home Financial of Danville and Concord branch of All California Mortgage.

Capstead Mortgage reports 4Q profit

Good news for mortgage industry watchers; Dallas based REIT, Capstead Mortgage has posted a fourth-quarter profit. It has reported $15.9 million as net profit for 3 months ending December 31, 2007, same period last year it was at $2.35 million. In this 3 month period interest income also rose to $87.8 million which was $70.3 million last year.

Its shares also rose by eight percent to $17.10 on volume of about 953,000 compared to a thirty day average volume of 865,000 shares.

Subprime mortgage loss assumption increased by S&P

For subprime mortgages which were originated in 2006, packaged into bonds & sold to investors, the credit rating agency - Standard & Poor's is increasing its loss assumption to 19% which was 14% previously because of increasing defaults for such mortgages.

This change has been planned as Standard & Poor's is altering the overall ratings assumptions that are used for reviewing collateralized debt obligations backed by MBS.

Debt & bonds originated in 2007, 2006 & 2005 are expected to be most affected as these are more sensitive to present market downturn.

Standard & Poor's has planned some other changes to assumptions:

It will extend stress-case losses scenarios which presently are run for thirty six months period to span entire life of bonds. This stress-case loss is a test of how bonds are going to perform under worst case scenarios, and

Excess capital that is placed in a deal for covering some portion of losses known as excess spread is also being revised by Standard & Poor's.

Plans by John Kerry on funding of mortgage refinances

In a press statement Sen. John Kerry said that it will be possible to refinance subprime mortgages taken by Massachusetts borrowers using tax-exempt bonds under economic stimulus package cleared by a U.S. Senate Committee recently.

Kerry said that, if the bond provision of the bill which has been developed as an economic stimulus package survives negotiations, it will mean that states would have near about $10 billion for use as tax-exempt bonds. These bonds could be used to help borrowers refinance their subprime mortgages into mortgages with lower rates.

Kerry also informed that communities that have been affected most due to recent foreclosures in Massachusetts like, Lawrence & Brockton will benefit as some share from $10 billion fund will flow into Massachusetts.

This proposed mortgage plan by Kerry & Sen. Gordon Smith has been praised by many including Thomas R. Gleason, executive director of MassHousing, which is a quasi-government agency.

This provision (called as Kerry-Smith provision) in the bill for tax-exempt bonds will help states sell another $10 billion as federally tax exempt mortgage revenue bonds. Part of these funds will flow through to agencies such as MassHousing which will then have more money to make available affordable mortgages for borrowers.

Commerce committee passes mortgage bill

Senate's Commerce Committee has passed the bill which has been created to strengthen monitoring system of mortgage loan originators in Oregon.

This bill (Senate Bill 1064) will empower Oregon's DCBS (Department of Consumer & Business Services) with regulating authority over loan originators in mortgage sales business commonly referred to as "bad actors".

Department of Consumer & Business Services will have the authority to take action against bad loan originators through increase in reporting standards & by increase in the scope of prohibited conducts to include acts on part of loan originators which reflect incompetence or negligence. And violators will have the risk of loosing their license.

Supporting the bill, Sen. Ben Westlund, D-Tumalo, committee's chairman has made a statement that:

Mark Greene - FICO not to be blamed for mortgage mess

Some people are of the opinion that Fair Isaac, the company that developed FICO score and other companies which provide credit score, like, TransUnion, Experian & Equifax are to be blamed for present mortgage mess because their scores were not able to correctly predict subprime default risk.

But Fair Isaac's Chief Executive Officer (CEO), Dr. Mark Greene does not agree with such thoughts. In a recent interview with cnnmoney.com's editor Paul R. La Monica he said that FICO score has performed well & is not to be considered as one of the causes of present mortgage crisis.

He does agree that there is scope for improvement. And in that context, Fair Isaac is about to release a new credit scoring product by May, named, FICO 08. This new credit scoring product will mainly focus on improving predictive accuracy of credit risk of borrowers who are known as subprime borrowers and also of borrowers with little credit history called as "thin file" borrowers.

According to Greene, Fair Isaac is also coming out in May with what has been named as Credit Capacity Index (CCI). This index will help banks calculate capacity of any prospective borrower of borrowing additional debt. This product will help banks & lending institutions correctly estimate any prospective borrower's creditworthiness.

A few things about Interest Only Loans

The first chart above depicts monthly payment schedule for a interest only loan. Borrower pays only the interest in the initial loan period, & afterwards mortgage re-amortizes to pay the balance on the prinicipal amount of $100,000 over the remaining term of the mortgage.

Second chart shows that the principal amount remains constant during the I/O term & begins to decline when borrowers starts making principal balance payment.

Interest only mortgages are basically suitable for borrowers who;

- are trying to prevent negative cash flow during starting period of mortgage,
- expect their property to appreciate considerably
- plan to flip there property,
- have other section where cash is being used which they have to pay as principal.

Mortgage rate fluctuations

The following graph illustrates how different mortgage rates have been doing over the years -

Investigative hearings on Countrywide's acquisition by BofA

U.S. Congressional Banking Committees have been asked by 4 statewide consumer groups to hold investigative hearings on affect acquisition of Countrywide by BofA will have on its employees & borrowers.

Letters in this regard were sent to Barney Frank, Chairman of House Financial Services Committee (HFSC), & Christopher Dodd, Chairman of Senate Banking Committee (SBC), by the 4 consumer groups, namely, Neighborhood Economic Development Advocacy Project, New York (NEDAP), Community Reinvestment Association of North Carolina (CRA), New Jersey Citizen Action (NJCA), & California Reinvestment Coalition (CRC).

Josh Zinner, co-director of NEDAP in a statement said that -





Concerns are rising as BofA has not made public any particular plan which will ensure that efforts will be made to help borrowers keep their homes & local economies and neighborhoods remain intact. Congress has been urged to make sure that a plan is developed to include policies and staffing which will guarantee that borrowers are offered affordable fixed mortgages which will help them keep their homes.

Mortgage Forgiveness Debt Relief Act

In late December Mortgage Forgiveness Debt Relief Act of 2007 came into existence which is meant to provide tax help for people who are selling their house in a short sale or are facing foreclosure.

Before this Act, if value of house declined & lender forgave any portion of your mortgage debt, according to tax code forgiven amount was treated as income and was taxable.

If it is your principal residence & not a investment property or second home then as per MFDR Act you can exclude up to $2 Million of mortgage loan debt forgiven in years 2007, 2008 or 2009. Additionally, this debt relief will be applicable for acquisition indebtedness only.

New Golden Opportunity Mortgage Program

A new mortgage loan is being offered by Cappelli Sales & Marketing named "Golden Opportunity Mortgage Program (GOMP)".

Under this program new home buyers at 3 Cappelli developments in Westchester County are offered low rates of 4.875%. This low rate is for first 3 years & is followed by a 5.875% rate for the next 2 years.

The 5 year mortgage will be based on thirty year amortization schedule with loan for up to 80% ltv & will not have any origination fees, points or prepayment penalties. To qualify for the low interest rates, borrowers will have to commit in writing & lock-in rate in forty eight hours of date of contract's rescission.

Refinance Rush

Federal Reserve's recent rate cut has caused a rush in refinance activity among homeowners. 30 yr FRMs are now available at an average rate of 5.57% which is very close to the historic low of 5.21% in 2003.

Market Composite Index, which is known as a measure of application volume for mortgage loans from Mortgage Banker's Association (MBA) has gone up by 8.3% from where it was a week ago.

Refinance rush is expected to get further boost from the fact that an economic stimulus package has been proposed by government & because of which Freddie Mac & Fannie Mae will be able to buy mortgage loans worth much more than what is allowed presently.

In such scenario, it will become feasible for homeowners to refinance more expensive mortgages also.