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Big banks could tighten lending following FHFA lawsuit: FBR Capital

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The decision of the Federal Housing Finance Agency to sue major banks under representation and warranties clauses prompted Paul Miller with FBR Capital Markets to criticize the plan, saying it will likely further drain capital from the banking system.

Miller’s criticism is pointed mostly to the unintended negative impact the lawsuit may have on the average American. As banks tighten purse strings further, for whatever reason, future qualified borrowers continue to stay on the sidelines.

Miller’s analysis arrives days after FHFA announced it would sue 17 banks – including Bank of America (BAC: 7.40 +5.87%), Citigroup, (C: 28.78 +3.90%), Goldman Sachs (GS: 107.33 +2.65%) and JPMorgan Chase (JPM: 34.59 +3.44%) among others – for selling toxic mortgages that became part of the securitization process that eventually led to the housing market meltdown.

Miller wrote: "Because there is no centralized housing policy coming out of Washington, housing agencies (Fannie Mae, Freddie Mac, and Federal Housing Authority) are acting in their own self interest as opposed to that of the broader U.S. economy. For Fannie Mae and Freddie Mac, this means minimizing losses by digging through their loan books and pushing back loans barely delinquent on their mortgages under reps and warrants clauses."

Miller said suing banks for securitization issues would further pressure the housing markets, delaying a recovery and draining capital from the banking system, keeping many borrowers out of the market.

In his report, Miller claims "we believe the banks have developed overly cautious residential lending standards as a result of concerns over reps and warrants claims, even as they struggle to grow revenues."

His report estimates repurchase losses could reach as high as $121 billion, with 60% of those losses being incurred by the nation’s top four banks – Bank of America, JPMorgan Chase, Wells Fargo and Citibank. That is up from previous estimates which said the industry would see $54 billion to $106 billion in losses, with the nation’s top four banks facing 40% of those losses.

Keefe, Bruyette & Woods estimated that a remedy to the claims could cost the defendants as much as $60 billion, but added it’s likely a settlement will be reached between mortgage originators and the FHFA for a smaller amount.

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Written by appraisalmanagementnews

September 7, 2011 at 8:14 pm

Posted in Mortgage Lenders

HUD Selects Lenders to Participate in New Pilot Program to Help Homeowners Pay for Home Energy Improvements

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Eighteen national, regional and local lenders will participate in a new two-year pilot program that will offer qualified borrowers living in certain parts of the country low-cost loans to make energy-saving improvements to their homes. Backed by the Federal Housing Administration (FHA), these new PowerSaver loans will offer homeowners up to $25,000 to make energy-efficient improvements of their choice, including the installation of insulation, duct sealing, replacement doors and windows, HVAC systems, water heaters, solar panels, and geothermal systems.

U.S. Housing and Urban Development (HUD) Secretary Shaun Donovan and U.S. Department of Energy Secretary Steven Chu announced the participating lenders during a tour of a family-run company that offers home energy audits and upgrades in Long Island, New York.

“We believe the market is right for a low-cost financing option for families who want energy-saving technologies in their home,” says Secretary Donovan. “PowerSaver hits on all cylinders by helping credit-worthy homeowners finance these upgrades, cut their energy bills and boost the local job market in the process. While FHA and these lenders are jumpstarting this pilot, we hope its success will lead to a growing private sector interest in making these types of loans.”

Secretary Chu announces “we are breaking down barriers and making energy efficiency more accessible and more affordable. It’s the right thing to do for our environment, for our economy and for the pocketbooks of American families.”

The remodeling industry cites surveys that point to a growing demand among homeowners interested in making their homes energy efficient. Yet options are still limited for financing home energy improvements, especially for the many homeowners who are unable to take out a home equity loan or access an affordable consumer loan. Initially, the PowerSaver pilot program is estimated to assist approximately 30,000 homeowners to finance energy-efficient upgrades though higher market demand may increase this impact. According to HUD projections, more than 3,000 jobs will be created through this pilot program and the impact may be larger if market demand for the loan program increases over time.

Participating lenders are largely selected based on their commitment to work in partnership with established home energy retrofit programs provided by states, cities, utilities and home performance contractors. These markets include, but are not limited to, areas of the country participating in the Energy Department’s Better Building Program.

PowerSaver loans will be backed by the FHA but require these lenders to have significant “skin in the game.” FHA mortgage insurance will cover up to 90 percent of the loan amount in the event of default. Lenders will retain the remaining risk on each loan, incentivizing responsible underwriting and lending standards.

PowerSaver has been carefully designed to meet a need in the marketplace for borrowers who have the ability and motivation to take on modest additional debt to realize the savings over time from home energy improvements. PowerSaver loans are only available to borrowers with good credit, manageable debt and at least some equity in their home (maximum 100% combined loan-to-value).

HUD developed PowerSaver as part of the Recovery Through Retrofit initiative launched in May 2009 by Vice President Biden’s Middle Class Task Force to develop federal actions that would expand green job opportunities in the United States and boost energy savings by improving home energy efficiency. The announcement is part of an interagency effort including 11 departments and agencies and six White House offices.

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Written by appraisalmanagementnews

April 28, 2011 at 3:22 pm

Posted in Mortgage Lenders