The feeling grows that this is more than a downturn, more like a recession, but perhaps unlike anything economists have seen in recent years

One by one, new parts of the economy are being affected. As each industry seeks to renew its debt structures it finds access to normal sources of capital denied. Although certain parts of the mortgage-generation machinery are back up and working, they tend to involve prime borrowers, prime properties, and prime lenders. Nothing suggests that the vast undergirding securitization machinery that existed before the downturn can restructure itself easily or quickly. Noticeably, no experts are predicting anything today, let alone anything positive.

A Slowdown in Closings Late In 2007 Causes First Quarter Concerns at LandAmerica

Opened/closed order counts now being reported by the major title insurers are an excellent new measurable, becoming increasingly helpful in understanding what's happening with real estate transactions on a national basis. But there are questions concerning exactly what is measured in these numbers -- what's included and what's not -- and more importantly, what has caused these numbers to be what they are and what systemic problems they might be calling attention to. For example, LandAmerica reported that 50% of orders it received in the late months of 2007 had closed the following month, compared to the usual and expected rate of 75%. For a discussion of the questions surrounding these numbers and what a report such as LandAmerica's might mean, see the Condell Private Letter No. 185, due out on March 25, 2008.

"Real Money" Loans Keep Many Communities Moving

Many U.S. cities, especially smaller ones, are going along in nearly normal fashion, with homes being sold and local lenders, largely smaller community banks and S&Ls, finding ways to finance them. With the secondary market currently in disarray, loans are being made like they used to be made a generation ago, to be held on the shelf or for private investors. The cash comes not from investors in MBS securities in Dubai somewhere but right from the bank's depositors, so it's real money. There's not enough liquidity to finance an active real estate market and won't suffice for many refinances, but at least it's something

Will There Be Mayhem at the Closing Table When Closing Agents Point Out to Borrowers What 'Yield Spread Premiums' Are Costing Them?

HUD has sent Congress its recommendation for two items of RESPA reform. Reports say one will call for full disclosure on the HUD-1 of the yield spread premium, or YSP, which is the amount the lender is paying the mortgage broker for bringing in a high-interest loan. The borrower winds up paying the YSP in the form of added monthly interest. Mortgage brokers vehemently oppose this move and can be expected to lobby Congress hard to prevent it from being adopted. Meanwhile, closing agents must get ready to show YSP information on the HUD-1 closing statement and handle any borrower displeasure that may come next.

Might the End Be Near for Affiliated Business Arrangements?

It's taken fifteen years for HUD's Affiliated Business Arrangement idea to hit bottom. HUD's disgust and disappointment with it are obvious. GAO's report was sharply critical and impossible for Congress to ignore. Embarrassing sham- and shell-like entities are continually in the news. And today's economic downturn has turned thousands of these pseudo business entities into financial disasters. The end may be near for the entire AfBA program.

For many it was a disaster from the beginning. An area manager for one of the major title insurers says when he was ordered by his home office to begin signing up customers to affiliated business arrangements he felt almost ill. "I got sick to my stomach," he says. "I couldn't believe my company wanted to do this. It was a denial of all we'd worked for. It cheapened my company and cheapened me. I sat there and wondered why I'd worked so hard for 18 years."

Continued in the Condell Private Letter, February 5, 2008..  

NY AG Andrew Cuomo Pushing Fannie-Freddie to Stop Accepting Appraisals from Mortgage Broker-Recommended Appraisers

As a follow-up to his suit against First American's appraisal company for boosting WaMu appraisals, NY Attorney General Andrew Cuomo is said to be insisting that Fannie and Freddie stop accepting appraisals made by appraisers hired by mortgage brokers. Fannie and Freddie are reportedly resisting. None of the parties is saying anything for the record at this point.

More Uniform, More Disciplined Closings Could Have Made All the Difference

Many subprime mortgages now found to be bad would not have been made had they been closed by title companies and had some kind of uniform, highly-disciplined, and strict routines been used at their closing, measures that would have screened out fraud and poor quality. Of course, mortgage lenders would have had to want better mortgages, something title companies tended to doubt. This is a subject that will be much debated in coming months and in which The Point of Beginning intends to take the lead.

Might a New "Clean" Chain of Go-Forward Mortgage-Making Companies Be the Answer?

Two big bond-insurers seem to think so. Troubled Ambac and FGIC, threatened by rating companies and pushed by NY regulators to do something, want to start new clean companies to handle future business, freeing up the log-jam in their industry. Could the entire mortgage industry consider such a move, up and down its processing chain.? If so, what would the nation's title insurance companies do about it?

The theory behind it, experts point out, is that most mortgages are good mortgages, a fact often overlooked in the present turmoil.

The Value of MBS Continues to Puzzle Big Wall Street Firms

When Credit Suisse 're-marks' the value of its mortgage-backed securities down precisely $2.85 billion does this mean it now knows for sure how to do it? Or is it (and everyone else) still guessing at their real dollars-and-cents value? Only when this arcane exercise, hidden since the secondary market began behind trillions in U.S. residential mortgages, is fixed in some credible way will sense come to the financial markets and some kind of stability return.

"We Have Half the Employees We Had in 2003," says Fidelity National's Randy Quirk

Fidelity National Title had 18,000 employees in 2003 when the market was at its top and title orders were flowing in. Today, says Randy Quirk, Fidelity's title chief, that number is closer to 9,000. That's nine thousand lost jobs and a lot of closed offices, empty desks and dark computers. The main thing, however, is the crushing loss of human skill, experience, and capital.

Lower Rates Bring January Refis, Brighten the Picture for 2008

A surge of refinances in January has significantly brightened the picture for a usually-dismal month and perhaps for the entire year. Fed action and soaring bond prices have driven long term rates lower, hovering at the 5.6 percent rate at mid-month, and driving prime borrowers into lender offices in excellent numbers.

First Am, LandAmerica Find Themselves Attracting Large Investors

Two large investors have acquired large blocks of stock in major underwriters. Markel Corp. says it now has a 5.98% stake in LandAmerica Financial Group Inc. and would like to buy more.  It owns 930,500 shares. Markel owns a flood insurance company. Meanwhile, Highfields Capital Management LP has reported to the SEC that it now holds a 9.7% stake in First American Corp. (FAF).

Valuation of MBS Under Intense Scrutiny; SEC and U.S. Attorney Looking Closely at Merrill, UBS

For title orders to start flowing, mortgages must start flowing. That won't happen until the secondary market regains confidence in its systems and its integrity. And that won't happen until everyone in the chain is convinced that mortgage-backed securities are being accurately valued. The WSJ reports today on new investigations into two big firms whose valuations have become suspect.