BofA to lay off 3,000 employees

Bank of America is exiting the wholesale mortgage business, and scaling back its investment banking unit, eliminating 3,000 jobs. It will stop offering home mortgages through brokers, and focus on lending directly to consumers through its banking centers and loan officers. Analysts believe more layoffs may be on the way.

BofA’s third quarter financial results were quite disappointing, with net income dropping 32% compared to the same period a year earlier. Several top executives left shortly after financial results were announced, including the head of global structured products, and the co-head of equities. Other banks saw earnings plummet, too. Wachovia Corp. reported a 10% drop in profits in Q3 and said it will eliminate 200 jobs by year end. Citigroup’s profit fell 57%.

Better Mortgage Disclosure At WaMu

Some good news for mortgage borrowers: better disclosure and fair lending are back. Oh well, we heard about new lending guidelines earlier this year, and many lenders have tightened their standards, but here comes the latest about Washington Mutual. Its brokers will have to adhere to a new set of standards, largely focusing on better disclosure and working in the clients’ interest.

The brokers will be asked to supply evidence that they provide disclosures and ensure that borrowers fully understand the terms of the loan and the compensation they will pay the broker. This pretty much reflects consumer complaints about unexpected and unnecessary fees as well as being driven into complex loans they did not understand. We’ve also heard about mortgage papers including terms that hadn’t been discussed previously and were unfavorable to borrowers. If WaMu has found a way to control mortgage disclosure, borrowers will probably have one thing less to worry about.

WaMu Chairman and CEO Kerry Killinger said, “We believe our mortgage broker standard and direct call program should become the new industry benchmark for brokers and lenders across the nation”. They seem to believe that a lot may change for the better when these new standards go into effect on October 9th. At the very least, this announcement will probably do a lot for their public image.

Mortgage rates drop, applications rise

Mortgage rates kept falling for a third consecutive week and reached levels last recorded in early December, according to a survey by the Mortgage Bankers Association issued Wednesday.

As rates dropped, due to last week’s troubles in the stock market, mortgage applications jumped, marking a 7.3% increase for the week ended March 2. Applications were 16.7% above the levels reached this time a year ago.

The rates on 30-year fixed mortgages averaged 6.04%, 0.12 lower than a week earlier, and lower than last year’s 6.31% rate. Fixed 15-year mortgage rates were down to 5.73%, from 5.84% last week. One-year adjustable-rate mortgages slid to 5.79% from 5.92 a week ago. Refinancing applications increased, as consumers saw the low rates as a perfect opportunity to refinance into a fixed-rate mortgage or to lock in better terms.

More refinancing applications are expected to be filed, as ARMs taken in recent years are poised to adjust in 2007. Housing market activity will be closely monitored in the weeks to come, with the Fed meeting for policy-making on March 20-21. While a rate hike is deemed highly improbable, there is some speculation as to whether the Federal Reserve will cut rates or not.

More trouble for New Century

After disclosing accounting errors on Wednesday, February 7th, New Century Financial Corporation lost nearly half its market value, as its shares dropped from a little more than $29 on Wednesday to $16.61 two days later. The company announced that it would have to restate its financial results for the first three quarters of 2006. The results had not accounted for loans returned by New Century’s investors and for their depreciation, due to the higher risk they present.

Like many lenders, New Century sells its loans to banks, to be packed into mortgage-backed bonds. The investors can send the loans back if a borrower is delinquent on his/her payments. In 2006, the company failed to account for the increasing number of payment defaults and the depreciation of returned loans. It announced that a 20% decrease in loan production is expected in 2007, in contrast to its earlier predictions of flat growth.

Since New Century shocked its investors with the news of its bad financial situation, a number of law firms filed shareholder securities class action lawsuits on behalf of investors who purchased the company’s shares between April/May 2006 and February 2007. These complaints allege that the company issued misleading statements regarding its business activity and overstated its earnings. One of the law firms will be appointed by court to prosecute the securities fraud action on behalf of the shareholders.

Appraisers forced to distort numbers

With the spring/summer home buying season on the verge of beginning, problems associated with Real Estate fraud and data falsification become more pressing.

A recent survey pointed out that 90% of appraisers have been pressured to raise property valuations. The survey was conducted by October Research and involved 1, 200 appraisers from all the 50 states, District of Columbia and Puerto Rico. An identical survey was carried out in 2003, when only 55% of appraisers admitted they’d been pressured to adjust the results of their valuation.

With home prices sliding, everyone in the industry is trying to work out a better deal, and an appraiser may lose the assignment if he/she refuses to cooperate. Mortgage brokers and agents are listed as the top sources of pressure, but sellers, lenders and even buyers have also been reported to attempt to influence the final results.

If an appraiser’s estimate is considered unsatisfactory, customers may refuse to work with him/her and some appraisers fear they might lose their positions. Loan brokers are constantly calling appraisers asking if a certain property’s worth can be evaluated at the sales contract price; and if a lower number is arrived at, the appraiser may not get paid for the work.

Most appraisers refuse to knowingly submit inflated valuations, but the real solution is probably a legislative measure that would make forcing appraisers to inflate or otherwise adjust estimations illegal.

The Fed to meet at the end of January

With the Fed meeting on Jan 30-31st, next week may prove to be an interesting time for investors and mortgage brokers. The last Fed meeting in December 2006 brought no rate adjustment, but the policy statement implied a possibility for further increase. Nevertheless, economists deem hikes unlikely, after four consecutive meetings since August 2006 without a rate change. Predictions are that the rate will remain unchanged after the meeting yet again, and a cut is possible later in 2007.

The mortgage and sales data to be received until the end of this week will be very important, as it will outline the current direction of the market, which shows some signs of decline in activity. This may or may not affect the overall picture but it may influence the outcome of the meeting.

In the meantime, on Tuesday, January 30, 2007, Patricia Cook, Freddie Mac’s executive vice president of investments and capital markets, will hold a speech at the Citigroup 2007 Financial Services Conference in New York City.

The speech will be broadcasted live through a link on Freddie Mac’s webpage http://www.freddiemac.com/investors. The archive will be up early on January 31st and available until March 1st, 2007.