Credit default swaps (CDS) acting as insurance policies for investors are linked to mortgage defaults that precipitated the 2007 economic downturn, according to researchers from the University of Texas at Dallas.

There are many media reports that to some extent link the financial crisis to the housing market crash, and subsequently, research has confirmed that,” Zhang said. “One of the issues that people have paid particular attention to is the role played by derivative securities, and in this case, credit default swaps.”

Credit default swaps (CDS) acting as insurance policies for investors are linked to mortgage defaults that precipitated the 2007 economic downturn, according to researchers from the University of Texas at Dallas.

In a report published in the latest issue of the Journal of Finance, finance and managerial economics professor Dr. Harold Zang and associate professor Dr. Feng Zhao said that credit default swaps – which protect investors of mortgage-backed securities in the event of default – drove the demand for mortgage-backed securities, which in turn led to loose lending on the part of originators and an increase in the number of subprime mortgages offered. Many of those subprime borrowers later defaulted on their loans, driving the default rate higher and bringing on the financial crisis.

“There are many media reports that to some extent link the financial crisis to the housing market crash, and subsequently, research has confirmed that,” Zhang said. “One of the issues that people have paid particular attention to is the role played by derivative securities, and in this case, credit default swaps.”

Zhang and Zhao discovered a direct correlation between CDS and higher mortgage default rates. The originators of the subprime loans packaged and sold them as mortgage-backed securities to investors. Neither the originators or investors had incentive to monitor the borrowers or the status of the loan – the originators had no incentive since the loans were now off of their books, and the investors had no incentive since the loans were backed by the CDS, their insurance policy. According to Zhang, CDS exacerbated the financial crisis by encouraging lenders to originate poor quality loans. The researchers discovered that mortgage loans with a CDS were much more likely to default than those without a CDS, because banks often allowed the riskiest subprime loans to be packaged into securities with CDS coverage.

With the right oversight, however, Zhang believes that CDS can be good.

“It protects investors,” Zhang said. “It helps reduce the cost of financing for financial institutions, and it increases the efficiency of funds. That’s always the advantage of securitization, but we should also be aware that there is this potential downside.”

The researchers said their study is relevant because it provides the first “empirical evidence in academic research” that some originators were engaging in a conflict of interest before the financial crisis by securitizing, packaging, and selling mortgage loans and then betting against them, a practice which first came to light during the testimony of U.S. Securities and Exchange Commissioner (SEC) Commissioner Luis Aguilar during a 2011 Congressional hearing.

Brian Honea

Freddie Mac completes sale of $201 million pool of Ocwen-serviced loans Third sale of the year

Brena Swanson

May 26, 2015 5:32PM

Freddie Mac sold 1,052 deeply delinquent Ocwen serviced non-performing loans from its mortgage investment portfolio as part of its Standard Pool Offerings, marking its third sale of seriously delinquent loans in 2015.

The enterprise first announced back in April that it was preparing to auction off a $233 million pool of non-performing loans, which are serviced by Ocwen Financial (OCN).

Ocwen said in December that it planned to exit agency servicing entirely and has been selling off pools of agency servicing rights by the truckload lately, including the sale of a $25 billion MSR portfolio to Nationstar Mortgage (NSM), just over a month after agreeing to sell another $9.8 billion portfolio of agency servicing to Nationstar.

The move to sell a pool of non-performing loans is becoming more commonplace for Freddie Mac, whichrecently announced a new program for auctioning off pools of deeply delinquent non-performing loans from its mortgage investment portfolio.

The new program, called Extended Timeline Pool Offering, or EXPO, will target smaller investors by making smaller pools of non-performing loans available in addition to the larger pools of NPLs that Freddie recently began selling.

According to Freddie’s report of the sale, the loans now only have an aggregate unpaid principal balance of $201 million and were offered as a single pool of mortgage loans to LSF9 Mortgage Holdings.

The cover bid price (the second highest bid) was in the mid 70s percent of UPB. Weighted average BPO LTV, average loan size and note rate are 93%, $191,177 and 5.28%, respectively.

These loans have been delinquent for approximately three years, on average. Given the deep delinquency status of the loans, the borrowers have likely been evaluated previously for or are already in various stages of loss mitigation, including modification or other alternatives to foreclosure, or are in foreclosure. Mortgages that were previously modified and subsequently became delinquent comprise 29% of the aggregate pool balance.

At the beginning of March, the Federal Housing Finance Agency stated the new requirements for sales of NPLs by Freddie Mac and Fannie Mae to make sure the loans go to capable mortgage servicers.

Advisors to Freddie Mac on the transaction are Bank of America Merrill Lynch, Wells Fargo Securities and CastleOak Securities.

The transaction is expected to settle in July 2015.

Fannie Mae also recently joined the NPL bandwagon and announced the winners of its first-ever sale of non-performing loans. Fannie’s first NPL sale featured two pools, including approximately 3,000 loans totaling $762 million in unpaid principal balance.

Freddie Mac completes sale of $201 million pool of Ocwen-serviced loans

Vanilla Ice charged with burglarizing a foreclosure

Anything less than the best is a felony, and that’s exactly the level of charge facing rapper Vanilla Ice, aka Robert Van Winkle, who Lantana, Florida, police say played a role in the burglary of a foreclosed home.

Van Winkle was renovating a home adjacent to the foreclosure for his HGTV home flipping show “The Vanilla Ice Project,” and apparently was involved in stealing a pool heater, furniture, bicycles, and other items from the premises.

Police were on the scene and obtained a search warrant and found several of the stolen items in Van Winkle’s residence, according to a press release from the Lantana Police Department.

Van Winkle provided police with a sworn statement, and after they collaborated and listened, Van Winkle was charged with residential burglary and grand theft.

According to a police press statement, the burglary happened at a home in the 100 block of N. Atlantic Drive in Lantana.

6 Retirement Savings Pitfalls To Avoid

By Rebecca Reisner 

This post originally appeared on LearnVest.

So you say you’re already contributing to a 401(k) or some other type of retirement account? Congratulations—you’re working on making your future self very happy. That’s because the secret to retirement savings is that you can’t make up for lost time.

And if you’re making progress, you want to make sure that you’re doing retirement right … right?

Knowing just how much to save is one of the hardest financial challenges there is. You might try a calculator, or talk to a financial planner to figure out your big picture.

And, in the meantime, you should avoid any little missteps that might put a crack in your nest egg. That’s why we asked several Certified Financial Planners™ to pinpoint six common pitfalls they see when it comes to saving and investing for retirement, and how you might avoid them.

1. Having No Clue How Much You Need to Save for Retirement

More than half of surveyed Americans (56%) say they haven’t even attempted to calculate how much they’ll need to save in order to live comfortably in retirement, according to the 2014 Retirement Confidence Survey conducted by the Employee Benefit Research Institute (EBRI). But in much the same way you should have a figure in mind when you’re saving for a car or house, knowing what your long-term retirement goal is can help you figure out a savings plan to help you reach it.

Seeing such a large number may feel overwhelming, but it could also light a fire under you too. “If you see you need $2 million for retirement, that could jump-start savings,” says Kevin O’Reilly, CFP® and principal of Foothills Financial Planning in Phoenix. Just remember that you do have compound growth to help you build your investment—and the younger you are, the more time is on your side.

Online retirement calculators, like this one can help give you an idea of the total amount you may need in retirement, based on factors like how much you have saved so far and various estimated expenses. Just be honest and meticulous when entering the information, or else it’s “Garbage in, garbage out,” cautions Erika Safran, CFP® and founder of Safran Wealth Advisors in New York City.

Many retirement calculators use a replacement ratio when doing their calculations, which is simply the percentage of your current income that you think you’ll need to have for retirement. An 85% replacement ratio is a good general rule of thumb to follow, but your number could be different depending on what your individual retirement goals are.

2. Having No Clue How Much You Might Spend in Retirement

If a giant number does more to stress you out than get you saving, start smaller. Ask yourself, what might your budget in retirement look like? You probably won’t know the answer to that unless you’re currently keeping a budget. After all, if you don’t know where your money goes today, you may be even more clueless about where it could go in the future. “I think it’s a good idea even prior to retirement to keep a log of spending,” O’Reilly says. “I get people who have no idea what they’re spending on daily expenses.”

The LearnVest Money Center is one tool that can help you keep tabs on your spending because it records and categorizes your daily financial transactions. But if you’d prefer to use the old pen and paper method, write down every regular expenditure you currently have, large or small, to figure out where your take-home pay is going on a regular basis. That could be anything from dining, groceries, utilities, clothing, car maintenance and fuel, entertainment, your children’s needs, medical bills, travel, your mortgage—the more you can keep track of, the better.

Then go through that list and try to predict which of those costs might increase and decrease in retirement. For example, you may have your mortgage paid off by the time you retire, and smaller costs, like regular dry cleaning for your work suits, could shrink significantly. On the flip side, maybe you’ll travel more internationally after you’re done working, or spend more time on the golf course. The sum of these costs can help give you an idea of how much you’ll be spending in the future.

read more here

Foreclosures drop

Foreclosure filings were down 4% compared to June and were 35%
lower than July 2010, marking the tenth straight month of
year-over-year declines, according to RealtyTrac, a leading
online marketer of foreclosed properties. RealtyTrac reported
that 212,764 US homes received some kind of foreclosure filing —
notice of default, notice of auction sale or completed
foreclosure — during the month. Bank repossessions totaled
67,829, down 33.6% from the peak month of September, 2010, when
banks took back 102,134 homes. The steep foreclosure drop,
according to RealtyTrac CEO James Saccacio, was triggered by a
foreclosure processing slowdown that was sparked by the
“robo-signing” controversy last fall. As a result of the scandal,
in which the banks were accused of mishandling paperwork and
failing to follow proper protocols, banks are being much more
careful and many filings have been delayed.

There were some small glimmers of hope in RealtyTrac’s report.
One promising sign was the steep plunge in initial notices of
default, which fell 39% year-over-year to fewer than 60,000. The
decline may indicate that fewer borrowers are falling behind on
payments. Or, it could mean lenders are not filing those notices
as promptly as they have in the past, according to Rick Sharga, a
spokesman for RealtyTrac. The company analyzed initial default
notices in California and discovered that the average sum of
missed payments has risen to $78,000 from $17,000 over the past
four years. Sharga attributed the jump to delays in filing the
initial papers.

What Is The NPV Test?

With foreclosures at an all-time high and home prices still continuing to decline, close to half of all U.S. homeowners now either owe more on their home than its current value, or are behind on their mortgage payments by at least one month.

And while many of these individuals are scrambling for solutions, all answers start with one number: your home’s NPV, or Net Present Value.

In order to negotiate a loan modification with your lender, you’ll need to know the precise NPV of your home.

Not the current estimated market value, based on other home sales in you neighborhood. Not the current assessed value. But the NPV, plain and simple.

“Banks will deal with you much differently when you have the results of your NPV Test,” said David Goldberg of Rebound Credit Solutions, which has developed a proven self-guided program to assist consumers in negotiating more favorable and equitable mortgage modifications with their lenders. “It’s the backbone of any loan modification.”

So what exactly is the NPV, you ask? And how do you determine this figure for your home?

While many loan modification programs and negotiators refer to this home value as the REST Report, the NPV is more accurate, as it utilizes a version of software used by major banks and servicers.

But not only that, but the NPV is a loan disposition system which runs proprietary algorithms, accesses numerous property valuation databases, and was developed in concert with similar guidelines used by lenders and servicers when determining loan modification eligibility.

In short, an NPV test runs the most up-to-date analytics, thus producing maximum results.

“Armed with this information, homeowners can then present the accurate value of their home to their lender, and then begin negotiating with confidence,” added Goldberg.

But first, a struggling homeowner needs an NPV to determine if they’ll qualify for a HAMP loan modification.

HAMP is the Federal Home Affordable Modification Program, which is aimed at helping millions of homeowners at risk of foreclosure by working with their lenders to lower monthly mortgage payments. This program is now looked upon as the industry standard practice for lenders to analyze potential modification applicants.

Once this is determined, and if a homeowner does indeed qualify, then it’s simply a matter of proceeding with this HAMP restructuring.

But if a homeowner does not qualify for HAMP, then an “in-house” modification can sometimes be worked out between a homeowner and their lender.

In this case, a homeowner must be armed with the NPV of their home, as well as other information as to their rights regarding the ability to restructure their loan with their lender.

When approaching a lender, they’re going to ask one simple question (in so many words): “Is our asset worth more in the long run if we change the terms of the mortgage, or is it worth more if we foreclose on the property and sell it today?”

The NPV provides the answer