“There’s no need to inflate the value of the home because home prices are rising,” said CoreLogic’s chief economist Mark Fleming.

But new federal regulations forcing lenders to prove that borrowers can repay their loans has some borrowers shifting the focus of their fraud to their personal balance sheets. Lenders are now scouring financial records, unlike during the recent housing boom, in order to make sure they are complying with new rules, so fraudsters are following suit, jacking up the numbers.

(Read more: Forget easing prices, new homes are up, up, up)

That could be more dangerous to the banks, because jacking up a home price only hurts if the home price falls, but inflating income means the borrowers may not be able to pay the loan no matter what.

Article source: http://www.cnbc.com/id/101062232

“In the short run, over the next half decade to decade, it’s going to be extremely unlikely, virtually impossible for that to happen because all the programs that created the bubble are outlawed now,” said David Stevens, CEO of the Mortgage Bankers Association. “What really concerns me is how are people going to behave outside the QM protection.”

(Read more: Why shut down Fannie and Freddie now?)

Lenders can still operate outside the QM rules but don’t get the same legal protections in cases of default, and they cannot sell the loans to Fannie and Freddie. They need to hold on to the risk. Still, the non-QM market is growing even before the QM rules take effect in January.

The leader of this movement is Date himself. He formed a firm, Fenway Summer, to launch the new mortgage products.

“I think the best credit models, the ones that really pay for themselves in terms of risk-adjusted returns over time, are the ones where you make great credit decisions and then you actually bear the risk of those decisions working out well or working out poorly,” said Date, adding that he is optimistic about this new market.

Loans outside QM will be more costly but will offer investors greater returns. They will still have to comply with ability-to-repay but not the QM standards. Therefore, borrowers who may have very large assets but little to no income could qualify. Interest-only, adjustable-rate mortgages would also fall into this category.

“I am quite confident that a senior funding market will develop for non-QM loans—I have no doubt about that at all,” Date said. “It is simply too big of a market.”

Wells Fargo will also operate outside QM for some loans.

“When you look at the entire profile of the borrower, we can be comfortable they have the ability to repay even though their income by itself may not fall into the standard dictated by the qualified mortgage,” said Codel, who added that non-QM loans may be an even safer product because lenders will hold more risk and be subject to legal action in the case of a loan failure.

(Read more: Map: Tracking the recovery)

Still, the non-QM market does open the doors for lenders seeking higher returns through higher risk, which is how much of the recent trouble began, at least in the mortgage-backed securities trading space. Regulations for investors in loans are still being finalized, but recent proposals follow the QM standards.

“That is where I think drawing the boundaries around the rules can be a good thing but it can also set up bad behaviors outside those boundaries, and we’re going to see those kinds of institutions being created, I’m confident of it,” said Stevens.

—By CNBC’s Diana Olick. Follow her on Twitter @Diana_Olick.

Questions?Comments? facebook.com/DianaOlickCNBC

Article source: http://www.cnbc.com/id/101036630

“Nonagency jumbo lenders began dipping their toes in the water as early as 2011, and even more so into the end of 2012. Strong loan quality due to tight underwriting combined with competition between large banks and securitzers has led to relatively increased demand. Wells and Chase are keen to compete with securitizers like Redwood or Sequoia in order to capture potential income streams from jumbo clients’ bank business.”

(Read more: Higher mortgage rates may mean easier credit)

In addition, Fannie Mae and Freddie Mac, which back and bundle two-thirds of conventional loans, have been raising the fees they charge to banks, so-called guarantee fees, mostly to protect themselves against default. Guarantee fees have nearly doubled in just the past year.

“As G-fees move higher, this increase gets added into conforming mortgage rates,” said Guy Cecala of Inside Mortgage Finance. “It’s a factor, but not the biggest one, allowing portfolio jumbo lenders to match or undercut conforming mortgage rates.”

The bigger factor, said Cecala, is that 92 percent of jumbo mortgages are made by banks that fund the loans with their deposits and then hold them in a portfolio. Given that the interest paid on consumer deposits in banks is still incredibly low, lenders can still make a profit on mortgages priced at 4 percent or less if they want to. In fact, jumbo loans, by some lenders, can actually cost less than conforming.

Article source: http://www.cnbc.com/id/100962728

It is likely no coincidence that standards are easing as rates rise and mortgage applications fall. Total mortgage applications were down 47 percent last week from a year ago. Refinances, which had been the banks bread and butter during the housing crash, are down 59 percent from a year ago. Applications to purchase a home are up just 5 percent.

“People see interest rates rise, they slow down some of that eagerness to get into the market,” said David Stevens, CEO of the Mortgage Bankers Association in an interview on CNBC’s “Squawk Box.”

(Read more: Map: Tracking the US real estate recovery)

Credit standards tightened dramatically over the past several years, as loose credit was largely blamed for the crash in housing. Average borrower credit scores on new loans are dramatically higher today, and lenders require larger down payments.

Even the FHA, the government mortgage insurer, which was created to help lower creditworthy borrowers, has raised its standards as well as its insurance premiums. Many lenders have overlays to their guidelines that they add on top of standard conventional guidelines. They could do that because refinances were so high, they needed to slow the volume in order to process all the loans.

Article source: http://www.cnbc.com/id/100939328

“This was originally contemplated as something you could draw money from over a long period of time, as a way of supplementing your income or providing income when you had not others. Now a lot of people are looking to reverse mortgages as a quick fix,” said David Certner of AARP.

About 9.5 percent of the 775,000 reverse mortgages outstanding are delinquent, far higher than the rate on regular mortgage loans. While lenders are pushing them aggressively, fewer are being made today, due to the drop in home values. Advocates say they can be a valuable tool, if used correctly, and that there are ample safeguards.

(Read More: Rising Mortgage Rates Amid Fed Fears)

“The reverse mortgage, unlike any other financial service in the United States, requires every single borrower, prospective borrower to go before an independent third party reverse mortgage counselor at a HUD-approved, HUD-funded counseling agency prior to even making an application for the loan,” claimed Bell. “So where somebody is coming off title would be in a discussion.”

The Consumer Financial Protection Bureau is now looking at new rules to protect consumers, which could include stricter supervision of lenders and more transparency for borrowers.

“It’s a balancing issue, you want to make sure that people have access to credit or the help they need or even those who may need a reverse mortgage, but you also want to make sure that one, people not getting reverse mortgage when it’s not the right product for them and two that when they are getting the product they are getting the best one that’s available for them,” explained Certner.

Those changes could go a long way to help seniors benefit from the loans, but they would likely be too late for Robert Bennett.

“I guess I could make it somewhere else, but I would walk away empty.”

—By CNBC’s Diana Olick; Follow her on Twitter @Diana_Olick or on Facebook at facebook.com/DianaOlickCNBC

Questions? Comments? RealtyCheck@cnbc.com

Article source: http://www.cnbc.com/id/100788816

“This was originally contemplated as something you could draw money from over a long period of time, as a way of supplementing your income or providing income when you had not others. Now a lot of people are looking to reverse mortgages as a quick fix,” said David Certner of AARP.

About 9.5 percent of the 775,000 reverse mortgages outstanding are delinquent, far higher than the rate on regular mortgage loans. While lenders are pushing them aggressively, fewer are being made today, due to the drop in home values. Advocates say they can be a valuable tool, if used correctly, and that there are ample safeguards.

(Read More: Rising Mortgage Rates Amid Fed Fears)

“The reverse mortgage, unlike any other financial service in the United States, requires every single borrower, prospective borrower to go before an independent third party reverse mortgage counselor at a HUD-approved, HUD-funded counseling agency prior to even making an application for the loan,” claimed Bell. “So where somebody is coming off title would be in a discussion.”

The Consumer Financial Protection Bureau is now looking at new rules to protect consumers, which could include stricter supervision of lenders and more transparency for borrowers.

“It’s a balancing issue, you want to make sure that people have access to credit or the help they need or even those who may need a reverse mortgage, but you also want to make sure that one, people not getting reverse mortgage when it’s not the right product for them and two that when they are getting the product they are getting the best one that’s available for them,” explained Certner.

Those changes could go a long way to help seniors benefit from the loans, but they would likely be too late for Robert Bennett.

“I guess I could make it somewhere else, but I would walk away empty.”

—By CNBC’s Diana Olick; Follow her on Twitter @Diana_Olick or on Facebook at facebook.com/DianaOlickCNBC

Questions? Comments? RealtyCheck@cnbc.com

Article source: http://www.cnbc.com/id/100788816

“I do think some of these delinquent properties will still end up as foreclosures down the road,” notes Blomquist. “But this type of legislation is also forcing lenders to consider other creative ways of disposing of the delinquencies that may not be as difficult as foreclosure has become.”

That includes short sales, deeds in lieu of foreclosure and a growing trend of selling off bad loans to investors. The investors, since they are buying at a deep discount, are able to offer more drastic modifications to keep borrowers in their homes.

(Read More: Americans Are UsingTheir Houses as ATMs Again)

Short sales, when the property is sold for less than the mortgage, are becoming ever more frequent. Nearly 26 percent of Southern California home sales in January were short sales, according to DataQuick, while just 15 percent were foreclosure sales. Investor and cash buying was at or near record levels.

“A lot of today’s housing demand is fueled not by spectacular job growth and soaring consumer confidence, but by super-low mortgage rates and unusually high levels of investor and cash purchases. Take away any one of those elements and it will matter,” said John Walsh, DataQuick president.

With legal changes in California, Florida now has the dubious distinction of having the most properties with foreclosure filings in the nation. One in every 300 homes had a filing in January, according to RealtyTrac. That is twice the national average.

(Read More: Big Banks Told to Review Their Own Foreclosures )

States that require a judge in the foreclosure process, like Illinois and New Jersey, saw big January jumps in foreclosure auctions (sales back to the bank or to an investor), but non-judicial states saw the biggest increases in newly started foreclosures. In Nevada, where new legislation slowed the process dramatically last year, foreclosure starts were up 87 percent from a year ago.

While the numbers can be parsed in many ways, the bottom line is that while fewer borrowers are getting into trouble, an enormous backlog of distress is still moving through the foreclosure system, in some places quite quickly, and in others ever more slowly. Until the overall numbers come down to a more normal level, any speculation on overall price stability is risky at best.

(Read More: Mortgage Mess StillMires US Housing Recovery)

Article source: http://www.cnbc.com/id/100460456

Sales of existing homes are recovering slowly, but a drop in supplies of those homes is pushing confidence among the new home builders to a six year high.

There are just 2.1 million existing homes for sale, which is a 22 percent drop from a year ago, according to the National Association of Realtors (NAR). Much of this is due to a drop in foreclosed and distressed homes, as lenders try to modify troubled loans more aggressively.

“In view of the tightening supply and other improving conditions, many potential buyers who were on the fence are now motivated to move forward with a purchase in order to take advantage of today’s favorable prices and interest rates,” wrote Berry Rutenberg, chairman of the National Association of Home Builders in a release Monday.

That pushed home builder sentiment up 5 points in November on the NAHB’s monthly survey. It now stands at 46, just 4 points shy of the line between positive and negative sentiment. Last year sentiment was around 19. The component of the index gauging current sales jumped 8 points, and sales expectations jumped 2 points, the only component now in the positive range. Again, much of that is due to a lower overall supply of homes on the market, as distressed homes fell to 24 percent of all sales, down from nearly 40 percent at the worst of the housing crash.

(Read More: Existing Home Sales, Homebuilder Sentiment Rise)

The nation’s five largest banks report that since March 1 of this year they have extended more than $26 billion in mortgage relief to more than 300,000 borrowers. $6.339 billion of that is in the form of principal reduction on first or second liens. All of this is in accordance with the National Mortgage Settlement signed this year by those banks with 49 state attorneys general and federal agencies over so-called “robo-signing” fraud.

While lenders are also pushing foreclosures that cannot be saved through the system more quickly, there is a ready cadre of investors waiting to buy. Investors made up 20 percent of buyers in October, according to the NAR. Since investors largely use cash, regular owner-occupants who largely need to use mortgages, can’t compete. 29 percent of existing home buyers used all-cash.

(Read More: Let Real Estate Help Pay for Retirement)

First-time home buyers, who usually make up 40 percent of the market, are still down at just 31 percent. So add up first timers and owner-occupants using a mortgage, and that is where you get the jump in demand for new construction. Home builders are clearly seeing this, with many of the big public companies seeing huge jumps in net new orders.

Sector Watch: U.S. Home Builders

—Toll Brothers
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—DR Horton
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—Hovnanian Enterprises
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—PulteGroup
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—Ryland Group
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—Lennar Corp
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—Beazer Homes USA
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—Meritage Homes
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—KB Home
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Questions?  Comments?