Mortgage Insights Blog

Seldom is so much private financial information divulged as when you apply for a mortgage. Yet a recent survey suggests that not all providers of home loans may be handling such private material as carefully as they should be, and surprisingly the bigger the bank, the less control there is to keep your private information safe.

The survey, conducted late last year by Wolters Kluwer Financial Services of Minneapolis, asked executives from roughly 350 banks, credit unions and mortgage companies how they transmitted financial data. About 62 percent used the Internet, but nearly two-thirds of that group said they typically used traditional e-mail services rather than secure online delivery technologies, like e-mail stored at a password-protected Web site.

Art Tyszka, the director of document services at Wolters Kluwer, which sells secure document delivery software to financial institutions, said that the traditional transmission methods could leave borrowers at heightened risk for identity theft and other forms of financial fraud.

Although the survey was conducted by a company trying to sell enhanced security programs to such lenders, it is still valid enough data to point out the possible holes that currently exist in most major banks data systems. In fact, any good 5^th grade hacker can easily intercept financial information transmitted by email these days, either on the sending side or even the receiving side – which it turns out is exactly where most cyber criminals have been directing their attention these days.

E-mail messages typically travel over a network of Internet servers, and hackers can prey on the data at many different levels – at the most poorly protected of those servers or from the origin of the email, the residential internet customer’s own router which is usually provided directly by Comcast or AT&T and is extremely outdated and easily corrupted. Use of e-mail provides hackers easy access to scan messages for Social Security numbers, bank account numbers, passwords, loan terms or other commonly used mortgage information.

The more secure systems allow users to upload important personal information directly to secured servers in an encrypted form or direct a recipient to a Web site where information can be accessed only with a password. This way any hackers scanning for information over easily accessible servers will only find encrypted information and not your bank account or social security numbers.

But even these secure methods are not completely foolproof. As it can be difficult to control a staff of tens of thousands, so some communications can squeak outside the normal secure channels.

Though larger banks usually use the more secure e-mail method, while smaller community banks or credit unions may not want to pay for encryption systems, consumers may actually be safer using a broker than a big bank – since with banks, hackers know exactly where to go for the largest amounts of information.

Added, many smaller brokers are using cost efficient loan origination systems that help them transmit documents securely by encrypting the data before it is sent out over less protected servers.

Information used to write this post appeared on page P - 1 of the San Francisco Chronicle

Despite the Federal Reserve Board's continued attempts to stimulate the housing market, home lenders are keeping rates artificially high for reasons they hope most consumers will not figure out. From capacity constraints due to increased loan application volume to padding their balance sheets, banks have alternative motives to keep interest rates higher than what they should be.

Capacity Constraints

Each of the government’s previous announcements to artificially lower interest rates has cause a tidal wave of loan applications for banks that have been struggling over the past few years to cut back enough staff and processing centers to stay alive.

Well thanks to the latest actions from the Obama administration, banks are getting what they have been asking for – but it seems the age old adage is true – “be careful what you wish for because it might come true.”

The industry is now struggling with capacity constraints, including the disappearance of warehouse lines and lower staffing levels as a result of layoffs last year and in 2007.And to make matters worse, many lenders are continuing to hold off on hiring out of concerns that the current refinancing wave, which began in December and crested in January, may not last much longer.

Rates should realistically be at 4.25%, but nobody is rolling out that rate, because if they did, they'd be getting more volume than they could handle. The simple truth is that there are fewer lenders now, so the business is going to bottleneck through those banks that are left standing.

Although the Fed’ are furthering their attempts to bring rates down by announcing last week that it would purchase another $300 billion of longer-term Treasury securities and increase purchases of agency mortgage-backed securities by up to $750 billion this year, interest rates overall haven’t fallen as anticipated.

The central bank said its purchases were intended "to reduce the interest rates that the GSEs require on mortgages that they purchase or securitize, thereby lowering the rate at which lenders, including community banks, can fund new mortgages."

Increased loan payoffs due to lower rates

Another reason for the artificially high rates, some industry insiders say, is that pre-payments from refinancing could reduce profits on the servicing side. Most major banks see such little profit from Fannie Mae and Freddie Mac backed loans that they usually count on making additional profits from retaining the servicing rights for the loan. But if borrowers are continually refinancing as rates continue to drop, as it may make sense on a 30 year fixed rate mortgage for a borrower to refinance only 0.5% lower in rate, banks will continue to suffer early payoffs and possible losses. And, even if a mortgage servicer retained a customer, there would be a cost for originating the new loan.

"The true market rate should be 4.5% with no points, but today rates are up around 5%," said Brian Koss, managing partner at Mortgage Network Inc., a privately held lender in Danvers, Mass. Koss is a former regional manager for Countrywide Financial Corp., the top originator and servicer of home loans, which Bank of America Corp. acquired last year. He said the big servicers have a disincentive to offer attractive refi rates.

"Servicers know at exactly what pricing threshold there is a propensity for loans to prepay," he said. "So why would they take a hit on servicing and then go through the process of paying out to put a new loan on their books?"

According to National Mortgage News, the top five servicers now control almost 67% of the housing debt in the United States. Koss said that if 25% of their customers were to refinance, they would "lose money having to buy more servicing to replenish what got paid off."

Normally, customer retention is a big concern for servicers in an environment of falling rates. But the risk of losing customers is not as great when competitors are grappling with their own limitations.

"If we had the capacity, you could steal this market and take yourself to $500 million a month in volume," said Matthew Pineda, the president of Castle & Cooke Mortgage LLC in Salt Lake City. "Why is Wells not afraid that B of A will roll out a rate of 4.5%? There are eight guys doing loans. Until one gives it up, they're all playing the game. The reason you don't give it up today is they'd have to work twice as hard for half the profit. Why would they give it up?"

Barbara Desoer, the president of B of A's mortgage, home equity and insurance services, said in an e-mailed response to questions that the Charlotte-based company provides "a fair price to the customer while balancing our capacity to deliver a positive customer experience."

Banks are using the governments plan to purchase mortgages to bolster their balance sheets

Scott Anderson, a senior economist at Wells, said another reason bankers would be reluctant to offer low-rate refis is that it helps their balance sheets to have higher-rate loans. "The banks are feeling a lot of credit losses and defaults, and they have a lot of repairing of their balance sheets to do," Anderson said. "So they want to keep those net interest margins higher to weather this period if they want to survive to originate another day."

Rather than passing on the lower rates from the government’s mortgage purchase program, the banks are using it to increase their revenues. Lenders are reluctant to lower rates if have been suffering losses from a high application volume and low ‘pull through’ rates — the percentage of applications that eventually get funded. To help mitigate their losses some lenders have rolled out "priority underwriting" programs, in which borrowers with FICO scores higher than 720 are served first.

I guess banks think that borrowers with higher credit scores may have a better chance at getting approved than those with lower scores. And this could be true since the GSE’s are adding additional delivery paid fees to loans in which the applicants do not have FICO’s above 720.

Higher loan fees and stricter qualifying guidelines

Calls to JPMorgan Chase & Co. and Wells Fargo & Co.'s home mortgage unit were not

returned. With the latest crack down on guidelines from Fannie and Freddie many borrowers do not qualify for the lowest rates — typically 4.625% — because of the fees that can be charged by the government-sponsored enterprises can add up and not make sense for riskier loan types.

Lenders say the cost of due diligence and underwriting has gone up dramatically compared with the heady days of 2003 to 2007, when lenders offered refis without requiring new appraisals.

Koss said he had "stacks and stacks" of refi applications from borrowers who could refinance their loans but "are morally opposed" to paying discount points.

Nevertheless, he said, 20% of his customers are agreeing to pay up to two points to lock in the lowest rates, compared with a mere 5% of borrowers who did so in December.

When trying to contact your lender to work out a payment plan or some other deal, knowing who owns your mortgage can be very helpful. Unfortunately finding out is not as easy as it sounds.

In a perfect world you should be able to call the phone number on your last mortgage statement or the number in your payment coupon book and connect directly with your lender. But more often than not, this merely puts you in touch with the mortgage servicer - the business that collects and processes your payments. And in most cases, the servicer is either prohibited from divulging the true identity of your lender or the person you’re dealing with has no idea who your lender is or even what you may be asking.

During the height of the subprime lending, risky mortgages along with good mortgages were often sliced and diced and repackaged into mortgage backed securities (MBS’s) that were sold and traded on Wall Street, so the end investor owning a portion of your loan may be impossible to track down. And since the mortgage meltdown sank many banks and other lending institutions which were taken over by other banks or regulators, often the information regarding the original investors behind your loan may have been lost.

Creating another level of anonymity to the already confusing mortgage servicing process, many of these investors and banks subscribe to an automated system called MERS (Mortgage Electronic Registration System) that keeps track of who owns the mortgage and note as it changes hands among investors, as well as who services it for that investor. But customers who attempt to look up the investor behind their mortgage on the MERS registry will usually not find it. Rather, MERS makes the name and contact information of the servicer available, but not the name and contact of the investor. That information is for the servicer or investor to disclose, not MERS.

So, what should you do if you’re trying to track down your lender? Take the following approach:

Call the phone number on your most recent mortgage statement or your payment coupon book. This will put you in touch with the mortgage servicer who may also be the lender who owns your mortgage or at least be able to tell you the name of your lender. (Remember, the person may not know or may not be permitted to tell you so you may have to try several different representatives or even their managers).

Chances are that if your original loan amount is below $417,000 and your loan is a fixed or a hybrid loan (short term fixed that turns adjustable) then you probably have an agency backed loan which has ended up at Fannie Mae or Freddie Mac, the investors behind conventional agency loans (see their contact information below). However, if your original loan amount is greater than $417,000, is a monthly adjustable rate mortgage (also called a Pay Option ARM), or a subprime mortgage, then your loan is probably on of the many loans that were sliced and iced and sold as a mortgage backed security on Wall Street.

You can try to contact Fannie Mae (FNMA). If they own the note, they may provide the identity of the investor: 1-800-7FANNIE (1-800-732-6643).

You can fill out an inquiry on the website by Freddie Mac (FHMLC) by visiting them at https://ww3.freddiemac.com/corporate/. If they own the note, they may provide the identity of the investor.

If you have an FHA loan, contact FHA’s National Servicing Center to determine who owns your mortgage: (800) CALL- FHA / (800) 225- 5342 or send an email to hsg-lossmit@hud.gov

Department of Housing and Urban Development
National Servicing Center
301 NW 6th Street, Suite 200
Oklahoma City, OK 73102

If the mortgage is listed as MOM or has a MIN (Mortgage Identification Number) assigned to it, you can search the MERS database by mortgage identification number (MIN), your name and social security number, or the property’s address. Dial the toll-free MERS Servicer Identification System at 888-679-6377 (an automated touch-tone system) or search online at MERS Servicer ID.

If you know the name of the bank or other lending institution that owns your mortgage but have no contact information for them, check out the HOPE NOW Mortgage Lender’s Directory.

One of the most important steps to saving your home from foreclosure is to get in touch with your lender immediately. Better yet, hire a qualified attorney with experience in foreclosures and loan modifications to contact your lender on your behalf, so you have legal representation on your side. You can almost be certain that your lender will have a slew of attorneys reviewing the paperwork. You should have one to watch your back, too.