Sept. 4, 2009
Written 10 a.m. EDT
OUCH: The unemployment rate rose to 9.7 percent in August, and the number of jobs fell by a net 216,000, according to the Labor Department. This is the highest unemployment rate since the depths of the 1982-83 recession, which until recently had been the worst recession since the Great Depression.

In July, the unemployment rate was 9.4 percent, and it was a jump to 9.7 percent in one month. The decline in nonfarm payrolls was smaller than most economists had expected. Normally I say it's sorta-kinda not-so-bad news when job losses aren't as bad as forecast, but the unemployment rate rises higher than expected, because that's an indication that the long-term unemployed have regained hope -- that they've gotten off their couches and started looking for jobs again because they believe they might succeed this time.

Not in this case. No matter how you look at it, a 9.7 unemployment rate is absolutely awful. Bad economic news is often good news for mortgage rates, but not this time. Higher unemployment means greater risk for mortgage lenders, because job loss triggers lots of mortgage delinquencies and foreclosures. As risk rises for lenders, they will be reluctant to cut rates and quicker to raise rates.

Whenever you're puzzled by the behavior of lenders, just put yourself in their shoes. If you were lending money to people so they could buy houses, would you become more cautious in today's economic environment, when hundreds of thousands of jobs are disappearing every month? Would you demand to see fresh pay stubs every month? I would, and so would you, and that's why banks seem so skittish and why they pester you for updated paperwork.

TAYLOR, BEAN UPDATE: Taylor, Bean & Whitaker has transferred the hundreds of thousands of mortgages that it had been servicing before it shut down and declared bankruptcy last month.

As TBW explains on this page, all Ginnie Mae-backed loans were transferred to Bank of America for servicing. (I'll get to the non-Ginnie loans five paragraphs down.) Translated, this means that if you had a Federal Housing Administration, Veterans Administration or Rural Housing Service loan serviced by TBW, your new servicer is Bank of America and that's where you should send your payments.

TBW says you can reach B of A's servicing department at (800) 669-6607.

A B of A spokesman says the lender mailed "welcome" letters to its former TBW customers last week, and everyone should receive their letters by today, at the latest.

Now, if you've been reading my blog posts lately, you know that there have been problems with TBW's escrow account practices. A Bank of America spokesman tells me that if your mortgage was transferred from TBW to B of A, then B of A will make sure that your insurance and taxes are paid. If, for some reason, they aren't paid on time, then you won't be on the hook for late fees and penalties.

B of A's position is that, if TBW didn't transfer your escrow funds, that's something for B of A and TBW to work out. They're not going to put you in the middle of it. Let's hope.

TBW says that if your loan was backed by Freddie Mac, and if you were current on your payments as of your August payment, your loan will be serviced by Cenlar. Cenlar can be reached at (877) 680-5583. Here's Cenlar's welcome page for former TBW customers. It has answers to frequently-asked questions.

Here's Freddie Mac's self-service lookup where you can find out if you have a Freddie loan.

If you were delinquent on your mortgage as of August, then your loan has been transferred either to Saxon or Ocwen. I don't know much about Saxon, but if your delinquent loan is with Ocwen, you're in good hands. They're willing to work something out with you. Saxon's number is (888) 842-6451 and here is the welcome page for former TBW customers.. Ocwen's number is (800) 746-2936.

I've heard from more than one reader who has received "welcome" letters from more than one servicer. My recommendation is that you call the servicers to try to straighten things out. If matters are still confused, then mail your monthly payment by Sept. 15 to the servicer that you got the last welcome letter from. If you make the payment by Sept. 15, your payment won't be reported as late, and if you mail it to the wrong servicer, it's up to them to sort it out. Federal regulations protect you and your credit history in situations like this.

TBW provides this advice: "It is important for all consumers that your loan number is written on your check and that you include any special payment instructions such as additional payments to principal or escrow. Use your TBW loan number until you receive a new loan number from your new servicer."

Let me repeat something: It's up to the loan servicers to clear up any SNAFUs. To be on the safe side, photocopy your September payment check before you send it (if you haven't mailed it already), and write down the address you sent the check to, in case someone asks.

What if you were making payments via automatic draft from a checking account? Here's what Cenlar has to say on its FAQ page; I don't know if the other servicers have a similar policy, but I assume they do.

Cenlar says: "If your loan payment drafted in the past this service will continue. There is nothing that you are required to do at this time. September and subsequent payments will be drafted no later than the next scheduled draft date. If your payment did not draft in the month of August it will be drafted at a later date once the servicing transfer is complete. We will notify you accordingly. Please be assured that there will be no adverse credit reporting or action taken as a result of delays. Your patience is appreciated."

Thursday, Sept. 3
Written 10 a.m. EDT
WHAT TBW DID: As the 12th-largest mortgage lender in the country was about to collapse, it transferred its customers' escrow money into the bank account that held the company's operating funds. The company paid employees out of that bank account. And customers' escrow refund checks bounced.

That's the gist of what happened with Taylor, Bean & Whitaker. The Ocala, Fla.,-based mortgage lender and servicer shut down and declared bankruptcy last month.

Florida's Office of Financial Regulation (OFR) filed two cease-and-desist orders against TBW. In the second order, the OFR says TBW had its customers' escrow money in a separate bank account, as required by law, but the bank abruptly closed the account. The bank is unidentified.

TBW tried to open an account at two banks, according to the OFR. Neither bank would do business with TBW, so the mortgage company deposited customers' escrow money into its operating fund. That's a big no-no. "If I did something like that, I'd be in jail," a mortgage broker tells me.

The OFR says TBW executives promised that they were keeping the escrow and operating funds separate in the company's internal accounting, even though both baskets of money were in the same bank account.

I have several e-mails from readers who say they got escrow refund checks from TBW that bounced. One reader says the check didn't bounce, but TBW put a stop-payment on it. I'm asking the folks who e-mailed me to call their banks and find out exactly what happened: did the TBW escrow refund check come back as insufficient funds, or did TBW stop payment?

The bottom line is that TBW employees were paid out of the operating account, according to the OFR. But customers' escrow refunds apparently went unpaid out of the same account. What do you call it when a company stiffs you the money that it owes you, but pays its employees with money out of the same account?

I'm making a request to readers who have or recently had mortgages serviced by TBW. At this e-mail address, please let me know the following:

If you got an escrow refund check that "bounced," exactly what happened? Was it returned as nonsufficient funds, or did TBW stop payment? What's the date on the check, and when did your bank find out that TBW wasn't honoring it?

If you currently have a mortgage serviced by TBW, could you please call your homeowner insurance company and let me know if TBW has paid any premiums that were due recently? If TBW didn't pay the premium even though you paid for it through your escrow account, ask the insurance company what recourse you have.

I'm worried. If TBW isn't honoring escrow refund checks, is it paying its customers' insurance premiums and property taxes?

I'm also looking for an attorney who is well-versed in the law governing escrow funds, and especially what happens when a mortgage servicer intermingles escrow and operating funds, then declares Chapter 11 bankruptcy. If that's you, e-mail me.

The OFR is the investigative agency in this matter. I'm not exactly filled with hope because I question their competence. Here's the home page of Florida's Office of Financial Regulation. You can go to this page to find out how to file a complaint, or you can call (800) 848-3792. The second cease-and-desist order is a slow-loading PDF file.

From my brief interaction with the OFR, I get the sense that they don't understand the scale of this. I'm not sure that they even know that people's escrow refund checks aren't being honored. Frankly, I don't think the OFR is taking this matter as seriously as they should. Perhaps that's unfair. I think, though, that if they took this seriously, they would return my calls. I got an e-mail from a reader who complained to a lot of agencies, including the OFR. The OFR hasn't called him back.

Tuesday, Sept. 1
Written 10 a.m. EDT
MORE TBW FALLOUT: Last week I asked to hear from people who have been inconvenienced by the demise of Taylor, Bean & Whitaker, or TBW. The prominent Ocala, Fla.,-based mortgage lender closed up shop abruptly last month after it was raided by the FBI.

I heard from a few people, not a lot. And they describe more than one type of problem. One homeowner was about to refinance with TBW, when he was informed "from a third party" that his closing had been canceled. He didn't say who the third party was, but whoever it was, the third party didn't return his call.

Then there are the escrow payoff problems. When you sell the house or refinance the mortgage, there usually is money remaining in the old loan's escrow account. (The escrow account is the stash of money that is used to pay insurance and taxes.) The money remaining in the escrow account is supposed to be refunded to the former borrower.

Some TBW customers got escrow refund checks, but the checks bounced.

One reader writes: "I have called the Ocala Chamber of Commerce, Better Business Bureau, Florida Attorney General, OFR -- Office, HUD -- Inspector General, FDIC, Federal Reserve, Bank of America, Cenlar, Saxon, Federal Trade Commission, and the list goes on, with no answers. I am wanting to know when and where, will a solvent check arrive that returns my escrowed money for taxes and home insurance."

Mortgage servicers are lightly regulated. That's what Americans want, apparently, because we like to vote for politicians who promise to ease regulations on businesses. In this case we have a servicer that's largely "regulated" by the laissez-faire state of Florida, and which has sought refuge in federal bankruptcy court. This skein isn't going to be easy to unravel.

I'll check into it. Meanwhile, keep those TBW horror stories coming. Let me know if I can interview you and identify you by name.

Friday, Aug. 28
Written 10:00 a.m. EDT
TBW FALLOUT: A mortgage loan officer tells me that he has received dozens of e-mails from customers of Taylor, Bean & Whitaker, the prominent lender that went belly-up this month. He showed me a missive from a borrower who got a $3,100 check from TBW to reimburse him for escrow overpayments. But the check bounced.

If the fall of Taylor Bean cost you a bundle, or caused you great inconvenience, I'd love to hear from you.

Thursday, Aug. 20
Written 10:30 a.m. EDT

DOWN A LITTLE: The 30-year fixed fell 15 basis points in this week's Bankrate.com survey. Rates for other types of mortgages didn't fall as far.

BONDS AND RATES: This question comes from a reader named Janet: "How do bond values affect mortgage rates?"

For our purposes, let's confine our discussion of bonds to mortgage-backed securities, which behave like bonds. Also to keep it simple, we'll talk about conforming mortgage-backed securities, without tranches. When you buy such a mortgage-backed security, you're buying the right to receive principal and interest payments on an underlying pool of mortgages.

This bond -- this mortgage-backed security -- is an IOU. Owning this bond means that a bunch of people collectively owe you money via monthly mortgage payments.

Mortgage-backed securities are extraordinarily complex because they carry various types of hard-to-measure risks, and those risks affect one another. There's the risk of nonpayment, of course, but also the risk that borrowers will pay off their loans earlier than expected in a refinancing boom, and the risk that they'll keep their loans longer than expected if rates go up and stay there.

So let's step back and discuss the simplest type of bond. Same concept as a mortgage-backed security, but much less complex. This simple bond is a one-year IOU. You lend someone $100, and the borrower pledges to repay you 50 cents a month in interest for the next year, and the principal amount of $100 a year from now. That IOU is a one-year bond with a yield of 6 percent.

The day you lend the money, you could immediately sell the IOU for $101. The buyer would pay $101 for the privilege of receiving $106 over the next year. The bond yield would be about 5 percent. As you see, the price of the bond went up, so the yield went down.

You also could hold the IOU for six months. After receiving $3 in monthly interest payments (remember, you've been getting 50 cents a month), you decide to sell the bond. Maybe you think the borrower might lose his or her job, so you're willing to unload it for $99. That $99, plus the $3 in interest you received over half a year, means you earned a net $2 interest in half a year, for a yield of 4 percent. The buyer, on the other hand, hopes to receive $3 interest over the next six months, plus $100 at the end of the year -- thus making a $4 profit in six months on an investment of $99, for a yield of about 8 percent.

Hope that's a clear-as-mud explanation of how yields (and, therefore interest rates) go up when bond prices go down, and vice versa.