TEAM EMPOWERMENT MORTGAGE CHATTER: Mar. 19, 2009: Warehouse lending 1A and a good rumor; Is your loan owned by Fannie? Did you lock a rate earlier this week?

“Breathe.  Let go.  And remind yourself that this very moment is the only one you know you have for sure.”


-Oprah Winfrey



If a broker renegotiated a lock every second, how long would it take to get better rates on 1.25 trillion loans? Over 39,000 years, which is about how long it will take investors to forget the miserable pull-through that they’re facing. Yesterday Fannie 4.5’s moved above a price above 102, plus a conservative .5 point for the value of the servicing, suggesting that a 5.0% mortgage can be securitized and sold at a rebate of 2.5 points. But only if the originator is doing their own securities.


Speaking of 1.25 trillion, “To provide greater support to mortgage lending and housing markets, the (FOMC) decided to increase the size of the Federal Reserve’s balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion.  Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months.  The Federal Reserve has launched the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses and anticipates that the range of eligible collateral for this facility is likely to be expanded to include other financial assets.”


To put “trillions” in a different perspective, Fannie and Freddie own or guarantee roughly 31 million mortgages, or about $5.5 trillion in loans, which is more than half of all U.S home mortgages. That news did the trick, prices shot through the roof, and suddenly Lock Desks and investors are dreading the attempted renegotiations and potential pull-through problems ahead of them.


Warehouse lending is a critical link in the housing finance chain. Mortgage bankers (who don’t have deposits) use warehouse banks for the money in revolving credit lines to fund loans that are eventually sold into the secondary market. Once the mortgages are funded and closed they serve as collateral for the advances on the credit line, reducing the risk to the warehouse lender until the mortgage is sold. The proceeds from the sale of the loan are then used to repay the advances on the warehouse line of credit. In other words, if a mortgage bank wants to fund a loan for $100k, they borrow $100k from their warehouse bank, fund the loan, sell it for $101k, pay off the warehouse bank, and keep the $1k for themselves. Easy, right?


An industry panel calculated that mortgage bankers that utilize warehouse lines are responsible for approximately 41% of all residential mortgages originated in the U.S. , and 55% of all FHA loans. There is a rumor running rampant in the marketplace that Wachovia’s warehouse operation (you remember Wachovia, whom Wells snatched at the last minute from Citi, but if they could turn back time…) will continue to operate in some capacity under Wells Fargo’s management. That would be big news for any Wells Fargo correspondent clients, if true.


It would appear that most mortgage banks that had put tight warehouse issues behind them may be facing them again soon. Mortgage applications in the U.S. increased last week by 21%. Refinancing was up 30%, and this is only expected to grow in the coming weeks. Unfortunately mounting foreclosures are pushing down property values, further depressing household wealth.


Do you want to see if your loan, or your neighbor’s loan, is owned by Fannie?

Do you want to see if your loan, or your neighbor’s loan, is owned by Fannie’s brother?

(Aren’t they one company yet?)


Today the market is grappling with the big move in Treasury securities yesterday. They will be announcing the details of next week’s 2-yr, 5-yr, and 7-yr auction ($100 billion is anticipated). We have already seen Initial Jobless Claims fall to 646,000 in the week ended March 14, although the previous week’s number was revised up to 658,000 from 654,000. The number of people staying on the benefits roll, however, after drawing an initial week of aid was up 185,000 to 5.47 million in the week ended March 7, the latest week for which the data is available, from 5.29 million the previous week. This was the highest on record and pushed the insured unemployment rate to 4.1 percent from 3.9 percent the week before, the highest since June 1983. And the four-week moving average for new claims rose to 654,750, the highest since October 1982. We still have Leading Economic Indicators and the Philly Fed survey ahead of us at 7AM PST, but for now the 10-yr is at 2.52% and mortgage prices are up a lot.

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