“Besides the noble art of getting things done, there is the noble art of leaving things undone. The wisdom in life consists in the elimination of non-essentials.”

~Lin Yu Tang

I can tell that I am grown up because I get up at 4AM, not go to bed at 4AM, and I no longer consider a $4.00 bottle of wine “pretty good stuff”. The French, known for their wine, celebrate Bastille Day today. It is called Fête Nationale (National Holiday) in France and commemorates the 1790 Fête de la Fédération, held on the first anniversary of the storming of the Bastille: the Fête de la Fédération was seen as a symbol of the uprising of the modern French “nation,” and of the reconciliation of all the French inside the constitutional monarchy which preceded the First Republic, during the French Revolution. (The “Bastille” was the French prison where people were held merely at the king’s judgment.)

Economists focused on mortgage banking, most of who work for Freddie, Fannie, and the large investors, are all scaling back on their estimates of mortgage originations for 2009, and cutting them drastically for 2010. If you are a large company, who has invested extensively in “bricks and mortar”, how are you dealing with expected lower volumes? Recently the MBAA lowered its forecast for mortgage originations, for the fourth month in a row, in 2009 to about $2 trillion. Last week I heard a respected speaker in the business say that his company believes that companies may want to scale their operations toward purchase business, which has hovered around $1 trillion a year. If prices are stable, or slide further, the dollar volume of purchases will slide, and, in the perfect storm environment, rates move higher, refinancing will also drop. The current MBAA estimate of 2009 purchase business has dropped to $737 billion while refinances were reduced $1.3 trillion by the MBAA.

Freddie Mac’s most recent bulletin addresses the deficiencies that they have seen in the underwriting process. The changes don’t take effect until October 1, but look for large investors who sell to Freddie to change, if they haven’t done so already. Freddie’s announcement is directed toward the borrower’s capacity to repay the mortgage, making sure their clients understand Freddie’s appraisal requirements, preventing fraud, and amendments to documentation requirements for Loan Prospector Streamlined Accept and Standard documentation levels. Light-hearted items like those.

Doing relocation loans? Wells’ wholesale will no longer allow trailing co-borrower income (a trailing co-borrower is a borrower who is not the cause of the relocation) to be considered in calculating the qualifying income. “As a result, effective with registrations on and after July 20, 2009, Wells Fargo Wholesale Lending will no longer accept trailing co-borrower income for conventional relocation loan transactions, including High Balance relocation loans. Additionally, effective July 18, 2009, Wells Fargo Home Equity will no longer accept trailing co-borrower income to qualify a transaction.” Wells’ wholesale also announced that they would no longer be buying 40-yr loans.

What do Flagstar and Taylor, Bean, & Whitaker have in common? To the best of my knowledge, with GMAC dropping out, they are the only two lenders participating in the $8k tax credit. It has become a big deal, in spite of the fact that the credit has some pretty severe restrictions. “Consistent with existing FHA Policy, Flagstar will allow tax credit advances with second liens from eligible governmental agencies and instrumentalities of government as long as the organization is also on Flagstar’s list of eligible community second programs. To make certain a non-profit agency is both FHA-approved and an instrumentality of government, refer to the appropriate homeownership center’s list of approved non-profit agencies.” “In the old days”, the Fed influenced the economy through “open market operations”. What are those? The Fed would typically trade in safe, short-term T-bills, buying and selling them to impact the short-term, risk-free rate. Buying securities pushes the price up, and rates down. Although very short-term rates have dipped slightly below 0% a few times recently, usually rates can only go down to 0%, which limits the Fed’s activity and impact. (If a Treasury security goes below 0%, investors would rather hold cash.) So let’s hope that they keep buying, since right now they continue to be the only game (or close to it) in town.

Not only have mortgage rates fallen, but LIBOR rates continue to decline. So what? Basically it means that banks have become more comfortable with lending to each other, which is a key step toward banks being more comfortable with lending in general. And this is obviously a good thing. But even if banks are more comfortable, what about the consumer? Unfortunately the consumer is showing more signs of weakness, according to last week’s University of Michigan consumer sentiment report which worsened for the first time since February. And since the consumer accounts for about two thirds of GDP, it is not good news – or is it? If folks like you and me continue to hunker down, it leads to more saving and less spending IF the consumer actually has a job. Today we had two key pieces of information, after the overnight rallies that we saw in Asian and European stock markets and a release of strong Goldman Sachs earnings. The Retail Sales number showed a stronger-than-expected 0.6 percent in June, ex-auto +.3%. And U.S. producer prices jumped by twice as much as expected in June due to energy: +1.8%, the biggest jump late 2007. Taking out food and energy, core PPI was +.5%, also higher than expected. This news, combined with the strength in stocks, has pushed the 10-yr back up to 3.44% and made mortgage prices worse by .375-.5.