“Those whom we support hold us up in life.”

~Marie Von Ebner-Eschenbach

What is the yield curve, and why should anyone care about it? Yes, the stock market is rallying, in part because some corporate earnings are not as bad as expected, but also because many feel that the stock market “looks ahead” into future business patterns. This is good for anyone with money left in their 401(k) stock plans, but most economists put more weight on the fixed income market’s view of the economy. And specifically changes in the steepness of the Treasury yield curve – one of the best and most consistent leading economic indicators of the economy. The curve itself charts the yields of Treasury debt versus the maturity. So short term debt, like 3 months, has a certain yield which is typically lower than that of 30-yr bonds.

But how much less? Over the past month, we have seen a rapid steepening of the Treasury yield curve, which suggests the probability of economic recovery in the second half of 2009 is quite high. But in addition to Treasury rates, one can also plot the spread of other instruments like corporate bonds or mortgage rates for a comparison, which results in a spread between the two. Corporate bond spreads, for example, have dropped significantly in the last 30 days since the demand for them has increased by investors, and corporations are taking advantage of the drop in yield spreads to sell more debt. It’s cheaper for them.

What about mortgage spreads? As everyone knows, the Fed has been buying agency mortgage-backed securities (so far they’ve bought about $370 billion), and this has dropped 30-year mortgage spreads over 10-yr Treasuries back to their historical averages. Historically, the spread between the 10-year note and 30-year fixed rate mortgages is typically about 1.25%-1.5%. In 2006 it averaged 150 basis points, in 2007, the average spread was 156 basis points, but in 2008 the average spread was 216 basis points. In January of this year the difference was 2.21%! Now the spread between a 10-yr Treasury note and a 30-yr mortgage is back down to 1.55%, which is obviously good news for mortgage originators.

California, like all states, is seeing the percentage of households that can afford to buy an entry-level home increase. According to the California Association of Realtors, the number stood at 69% in the first quarter of 2009, compared with 46% for the same period a year ago. Assuming 10% down and an average entry-level price of $213,040, the income needed was $38,090 (based on an adjustable interest rate of 4.96%). Last year a borrower needed about $65,000 of income to qualify, so this is a drop of 41%. According to CAR, the median household income in California is $61,030.

The only news out today was Housing Starts and Building Permits, which unexpectedly fell to record lows in April. The Commerce Department said starts fell almost 13% to an annual rate of 458,000 units, the lowest on records dating back to January 1959. Heck, that was before I was born! New building permits, which give a sense of future home construction, dropped about 3%, the lowest since records started in January 1960. Both numbers are significantly lower than a year ago. The news this morning has served to put a damper on the stock market (“So much for that housing pick-up!), and the 10-yr yield stands at 3.24%. Mortgage prices, which, along with bonds, worsened yesterday with the rally in stocks, are roughly unchanged from Monday afternoon.

Attached is 2 copies of sample flyers.  The cover models are 2 agents we work with to give you an example of how we can co brand these flyers for your personal use.  We can offer fliers for Cal Strs, Cal Pers, FHA, loan limits, tax credits, VA loans, etc, etc…..Let me know if you have any requests and if we don’t have your picture on file make sure to forward it on to us with the contact information you would like us to use.  Make it a great day and remember we are here to help and still can close loans  in 15 days or less including FHA.  Thank you for your support.     

 “Within you there is a stillness and a sanctuary to which you can retreat at any time and be yourself.”

~Hermann Hesse

Recently General Motors reported a $6 billion first-quarter loss, and are approaching Chapter 11. My son said that once they get through bankruptcy GM probably want to go back to making cars that nobody wants.

Remember how everyone was saying that loan programs got carried away, and one of the main reasons was that borrowers “didn’t have enough skin in the game”? Well, I don’t know how this fits in – I must be missing something. But the HUD Secretary announced the “monetization of the tax credit” at the NAR Real Estate summit. “Shaun Donovan, secretary of the U.S. Department of Housing and Urban Development, said that the FHA is going to permit its lenders to allow homeowners to use the $8,000 tax credit as a down payment.” “We all want to enable FHA consumers to access the home buyer tax credit funds when they close on their home loans so that the cash can be used as a down payment,” Donovan said. This will allow eligible home buyers to access the funds immediately at the closing table.

Where is the market this morning? Well, we did have some economic news out this morning. Jobless Claims rose more than expected last week, apparently due to auto plant shutdowns related to Chrysler’s bankruptcy. Claims were up 32,000 to 637,000. Continuing claims jumped 202,000 to a record high of 6.56 million in the week ended May 2, which is the 15th straight week of record highs, and the four-week moving average for new claims rose 6,000 to 630,500 in the week ending May 9. More importantly, U.S. producer prices were +.3% in April, more than expected. In March the PPI was -1.2%, but those darned food prices rose 1.5% in April. Excluding food, PPI would have increased 0.1%, and in fact the core rate (excluding food & energy) was +.1%. The 10-yr is currently at 3.10% and mortgage security prices are worse by between .125 and .250.

Those risk managers and underwriting gurus at Wells Fargo have been busy! (And please note – these are not intended to be used by underwriters, since I condense them, but merely to get a sense of what is going on out there in the market.) In the wholesale business channel:

They changed their verification of mortgage/rent requirements, effective on the 16^th. “Wells Fargo Home Equity will require a 12-month housing payment history for all income contributing borrowers, including: VOM with payment history for all mortgages not reporting on the credit bureau, Internal verification may be performed by Wells Fargo Home Equity for Wells Fargo liens, and if a 12-month mortgage payment history is not available the borrower’s verified current or previous rental payment history (VOR) may be used as supplemental documentation. (I am sure that underwriters get excited when they hear, “Effective with standalone and simultaneous applications taken on or after May 16, 2009, income continuance requirements will be extended from three to five years when the income source is greater than 25% of the qualifying income. Income continuance requirements will continue at three years for any income source that is less than or equal to 25% of the qualifying income, including…”)

Effective earlier this week, any loan that is submitted with a DU Refi Plus certificate through wholesale must be registered, underwritten and closed as a DU Refi Plus loan. All pipeline loans must be closed and funded and/or recorded by Friday, June 12, 2009. “We are unable to accept a standard rate/term refinance when the DU certificate reflects the loan is eligible for a DU Refi Plus unless the loan is a High Balance Conforming Loan or DU Refi Plus loans that are ineligible due to the original loan having mortgage insurance.” And for “Freddie Mac Relief Refinance transactions registered on and after May 1, 2009, will no longer require the full appraisal to be in the file at time of submission. However, for Freddie Mac Relief Refinance loans registered on or after May 1, 2009, the Appraisal Order Confirmation must be provided in the file to pass minimum submission requirements.”

Speaking of DU, Wells wholesale also came out with “Full Appraisal Required for Certain Property Types. DU will determine the appraisal product or PIW eligibility. However, for DU Refi Plus loans, when the property is a condominium, cooperative, 2-4 unit or the property was previously purchased as an REO/foreclosure in the past 12 months, a full appraisal is required regardless of the DU response provided.”

Not to be outdone by their wholesale channel, Wells’ correspondent group came out with announcements regarding an LTV enhancement for detached PUD’s in the High Balance Conforming loan program, corrected a minimum FICO score for these loans, stated that temporary buydowns will no longer be allowed on 3/1 conforming ARM loans, and tweaked their policy for multiple financed properties and reserve requirements for them.

Wells Fargo Correspondent “has received an extension for all DU loans originated under the HERA permanent loan limits and policy. The new ‘purchase by’ date has been extended to on or before July 15, 2009.

Back in March the correspondent group told sellers that both an IRS Form 4506-T and IRS tax return information would be required for all TPO loans, and then in April announced that Wells Fargo will no longer require a complete and signed IRS Form 4506-T or IRS tax return information for FHA Streamline Refinance and VA IRRRL transactions. Wells clarified things by saying that “effective immediately, the policy for IRS Form 4506-T requirements are revised to require a complete and signed IRS Form 4506-T for all borrowers and all loan products, regardless of income source, documentation level, or underwriting option.

Early next week, Wells Fargo Funding will expand the maximum LTV from 85% to 90% for detached PUDs with the Wells Fargo Funding High Balance Conforming Loan Program. (This enhancement only applies for High Balance loan amounts up to and including $625,500 with primary residence, purchase or rate/term refinance, fixed rate transactions without subordinate financing.) Wells went on to describe the changes to their PUD guidelines.

Finally, Wells’ correspondent group instituted revised loan score requirements for the new 2009 program with a minimum of 660, but then it is determined by LTV, fixed versus ARM, and then based on units.

Radian came out with some updated language regarding property flips. Radian defines a “flip transaction is a purchase transaction for a property recently acquired by the seller which is being resold for a quick profit (with or without improvements made to the property) after a brief holding period.” This doesn’t include inherited properties, properties included in a divorce, relocation, etc. The memo is very detailed, but basically any property that is owned less than 90 days is ineligible for insurance, any agreement of sale that contains a reference to “assignment of a contract of sale” is ineligible as it is considered to be a potential property flip, etc. Properties owned between 3 and 6 months are eligible for insurance only if they meet certain criteria.

The National Information Center has just released consolidated financial statements for bank holding companies for Q1 09. It turns out that the top 50 banks added $42 billion of mortgage-backed securities during the first quarter. Agency MBS holdings (Fannie & Freddie) increased by $32 billion, and Non-agency MBS holdings went up by $10 billion ($8 billion was in CMOs). What does it mean? It would appear to indicated that the banks are continuing to buy agency MBS’s, although not as much as the Fed, including a smattering of other securities. The Fed has been in typically buying about $5 billion per day of MBS’s, which of course helps keep our mortgage rates down.

“The quieter you become, the more you can hear.”

~Baba Ram Dass    

Daily I am getting a lot of calls about HVC and the new appraisal guidelines.  I have attached an informative piece that breaks it down, etc.  So far one of the biggest changes is that we may have a verbal acceptance on a contract but until we get the fully ratified/executed contract we cannot order the appraisal.  As we all know the REPO’s and short sales may be accepted verbally but sometimes we wait weeks for the signed contract to come back.  Meaning the file just sits until we get the completed appraisal in our hand.  So, stress the importance of the executed contracts to your asset managers.  Our team can close conventional purchase loans in 15 days or less with a full package and 30 days or less with FHA.  We are here to help so don’t hesitate to call.  Make it a great day.    

Is it too early for these? The roundest knight at King Arthur’s round table was Sir Cumference – he acquired his size from too much pi…. I thought I saw an eye doctor on an Alaskan island, but it turned out to be an optical Aleutian…She was only a whiskey maker, but he loved her still….A rubber band pistol was confiscated from algebra class because it was a weapon of math disruption.

On to more serious things, like Bank of America looking to sell both its stake in a Chinese concern and First Republic Bank to raise money. Here in the San Francisco Bay Area, we remember Merrill Lynch buying First Republic , who caters to “well heeled” clients with high net worth, from stockholders in late 2007. And then earlier this year Bank of America bought Merrill Lynch (one can picture the classic cartoon with fish of varying sizes swallowing each other, similar to Golden West being bought by Wachovia being bought by Wells Fargo), which included First Republic. Last week’s stress test results showed that BofA has to raise $34 billion, so companies like First Republic could be on the way out. Bank of America has also sold their 5.8% stake in China Construction Bank for about $7.3 billion to a private-equity fund run by Goldman Sachs and Singapore ’s state-owned Temasek Holdings.

Wells Wholesale, in spite of Fannie Mae allowing borrowers to up to 10, will not change policy on the number of four financed properties when the subject property is a second home or investment property.

Wells Wholesale group also tweaked their minimum loan score requirements for the High Balance Conforming Loan Program, and made sure that brokers know that “Minimum Loan Score Requirements for Primary Purchase and Rate/Term Refinance Fixed Rate loans – If LTV or TLTV or CLTV require different loan scores below, apply the most restrictive loan score: LTV/TLTV/CLTV less than or equal to 75%: 660, LTV greater than 75% but less than or equal to 80%: 700, LTV is greater than 80%: 720, TLTV/CLTV greater than 75%: 700, and 2-4 units regardless of LTV/TLTV/CLTV: 740.”

Wells Fargo also reminded commercial lenders that the “Last day to submit small balance commercial applications is May 15, 2009 Due to current market conditions, the small balance commercial loans program is being suspended.”  This pretty much leaves the SBA and small local lenders for smaller commercial loans.

SunTrust is in the club! Effective yesterday, SunTrust came out with their “loan amount increases pursuant to the American Recovery and Reinvestment Act (ARRA) (2009 Temporary Loan Limits). The ARRA permits loans to be originated to the higher of the 2009 Permanent or 2009 Temporary Loan Limits. Agency Plus and DU Refi Plus Agency Plus loans may be originated under the 2009 Temporary Loan Limits. The maximum loan amount will vary based on location of the subject property. All Agency Plus loans must be processed through Fannie Mae’s Desktop Underwriter (DU) and receive a DU “Approve/Ineligible” recommendation with the ineligibility ONLY due to the loan amount. This loan program is not eligible for traditional underwriting or processing through Freddie Mac’s Loan Prospector (LP) automated underwriting.”

Yesterday we had no news, although most investors had mortgage price improvements that were passed through by lenders. Today we had the U.S. trade gap, which widened less than expected in March as both exports and imports fell. The trade gap grew to $27.6 billion, from an upwardly revised estimate of $26.1 billion in February, which was the lowest since November 1999, and is also the first time the trade gap had expanded in seven months. What does that mean? It means that U.S. demand remained weak in the first quarter – no surprise. What is interesting to watch is the price of oil, which is at a 6-month high due to signs of economic improvement. Currently the 10-yr is at 3.22% and mortgage prices are about unchanged from yesterday afternoon.

“Sitting quietly, doing nothing, spring comes, and the grass grows by itself.”

~Zen Proverb  

 I have attached 2 flyers that can be co branded.  Meaning if you send me your picture and info I can add your information to this flyer and you can share it with your database.  I thought these 2 fliers would be handy.  2 unique programs with Cal Strs that the borrower could come in with as little as 1% and the VA loan which allows  for zero down.  Great programs but often overlooked.  So spread the word to your vets and school teachers.  Have a great day. 

  Obviously the Mortgage Banker’s conference hasn’t hit Disneyland quite yet: http://www.msnbc.msn.com/id/30586772/

You just can’t make this stuff up! Eugenio J. Aleman, senior economist at Wells Fargo stated that “The Biggest Risk Today is an Economic Recovery”. Once again, anyone in the mortgage business wonders which evil they’d rather have: a stalled economy and low rates, or a strong economy with higher rates. Either way, I am sure that a renewal of programs that promoted lending to self-employed borrowers would help, regardless. Wells’ economist said, “The job of the Federal Reserve is going to become more difficult if this ‘recovery’ is for real, because it will have to start ‘mopping away’ all the excess liquidity in the market.  Furthermore, because the fiscal expenditure package is back-loaded, that is, it is going to take effect starting in 2010, then that ‘mopping away’ may have to be larger than what otherwise it would have been.”

Should a broker always advice a potential client to buy rather than rent? Perhaps not, especially if they want a long-term client. Generally speaking, fixed payments over a long period of time don’t maintain their purchasing power: their “real rate of return” is calculated by subtracting the rate of inflation from the yield. But houses and stocks have prices and earnings that tend to maintain their purchasing power over long periods. Any client wondering about buying versus renting should be made aware that renting tends to make the most sense in weak real estate markets. And what have most areas of the US had for the last year or two? Last year housing prices fell about 20% nationwide, and many experts expect it to fall farther in 2009. Check out a recent article in Forbes: http://www.forbes.com/forbes/2009/0525/086-investment-guide-09-buy-or-rent.html

PMI Group Inc. lost $115 million in the first-quarter of 2009, compared with a loss of $274 million in the first quarter of 2008. It was better than expected. Revenue increased, although net premiums written fell. PMI, like most mortgage insurers, are increasingly focused on claims rather than writing new business especially since credit-rating downgrades have limited their ability to write new business.

MGIC launched its “New Insured/Servicer RTM Program” for June 1st. This new program is available only to lenders that are not the current insured/servicer. The new program’s parameters match their original RTM program, but with a few additions: MGIC will charge a 50 basis point modification premium to continue coverage on the Refinance Loan at the original premium rate and waive enforcement of the representations and other policy terms associated with origination and servicing of the Original Loan. The maximum DTI allowed will be 45%. Income Documentation Income must be documented per MGIC’s Underwriting Guide, regardless of AUS recommendations or findings, and the refinance loan’s LTV cannot exceed 105%.

U.S. Bancorp, Capital One Financial, and BB&T, deemed by the government to have sufficient capital, announced large common stock offerings to repay TARP money. They were among the 19 lenders to undergo government “stress tests” of their ability to weather a long and deep economic downturn, were among the nine found not to need more capital. Other banks have “made noise” about paying the money back, since they view TARP as imposing too many restrictions and controls, but aside from these three and possibly KeyCorp, little has come of it.

Warehouse lenders carefully watch the financial health of their mortgage banker customers. Hopefully mortgage banks do the same, although some are pleased just to have a line. Should the fact that Gateway Bank, a source of funding for some mortgage banks, is under a Cease and Desist order from the Office of Thrift Supervision be of concern?  http://files.ots.treas.gov/enforcement/97103.pdf Gateway’s deal requires them to preserve and maintain sufficient capital, as you would expect, and puts a limit on unchecked growth along with submitting a revised plan to maintain sufficient capital within 30 days. For anyone looking for a warehouse line, it would appear that Gateway’s “full up” based on their equity position (total assets in relation to net worth). Their application fee was raised to $10,000 and the process can take 3-4 months for approval, so that may limit things. Their stated goal, however, is to offer as many high quality approvals as possible – a good thing for mortgage banks.

Rates have been creeping up lately, as the bond market is sensing that the economy may be bottoming up and perhaps heading into stronger times in addition to the Treasury flooding the market with new debt. The economic news last week came in better than expected: Initial jobless claims fell, manufacturing and services contracted at a slower rate, consumer sentiment improved, pending home sales rose for the second straight month, construction spending rose for the first time in six months and the ADP report showed job losses eased in April. Thank goodness for mortgage rates the Federal Reserve Bank of New York Agency Mortgage-Backed Securities Purchase Program is in buying: they had net purchases to $25.4 billion, and the gross purchase total is the second largest ever at $73.9 billion.

What’s in store this week? No economic news today. Tomorrow we have the Trade Balance figures, and on Wednesday Import and Export prices, along with Retail Sales and Business Inventories. On Thursday things heat up with the Producer Price Index, expected -1.2% and the Core PPI expected at unchanged. We also have Jobless Claims. We finish the week on Friday with the Consumer Price Index, expected -.1%, and the Core CPI +.2%. We also have Empire Manufacturing, Industrial Production, and Capacity Utilization, along with the University of Michigan Consumer Sentiment Survey . Rates have moved a little lower, as you’d expect with the big run-up lately: the 10-yr is back down to 3.22% and the 5-yr Treasury and mortgage prices are better by between .125-.250.

“If at first you don’t succeed, do it the way your mother told you to.”

Mother’s Day, Sunday 10 May 2009

What is the deal with these interest rates? Or perhaps the better question might be, is anyone surprised that with the economy showing signs of life, and the tremendous amount of supply hitting the market, rates have moved higher? And this is even with the Fed buying securities. Yesterday mortgage investors worsened prices, and prior to the unemployment data this morning the new 10-yr was sitting at 3.35%, the highest level since before Thanksgiving. Gold is well above $900 an ounce, and oil is above $57 per barrel.

Things appear to be improving slightly in the jobs market. The unemployment numbers came out, and employers cut a “smaller-than-expected” 539,000 jobs in April, the smallest amount since October.  The Unemployment Rate, however, which tends to grab headlines, shot up to 8.9% as expected, the highest since September 1983. The March number was revised from a drop of 663k to show a decline of 699,000, and February was revised from a drop of 651k to 681,000. For the April number, experts were expecting a drop of about 600k.  All sectors lost jobs except for the government and education & health services areas. After the numbers we find mortgage prices worse by .125-.250 yet the 10-yr is back down to 3.28%.

The House of Representatives approved a measure that would force mortgage lenders to retain a 5% stake in home loans they make, securitize and then sell to investors. (I imagine that this does not include brokers or small bankers, but I don’t know.) In addition, mortgage brokers would face tighter oversight and lenders would have to prove that homeowners are well-served when they refinance a home loan under the rule. The legislation would also help renters fight eviction when their landlords default on their mortgages. Remember, however, that there is no equivalent Senate legislation, but this certainly shows where some in Congress feel mortgage lending is heading.

With investors moving into the $729, 750 loan space, it takes some of the pressure off of agents who have specialized in high balance loans. The jumbo market, however, as best as I can tell is showing no signs of coming back soon. Hopefully I am wrong. Agents and brokers are seeing their best high net worth and self employed clients search for loans in local or community-based banks, who in turn are being very selective about to whom they lend. But as most know, any small bank is going to come up against lending limits based on their capital and deposits.  I suspect that with client deposits on the decrease bank lending limits have decreased as well. Certainly, on the TPO side of the business, there is no viable active secondary market, which of course in reflected in the “dogmeat” pricing.

“Until you try, you don’t know what you can do.”

~Henry James

Although this has nothing to do with mortgage banking, in mid-April I noted the website where one can track the currency found in their wallet, http://www.wheresgeorge.com/main.php#bill. (The government also tracks cell phones, by the way.) It would appear that health officials are using the site to estimate the spread of Swine Flu. http://www.nytimes.com/2009/05/04/health/04model.html?_r=1&hp Computers are amazing things. (Thanks to Forrest at Monterey Bay Mortgage.)

US Bank notified their clients that “we have reintroduced 2008’s temporary limits up to $729,750 (depending on county).  CLTV’s still allowed to 75% CLTV in California!  With exceptions on HELOCS still available up to $350,000 this is still the best jumbo pricing for your borrowers.”

HVCC for FHA loans? Let’s hope not, but we have heard some rumblings from some investors that they believe that the market is heading that direction and that the industry would be well served to implement it sooner than later. Having said that, I can’t find anyone requiring it yet, but with the concern about the quality of FHA loans don’t be surprised…

Chase Correspondent “is making a very significant change to our DU Refi Plus offering and is delaying the implementation of the maximum LTV to 105%. In DU 7.1 May Update Release Notes, Fannie Mae announced the availability of the DU Refi Plus program up to a 105% LTV through DU effective the weekend of May 2, 2009. After careful re-evaluation of the opportunities and risks associated with the DU Refi Plus program, Chase Correspondent Lending will make the following revisions to our DU Refi Plus offering: At this time, Chase will not expand DU Refi Plus to a 105% LTV. Additionally, Chase will now require that the original loan must be Chase Serviced in order to be eligible for delivery to Chase as a DU Refi Plus.”

VA Streamlines – are investors requiring an appraisal? Wells Correspondent, for example, “in an effort to mitigate the risk of declining home values on VA IRRRL transactions on May 18th will require the seller to obtain and deliver a conventional appraisal to Wells Fargo. Please Note: VA has indicated this appraisal should not be submitted to the VA with the guaranty package.” Some originators feel that requiring an appraisal on a VA Streamline loan pretty much “kills the deal”. GMAC and Citi still purchase them, but to the best of my knowledge BofA does not. At least one investor is saying that if the existing loan is already with them, then the appraisal will be waived. Anyone heard anything?

GMAC Financial Services reported a first quarter 2009 net loss of $675 million, compared to a net loss of $589 million in the first quarter of 2008. They attributed the losses to “continued pressure in mortgage operations related to valuation adjustments on mortgage servicing assets, weaker credit performance on both auto and mortgage assets, mark-to-market adjustments on derivatives, and an original issue discount related to the fourth quarter debt exchange.”  In similar fashion, Radian Group (the #2 mortgage insurer) posted a first-quarter loss of $217 million, hurt by unrealized loss on derivatives and continued increase in mortgage-insurance defaults.

Back to the markets! As long as the Federal Reserve Bank of New York keeps buying agency MBS’s, everything is ok, right? Let’s hope so, since they continue to be the dominant buyer by far. Last week they had “net purchases” of $23.1 billion, gross purchases of $59.6 billion. 97% of purchase activity is limited to 4.0% and 4.5% MBS’s, which typically encompass 4.25-5.125% mortgages – and only 7% of the securities are Ginnies comprised of FHA and VA loans.

Yesterday we had some good economic news, and the markets moved accordingly. Pending Home Sales rose 3.2%, and the Housing Affordability Index remained near record highs – certainly much higher than it was a year ago. Construction Spending was +.3% in March, which is the first increase in six months. Yes, most of it was increases in commercial and government projects, but we’ll take what we can get. Today we have the small issue of selling $35 billion in 3-yr Treasury notes, which may keep rates a little high in spite of the market being technically oversold. Currently the 3-yr yield is 1.39%, the 10-yr is 3.15%, and mortgage prices are better by .125-.250.

“While one person hesitates because he feels inferior, another is busy making mistakes and becoming superior. “ Henry C. Link

Wells Fargo’s hiring. Or maybe the correct verb tense is “hired”. According to their CFO Wells recently hired about 5,000 people to handle the increased workload in their mortgage operation. The bank added people across the country in the past couple of months to process record mortgage applications.

StoneWater Mortgage came out with their DU Refi Plus program. “Mortgage insurance requirement waived if previous loan scenario LTV was less than or equal to 80%, but due to declining property values, new loan scenario LTV now exceeds 80%…Provide up to 105% LTV for loan scenarios that previously did not require mortgage insurance. Loan scenarios with existing mortgage insurance policies are not eligible for the DU Refi Plus through StoneWater Mortgage…a minimum 620 credit score for all DU Refi Plus loan scenarios.”

The FOMC’s announcement yesterday was not overly surprising. “The economy has continued to contract, though the pace of contraction appears to be somewhat slower. Household spending has shown signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit. Weak sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories, fixed investment, and staffing. Although the economic outlook has improved modestly since the March meeting, partly reflecting some easing of financial market conditions, economic activity is likely to remain weak for a time…expects that inflation will remain subdued…some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.” They left the overnight rate unchanged, and to provide support to mortgage lending and housing markets they will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve will buy up to $300 billion of Treasury securities by autumn.

One trader said that, “It feels like we are in the middle of a 6-12 month window where it will be unclear if the economy & stocks have bottomed. The economy needs to digest all the stimulus, financials need time to heal their balance sheet, earn their way out of this mess. I’m much less negative than I was even 3 months ago, but I strongly believe there are many more interesting chapters to write.” Nicely summed up – stocks certainly continue to do well, in spite of some very poor earnings releases. That’s not what they taught us in business school!

We also have supply issues continuing to weigh down on bond prices, raising yields. Next week the Treasury will sell $35 billion of 3-yr, $22 billion of 10-yr, and $14 billion of 30-yr bonds. Today’s Jobless Claims number showed that the number of U.S. workers filing new claims for jobless aid unexpectedly declined by 14,000 last week, to 631,000, although “continued claims” hit a record high. In addition, more news today showed that Personal Consumption (consumer spending) fell in March after two months of straight increases. It was down 0.2% after a revised 0.4 percent increase in February. Personal Income slipped 0.3 percent after declining by an unrevised 0.2 percent in February – it has declined in five of the last six months. But here is some good news: the savings rate climbed to 4.2 percent in March from 4 percent the previous month. After this, the 10-yr has shot up to 3.12%, and mortgage prices and the 5-yr note are worse by about .125.

“I like to see a man proud of the place in which he lives.
I like to see a man live so that his place will be proud of him.”

-Abraham Lincoln

“The acting chief financial officer of mortgage financier Freddie Mac, David Kellermann, was found dead Wednesday morning from an apparent suicide, police said. Authorities said there were no signs of foul play when officers were called to Kellermann’s home on Raleigh Hill Road shortly before 5 a.m., according to Fairfax County police spokeswoman Lucy Caldwell. “At this point there are no signs of foul play,” Caldwell said. “It’s under investigation. I don’t believe we have categorized it yet at this point.” Kellermann, 41, who also served as the company’s senior vice president, had been with the company for more than 16 years.”

Morgan Stanley posted its second straight quarterly loss and cut its dividend. Apparently trading business profits were more than overcome by real estate investment losses and a charge from the improving value of it own debt.

Wells Fargo said its first-quarter net income rose to $3.05 billion from $2 billion in the year-earlier period. Wells Fargo, busy merging pick-a-pay loans and Wachovia branches into their business channels, said its merger with Wachovia is on track. They had revenue of over $21 billion, up from $10.56 billion in the first quarter of 2008. In the latest quarter, Wachovia contributed $8.72 of total revenue. Also, Wells Fargo said the latest quarter’s earnings included a credit reserve build of $1.3 billion – the market hopes that it is enough.

U.S. Bancorp, one of the 10 largest U.S. banks, reported higher-than-expected quarterly earning. Their strong mortgage activity helped to offset losses from lease financing, construction and development loans, and credit cards. Like Wells, US Bank also put aside $1.3 billion for loan losses, $833 million more than a year earlier, as declining home prices affected both consumer and commercial loan portfolios.

We saw rates rise slightly yesterday as it became apparent that the stock market was improving. Look for stocks to improve again, although with no substantive news today rates are basically unchanged from yesterday afternoon. Keep in mind, which watching mortgage prices, that if “the market” believes that rates are moving down, you can expect higher coupon 30-yr mortgage prices to fare poorly relative to lower coupons. And that is what we are indeed seeing in mortgage prices.

A seaman meets a pirate in a bar. The two men take turns boasting of their adventures on the high seas.

The seaman notes that the pirate has a peg-leg, hook, and an eye patch. He asks, “So, how did you end up with the peg-leg?”

The pirate replies, “We were in a storm at sea, and I was swept overboard into a school of sharks. Just as my men were pulling me out a shark bit my leg off.”

“Wow!” said the seaman. “What about your hook”?

“Well,” replied the pirate, “while my men and I were plundering in the Middle East, I was caught stealing from a merchant. I was arrested and my hand was cut off.”

“Incredible!” remarked the seaman. “How did you get the eye patch?”

“A sea gull dropping fell into my eye,” replied the pirate.

“You lost your eye to a sea gull dropping?” the sailor asked incredulously.

“Well,” said the pirate, “it was my first day with the hook…”

“Never put off until tomorrow what you can do the day after tomorrow.”

~Mark Twain

Winston Churchill said, “I contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.” Clever.

Colonial BancGroup, out of Alabama, who apparently is close to running out of money due to loan losses, will receive $300 million – much of it from Taylor Bean & Whitaker. What’s in it for TBW? Gaining control of Colonial and its new thrift charter would help them win federal clearance for a significant expansion of its deposit-gathering operations and provide a stable source of low-cost funding, e.g., critical warehouse capability.

According to the S&P/Case-Shiller Home-Price Index of 20 major metropolitan areas, my house, purchased near San Francisco many years ago, is worth $8.20. Well, at least it seems that way. Their index showed prices down 19% from the prior year, and 2.8% from December. At least consumer confidence, reported by the Conference Board, was relatively unchanged in March after hitting an all-time low in February. Lastly yesterday we had the ISM Chicago Purchasers’ Index which declined to 31.4 in March from 34.2 the prior month, contracting for a sixth consecutive month.

With all of this sour economic news, it is hard to believe that rates could go up much – inflation threats are muted. But they have indeed crept up so far this year, mostly based on the tremendous amount of supply coming into the market. (Remember those supply and demand curves from Econ 1A? They really do work…) In March, however, rates came down due to the Federal Reserve‘s government debt purchases program. The Fed has bought $17.5 billion (out of the announced $300 billion) in Treasury securities since it began the program last week.

The Mortgage Bankers Association’s applications index rose by 3% in the week ending March 27th. The purchase applications index was basically unchanged, and refis gained 3.7 percent. The only other scheduled economic news for today comes out at 10AM EST, 7AM PST, with the “generally-non-market-moving” ISM Manufacturing Index, Construction Spending, and Pending Home Sales numbers. Ahead of that the 10-yr is wallowing around at 2.67% and mortgage prices are… about unchanged.

After a seemingly long wait, all lenders have seen that Fannie Mae has issued Announcement 09-08, Temporary High-Cost Area Loan Limits and Revised Eligibility Requirements for High-Balance Mortgage Loans, to implement the temporary increase in conforming loan limits for high-cost areas authorized by the ARRA. The ARRA permits loans originated this calendar year to “use the higher of the current permanent high-cost loan limits, or the temporary loan limits in place for loans originated in 2008 that were applicable to jumbo-conforming mortgage loans.” Effective May 1, Fannie Mae will accept for delivery from all approved lenders loans originated in 2009 using these new limits.

Although there is no word yet on pricing (I guess that investors will figure that out over the next month, but hope for the best and expect the worst), Fannie revised loan-to-value ratios for certain loan types, implemented new minimum credit score requirements, and added additional appraisal requirements. (And no, I don’t know what they are, but hope for the best and expect the worst. And investors will follow their lead.) Underwriting-wise, for DU case files “effective for deliveries on or after May 1, lenders must manually apply the revised eligibility requirements for loan case files that receive an Ineligible recommendation due to the loan amount exceeding the permanent loan limit for the area in which the property is located. These loans will be eligible to receive the DU limited waiver of underwriting representations and warranties. Because the new eligibility will not be implemented in DU immediately, we will continue to permit deliveries of high-balance mortgage loans that receive an Eligible recommendation from DU and will not require lenders to apply the revised eligibility to these loans until a later date. For manual underwriting, the revised eligibility requirements apply to loans for amounts over the permanent limit for the specific property location, and all manually underwritten high-balance loans with application dates on or after June 1, 2009. Lenders are encouraged to implement the new eligibility guidelines immediately. All manually underwritten high-balance loans with application dates before June 1 that do not comply with the revised eligibility guidelines must be delivered to Fannie Mae before October 1, 2009.”

Announcement 09-08: Temporary High-Cost Area Loan Limits and Revised Eligibility Requirements for High-Balance Mortgage Loans and the new High-Balance Feature Matrix and reference materials to identify the loan limits for specific areas are available on the Loan Limits page on eFannieMae.com.

“Tomorrow is often the busiest day of the week.”

~Spanish Proverb

The former Treasury secretary, Henry Paulson, is writing a book about his role in the Bush administration during the economic crisis. Oddly, the book starts on Chapter 11.

It is the last day of the month. Not only are Ops departments everywhere scrambling to fund loans while they keep an eye on warehouse constraints, but management teams are wondering what April and May will bring. Lock volumes continue to be strong everywhere, and successful companies have made it clear to their agents or brokers that limiting fall out is critical. Whether this involves charging a fee to lock, or only locking after the appraisal comes in, or the loan is approved, etc., pull through seems to be increasing – much to the relief of investors.

As Wells Fargo has made known, they will be continuing, for the most part, Wachovia’s warehouse business. Will BofA continue Countrywide’s? Stay tuned – there are many companies that are hoping so. Of course, if Freddie and Fannie enter the warehouse business, will they be viewed as direct competition for smaller warehouse banks? The regulator of Fannie Mae and Freddie Mac is examining that business channel, both as a way of further stabilizing the market but also as a potential profit center. Existing warehouse banks are strained given the amount of refinancing that is occurring in the market (look for originations in 2009 to be about $3 trillion), and are focused on helping existing clients rather than adding new business. Obviously big banks do not require warehouse funds (remember? They get them from your deposits). Last week the Mortgage Bankers Association asked banking regulators to cut the capital requirement on warehouse lines of credit by as much as 80% to alleviate the funding crisis facing non-depositories that we explained was causing delays and major back-ups in closing loans. That would certainly help.

As a sign of the times, Chicago is now the first city in the US to be served by two insolvent newspapers: the Sun-Times Media Group, parent of the Chicago Sun-Times newspaper, filed for bankruptcy protection. They hired Rothschild Inc to try to sell some of its assets, which include 59 newspapers and their websites. “Unfortunately, this deteriorating economic climate, coupled with a significant, pending IRS tax liability dating back to previous management, has led us to today’s difficult action,” said Sun-Times’ interim Chief Executive. Chicago ’s Tribune Co, is in the midst of a bankruptcy restructuring due to declining revenue.

Franklin American “under the Economic Stimulus Act of 2008 (ESA) or those previously established for 2009 under the Housing and Economic Recovery Act of 2008 (HERA) and Mortgagee Letter 2009-07 dated February 24, 2009, is pleased to announce we will accept the 2009 revised FHA loan limits effective with Registrations and Locks on and after April 1, 2009. The maximum base loan amount may not exceed the lesser of the Statutory Mortgage Loan Limit as published by HUD for the county in which the property is located OR $417,000 for a 1-unit property. Loan amounts > $417,000 are considered FHA Jumbo product which will now allow a maximum loan amount calculation of the Statutory Mortgage Loan Limit OR $729,750 for a 1-unit property (see the FHA Jumbo Addendum to the FHA Product

Description for 2-unit requirements); previously this limit was set at $625,500.”

On the Wall Street side, it appears that Cantor Fitzgerald is staffing up. On the origination side, AmeriCU Mortgage (who focuses on providing mortgage services to credit unions nationwide, but guilty of capitalizing letters in the middle of their name) has established an operations center in Milwaukee , WI . The story I read said that, “AmeriCU received approval from the Department of Financial Institutions on March 18, and immediately began operations. Within 72 hours, the company hired 45 staff members…”

Making things tough on any broker or agent out there, Lennar Corp, the nation’s largest builder by revenue, is offering a fixed rate of 3.625% “for life,” which it says is its lowest ever. The special is “on select homes”, closings must occur by April 30, and the loan amount can’t exceed $417, 000, according to the terms listed on its Web site. The minimum credit score is 700. Still, just as newspaper headlines raving about 4.5% mortgages influence potential borrower behavior, so might this…

Although our stock market was hit hard yesterday, and stocks overnight were down, this morning they may see a little bounce. Bonds, including mortgage-backed securities, benefited yesterday with the yield on the 10-yr dipping into the 2.60’s although this morning we are back to the low 2.70’s on the 10-yr and mortgage prices are about unchanged. As anticipated, the Fed purchase of $2.5 billion of Treasury securities helped, with the purchases mainly in maturities 20-30 years out. (The Fed will conduct 2 more buybacks in the middle of this week.) For economic news we have the S&P/Case Shiller index, the Chicago Purchasing Manager’s Survey, and Consumer Confidence.