Good morning everyone. I will be in the office today. Let me know how we can help. We are having great success with the new appraisal system in comparison the major banks and brokers out there. I would be happy to discuss why Zack Cooper and RPM are your best opportunity to get a fair appraisal and save your buyers money in the long run. We are still closing FHA loans in less than 25 days and getting contingencies removed in 10-12 days. In a market where we hear so much negativity our referral partners are thriving! Let us know how we can help you with your business, if you have any FHA questions, your buyers, etc. We have also figured out a way to get your borrowers streamlined approvals with the various banks that require approval with the selling bank. Last week we turned around a Wells Fargo required approval in 2 hours and got the offer accepted while others took 3-4 days to complete the approval. We are your purchase lender. Make it a great day.

To your success!

Sincerely,

Zack Cooper

TEAM EMPOWERMENT

925-295-9360 DIRECT

“The best way to get people to think out of the box is not to create the box in the first place.”

-Martin Cooper

Market Commentary – Wed, Jul 15 – 10:20 AM ET

Stock markets are rising for the 3rd straight session led by a positive earnings report by Intel, the world’s largest semiconductor, reporting that earnings per share came in at 18 cents versus the 8 cents that was expected. Intel also said that Q3 revenue will be better than forecasts. Intel (INTC) is part of the Dow 30 and a component of the S&P 500 Index.

Mortgage applications in the latest week rose said the Mortgage Bankers Association today. The MBA’s Index of Applications rose 4.3% in the week ended July 10 to 514.4 up from 493.1 the previous week. The group?s refinancing index increased 17.7%, while the gauge of purchases fell 9.4%. The rise was due to lower home loan rates last week.

A surprise reading from the New York Fed showed that manufacturing in that region shrank at the slowest pace in a year led by the biggest increase in orders since the recession began. The New York State Manufacturing Index rose to -0.55 in July from June’s -9.41 reading and was the best level since April of 2008. The report has also boosted Stock prices in the early going.

Inflation at the consumer level increased slightly in June from May pushed higher by rising gasoline prices. The Consumer Price Index (CPI) rose 0.7% in June from the 0.1% reading in May – estimates were calling for a reading of 0.6%. The so-called Core CPI, which strips out volatile food and energy, rose to 0.2% from 0.1% in May.

The CPI year-over-year fell 1.4%, the biggest decrease since January of 1950, while the Core CPI for the last year ended in June was 1.7% down from May’s reading of 1.8% for the past 12 months.

“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.

“My will shall shape the future. Whether I fail or succeed shall be no man’s doing but my own. I am the force; I can clear any obstacle before me or I can be lost in the maze. My choice; my responsibility; win or lose, only I hold the key to my destiny.”

~Elaine Maxwell

 

We had three pieces of good news for the mortgage industry. First, Bank of America and Morgan Stanley are marketing securities backed by commercial mortgage bonds. Although the exact details are not known, there are reports that BofA is selling $368 million in debt backed by nine commercial mortgage bonds, and Morgan Stanley plans to sell $210 million in similar securities backed by a single commercial mortgage bond. In addition, Freddie Mac is issuing a $3 billion five-year reference note, which is notable in that according to Freddie Mac the deal is the first that didn’t offer concessions to investors that made the new debt more attractive than debt already outstanding.

Second, Chase, American Express, US Bank, Capital One, Bank of New York Mellon Corp., State Street Corp., BB&T Corp. and Northern Trust, Goldman Sachs and Morgan Stanley paid back billions in government investment (TARP), after they all obtained approval last week to pay it back. That is a start in the $700 billion Troubled Asset Relief Program. Yesterday was the first day that banks could pay back the money. Eight other banks received approval last week to repay the government funds.

Third, CitiMortgage announced that LMI pricing incentives are available through them in certain markets, targeted at helping eligible loans in selected low-to-moderate LMI geographic areas for a limited time only. Operators standing by! The deal goes for two months, and the loans must be located on Citi’s list of state, County, and MSA’s – basically low or moderate income census tracts. Skeptics might say that this is a return to extending loans to borrowers who may not qualify, but that is not for me to say. See Citi for details.

Lastly, so I guess this would four good things, inflation appears to be very tame, which, in one way of thinking, points to a relatively slow economy, which in turns suggests that rates will stay low or perhaps move even lower. (See below, however, as rates are up today on the jobless claims data.)

Unfortunately, but entirely expected, mortgage applications in the U.S. fell last week to the lowest level since November. The MBAA index of applications to purchase a home or refinance a loan dropped 16% in the week ended June 12, with refinancing down 23% and purchases down 3.5%.

Bank of America Home Loans Correspondent group told customers that after Monday (earlier this week) “Expanded Approval” recommendations will no longer be eligible with DU Refi Plus, and told them that since DU “may still approve this feature combination and the Correspondent Lending Web site will not restrict these commitments until a future system release. Therefore, clients are required to manually apply this new policy.” BAHL followed Fannie guidelines and told us that after July 1 the borrower may receive no more than $250 cash back at closing, that DU Refi Plus mortgages are ineligible for temporary interest rate buydowns, and that although new single premium lender paid mortgage insurance policies may be obtained on DU Refi Plus transactions if the current loan is subject to a lender-paid policy, the refinance is ineligible for the DU Refi Plus program.

What is the market up to this morning? New claims for jobless benefits rose last week but the number of People staying on the benefit rolls after collecting an initial week of aid fell for the first time since January. Jobless Claims were up 3,000, more than expected, but so-called “continued claims” dropped 148,000 – better than expected and the largest one-week drop since late 2001. On top of that, the 4-week moving average for new claims dipped to its lowest level since mid-February. We still have Leading Economic Indicators and the Philly Fed ahead of us, but for now 30-yr mortgage prices, and the 5-yr Treasury, are worse by .375-.5, and the 10-yr yield is at 3.74%.

“What greater thing is there for two human souls than to feel that they are joined…to strengthen each other…to be one with each other in silent unspeakable memories.”

~George Eliot

 

 We have had some good success with the small amount of appraisal rebuttals that have already gone through the RPM Appraisal System.  We recently had a appraisal come in less than purchase price where upon the loan agent submitted the appraisal to the Bank, after review, the Bank lowered the sales price to the appraised value.  We have also had success with “meeting in the middle” where both the appraiser, myself and the realtor provided information to come to a mutually agreed upon price.  In some smaller instances the value has also remained unchanged.   The best advice here is the more information the better as I do review the appraisal, review all the supplied information and then write a rebuttal to the appraiser if the information does have merit.  Upon writing a rebuttal to the appraiser, they acknowledge receipt of the information and then offer their opinion.  The appraisers are all trying to work with RPM and all have been very cooperative.  Please also remember, if you or your borrower are still unsatisfied after this process has been exhausted, you can order a new appraisal.  Another good idea is to have the realtor bring comparables to the inspection date as they are one of the few people that can still talk about value with the appraiser. Attached is the RPM Appraisal Review Process form which can be used to rebut an appraisal.  Please fill out the information and send back to me and I will review the attached data.  Thanks for all your help and patience as RPM Appraisal tries to make this system most beneficial to you.

 

When is the best time to add insult to injury?  When you’re signing someone’s cast. What some may feel is along the same lines, do you remember how the former Countrywide Financial president formed PennyMac Mortgage last year to buy troubled home loans and related securities? And how people in the business cried foul: “First they originate the stuff, then give the mortgage business a bad name, and now they’re buying their loans back at 10 cents on the dollar?” Well, soon you may be able to buy stock in them. On Friday they filed with the SEC to sell as much as $750 million in stock to the public. PennyMac Mortgage Investment Trust would make some of its investments under a federal plan to offer financing to buyers of toxic mortgage assets from banks, the filing says.

 

Flagstar reminded their customers that “FHA has extended the temporary property flipping waiver that allows lenders and the property disposition firms they hire (or with whom they are affiliated) to sell properties on which they’ve foreclosed without regard to FHA’s 90-day seasoning requirement. The waiver is in effect for loans with purchase agreements signed by the borrower and seller on or before May 10, 2010. Individuals or entities that purchase foreclosed homes are not exempt from the 90-day seasoning requirement. When the property seller is not exempt from FHA’s seasoning requirement, the borrowers may not execute the purchase agreement before the 91st day after the seller acquired the property. FHA requires a second appraisal when a property is being sold within 180 days of the seller’s

acquisition date and the sales price is more than 100% greater than the seller’s acquisition cost. This applies to all FHA purchases, including transactions where the seller is permanently or temporarily exempt from FHA’s 90-day seasoning requirement.” For additional information, refer to the FHA Mortgage Letter 2006-14 – Property Flipping Prohibition Amendment.

 

Flagstar also changed the pricing on all table-funded government loans with properties located in North or South Carolina to reflect a hit of 10 basis points.

 

Lastly, on June 5^th Flagstar will limit eligible manufactured home transactions to rate and term refinances of loans currently serviced by Flagstar Bank. Purchase, cash-out refinance transactions; or rate/term refinances of non-Flagstar serviced loans will be ineligible. This change applies to all products where a manufactured home is an eligible property type. Pipeline loans outside of these guidelines must be locked prior to Friday, June 5^th.

 

AgFirst announced that they will not be able to purchase loans originated under the DU ReFi Plus program when the previous loan has active Mortgage Insurance (MI) and is NOT currently being serviced by AgFirst. Per AgFirst, “The MI companies have not yet clearly defined operational procedures for the transfer of the MI from one servicer to another.   The servicer that originates the refinance (AgFirst) would be held responsible for the transfer of the MI to the new loan.  With the uncertainty in procedure and the absence of uniformity, the risk is too great.”

 

Union Bank of California, where many brokers have turned for jumbo product, reminded their brokers that their investment property financing, for purchase or no cash out refinance, has no restrictions on the number of properties owned or financed. “Union Bank will finance up to 3 investment properties for the same borrower  Loan amounts up to: 1 unit $750,000, 2 units $1,100,000, 3 and 4 units $1,500,000. Available on all programs, Interest Only or amortizing, including the Two Step Mortgage.”

 

Franklin American came out with their High Balance conforming loan limits originated under Fannie Mae’s Temporary High-Cost Area Loan Limits. An Addendum to the Conforming Fixed Rate provides underwriting criteria and loan parameters as allowed by FAMC. As with other investors, the list can be seen at http://www.fhfa.gov/webfiles/2082/HighCostLoanLimits2009_ARRA.xls Underwriting by FAMC is required on loans for lenders with delegated underwriting authority less than $650,000, and on all loans having loan amounts > $650,000 regardless of lenders delegated authority. Lenders should refer to their most recent FAMC approval letter to confirm their delegated underwriting loan limits.

 

So here we are, on a Tuesday that every year feels like a Monday. We have Treasury auctions today, tomorrow, and Thursday. Today we also have a series of “soft” economic releases: S&P/Case-Shiller housing index, Consumer Confidence, Richmond Fed, and so forth. Tomorrow and Thursday we’ll see Existing Home Sales and New Home Sales. Durable Good comes out Thursday, and on Friday we finish the week with GDP and the Chicago Purchasing Managers Index. Prior to this we find the 10-yr at 3.41% and mortgage security prices better by a shade.

 

 

Let’s ease into the week with some puns:

No matter how much you push the envelope, it’ll still be stationery….

A dog gave birth to puppies near the road and was cited for littering….

A grenade thrown into a kitchen in France would result in Linoleum Blownapart….

Two silk worms had a race. They ended up in a tie.

“I am so glad you are here. It helps me to realize how beautiful my world is.”

~ Rainer Maria Rilke

 

During the Civil War President Lincoln was being heavily criticized for military blunders. In 1862 he wrote, “If I were to try to read, much less answer, all the attacks made on me, this shop might as well be closed for any other business. I do the very best I know how – the very best I can; and I mean to keep doing so until the end. If the end brings me out all right, what is said against me won’t amount to anything. If the end brings me out wrong, ten angels swearing I was right will make no difference.” Ben Bernanke keeps that statement on his desk – interesting.

 

Wells Fargo’s correspondent group, who announced last month that they would take the new high balances with DU approvals, starting tomorrow will buy high balance LP (Freddie) loans. “New 2009 Higher Conventional Conforming Loan Limits Available for Delegated Loan Prospector® Transactions. Wells Fargo Funding will accept Loan Prospector delegated transactions with the 2009 temporary loan limits…Sellers should refer to Freddie Mac’s Super Conforming guidelines for details and revised eligibility requirements for all Super Conforming Loans. In addition to Freddie Mac’s guidelines, Sellers must also comply with the Wells Fargo Seller Guide.”

 

Wells Fargo ’s wholesale group tweaked the requirements for Freddie Mac Relief Refinance Mortgage loans with a debt ratio greater than 50%. “A loan with debt ratio greater than 50% may be approved when all of the following are met: A letter from the borrower regarding any reduction of income/job loss in the last six months is required. If the borrower indicates nothing has changed, the following compensating factors must be present to demonstrate borrower ability to pay: minimum 12 months of seasoning on existing first mortgage, no more than 1 x 30 late, payment is decreasing, and borrower has maintained a DTI that is higher than the new DTI for a minimum of 12 months (e.g. no significant new debt or reduced income).” If the loan is for a second home or investment property, standard reserve requirements (two months of reserves on each other financed second home or investment property) must be met.

 

Also note that Wells’ wholesale group stated that “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. For the Freddie Mac Relief Refinance Mortgage program, Wells Fargo will indicate on the validation form whether an appraisal is required.”

 

JPMorgan Chase & Co. is pulling back on its mortgage operations in Massachusetts, closing offices and reducing its headcount throughout the region. Chase, apparently, will remain active in the area but also continue to focus on their “depository footprint” where it has a banking retail presence. Six of seven state offices are expected to be closed, as was a Rhode Island office in December. http://www.bostonherald.com/business/general/view/2009_05_19_JPMorgan_Chase_to_cut_Massachusetts_mortgage_offices/

 

Other news:

• Mortgage applications, according to the MBAA, rose 2.3% for the week ended May 15. The refinancing gauge was +4.5%, but purchases were -4.4%.
• Regions Financial, which has received $3.5 billion of TARP money but was told by stress tests that it needs to raise more capital, said it plans to raise $1.25 billion through stock offerings, half of the sum that federal regulators told it to raise to withstand a potentially deep recession. The public offerings include $1 billion of common stock and $250 million of preferred shares automatically convertible into common stock.
• Toll Brothers, currently the largest U.S. builder of luxury homes, saw its second-quarter revenue fall 51%. Based in Pennsylvania , they are the second-worst performing U.S. homebuilding stock this year having lost more than a third of its value since 2006.

 

On Monday night the House voted in favor of legislation that will give federal authorities more tools to combat mortgage fraud and create a commission to examine the financial crisis. It would authorize $490 million over two years to hire fraud prosecutors, increase enforcement actions and add funds to the Secret Service and Housing and Urban Development Inspector General. It also allocates funds to the Postal Inspection Service and sets up a commission of outside experts with subpoena power to examine the financial crisis and make recommendations. It also creates a bipartisan commission of experts with authority to review the causes of the economic situation and recommend changes.

 

In other Washington DC related news, Fannie Mae announced plans to securitize its holdings of mortgages that are not already packaged, into bonds. Per one trader, this helped fuel the issuance of $55 billion this month of debt backed by “seasoned” loans. Fannie’s plan is to take $256 billion of its single-family whole loan portfolio and $108 billion of multi-family loan portfolio and securitize that as well. Let’s hope that there are buyers out there! Speaking of buyers, this market is very, very quiet. “Dead in the water” as we used to say on the trading desk. The 10-yr seems happy around 3.23%, and mortgage security prices are about unchanged from Tuesday afternoon.

“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.”

~ Author Unknown

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.