“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.

“To wait for someone else, or to expect someone else to make my life richer, or fuller, or more satisfying, puts me in a constant state of suspension.”

~Kathleen Tierney

 

I have attached the most recent Kiplinger letter and the California Kiplinger letter.  These are great reads.  Enjoy.  Rates continue to improve today.  Let me know how we can help you.  Have a great Friday. 

 

 

I called up the US Treasury yesterday to ask them how much they’d pay me to loan them money (e.g., buy a Treasury security) for a month. They replied, “Not only will we not pay you any interest, but you’ll pay us interest to loan us your money!” A novel thought – like paying for a storage unit for your junk – but it occurred yesterday where the interest rate on 1-month T-bills was negative. (It also happened back in December, as investors put their money into the most easily-traded securities to help their balance sheets at the end of the quarter. I guess that if I had a balance sheet that needed bolstering, I’d do the same. Banks prefer to carry securities on their balance sheets instead of cash at the end of the quarter, driving up the demand for bills, thus driving up the price, driving down the rate.)

 

What are the borrowers who are still making their payments saying out there? “A promissory note means that I am promising to repay the loan – it doesn’t mean I get to walk on the loan if the property value declines. Since the lender does not share the upside appreciation of an investment property, why should lender be stuck with the downside? I, as a borrower, accept both sides of the risk/reward equation: I get the upside AND the downside. My feeling is that many borrowers, especially for single family homes, believe that they are entitled to a 4%, no down payment, $1,000,000 loan. And somehow, if they can’t get that, that means there is a crisis requiring taxpayer subsidy.”

 

US Bank’s wholesale division sent this note to their brokers: “The American Recovery and Reinvestment Act of 2009 (ARRA), provided for the FNMA/FHLMC high cost county loan limits to be returned to the “higher of” the 2008 or 2009 loan limits. In most Cases the 2008 limits will be the higher limits but there are several counties (located in California, North Carolina & Virginia) where the 2009 limits were actually higher than 2008 limits. On a county by county basis you may be able to originate loan amounts up to the $729,750 limits of 2008. Effective immediately, for program #3626/3627 FHLMC Super Conforming Jumbo, U.S. Bank Home Mortgage Wholesale Division will accept loans at the revised loan limits. You may verify specific high cost counties at the new ARRA limits by checking the following internet site: www.ofheo.gov/Regulations.aspx?Nav=128”

 

GMAC’s minimum FICO for FHA is 580 for correspondents; however, they just implemented a price adjustment for FICOs below 620. (They do not impact GMAC’s Streamlined Refi program.) For FICO >=600 and < 620 -1.0, FICO >=580 and < 600 -1.50, and for FICO’s >=700 +0.125.

 

GMAC, and others, remind us that Fannie Mae has implemented the mandatory use of the Market Conditions Addendum to the Appraisal Report (Form 1004MC) which is intended to provide a clear and accurate understanding of the market trends prevalent in the subject neighborhood. The form provides the appraiser with a structured format to report the data and to more easily identify current market trends and conditions. The appraiser’s conclusions will be reported in the “Neighborhood” section of the appraisal report. Appraisers should be made aware of this taking affect April 1.

 

Lastly, GMAC Correspondent went along with FHA’s Mortgagee Letter 2009-07 “Loan Limit Increases for FHA” and announced revisions to the county limits for calendar year 2009. “The mortgage limits are effective for loans that have final credit approval in calendar year 2009 and will remain in effect until December 31, 2009. CL08-278 is hereby rescinded and is superseded by this announcement.”

 

This morning we’ve seen the February Personal Income & Outlays report which measures consumers’ ability to spend. (As you would expect, if a consumer’s income is rising, they are more likely to make additional purchases. Normally this would be viewed as inflationary, and bad for rates, but at this point, the markets would like to see a pick up in that measure.) Forecasts called for a 0.1% drop in income and a 0.3% increase in spending. Income actually dropped .2%, after January’s .2% increase, and spending was +.2% after being +1.0% in January. The “savings rate”, which many watch, was 4.2% in February, indicating that households were still remaining frugal. The second report comes from the University of Michigan, and is merely a revision to the March consumer sentiment index from 2 weeks ago. It is expected to be about unchanged. The 10-yr is back down to 2.71%, and anyone who didn’t improve their mortgage prices yesterday afternoon will do so this morning.

 

A lady inserted an ad in the classifieds: “Husband Wanted.”
Next day she received a hundred letters.
They all said the same thing: “You can have mine

“A man sooner or later discovers that he is the master-gardener of his soul, the director of his life.”

~James Allen

Last Friday was the first day of spring. Congratulations, you made it through winter – now if only your savings had… What is the word on when the conventional $729,250 will be rolled out? Hah! Call me “out of the loop”, but I have none. There are reports that big banks’ retail operations are already advertising the new limits, but I have seen no information from any other business channels and the reps are probably tired of answering the question with, “When Fannie and Freddie let us know.” . As is becoming standard, the big banks are (and many would argue wisely) supporting their own branch network. For example, as recently as 5-6 years ago, Chase had only 500 branches where they might be able to originate some get retail loans. Now, they have over 5,000 branches – do they and other large banks need a huge broker base to help them with their mortgage volume?

The good news is that the Mortgage Bankers Association boosted its forecast for 2009 home-loan originations to $2.8 trillion due to low rates and a wave of refinancing. They estimate refinancing will total almost $2 trillion this year and purchase originations will increase to $821 billion, which would put 2009 originations in the top 4 years of all-time. The bad news, if you could call it that, is that the costs to the borrower are higher than ever – especially if they want to buy down the rate. Mortgage origination fees are the costliest in eight years, and the positive spread that banks are earning (i.e., the difference between their cost of funds – what they pay depositors – and where they are loaning it out at) is huge. Most mortgage companies are already collecting the Fannie & Freddie “adverse market fee” that they will charge officially beginning April 1. Not only are originators collecting added fee income to their bottom lines, but also increased spread income (unless, in the case of mortgage banks, their warehouse banks are charging high rates).

As an example, commercial and retail banks are looking at overnight Fed Funds near 0%, but conforming mortgage rates are near 5% this quarter. And as I mentioned last week, the average spread between fixed mortgage rates and the 10-year T-note is 2.3%, the highest it has been in over 20 years.

We have seen the residential problems – is commercial next? Banks are reporting increased loan delinquencies from owners of office buildings, casinos, and shopping malls. The country’s 10 biggest banks have $327.6 billion in commercial mortgages, and Wells Fargo and Bank of America account for about half of commercial mortgages owned by these 10. According to a study from research firm Reis Inc., commercial property prices are down almost 20% in the past year. Bank of Hawaii Corp., City National Corp., Comerica Inc. and Sovereign Bancorp Inc. were among the companies put on Moody’s list of lenders with a “negative outlook” last week, partly because of their “risk concentrations” in the commercial market.

AmTrust’s Debt-to-Income Ratios, effective earlier this week, for a LTV/CTLV/HCLTV greater than 80% 41% maximum. For a LTV/CLTV/HCLTV equal to or less than 80%, 55% maximum for conforming products and 45% maximum for Jumbo products. For a manual underwrite (“Non-Traditional Credit”): 41% maximum, regardless of LTV.

FAMC is revising and clarifying credit parameters for Conventional Conforming Fixed Rate and Conforming ARM products. Their minimum credit score for a 1 unit, primary residence cash out transaction has been lowered to 640. The maximum LTV/CLTV was previously reduced to 80/80. (A while back they addressed maximum LTVs on second homes and investment properties and increased the minimum scores > 80% to 680. The minimum credit score has been increased from 580 to 620 for LTV’s < 80%.)

Well, rates improved for a bit yesterday, but then worsened slightly as the day wore on. Can you believe that the 10-yr yield is 25 basis points higher than last week’s lows? Today we have already seen Durable Goods (estimated to be -2.5%, they were +3.4% in February, the biggest increase since December 2007, although January was revised to -7.3% from -4.5%), and later on we’ll have New Home Sales (estimated to be down 3%). Perhaps most importantly, we have a $34 billion 5-yr note auction to get through. The Mortgage Bankers Association released their weekly application figures: last week mortgage applications were +32%! Currently the 10-yr is back up into the mid-2.7% range, and mortgage prices are worse by another .125 versus Tuesday afternoon.

Hospital regulations require a wheel chair for patients being discharged. However, while working as a student nurse, I found one elderly gentleman already dressed. He was sitting on the bed with a suitcase at his feet, and he insisted he didn’t need my help to leave the hospital. After a chat about rules being rules, he reluctantly let me wheel him to the elevator. On the way down I asked him if his wife was meeting him. “I don’t know,” he said. “She’s still upstairs in the bathroom changing out of her hospital gown.”

“The willingness to accept responsibility for one’s own life is the source from which self-respect springs.”

~Joan Didion

 

 

The economic downturn has more Americans shifting to smaller homes. For example, Bernie Madoff just traded a 3,500 square foot penthouse for a 9 x 10 windowless studio in lower Manhattan . And for anyone needing financing on larger homes, it appears that Bank of America is truly “ruling the roost” when it comes to jumbo rates – few, if any, can compete, and agents and brokers are once again hoping that their clients don’t wander into a BofA branch any time soon.

 

When did a “hard money lender” become a “private money lender”? This business is certainly prospering, although the industry is highly segmented and typically local. And there is downward pressure on rates, similar to what happened with the subprime business as more companies and capital began pushing rates down to be competitive.

 

Do you want to see if your loan, or your neighbor’s loan, is owned by Fannie? http://loanlookup.fanniemae.com/loanlookup/

Do you want to see if your loan, or your neighbor’s loan, is owned by Fannie’s brother? https://ww3.freddiemac.com/corporate/

 

It is a light week for scheduled economic news. Today we have Existing Home Sales, nothing tomorrow, Wednesday we have Durable Goods Orders and New Home Sales, Thursday Jobless Claims and 4th Quarter Gross Domestic Product (considered old news), and lastly on Friday we have Personal Income and Consumption along with the University of Michigan Sentiment number. Existing Home Sales gives us a measurement of housing sector strength and mortgage credit demand, but rarely impacts rates. Speaking of which, this morning our friend the 10-yr is at 2.64% and mortgage prices are worse than Friday afternoon by about .125. Last week, given the new from the Fed, many originators were selling 4 and 4.5% mortgage securities (generally containing 4.25-5.125% mortgages), which, interestingly, pushed their prices down more than higher coupon securities. Dealers reported about $5 billion in sales on Friday, a very large day, and with only the Fed truly buying (there are other buyers, but “begrudgingly”), that was bound to push prices down and rates higher.

 

MGIC announced that their maximum loan amount for 1 Unit Properties is $417,000 or “Up to the Fannie Mae and Freddie Mac conforming loan limits in areas where the maximum exceeds $417,000. Guidelines for loans greater than $417,000 remain unchanged: Non-Restricted Markets – Maximum LTV 90% / Minimum FICO 700, Restricted Markets – Maximum LTV 85% / Minimum FICO 700, Restricted States – Maximum LTV 85% / Minimum FICO 720. Also unchanged, are the premium rate adjustments for loans greater than $417,000: Monthlies/ZOMP!, Splits and Annuals –  +.25%, Singles –  + 1.25%.”

 

GMAC told their correspondents that GMACB is revising their guidelines for Jumbo: 85% Maximum LTV, Primary Residences Only, Full Income Documentation type only, Properties listed for sale in the past 6 months are ineligible for refinance. FICO Score: 680 Loan amounts<=$650,000; 700 for loan amounts > $650,000, 720 for loans amounts > $1,500,000. GMAC also stated their declining market, DTI, and LTV restrictions.

 

As I understand it, the compensation of sales people and top managers is largely based on performance and loyalty. In more news about bonuses, retention bonuses for senior executives at Fannie Mae and Freddie Mac should be canceled or recouped according to House Financial Services Committee Chairman Barney Frank. He feels that large bonuses to executives at companies receiving government aid must stop. FHFA, the federal regulator that authorized the payments, is refusing to comply. Congress proposed legislation last week that would severely tax these payments and others to any company that has received taxpayer assistance. Are we having fun yet? The White House has toned down its initial favorable response to the House vote last week, and now senators are reportedly cool on the House’s 90% income tax on bonuses paid this year. But they also say some action has to be taken to prevent financial firms from gouging taxpayers.

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

 

-Oprah Winfrey

 

 

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

 

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

 

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

 

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

 

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

 

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

 

Do you want to see if your loan, or your neighbor’s loan, is owned by Fannie? http://loanlookup.fanniemae.com/loanlookup/

Do you want to see if your loan, or your neighbor’s loan, is owned by Fannie’s brother? https://ww3.freddiemac.com/corporate/

(Aren’t they one company yet?)

 

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

“The living moment is everything.”

~ D.H. Lawrence

 

One of the things that impacts the value of servicing is the length of time that the company servicing the loan (i.e., collecting the payments) expects to have the loan on their books. No one wants to pay a 2 or 3 point premium for a loan that they service for only 3 months, so loans paying off early (“prepayment”) is watched carefully. Last weeks’ prepayment speeds indicated a pick up in early pay offs. Interestingly, the Fed’s purchases of mortgage-backed securities, along with the plan to make high LTV loans eligible for refinance has led to increased speeds, and faster expectations moving forward – which has not helped higher rate mortgage prices.

Anyone trying to modify a mortgage, and then having the borrower (who misled the broker during the original process) mislead them is in a difficult position. So what would you call a modified loan to a borrower who exaggerated (lies) about how little he/she makes (and has) to get a loan modified after lying to get the loan in the first place? A reverse-liar loan? An inverted-liar loan? A double-prevaricator loan? A pathological liar loan? A serial falsifier loan? A storyteller loan? A fibber note? A reverse truth loan? Stay tuned…

Are brokers and loan agents rolling in business these days? Not really. What one loan agent said, “I am working 10 times as hard for 1/10th as much business, and I am having to leap over the tall buildings of credit scores and appraisal to make things work.” Another told me, “Every deal continues to be difficult – there are few slam-dunk borrowers or properties out there right now.”

Chase told their correspondents, “After careful consideration of the current market, Chase Correspondent Lending has made a business decision to discontinue the availability of our Non-Agency products effective Thursday, March 19, 2009. Effective March 19, 2009, Chase Correspondent Lending is making the following revisions to our Agency products and programs: Increasing the cash-out limit on Freddie Mac Fixed Rate High Balance loans from $100,000 to $200,000; Reducing the LTV on Fannie Mae and Freddie Mac Amortizing Fixed Rate Primary Residence Cash-Out Refinance Co-ops from 85% to 80%; Reducing the LTV on Agency High Balance Interest Only 5/1 ARM Primary Residence No Cash-Out Refinance Condos from 90% to 80%; Eliminating Subordinate Financing on Agency High Balance Amortizing 5/1 ARM Primary Purchase Co-ops.”

Thornburg Mortgage, whom every broker in a high cost area remembers with great fondness, said yesterday it may file for Chapter 11 bankruptcy protection. The lending banks are giving Thornburg until the end of the month before calling in the lines.

The news out this morning consisted of the U.S. consumer prices. The CPI rose in February, according to the Labor Department, by 0.4%, about as expected. It is the biggest monthly gain since last July, after increasing 0.3 percent in January. Core prices, which exclude food and energy items, were +0.2 percent in February after rising by the same margin the prior month. On a year-over-year basis, consumer prices were up 0.2 percent. We still have the Fed’s announcement later today, but for now the 10-yr stands at 2.98% and mortgage prices are a shade better.