Secondary Insight

Market Color:  Choppy trading day is being reported with options expiring and a give back of our big rally yesterday for bonds. No economic releases to worry about today.  It is just Friday and senior traders going home early.  Which means you really need to be ready for next week and lock by Wednesday, because of early close on Thursday for Christmas Eve and Friday is of course Christmas Day.  Actually the next two weeks you will have a repeat of next week back to back as we slip into the New Year’s holiday as well.  Trading will be chaotic as companies try to dress up their balance sheets for year end. German business confidence is being reported at a 17-month high, causing European equities and US stock to rally; bonds are lower.  PIMCO’s Bill Gross has cut government debt holdings and increased his cash position to the most in a year, signaling that PIMCO may see rates on the long end of the curve starting to rise.  Right now, the futures market is pricing in an 86% chance that the Fed keeps rates somewhere between 0% and .25% through April 28th, 2010.  Currently, the Ten Year yield is at 3.51%(3.52% yesterday).  30 year fixed rate mortgages are worse by about .125% at the moment.

 

Market News:  Holiday cheer continues with the announcement that Fannie Mae and Freddie Mac both have agreed to suspend foreclosures and evictions for about two weeks for distressed borrowers during the holiday season. The reprieve runs Dec. 19-Jan. 3. The two firms declined to estimate how many homeowners would be affected by the grace period. Their decision to temporarily put off foreclosure activity comes on the heels of a similar move by Citigroup that could affect as many as 4,000 homeowners.

House Financial Services Committee Chairman Barney Frank, D-Mass., says many people mistakenly believe the general FHA loan ceiling is $729,750. In reality, the limit applies only to costly housing areas — where the national cap is far below median home prices — and accounts for only a tiny fraction of the agency’s outstanding loan portfolio. Frank says it is unfair to institute a single national standard, and he believes allowing the FHA to insure higher-priced loans makes its portfolio more geographically diverse. He also cites a recent audit showing that claims rates on higher-cost loans are less than on lower-cost loans.

Banking regulators have issued guidance for reverse mortgages that calls for a review of advertising and marketing materials as well as better disclosure of costs, terms, features and risks of the loans. The guidance requires lenders to provide qualified independent counseling to consumers, avoid potential conflicts of interest and improve third-party management of reverse mortgages. The mortgage industry has until Feb. 16 to comment.

SI has attached above the Department of the Corporations implementation plan for obtaining the SAFE licensing within California.  It is a how to for the licensing process.  The California Mortgage Bankers  Association has been following and has said that the pre-requisite for the licensee applicant is the individual must demonstrate financial responsibility, character and general fitness such as to command the confidence of the community and to warrant a determination that the mortgage loan originator will operate honestly, fairly and efficiently.”  The CMBA feels, with good reason, that this is pretty subjective. They will look at whether the applicant has been a defendant in a criminal or civil case, look at the status of their DRE license (if applicable), any bankruptcies, were they refused any bonds, and yes, run their credit.  But at this point they are feeling there way along on this subject, and this is not a pass/fail type of thing – it seems like they will look at all this stuff like a resume and make a judgment based on the whole picture, not just one particular piece of it. 

Mortgage Rates improving

Market Color:  Any Manheim Steamroller music lovers out there?  Went to their Christmas concert night before last and SI can heartily recommend. Nothing like 18th century rock and roll Christmas Carols.  Since Mr. Bernanke has been chosen Time magazine’s Man of the Year, he must be a shoe-in to have another four year term.  Senate panel just cleared his nomination to the second term.  As this market day unfolds, stock market has retreated with the increase in jobless claims and trading is represented as being cautious with the dollar improving against all other currencies and yet on the optimistic front, the statistic for leading economic indicators continued to rise for the 8th straight month which lends support to the rebound continuing into next year.  Right now, the futures market is pricing in an 85% chance that the Fed keeps rates somewhere between 0% and .25% through April 28th, 2010.  Currently, the Ten Year yield is at 3.52%(3.59% yesterday).  30 year fixed rate mortgages this AM are off the chart improving.  You will like these levels after the back up from last week.  Market is up over .75%.  Wow, could this improvement be related to the Bernanke nomination?  After the FED announcement to keep rates low from the close of their meeting yesterday, it just could be.  See next comment.

 

Market News:    Although the Federal Reserve conceded that the U.S. economy is gaining steam, the central bank unanimously decided to hold short-term interest rates between 0 and 0.25 percent for several more months. In addition, the Fed announced plans to complete its purchase of up to $1.25 trillion in mortgage-backed securities by the end of 2010’s first quarter. Some officials contend that the program should be granted an extension in order to continue bolstering the housing market, but that idea has yet to win majority support on the committee.

The House of Representatives last Friday passed a massive regulatory reform bill that, among other things, creates a new consumer protection agency with authority to set mortgage lending standards for all residential originators. The House passed the “Wall Street Reform and Consumer Protection Act” (H.R. 4173) by a 223-202 vote. The accepted language creates the Consumer Financial Protection Agency, a Washington regulatory body that would set industry wide rules for mortgage lending and take over enforcement responsibilities from the federal banking agencies. An industry-backed amendment to gut the CFPA and turn it into a consumer protection council representing 12 regulatory agencies failed by a close vote of 223-208. The American Bankers Association said it opposes several sections of the 1,200-page bill, including the CFPA. “The breadth of authority granted to the director of the proposed new consumer financial regulator is unprecedented,” said ABA president Ed Yingling. “This new regulator would not be responsible for considering institutional safety and soundness along with consumer protection.” (ABA believes it’s essential that the same regulatory body perform safety and soundness and consumer protection oversight.) The Mortgage Bankers Association also has issues with CFPA. But MBA and other industry groups were glad to see a bankruptcy cramdown amendment defeated by a 241-188 vote. “We are gratified that the House saw fit to vote down the bankruptcy cramdown amendment,” said MBA chairman Robert Story. Earlier this year, the House passed a bill that would allow bankruptcy judges to cram down or reduce the principal amount of a homeowner’s mortgage. The Senate rejected the cramdown bill.

 

The Department of Housing and Urban Development has issued a proposed rule that sets minimum standards for state licensing of loan officers and mortgage brokers. Congress directed HUD to set minimum licensing requirements for states under the Secure and Fair Enforcement Mortgage Licensing Act of 2008. If HUD determines a state does not meet the minimum standards, the department is charged with administering a licensing system for the state. “By introducing nationwide standards of uniform licensing for loan originators, the SAFE Act is taking an important step in returning integrity and accountability to the residential mortgage loan market,” said HUD assistant secretary David Stevens. The public comment period on the proposed SAFE rule ends in 60 days.

Rates improving slightly this morning

Market Color:  Follow the bouncing ball.  Yes Virginia there is inflation, and no Virginia there is no inflation.   Yesterday we had market pricing in these concerns and today we have a so called benign reading on consumer inflation which makes the talking financial heads say the FED will not be forced to raise rates sooner. So we have housing starts in the U.S. rising in November and a gauge of consumer prices unchanged, supporting forecasts for an economic recovery that will generate little inflation or the ideal Goldilocks economy not to hot and not to cold.  Which for our mortgage rates will be great if only we did not have to deal with DU 8.0 and investor credit overlays.   Right now, the futures market is pricing in a 78% chance that the Fed keeps rates somewhere between 0% and .25% through March 16th, 2010.  Currently, the Ten Year yield is at 3.59%(3.59% yesterday).  30 year fixed rates opened positive and are currently trading at .125 to .25% better but it just posted. Give investors another 30 minutes to begin to reflect if this holds. 

 

 

Market News:  What are some of the issues coming up with the new year just around the corner?  One chief technology officer for a technology vendor thinks the biggest issues next year will be the 5% security retention issue or skin in the game proposals, regulatory compliance and cloud computing.  To that SI would add licensing of all loan originators, potential revised loan originator compensation courtesy of the Federal Reserve, continued investor guide revisions for borrower guidelines, although this is nearing the end we think, and organizations having to contend with a very adversarial regulatory environment from the Federal and State levels to ensure compliance with consumer lending laws, and finally the ongoing quest to ensure all loans meet a high level of documentation and performance with each investor. 

 

Speaking of the licensing of loan originators, it is being reported that 3 out of every 10 loan originators who have taken the national mortgage licensing test required under the SAFE Act have failed what is characterized as an “entry level” exam. The pass rate is better on the state-specific portion of the exam, but not by much. More than one in four applicants who have taken the tests so far have failed to achieve a passing grade, according to statistics released by the Conference of State Bank Regulators. The CSBS figures do not break out pass-fail rates by occupation. But Roy DeLoach of the National Association of Mortgage Brokers is certain his members have better scores than loan officers working directly for mortgage bankers or state-chartered financial institutions. (Although representatives of those groups may disagree.) “It’s not brokers (who are failing), I guarantee you that,” NAMB’s executive vice president told National Mortgage News. “If you parse that out, I’m betting that the pass rate is tremendously higher” among brokers. Bill Matthews, president of the State Regulatory Registry, the CSBS subsidiary which owns and operates the National Mortgage Licensing System, said its “hard to tell” who is passing the entry-level exams at this point because testing only began on July 30. During the four-month span between July 30 and Nov. 30, according to the CSBS tally, 10,421 mortgage loan originators took the national test but just 7,219 passed, a failure rate of 31%. Of the 6,097 originators who took the tests specific to the state or states where they want to be licensed, 4,461 earned the 75% score needed to pass, a failure rate of 27%. The figures include first-time test takers as well as those licensing candidates who took the exams again. When testing began on July 30, 11 unique state tests were available. In October, seven more state tests were released, bringing the total to 18 as on Nov. 30.  Regardless if the broker community wants to say it is not their members that are failing, it goes without saying, one will have to be prepared for whatever is presented on the licensing tests.

Rates off again this morning

Market Color:   The dreaded “I” word rose up and came into play as wholesale prices increased more than the experts expected.  The 1.8 percent increase in prices paid to factories, farmers and other producers was more than twice as large as anticipated and followed a 0.3 percent gain in October, according to Labor Department data released today in Washington. The industrial output number was posted as well and it was likewise positive. Industries in the U.S. boosted production in November by the most in three months, showing the world’s largest economy is gaining speed heading into 2010.  We have the Federal Reserve folks starting their meeting today and CPI will come out tomorrow.  So as we said on many occasions, inflation and a recovering economy means worse mortgage rates. Right now, the futures market is pricing in a 91.6% chance that the Fed keeps rates somewhere between 0% and .25% through March 16th, 2010.  Currently, the Ten Year yield is at 3.588% and our 30 year fixed rate mortgages are worse by .25 to .375% at the open.

 

Market News:  A key development is taking place today with an article from the Wall Street Journal concerning guidelines intended to set standards for when mortgage originators and packagers should buy back delinquent loans because of violations of so-called “representations and warranties” made at the time the mortgages were packaged into securities. Representations and warranties state the characteristics of the loans in the bond deal, such as whether the home was purchased by an owner to live in or as an investment.  These guidelines are not set in stone but are the beginning of what will shape our business in the future.  It is pretty far reaching to affect the company and the loan originator. The guidelines come amidst a brewing debate about how to make the firms that originate mortgage loans and package them into securities more accountable for the performance of the underlying mortgages. The Federal Deposit Insurance Corp. will release proposed rules today designed to boost confidence in the securitization markets by, among other things, requiring better disclosure of origination standards, loan performance and compensation and tying originators’ compensation to meeting representations and warranties. Financial services reform legislation that cleared the House of Representatives last week would generally require lenders and firms that securitize mortgages to retain a 5% stake in loans packaged into securities.  As soon as we have them will will send out a copy.

The residential loan broker share of the origination market hit yet another new low in the third quarter, 12.9%, according to exclusive survey figures compiled by National Mortgage News. “Right now it’s hard for me to see much support anywhere for loan brokers,” said researcher David Olson. NMN found that all originators funded $443 billion in the third quarter with retail lenders capturing 48.3% of the market and correspondent accounting for 38.8%. Since the second quarter of 2007, the broker share has steadily evaporated from a high of 28.2%. (Only loans that are table funded through a wholesaler are included in this category.) A year ago Mr. Olson changed the name of his Columbia, Md.-based firm to Access Research, removing the word “Wholesale.” The veteran researcher said all the new regulations being heaped on brokers are making it “impossible” for them to continue. He believes many may convert into correspondent retail shops (if they can) or join net branches.

More Changes

Market Color: What is the employment rate in Europe which was supposedly hardly touched by the mortgage meltdown crisis?  It is currently 9.8% and expected to increase next year to nearly 11%. As a result most Europeans believe the worst of the economic crisis has yet to go through the system. Over 54% of workers surveyed believe the worst is still to come – interesting.  Meanwhile the Senate voted for a 1.1 trillion dollar spending bill that is designed to provide funding for government agencies, foreign aide and constructions projects, and since the vote was so close to Christmas,  they included a number of ponies for good measure as well.

 

What does this week bring for relevant economic releases.  Nothing today, but plenty later this week.  PPI or Producer Pricing index is tomorrow as well as Industrial production.  Wednesday is CPI and the Federal Reserve folks meet same day as well.  Some investors are piling into inflationary bonds as a hedge against inflation in the event the FED does not move fast enough to sop up the liquidity they have injected into the economy.  So PPI and CPI could be market movers to look out for if they come in worse than expected. Remember inflation is very unfavorable towards bonds and mortgage pricing. Right now, the futures market is pricing in an 91.8% chance that the Fed keeps rates somewhere between 0% and .25% through March 16th, 2010.  Currently, the Ten Year yield is at 3.544%.  30 year fixed rate mortgages are better by .125% from the Friday close.  Notice the 10 year treasuries have begun steadily increasing.  

 

Market News:  Great couple of charts in USA today tracking the U S Housing Market rise and fall and eventual rebound. Each of the five charts shows the quarterly performance of an important component of the housing market’s health from first quarter 2000 through fourth quarter 2012. Data from the fourth quarter 2009 onward are forecasts by Moody’s Economy.com. Seasonally-adjusted figures, or seasonally-adjusted annual rates, are used for each component to simplify comparisons.  Here is the link to the article.  http://www.usatoday.com/money/economy/housing/2009-12-11-housing-market-charts_N.htm

 

As we mentioned the FED will meet this week. They will face the task of having to recognize the improvement in some economic activity without freaking out the equity and bond markets that interest rate hikes are about to happen immediately. In the face of a sharp deceleration in the pace of job losses and surprising resilience in consumer spending, some analysts think the Fed has to begin toning down its open-ended commitment to its ultra-accommodative policy stance. However, in a speech last Monday, Ben Bernanke proved reluctant to read too much into a single month’s worth of data. That suggests the Federal Open Market Committee will err on the side of inaction, opting to leave its statement mostly alone given that inflation does not appear to be an immediate concern. A recent decline in oil prices and a rebound in the U.S. dollar have made the Fed’s life easier, reinforcing the chances of this outcome.

 

Sticks and stones may break my bones but names will never hurt me.  Unless of course it is said by POTUS,  President of the United States and you took TARP money.  In an interview last night with 60 minutes,  POTUS said “he did not run for office to be helping a bunch of fat cat bankers on Wall Street.”  And since there is a scheduled meeting with those same fat cat bankers today, wonder what they will have to say about the name calling.  Sure hope they have been on a diet and going to the gym before this meeting.   Receiving money from the Federal Government does have a high price to pay including being called names. 

 

Product News:  Ah yes changes.  One thing is for sure, change is a constant thing and they have been coming fast and furious.  Like BofA posting a pricing policy change on Friday  making it effective today.  Nice.   The change affects extension and relock policies and they are not getting any cheaper.  SI again advises that you plan as best you can when you take the initial lock period, because  the price of lock extensions just went up with BofA.  Policy is attached above for your reference. Read and plan accordingly.

Rates worsening today

Market Color:  Another mixed economic message today with the jobless claims report higher than expected while the trade balance improved with the weaker dollar allowing for more exports thus reducing the trade deficit. Yield curve as determined by the differences between the various maturities from 1 month to 30 year shows the widest gap in 17 years between the two year and 30 year maturity.  With this kind of rate difference attracting bidders for our debt will be easier with the massive debt auctions necessary to finance the debt the treasury and FED is piling up.   If you care to know how to read what a particular yield curve means, the attachment can answer some of those questions. Right now, the futures market is pricing in an 81% chance that the Fed keeps rates somewhere between 0% and .25% through March 16th, 2010.  Currently, the Ten Year yield is at 3.45% (3.40% yesterday). 

 

Market News: Ongoing fight continues to obtain votes for imposing further regulations on our industry.  With the House of Representatives taking up a broad plan to place new constraints on businesses and financial institutions, some Democrats are threatening to withhold support due to concerns over the impact on those entities. Liberal lawmakers are particularly unwilling to make concessions to banks on account of their role in the economic crisis. Opposition also has come from the Congressional Black Caucus, which charge that so little of the plan addresses economic troubles in the nation’s minority communities. Consequently, provisions have been added to steer $4 billion from the bank rescue fund to buy and repair abandoned and foreclosed houses and to provide low-interest loans to unemployed homeowners. 
 

Another version of the blame game is occurring as it pertains to the loan modification process.  A Dec. 9 report from a watchdog panel indicates that the Obama administration’s mortgage relief plan resulted in just 10,000 permanent modifications, and only $2.3 million of the $75 billion earmarked for the program has been used. The report says the initiative “appears capable of preventing only a fraction of foreclosures,” and critics attribute the low numbers to the fact that lender participation is voluntary. However, the lending community blames homeowners for failing to meet requirements, with the report showing that just 33 percent of borrowers have submitted the required paperwork.

 

GEM corporate will be watching this issue and send out guidance, but HUD is supposedly planning to remove the 1 percent cap on origination fees for FHA mortgages in the coming weeks. As we already know the revisions for the Real Estate Settlement Procedures Act rule will standardize the good-faith estimate of mortgage terms and closing costs, and it believes that giving consumers the opportunity to compare lenders’ fees and shop around for the best price will prevent fees from rising too much. HUD signaled last year it might lift the cap when it overhauls regulation for upfront disclosures but said it would reserve the right to reinstate or add limits on fees charged to borrowers.

Ok, I know it is getting colder unless you are Mary Joe Sato’s branch in Hawaii, but if your mind begins to wonder and thinking about taking a  vacation, the following slide show either will make you sick or make you to decide to move to another country.  And while we as Americans tend to work more than other countries, believe it or not, there are countries that have less time off on par than the US.  One of those countries is not to far away.  The pictures are a postcard for sure for each respective country.

http://www.cnbc.com/id/33431347?slide=1

 

Product News:  Bank of America sent out a reminder that DU Version 8.0 will not issue Expanded Approval Level II and III recommendations. Any Expanded Approval decision (I, II or III) using DU Version 7.1 must be locked by tomorrow, but loans that receive an EA-I recommendation will continue to be eligible for purchase with the exception of Agency High Balance, DU Refi Plus, Interest-only loans, 6-month ARMs and 5/1 ARMs with 5-2-5 caps. In addition, 5-year and 7-year balloon programs will no longer be offered – lock them by tomorrow. In fact, BofA has set forth 2/26 as the last day that they will purchase loans with credit scores less than 620, loans underwritten under previous two-unit owner-occupied interest-only LTV guidelines, etc. – any loans with DU 7.1 characteristics.

Market retreats

Market Color:  SI wishes investors and analysts would get there signals straight.  One day we are in a recovery and the next day we are not.  Today we are not.  After the significant rally in stocks and commodities this year, investors seem to be looking for clues about where the economy is headed and how best to position their portfolios for next year.  Investors are uncertain of how long the environment of low interest rates and a weak dollar that helped fuel the market’s rally will last.  So as this anxiety continues about when the low rate punch bowl is taken from the table investors seem to be starting to dump their stock funds and buying dollars and treasuries. At least that is the report for the day. Markets seem to follow general cycles, sometimes they are long and sometimes they are short.  And then we have people to tell us why they are long or short.

 

Later Today,  The President will give a speech outlining how he plans to create more jobs. High unemployment has been one of the economy’s biggest obstacles to growth as most have pointed to the so called jobless recovery.  A report from the Labor Department on Friday showing far fewer job losses in November than expected initially gave the market a boost. But stocks have struggled to move higher since then as investors question whether the improvements in the labor market are actually sustainable, and if they are, whether the Fed might raise rates sooner than expected. What to do, what to do.  So high will gold go?  Apparently for the moment the peak has been hit and as the dollar strengthens, gold and commodities retreat in price.  Most have commented about the lower dollar and the carry trade to buy commodities. If this is the beginning of that cycle, then gold prices will take a powder for a time as those people shorting the dollar unwind their positions. Fed Chairman Bernanke in his commentary said “significant headwinds” are still affecting our economy.  No kidding. Perhaps that is what the investors are perceiving.  We have 71 billion auctions which will probably do well given the interest again with treasuries, and no real economic data until Thursday with the jobless claims. Friday is retail sales and the Michigan Consumer sentiment number.   Right now, the futures market is pricing in a 93% chance that the Fed keeps rates somewhere between 0% and .25% through March 16th, 2010.  Currently, the Ten Year yield is at 3.38%.  And the spike in rates for mortgages has relaxed and pricing is currently better by .25 to .375%.

 

Market News: So what exactly did Bernanke say yesterday about the direction of rates? A benchmark interest rate is likely to remain near zero for the foreseeable future, Federal Reserve Chairman Ben Bernanke said Dec. 7 in remarks to the Economic Club of Washington. The economist reiterated plans to keep the federal funds rate low for “an extended period” because there are still some questions about the economic outlook and whether the recovery can sustain itself without additional emergency programs. Central bank officials will discuss monetary policy when they meet Dec. 15-16. Elevated unemployment and stable inflation expectations should keep inflation subdued, and indeed, inflation could move lower from here,” Bernanke said. “The Federal Reserve is committed to keeping inflation low and will be able to do so.” The Fed chairman credited the U.S. central bank with pulling the economy “back from the brink,” and suggested that growth is unlikely to be strong enough to lower unemployment at a rapid pace. The speech was his first since his appearance at a Senate Banking Committee hearing last week on his nomination to a second term. “We still have some way to go before we can be assured that the recovery will be self-sustaining,” the Fed Chairman said. “My best guess at this point is that we will continue to see modest economic growth next year — sufficient to bring down the unemployment rate, but at a pace slower than we would like.”

Apparently we are not through with ideas or emergency programs to throw more money at the mortgage aide issue. The House is ready to consider more than 100 proposed amendments to a sweeping financial regulatory reform package, including one that would use $3 billion from TARP to help unemployed homeowners with their mortgage payments and spend another $1 billion to enable state and local governments to buy foreclosed properties and use them for more productive purposes. Democratic lawmakers also plan to revive a provision giving bankruptcy judges power to modify mortgages, but the “cramdown” proposal still faces stiff opposition from the industry. SI wonders how they will decide who gets their mortgage payment made.

 

So since this is your money Congress is throwing around on your behalf, you might want to visit this website and see how you rank as a taxpayer.   It seems that over 40% of Americans do not pay any federal tax as published by the Tax Policy Center.  SI is talking about federal income taxes, not other taxes like Social Security, Medicare, state income taxes, sales taxes, or car registration taxes, some of which are extracted through payroll deductions. The owe-no-money crowd tends to get hit by at least some of those. By historic standards, today’s situation is an aberration. Between 1950 and 1990, the number of owe-no-money federal tax returns averaged 21 percent, dipping to 18 percent in 1986, according to Tax Foundation data.   In the 1990s, the owe-no-money percentage hovered around 25 percent of taxpayers. If you would like to see where you rank as a taxpayer as compared to others, the attached link you might find interesting or it may make you sick.
http://www.kiplinger.com/tools/income_rank/

Insight on DU changes

Market Color:  Each day SI includes a estimate of how long interest rates will remain low as a percentage.  You would expect the Federal Reserve to clearly telegraph the beginning of any rate increases.  Plenty of people scour the speeches Federal Reserve Governors make as well as Chairman Bernanke.  Investor speculation seems to be higher after the improved jobless claims report on Thursday, and the lower unemployment number posted on Friday.  Is it to premature?  Stocks and the dollar improved today as investor speculation on when rates will rise are starting to increase.  The dollar rose against other currencies ahead of comments from Federal Reserve Chairman Ben Bernanke, who will speak before the Economic Club of Washington. Bernanke has insisted that the Fed plans to keep rates low for the foreseeable future, but investors believe that as the economy improves, the central bank might move to raise rates and withdraw some of its support measures. That could reverse the dollar’s months-long slide and put a dent in the stock market’s advance and our mortgage rates.  After a full week of economic news, this week promises to be light. We do have the sizeable auctions ($74 billion), but in terms of scheduled releases today, tomorrow, and Wednesday we have nothing of substance, Thursday we have the Trade figures and Jobless Claims, and on Friday we have Retail Sales and the Imports/Exports data.   Right now, the futures market is pricing in an 80% chance that the Fed keeps rates somewhere between 0% and .25% through March 16th, 2010.  Currently, the Ten Year yield is at 3.47%.  And 30 year mortgage are up about 8/32nd’s or .25% better than our close on Friday.

 

Market News: Implode O Meter, that wonderful website that keeps track of all failed mortgage companies records another former investor GEM used to work with. AmTrust Bank, a big wholesale and correspondent lender, has failed last Friday and taken over by their regulator.  Its regulator blamed a high concentration of loans in hard-hit states for its demise. The institution had weathered the Great Depression, but the Great Recession was more than it could handle.  AmTrust was founded in 1921 and ranked among the country’s top 15 wholesale mortgage lenders. AmTrust was the 128th FDIC-insured bank failure during 2009.
The creation of a Consumer Financial Protection Agency would ensure that loan brokers have a vested interest in the performance of mortgages they facilitate, according to HUD secretary Shaun Donovan. The CFPA could end “abusive” yield spread premiums and impose a “duty of best execution” on brokers to make sure they put borrowers into affordable mortgages,” the Department of Housing and Urban Development secretary told a Consumer Federation of American conference. In addition, the broker’s fee could be paid over time, instead of in a lump sum at the closing table giving brokers “skin in the game” the secretary said. The National Association of Mortgage Brokers top lobbyist Roy DeLoach said NAMB has a long-standing policy against abusive YSPs that act as incentives for brokers to steer borrowers into riskier, higher cost loans. He noted that NAMB supports a provision in a House-passed bill (H.R. 1728) that prohibits incentivized YSPs. As long as the broker’s fee can be financed inside the interest rate, “we are supportive,” he said. However, NAMB believes brokers should be paid at closing. In terms of best execution, the NAMB lobbyist noted that wholesale lenders, not brokers, underwrite and approve the loans. “The lenders have all the information we have before the loan goes to close,” Mr. DeLoach said. SI believes we have a ways to go, but some form of this legislation will emerge in the first quarter of next year.

Product News: GMAC announcement about the launch of DU 8.0

Minimum Credit Score Requirement With the exception of DU Refi Plus, loan casefiles that are underwritten and submitted through DU Version 8.0 with a minimum representative credit score below 620 will receive an Ineligible recommendation. Total Expense Ratio With this release, the maximum allowable total expense ratio in DU will be revised to 45 percent. If current debts exceed the maximum allowable total expense ratio, the loan case file will receive an Ineligible recommendation. DU will no longer return a Refer recommendation on loan casefiles that would have otherwise received an Approve Recommendation but had exceeded the maximum allowable total expense ratio. DU Refi Plus loan casefiles submitted to DU Version 8.0 will continue to be subject to the maximum allowable total expense ratio currently applied to DU Version 7.1 DU Refi Plus loan casefiles. Foreclosures DU will be updated to include the following requirements for borrowers with foreclosure completion dates of more than 5 years, but within 7 years from the credit report date: Purchase of a principal residence will be permitted with a minimum down payment of 10 percent and a minimum FICO of 680. Purchase of a second home or investment property will not be permitted Cash-out refinances will not be permitted for any occupancy type. Bankruptcies Loan casefiles where DU identifies a Chapter 13 bankruptcy that was discharged within the last 24 months; dismissed within the last 48 months; or filed but neither discharged nor dismissed within the last 48 months will receive a Refer with Caution/IV recommendation and is not eligible. Loan casefiles where DU identifies a non-Chapter 13 bankruptcy that was filed, discharged, or dismissed within the last 48 months will receive a Refer with Caution/IV recommendation and is not eligible. Expanded Approval (EA) Recommendations DU Version 8.0 will no longer issue EA-II and EA-III recommendations. Revised Mortgage Insurance (MI) Coverage Reduced MI and Lower-Cost MI will no longer be offered with DU Version 8.0. Please note that GMAC Bank will not participate in the simplified MI option. New and Updated Underwriting and Eligibility Policies The DU documentation for Age of Credit Documents will be updated to reflect a credit report expiration of 90 days from the date of the credit report for purchase and refinance transaction. DU will issue a Verification message on all DU loan casefiles requiring that a completed and signed Form 4506-T is obtained for all borrowers at both application and closing. DU will issue a Verification message on all DU loan casefiles requiring a verbal verification of employment VVOE is performed and documented for each borrower. These updated guidelines for submission to DU 8.0 are effective for all loans locked or trades committed on and after December 11, 2009.   Loans locked before December 11, 2009, under the previous DU Version 7.1 guidelines, must be purchased and funded by GMAC Bank on or before January 30, 2010 . Loans locked before December 11, 2009 under the previous DU Version

Rates now worse by .75%

Market Color: Break out the champagne, the great recession is over, unemployment rate went down contrary to the SI prediction to 10%.  Now why is SI so skeptical this is a real number.  Not after we have constant comments made about the job market is getting less bad, but a full recovery is a distant hope.  While it is encouraging to see jobless claims lessen in yesterday’s report the number of people drawing unemployment is holding steady at 10 million and reportedly 9.3 million people are working part time.  This has been constant from the charts since November 2007, however when these people can find employment, the common refrain seems to be the new term called the “New Normal”.   SI thinks that is just another way of wanting to lessen our current and future expectations on the way things should be.  If this is the start of better days, our mortgage rates will begin to back up and based upon what I see on the screens at the moment, they certainly have.  Low rate punch bowl has been removed for the moment rather abruptly.    Orders to U.S. factories unexpectedly rose in October, the sixth gain in the past seven months. It was further evidence that the manufacturing sector is beginning to recover, which will help support the overall economy. Economists are hoping that the fortunes of the manufacturing sector are beginning to rebound after the recession briefly forced two major U.S. automakers — General Motors and Chrysler LLC — into bankruptcy protection earlier this year.  Chart of factory orders is attached above. Right now, the futures market is pricing in an 82% chance that the Fed keeps rates somewhere between 0% and .25% through March 16th, 2010.  Currently, the Ten Year yield is at 3.47% (3.37% yesterday).  30 year fixed rate mortgages are ugly worse by .75%.   Market News:  The Fed Chairman is on the hot seat before the Senate finance committee for his reappointment to obtain a second four year term.  Under mounting criticism, Federal Reserve Chairman Ben Bernanke took to Capitol Hill on Dec. 3 to defend his record even as he acknowledged that the Fed’s mistakes did contribute to the economic meltdown. Bernanke conceded that the central bank was too slow in safeguarding consumers from high-risk home loans during the housing bubble, adding that banks should have been forced to hold more capital for all the risks they carried. The special hearing reflected doubt among congressional legislators over the Fed’s role as the country’s primary overseer of the financial system. Sen. Richard Shelby, R-Ala., lamented, “In the face of rising home prices and risky mortgage underwriting, the Fed failed to act. Many of the Fed?s responses, in my view, greatly amplified the problem of moral hazard stemming from ‘too big to fail’ treatment of large financial institutions and activities.” More than likely the Bernanke will be appointed but some pounds of flesh will be taken from the Fed and the Chairman in the process as Congress seems bent on taking some powers from the Federal Reserve on how the mortgage meltdown was handled.   For those branches operating in California, the Sacramento Bee came out and said the State’s debt may be a half a trillion dollars.  And we thought the Federal Government had its problems. Here is the article.  http://www.sacbee.com/politics/story/2355706.html   Last year was a very dramatic time as many firms were forced to go out of business.  Several books have now been written, such as “House of Cards” and “Chain of Blame” and so on.  It was and will continue to be an unprecedented period of time and you lived through it.  The attached link is a 26 minute brief expose by the lead executive of Morgan Stanley who describes the one week period which led up to the sale of Morgan Stanley to Chase Bank.  The CEO was speaking to the Wharton School of Business about leadership in times of business crisis.  If you have the time, you will find it quite amazing how this CEO fought to keep his company in business.  The cast of characters include the Morgan Stanley CEO,  Secretary of Treasury Hank Paulsen, Fed Chairman Ben Bernanke, and New York Federal Reserve Governor, Tim Geither.  It is entitled ‘John Mack on Saving Morgan Stanley – Inside the Bunker.”  http://www.youtube.com/watch?v=R9sQtmPAYO0   Not much product news to share as we close out this week.  Meanwhile, everyone is telling us as we age we need to make sure we are exercising, and eating a healthy diet.   Joe Ewens our EVP of Production SI is told works out a great deal and he shared one of his exercise plans.

“Begin by standing on a comfortable surface, where you have plenty of room at each side. With a 5-LB potato sack in each hand, extend your arms straight out from your sides and hold them there as long as you can. Try to reach a full minute, and then relax. Each day you’ll find that you can hold this position for just a bit longer.
After a couple of weeks, move up to 10-LB potato sacks. Then try 50-LB potato sacks and then eventually try to get to where you can lift a 100-LB potato sack in each hand and hold your arms straight for more than a full minute.  After you feel confident at that level, put a potato in each sack and repeat the cycle.  Our thanks to Joe for his secret exercise plan to get in shape for these holidays.  Enjoy the weekend.  20 days to Christmas eve.  (SI)

Rates continue to worsen by a .25%

Market Color: The color beige can be so subdued and non descript.  It is not a vibrant color as colors go.   Which is kind of like the results of the Federal Reserve Beige book results yesterday  which found only modest recovery in the 12 geographic areas they survey, but the overall survey points to a very subdued recovery.  And I am sure the World’s best golfer would settle for any type of recovery as he faces contractual moral turpitude clauses with his Sponsors not to mention what he faces at home since he apparently can drive better in the fairway than his own driveway. SI will spare you of any other Tiger Woods jokes.  Jobless claims were announced and the number was 457,000, fewest number since last year.  The hope is this points to a lessening of job losses. Remember the unemployment number comes out tomorrow.  Treasury announces it will have 75 billion in debt auctions next week and somehow the analysts are saying treasury and mortgage pricings are worsening because BofA paid back 45 billion of TARP money.  SI suspects it is more related to presumed improvement with jobless claims and a desired perception that economic data is better.  Meanwhile gold continues it rise despite the dollar making a slight improvement.  However conflicting economic news comes on the heels of the release for ISM with a 48.7 posting with 50 the demarcation line for the economy growing or not. Right now, the futures market is pricing in an 83% chance that the Fed keeps rates somewhere between 0% and .25% through March 16th, 2010.  Currently, the Ten Year yield is at 3.37% (3.28% yesterday).  Our 30 year mortgages are worse this AM by .25%

 

Market News: The Federal Housing Administration wants to stay away from traditional risk-based pricing for mortgage insurance premiums, saying it doesn’t want the government to compete against private sector MI firms. Lowering prices for the least risky borrowers could have the effect of “potentially crowding out the return of a private market” or delaying its return, HUD secretary Shaun Donovan told a congressional panel. SI finds that very interesting.  Perhaps the people at HUD should introduce themselves to members of Congress to discuss the healthcare reform and the government competing against the private sector.   FHA officials are planning to raise the upfront premium or the annual premium — or both. The agency will unveil details of their proposal in January. In determining the premiums, they want to employ some combination of credit scores, loan-to-value ratios and other underwriting criteria that would limit the entry of the riskiest borrowers into the FHA fund. For example, FHA might raise the down payment for borrowers with low FICO scores. “We also have to be careful about overpricing risk,” secretary Donovan testified. He noted new FHA originations are “quite profitable.”

 

The HUD Secretary Donovan spoke to the House Committee at a hearing on the state of the FHA program. He said, “With the clearer picture provided by the recent study conducted by a non-governmental independent actuary, I want to announce here today that we will be implementing additional measures that we believe will further reduce the risk to the FHA portfolio,” Donovan stated. “In these measures we will be focusing primarily on three areas: enforcement, improving the quality and sustainability of new loans insured by FHA, and increasing FHA capital.” Donovan said the actuary projected that 71 percent of FHA losses during the next five years will be from loans already on the books. Including Taylor, Bean and Whitaker Mortgage Corp., Donovan said seven FHA lenders have been suspended this year. In addition, FHA approval was withdrawn for 270 firms — including Lend America on Monday.

 

Let SI repeat the last line again, seven lenders have been suspended.  270 firms have had FHA approval withdrawn.  Those numbers SI believes are only the tip of the iceberg as HUD has significantly stepped up their civil money penalties, suspensions and out dismissals of FHA lenders.

In addition to a number of steps outlined by Donovan that have already been taken by the agency, he said one of the first additional steps to be taken will be to increase lender accountability for loans not underwritten to FHA standards. Mortgagees will be responsible for origination quality and compliance with FHA policies. They will also face increased compliance reviews and expanded enforcement.  Mortgagees will be required to indemnify the FHA fund when they fail to meet FHA requirements.
While HUD only sanctions mortgagees at the branch level currently, it is expected to begin holding lenders accountable nationally. Donovan said performance by FHA lenders will be posted online.  GEM’s delinquency numbers are posted for all to see and thankfully they are good in comparison to the HUD averages.  And it needs to stay there for any organization to remain in business.  Branches that have higher delinquencies will hear from the operations department in the event they should begin to approach HUD’s delinquency levels.  No longer will just a branch be sanctioned, but the entire company could be.  This is reason enough for originating performing loans.  Lenders wanting to originate HUD loans that result in poor performance will not be able to remain in business.  And you will see many of these begin to be tomorrow’s headlines. The Secretary noted other plans under consideration as mentioned by SI include a reduction in seller-paid costs to 3 percent from 6 percent, an increase in the minimum acceptable FICO score and a boost to the cost of FHA mortgage insurance premiums. Donovan noted that HUD is requesting authority from Congress to raise annual premiums and to hold FHA lenders responsible for fraud and misrepresentations.