Well, here we are. The sun managed to come up (so far at least on the East
Coast)
after the temporary loan limits weren't extended. On Oct. 1, the size of
mortgages
eligible for purchase by Fannie Mae and Freddie Mac, in a fair number of
areas,
dropped to $625,500 from $729,750. Lenders & investors have turned up the
burners
on their portfolio products and/or improved pricing on jumbo lines. There
are variations,
of course, but currently the difference between rates on agency and
non-agency loans
is about .625%. Over the last two years that spread has been as low as .5%
and more
than 1%.
Late last week the Federal Reserve released its 2010 Home Mortgage
Disclosure Act
database that concluded that this drop will have only a "small" impact on
mortgage
originations going forward. Researchers at the Fed estimate that in 2010
just 1.3%
of Fannie & Freddie mortgages fell between $625,500 and $729,750, but that
an additional
2.1% of 2010 home-purchase loans and 2.4% of refis would "potentially" be
affected
by a decline in Federal Housing Administration loan limits. (For those who
care,
government-backed loans - FHA, VA, Rural Housing Services loans, which Fed
researchers
call "nonconventional" loans - comprised 46% of purchase mortgages in 2010,
compared
to 48% the prior year. "The share of nonconventional loans in the
home-purchase
market peaked" in April 2010, per the Fed, when FHA raised its upfront fee
by 50
basis points.)
But the change impacts more than just pricing. There are operational issues
that
warrant attention. I received this note: "Rob, what people in the business
don't
realize is that we could soon be dealing with capacity issues on jumbo &
high balance
loans. Most lenders have underwriting turn times of a week or more for
jumbos. Now
there will be more of them. Many of the county limits in the lower cost
areas are
going from the maximum down to the mid-$400 high balance conventional limit,
so
although these counties weren't up at $729,750, the ripple effect through
the business
could be huge. If high balance and jumbo underwriting turn times are bad
now, wait
a few weeks!"
And we may-as-well throw national flood insurance into the mix:
40Daysand40Nights
[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1107951932433&s=8721&e=0011fGwcZ
xMwmj2QFdkH9dRz68-nU8ypi92bZRhft03fcf1l7Us7hvHWvjQjf8LY6R5_qIY6md7fhH56Rg7OI
JlbO12LC5m7ek0rt5THu6M82nRUZ2o6RelJ0cpRr_OThP2HyQwgEydNFkffPiewFoH3Hz27gKEVj
LLMpTHJ98l7S7DA1y5Cjqh-hsqWQu5uZeY9xE6z4sSrVmUQDz7V4EIBX0liIQ4OXqDAuY-XYRAEz
8=].
Honestly I lose track of all the probes out there. (Insert 5th grade joke
here.)
But the latest probe news seems to be that California will "no longer take
part
in a national foreclosure probe of some of the nation's biggest
banks...because
the nation's five largest mortgage servicers were not offering California
homeowners
relief commensurate to what people in the state had suffered." FruitsandNuts
[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1107951932433&s=8721&e=0011fGwcZ
xMwmjX8LUuPcIAJPWQ7qss52RP36p8FkwyxafqPwxG3a0p9FNhkyGbpxK2xh3OPSluqWI4-uVgOf
_itC6CqkWtHpfoIpHQkA1lmlYx4qsSBIdTFNknZoOE5Tq8C-d9BMb8xhfqAntsDT94g-6ZA1bwPl
OSyL8HD-fl-Ggg_s7IFUnaiQDGWyMdcpkAlF4a6OlqAx_98OVbE1L5UDJUQLTBUe3TsM207-Mr0u
t4bW9sDiv9KoaJ22z_vubT].
Friday's commentary discussed servicing values, and impounds. My goal is not
to
list the fifty states, and each one's policy on paying interest on escrow
accounts.
It is interesting to note, however, that it seems banks have to pony up 2%
interest
on impound accounts, which is a heckuva lot more than I am earning on my
cash in
the bank! But that being said, there seems to be some confusion about
national
versus state banks, and banks within certain states abide by state laws -
which
are different. MBA weighed in HERE
[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1107951932433&s=8721&e=0011fGwcZ
xMwmiKbY3Wpe0zcOgF7UggQ17gsQYEU9I8x2SzhhWXipcQzH_D6GlhC6FdlLZ2QN1oowcF6hlBcF
5roOtuBZDY9wjMqQXsQpCM7usgnscmTeP5ClHlUB0Px2DfWpeXvuEcOqNBy0BfZqg2FMzkjsTzub
Wbas2MMkf6odbxihtBwOMVKg==].
Here is some informal information: Chatter
[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1107951932433&s=8721&e=0011fGwcZ
xMwmgoB1scB7X-KOfd7XDHMeLysiuF0jq91rPi9x8ZPsTi6YPhnKIC0BbkjvIOUcv3iRXMHVe2lj
CT-wYYhoq_Mmu9dnZKDZnXda2A50zi6qCJ2jQLAMWVwE7ILeSRsbQV7qAFjBnqWmwK3-yf1SvnoC
XlooUI-sBJ8_FKn01mrH1PaIRfDHYW9DEJJ6A47R3fJEg=].
And HUD weighed in HUDDictatesMaximum
[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1107951932433&s=8721&e=0011fGwcZ
xMwmiQy33tg9GGf_F4OrLgtJooh9yhxHh37B__OBvMNL3W9Ldhlsly-LGkK2lj8f0J8JuzdpMW4T
FOFyadekZe0BzgHG2U4REU04x-h3D_u0BpG9A84W12CxMleHuuoAV7X_Zo58SVUPWgtWrqvFGBSV
f7Xmm-sMCjld0grge6c824KburrLYZnTSUiuE54GrVwtiPsVuOHkpWUg==].
"Regarding the fee charged on loans without escrows, there is one more thing
to
consider. When a loan has an escrow account for taxes and insurance, the
servicer
knows that those obligations are being paid. Without an escrow account the
property
taxes could go unpaid resulting in a lien on the property or the insurance
could
lapse resulting in an uncovered loss. So, apart from the economics of the
interest
on the accounts there is a risk factor, too." And, "I think the value of
impounds
also has another perspective to FDIC institutions. The interest on the
impounds
is one component, but the ability to leverage that 10-1 or 12-1 is what some
banks
may desire from impounds."
And there were a few comments on the value of servicing from last week's,
"But perhaps
servicing companies make too much on loans where there are no delinquency
issues,
and not enough on loans where there are." Matt Ostrander, the CEO of
Parkside Lending,
noted, "If one is talking about mortgage companies aggregating and servicing
their
own production then this statement is counter to what we as an industry are
trying
to achieve. If a mortgage bank aggregates servicing and there are no
defaults then
they should be paid for that. In essence the less mistakes the more money
you make.
I think this is the right economic incentive for the right behavior.
There has been a change in the mortgage press. Adam Quinones changed teams,
leaving
Mortgage News Daily and moving over to Reuters, where he will continue to
cover
mortgages and the markets. Here is the story: MND
[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1107951932433&s=8721&e=0011fGwcZ
xMwmjpqf251A1jX082WvUn2_NuQaSGoEOSKHU6Rkdd3vbmJHdtZWcn0VeMKbUxt7C6lkHH3Y2G35
BCR0Ej7SYIb4y8OYC8wOt6kIdRwwr4DOFco0dEk8DdXEe6z8ymPBakWuG5CkAPMd-4mCMy0bL6gI
Ec6QSMzUROSNs=].
In The Great State of Texas (where Dr. Pepper was invented in Waco in 1885,
and
the hamburger was supposedly invented in Arlington in 1906), First
International
Bank was closed and American First National Bank assumed its deposits.
Basic economics suggest that supply and demand is a basic tenant in setting
prices.
In our case, if mortgage demand is going to be influenced by the Fed, it
sure would
be nice to know the details. "The Desk" will reinvest principal payments of
agency
debt and agency MBS in agency MBS beginning today, and today is also the end
of
the current practice of reinvesting principal payments from holdings of
agency debt
and agency MBS in Treasury securities. Agency MBS purchases will likely be
concentrated
in newly-issued agency MBS in the To-Be-Announced (TBA) market, although the
Desk
may purchase other agency MBS if market conditions warrant. From now through
10/13,
look for about $10 billion in MBS purchases. But here is the source: FedMBS
[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1107951932433&s=8721&e=0011fGwcZ
xMwmjyfSTELljEiALsnXPOQ3j80cqrf_UpV_JoXvxW2qyPcIB49YG7E25fJNY_po5pEj3LQCtOT1
5FIx8XkF57G0jaRPtmQkAxvGhoyhCdWQQtl1b4UZ2TH7OwZk_lV49ukuI-v5oNp0LmD4wg2n-mJn
VX].
Fortunately rates are doing well, and should continue to do so for quite
some time.
All the attention in the market now appears to be focused on the Fed's plan
to reinvest
principal payments, noted above, and the likely changes to the HARP program.
But
don't forget FHA & VA loans: although the increase in FHA annual insurance
premiums
provides lowers the chance of government loans paying off early, there is
research
chatter suggesting that originators have started to offer FHA mortgage rates
that
are 25-50bp lower than conventional rates. And investors are worried that
delinquencies
on 2009-10 GNMA MBS have started to increase, and here was also a 70%
increase in
FHA-to-FHA refi applications per the latest HUD report.
Home Value Insurance, based in Columbus, Ohio, has rolled out an insurance
product
in Ohio which is supposed to protect homeowners from declines in property
values.
When the homeowner sells their home for less than the insured home value,
the policy
will help cover the loss. The homeowner can lock in the current insured
value for
10 years. If prices appreciate, they can purchase a new policy with a higher
insured
home value. The policy will cover up to 25% of the protected home value and
there
is a deductible for the first two years of coverage. The product is marketed
through
independent agents to homebuyers and existing homeowners: BackToOhio
[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1107951932433&s=8721&e=0011fGwcZ
xMwmiinU_O7jKWDJZC7veU0_cZXBv0F7wC0BgfcRP29ovwN9FbdtwSOiqc0nsqhJpkIdTMyt7saQ
x8mKWxn5c4Ul_ppeveYqI1yF4p_P4wLzoo9C3cYfybI2D862AEhU2X8Boa4L_6HYCyy0aWR3NpxA
odXPSWCdCDCThZ8UjgD4Cx0Y4Q7B7QVHJhf7Ey0Jn2T0MrNk1zSMDUZ55o1txWW_al].
Citi rolled out an October pricing special for selected states (AZ, CO, CT,
FL,
GA, IL, MA, MD, MI, MN, MO, NC, NJ, NY, OH, OR, PA, TN, TX, UT, VA, and WA)
ranging
from 20-25 basis points. It is better than a poke in the eye. "Fixed Rate
and ARM;
Conventional, FHA or VA; any loan program, applicable to Best Efforts,
Single Loan
Mandatory, and Mandatory Trade Desk, pricing incentive is in addition to all
other
applicable loan level price adjusters, including existing state adjusters,
loans
must be in all respects eligible for sale to Citi in accordance with the
provisions
of your Correspondent Loan Purchase Agreement with Citi."
Flagstar spread the word to its brokers that USDA-Rural Development (RD)
announced
today that beginning October 1, 2011, they will be temporarily without
funding.
They will issue RD Conditional Commitments (Form RD 1980-18) "subject to the
availability
of commitment authority." Flagstar Bank will fully approve and continue
funding/purchasing
up to $25 million of Guaranteed Rural Housing, Doc. #5830 program loans
closed with
RD Conditional Commitments including such language. "Flag" also clarified
that "Jumbo
10/1 ARMs must be in Approved with Conditions status prior to rate lock.
Please
see the complete memo for details." Lastly, "Flagstar will begin to offer
FHA Insuring
Services to all FHA Delegated Correspondents. Lenders who choose this
service can
rely on Flagstar to complete the FHA insuring function and obtain the
lenders case
number MIC."
Turning to the markets, rates are low. 'Nuff said? Friday, among other
things, we
found out that the University of Michigan Consumer Sentiment index "climbed
to 59.4
Final for September, and up from 55.7 in August, stronger than the 57.8
consensus
estimate" and that the "Chicago Purchasing Managers Business Barometer
rebounded
to 62.8 in September, the 24th month of expansion." But do these really
matter
when Europe is a mess, and our national employment picture is dismal? We
did, however,
have some apparent progress in Europe last week, which helps.
For economic news this week today we have ISM & Construction Spending,
tomorrow
is Factory Orders, Wednesday Challenger & ADP jobs numbers (always of
questionable
relevancy), Thursday Jobless Claims, and Friday the employment data. With
the U.S.
economy seen dangerously close to a new recession, Friday's September
payrolls report
could add to those concerns. Analysts see just 60,000 new jobs created last
month
- not enough to keep up with a growing size of the labor force, although
still better
than the zero job growth registered in August. With all this "excitement",
the 10-yr
note, which ended Friday at 1.92%, is down to 1.89%, and look for MBS prices
to
improve by .125 in the early going.
Dan was a single guy living at home with his father and working in the
family business.
When he found out he was going to inherit a fortune when his sickly father
died,
he decided he needed to find a wife with whom to share his fortune.
One evening, at an investment meeting, he spotted the most beautiful woman
he had
ever seen. Her natural beauty took his breath away.
"I may look like just an ordinary guy," he said to her, "But in just a few
years
my father will die and I will inherit $200 million".
Impressed, the woman asked for his business card and three days later, she
became
his stepmother.
(Women are so much better at financial planning than men.)
If you're interested, visit my twice-a-month blog at the STRATMOR Group web
site
located at www.stratmorgroup.com
[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1106435366068&s=4179&e=001SVt-lj
bp53436QjxD9vbwURtIPPjV05jEcEKyBN3SjS2forXe0C_foO8RjEV-Uye0N7Z_Sh1il0SRXPx6P
jQauayNXQjni-Hc9Sseu-hhZcR1ujeZyAEpw==]
. The current blog takes a look at Fannie & Freddie & the FHFA, and the
changes
they have in the hopper. If you have both the time and inclination, make a
comment
on what I have written, or on other comments so that folks can learn what's
going
on out there from the other readers.
Rob
(Check out
[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&t=ravjr8hab.0.epg7qedab.zy6u9cdab.8
721&ts=S0684&p=http%3A%2F%2Fwww.mortgagenewsdaily.com%2Fchannels%2Fpipelinep
ress%2Fdefault.aspx]
[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&t=ravjr8hab.0.v7uif6dab.zy6u9cdab.8
721&ts=S0684&p=http%3A%2F%2Fwww.thebasispoint.com%2Fcategory%2Fdaily-basis].
For archived commentaries, go to www.robchrisman.com
[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&t=ravjr8hab.0.fpg7qedab.zy6u9cdab.8
721&ts=S0684&p=http%3A%2F%2Fwww.robchrisman.com%2F].
Copyright 2011 Rob Chrisman. All rights reserved. Occasional paid notices
do appear.
This report or any portion hereof may not be reprinted, sold or
redistributed without
the written consent of Rob Chrisman.)
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