November 1: Question about loans going into MBS's; mortgage insurer stats - good & bad news; rates drop on Greece news

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Seven billion is a lot of people. I guess that's about how many of us there are
in the world [http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1108432781867&s=8721&e=0018H9lNMt3In0Ft3lN4_wjsh1oTt3zDsM6yR8huyvxe31vw7clVmcgVOr4PUnJIgAKqsV6qajZ9Ca_z42Byc10biIdtG3DhJ36kCQyTyy5IAEnQcCVja9UE2S0OSeYxhapPJwQBm5nlCY=].
(And no, contrary to what you think, they won't all be in line in front you at the
Apple store this holiday season.) Of course, two of those people are famous-for-being-famous
Kim Kardashian and NBA player Kris Humphries, who rocked financial markets yesterday
with the announcement that they were, gasp, divorcing after being married 72 days.
So the NBA lock-out took its first victim as Kim cited irreconcilable differences:
low ratings and no NBA paycheck.

NMLS sent out smoke signals "Annual Licensing Renewal Period Begins 11/1" and runs
through 12/31. "Please be advised, however, that a few states have a CE deadline
earlier that the standard December 31 deadline. These states/areas include: GA
10/31, DC today, WV 11/30, 12/1 for DE, IA, KS, PR, and VT, and 12/15 for ID and
WA. If you need a state specific chart for education requirements, go to the NMLS
Resource Center [http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1108432781867&s=8721&e=0018H9lNMt3In2gSxuSyW7Ky7GTxdxQsYMLKrLDzgQAso4y7ykwLF-W0qybwIBzxVhnphPD28Po3sHKO4gnNgP47Ml96RkfMGDkWN7noPN1wIg1yo9fidM9OMi39niQivQYMl6V8qQ-4NE=].
If a loan agent tries to go around "the system," it might not work, as the majority
of states won't let an MLO submit for renewal until they have completed their annual
CE, and in addition their cell phone is deactivated. (Just kidding.)

Yesterday the commentary mentioned AllRegs' offer of a complimentary FHA Online
Guide. Readers should know that HUD has a response (thank you Karen Deis): "The
website hosting FHA's Online Guide (Handbooks 4155.1, 4155.2, and 7610.1) is temporarily
unavailable. In the interim, the full handbooks in PDF version can be accessed on
HUD's website. 4155.1 [http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1108432781867&s=8721&e=0018H9lNMt3In0FZgI9nMxrIvkkrVh7X5w81XbWIdbJSKKKsP_hCFaGxzQZuRTZ5g9AcWjVLqvky6B5OdEp3N6VwP7-PoWKf_EgkGvEzdemuxLXu4DknbArjM8CXFFF0MkuGmO9tQQC3PFlCvM4tj7iPr4ykR5Uv9PfJnJvDkbYP4TkOLOpTAzKw4haQ9NNECqBzjRzXgS1lyzXf47h5fnoaUqpd0c-9YfMVQUgqbyO6NMRH7sQqUXfLg==],
4155.2 [http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1108432781867&s=8721&e=0018H9lNMt3In3QAfqhITGfySDKiQS4uwBunPlvjqU9PXcirsEn2G-tVD108Kz3KY8JCfsJ4F7xnY0L_5eY-gDZksiDz9orELo9KSxQ7DQbUmidfM2fpfnJJGC4t2xzTAf_gpO21OCXxHJGDfwvGytz3ELF2F8JCxYGa6U1DbMHzgkXKiMeaG-HJQ==],
and 7610.1 [http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1108432781867&s=8721&e=0018H9lNMt3In3cdxg5HWe1L1DCli98lAU2urYTB9SJroAEdaCupHv4o4KO2ruH3gpHLoanCiEqcajWo2KXGMp8T5JBWTIWBqOutbON3UNO02jeLXf0ZVYZci8DygB8yfubL9hnBeswKQhEDUSEq8hxkpTSWlPQgwT9afsfBnyTu_jFd1dsuZZx3qNJIfvQfxAuxapKSWqDWuoo_VkOPj2gQl9LZo5ZaQuVR_26A-6dB_G_BGmY9oR7cA==].

Mortgage insurance: can't live with it, can't live without it? One MI industry vet
wrote, "I felt compelled to comment on: 'Apparently the higher MI prices and tighter
underwriting standards of the current environment are enticing.' Actually the MI
prices today are lower than when I started decades ago and are lower than at any
point in those years. Regarding the tighter underwriting standards - it depends
on one's point of reference. Tighter than the bubble era, yes. But tighter than
any point from 1957 leading up to the bubble era, no." Both very good points.

The good news is that private mortgage insurance defaults declined last month, according
to the Mortgage Insurance Companies of America's (MICA) monthly report. Private
mortgage insurance companies reported September defaults fell to 38,719 from 48,187
the previous month. The bad news is that new biz is down 29%: private mortgage
insurers represented by MICA wrote $4.9 billion in new business September, down
29% from $6.9 billion the same month a year ago. The group (which is made up of
MGIC, Radian, RMIC, PMI, and Genworth; not listed on its website are Essent and
UG) had $477 billion in primary insurance in force in September. That is down 38%
from nearly $773 billion in September 2010.

"Rob, in looking at a large investor & servicer, I wanted to mention that a company
is doing very close to No Doc refinances on agency loans in their servicing portfolios
assuming the borrower is current, has a track record of making on time payments,
AND they can verify employment. I am sure this has much to do with the fact that
many of these loans were originated during low doc times and incomes weren't documented
then, but they have a history of on time payment of their mortgages. And the no
appraisal is simply a means to bypass the current 125 LTV restriction on HARP transactions.
That is pretty much it as far as my understanding (which may not be complete). Our
question centers on the ultimate disposition of these loans. Presumably the investor/servicer
is re-delivering these into Agency MBS without the documentation requirements that
are imposed on other lenders delivering into agency pools. If so, are MBS investors
purchasing pools of loans that are not documented in a standardized manner? If that
is the case and these investors are aware of this, it stands to reason that there
is a full expectation that the US government is actually standing behind these pools.
If not, why would an investor buy a pool that has non-documented loans in it versus
a pool of fully documented loans? I am just curious as to the accuracy of my understanding
of what is happening on these refinances as well as your understanding of how the
agencies are dealing with the delivery of these loans from it."
Per my two teens, I don't know much about anything. But I will take a shot at an
answer. One can't "presume" that the servicer is re-delivering to the Agencies.
It may be choosing to hold the loans in their own portfolio. Also, one of the
government's Agency plans reduces documentation on performing loans, but isn't
made available to 3rd party originators by the large investors, because of the rep
and warrant issue. (I believe its Freddie Mac's.) IF the investor is issuing MBS
securities, then you can't presume that it is selling them in the open market; the
company may be issuing them and holding the securities. Capital reserve ratios
are better on securities than on whole loans, and they have a bunch of cash to deploy.
Mortgage returns are decent, and they know this is a book that performs. If the
Agencies are behind it at all, then the servicer may have negotiated a deal with
the Agencies to reduce documentation, and sell With Recourse. This is a sales
structure that is never offered to third party originators, since the risk transference
is too great. I don't know how With Recourse deals are disclosed in MBS securities.
Mountain West Financial spread the word to brokers that, "Effective with loans locked
on and after November 1, 2011, all non-owner occupied transactions must comply with
Loan Officer Compensation guidelines." It appears that MWF joined the pack on this
one.

Poor Ben Bernanke. No one told him the job would be easy, but in today & tomorrow's
meeting of the Federal Reserve's Open Market Committee, three conservative members
will say the Fed has already done too much and two liberals will say the Fed needs
to do much more. No one expects much, aside from BB communicating the benefits of
existing policies in order to increase their impact. Those in the mortgage biz should
remember that the Fed only exerts direct influence on short term interest rates,
but is focused on communication because it wants to reduce long-term interest rates,
which determine the cost of borrowing for businesses and consumers. Think parents
and kids...

Why does anyone think that the problems in Europe are going to go away soon? Last
Thursday news of a proposed settlement moved markets around the world, but now it
appears to be crumbling. Yesterday rates improved, and stocks worsened (remember
- they don't always move in opposite directions!) as the lack of details about
how to implement the plan and the realization that a lot of the measures will weigh
on economic growth in the near-term is bringing U.S. fixed-income securities back
into favor. Arguably, after an improvement in stocks of 10% and 10-yr yields being
higher by 25% during October, they have an inclination to move the other way. But
European fears will, and should, continue to overshadow any minor U.S. economic
numbers.

Yesterday 10-yr notes improved by 1.125 in price and closed near 2.17%. But as one
would expect in a rally MBS prices lagged somewhat and only improved .375-.50 depending
on coupon. (How much of that improvement was passed on to rate sheets, of course,
remains to be seen - increased volatility leads to higher hedge costs.) Later we'll
have Construction Spending and an ISM Index, but rates are moving due to Greece
unexpectedly called for a referendum (a direct vote of the people) on the latest
bailout deal sometime in the next few weeks. If the Greek people use the referendum
to reject the latest bailout deal, it would put the next aid tranche to Greece in
jeopardy, moving it towards the brink of disorderly default, raising the risk of
further contagion and financial market instability. Stocks are down, oil is down,
gold is down, and rates are down: the 10-yr is around 2.04% and MBS prices are better
by about .5.

(Parental Discretion heavily advised.)
A woman and a baby were in the doctor's examining room, waiting for the doctor to
come in for the baby's first exam.
The doctor arrived, and examined the baby, checked his weight, and being a little
concerned, asked if the baby was breast-fed or bottle-fed.
"The first," she replied.
"Well, strip down to your waist," the doctor ordered.
She did. He pinched, pressed, kneaded, and rubbed for a while in a very professional
and detailed examination.
Motioning to her to get dressed, the doctor said, "No wonder this baby is underweight.
You don't have any milk."
"I know," she said, "I'm his Grandma, but I'm sure glad I came into the office today."
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-ljbp53436QjxD9vbwURtIPPjV05jEcEKyBN3SjS2forXe0C_foO8RjEV-Uye0N7Z_Sh1il0SRXPx6PjQauayNXQjni-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