August 26: Clarification on UAD rollout dates; odds of mass refi plan actually happening

Don't you always wonder how much the guys standing at the
stoplights take



home, tax-free? It is a little farcical, but:
HowMuchTaxFree?


[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1107327540158&s=8721&e=001J5TbiJ

Vr9isVGek6kXZ_sdi4_hehjMOmLmP0vEfJDL0V4fX7cGxaIF_SRFmbjql4I5_7Z0-M18dSTWp79k

GeJyav52B2pj3C6Bfgn_GdcPF7xhfoCWowGeq5sMeDB3sWGwevWplj3ifXQxfNWWG_wL_Z2YgOoy

Tf].




A doctor examining a woman who had been rushed to the
Emergency Room took



the husband aside and said, "I don't like the looks
of your wife at all."


"Me neither doc,"


said the husband. "But she's a great cook and really
good with the kids."



Life often involves dealing with misunderstandings and
confusion, and the



rumors surrounding a mass refi plan certainly fit into
that category. In



general markets trade off of future prospects and the
prospects of a huge



government-sponsored refi plan is roiling the markets. (I
even set out some


more in-depth thoughts at MassRefi

[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1107327540158&s=8721&e=001J5TbiJ

Vr9itDzQuzJMGH3zuKOTPhGacpfFwTMBdrM_0YtSIeScpIm9yadCB5tGMY2tDWB0aj4JOOJzI7Dn

GSlA4ehzaVfANWX76x2Kgpx9RPA9zXX0dyFw==].)


Any plan must help a broad group of homeowners, stimulate
the economy, and


cost next-to-nothing.




One trader mentioned that, "after HAMP and HARP the
U.S. is now ready to



launch a new program called Helping Underwater Mortgage
Performance" and



that the market "went toxic after it heard that
Obama was getting "REFI.GOV"



vanity plates for his new limo." As one would
expect, the prices of



premium/older production are suffering compared to
current/rate-sheet



production. Yesterday, for example, Fannie 6's
(containing 6.25-6.625% 30-yr



mortgages) were down .5 in price versus Fannie 4's which
improved nearly


.250.




One proposal would allow millions of homeowners with
government-backed



mortgages to
refinance them at today's lower interest rates, which in turn



would lower their mortgage bills and, in theory, help the
economy since


they'll take the money and spend it elsewhere. Homeowners who have been


unable to refinance their loans either because they owe
more than their


houses are now worth or because of bad credit.


Other suggestions include a large-scale home rental
program that would keep



foreclosures off the market. What is lacking, of course,
are any concrete



details about any of this. Items such as how delinquent
borrowers would be



treated versus on-time borrowers, who would administer
the program, and how


would investors be made whole are immense issues.




In the meanwhile teams of researchers at all the investment
banks are



sending out educated guesses as to the pros and cons of
various plans. (I



bet this is what they really live for!) How are reps and
warrants for



existing loans handled? What about non-government loan
borrowers? If



borrowers who have their loans modified, or refinanced,
stop making their



payments, can investors go back to originators under buy
back provisions?



When did HARP become a verb? ("If you HARP these
seasoned loans you are



exposed to new put-back risk. If these borrowers default
in their current



form, it is very difficult for the agencies to put them
back given servicers



can argue the
loans have been paying for 3+ years and therefore were issued


as clean loans.


However, once its HARPed that argument is no longer
applicable and they are



exposed to new put-back risk.") And with Republican
control, what are the


odds of anything like this happening?




It seems that conjecture is focusing on basic plans. One
is to make a low



mortgage rate available to all borrowers. Another is a
blanket settlement



between originators and FHFA that settles all existing
and future reps and



warranties liabilities, and the originators will just be
agents for the GSEs


and will not be responsible for the credit performance of HARP refied


loans. Another option is an expansion of HARP which will
remove the



origination date restriction for HARP eligible
loans, thus allowing



borrowers to do HARP multiple times and will make recent
production HARP



eligible. And the last seems to be implementing parts or
all of the changes


in Senator Boxer's bill.




An analyst wrote, "I'm not sure I understand the
economics/logic of a



streamline
refinance program. Assume for the moment that borrowers with



high LTV's, i.e., LTV's >100%, a result of home price
decline, could do a



rate and term refinance from say 6% to 4.25%. Assuming an
average remaining



term of 25 years, the monthly P&I payment would drop
by 16%. So, in real


economic terms, how worse off is FNMA or Freddie? Before the rate/payment

drop, the lender/investor has a loan on the books that is underwater and at

high risk of default. After the drop, while the loan is underwater by the


same amount, cash flow has dropped but the probability of
default has



arguably declined. Now I know that studies show that
negative equity is the



key driver of default, but I would argue that although
the borrower's equity



position has not change the borrower's perception of the
situation has. Once



a borrower is in a deep negative equity position, they
probably view their



monthly payments (after tax) as rent, not as payments on an
investment. So,



a drop in monthly payments is like a drop in rent which
improves their


likelihood of continuing the lease.


Does the reduced likelihood of default compensate for the
reduced cash flow?



I haven't analyzed this but I bet it's significant and
for some borrowers



actually increases the economic value of the loan. And,
the same argument


would apply to loans in securities."




Yesterday's commentary discussed HUD's note about the
implementation of UAD.



I should clarify that this is from HUD (mostly FHA), not
Fannie & Freddie. I


received a few


notes: "In the newsletter you mention that UAD has
been pushed back to Jan


1, 2012 per HUD mortgagee letter 2011-30. Although HUD has pushed the


implementation to
1/1/12, to the best of my knowledge FNMA and FHLMC are



still implementing UAD as of Sept 1, 2011."
"The UAD implementation date for


the GSE's is still September 1, 6 days from now. Everyone managing this


process, including the aggregators, has been waiting on
HUD's policy



concerning UAD.
The word from HUD was that they were going to adopt UAD


requirements, but didn't specify when. The mortgagee letter addresses HUD's


acceptance of UAD and their requirement for appraisals
with a case number


assignment date of January 1, 2012. This doesn't push back the GSE

implementation date."


Yesterday the commentary noted a memo from Flagstar
regarding 4506-T


requirements.


In turns out that Flagstar sent out another memo:
"Effective with



underwriting submissions on or after September 1, 2011
the 4506-T Execution



Criteria have been updated for conventional loans to
reflect that one year



of tax transcripts results are required, or the most
recent two years


results if required per AUS findings. For Delegated underwriting customers,


these requirements are for all loans delivered on or
after September 12,



2011. Please note this excludes Freddie Mac Relief
Refinance, Doc.



#5354, which does
not require results."





But while we're on Flagstar, it announced that on August
18 the NYSE



provided notice to the Company that it did not satisfy
one of the NYSE's



standards for continued
listing applicable to the Company's common stock.



More information on the status, and how it can be repaired,
can be found at:


NYSEFlagstar

[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1107327540158&s=8721&e=001J5TbiJ

Vr9is0gpDdqdaexr8b2tpF1pXbPaKQZJ9sv0ikSHVStDp2ctFobXeIWOXgs2_zk4ff2HNfB-nPSF

-UsJtBa39M6TBoLe4uMg6co7XjhBpD2vIZLXIvXhlNawI5Kru_jdsji2BuWVkzT7Aff7i90nVK-2

KwFeGW3TBich19xk3_pLrjJH7CbMo49csK96ZiKAiFyWm9G3VIgEhO_MIZHlkVj_e1].




The stock and bond markets had plenty to chew on
yesterday, between Steve



Jobs leaving, Berkshire Hathaway's purchase of $5 billion
of BofA equity,



and the conjecture on everyone with a government loan
suddenly ratcheting



down their mortgage rates. (Would we be talking about
this if the employment



picture was better? MBA's chief economist Jay Brinkmann
stated in a press



call on Monday that increasing employment was the most
important thing that



the government could do to help the housing market.)
Thursday we were



reminded that hedging "like for like" makes
sense: Fannie 3.5's were better



by about .375 in price, but Fannie 4's (with 4.25-4.625%
30-yr mortgages)



were only better by .125. The 10-yr ended the day around
2.22%.





This morning talk seems more focused on Hurricane Irene,
and a stormy



weekend along the Eastern Seaboard. But we did see GDP
for the 2nd quarter



which came in at +1.0% versus a prior estimate of +1.3%.
We also have



Chairman Bernanke's much anticipated speech at the Fed's
annual Jackson



Hole, Wyoming symposium. His topic is "Near- and
Long-Term Prospects for the



U.S. Economy" and investors will be tuned into
actions the Fed may take to



help economic and jobs growth. Last year, he introduced
QE2 at this meeting.



In the early going stocks are pointing lower, the 10-yr
is at 2.17% and MBS


prices are better by roughly .250.




You're An EXTREME Redneck When... (Part 1 was yesterday;
part 2 today) 9.


Your junior prom offered day care.


10. You think the last words of the Star-Spangled Banner
are, "Gentlemen,


start your engines."


11. You lit a match in the bathroom and your house
exploded right off its


wheels.


12. The Halloween pumpkin on your porch has more teeth
than your spouse.



13. You have to go outside to get something from the
fridge.


14. One of your kids was born on a pool table.


15. You need one more hole punched in your card to get a
freebie at the


House of Tattoos.


16. You can't get married to your sweetheart because
there's a law against


it.


17. You think loading the dishwasher means getting your
wife drunk.





If you're interested, visit my twice-a-month blog at the
STRATMOR Group web



site located at www.stratmorgroup.com . The current
blog takes a look at



the recent news sweeping the MBS investor market
regarding a new mass refi


plan by the government.


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://www.mortgagenewsdaily.com/channels/pipelinepress/default.aspx


or www.TheBasisPoint.com/category/daily-basis.
For archived commentaries, go



to www.robchrisman.com.
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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