Closer Look At Mortgage Reform, Four Week Rate Decline

Securities and Mortgage Associations Weigh In On Reform
The Security Industry and Financial Markets Association published a comprehensive guide to the Financial Reform Bill. It appears that, in the mortgage section, most of the details are left to either regulators or investors. The Mortgage Bankers Association also weighed in.

Mortgage Provisions of Reform Bill
The bill requires lenders to have “skin in the game” on riskier types of loans-such as option ARMs or loans that don’t require full documentation of income-that are bundled and sold to investors as securities. Don’t look for these loans to come back, unless the investor wants to keep 5% of the loan amounts around as capital. The bill sets stricter limits on prepayment penalties. The legislation also forces lenders to ensure that borrowers have the ability to repay loans and gives borrowers greater scope to seek damages or contest a foreclosure if they are given a loan that they can’t afford. Provisions that require stricter checks on a borrowers’ ability to pay could make it harder or more expensive for self-employed borrowers or those who rely on commission or seasonal income to qualify for loans.

The bill tries to make compensation of mortgage brokers and loan officers more transparent, and bans any sort of payment based on steering the consumer to a particular type of loan or rate. It stipulates that lenders must compensate appraisers “at a rate that is customary and reasonable” and mandates regulation of AMC’s. Regulators “may” issue regulations on the “portability” of appraisals from one lender to another.

Translating the bill and countless amendments, and determining what (intended and unintended) impacts the bill will have is something that will only come with time.

Standard Message Out of G20
Leaders from the Group of 20 nations agreed during the weekend to reduce their deficits and take action to make their banking systems safer and more stable, but they likely will take different paths to reach those goals. The countries will strive to cut their deficits by at least half by 2013, according to a statement released by the G-20. The group also said banks will need to significantly raise their capital.

Fed Adjusts MBS Trading
The Federal Reserve Bank of New York said it will begin using “a limited amount” of coupon swap operations to aid the settlement of its purchases of mortgage-backed securities – less than $10 billion. So it will replace outstanding contracts to purchase Fannie Mae 30-year, 5.5% coupon securities with other so-called agency mortgage-backed debt that is “more readily available for settlement,” the bank said today in a statement. A “coupon swap” is a trade in which an investor enters into a contract to buy mortgage bonds with one coupon and sell mortgage bonds with a different coupon. So what? The Fed will be selling Fannie 5.5% securities and buying current coupon 4% and 4.5% coupons – helping those prices.

Four Week Rate Decline
Interest rates have declined for four weeks now. Mortgage rates are as low as 4.69%. Are pipelines bursting at the seams? Probably not. But look at this 10-yr yield, down near 3%, and mortgage rates could drop into the low 4’s before too long. But there is a reason. Unfortunately the housing statistics point to slow sales, still-high inventories, and more foreclosures and short sales on the horizon. Unemployment is still high, which obviously doesn’t help the economy, and Europe will be a cause for worry for quite some time. In many areas, however, home prices are rising, albeit gradually.

Market Update
Yesterday 10-yr Treasury notes rose 24/32 in price, and got down to a yield of 3.02%, their lowest since April 2009. But mortgage traders reported low volumes. After the NY Fed announcement (see above), Fannie 5.5’s dropped .5 in price, but then closed unchanged on the day; Fannie 4 & 4.5’s did very well. Personal Income was +.4% and Personal Consumption (spending) rose .2% – perhaps the consumer is becoming more confident…? The Chicago Fed Survey fell slightly. But critics say that the billions of dollars of stimulus have only moved the problems with our economy from the private to the public sector.

Here this morning interest rates are taking a bit of a breather. The stock markets are pointing to a big down day, but the 10-yr yield is at 3.06% and mortgage prices are worse slightly after a nice rally yesterday.

Daily Humor
There was a Scottish painter named Smokey Macgregor who was very interested in making a penny where he could, so he often thinned down his paint to make it go a wee bit further.

As it happened, he got away with this for some time, but eventually the Baptist Church decided to do a big restoration job on the outside of one of their biggest buildings..

Smokey put in a bid, and, because his price was so low, he got the job. So he set about erecting the scaffolding and setting up the planks, and buying the paint and, yes, I am sorry to say, thinning it down with turpentine.
Well, Smokey was up on the scaffolding, painting away, the job nearly completed, when suddenly there was a horrendous clap of thunder, the sky opened, and the rain poured down washing the thinned paint from all over the church and knocking Smokey clear off the scaffold to land on the lawn among the gravestones, surrounded by telltale puddles of the thinned and useless paint.

Smokey was no fool. He knew this was a judgment from the Almighty, so he got down on his knees and cried:

“Oh, God, Oh God, forgive me; what should I do?”

And from the thunder, a mighty voice spoke:

“Repaint! Repaint!