Bleak Chase & Radian News, FAMC & Wells Wholesale Changes, FHA Limiting Properties

RETIREMENT HAS TO WAIT
Even though I am only in my 40’s, I am ready to retire. But suddenly an article popped up saying, “Don’t retire. At least not yet.” An official at a nonprofit agency (Public Agenda in Washington, DC) said it would be “profoundly selfish and unpatriotic.” He believes that if I work longer, I will pay more taxes, increase my wealth, help my children and grandchildren, produce more goods and services, spur the economy, slow the growth of the national debt, and lower the burden on Medicare and Social Security costs. “If you retire at 62, you may live another third of your life in retirement,” he says. “Maybe that’s right for some people, but a lot of able-bodied Americans could contribute to their employer, their society, the economy, themselves and their children for at least a few more years.” Darn it! I had my AARP application complete!

I got a call from a broker yesterday regarding Wells Fargo’s changes to their wholesale guidelines, which were wide ranging. (“Effective immediately, any loan with a DTI ratio greater than 50% will require a full manual underwrite by Wells Fargo, regardless of documentation level. Also, as a result of this requirement, off-site contract underwriters can no longer decision loans with DTIs greater than 50%.” “Effective with locks on or after Aug. 18, rate/term refinances on investment properties with LTVs greater than 80% are no longer allowed as a result of mortgage insurance retractions.” “Conventional Conforming Condominium Loans With LTVs Greater Than 80% Will No Longer Be Allowed In The State Of Florida.” “FHA one-year treasury ARMs will no longer be allowed.”) The broker screamed at me for 5 minutes, for no apparent reason, about the current environment, wholesale investors leaving the market, stricter underwriting guidelines, and now Wells requiring a manual underwrite for loans with a back end ratio above 50%. I asked her, “Do you think, in the current day, it is responsible lending to lend to a borrower with over a 50% backend ratio?” She replied, “Uh, remind me what a back end ratio is again.”

MORTGAGE GUIDELINE ROUNDUP

• I got a call from a broker yesterday regarding Wells Fargo’s changes to their wholesale guidelines, which were wide ranging. (“Effective immediately, any loan with a DTI ratio greater than 50% will require a full manual underwrite by Wells Fargo, regardless of documentation level. Also, as a result of this requirement, off-site contract underwriters can no longer decision loans with DTIs greater than 50%.” “Effective with locks on or after Aug. 18, rate/term refinances on investment properties with LTVs greater than 80% are no longer allowed as a result of mortgage insurance retractions.” “Conventional Conforming Condominium Loans With LTVs Greater Than 80% Will No Longer Be Allowed In The State Of Florida.” “FHA one-year treasury ARMs will no longer be allowed.”) The broker screamed at me for 5 minutes, for no apparent reason, about the current environment, wholesale investors leaving the market, stricter underwriting guidelines, and now Wells requiring a manual underwrite for loans with a back end ratio above 50%. I asked her, “Do you think, in the current day, it is responsible lending to lend to a borrower with over a 50% backend ratio?” She replied, “Uh, remind me what a back end ratio is again.”

• VA’s authority to offer ARMs will expire Sept. 30, 2008. It will probably be extended, but some investors are warning their originators that all VA ARMs must be closed on or before Sept. 30, 2008.

• According to a story in Reuters, JPMorgan Chase has incurred losses of about $1.5 billion since the start of July, the company said in a regulatory filing. JPMorgan said trading conditions have “substantially deteriorated” in the third quarter compared with that of the second, and spreads on mortgage-backed securities and loans have “sharply widened”. JP Morgan, the third-largest U.S. bank, was forced to write down the value of its $33 billion in mortgage-backed securities as prices continued to drop in July.

• Radian Group Inc. said that it expected to face claims on 14% of the first mortgages it has insured, a new record for them. “We do not see these conditions abating in the near term,” Sanford A. Ibrahim, Radian’s president and chief executive officer. Radian has set aside an additional $458.9 million for anticipated losses, bringing its total reserves to $2.29 billion. In addition, Radian put $421.8 million into a special reserve designed to make up for the fact that future premiums due to Radian are not expected to be enough to cover projected losses.

• Franklin American Mortgage Company announced a broad series of changes. These included appraisal requirements for Non-Conforming Fixed Rate & Non-Conforming Fixed Rate IO product, a six month ownership period for cash out transactions, lowering the LTV from 90% to 80% on 2 unit properties, etc. For Non-Conforming ARM & Non-Conforming IO ARM, similar changes were made.

• One thing to watch out for in the coming months for FHA investors: the number of properties owned by a borrower. Agents and brokers have already noticed the number of properties that are allowed under Freddie/Fannie guidelines constrict for practically every investor from “unlimited” down to “15” down to “10” and now down to “4” in some cases. (For example, SunTrust will only purchase loans for borrowers who have a maximum of 4 financed properties. “This limit of 4 financed properties is applicable to all loan products and occupancy types.”) Will FHA do the same industry-wide? Stay tuned – there are rumors.

MARKET SUMMARY
Where does all of this put interest rates? Really, it has no direct impact on today’s rates, which have crept back down. The U.S. trade deficit shrank unexpectedly in June, due to the weak U.S. dollar pushing exports higher in spite of the high prices for imported oil. The trade gap totaled $56.8 billion, down from a revised estimate of $59.2 billion in May. There is talk by many investors that the Fed will hold overnight rates at 2.00% through the end of the year, so I hope that you like rates where they are. And this morning they happen to be better than yesterday afternoon, with the 10-yr at 3.94% and mortgages about .125 better in price.

JOKE OF THE DAY
Three Rednecks were working up on a cell phone tower – Cooter, Pete and KC. As they start their descent, Cooter slips, falls off the tower and is killed instantly.
As the ambulance takes the body away, Pete says, “Well, darn, someone should go and tell his wife.”
KC says, “OK, I’m pretty good at that sensitive stuff, I’ll do it.”
Two hours later, he comes back carrying a case of Budweiser.
Pete says, “Where did you get that beer, KC?”
“Cooter’s wife gave it to me,” KC replies.”
That’s unbelievable, you told the lady her husband was dead and she gave you beer?”
“Well, not exactly, KC says. “When she answered the door, I said to her, you must be Cooter’s widow.”
She said, “You must be mistaken, I’m not a widow.”
Then I said, “I’ll bet you a case of Budweiser you are.