Lender Guideline Updates, Economic News Impact on Markets This Week

Do mortgage originators consider the future when they are speaking with a client and processing the loan? Perhaps: certainly between 2002 and 2007 originators “appeared” willing to lend to anyone since values were increasing, and any problems might be covered up with appreciation. They weren’t necessarily forcing the borrower to borrow, and investors weren’t being forced to buy the mortgage-backed securities. Low priced homes appreciated more quickly than high priced loans, some believe because subprime lenders were more active in that segment. (After 2006, the prices of low-price homes have fallen faster than high-price homes.) Construction of new homes and apartments rose from 4.2% of GDP in 1997 to 6.3% in 2005, but has since fallen to around 3%. And while we’re comparing GDP with housing, between 2001 and 2005 spending on housing increased by over 30% while GDP growth was about 11%.

Yesterday’s 2-yr auction ($42 billion at 1.11%) was the talk of the town, in spite of generally being considered an average auction, or perhaps a little better. Indirect bidding, with all of its questionable worth but still used as a gauge of non-dealer customer demand, was good at almost 50%. Most believe that today’s 5-yr auction, and tomorrow’s 7-yr auction, will be a better thermometer of general demand for debt.

But in addition to a decent auction we had the S&P Case-Shiller US Home Price Index “only” down 14.9% versus a year ago. Fifteen out of twenty metropolitan areas posted price declines of more than 10% from a year earlier, and according to the index many areas are back to 2003 price levels. (The basic index uses a benchmark set in January 2000 of 100.) There were some areas that improved from the month prior: Cleveland (+4.2%) and San Francisco (+3.8%). For the last year, both Las Vegas and Phoenix were down over 31%. To balance that news out, Consumer Confidence saw its first gain in three months, coming in better than expected at 54.1. (Rock-bottom was in February at 25.3.)

Last week mortgage applications were up 7.5% versus the week before, according to the MBAA. Refi’s were up almost 13% whereas purchases were up 1%. It is nice to see that purchase applications were up for the fourth month in a row. In fact, compared to the same week in 2008 apps are up over 34%. That being said, some brokers feel that things are relatively slow and going to get slower because of HVCC which threaten the applications actually closing.

Economic Releases Today & Rate Pricing
Today, as I mentioned, we have the $39 billion 5-yr auction. We also have Durable Goods and New Home Sales. The New Home numbers come out a little later, but Durable Goods (items that last longer than 3 years, like my son’s toothbrush) rose more than expected in July. In fact, at +4.9%, it was the biggest gain in two years. It is indeed a volatile number, however, and in July Durable Goods were actually down 1.3%. Versus a year ago new orders are down almost 26%. After the news we find 30-yr mortgage prices better by about .125 and the yield on the 10-yr Treasury down to 3.43%.

Lender Guideline Updates
CitiMortgage, effective Monday, has discontinued their “Star Performance Tiered Fees Program”, and instead moved to fixed fees: the conventional pre-purchase review fee will be $120 and the government loan transfer fee will be $230. Citi also told clients that, with regard to their “Best Efforts Pull-Through Rewards/Fees Program”, during the month of September clients will not be receiving any rewards nor are they subject to any fees and will be given the time to focus on client’s pull-through.

PMI told clients that lenders will now be able to electronically submit all loans for their “PMI-to-PMI Refinance-to-Modification” programs. These programs focus on refinancing existing PMI-insured loans to allow “the same lender/servicer to refinance via HARP for GSE-owned loans as well as refinance-to-modification for loans owned by other investors and portfolio lenders and a new lender/servicer to refinance via HARP for GSE-owned loans as well as refinance-to-modification for loans owned by other investors.”

What has Wells Fargo’s wholesale group been up to? They recently told clients that “all parties (including POAs) who sign the mortgage / deed of trust must sign and date the final HUD-1 Settlement Statement” – buyers, sellers, and the settlement agent. “If the buyer and the seller sign different HUD-1s, the cost and fees must be the same (with the exception of minor fees, such as per diem interest)” warned Wells.

Daily Humor
I was confused when I heard the word “service” used with these agencies:
Internal Revenue “Service”.
U.S. Postal “Service”.
Civil “Service”.
State, City, County & Public “Service”.

This is not what I thought “service” meant. But yesterday I overheard two farmers talking, and one of them said he had hired a bull to “service” a few cows. BAM!!! It all came into focus. Now I understand what all those agencies are doing to us.