THE BASIS POINT

Long List of Mortgage Industry Changes

 

Is there anyway to sugar-coat these recent mortgage-related headlines?

MORTGAGE INDUSTRY & LENDING GUIDELINE UPDATES

  • Rates on 30-year mortgages edged up last week to the highest level since March as investors worried about inflation threats. Freddie Mac reported Thursday that 30-year fixed-rate mortgages averaged 6.09 percent, compared with 6.08 percent the previous week. It was the highest mark for 30-year mortgages in 12 weeks since averaging 6.13 percent the week of March 16.
  • U.S. Mortgage Delinquencies, Foreclosures Rise to 29-Year High. According to the Mortgage Banker’s Association, new foreclosures rose to a seasonally adjusted 0.99 percent of all U.S. home loans, the total inventory of homes in foreclosure increased to 2.47 percent and the delinquency rate, loans with one or more payments overdue, grew to 6.35 percent.
  • Real-Estate Woes of Banks Mount: Lenders Dumping Bad Loans at Discount; Regulators See Losses Continuing. Federal regulators warned Thursday that banking-industry turmoil would continue as financial institutions come to terms with piles of bad loans they made to finance the construction of homes and condominiums, which in turn could lead to billions of dollars in fresh losses.
  • Household Net Worth Fell 2.9% in 1Q08, the Most in 5 Years. According to our Federal Reserve, stock-market losses and falling home values in the first three months of this year led to the largest quarterly drop in the net wealth of American households since 2002.
  • Standard & Poor’s said the number of entities at risk of having their ratings cut hit a new record of in May as a “material slowdown” in housing and consumer activity amid still-tightening lending conditions continues to deteriorate credit quality.
  • Mortgage applications in the U.S. last week dropped to the lowest level in six years, reflecting less refinancing as interest rates jumped.
  • ReconTrust, a unit of Countrywide, filed a notice of default on a $4.8 million Countrywide loan backed by Ed McMahon’s home, who is $644,000 in arrears.
  • The California Association of Mortgage Brokers is hosting 30 minute webinars regarding the proposed RESPA changes. Go here to register. They are Monday, June 9 at 9:30AM & 2:30PM, Wednesday, June 11 at 9:30 & 2:30, and Thursday, June 12 at 9:30 & 2:30.

And more company structure, pricing, program, and underwriting changes, which fortunately includes some good news!

  • First Horizon National Corporation sold their retail and wholesale division to MetLife Bank.
    US Bank, for loans in CA, AZ, FL, NV, and MI, announced a maximum LTV / CLTV for all products of 85%.
  • Franklin American Mortgage raised the minimum credit score to 580 and increased minimum credit scores are required on higher LTV loans, reduced the maximum LTV on condominiums to 90%, eliminated cash-out and lowered the maximum LTV for investment properties, reduced the number of allowable financed properties on second home and investment property transactions from 10 to 4, and increased the minimum credit score for all cash out refinances. In addition, Franklin lowered the LTV on second home cash out refinance transactions and added a 6 month seasoning requirement for all cash out transactions. In the future all borrowers must have a minimum of two credit scores & second homes, investment properties and any loan with subordinate financing having LPMI are no longer eligible.
  • PMI modified their PMI Distressed Markets Policy and PMI Distressed Markets List to expand to two levels, where “Level 1” was developed for those areas where they anticipate the downturn to be less severe based on underlying fundamentals that include unemployment trends, home price volatility, and other factors, and “Level 2” applies to those areas that PMI projects to continue to experience more significant economic and/or housing downturns, and are expected to take longer to improve. Effective June 1, 2008, properties located in areas classified as Level 1 will be eligible for mortgage insurance up to 95% LTV. Properties located in areas designated as Level 2 will continue to be eligible for mortgage insurance up to 90% LTV.
  • PMI will begin insuring Fannie Mae DU 7.0 loans, subject to the following: “We will accept the recommendations of DU Approve/Eligible, EA I/Eligible, EA II/Eligible and EA III/Eligible, all loans are subject to a maximum LTV of 97%, all loans will be subject to the PMI Distressed Markets Policy. Loans in a distressed market that receive an EA III/Eligible recommendation are not eligible. For loans with EA I/Eligible, EA II/Eligible and EA III/Eligible, the following additional restrictions will apply: minimum credit score of 620, cash-out refinances require a minimum credit score of 680, and second homes are subject to a maximum LTV of 90%.”
  • Chase aligned themselves with recent announcements by Fannie and Freddie, matching their declining markets guidelines. Chase’s Non-Agency declining market policy is also being modified to more closely align the maximum LTV/CLTV requirements with the risk in specific declining value metro areas, and introduced their “Non-Agency Premier Program”, which exempts certain transactions from the Chase declining market maximum financing restrictions. Chase will no longer require a reduction to the maximum financing in declining market areas on Agency loans, including Agency jumbo loans, but cautioned correspondents that they are responsible for obtaining required mortgage insurance on all loans sold to Chase and to stay abreast of guideline changes and restrictions imposed by the mortgage insurance companies.

MARKET UPDATE
Whew! Onto something simple, like interest rates (which unfortunately are higher than Friday afternoon, with the 10-yr back up to 4.0% and mortgage prices worse by .375). On Friday we got the report that U.S. Payrolls -49K, Unemployment Rate Climbs to 5.5%, after payrolls fell 28,000 in April and 88,000 in March. The unemployment rate, which is calculated using a separate survey of households, jumped 0.5 percentage point to 5.5%, its highest level since October 2004. The bond market improved and the equity markets sank. Few investors (at least that we saw) improved their rates until very late in the day. Geithner, Rosengren, and Bernanke are all speaking today. For economic news today there is little today, tomorrow we’ll see April’s Goods and Services Trade Balance report (the trade deficit) which is expected to show a $59.5 billion deficit. On Wednesday the Federal Reserve will release its Beige Book, which details economic conditions throughout the U.S. by region, and on Thursday we have May’s Retail Sales data (expected +.6%). Lastly, on Friday, we’ll see May’s Consumer Price Index, expected +.5% (core +.2%) and June’s preliminary reading to the University of Michigan Index of Consumer Sentiment.

JOKE OF THE DAY
An elderly Floridian called 911 on her cell phone to report that her car had been broken into. She is hysterical as she explains her situation to the dispatcher: “They’ve stolen the stereo, the steering wheel, the brake pedal and even the accelerator!” she cried.

The dispatcher said, “Stay calm. An officer is on the way.”

A few minutes later, the officer radios in.

“Disregard.”, he says. “She got in the back-seat by mistake.”

 

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