Loan Modifications Not Going Well
Modifications aren’t going so well. Why not? Well, getting to the essence of things, from someone in the trenches, most people do not qualify income-wise on paper. Self-employed borrowers write off a lot on taxes, and many wonder if the government should help a tax cheater. Others experience the loss of spouse’s income (divorce, death, joining the circus, etc.), loss of job, overtime hours, or second job. Folks dealing with borrowers in this sector report that most borrowers are angry with their servicer because they cannot pay their mortgage, and that this “feud” prevents an open dialogue especially when there is huge amount of paperwork to be filled out. Lastly, sometimes servicers do not have rights to the loans when the MBS holders own the rights – often the servicer is just the administrator of the pools.

End of Year Economic Preview
What is going on with the economy as we head into year end, and which way are rates going? If I knew that, I’d be on a beach in Hawaii instead of sitting here in my basement at 4:30AM in my boxer shorts. In spite of some volatility last week, mortgage rates started the week about where they began. Overnight rates are also unchanged, and appear to be going to stay there for at least a few more months. It should be of no surprise that the $1.25 trillion mortgage-backed securities purchase program is slated to cease at the end of the first quarter.

What’s on tap this week besides half of your e-mails receiving “Out of Office” replies? Today is quiet, tomorrow we have Existing Home Sales and the final GDP numbers for the third quarter (do we care anymore?), Wednesday is Personal Income and Consumption, New Home Sales, Consumer Sentiment, and Building Permits – along with the announcement of the size of next week’s Treasury auction. The morning of Christmas Eve we have Durable Goods and Jobless Claims that come out at 8:30AM EST, about 10 minutes before everyone on Wall Street heads home. Friday? If your company isn’t closed on that day, you should look to make a change. This morning, given the potential rally in stocks, we find the 10-yr at 3.59% and both the 5-yr Treasury and mortgage prices worse by about .250.

Mortgage Insurer PMI Revises Distressed Markets List
PMI, well-known mortgage insurance company, tweaked their “Distressed Markets List”, although it doesn’t take effect until February. PMI removed 11 MSA/MSD’s including the thriving metropolises of Colorado Springs, Kalamazoo, Toledo, and Chattanooga. Unfortunately they added 12, including Pocatello, Indianapolis, Spokane, and Greenville. For PMI loans in Maryland and Rhode Island “will be eligible under the standard distressed market requirements (minimum 700 credit score)”, and Delaware will be eligible under PMI’s special state requirements (minimum 720 credit score).

Less Down For Non-FHA Mortgage Insurance?
In a related story, the Wall Street Journal reported that “Some mortgage insurers and lenders are beginning to relax their down-payment requirements, in a sign of increased confidence in the housing market” on a market-by-market basis. This means instead of coming up with 10% down they can come with only 5% down and still be covered by MI. MGIC made some recent changes, as did Genworth Financial. Of course, appraisals and underwriting guidelines are still tight, and whether or not investors follow the MI company guidelines remains to be seen. The article discusses how MI companies are seeking to regain market share from the FHA, since new insurance written by private mortgage insurers dropped by nearly 60% in the first nine months of 2009.

Fannie Mae Suspends End-of-Year Foreclosures
Fannie Mae announced “that it is suspending all foreclosure evictions from December 19, 2009 through January 3, 2010. All owner-occupants and tenants living in foreclosed properties the company holds will not be subject to evictions during the holiday time frame. The company will also support the efforts of the servicers it works with that are taking similar actions – most recently Chase and Bank of America.

Lender Guideline Update
AmTrust came back into the lending arena late last week just as quickly as they left it less than a month ago. The “suite” of products being offered by AmTrust, however, apparently has been cut back. I have not seen a rate sheet, but have been told that AmTrust cut their Fannie Mae My Community Mortgage and Fannie Mae’s Flex 97 programs, 1/1 & 2/1 Conforming Standard ARM’s, all prepayment penalty options, all convertible ARMs, all non-conforming jumbo fixed programs, and all portfolio ARM programs. Any broker/borrower who had ponied up money for an appraisal for any of those programs may be faced with it being non-portable…
us
Is your shop up to speed on FHA Streamline Refinances? U.S. Bank Home Wholesale Division summarized their employment verification requirements. “Amount of income must be shown on the application and supporting documentation but does not need to be evaluated for non-credit qualifying Streamline Refinances. USBHW also reminded their clients that loans destined for the FHA program requires lenders to “verify employment status of all applicants as of the application date and that each employed applicant has income. At least one applicant must either be employed or have non employment income. Regular employment can be documented in one of three ways (paystub and verbal VOE, a signed and dated VOE, or obtain a paystub that is dated on or after the date of application.” And in certifying employment they, and everyone else, require that the borrower is employed and has income at the time of loan application. If the loan is underwritten by a USBHM Underwriting Center, USBHM will execute the certification form, but for loans underwritten by a Direct Endorsed Correspondent the direct endorsed lender “must include a signed and dated certification form, on their Company letterhead, certifying that the borrower is employed and has income at the time of application. The form must be included in the loan package submitted for purchase by USBHM.”

U.S. Bank Home Mortgage also eliminated their FHA 2.0 Margin 1 Year ARM and the 2.75 Margin 1 Year ARM. Apparently they don’t even have any in the pipeline, and all other FHA products will remain as part of their eligible program offering, including the FHA 3/1 ARM.

Daily Humor
Grandpa Chrisman was reminiscing about the good old days several years ago.
“When I were a lad, Momma would send me down to t’corner store wi’ a dollar, and I’d come back wi’ five pounds o’ potatoes, two loaves o’ bread, three pints o’ milk, a pound o’ cheese, a packet o’ tea, an’ ‘alf a dozen eggs. Yer can’t do that now. Too many damn security cameras.”

Rates Down Yesterday On Economic News, Up Today
Rates had a good day yesterday, as volatility continues to increase and Lock Desks get whipsawed. Jobless Claims were moved rates one way, but then Leading Economic Indicators rose .9% in November (more than forecast pushed them another way. Lastly, the Philly Fed survey rose to its highest level since April of 2005! The Fed purchased their now-weekly allotment of $16 billion in agency mortgage-backed securities over the past week, and now stands at $1.087 trillion dollars. If the supply of new mortgages is down, and the Fed continues this pace, the logical conclusion is that they’re buying older production. From a technical trading aspect, traders were pleased that the 3.62% level has “held” for the yield on the 10-yr Treasury note. Speaking of which, in the absence of any economic news today, the 10-yr yield currently stands at 3.47% and mortgage prices are roughly unchanged.

Lender Licensing Requirements
Here in California, the CMBA has been following California’s DOC (Dept. of Corporations) release of a step-by-step outline of the implementation of SB 36 (CA’s implementation of the federal SAFE Act) that includes this ‘pre-requisite for license application’:

“Demonstrate financial responsibility, character and general fitness such as to command the confidence of the community and to warrant a determination that the mortgage loan originator will operate honestly, fairly and efficiently.”

The CMBA feels, with good reason, that this is pretty subjective. They will look at whether the applicant has been a defendant in a criminal or civil case, look at the status of their DRE license (if applicable), any bankruptcies, were they refused any bonds, and yes, run their credit. But at this point they are feeling their way along on this subject, and this is not a pass/fail type of thing – it seems like they will look at all this stuff like a resume and make a judgment based on the whole picture, not just one particular piece of it. Here is the link to the DOC implementation plan.

FHA Appraisal Rules
And while we are talking government loan programs, remember that HUD announced that

“FHA-approved lenders are now prohibited from accepting appraisals prepared by FHA Roster appraisers who are selected, retained or compensated in any manner by a mortgage broker or any member of a lender’s staff who is compensated on a commission basis tied to the successful completion of a loan.”

Unlike the Home Valuation Code of Conduct (HVCC) for conventional loans, FHA does not differentiate between broker and correspondent lenders on the appraiser independence requirement, so everyone (except for DE delegated correspondents) are using appraisal management companies. Darn – I should have listened to my parents because when I was a kid they told me that I should go into the appraisal management business!

Tech Help With Compliance
Given the confusion over compliance issues, I received notes yesterday from a few third party vendors. One producer wrote, “Encompass appears to be one of the best originating software tools that I have seen to give alerts to avoid falling out of compliance.” A few others wrote to tell me that PCLender created a resource document as a matrix that lists 20 known compliance issues, forms affected, and solutions. One picture is worth a thousand words. And I am sure that there are many others.

AmTrust Home Loans Reborn as New York Community Bank
AmTrust Mortgage Banking didn’t take long in working with New York Community Bank in cranking up their production machine. Starting today “AmTrust Mortgage Banking will resume accepting new loan registrations and rate-lock commitments, operating as a service provided by New York Community Bank.” Apparently NYCB is entering the single family finance business.

New York Extends Foreclosure Help
New York just enacted a new law that expands on the governor’s subprime lending reform law enacted last year in an attempt to assist homeowners on the verge of foreclosure and minimize the impacts foreclosures have on communities. It expands the 90-day foreclosure notice currently sent for subprime loans (however one defines those these days) to all home loans. It also requires the lenders who serve the notice to make a regulatory filing with the Banking Department within three days with specified information to allow it and the Division of Housing and Community Renewal (DHCR) to provide assistance to homeowners. The law expands the mandatory settlement conference to include borrowers of all home loans – not just subprime. The law requires that tenants receive written notice of the change in ownership of the property after foreclosure and allows them to stay for 90 days or the remainder of the lease. Under the law, plaintiffs in a foreclosure action who obtain judgment of foreclosure and sale must keep the foreclosed property. The law also prohibits distressed property consulting services from accepting upfront fees.

Fannie Mae New Underwriting Guidelines
When I get really, really bored, and don’t have enough to say in the commentary, I know that I can always just cut and paste Fannie’s new DU 8.0 guidelines, like the latest stand on bankruptcies: “Loan case files where DU identifies a Chapter 13 bankruptcy that was discharged within the last 24 months; dismissed within the last 48 months; or filed but neither discharged nor dismissed within the last 48 months, will receive a Refer with Caution/IV recommendation. Loan case files where DU identifies a non-Chapter 13 bankruptcy that was filed, discharged, or dismissed within the last 48 months will receive a Refer with Caution/IV recommendation. DU is not able to determine if multiple bankruptcy filings have occurred, due to the manner in which bankruptcies are reported in the credit report. As a result, DU will issue a message when it appears that there may have been multiple bankruptcy filings. This message will list each of the bankruptcies seen on the credit report, and will instruct customers to ensure the loan case file meets the criteria for underwriting loan case files with multiple bankruptcies specified in the Selling Guide.” Clear about that?

New VA Loan Limits
Are you up to speed on the VA loan limits? Based on county, they are effective for loans closing on or after 1/1 through 12/31/10. Remember that this is based on the closing date and not the funding date, even if the loan is a refinance transaction with a rescission period. The loan limit for any county not appearing on VA’s high cost county list remains $417,000. You can see for yourself. Many investors will not purchase loans closed after December 31, 2009 that exceeds the 2010 loan limits and/or does not provide the 25% guaranty required by the investor.

Daily Humor
Big John, a cattle rancher in Texas, has a prize winning bull named Alamo. Every year Alamo wins another blue ribbon.
One year a rancher friend named Luke says “Big John, that bull of yours is so special he ought to be bred so you could have more prize winning bulls.”
John thinks this over and decides Luke is right. He consults with his vet, other ranchers, bull breeders, and goes online to find out where the best mate for Alamo might be. Big John determines that the best cow for his bull is in Argentina. He makes arrangements and flies to Argentina, surveys the best breeding cows there, picks one, and has the animal shipped to the ranch in Texas. Then he plans a barbecue to witness the mating of the Argentinean cow with Alamo. He invites Luke and his other ranching friends. The day arrives and all the ranchers have their steaks and beers before gathering for the main event.
Big John lets the new cow out into the pasture near Alamo’s pen and then opens the pen gate. Alamo sees the cow and snorts. The cow is grazing peacefully. Alamo makes his was over to the cow and becomes excited. The cow continues to graze peacefully. Alamo snorts again and tries to mount the cow. The cow sidesteps to the left. Alamo snorts louder, moves toward the cow, and tries to mount her a second time. The cow sidesteps to the right. Alamo snorts louder still, backs up, takes a running start, and attempts to jump on the cow to mate. Sensing the leaping bull, the cow quickly runs off leaving Alamo behind and frustrated. There’s a great murmur from the crowd. The host rancher shakes his head.
Luke shouts to his friend, “Say Big John! Did you get that cow from Argentina?”
“How did you know?” replies the prize bull rancher.
“Shucks,” says Luke. “My wife is from Argentina.”

“Does anyone get the feeling mortgage banking is a ghost ship, to sail the seas endlessly, with a crew of the damned? Didn’t Disney make a movie with that plot, or am I once again in front of the curve?”

“Things are going really well for us. Right now we run a best effort shop and thinking about making a slow transition into hedging. We’ve been hiring on many new brokers and new loan offers so we’re expanding and hiring like crazy!”

“Things in the lending industry continue to be challenging, but isn’t that why we’re still here? ‘Cause we LOVE our jobs: daily rate & guideline changes, irrational clients, irrational realtors, tightening industry standards, increased blood pressure, etc. etc.”

AmTrust Failure Announcement
The AmTrust announcement speaks for itself: “AmTrust Bank was acquired (Friday) by New York Community Bancorp. Due to the nature of this acquisition and the steps required to effect a proper and orderly transition, it is necessary to immediately suspend all registration and rate-lock activity for a period of time in order to permit us to properly address all of the related requirements. We expect to complete this process as quickly as possible. Although we will not be accepting new registrations or rate-locks during the transition period, AmTrust Mortgage Banking will continue to process and fund all rate-locked registrations that are in-process at the time of this notice, in the normal course of business.” AmTrust was, nationwide, in the top 5 for wholesalers buying loans from brokers.

Loan Guideline Roundup
Freddie Mac came out with a bulletin which includes changes to their credit requirements, a confirmation of their 2010 maximum loan limits, and information to assist sellers in delivering new loan-level origination data. Freddie removed their “Relief Refinance Mortgages – Same Servicer” from the list of mortgages that are ineligible for delivery as higher-priced mortgage loans (HPMLs). However, Sellers must ensure the Regulation Z requirements for HPMLs are met, even though these are not typically requirements for this product. Freddie went on to specify rental income requirements for conversions, documentation requirements for verbal verifications of employment (“verbal VOE’s for employed borrowers not more than 10 business days prior to the note date rather than 10 calendar days”), revise requirements for self-employed borrower income, determining net rental income for certain investment properties, and verifying and documenting reserves. And don’t forget those signed 4506-T’s on both the application date and the note date.

SunTrust told clients that they will adhere to the January 1 date for RESPA changes, so that any GFE provided on or after 1/1 should be on the new form, and the new HUD-1 Settlement Statement which has been modified to cross reference line items on the HUD-1 to the same line item on the GFE, and provide a side-by-side comparison by itemizing charges into three groups. SunTrust needs to receive the final HUD-1 on each loan file, or else the seller will find the loan in the “pend’ classification, and reminds clients that they rely “upon the Correspondent client’s representations and warranties that the loans are enforceable in accordance with the terms of the Correspondent Loan Purchase Agreement and comply with all applicable laws. Correspondents are responsible for adhering to all state, federal and/or regulatory lending guidelines, as well as licensing requirements.”

SunTrust updated their “Portfolio Affordable Housing & Key Loan” products, and Franklin American adjusted their FHA product lines.

Market and Economic Data Update
Mortgage rates slid a little higher last week, but few in the business believe that interest rates are the reason that loans are still difficult to do. But last week strong economic & housing data, an improved economic outlook from the Fed, and headline-grabbing unemployment data increased concerns about future inflationary pressures and thus higher rates. The US continues to lose jobs in manufacturing and construction, and add them in the service sector. Temporary employment has risen by 113,000 over the last three months, a good portion of it within the mortgage banking industry. Even though the unemployment rate fell to 10%, things are still grim on the unemployment front. The U-6 measure of unemployment, which is the broadest measure around, is still above 17%. What was missed by the unemployment rate was the pick-up in the duration of unemployment: the median duration of unemployment is over 20 weeks, and a record 38.3% of workers have been unemployed for at least six months.

Wall Street traders saw an increased level of origination selling last week, suggesting that lock desks were busy. Interestingly, and a key reason why I could never be a day trader, the stock market improved dramatically early in the morning, but then lost all of its gains and came back to nearly unchanged for the day. The 10-yr note was down (worse) almost a point, the price of gold fell, the dollar rallied, and crude oil moved higher with the view the economy is recovering more rapidly than what was thought. Suddenly the stock market is concerned that a better economy will lead to higher rates, which will in turn depress the economy. Is that how it works?

After a full week of economic news, this week promises to be light. We do have the sizeable auctions ($74 billion), but in terms of scheduled releases today, tomorrow, and Wednesday we have nothing of substance, Thursday we have the Trade figures and Jobless Claims, and on Friday we have Retail Sales and the Imports/Exports data. With no news, the 10-yr is at 3.46% and mortgage prices are a shade better than Friday afternoon.

Daily Humor
David Letterman’s Top Ten Reasons Why Golf Is Better Than Sex…
#10… A below par performance is considered damn good.
#9… You can stop in the middle and have a cheeseburger and a couple of beers.
#8… It’s much easier to find the sweet spot.
#7… Foursomes are encouraged.
#6… You can still make money doing it as a senior.
#5… Three times a day is possible.
#4… Your partner doesn’t hire a lawyer if you play with someone else.
#3… If you live in Florida, you can do it almost every day.
#2… You don’t have to cuddle with your partner when you’re finished.
And the NUMBER ONE reason why golf is better than sex…
#1… When your equipment gets old you can replace it!

FHA Hits LendAmerica
Besides worrying about capital reserves and RESPA, the FHA has not been idle. The FHA imposed $512,000 in penalties on Lend America for allegedly violating FHA requirements, including failing to document borrowers’ income and creditworthiness, and for submitting false certifications. The move prohibits the company, owned by Ideal Mortgage Bankers, from making new mortgages insured by the Federal Housing Administration or issuing mortgage-backed securities insured by Ginnie Mae. No word yet on a counter action by Lend America, based in Long Island.

AmTrust Bankrupt
The parent company of AmTrust Bank (AmTrust Financial – Cleveland) has filed for bankruptcy, but the filing does not include the bank’s 66 branches in Northeast Ohio, Florida and Arizona. All of AmTrust Bank’s branches are open as normal, the company said. The request for bankruptcy protection, filed in Cleveland, comes less than two weeks after its third-quarter financial report showed its financial strength fell nearly in half in a year when regulators ordered the bank to improve its finances. Instead, the numbers went the other way.

How has our friend the Fed been lately in buying production (old and new)? For the week ending on November 25th, the Federal Reserve’s MBS program was a net buyer of $16 billion agency MBS, which was the same as the previous week. The YTD purchases of agency MBS is now at $1,039 billion.

Dubai Credit Crunch
Overseas, the Dubai situation continues to be watched carefully. Dubai World, it seems, has $59 billion of debt out of $80 billion in total Dubai debt. In a world-wide economic crisis, can a struggling borrower (with no oil) missing their payments be a shock? One trader asked, “Did S&P and the creditors really not see this coming?” The trader went on to liken this situation to the speculative overbuilding/overcapacity in Las Vegas and Phoenix.

Holiday Shopping and MBS Buys
Yesterday it was estimated that originators sold about $2 billion of new production (so if the Fed is buying $3 billion a day…), and mortgage prices are pretty much tracking the 5-yr Treasury note’s price movement. Analysts are pouring over the shopping numbers. At this point it seems that there were 13% more shoppers but each shopper spent 8% less than last year. And online shopping continues to grow – why battle the crowds to buy Uncle Milton’s Ant Farm?

Market/Economy Update
We had a little surprise from the Chicago Purchasing Manager’s Index, announced on Monday, which shot up expectedly to its highest level in over a year. Sales were up and inventories were down, and “New Orders” were at their highest level since May 2007. Today we have three 10AM EST numbers. (Not to be confused with the typically-more-important 8:30AM EST numbers.) We have Construction Spending, the ISM Services survey, and Pending Home Sales. Ahead of those it was quiet overnight, and we find the 10-yr at 3.22% and mortgages roughly unchanged from Monday afternoon.

Lender Guideline Roundup
Last week Bank of America Home Loan correspondent’s channel told patrons that effective the day before Thanksgiving the maximum total price, for Conventional and Government loans, will increase for all loan programs to 105.00 for Best Efforts and Mandatory locks. (If they’re paying 105, originators had better hope that the loan stays on BofA’s books for a while!)

SunTrust reminded clients that “the deadline for loans currently in the pipeline that reflect DU Refi Plus eligibility; but will close as a ‘Standard Limited Cash Out Refinance (Rate/Term)’ transaction must have been locked by November 18, 2009 (instead of November 16, 2009) and delivered to SunTrust BY December 31, 2009. Lock-in extensions and relocks will not be granted.” And loans delivered after December 31 with DU Refi Plus eligibility and processed as a Standard Limited Cash-out Refinance (Rate/Term) transaction, must be submitted to DU exercising the Opt Out Option. Lock-in extensions and relocks will not be granted.

Wells Fargo’s wholesale group announced that their “External Contract Underwriting” will be discontinued on 12/15, and any of these loans in process should be received by Wells by 12/14. (They will continue to allow this type of loan for enhanced warehouse transactions.) They also reminded clients of their maximum DTI ratio requirements (no exceptions please): “For all conventional conforming loans, the DTI cannot exceed: 41.00% for LTVs greater than 80%, or 45.00% for LTVs less than or equal to 80%.” Lastly, in spite of HUD holding off taking the hard line on enforcing the RESPA changes starting 1/1, Wells’ wholesale (and thus their clients) is staying with the effective date.

Flagstar’s clients, and most everyone else, know that during the weekend of December 12, 2009, Fannie Mae will implement Desktop Underwriter (DU) Version 8.0. New requirements will apply to loans on the Fannie Mae High Balance Program, and their eligibility grid, lock deadline and delivery requirements have been updated. “Flag’s” clients should know that Fannie High Balance loans that do not meet the new requirements must be locked on or before 12/11, broker loans must be closed and funded by 2/26, and correspondent loans must be delivered and purchased by 2/26 also.

Daily Humor
They were bound to come…

Tiger Woods is so rich that he owns lots of expensive cars. Now he has a hole in one.
What’s the difference between a car and a golf ball? Tiger can drive a ball 400 yards.
Tiger Woods wasn’t seriously injured in the crash, but he’s still below par.
What were Tiger Woods and his wife doing out at 2.30 in the morning? They went clubbing.
Tiger Woods crashed into a fire hydrant and a tree. He couldn’t decide between a wood and an iron.
Perhaps Tiger should be using a driver?
This is the first time Tiger’s ever failed to drive 300 yards.
After a wayward drive, Tiger Woods found water before nestling behind a tree
Apparently, the only person who can beat Tiger Woods with a golf club is his wife.

Apparently, Tiger admitted this crash was the closest shave he’s ever had. So Gillette has dropped his contract.

Economic Preview For Week
How is the week looking for economic news? Today at 10:00AM EST we have the ISM Services number for June. Thursday we’ll see our friend Jobless Claims. And on Friday we have Import and Export Prices, along with the Trade Balance figures and the preliminary University of Michigan Consumer Sentiment Survey. Currently Treasury securities and mortgage prices are worse by about .125 in price from Thursday afternoon’s levels (the 10-yr yield is around 3.54%).

Treasury Auctions Dictate Rate Movement
But of greater importance, since data is limited, are the Treasury auctions, which begin tomorrow. (We also have an $8B 10-year TIPS auction.) Tomorrow is a $35 billion 3-year note auction, Wednesday’s $19B 10-year note auction, and Thursday’s $11B 30-year bond auction. Don’t look for much change in mortgage rates until or unless there is more substantial news about the economic outlook.

Flagstar Appraisal Rules
Flagstar, who had already come out with information about the HVCC approval process, reduced their net worth requirement for HVCC approval from $1,000,000 to $500,000. A few of the requirements needed to be approved include a net worth equal to or greater than $500,000, a signed HVCC correspondent addendum which reps and warrants that the appraisal conduct conforms to HVCC guidelines, and org chart identifying the employee responsible for ordering the appraisal, and a copy of the company’s written HVCC compliance procedures including the appraisal.

For condominiums, Flagstar requires an HO-6 insurance policy equal to at least 20% of the appraised value for all condominiums. If you want to originate condo loans and sell them to Flagstar, when dealing with an HO-6 policy, coverage is required for all condominiums to close, the coverage amount on the HO6 must be AT LEAST 20% of the total appraised value, customers should not include the HO-6 insurance into their escrow analysis, the HO6 must include wind and hurricane coverage if the property is located in a hurricane prone area, the Certificate of building coverage under the master for the association must be collected, and the mortgagee clause should reflect their published address for insurance docs.

Which Lenders Are Doing Condo Mortgages
So which investors are buying loans on condominiums? Well, just about everyone. That being said, practically everyone is buying them only when they meet Freddie/Fannie guidelines.

Flagstar, mentioned above, is going with the Fannie/Freddie guidelines.

Taylor Bean is basically following the Freddie/Fannie condo guidelines, and in fact have them posted on their website although they have eliminated the reciprocal approval portion of the guideline. “Currently, it does not matter if you have a Fannie Mae or HUD approval for a project; the lender must either send the docs listed on the Lender Certification to TBW’s Project Approval Department or review the docs and approve the project themselves as a delegated lender. All correspondents are delegated to approve condo projects.” TBW has always followed the Freddie Mac limits on percentage complete, owner-occ vs. investment, etc.

AmTrust, who may be updating their guides this week, but they pretty much follow Fannie guidelines.

Franklin American does the same, and follows agency guidelines for percentage completion.

Bank of America Home Loans follows Fannie Mae guidelines. “We require 100% completion on established projects and on new projects we require that the subject property’s legal phase be substantially complete.” With BofA there is no difference in LTVs for condos vs. SFRs.

CitiMortgage pulls their guidelines directly from FNMA’s for both completion percentage and LTV/CLTV eligibility for Limited Review. Florida condos carry the restriction of 75%/75%-Primary, 70%/70%-Second home, and Investment properties are not permitted.

Chase follows Fannie and Freddie condo guidelines, along with having some Chase-specific condo options, which pretty much mirror the agencies.

Wells Fargo, who in the first quarter had nearly a quarter of the mortgage origination market, also follows agency guidelines, with a few additions. For example, if more than 15% of units are more than 30 days delinquent, the project is ineligible, Fidelity bond coverage is required on all projects more than 20 units, commercial or non-residential space may not exceed 20% of the total square footage, at least 70% of units in the project or subject phase must be sold, including closed sales and units under contract with bona fide purchasers, etc.

Fannie/Freddie Condo Requirementsw
What are agency guidelines? “The project, or the subject legal phase, must be “substantially complete.” This means that a certificate of occupancy (or other substantially similar document) has been issued by the applicable governmental agency for the project or subject phase and that all the units in the building in which the unit securing the mortgage is located are complete, subject to the installation of “buyer selection items” such as appliances. At least 70% of the total units in the project or subject legal phase must have been conveyed or be under a bona fide contract for purchase to owner-occupant principal residence or second home purchasers. For a specific legal phase (or phases) in a new project, at least 70% of the total units in the subject legal phase(s), considered together with all prior legal phases, must have been conveyed (or be under contract to be sold) to owner occupant principal residence or second home purchasers. For the purposes of this review process, a project consisting of one building cannot have more than one legal phase.”

Flagstar, who defines a “short refinance” as refinance transactions in which the current mortgage holder will accept less than the outstanding balance to settle the mortgage, consider these to be restructured loans by the agencies and effective immediately short refinances not eligible for delivery to Flagstar Bank under any conventional programs. Short refinances are eligible for FHA rate and term refinances. Flagstar goes on to say that “When a borrower is purchasing a home, ownership of the property must be verified. Property ownership from the sales agreement, AVM, appraisal and title commitment should all match. Any discrepancies must be addressed. A sales trend has emerged in which sale transactions are being submitted with concurrent sales occurring at closing (flipping). Homes are purchased/acquired at a reduced price. That purchaser then attempts to sell the property to a potential applicant without closing on the transaction prior. These transactions are not eligible. All sales and property transfers must be disclosed.

Saturdays Are Disclosure Day Under New Regs
When I was a kid, Saturday’s were for watching cartoons like Scoobie Doo or The Archies. Under the Housing and Economic Recovery Act of 2008 (HERA) Mortgage Disclosure Improvement Act, Saturdays are now considered a business day for purposes of disclosure receipt. Business days will include all calendar days except Sunday and legal federal public holidays.

No More California Tax Credits
Here in California, the California Franchise Tax Board has turned off the $10,000 California New Construction Tax Credit after they reached the $100,000,000 maximum investment, as well as their maximum application status of 10,000. “The CA Franchise Tax Board did continue to accept additional applications – up to 12,000 total – to allow for duplications in faxes or for any home buyers that were not authorized for the tax credits, and to allow for any expected rejections. Both limits have been reached and applications for the California New Construction Tax Credit will no longer be accepted.” The state began accepting applications in March.

Daily Humor
A friend’s maid asked for a pay increase. His wife was very upset about this and decided to talk to her about the raise. She asked, “Now Maria, why do you want a pay increase?”

Maria: “Well, Señora, there are three reasons why I want an increase. The first is that I iron better than you.”

Wife: “Who said you iron better than me?”

Maria: “Your husband said so.”

Wife: “Oh.”

Maria: “The second reason is that I am a better cook than you.”

Wife: “Nonsense, who said you were a better cook than me?”

Maria: “Your husband did.”

Wife: “Oh.”

Maria: “My third reason is that I am a better lover than you.”

Wife: (really furious now): “Did my husband say that as well?”

Maria: “No Señora…the gardener did.”

Wife: “So how much do you want?”

Mortgage Lender News Roundup
OK, here we go. Alphabetically:

AmTrust reminded their customers that “the Fannie Mae Refi Plus program will allow both conforming and High-Balance loans up to a 105% LTV for all occupancy and property types. Fannie Mae Refi Plus loans with an LTV greater than 80% LTV will continue to only be eligible with the ‘No Mortgage Insurance’ option. This is for loans where the original LTV on the existing Fannie Mae mortgage is identified by Gemstone AU to be less than or equal to 80% LTV but the new loan LTV is greater than 80%. All existing subordinate financing must be resubordinated in order to be eligible for Fannie Mae Refi Plus. No new subordinate financing is permitted.”

AmTrust also let their customers know that they are on guard for fraud and property ponzi schemes in all states. “In an effort to protect AmTrust Bank as well as our Clients from financial loss, we have implemented the following process: Effective on 05.03.09, all loans without an Underwriting Approval involving the purchase of a newly-constructed home must be sent to AmTrust Hi-Speed for underwriting. AmTrust will place a QC Hold on certain purchase transaction loans. Accurate Seller and Appraisal data must be entered in Gemstone to ensure quick removal of QC Holds.”

Citi came out with their DU REFI PLUS plan up to 105% LTV. “DU Refi Plus is now available for loans up to 105% LTV which do not require mortgage insurance per the DU findings. Originally announced as an 80% LTV limit in Bulletin 09-11 dated April 27, 2009, our DU Refi Plus program now aligns with Fannie Mae Announcement 09-04 in order to provide more options to customers. Maximum LTV is 105%, CitiMortgage is not required to be the current servicer since loans with MI are not eligible, must be underwritten by Desktop Underwriter (DU) resulting in an Approve/Eligible or Approve/Ineligible, Expanded Approval loans are not eligible, maximum Loan Amount: Agency Conforming and Agency Jumbo; availability determined by DU.

Citi also stated that, “The use of a written VOE (Verification of Employment) as the only documentation used to verify income and employment is no longer permitted, regardless of AUS finding. A pay stub showing YTD earnings or a W2 is required. A verbal VOE must be still performed prior to the loan closing. On May 7th Citi “In addition to gift funds being permitted with a purchase, gifts are also permitted in connection with a refinance of a primary residence or a second home. Gift funds are not permitted on investment property transactions.” And on May 8th, Citi “To comply with Fannie Mae requirements for loans receiving a DU Refi Plus eligibility finding, effective with registrations on and after 5/8/09, all loans receiving the DU Refi Plus finding must be registered using a DU Refi Plus program code. Also, loans re-submitted to DU on or after 4/4/09 that receive a DU Refi Plus finding, must be registered as a DU Refi Plus loan.”

Effective Friday, “Each correspondent that sells Loans to CitiMortgage must ensure that its origination appraisal practices are in compliance with the HVCC and represents and warrants to CitiMortgage that any appraisal and all appraisal practices used in originating a Loan to be sold to CitiMortgage: (i) conform to the requirements of Fannie Mae and Freddie Mac and (ii) comply with Home Valuation Code of Conduct issued by the Federal Housing Finance Agency. Effective with loan applications taken on and after May 1, 2009, where the appraisal is not in the name of the correspondent but in the name of a third party lender, the HVCC Compliance Certification form (Exhibit 23) must be completed and submitted in the final loan file.”

Fannie Mae came out with the details on their new mortgage loan data requirements. ”Fannie Mae has issued Announcement 09-11: Mortgage Loan Data Requirements. To comply with Federal Housing Finance Agency (FHFA) requirements, Fannie Mae will now be requiring loan origination identifiers and appraiser data elements for mortgage loan applications dated on or after January 1, 2010. This Announcement provides detail on the following: The Secure and Fair Enforcement Mortgage Licensing Act (S.A.F.E. Act) requires all states to implement a system to license and register mortgage loan originators. The Nationwide Mortgage Licensing System and Registry (NMLS) has been developed to implement the S.A.F.E Act. The NMLS will issue unique identifiers for loan originators and loan origination companies. Updates to the 2000-Character Loan Delivery Files – To support the requirements referenced above, Fannie Mae has updated our 2000-Character File Format and 2000-Character File Format Field Definitions documents with fields for the loan originator’s unique identifier, loan company’s unique identifier, appraiser’s state license number, and supervisory appraiser’s state license number. Updates to the Uniform Residential Loan Application (Form 1003) – Form 1003 will be updated shortly to capture the identification for both the loan originator and the loan originator company. We are working with Freddie Mac on changes to this joint Fannie Mae / Freddie Mac form, and additional information will be forthcoming. Form 1003 already includes fields for the capture of the other required identifiers.”

GMAC correspondents were told that GMAC “will now accept the temporary increase in conforming loan limits for high-cost areas authorized by the American Recovery and Reinvestment Act (ARRA). Specifically, the ARRA permits loans originated in 2009 to use the higher of the current permanent high-cost loan limits, or the temporary loan limits in place for loans originated in 2008 that were applicable to jumbo-conforming mortgage loans (high balance conforming products). Fannie Mae is extending eligibility under the high-balance loan feature to encompass these temporary limits.” GMAC differentiates between “general” loan limits ($417,000), “Permanent High-Cost HERA” limits ($625,500) and “Temporary High-Cost” ARRA limits ($729,750).

Wells Fargo’s correspondent group “continues to require written acknowledgment, signed by the borrower, which they either received all appraisal reports at least three business days prior to close, or they have waived their right to receive such reports within the time frame set out in the Home Valuation Code of Conduct (HVCC or Code). This policy remains in effect for loan applications taken on and after May 1, 2009. However, the following amends HVCC related requirements announced in our April 20, 2009 Newsflash: Due to the lack of an industry-standard approach specific to Section II of the Code – Borrower Receipt of Appraisal, Wells Fargo will accept Seller-prepared documentation of borrower’s receipt, when signed by the borrower(s). Wells Fargo recognizes that Sellers need additional time to implement processes specific to evidencing borrower receipt of the appraisal. As a result, Wells Fargo Funding will not suspend for the borrower written acknowledgment until June 1, 2009.”

Appraisal Update
As I mentioned last week, lenders are adjusting to the HVCC. Most agree that the purpose of HVCC is fine – honest agents and brokers don’t want fake appraisals. The borrower will receive a copy of the appraisal from the appraiser, as does the lender who can deal with correcting any errors in the report. Borrowers are paying up-front for appraisals, and brokers will not be able to move locks as easily as they did in the past although many retail agents can. Tangential companies have sprung up to help originators, such as the one I mentioned last week (ServiceLink) or Dart Appraisal.

Daily Humor
A drunk staggers into a Catholic Church, enters a confessional booth, sits down, but says nothing. The Priest coughs a few times to get his attention, but the drunk continues to sit there.

Finally, the Priest pounds three times on the wall.

The drunk mumbles, “Ain’t no use knockin’, there’s no paper on this side either.”

Conforming To $729k?
What is the word on when the conventional $729,250 will be rolled out? Hah! Call me “out of the loop”, but I have none. There are reports that big banks’ retail operations are already advertising the new limits, but I have seen no information from any other business channels and the reps are probably tired of answering the question with, “When Fannie and Freddie let us know.” As is becoming standard, the big banks are (and many would argue wisely) supporting their own branch network. For example, as recently as 5-6 years ago, Chase had only 500 branches where they might be able to originate some get retail loans. Now, they have over 5,000 branches – do they and other large banks need a huge broker base to help them with their mortgage volume?

Fourth Largest Lending Year On Record
The good news is that the Mortgage Bankers Association boosted its forecast for 2009 home-loan originations to $2.8 trillion due to low rates and a wave of refinancing. They estimate refinancing will total almost $2 trillion this year and purchase originations will increase to $821 billion, which would put 2009 originations in the top 4 years of all-time. The bad news, if you could call it that, is that the costs to the borrower are higher than ever – especially if they want to buy down the rate. Mortgage origination fees are the costliest in eight years, and the positive spread that banks are earning (i.e., the difference between their cost of funds – what they pay depositors – and where they are loaning it out at) is huge. Most mortgage companies are already collecting the Fannie & Freddie “adverse market fee” that they will charge officially beginning April 1. Not only are originators collecting added fee income to their bottom lines, but also increased spread income (unless, in the case of mortgage banks, their warehouse banks are charging high rates).

As an example, commercial and retail banks are looking at overnight Fed Funds near 0%, but conforming mortgage rates are near 5% this quarter. And as I mentioned last week, the average spread between fixed mortgage rates and the 10-year T-note is 2.3%, the highest it has been in over 20 years.

Commercial Loan Troubles
We have seen the residential problems – is commercial next? Banks are reporting increased loan delinquencies from owners of office buildings, casinos, and shopping malls. The country’s 10 biggest banks have $327.6 billion in commercial mortgages, and Wells Fargo and Bank of America account for about half of commercial mortgages owned by these 10. According to a study from research firm Reis Inc., commercial property prices are down almost 20% in the past year. Bank of Hawaii Corp., City National Corp., Comerica Inc. and Sovereign Bancorp Inc. were among the companies put on Moody’s list of lenders with a “negative outlook” last week, partly because of their “risk concentrations” in the commercial market.

Durable Goods, New Home Sales
Well, rates improved for a bit yesterday, but then worsened slightly as the day wore on. Can you believe that the 10-yr yield is 25 basis points higher than last week’s lows? Today we have already seen Durable Goods (estimated to be -2.5%, they were +3.4% in February, the biggest increase since December 2007, although January was revised to -7.3% from -4.5%), and later on we’ll have New Home Sales (estimated to be down 3%). Perhaps most importantly, we have a $34 billion 5-yr note auction to get through. The Mortgage Bankers Association released their weekly application figures: last week mortgage applications were +32%! Currently the 10-yr is back up into the mid-2.7% range, and mortgage prices are worse by another .125 versus Tuesday afternoon.

Daily Humor
Hospital regulations require a wheel chair for patients being discharged. However, while working as a student nurse, I found one elderly gentleman already dressed. He was sitting on the bed with a suitcase at his feet, and he insisted he didn’t need my help to leave the hospital.

After a chat about rules being rules, he reluctantly let me wheel him to the elevator.

On the way down I asked him if his wife was meeting him.

“I don’t know,” he said. “She’s still upstairs in the bathroom changing out of her hospital gown.”

All CA Lenders Must Have License # On Card
If you’re located in California, be prepared to order new business cards for everyone. Starting on July 1st of this year, all originators in CA have to start displaying their D.R.E. license number on letterheads and business cards.

More Warehouse News
With Nat City exiting, smaller mortgage banks are once again reviewing their warehouse facilities. Woe to anyone who was not doing this months ago, as they have had fundings held up or canceled. Warehouse relation managers are searching their rolodexes for warehouse contacts at companies like GMAC, Comerica, Viewpoint, Colonial, Countrywide, and small regional institutions such as Gateway here in the Bay Area. Certainly buying a bank would help a funding issue, but buying a bank typically takes upwards of a year or more, and many mortgage banks find that they don’t have the capital, the time, or the discipline to go through the process.

Bank Roundup
Barclays shares are up 15% this morning on news that may sell its iShares unit, which operates the popular exchange-traded funds. In addition, PMI lost less money last quarter than they were expected to lose – I think that is good news. On the flip side, Flagstar’s headquarters were rumored to have laid off Ops staff, given signs on the horizon of slower volumes ahead. OK, I am no great sage, but I am hearing some positive signs across a number of environments. Basically, the thinking goes like, “Hmmm, real estate values are down, not only do I still have my job but I have some cash sitting around, and rates are very low – and may not go lower. So maybe I will stop renting and buy a place (or pick up that non-owner occupied property, or that vacation home), or at least see what is out there.” The market will tell you that at some price, there is a buyer for everything.

Consumer Sentiment
Just Friday we saw the Michigan Consumer Sentiment Index rise slightly from February’s level to March. An analysis of the components showed that pessimism isn’t getting worse and perhaps hinting that pessimism may now be receding. Tell that to the folks at Freddie Mac, who reported a loss of $23.9 billion for the fourth quarter and is asking the Treasury for an additional $31 billion. The Wall Street Journal reported that “For all of 2008, Freddie reported a loss of $50.1 billion, compared with a year-earlier loss of $3.1 billion. The losses over the past two years exceed the total of about $42 billion earned by Freddie from 1971 through 2006.

Freddie Loan Mods Don’t Let Consumers Shop
And while we’re on Freddie, the Journal article also reports that their new refinancing program doesn’t allow borrowers to shop around for the lowest fees. “Brad German, a spokesman for the government-backed provider of funding for mortgages, said any borrower with a Freddie-backed loan who wants to refinance under the program needs to do so through the company that services his current loan. Borrowers with Fannie-backed loans will be able to seek refinancings under the program from more than 30,000 lenders nationwide. While Fannie is letting borrowers shop around, those deemed a higher risk are hit with fees that can total 3% or more of the loan balance, the WSJ reported. Freddie’s maximum fee on these refinancings is 0.25%.

AmTrust Will Tier Broker Relationships
AmTrust is reportedly moving towards a true 1,2,3 tier system in April. Tier 1 clients (those with the best pull through – 75% – and quality) may be eligible to see high balance loans at a .50 through rate sheet, faster turnaround & preferential treatment. Brokers who sell to AmTrust with poor pull through will be cut off entirely.

Rates Worse After Rally Last Week
This morning, bright and early, we find the 10-yr back up to 2.98% and mortgage prices worse by .125-.250. How does the week look for economic news? Today we have Empire Manufacturing, Industrial Production, and Capacity Utilization. Tomorrow we’ll see Housing Starts and Building Permits, but more importantly the Producer Price Index. On the 18th we have the Consumer Price Index for February. On Thursday Jobless Claims, Leading Economic Indicators, and the “Philly Fed”. Oh, and yes, we do have a Federal Open Market Committee meeting this week, which adjourns on Wednesday with a rate decision for overnight rates at 11:15AM PST. Don’t bet on any increase from the 0% target, but the Fed may announce other measures to stimulate the economy.

Daily Humor
Two Irishmen were sitting in a pub having beer and watching the brothel across the street. They saw a Baptist minister walk into the brothel, and one of them said, “Aye, ’tis a shame to see a man of the cloth goin’ bad.”

Then they saw a Rabbi enter the brothel, and the other Irishman said, “Aye, ’tis a shame to see that the Jews are falling’ victim to temptation.”

Then they saw a Catholic priest enter the brothel, and one of the Irishmen said, “What a terrible pity… one of the girls must be quite ill.”
_________

Murphy was staggering home with a pint of booze in his back pocket when he slipped and fell heavily.

Struggling to his feet, he felt something wet running down his leg.

“Please Lord,” he implored, “let it be blood!!”

Market Cliche Storm
I was standing in the unemployment line earlier this week, and overheard one guy tell his friend, “I need to stay in front of the curve right now, and figure out where the puck is going, not where’s its been. Heck, if I get hit by a bus….we don’t even know what we don’t know yet.” Obvious mortgage banker.

Property Value Too Low To Even Tax!
Here’s a true story. I inherited some acreage in Coalinga, California (near Fresno). As I was mailing off my property tax bills earlier this week, I noticed that I did not have the tax bill for the Coalinga property. I called the Fresno County Assessor’s office to see if I had misplaced it, and they replied, “A tax bill was never even sent. The value of the land was too low to even mail a tax bill this year!”

AmTrust Discontinues Condo Lending In Florida
85-year old Joe was just getting a haircut when the barber asked, “Tell me Joe, what you think about condos?” “I don’t know”, said Joe, “I never used them”. Amtrust just announced they will no longer lend on condos in Florida, effective Friday. This follows others lenders, such as Chase and Everbank who are restricting their lending there, along with the consortium of mortgage insurance companies that no longer insure condo’s in Florida. Wells Fargo, for example, for new construction and new conversion condominium projects in Florida, will require a full project approval. For them, the following are eligible review options: FHA Project Approval per the terms of Freddie Mac and Fannie Mae published parameters, Fannie Mae Project Approval (FNMA 1028), Fannie Mae Condo Project Manager (CPM) Approval. Wells Fargo Funding will no longer accept the Homeowners Association Certificate Review (Form 25) as an eligible review option.

Wells Fargo Coins New City Term: Micropolitan
While we’re on Wells Fargo, thanks to their announcement to correspondent lenders, I learned a new word yesterday: micropolitan. “In response to our ongoing mortgage market assessments, the Market Classification List is being updated as of December 15th. ‘Micropolitan Statistical Areas (smaller communities) and rural counties will now be considered when identifying counties for the Wells Fargo Market Classification List. As a result of this change you will notice an increase in the number of counties identified in Market Classification 2, 3 or 4. This change does not impact Market Classification Policy – this is only a change of counties and areas listed on the Market Classification List.’”

New Chase Guidelines
Chase unleashed a set of changes which take affect tomorrow. These include Chase eliminating > 30 year term on Freddie Mac Fixed Rate products, eliminating LP Accept Plus documentation level, eliminating DU verbal VOE, limiting Maximum DTI on Agency products with LTVs > 80% to the more restrictive of 55% or AUS findings, revising LTVs and CLTVs on Agency Fixed and ARM (Amortizing and Interest Only) products, revising LTVs and CLTVs on Non-Agency Interest Only, temporarily Suspending Co-ops on Agency Interest Only products, and revising appraisal policy on Construction to Permanent loans to require the effective date of the appraisal be dated no more than 120 days before the effective date of the permanent financing.

Jobless Claims at 26-Year High
We did have some potentially market moving news out this morning. The number of U.S. workers filing new claims for jobless benefits hit a 26-year high, with Jobless Claims +58,000 to 573,000. That was the highest print since November 1982, when 612,000 workers submitted new claims for unemployment benefits. The four-week moving average of new jobless claims rose to 540,500 from 526,250 the prior week, the highest since Dec. 18, 1982 when a reading of 554,500 was recorded. Also, the U.S. trade deficit widened unexpectedly by 1.1% to $57.2 billion in October as imports from China rose to a new record and oil imports rebounded as prices fell by a record amount. After the news the 10-yr seems content at 2.65%, and mortgages are roughly unchanged.

Pre-Fed Meeting Primer
The FOMC meets next week. So what, you ask? They are expected to make another overnight rate cut. Keep in mind that the Fed’s mandate is to promote “maximum employment, stable prices, and moderate long-term interest rates”. Easy as pie. Its primary tool to do this is the use of “open market operations”, which are the purchases or sales of Treasury and agency securities in the open market. Open market operations alter the size of the Fed’s balance sheet, since it can make purchases with its own IOUs, rather than by selling other assets or borrowing funds from some other institution.

From a bank’s point of view, suddenly the Fed owes them, and it increases their assets. The Fed’s purchase of Treasury securities increases the supply of reserves in the banking system. Normally a bank will use at least some of the reserves to make new loans, crediting the loan recipient’s deposit account in the process. Recently, however, the Fed has increased reserves and the monetary base dramatically, but broader measures of the money stock have moved much less due to banks (and companies & individuals) being cautious.

Most think of the FOMC changing the overnight Fed Funds rate: an increased supply of reserves in the system will tend to decrease short-term interest rates via its effect on the federal funds rate. Fed Funds is the rate at which banks lend balances held at the Fed to one another as one bank, finding itself short of required reserves (due to withdrawals) borrows from another that has too many. Interestingly, direct bank-to-bank lending occurs at a higher rate, with the most common reference rate being the London Interbank Offered Rate (LIBOR).

Daily Humor
Just lock your dog and your spouse in the trunk of the car for an hour.

When you open the trunk, which one is really happy to see you?

Seek prior approval from the OTS before incurring, issuing, renewing or rolling over any debt, increasing any lines of credit or guaranteeing the debt of any entity. The parent company cannot pay dividends or repurchase or redeem stock without the regulator’s consent. AmTrust Financial also is ordered to enact a plan to boost AmTrust Bank’s capital ratios to at least 7% of Tier 1 capital and 12% of total risk-based capital by no later than Dec. 31. In addition, the bank cannot make any new loans or issue lines of credit for land acquisition or development or for speculative residential construction. The bank also is barred from granting any new reduced- or no-documentation mortgage loans.

Chase Getting Tougher on Purchasing Loans From Mortgage Banks
In a move that either has been or will be followed by other investors, Chase proclaimed that they will be implementing a prepurchase review for loans they purchase from mortgage banks:

“As an industry, we are faced with an evolving credit profile, declining property values, and concerns about fraud and misrepresentation. To ensure that you are originating and we are purchasing loans that will protect us and our borrowers in years to come, Chase has implemented a prepurchase review for selected correspondent loan files. This review will include: Credit risk assessment, validation of the credit documentation to ensure it meets the AU findings requirements and/or Chase Credit Policy for manually underwritten loans, appraisal analysis, and the use of various quality assurance tools.”

If a loan is selected for a prepurchase review, it does not relieve the Correspondent (meaning mortgage bank that originates the loan) from any obligations relating to the loan, including but not limited to origination, underwriting, or closing the loan or from any of Correspondent’s representations, warranties, or covenants or repurchase or indemnification obligations contained in the Chase Correspondent Lending Guide, the Origination and Sales Agreement or elsewhere.

A 1-Day Refi Boom Or The Real Thing?
Lock desks across the nation bore the brunt of a feeding frenzy yesterday after the Federal Reserve and Treasury took more action to help the frozen markets. Locks shot through the roof, if systems were automated. If not, some desks were too busy dealing with renegotiations! Was this another 2 hour refi period? Most think not. The Fed instituted direct purchases of $100 billion of Fannie/Freddie obligations, and plans to buy another $500 billion of mortgage backed securities. The Fed set up a Term Asset-Backed Securities Loan Facility (TALF) with the help of $20 billion from the Treasury, and will purchase up to $200 billion in commercial paper backed by consumer loans. The Fed’s actions are a big step, but they have made big steps in the past. The fact that they will now buy mortgage-backed securities is huge, and is a direct help to housing, one of the main areas of economic weakness. These programs are a way for the Fed to further expand the total amount of reserves outstanding while directing the new money toward areas where it is needed.

As everyone saw, mortgage rates dropped dramatically, although they have worsened this morning. 30-yr fixed rate mortgages dropped from the low 6’s into the mid 5’s, which may help borrowers overcome some of the tight underwriting guidelines that don’t seem to be going away any time soon. Speaking of which, Freddie clarified some DTI and FICO information. Freddie has established a maximum debt-to-income ratio of 45% for all manually underwritten mortgages, but not for all mortgages. Most mortgages that are sold to Freddie will have a minimum indicator score of 620, except for Loan Prospector A- mortgages, and a few other isolated programs.

Government To Pay Lenders For Loan Modifications
FHFA, the regulator of Fannie Mae and Freddie Mac, requested that over 40 servicers and trustees of private-label mortgage securities adopt their streamlined loan modification program. The specific instructions come out on December 15th, but the program’s goal is to identify and then help seriously delinquent borrowers avoid preventable foreclosures. Servicers will receive an $800 payment for each modification.

Citing A Source
Yesterday I had a paragraph on Fannie & Freddie that began,

“Recently, Freddie & Fannie have been caught up in the debate over how the companies will be reshaped and even whether they will continue to exist, which has made many investors wary of buying their bonds.”

Credit should be given to Bob Hagerty of the WSJ for this information.

Economic News Roundup
So what’s happening in the economy? GDP was -.5% in the 3rd quarter, Consumer Confidence moved up from 38.8 in October to 44.9 in November, and the Case Shiller Home Price Index for 20 U.S. Cities Declined 17.4% in September from a year earlier. But the big news yesterday was the Fed’s announcement mentioned above. This morning we’ve seen that MBA mortgage applications are out with a 1.5% increase last week. Purchases were +5.3% and refinances were -2.1%. Durable Goods orders (items lasting 3 or more years) plummeted in October by 6.2%, double what was expected, and was the largest drop since October of 2006. Jobless Claims fell by 14,000 last week to 529,000 in the week ended Nov. 22 from an upwardly revised 543,000 the previous week. And consumers cut spending during October by 1.0%, the steepest rate in more than seven years. Given that consumer spending accounts for two-thirds of economic activity in the US, this is significant.

Later we will see the Chicago Purchasing Managers survey, the University of Michigan Consumer Confidence number, and the New Home Sales numbers. We still have an early bond market close, and many companies are closing early for the holiday. The bond markets are open on Friday, but many originators are closed unless they’re trying to get in some last minute November fundings. Wouldn’t you know that rates have moved higher this morning, with many mortgage prices about .5-.75 worse than yesterday afternoon’s, while the 10-yr sits at 3.08%.

More Turkey Humor
A lady was picking through the frozen turkeys at the grocery store, but couldn’t find one that would be big enough for her family reunion.
She asked a stock boy, “Do these turkeys get any bigger?”
The stock boy replied, “No ma’am, they’re dead.”