Fixed-income markets were helped by the NY Fed President stating that the central bank’s bond purchases won’t cause an inflation problem (prompting one critic to write, “Pay no attention to that man behind the curtain!”). The technical 3% level held for the 10-yr, and 4% MBS were better between .375 and .50 during “choppy” trading. MBS yields, which are often quoted as a spread off of Treasury yields, closed Monday at very wide levels (a high difference between mortgage & Treasury yields) but then yesterday the spread narrowed as money managers, insurance companies, and hedge funds came in buying and mortgage companies’ selling was down to $2.3 billion.

Wake Up Call To Loan Agents
U.S. mortgage applications were down 14% last week, 2010′s biggest drop. Refinances were down 17%, and purchases were down 5%. Refinancing accounted for about 80% of applications. So the rate spike that began last week and these stats should be a wake up call to lenders who have no purchase business sources.

Foreclosure Crisis Primer
For those confused by the foreclosure crisis, American Banker’s Kate Berry offers this tidy explanation:

“New Century, the originator, funds some loans and sells the servicing rights on them to GMAC, but the loans are bundled into a security sponsored by Lehman, which acts as the interim servicer. (Lehman also is moving the debt around its balance sheet or transferring it to BNC Mortgage). Another firm is appointed the trustee. Lehman is packaging the loans and because it is a broker, has traders sell the pool to investors. New Century’s post-closing department is supposed to send the documents to their collateral custodian, Bankers Trust. (The note is the collateral, the trading instrument.) Bankers Trust is supposed to review the documents for completeness and then approve the collateral package. They literally put the loan package into a manila file that is stored in a fireproof vault. The loan has been sold into an MBS pool and the collateral package is supposed to be reviewed by a custodial agent (which is likely another department at Bankers Trust). In the best-case scenario, the trustee reviews or certifies the files.”

Fed’s Consumer Guide To Credit Reports
The Federal Reserve has a new bulletin explaining credit reports, and scores, to the masses. It is worth a skim to either learn something new about credit reports, or see what borrowers tend to see. The Consumer’s Guide to Credit Reports and Credit Scores describes the content of a credit report, explains how a credit score is used, and discusses the role of credit bureaus in collecting and disseminating this information.

Fannie Mae CFO Stepping Down
If you’re looking for a cake-walk of a job, Fannie Mae is looking for a new CFO. David M. Johnson is leaving at the end of the year after a couple years on the job. If you’re interested, call Michael Williams, the CEO. Also in the job front, American Home Mortgage Servicing (#15 with $83 billion) has a new president and CEO – David Applegate. He came from GMAC Mortgage, GMAC Bank, and Radian.

State of FHA
All the critics who were spelling out the dire straits that HUD and the FHA insurance fund were in, and predicting “the end is near”, appear to have been… wrong. Or, at least, let’s hope so. Here’s the FHA’s financial update for Congress. For the nine months leading up to June 2010, FHA loans were used to close 38% of all home purchase mortgages, including 60% of all African-American and Hispanic home purchases. Refi’s were at 9%. These recently originated loans actually boosted the FHA’s capital resources by $1.5 billion since last year to $33.3 billion, their highest level ever. Loans prior to 2009 continue to be a problem, with most of the blame being pointed at the seller-assisted down payment loans along with lower allowed credit scores.

Foreign MBS Holdings Down $17b
Looking at a very big picture, overseas holdings of Agency MBS’s is down by $17 billion. Treasury International Capital (TIC) shows that Agency MBS holdings went down by $17 billion (net of paydowns) in September, and that overseas’ holdings of Agency debt decreased by $8 billion. China sold $26 billion of Agency securities (Agency MBS + debt). But Treasury holdings in overseas accounts continued to climb, and were up by $71 billion in September.

Commercial Real Estate Update
Residential real estate is showing signs of life, and certainly many mortgage companies are busy. On the commercial side, analysts are noting something similar. One report reads, “Demand for commercial real estate continues to show surprising resiliency in the face of this sluggish economic recovery. The operating fundamentals for all major property types are either improving or showing signs of stabilizing. Leasing has picked up, rents are rising or stabilizing and sales have increased. Demand for high quality properties in choice locations remains exceptionally strong, which has helped pull prices higher for non-distressed deals. There are still plenty of troubled projects that need to be disposed of, however, and prices for distressed projects are likely to fall further once lenders become committed to cleansing their portfolios.”

Wall Street trading operations were already assuming this would happen. Bank of America’s traders sent out a note last week saying, “We believe the MBS market will successfully muddle though the current foreclosure problem and that lenders’ right to foreclose on delinquent borrowers will be sustained.” Barclays notes, “Of all the issues, robo-signing seems the most likely to be a procedural matter, but only if all documents are in order. The bigger problem could be if the issues in question are judged to be more than simply technical. For example, if a mortgage note was incorrectly transferred to a trust or never transferred at all, this may be a much deeper problem, making it unclear who can foreclose on the property. Most of the issues with improper documentation should have legal solutions, since the trust has an economic claim on the debt and it is unlikely that a borrower will be able to walk free of a lien simply because of some procedural sloppiness on the part of the lender/sponsor. However, fixing the procedures and establishing standing in these cases could take a long time” – 3-6 months. Today’s announcement of the foreclosure resumption is a good step, but property law dating back to the 12th Century mixing with electronic property processing and trading is difficult to reconcile.

Builders More Confident, Housing Starts Up 3rd Straight Month
For economic news yesterday we learned that Industrial Production unexpectedly fell 0.2% in October, the first decline since June 2009, Capacity Utilization decreased to 74.7% from 74.8%, and the NAHB Housing Market Index increased from 13 to 16 in October. I don’t know exactly what “13″ or “16″ means, but the NAHB Chairman said “Builders are starting to see some flickers of interest among potential buyers, and are hopeful that this interest will translate to more sales in the coming months. However, because most builders still have no access to credit for building homes, there is a real concern that we will not be able to meet the pent-up demand when consumers are ready to get back in the market.” Any lender in what-used-to-be a new home market knows that the toughest obstacle is financing.

By the end of yesterday, both fixed-income and equity prices improved, mostly based on speculation that the Fed will increase its asset purchases under “QE2″. (That is “Quantitative Easing”, not the “Queen Elizabeth” cruise ship.) Only $1.2 billion of MBS’s were sold, and the demand was strong from the money manager community. MBS prices finished better by .250-.375 in price making up for Friday’s loss. Whether or not accumulators or lenders passed this improvement onto their rate sheets remains to be seen, but that is what the MBS market did. The 10-year note gained .75 in price and moving down to 2.49%.

Today we’ve already had earnings out from Bank of America and Goldman Sachs (both decent, both roughly as expected) and also five Fed District Presidents and one Board Governor speaking. Economic data consisted of Housing Starts and Building Permits. Starts were up .3%, better than expected, but Permits were worse than expected at -5.6%. The 10-yr is up to 2.54% and mortgage prices are worse between .125-.250.

FHA, Fannie, Freddie Positions On Foreclosures
The FHA’s stance on foreclosures came from it’s commissioner:

“I strongly urge every FHA-approved servicer to immediately conduct a full review of its servicing operations and procedures to ensure full compliance with all HUD requirements. HUD holds mortgagees accountable for their servicing practices in order to protect the public trust and the FHA Insurance Fund. FHA-approved servicers are obligated to comply with all applicable laws and regulations.”

And FHFA, which runs the agencies like Freddie and Fannie, came out with this statement on foreclosures. The editor of Mortgage News Daily wrote:

“It seems like the borrowers who have claimed to be victims of ‘robosigning’ will still need to be dealt with individually, on a case by case basis, which tells me only time will heal this problem. It also means borrowers must be willing to work with servicers.”

There is general agreement that, in spite of potential documentation issues, over time foreclosures and short sales are an important mechanism to help normalize the housing market. Ownership is transferred to owners who have the ability to afford it, and sales reduce the amount of nonperforming loans held by banks. Banks are not in the business to own single family homes. In the past year, roughly 30-35% of home resales were either foreclosures or short sales. As a result, if these transactions are temporarily removed from the existing home sales tally, the volume of sales could drop precipitously.

What Is MERS and Why It Matters To Housing Market
JPMorgan Chase’s CEO caused a stir with the somewhat misleading announcement, carried through AP, that Chase has stopped using MERS after lawyers have argued in court proceedings that the system is unable to accurately prove ownership of mortgages. “The system lacks the required paper trail to prove mortgage ownership in foreclosure proceedings.” MERS released a statement in response. “JP Morgan Chase is a valued member of MERS. They currently have their correspondent loans registered on the MERS System. They do not, nor have they ever, registered their retail loans on the MERS System. As members of MERS and for loans registered on the MERS System, banks have the option of foreclosing in their own name, or MERS foreclosing for them. JPMC has chosen to foreclose in their own name, which is a common decision that is allowed under the structure of MERS.”

Here’s the status of MERS in their own words, and here’s a good MERS primer from Reuters.

Market Roundup
Yesterday was a good day for both mortgages and stocks. In spite of a slightly-higher-than-normal volume day ($2.5 billion), MBS’s with lower coupons were better by .250 by the end of the day. Stocks rallied, although Treasury prices were about flat and the 10-yr closed at 2.43%. And prior to the 8:30AM EST numbers, that’s about where we were: unchanged.

This morning we’ve already had the monthly trade numbers and producer price numbers, and the weekly Jobless Claims number – which has seemed to become more important than the PPI. (Inflation is tame – it’s the job market that is the big concern.) The trade deficit came in at $46.3 billion for August. The PPI was +.4%, stronger than expected, but for those not using food & energy the number was +.1%, as expected. Jobless Claims went from 449k up to 462k, +13k. Although we still have a $13 billion 30-yr bond auction ahead of us, but the numbers this morning showed continued weakness in the jobs market with overtones of inflation and more dollar weakness. The yield on the 10-yr is sitting around 2.43%, and mortgage prices are roughly unchanged.

Effects of Higher Gas Prices
I notice that gasoline prices are back up, usually attributed to demand by China and India. The price has been drifting around, not attracting too much attention, which is good because historically speaking any sharp spike in the price of oil leads to a sharp drop in consumer confidence. After all, gasoline prices are the most publicly visible prices in the economy – no other prices are displayed in bold, two-foot-tall numbers. But higher gasoline prices may not have the same impact as they did a year or two ago. To a great extent gas prices have already dropped the demand for SUV’s, including the Hummer. This, in turn, impacted jobs, and to some extent housing since fewer people want or have a long commute to an over-priced suburb.

Good Rent vs. Buy Calculator
On the Ginnie Mae website is a useful “rent versus buy” calculator.

Deficit At Record Highs, Public Debt At Record Lows
One curious thing to note about the deficit here in the United States is that as the budget deficit hits records highs, the interest on the public debt is hitting record lows. How is that possible? Just like borrowers who have refinanced their mortgage in the last year, the US Government is refinancing its debt – at very low rates. So although the government budget deficit is climbing (which could actually result in a downgrade by the rating agencies of our country’s credit rating), the interest rate that the US is paying debt holders is low. In fact, and I know that this is a simplistic approach but one that is good if you’re talking to your neighbor while washing cars, but the yield on the 10-yr Treasury note 10 years ago was above 6%. As that debt matures this year, and is replaced by new Treasury notes, the yield is in the high 3′s, saving the government 3%.

Fed ‘Hawks’ and ‘Doves’ Defined
During a war, it is easy to remember what being a “hawk” or being a “dove” means. As it turns out, employees of the US Government who are involved in setting monetary policy are also classified as hawks and doves. In this instance, a “hawk” is someone who believes that the Fed’s primary duty is to control inflation. Inflation has not been an issue in quite some time, and in fact in our country’s history there have only been a handful of periods of high inflation. “Doves” believe in keeping unemployment low while at the same time raising interest rates quickly to fight inflation. The Fed meets today. No one is expecting them to increase the overnight Fed Funds rate, which has hovered between 0-.25% for many moons.

Fed Could Move In Any Direction
Of particular note is that yesterday mortgage traders saw light-to-normal volumes, but with only the Fed buying. Money managers, servicers, and Asian investors stayed on the sidelines – and mortgage prices were stable. The FOMC will likely acknowledge that rates will remain low for an extended period but possibly signal that they are ready to act if conditions warrant change. Although economic data has shown the recovery is taking hold, the Fed’s main concern is employment. The news from the economy continues to fluctuate. For example, last week’s Retail Sales was strong but there were three key reports on the labor market recently (Job Openings and Labor Turnover survey, Jobless Claims, and the unemployment data) which were mixed. One was slightly positive, while the other two pointed to continued trouble. In spite of heightened inflation expectations, it appears the FOMC wants a sustainable labor market before moving on rates.

What Will The Fed Say After FOMC Meeting?
Yesterday mortgage prices started off the day by improving about .125, and pretty much stayed there for the rest of the day. Today, of course, the Fed will announce the results of their FOMC meeting. Most expect the Fed to note the approaching end of the MBS Purchase Program and reiterate that it will continue to evaluate its purchases of securities in light of the evolving economic outlook. One interesting thing to note is that long-term mortgage investors are beginning to receive cash from the Freddie & Fannie buydowns. The money is somewhat expected, given the performance of certain pools. Some of it is going back to work in buying mortgages on a forward basis, but for other investors they are sitting on the cash – concerned about the end of the purchase program and more desirous of shorter term instruments and cash flow.

Industrial Production Up, Report on Foreign Holders of US Debt
In spite of the news yesterday, the fixed-income markets were pretty quiet. Industrial Production expectedly climbed for the 8th straight month. The Empire State Manufacturing Survey dropped slightly – but really, is news like that supposed to move rates when entire countries like Greece or Spain are worried about their debt and the impact on global markets? Speaking of which, it was reported by the TIC (Treasury International Capital report) that during the month of January net foreign purchases of US long-term securities was roughly $19 billion. China continued selling U.S. Treasuries, although it remained the largest foreign holder following revisions that showed it never actually lost the top spot to Japan, the Treasury Department said.

Housing Starts Reported As Expected
This morning we’ve seen some import and export prices levels, along with Housing Starts and Building Permits. Import prices were -.3%, with a year-over-year change of +11.2%, and export prices were -.5%. Housing Starts were about as expected, down 5.9% from upwardly revised number, and Housing Permits were down 1.6% (versus January’s 4.7%) to an annual rate of 612,000 down from 622,000. There was little impact on rates, and the 10-yr seems comfortable around 3.70%, and mortgage prices are worse by a shade.

Education For National Lender Licensing
Most agents and brokers seem to be “up” on the SAFE Act. Classes continue, as education is critical. Here in California, the California Mortgage Bankers Association is hosting a question and answer webinar on March 30th starting at 10AM PST, dealing with how the SAFE Act impacts originators and having real-live regulators do the speaking. Visit www.CMBA.com or check this out.

Daily Humor
The minister was preoccupied with thoughts of how he was going to ask the congregation to come up with more money than they were expecting for repairs to the church building.

Therefore, he was annoyed to find that the regular organist was sick and a substitute had been brought in at the last minute.

The substitute wanted to know what to play.

“Here’s a copy of the service,” he said impatiently. “But, you’ll have to think of something to play after I make the announcement about the finances.”

During the service, the minister paused and said, “Brothers and Sisters, we are in great difficulty; the roof repairs cost twice as much as we expected and we need $4,000 more.

Any of you who can pledge $100 or more, please stand up.”

At that moment, the substitute organist played “The Star Spangled Banner.”

And that is how the substitute became the regular organist!

There is certainly a lot to be nervous about. There is the concern that around-the-world budget deficits will need to be financed by issuing more debt. California, with the 8th largest economy in the world, is continuing to have budget problems. On top of all that, oil prices declined over 5% while gold prices also fell, down over 4%. The dollar was weaker to the yen, but firmer to the euro as the risk aversion trade returned, and this helped Treasuries and mortgage security prices, dropping rates to December levels.

20k Jobs Lost, 9.7% Unemployment
Forecasts for today’s Non-Farm Payroll number centered on a gain of 15,000, although the ADP number from Wednesday showed that the private sector lost 22,000 jobs, so the difference will be in the government arena. As it turned out, Non-Farm Payrolls fell 20,000 in January, and the December numbers were revised downward from -85k to -150k (Nov’s went from +4 to +64k). Conversely the Unemployment Rate dropped to 9.7%, once again highlighting the fact that a sharp increase in the number of people giving up looking for work helped to depress the jobless rate. Immediately after this news, stocks were higher and the 10-yr hit 3.64% and mortgage prices (and the 5-yr Treasury) were worse by about .125.

But then this trend reversed: stocks went into red and bonds recovered.

Is Volatility Good Or Bad?
Does this kind of volatility in bonds or stocks help or hurt the markets? Although volatility has little lasting impact on markets, in the long run volatility makes ordinary investors less inclined to trust markets. And aversion to risk makes capital more expensive, as we are seeing now, and in turn the economy can become less dynamic. On the flip side, traders love volatility, although they tend to overestimate their knowledge of finance and the accuracy of their predictions. And overconfidence can encourage excess trading, and in a down market this can lead to “chasing losses” – if you’ve lost some, it is tempting to make big bets in an attempt to get your money back.

Next Big Bank Problem: Loan Buybacks
Ever had to buy back a loan? You’re not alone, nor will you be in the future.

Fed Buys $12b in MBS
Steady as she goes. For the week ending yesterday, the Federal Reserve’s MBS program was a net buyer of $12 billion agency MBS ($17.6 billion gross), which was the same as the previous week. The bulk of the purchases were 4.5% securities, which are mostly comprised of 4.75-5.125% 30-yr conventional mortgages. Program-to-date now stands at $1.173 trillion.

BofA Settles With SEC on Merrill Suit
New York Attorney General Andrew Cuomo, who encouraged the agencies to reach down the credit curve several years ago to help precipitate the credit crisis, and also usher in the HVCC regulations, charged Bank of America Corp, former Chief Executive Kenneth Lewis and former Chief Financial Officer Joe Price with fraud for allegedly misleading shareholders about the acquisition of Merrill Lynch. On the other hand, BofA just settled with the SEC by agreeing to pay a $150 million civil fine and bolster disclosure and governance practices. Cuomo is using a New York law used to combat securities fraud to accuse Bank of America, Lewis and Price of intentionally failing to disclose massive losses at Merrill prior to a December 5, 2008 shareholder vote on the merger.

Fidelity National Financial Earnings
Fidelity National Financial, headquartered in Florida, has reported a net profit of $69 million for the fourth quarter 2009 and a net profit of $222 million for the full year, both turnarounds from 2008 losses. Direct orders opened in the fourth quarter 2009 were up, although actual title claims paid in the fourth quarter 2009 were up also. The former LandAmerica units, Lawyers Title and Commonwealth Title, were profitable.

GMAC Earnings Loss
GMAC posted a loss in the fourth quarter of $3.9 billion, with a net loss of $4.95 billion after writing down mortgage holdings. For all of 2009, GMAC swung to a net loss of $10.3 billion from a $1.87 billion profit. Many wish that they were as optimistic as the CEO who said, “GMAC has undergone significant transformation in 2009 and as a result, is better positioned to pursue business and market opportunities going forward.” Translation: “I think that there is nowhere to go but up.” We, the taxpayer, currently own 56% of the company. The mortgage unit lost $4 billion from continuing operations before taxes after the company wrote down $2.6 billion in assets that are scheduled to be sold, and the parent company said it contributed about $2.8 billion of capital to ResCap, more than a previous estimate of $2.7 billion. As I mentioned in an earlier commentary, GMAC will cut about 554 jobs, including 313 positions at ResCap’s offices in Charlotte, North Carolina and Costa Mesa, California.

Daily Humor: A Super Bowl Joke
A Cajun who died went to hell.

The devil assigned him the usual punishment: he put him in the mass pit where the heat was melting others.

The devil came back sometime later surprised to find the Cajun just sitting around, not even misting, much less sweating. “How come you’re not so much as sweating here where everyone else is screaming for relief from the heat?”

The Cajun laughed and said, “Man, I was raised in the bayous of Sout Looziana. Dis ain’t nothin’ but May in Lafayette to me!”

The devil decided to really put the Cajun through it. He put him in a sealed off cave in the pit with open blazes and four extra furnaces blasting.

When he came back, days later, the Cajun was sitting pretty, had barely begun to bead up with sweat.

The devil was outraged. “How is this possible!? You should be melted to a shrieking puddle in these conditions!”

The Cajun laughed even harder than before. “Hey, man! I done tole you. I was raised in Sout Looziana. You tink dis is heat?! Dis ain’t nothin’ but August in Jennings!”
So the devil thought, “Alright, a little reverse ought to do the trick.” He put the Cajun into a corner of hell where no heat ever reached. It was freezing; and, to add to the Cajun’s misery, he added massive icebergs and blasting frozen air. When he returned, the Cajun was shivering with ice hanging from every part of him; but he was grinning like it was Christmas.

Exasperated, the devil asked, “HOW!? How is it possible?! You’re impervious to heat, and here you sit in conditions you can’t be used to…freezing cold; and yet you’re happier than ever. WHY?!”

The Cajun kept grinning and said, “Dis mean de Saints done won da Super Bowl?!!”

“I know what you’re thinkin’
We were goin’ down.
I can feel the sinkin’
But then I came around.”

What do the Foo Fighters know about mortgage banking? Maybe not much. But bond prices have certainly moved higher (and interest rates lower) since New Years, as has the stock market. According to one trader, the 10-yr note “caught a bid” on speculation that the Fed will leave rates low for an extended period of time. Interestingly, the odds of that happening have been dropping, and now the futures market is pricing in a 79% chance that the Fed will keep rates somewhere between 0% and .25% through April. After hitting 3.91% last Thursday, we’re back down to 3.77% this morning (mortgages prices are better by about .125).

Will Fed Continue MBS Purchases After March 31?
Another story making the rounds is that the Fed may/will continue to buy mortgage-backed securities after its self-imposed March deadline if needed (the release of the FOMC minutes may help shed some light on this). Lately, most of their interest has been 4.75%-5.125% mortgages. Regardless, when you combine continued buying by the Fed, along with some interest shown by banks & servicers, with slowing supply (some mortgage banks are crying for new locks), the laws of supply and demand come into play and the prices go up.

Mortgage Apps Down, Refis Main Source of Business
And “crying for new locks” might just be the case industry-wide, although The MBAA’s weekly index showed that applications filed for mortgages rose .5% last week from the week before. Refinances were down almost 2%, and purchases were up almost 4%. Refinancing still makes up about 75% of all activity – scary.

US Dollar’s Impact On Rates
Why should anyone in mortgage banking care about the value of the dollar? Doesn’t a falling dollar only hurt foreign exporters, foreign holders of US securities (like the Chinese with over $1 trillion), or American tourists? Unfortunately, a falling dollar only benefits American exporters so far – it can hurt in the long run if manufacturing companies can reap rewards without improving products or productivity. And when the dollar rallies back, they will suffer. Interesting, toward the end of 2009, the value of the dollar was inversely related to stocks but in the past, the dollar and stocks usually moved together. (With the global financial crisis the dollar rallied as a safe haven for investors, and stocks plunged.) With regard to interest rates, a falling dollar (or any currency) usually leads to higher inflation and higher interest rates on loans of all types.

New CA Licensing Requirements
During the last 100+ years, the nation often follows what happens in California. Many originators in other states are hoping that this does not happen this time. The Department of Real Estate and CFL, via the SAFE act, will install new licensing requirements this year. Loan originators must have sound credit, despite the recent economic downturn, for example. The law impacts any MLO (“Mortgage Loan Originator”), and, as best as I can tell, requires individuals who are licensed as Real Estate Agents in CA and who are also originating loans as an LO must now meet the new NMLS criteria for LO licensing by obtaining an NMLS account and meeting Federal and State education, exam, fingerprint, credit and background checks. They must also report to the state that besides Real Estate deals that they are also working as LO’s and originating loans by filling out online Form RE 866 (Mortgage Loan Activity Notification).

Mortgage Industry M&A
A story from the National Mortgage News yesterday highlights the “plight” of the mortgage banker. “For the past two years, brokers have taken it on the chin from politicians and regulators, accused of selling loans to consumers who cannot afford them and pocketing excessive fees in the form of yield-spread premium payments.” It appears, according to a quote in the article, that “the only large bank wholesaler that still believes in brokers is Wells Fargo & Co., which also happens to be largest table funder in the nation out of a field of 40 or so firms.” There is some thought that the loan brokers that are left standing today are believed to be the most experienced, motivated and professional. Of course, “a handful of mortgage banking firms are beginning to gobble up well-managed loan brokerage shops, turning these operators into retail arms of their companies” – WJ Bradley, Prospect, and Skyline come to mind.

GMAC Losses
GMAC Financial Services expects to report a loss of about $5 billion in the fourth quarter, mostly due to $3.8 billion write down from its mortgage unit. So far the taxpayer has provided GMAC with over $16 billion of aid, and the government owns 56% of the company. GMAC’s subsidiary Ally Bank is now allowed to seek brokered deposits, but GMAC has also come to terms with writing down its mortgage portfolio – something other large banks have already done to a large degree. (By classifying its mortgage securities as “held for investment,” GMAC was able to postpone this.) Options for Res Cap include selling it, selling off its bad assets, or keeping Res Cap and putting it into bankruptcy.

Daily Humor
(Warning: PG)
Proof that the economy affects us all……..
Two car salesmen were sitting at the bar. One complained to the other, “Boy, business stinks.
If I don’t sell more cars this month, I’m going to lose my a–.”
He noticed a beautiful blonde woman sitting two stools away. Immediately, he apologized for his bad language.
“That’s okay,” the blonde replied, “I can relate. If I don’t sell more a– this month, I’m going to lose my car.”

Rates Up on Fewer Jobless Claims, 4yr High For ISM Index
Why are rates where they are? The answer is stronger-than-expected economic news. Well, Thursday morning we learned that Jobless Claims unexpectedly fell by 22,000 to 432,000, which is their lowest level in almost a year and a half. Continuing Claims fell by 57,000. So the thinking goes that “if fewer people are filing jobless claims, the employment picture is starting to look a little rosier, which means that the economy must be doing better…” We also had the ISM Index print its highest level in almost 4 years.

Economic Preview For Week
This week promises to be a busier week, news-wise, than last. Today we start with an “amuse bouche” of ISM Manufacturing data. Tomorrow we throw in a few Pending Home Sales and Construction Spending numbers, Wednesday ISM Services, Thursday Jobless Claims, and on Friday, for desert, we have all the Unemployment numbers. The odds continue to drop for the Fed keeping their “0-.25% Fed Funds target” past April – it is down into the low 80% range. We start the year here in the US with the 10-yr yield at 3.85% and mortgage prices roughly unchanged from Thursday’s levels.

Mortgage Apps Down, Refis Are 76% of Apps
As it happens at this time every year, lock desks are slowing down. The week before last, the MBAA’s application index dropped almost 11%, with refinancing down about 10% and purchases down almost 12%. One thing to note, which I find most distressing, is that refinancing accounts for almost 76% of apps. If rates move higher (why wouldn’t they if the economy improves?), and/or underwriting guidelines don’t loosen up (why would they given projected delinquencies?) what will this do to the average mortgage banker’s pipeline.

FHA Broker Compensation Caps Removed (For Now)
FHA lenders should know that HUD removed the 1% origination fee cap. Under the new RESPA changes, the single origination charge on the GFE and HUD-1 must include all administrative and processing fees related to the origination of the loans, including compensation for both the mortgage lender and broker, and HUD recognized the bundled charge would exceed the 1% cap. In effect, HUD will no longer limit the amount of the origination fee charged to FHA borrowers to 1%; the FHA will expect lenders to charge “fair and reasonable” fees. Subjectivity is not popular these days, so look for additional guidance on fee limitations soon. See 09-53 at this link.

GMAC Bailout 3.0
GMAC received a third rescue package from taxpayers valued at $3.8 billion that gives you and me a majority stake. (You were going to buy stock in them anyway, right?) “The infusion will bolster lending at GMAC as it absorbs $3.8 billion in new pretax charges and decides what to do with its loss-plagued home mortgage unit. Proponents say GMAC is crucial to the U.S. auto industry. Res Cap is not viewed as being a big plus for the income statement, and apparently is on the block.

Lender Guideline Roundup

• One traditional way of controlling a pipeline is to cancel a lock if the file doesn’t come in by a certain number of days after locking. It makes sense – “Give us some documents if the lock is real!” The most recent example is Union Bank of California, which has a minimum lock period of 60 days, who informs their brokers that “All loans will be re-priced at ‘the higher of’ when a package is not received within 30 days of lock expiration date.” UBOC also adjusted their lock breaking policy, which is available one time during original lock period and only after the loan submission: to current rate: 0.500 rebate, or one-eighth (0.125) higher than current rate for a reduced rebate of +.125% for loans with rebates or +.125% cost to points, or lastly split rate if at least .500 difference in rate: free.

• GMAC correspondents addressed questions about FHA loans that move from one lender to another. “When a borrower switches from one lender to another, the first lender must, at the borrower’s request, transfer the case to the second lender. Transferring the case requires the first lender to transfer the FHA case number to the second lender using the Case Transfer functionality within FHA Connection, and provide the second lender with a copy of the appraisal report ordered by and completed for the first lender.” GMAC, and the FHA, does not require that the client name on the original appraisal be changed to that of the second lender. GMAC’s memo goes on to discuss the responsibilities of the second lender’s DE underwriter, how to reduce processing delays caused by appraisal issues (“…the second lender is permitted to order a second appraisal under the limited circumstances…”), and gives guidance on the second appraisal.

• GMAC also has a new validity period for appraisals (used for FHA insured mortgages) for loans on existing, proposed, or under construction less than one year, and is now 120 days.

• Well, it would appear that all of the “decisioning” companies have moved over to Fannie DU 8.0. Huh – a new product? Wouldn’t you know it relates to foreclosures? US Bank’s wholesale group is giving their brokers up to 80% LTV for purchases of Bank Owned Properties (i.e., REO) although in some states they will only go to 75% LTV. “1st position liens only, no 2nd mortgages, appraisals must be ordered thru U.S. Bank, foreclosure process must be complete, full home inspection required for bank owned properties, current residence must be sold, and mechanics lien coverage is required on title insurance.

• Starting today Caliber Funding is following HUD Mortgagee Letter 2009-48 and will remove the second appraisal requirement for loan amounts greater than $417,000 (excluding upfront mortgage insurance premium (UFMIP) with an LTV greater than or equal to 95% and located in a declining market, and cash-out refinance transactions with a loan amount greater than $417,000 and located in a declining market. Caliper also tweaked their pricing on loans between $40-$49,999 and REO’s (both more expensive to originate), raised the minimum loan amount for “Texas Section 50 A6” from $40,000 to $100,000, and will no longer allow FHA-Approved Project Reviews for Condominiums.

Daily Humor
Tony and Yvonne were 85 years old and had been married for sixty years. Though they were far from rich, they managed to get by because Tony watched their pennies. Though not young, they were both in very good health, largely due to Yvonne’s insistence on healthy foods and exercise for the last decade.

One day, their good health didn’t help when they went on yet another holiday and their plane crashed, sending them off to Heaven.
They reached the pearly gates, and St. Peter escorted them inside. He took them to a beautiful mansion, furnished in gold and fine silks, with a fully stocked kitchen and a waterfall in the master bath. A maid could be seen hanging their favorite clothes in the closet. They gasped in astonishment when he said, “Welcome to Heaven. This will be your home now.”

Tony asked Peter how much all this was going to cost. “Why, nothing,” Peter replied, “Remember, this is your reward in Heaven.”

Tony looked out the window and right there he saw a championship golf course, finer and more beautiful than any ever built on Earth.

“What are the greens fees?” grumbled Tony.
“This is heaven,” St. Peter replied. “You can play for free, every day.”
Next they went to the clubhouse and saw the lavish buffet lunch, with every imaginable cuisine laid out before them, from seafood to steaks to exotic deserts, free flowing beverages.
“Don’t even ask,” said St. Peter to Tony. “This is Heaven, it is all free for you to enjoy.”
Tony looked around and glanced nervously at Yvonne.
“Well, where are the low fat and low cholesterol foods and the decaffeinated tea?” he asked.
“That’s the best part,” St. Peter replied. “You can eat and drink as much as you like of whatever you like and you will never get fat or sick. This is Heaven!”
“No gym to work out at?” said Tony
“Not unless you want to,” was the answer.
“No testing my sugar or blood pressure or…”
“Never again. All you do here is enjoy yourself.”

Tony glared at Yvonne and said, “You and your damn bran Flakes. We could have been here ten years ago!”

More On New Good Faith Estimate
It seems that many companies are just resigned to putting aside money to write their borrowers a bunch of checks, or argue with investors, for the first several months of 2010. Here is a good overview of issues with the new Good Faith Estimate and the financial press perception.

Mortgage Apps Lowest In 2 Months
The MBAA confirmed it by coming out with the recent applications data: demand for U.S. home loans fell last week to the lowest level in almost two months. Mortgage applications dropped 10.7% in the week ended December 18, with refinancing down over 10% and purchases down over 11%.

Market Update: Personal Income Up, Rates Level
Tuesday did little to make anyone waiting to lock a loan feel “merry.” On relative basis to Treasury rates, mortgages did not do well. And it wasn’t because of supply, but more because of technical selling and a lack of buyers. Analysts brought up the fact that mortgage securities are somewhat expensive relative to risk-free Treasury securities, once again wondered what will happen if the Fed buying program comes to an end, and reminded us that we’re in the middle of the holidays with poor liquidity. (But geez, it isn’t like the holidays weren’t expected, and the Fed will still be buying $3 billion a day until March.)

Maybe here today, after 3 days of higher rates, we’ll see a change. We’ve already had some decent numbers from Personal Income and Consumption. Incomes here in the US saw their biggest gain in six months, and consumer spending rose .5% (expected +.6%) for a second straight month in November. At 10AM EST we’ll see New Home Sales, and the University of Michigan survey, and later today we’ll find out how much the government is selling next week in their 2, 5, and 7-yr Treasury auctions. The yield on the 10-yr is “down to” 3.71% and mortgage prices are “maybe” .125 better than yesterday afternoon.

FHA Delays Appraisal Rules
Maybe this is some “ok” news? In a story that I first noticed in Mortgage News Daily, enactment of ML 2009-28 (“Appraiser Independence”) will be delayed until February 15, 2010. “ML09-28 (originally planned for a January 1, 2010 implementation) has two parts: a) prohibition of mortgage brokers and commission-based lender staff from the appraisal process, and b) appraiser selection in FHA Connection. The effective date for both sections of this guidance will now take effect for all case numbers assigned on or after February 15, 2010. This extension will provide FHA and lenders additional time to adjust systems to accommodate the changes… lenders should be aware that the requirement for inputting the appraiser ID and the appraisal assignment date in the FHA Connection case number assignment screen will be removed. Instead, lenders will be required to enter all appraisal data, including the appraiser ID, in the Appraisal Update Screen once the completed appraisal is received by the lender and prior to closing the loan.”

In addition, ML 2009-51 (“Adoption of the Appraisal Update and/or Completion Report”), which was slated to start next weekend, is being extended and will now apply to all case numbers assigned on or after February 15, 2010. FHA lenders know that all FHA Mortgagee Letters can be read online here.

Lender Guideline Roundup
GMAC posted a very lengthy update concerning RESPA, to the point where it would be impossible to reproduce in this commentary – go to the source! Aside from reminding clients that the final RESPA rule, along with the new GFE and HUD-1/1A forms and training guide to begin on 1/1, can be accessed on HUD’s website . GMACB required that the new forms be used starting next weekend. The bulletin goes on to address the GFE disclosure requirements (The loan originator – lender or broker – is required to issue the new GFE form no later than 3 business days after receiving an application or information sufficient to complete an application…no requirement that the borrower sign the GFE.. no GFE disclosure is required if the application is withdrawn or denied within 3 business days of application, etc.) “Except for interest rate dependent charges, the loan originator is bound by the GFE for at least ten business days after the GFE is provided (or longer if so specified by the loan originator). The loan originator may not charge any fee, except for a credit report fee, until after the applicant has received the GFE and indicates an intention to proceed with the loan request.” GMAC goes on to discuss the fees, their structure, “allowability”, etc. tolerance limitations (divided into three categories: Settlement charges that cannot increase, settlement charges that can increase up to 10%, and charges that can increase without restriction, etc.) As I mentioned, it is best to go the HUD site or view GMAC’s bulletin if you’re a client.

U.S. Bank Home Mortgage Wholesale Division is announcing the implementation of an anti flipping policy for VA loans starting 1/1. “The property Seller must have taken title to the subject property more than 90 days prior to the contract date on the sale of the property to the applicant. Documentation must verify the property seller on the Purchase Contract is “In Title” and Owner.” Property sales involving any of the following entities, however, as property seller, are exempt from these seasoning requirements: U.S. Bank or affiliate, HUD, VA, USDA, Fannie Mae, and Freddie Mac, any approved delegated correspondent, or owners as a result of inheritance or divorce. And for cash out transactions, “the applicant must have taken title to the subject property more than 180 days prior to the loan application date.” Check with USBHM for the documentation required.

USBHM also reminded clients that any VA loans over the 2010 county limits, but allowed under the 2009 limits, “must CLOSE by December 31, 2009, regardless of when it funds”. USBHM has set maximum loan amounts with guaranty /entitlement and cash down payment, requiring a total coverage of 25% in order to have the loan be saleable in the secondary market. (This can be a combination of guaranty and cash.) Loan amounts up to $417,000 must have 25% minimum coverage with full entitlement. Loan amounts from $417,001 to $650,000 must have 30% total minimum coverage which is the total of entitlement and cash down payment. Loan amounts from $650,001 to $1 million must have 35% minimum which is the total coverage of entitlement and cash down payment.

Daily Humor
Three men died on Christmas Eve and were met by Saint Peter at the pearly gates.

“In honor of this holy season,” Saint Peter said, “You must each possess something that symbolizes Christmas to get into heaven.”

The first man fumbled through his pockets and pulled out a lighter. He flicked it on. “It represents a candle,” he said.
“You may pass through the pearly gates,” Saint Peter said.

The second man reached into his pocket and pulled out a set of keys. He shook them and said, “They’re bells.”
Saint Peter said, “You may pass through the pearly gates.”

The third man started searching desperately through his pockets and finally pulled out a pair of women’s panties.

St. Peter looked at the man with a raised eyebrow and asked, “And just what do those symbolize?”
The man replied, “These are Carols.”

Small to Mid Size Mortgage Companies Expanding
What isn’t disgusting is the number of mortgage companies which are interested in expanding. For example, First Centennial Mortgage, out of Illinois, is sending out e-mails looking for originators. First Priority Financial, a retail shop out of California, announced that they were buying Austin Perry Financial, a wholesaler also based in California. CMG Mortgage has been expanding, as has Opes Advisors, Stearns Lending, American Pacific, etc., etc. – the list goes on. This is an interesting trend, as perhaps small to mid-size bankers are indeed seeing the origination “pie” shrinking in 2010, and are looking to maintain volumes and increase market share. And the hiring is not only taking place in the loan officer arena, but also operations and back office support.

Weak Treasury Auction, Jobless Claims Up, Trade Balance Narrowed
Rates were not the mortgage banker’s friend yesterday. The 10-yr auction was not the best, with a bid/cover ratio slightly less than other recent auctions, less foreign demand, and one trader said it was “somewhat sloppy”. This morning we’ve seen Jobless Claims and the Trade numbers – and that does it for news. The U.S. trade deficit narrowed unexpectedly in October by over 7% due to the weak dollar helping boost exports while demand for imported oil fell to its lowest daily level since January 2000. In fact, U.S. exports of goods and services were the highest since November 2008 and imports the highest since December 2008. This is good news for the economy, not so good for rates. Jobless Claims, however, rose more than expected last week, and was up 17,000 to a seasonally adjusted 474,000 in the week ended Dec. 5 from 457,000 in the prior week, the Labor Department said. This is bad news for the economy, good for rates. The new 10-yr yield is currently 3.46% and mortgage prices are worse by between .125 and .250.

Futures Predict +0.5% Fed Rate Increase By March
Federal-funds futures contracts show an 18% probability that the Fed will increase the target rate from 0% to at least 0.5% by March, up from 11% odds a week ago. The odds are about 50/50 for higher overnight rates by June and 90% that overnight rates will be 1% higher in a year. Granted, Fed Funds are not the same as mortgage rates, but they’re in the same species, and the market almost seems like it is looking to be spooked by something that is not going to happen for several months, and that most everyone expects anyway. (The next actual Fed meeting is Dec. 15-16.) Besides, a 0% Fed Funds rate is not normal, nor is the Fed buying Treasury bonds (which it has stopped), nor is the Fed buying mortgage securities, which is set to end in about four months ($16 billion a week right now).

Most analysts feel that the Fed won’t assume that the unemployment numbers give them the green light to raise rates, so don’t look for anything immediately. But even if they hold steady for another six months, the supply & demand-driven bond markets will be well out in front of the Fed’s moves whenever it occurs. Do don’t be surprised if rates creep higher!

Another Big Lender Guideline Roundup
Here’s another huge list of lender guidelines, lots of changes coming as regulations get updated and also as Fannie Mae rolls out their Desktop Underwriter 8.0 this weekend. This is the loan approval engine used throughout the industry.

• HUD sent out Mortgagee Letter 2009-51, adopting the Appraisal Update and/or Completion Report (Fannie Mae Form 1004D/Freddie Mac Form 442/March 2005). “The FHA is adopting the Appraisal Update and/or Completion Report, Fannie Mae Form 1004D/Freddie Mac Form 442/March 2005. This is a dual-purpose form. Part A, Summary Appraisal Update Report, provides for updates of existing appraisals when the appraiser concurs with the original appraisal report and updates the appraisal by incorporating the original appraisal report. Part B, Certification of Completion, provides for compliance repair and completion inspections for existing and new construction dwellings.” This is for case number assignments after 1/1.

• This week GMAC has released a flurry of changes for their correspondents, although correspondent clients of other investors will definitely recognize similarities. GMAC announced the extension of the First-Time Homebuyer Tax Credit, the revision of FHA Second appraisal requirements, the roll out of Fannie’s DU 8.0 this weekend, clarified the Freddie Mac Relief Refinance Open Access products, and the new FHA condominium approval process. On the “condominium project eligibility and insurance requirements” front, FHA and added a new condominium approval process by permitting Direct Endorsement Lenders to determine project eligibility, review project documentation and certify compliance with FHA regulations, reduced the minimum required number of units in a condominium project from four to two, reduced the owner-occupancy ratio within a condominium project from 51 percent to 50 percent, reduced the pre-sales percentage within a condominium project to 50 percent, increased the FHA concentration level to 30 percent, eliminated the one year waiting period for projects that have been converted to condominiums, and eliminated the Spot Loan approval process.

• GMAC Bank Correspondents also noted that, for the Freddie Mac Relief Refinance -Open Access products, clients must evaluate the Condominium Project, represent and warrant that the Condominium Unit complies with Freddie Mac eligibility requirements. And for this product, a field review is required if the loan amount is $625,500 or greater and the LTV, CLTV, or HCLTV is greater than 80 percent, or the property is valued at $1,000,000 or more and the LTV, CLTV, or HCLTV is greater than 75 percent.

• Finally, GMAC is adopting the Fannie DU 8.0 credit score and underwriting guidelines (if a borrower has less than a 620 FICO or a DTI higher than 45, they’d better go elsewhere).

• But speaking for Fannie’s rollout this weekend, Bank of America’s correspondents should know that BofA will be implementing the same changes. The minimum credit score required for loans underwritten using DU Version 8.0 is increased from 580 to 620 (except for DU Refi Plus loans currently serviced by Bank of America). “The maximum DTI ratio allowed for loans underwritten using DU Version 8.0 is lowered to 45%, with flexibility offered up to 50% when approved by DU.” Bank of America also told clients that the Reduced Mortgage Insurance (MI) and Lower Cost MI option will be retired for loans underwritten using DU Version 8.0 and Loan Prospector (LP). Even though Fannie has a new Minimum Mortgage Insurance Coverage option, currently Bank of America is not accepting the minimum MI coverage amounts and will require all DU 8.0 loans (requiring mortgage insurance) meet their standard coverage requirements.

• Bank of America reminded their clients that DU Version 8.0 will not issue Expanded Approval Level II and III recommendations. Any Expanded Approval decision (I, II or III) using DU Version 7.1 must be locked by tomorrow, but loans that receive an EA-I recommendation will continue to be eligible for purchase with the exception of Agency High Balance, DU Refi Plus, Interest-only loans, 6-month ARMs and 5/1 ARMs with 5-2-5 caps. In addition, 5-year and 7-year balloon programs will no longer be offered – lock them by tomorrow. In fact, BofA has set forth 2/26 as the last day that they will purchase loans with credit scores less than 620, loans underwritten under previous two-unit owner-occupied interest-only LTV guidelines, etc. – any loans with DU 7.1 characteristics.

• Freddie Mac told clients in mid-November that MIDANET “had five critical version updates since November 23, and a final version upgrade will happen on December 14. You must be on version 98.03.59 by midnight on December 11 to ensure you do not experience reporting and loan purchase transmission delays.”

• In yesterday’s commentary I stated that “Flagstar will no longer accept new registrations of 3- or 4-unit properties on either Fannie or Freddie programs.” As a correction, Flagstar will accept those under the conforming programs, just not under the superconforming or high balance programs.

• In addition, US Bank clarified that their recent changes are for the new Fannie changes. US Bank is going to require a 45 DTI when running LP on their Fannie products. However, they will follow the LP findings if the client is using a Freddie product.

Daily Humor
“Golf can best be defined as an endless series of tragedies obscured by the occasional miracle, followed by a good bottle of beer.”

“Golf! You hit down to make the ball go up. You swing left and the ball goes right. The lowest score wins. And on top of that, the winner buys the drinks.”

“A ‘gimme’ can best be defined as an agreement between two golfers …neither of whom can putt very well.”

“The best wood in most amateurs’ bags is the pencil.”

Hiring Brisk At Big Banks
A story in the Wall Street Journal confirms what many in our industry already knew, which is that mortgage restructuring is a growth business for hiring. The four key investors/servicers, Wells Fargo, Bank of America, Citgroup, and JPMorgan Chase “have collectively hired almost 17,000 people this year”. Given that almost 7 million households are 30 days or more overdue, that’s a lot of figuring out how much they can afford to pay each month! Wells alone, per the article, has hired 7,000 employees this year; Citi has added 1,400 jobs.

Treasury Auctions & Rates
Yesterday’s 2-yr sale didn’t move the markets much. The overall demand for the $44 billion 2-yr note was lower than last month’s auction. Historically speaking, a shortened holiday week can increase the volatility, either up or down, but with the additional supply coming into the market more folks are worried about prices heading down and rates going up. But it isn’t as if we didn’t know about the auction last week, right? And rates did fine, in spite of stocks rallying, gold hitting a new high, and an incredibly strong Home Sales number. And mortgage prices did especially well, since, as we’d expect, origination was slow. How long can this last?

Existing Home Sales
But how ‘bout that Existing Home Sales number being up over 10% and hitting the highest level in almost three years? We all knew that there would be a “first time home buyer tax credit ending” crunch, but it exceeded what experts had forecast. Inventories of previously owned homes decreased by 3.7% – that represented a 7-month supply at the current sales pace, with median prices down 7.1% a year ago. Regionally, sales in October compared to September rose 11.6% in the Northeast, 14.4% in the Midwest, 12.7% in the South, and 1.6% in the West.

GDP Report
We learned this morning that U.S. economy grew more slowly than initially thought in the third quarter. The second reading of 3rd quarter GDP showed 2.8 percent annual increase rather than the 3.5 percent pace it estimated last month and a touch below the 2.9% expected. Although we have another auction ahead of us, after the GDP news we find the 10-yr down to 3.34% and mortgage prices better by between .125-.250.

Lender Guideline Roundup
Affiliated, a lender (including correspondent division) out of South Dakota, is no longer accepting FHA 2008 products.

CitiMortgage told clients that their FHA fixed rate loans are now eligible to be originated as Higher Priced Mortgage Loans (as set forth in Regulation Z), provided all applicable FHA and Citi overlay guidelines and lending parameters are met. FHA ARMs, Hybrid ARMs and Streamlined Refinances are not permitted, nor are debt ratio exceptions. Also, after the 17th HUD “has issued a clarification to Mortgagee Letter #2009-32 regarding the use of TOTAL Scorecard on FHA Streamline loans with case numbers: “NO Credit Qualifying Streamline Refinance: Loan should not be run through TOTAL. However, if the loan is run through TOTAL the file must be underwritten and closed as a regular (non-streamline) rate and term (no cash out) refinance. And for “Credit Qualifying Streamline Refinance: Loan should be run through TOTAL via DU or LP.”

After tomorrow for Citi, regardless of the AUS findings, if the subject property being financed is a 1-4 unit investment property and rental income is being used for qualifying purposes, the borrower must have a 2-year history of managing rental property. And the Operating Income Statement is required on all single and multi-unit investment even if rental income is not used to qualify. And non-arms length transactions “must be manually underwritten by CitiMortgage and processed using full documentation (Modified/Standard documentation for conventional and government loans or CRA Full Documentation for community lending loans; no AUS).

Individuals Employed by an Interested Third Party.” Citi’s bulletin goes on to address loans to employees of its correspondents, property flipping (legitimate rapid resale transactions include property sales by employers or relocation agencies related to employee relocations, property sales by Government sponsored enterprise, etc. – best to check their guidelines), documentation for high cost loans (must include lock in agreement, rate sheet, lock confirmation, etc.), living trusts, mandatory data fields, etc.

Citi reminded customers 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.” “The new Appraiser Independence and other requirements are effective for Case Numbers assigned on and after January 1, 2010. CitiMortgage requires all Correspondents to be aware of and fully comply with the new HUD requirements.” Citi has taken the time to post their approved appraisers on www.agentsite.com as well as the Correspondent Website.

Flagstar notified clients that the maximum allowable fees test was reduced from 4.75% to 4.00%. For all “broker loans that are funded on or after December 1, 2009, and all correspondent loans that are closed and delivered on after December 1, 2009, the new maximum allowable fees test will be reduced to 4.00% from its previous ceiling of 4.75%. We would also like to remind our customers that all third-party fees, including lender and seller paid fees are included in the investor test.”

GMAC Bank Correspondent Funding sent out a series of announcements dealing with paper MI certificates, DU Refi Plus Fixed Texas Home Equity Product Guidelines, Short Sales policies for FHA loans, a reminder that FHA Streamline Refis are not eligible for AUS submission, and a VA IRRRL FICO clarification.

US Bank National Wholesale Division followed Freddie’s “Super Conforming Loan” limits for next year, in that they are unchanged. In addition, US Bank National Wholesale Division followed Mortgagee Letter 2009-48 with FHA’s changes to it appraisal requirements: it is no longer a requirement to obtain a second appraisal for loans greater than $417,000 secured by properties located in a declining market. And “it is no longer a requirement to obtain a second appraisal for loans greater than $417,000 on a cash-out refinance transaction in a declining market. However, FHA is retaining its requirement for a second appraisal when a property is resold between 91 and 180 days following acquisition by the seller, if the resale price is 100 percent (or more) higher than the price paid by the seller when the property was acquired. In this case a second appraisal must be obtained from another appraiser and the cost of the second appraisal cannot be charged to the homebuyer. The second independent appraisal must be completed by a FHA appraiser selected by the lender that is underwriting the mortgage. The lender is not to request a second case number through FHA connection.”

As of last Friday, Wachovia-serviced loans that are owned by Freddie Mac may now be eligible for the Freddie Mac Relief Refinance Mortgage program through Wells’ wholesale. Loans requiring MI are not eligible for the Freddie Mac Relief Refinance Mortgage.

Wells’ correspondent channel announced enhanced fidelity bond coverage requirements for condominiums for prior approval loans. “Wells Fargo Funding requires acceptable fidelity bond coverage for condominium projects greater than 20 units submitted for Prior Approval underwriting after Pearl Harbor Day (12/7). “If no state law exists, the amount of coverage must be at least equal to the greater of: three months of assessments/maintenance fees of all units in the project, or the sum of all cash and reserve fund monies that are in the custody of the condominium association or its management agent.” Delegated condominium loans must comply with Agency condominium requirements. And after 12/28, “the maximum LTV/CLTV allowed is 80% for condominium investment property transactions utilizing the Wells Fargo Prior Approval HOA Cert Review to qualify the project. If the LTV/CLTV exceeds 80% and the mortgage is secured by an investment property, Sellers are required to provide a Fannie Mae PERS. Prior Approval and Delegated cash-out refinance transactions utilizing LP decisions must meet Freddie Mac’s updated requirements according to Freddie Mac Bulletin 2009-24.

In order to meet Freddie Mac delivery requirements for cash-out refinance transactions as stated in Bulletin 2009-24, Wells Fargo will require conventional Prior Approval and Delegated loans decisioned with an acceptable LP feedback be purchased on or before December 14, 2009, when the transaction is a cash-out refinance combined with any of the following: Interest-Only payment feature LTV > 80% and no secondary financing, LTV/TLTV/CLTV > 75/80/80% with secondary financing.”

Daily Humor
A woman from New York was driving through a remote part of Arizona when her car broke down.
An American Indian on horseback came along and offered the New Yorker a ride to a nearby town. She climbed up behind him on the horse and they rode off.

The ride was uneventful, except that every few minutes the Indian would let out a ‘Ye-e-e-e-h-a-a-a-a’ so loud that it echoed from the surrounding hills.

When they arrived in town, he let her off at the local service station, yelled one final “Ye-e-e-e-h-a-a-a-a!” and rode off.

“What did you do to get that Indian so excited?” asked the service-station attendant.

“Nothing,” the woman answered. “I merely sat behind him on the horse, put my arms around his waist, and held onto the saddle horn so I wouldn’t fall off.”

“Lady,” the attendant said, “Indians don’t use saddles.”