FNMA/FHLMC vs. FHA GUARANTEES
Fannie and Freddie don’t guarantee payments on home loans, but the FHA does. Does the FHA guarantee the servicer payments and also the payments on underlying collateral? FHA guarantees for a fee (known as MIP) to the GNMA MBS security issuer that the borrower will make their payments, but if the borrower fails, then the security issuer has to service the loan through foreclosure, and submit the costs to FHA for reimbursement. During that time, the Security issuer (servicer) also must advance principal and interest payments on non performing loans to the investors in the GNMA pool, which is never a money-making venture and why many have drawn the line at a 580 FICO score. FHA does not guaranty that the servicer will make it’s payments to the investor, but that is where GNMA comes in. GNMA guarantees, for a fee, to the end investor that the servicer will make the payments to them. If the servicer fails or becomes insolvent, then GNMA can seize the pool (made up of strictly FHA and VA loans) and assign the servicing to a different institution to fulfill its guaranty to the investor. For more information visit here and here.
MORTGAGE INDUSTRY UPDATES
I was reminded a few weeks ago of a poem by Ogden Nash: One rule which woe betides the banker who fails to heed it. Never lend any money to anybody unless they don’t need it.
Do your clients ever ask the “Rent versus own” question? Here’s a good rent-vs-buy analysis tool from the New York Times.
Wells Fargo, effective July 1, to “appropriately manage agency repurchase risk associated with reduced documentation” will no longer accept conforming conventional loans documented in accordance with income doc relief provided by LP or DU without additional income validation. Sellers can either provide a 4506-T (and includes the tax return information in the file, and seller warrants to Wells Fargo that any difference between income documented in the tax return information and income input into LP/DU is “reasonable, defendable and supported by information and documentation contained within the loan file”), or provide pay stubs and tax returns (providing only a written or verbal VOE does not meet this condition.)
Effective immediately, HSBC is eliminating Condos as an eligible property type on Freddie Mac Conforming Jumbo Program. This is in response to a clarification with Freddie Mac which does not allow for Streamline Review of Condo Projects.
Effective last Friday, Countrywide wholesale re-introduced Fannie Mae’s Expanded Approval (EA) Level I and II loans to their product suite.
Rates are roughly unchanged this morning, with the 10-yr hovering around 4.14%. We have the first leg of two US Treasury auctions today (1PM EST) with $30 billion 2-yr notes (currently yielding 2.90%). The Case-Shiller index showed that house price continue to decline: declines extended to 15.3% from 14.3% on a year-over year basis, not as bad as expected, but at a seasonally adjusted annual rate house prices fell at a pace of around 20% in April. Also ahead are the Consumer Confidence numbers and a report from the Richmond Fed. Many economists do not expect an improvement in treasury yields or mortgage prices in the near term. Inflation concerns are a dominant concern, and this is being weighed against the fear that the economy may not be very strong, especially with everyone spending their incomes on gasoline and food. The flooding in the Midwest is not going to help, and most expect higher prices for grains, which will impact meat and chicken. Most agree that mortgages are probably one of the best investments out there given the strict underwriting guidelines, and portfolio lenders will reap the benefits.
JOKE OF THE DAY
Single Word Puns
1. ARBITRATOR: A cook that leaves Arby’s to work at McDonalds.
2. AVOIDABLE: What a bullfighter tried to do.
3. BERNADETTE: The act of torching a mortgage.
4. BURGLARIZE: What a crook sees with.
5. CONTROL: A short, ugly inmate.
6. COUNTERFEITERS: Workers who put together kitchen cabinets.
7. ECLIPSE: What an English barber does for a living.
8. EYEDROPPER: A clumsy ophthalmologist.
9. HEROES: What a guy in a boat does.
10. LEFTBANK: What the robber did when his bag was full of money.