THE BASIS POINT

41 Failed Banks In 2010, Jumbo Mortgage News, FHA Mortgage Insurance Increasing April 5

FHA Mortgage Insurance Increasing April 5
All investors (Citi, Chase, BofA, Flagstar, etc., etc.) are reminding their clients that, as a result of January’s FHA’s Mortgagee Letter 2010-02, the Upfront Mortgage Insurance Premium (UFMIP) will increase to 2.25% effective for all case number assigned on or after Monday, April 5, 2010. This applies to FHA purchase transactions and all refinance transactions including FHA-FHA Streamline credit qualifying and non-credit qualifying loans. Even ordering case numbers late this week may not get in under the deadline – best to do it as early as possible. (Title 1, HECM’s, Hope for Homeowners, Hawaiian Homelands, and a few others are exempt.) At this time, there is no change to the annual (monthly) mortgage insurance premium factors.

For More Banks Fail: 41 Since January
“FDIC”, “Friday”, and “four banks” all start with the letter “F”. Four U.S. banks were seized Friday by state regulators, two in Georgia (McIntosh Commercial Bank and Unity National Bank, taken over by CharterBank and Bank of the Ozarks, respectively), one in Florida (Key West Bank, assumed by Centennial Bank of AR), and one in Arizona (Desert Hills Bank, assumed by New York Community Bank), bringing the total number of bank failures since the beginning of 2008 to 206 and to 41 this year.

The FDIC announced that when the FDIC is appointed receiver and simultaneously announces a sale of the failed bank’s assets, that does not mean that these assets are automatically transferred by state law, nor does it mean that the buyer can be deemed a “successor” to the failed bank. The “conveyance of all assets, including real and personal property interests, purchased by the assuming bank under this agreement shall be made, as necessary, by receiver’s deed or receiver’s bill of sale… The FDIC is prepared to execute releases, deeds of REO, assignments, etc. as receiver.” The FDIC will commonly grant a power of attorney to certain individuals at the failed bank, at the buyer bank, or internally, to enable the execution of these instruments, and the institution is responsible for ensuring that the power of attorney complies with state law requirements for the recordation of these instruments.

Jumbo Market Progress
Wells Fargo joined other lenders in offering a “new” jumbo product on a risk-based approval system to broker and correspondent clients who have solid past performance. The program goes up to $2 million, LTV’s of 80% (no subordinate financing), fixed rate and ARM’s, purchases and rate/term refinances, primary residences, with a 720 minimum FICO. It starts today.

New Government Lending Aid
What are the smart folks out there saying about the HAMP changes that were announced last week? The new FHA program will take underwater borrowers, write them down to 97.5%, and the borrowers will then be refinanced into a new FHA loan. Apparently any second liens don’t have to be extinguished, borrowers don’t have to show hardship, and the new program is from the US Treasury so it probably falls under servicer safe harbor jurisdiction. Previously modified loans will be eligible. Borrowers must be eligible for FHA loans (not a high bar) and have to provide documentation. From an investor point of view, apparently the news is good.

Bad Week For Rates Last Week
Last week was not the best week for interest rates (including mortgage rates). Overall a combination of the increasing US Government budget deficit, continued problems with Greece and European debt were the primary culprits, along with some signs that our economy is picking up a little steam (stocks are hitting 18-month highs). Two out of the three auctions did not go well, and gee, what will the Fed do with the $1+ trillion of agency Fannie/Freddie product it has purchased? This week brings the end of the Fed’s buying program – and who is going to buy mortgages? Smart money is betting that the same institutions that invested in mortgages prior to the Fed will take up the slack: pension funds, insurance companies, hedge funds, money managers, and banks. Besides, origination is supposed to drop, right? And if rates go up too high, our housing market will get smacked – something that the Federal Government doesn’t want to see happen.

Loan Performance & Home Sales Both Down
Unfortunately departments within the Treasury Department (OCC and OTS) said the percentage of current and performing mortgages fell to 86.4% at the end of the fourth quarter of 2009, falling for the seventh consecutive period. This means that serious delinquencies rose: a 21.1% increase in mortgages 90 or more days past due to 4.7% of all mortgages in the portfolio at the end of 2009. The increase in seriously delinquent mortgages was most pronounced among prime borrowers, which account for 68% of all mortgages. To continue the “good news”, home sales are slumping, with New Home Sales falling to an all-time low and Existing Home Sales dropping for the third consecutive month, and homebuilder sentiment has dropped.

Economic Preview This Week
What do we have to look forward to this week? Besides Easter coming up next Sunday, today we have Personal Income & Consumption and the PCE Price Index, Tuesday the S&P/Case-Shiller Home Price Index & Consumer Confidence, Wednesday the Chicago Purchasing Managers Index, Thursday we have Initial Jobless Claims, Construction Spending, and the ISM Manufacturing data, and then on Friday we’ll see the employment data – expected to show a pickup in jobs.

Personal Income & Expenditures
Personal Income was expected +.2% but came out as unchanged for February. Personal consumption expenditures were expected to rise, and did, coming out at +.3%. After the data, bonds and stocks didn’t do much. The 10-yr seems happy for the moment around 3.87%, and mortgage prices are about unchanged from Friday’s closing levels.

Daily Humor
Three sisters, ages 92, 94 and 96, live in a house together.

One night the 96-year-old draws a bath. She puts her foot in and pauses. She yells to the other sisters, “Was I getting in or out of the bath?”

The 94-year-old yells back, “I don’t know. I’ll come up and see.” She starts up the stairs and pauses “Was I going up the stairs or down?”

The 92-year-old is sitting at the kitchen table having tea listening to her sisters. She shakes her head and says, “I sure hope I never get that forgetful, knock on wood.”

She then yells, “I’ll come up and help both of you as soon as I see who’s at the door.”

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