THE BASIS POINT

Rates Higher On The Open, Political News Eclipsing Market News For Now

What is new besides Vice Presidential nominee Palin’s 17-yr old unmarried daughter being pregnant? Not much is new with mortgages, aside from rates being higher this morning. A farmer won $50 million in the multi-state lottery. When his local newspaper asked him what he was going to do with the money, he replied: “I’m going to invest all the money in my business and continue to farm until it’s all gone.” (Thank you Ted O.!) Remember, life is simpler when you plow around the stump. (The Palin news sure hits home with every parent, including myself.)

Current Market
Some firms had light lock days on Friday, others had heavy days. Interesting. But everyone who locked late last week should be happy, since rates have moved up over the weekend. Hurricane Gustav has become a heavy rain storm, missing oil production facilities, leading to a big drop in oil prices, a rally in the stock market, and thoughts of a strong economy. There is a large amount of economic news due out this week, causing some nervousness in the interest-rate markets. Today we get Construction Spending, the ISM Manufacturing Index and the ISM prices paid releases (the ISM index is expected to fall 0.5 points to 49.5, and the “Prices-Paid” index is expected to decrease 6.2 points to 82.3).

Looking ahead of economic news, tomorrow we’ll see July’s Factory Orders, on Thursday Initial Jobless Claims, 2Q Revised Productivity & Labor Costs, and then on Friday we have Nonfarm Payrolls and the Unemployment data. As I type this the 10-yr stands at 3.86%, and 30-yr mortgage prices are worse by roughly .375 in price versus Friday’s closing levels. This translates into about .125% in rates for consumers.

Investor news
Chase announced two changes to their agency product offerings: Acceptability of DU recommendations on Agency jumbo transactions, and a new policy for determining the representative FICO on Conventional Agency loans. Effective yesterday, Chase will accept a DU Recommendation on Agency Jumbo Fixed and Agency Jumbo 5/1 Amortizing ARM transactions. And for Chase, beginning October 1, all Agency Jumbo Fixed and Agency Jumbo 5/1 Amortizing ARM transactions, excluding co-ops and 2-unit properties, must receive a DU Approve/Eligible recommendation. Manual underwriting will no longer be an eligible underwriting option for the Fannie Mae Market Types and Property Types addressed in this communication. ­­­Remember that DU/DO will not approve any Agency Jumbo loan with a DTI over 45%. The max of 45% is a hard guideline that has been built into DU. DU/DO may still return findings asking for limited documentation on employment and/or income, such as only 1 pay stub for a wage earner or 1 year 1040’s for a self-employed borrower, and these findings may be followed.

Businesses are springing up to help borrowers with their modification process. Some seem a little more “above board” than others, for example this loan modification firm looks pretty good.

If you think that FHASecure is the way to go, you may want to reconsider. According to an article in Forbes, data from FHA (which oversees FHASecure) shows that the number of delinquent borrowers helped by the program is only 4,000. Since September ’07, only 1.2% of the loans refinanced by the FHA were made to borrowers in default, far below what the government had forecast. So far this year the FHA refinanced over 324 thousand loans so far this year. FHASecure, however, is very restrictive, and has some serious price hits by investors. Only borrowers with adjustable-rate mortgages who were less than 90 days delinquent on their payments could apply, and lenders had to prove borrowers were in arrears due to ARM resets, though there are many other factors pushing them into default.

Joke of the day
After having dug to a depth of 10 feet last year, New York scientists found traces of copper wire dating back 100 years and came to the conclusion, that their ancestors already had a telephone network more than 100 years ago.
Not to be out done by the New Yorkers, in the weeks that followed, in California an archaeologist dug to a depth of 20 feet, and shortly after, headlines in the LA Times newspaper read: “California archaeologists have found traces of 200 year old copper wire and have concluded that their ancestors already had an advanced high-tech communications network a hundred years earlier than the New Yorkers.”
One week later, The News and Observer, a local newspaper in North Carolina, reported the following: “After digging as deep as 30 feet in his pasture near Beech Grove, Wake County, North Carolina , Bubba Mitchell, a self-taught archaeologist, reported that he found absolutely nothing. Bubba has therefore concluded that 300 years ago, North Carolina had already gone wireless.”