Appraisal Rules Under Fire, Job Loss Coverage For Mortgages, Bad News For Dow, AIG, Chase, Home Prices

Jay Leno said, “California finally passed a budget. Now Californians can go back to doing what they do best … buying homes they can’t afford.” Little do they realize how much the rest of the nation believes this to be true.

Dow Hammered, Home Prices Record Drop
Not only Californians but everyone else in the nation generally has less money in their 401(k)’s, and less money in their savings, as the stock market continues to slide. Yesterday the DOW dropped -250 points and the S&P 500, a better measure of the broad market, is at lowest level since 1985 compared to earnings. We didn’t see much of the equity money flowing into the bond market, at least the long end, as prices and rates did not move much. Overnight Asian stocks hit a 5-yr low. The markets will have some things to chew on today, with the December S&P/CaseShiller home price index (20 cities) declining 18.5% in December from a year earlier, the fastest drop on record, as foreclosures climbed and sales sank. (This index has fallen every month since January 2007, and year-over- year records began in 2001!) Along with the OFHEO US house price index is also expected to show signs of further price depreciation of -1.7% m/m in December. Fed Chairman Ben Bernanke begins his two day semi-annual monetary report with an appearance before the Senate, the Treasury will auction $40 billion in 2-yr T-notes, and at 10AM PST Consumer Confidence will be announced. The 10-yr is currently at 2.73% and mortgages are roughly unchanged from Monday afternoon.

AIG Still Hurting
In news greeted by pure Capitalists everywhere, American International Group Inc., the insurer bailed out by the taxpayer, may restructure its $150 billion rescue package for a second time in four months. “They should have been allowed to fail in the first place!” detractors of government bailouts will claim. AIG may convert the government’s preferred shares into common stock to reduce pressure on the company’s cash flow since AIG pays a 10% dividend on preferred stock, and none on common shares. AIG, as you may recall, was once the largest insurer by assets and is expected to report a fifth straight quarterly loss, casting further doubt on the company’s ability to repay the US government.

Mortgage Insurance Losses, Chase Cuts Dividend
Radian Group reported a net loss for the quarter ended December 31, 2008 of $250.4 million compared to a net loss of $721.0 million for the prior year quarter. The net loss for the full year 2008 was $410.6 million compared to a loss in 2007 of $1.3 billion. JPMorgan Chase & Co , the second-largest U.S. bank, slashed its common stock dividend 87% on Monday, a surprise move by a lender considered among the strongest in the U.S. financial sector. JPMorgan said its decision to lower its quarterly dividend to 5 cents per share from 38 cents will save $5 billion a year, and contribute toward paying back the $25 billion of capital it got in October from the government’s Troubled Asset Relief Program.

Appraisal Rules Under Fire
The National Association of Mortgage Brokers (NAMB), filed a lawsuit with the United States District Court for the District of Columbia against the Federal Housing Finance Agency (FHFA) Director James B. Lockhart over the controversial Home Valuation Code of Conduct (HVCC) included in the appraisal agreements between the FHFA, Fannie Mae and Freddie Mac (GSEs), and New York Attorney General Andrew Cuomo. “The HVCC does nothing but drive up costs for consumers and push small businesses out of the market,” said NAMB President, Marc Savitt. “The HVCC will drastically reduce the ability of mortgage brokers to provide consumers with an efficient and cost-effective means of obtaining a mortgage.” According to the press release, “NAMB strongly supports policy initiatives that seek to ban coercion of appraisers. However, NAMB believes it is critical for mortgage and real estate professionals to maintain an appropriate level of contact with appraisers to ensure appraisal quality and independence. NAMB argues the HVCC is a “de facto” regulation and holds the FHFA in violation of the Administrative Procedures Act of 1992. The HVCC is arbitrary and capricious, contrary to the intent of Congress and in direct conflict with regulations, policies and guidelines regarding appraisal standards already issued.”

Speaking of which, with CitiMortgage mortgage brokers will still be allowed to order an appraisal directly if the loan is going to be FHA. Per their help desk, “You only need to use the appraisal management system when it’s a conventional loan.”

Conforming Loan Limits Announced
FHFA officially announced the changes to the conforming loan limits for 2009. For the official documentation supporting the “Homeowner Affordability” plan, check out the following links: Link 1. Link 2. Link 3.

Lenders Change FHA/VA Guidelines
SunTrust will implement changes to their FHA and Veterans Administration (VA) loan programs. For “Non-Traditional Credit for Qualification Purposes”, borrowers relying upon non-traditional credit for qualification purposes are no longer eligible, and all borrowers must meet a minimum required credit score of 640, regardless of the AUS findings. For FHA Streamline Refinances, they will only allow “SunTrust to SunTrust” FHA streamline refinances transactions (credit qualifying and non-credit qualifying) will be eligible, and the eligibility of non-SunTrust to SunTrust FHA streamline refinance transactions (credit qualifying and non-credit qualifying) is being eliminated. The same with VA. Underwriters will be looking for the minimum required credit score for each borrower equal to or greater than 640, the tri-merged in-file credit report must reflect zero (0) thirty (30) day late payments on the mortgage being refinanced in the past twelve (12) months, and all other open tradelines cannot reflect more than two (2) accounts with late payments and cannot exceed one (1) thirty (30) day late in the past twelve (12) months.

Franklin American also announced a revision to their credit parameters for all FHA and VA loans. These changes are effective for all loans locked on or after today. For FHA, “Standard” loans they lowered the maximum LTV for cash-out refinance transactions to 85%, increased the minimum credit score requirement on Standard FHA to 620, reiterated that credit reports utilized for streamline refinances seasoned 12 months or more need only contain the mortgage payment history and the credit scores. And streamline refinances seasoned less than 12 months require a full credit report and must meet additional credit parameters. For Jumbo loans, Franklin increased the minimum credit score on FHA Jumbo purchase and rate-term refinance transactions to match the minimum credit score on cash-out at 660. FHA Jumbo is defined as base loan amounts > $417,000 for a 1-unit property, or > $533,850 for a 2-unit property.

Homebuilders Offer Mortgages With Job Loss Coverage
Toll Brothers will purchase Involuntary Unemployment Insurance (Job Loss Coverage) on behalf of eligible home buyers who close and fund their loan with TBI Mortgage, a subsidiary of Toll Brothers, Inc. The insurance policy will be issued and managed after settlement by an A-rated insurance company or their agent.

Daily Humor
During the Revolutionary War, there was a small encampment of patriot soldiers the woods. Before they went to bed that night, they tied chickens (they were saving them for a special meal when needed) to the trees around the campground.
Sure enough, some British soldiers were stumbling through the woods that night and frightened the chickens. Their screams and clucks woke the Patriots and they were able to defeat and capture the entire group of British soldiers. A few nights later, the cook prepared the chickens for dinner.
The soldiers said, “This is really good. What do you call it?”
The chef said that in honor of these special chickens that saved their lives, he called it “Chicken Catch a Tory.”