Consumer Guide To Credit Reports, Foreclosure Crisis Primer, Wake Up Call To Loan Agents

Markets Don’t Know What To Do
If you’re a trader, running a position and inclined to make occasional knee-jerk buy/sell decisions based on economic news, what would you have done yesterday with these headlines: Producer Prices show inflation is less than expected, Industrial Production rose 0.5% in October, the most in three months, Capacity Utilization was flat at 74.8% but still above the lows seen in mid-2009, and home builder confidence improved slightly in November? (Slight increases in expected six month’s sales and in prospective buyer’s traffic accounted for the uptick, though current home sales stayed level.) Markets are often like springs, and, when stretched too far, can zip back the opposite way. After last week’s and Monday’s rate increases, the bond market improved Tuesday. It might have done that anyway, even without the economic news.

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.”