Details Behind Bank Earnings, Loan Guideline Updates, Upcoming Treasury Auctions

When I was growing up, people didn’t have health clubs, thigh master, or Richard Simmons. We had Jack LaLanne. Everyone my age will be pleased to know that Jack (born in 1914) is still alive and well, living on the Central Coast in California. Born in San Francisco, his fitness show lasted 34 years on TV, and believes that “if man made it, don’t eat it” and “if it tastes good, spit it out”. Most of his publicity feats involve towing boats – for example, at age 62 to commemorate the bicentennial in 1976 he swam one mile in Long Beach Harbor while handcuffed and shackled towing 13 boats (representing the 13 original colonies) containing 76 people. Go Jack!

Details Behind Bank Earnings
This has nothing to do with mortgage banking, but perhaps Wells Fargo should hire Jack LaLanne to be their spokesman. Wells’ stock is down 17% this year, a portion of that coming yesterday when they announced their earnings. (By rough comparison, Citi is down 50%, BofA is unchanged, and Chase is +15% in 2009.) The biggest U.S. home lender said bad loans jumped in the second quarter as the recession made it harder for borrowers to keep up with payments. Assets no longer collecting interest climbed 45% to $18.3 billion as of June 30 from the first quarter, although their second-quarter net income soared 81% to a record $3.17 billion. Wells Fargo added to credit reserves, and continues to deal with the fallout from their acquisition of Wachovia and their option ARM loans, along with losses from defaults in California. One analyst said, “When Wells acquired Wachovia, the company took significant impairments (a/k/a ‘fair value’ or ‘purchase accounting’ marks) on roughly $60bln of Wachovia’s most problematic loan exposures (predominately Option ARMs, but also some commercial real estate (CRE) and other classes), with WB’s remaining $375bln portfolio considered ‘non-impaired’ for accounting purposes. The $5.5bln 1H09 increase in NPAs (to approximately 1.5% of assumed outstandings) for this portfolio doesn’t seem so outsized given economic/housing conditions, especially considering that $54bln of Option ARMs were not impaired in the purchase accounting (as a note 40% of the increase in WB legacy NPAs in 1H09 were residential mortgages, including $1.1bln Option ARMs. An additional 30% was CRE). “

On the other hand, Credit Suisse Group, who used to be a big Alt-A player, appears to be emerging as one of Europe’s strongest banks. CSFB announced that second-quarter net profit rose 31% on a healthy showing from its investment bank.

Fannie Mae New Automated Underwriting
Fannie Mae released their Desktop Originator/Desktop Underwriter User Interface July Update last weekend. Users will be pleased to know that it “provides the functionality for users of the DO/DU User Interface to opt out of DU Refi Plus consideration for a loan case file prior to underwriting and submit the case file as a standard limited cash-out refinance.” “As a reminder, users who access DO or DU via an integrated LOS or through direct integration should confirm with their provider or organization about the availability of the DU Refi Plus opt-out functionality depending on when they will be able to support the Product Description field (if it is not currently offered).”

Flagstar Compliance Changes
Flagstar officially announced their set of compliance changes due to the Mortgage Disclosures Improvement Act (MDIA) which becomes effective on July 30, 2009. “TILA disclosures now apply to any closed-end extension of credit secured by the dwelling of a consumer. This now includes non-principal dwellings. There must be a seven-business-day waiting period between the date the initial TIL disclosure is provided to the consumer and the closing / signing date of the loan. There must be a three-business-day waiting period between the date a final / redisclosed TIL is received by the consumer and the closing / signing date of the loan. No fees, other than a bona fide credit report fee, can be charged prior to the initial TIL disclosure being provided. Both final / redisclosed and initial TIL disclosures shall contain the following statement. ‘You are not required to complete this agreement merely because you have received these disclosures or signed a loan application.’” Etc.

Flagstar also made a few other changes, including a changed fee structure, changing the maximum loan amounts available for loans with lender paid mortgage insurance (LPMI – the maximum loan amount for any loan with LPMI is now $417,000, regardless of location or number of units, effective for all new Mortgage Insurance Certs issued), and Flagstar also announced a slightly changed pricing adjustments for North and South Carolina VA & FHA loans.

Mortgage Apps Up
And lock desks everywhere are noticing a slight increase in business. Last week the MBAA reported that applications were up for the third week in a row, rising almost 3%. Refinancing was up 4% and purchases were up about 1%.

Jobless Claims, Auctions Coming
Back to interest rates, which don’t seem to be doing too much. Things have improved somewhat in the bond market, however, with Bernanke’s comments that rates will remain low for quite some time. That, of course, doesn’t mean jumbo rates will be at 5% soon, but at least they may not be going any higher. Today we have already had Jobless Claims (+30,000 to 554,000, as expected) and we will see Existing Home Sales at 10AM EST. And later today our treasured Treasury Department will announce the amounts for next week’s sale of 2-yr, 5-yr, and 7-yr notes, along with sneaking in a 20-yr TIPS sale. After the numbers we find the 10-yr yield at 3.52% and mortgage security prices better by a smidge.

Daily Humor
Although not familiar with a lake, a lady decides to take the boat out to relax. She motors out a short distance, anchors, and begins reading her book.
Along comes a Game Warden in his boat. He pulls up alongside the woman and says, “Good morning, Ma’am. What are you doing?”
“Reading a book,” she replies, thinking “Isn’t that obvious?”
“You’re in a Restricted Fishing Area,” he informs her.
“I’m sorry, officer, but I’m not fishing. I’m reading.”
“Yes, but you have all the equipment. For all I know you could start at any moment. I’ll have to take you in and write you up.”
“For reading a book?” she replies.
“You’re in a Restricted Fishing Area,” he informs her again.
“I’m sorry, officer, but I’m not fishing. I’m reading.”
“Yes, but you have all the equipment. For all I know you could start at any moment. I’ll have to take you in and write you up.”
“If you do that, I’ll have to charge you with sexual assault,” says the woman.
“But I haven’t even touched you,” says the game warden.
“That’s true, but you have all the equipment. For all I know you could start at any moment.”
“Have a nice day ma’am,” and he left.