THE BASIS POINT

Durable Goods Down, Oil Inventories Up, Treasury Auctions Continue

“In Alaska, wildlife officials want to protect the public from dangerous bears by dyeing the bears bright colors like blue, green and orange. Apparently, nothing calms down a man-eating bear like painting it.” And nothing calms mortgage servicers down like an all-day meeting with the Treasury Department. This happened yesterday, and they promised to “step up the pace” of loan modifications. “Today’s meeting was an opportunity to identify ways to accelerate the program and bring relief faster,” said Treasury Secretary Geithner. The administration said more than 200,000 trial loan modifications have begun (out of 370,000 who were offered modifications), and is setting a goal of starting at least 500,000 by Nov. 1.

Obviously there are concerns that the Obama administration will fall far short of its original goal of helping 3 to 4 million troubled borrowers with modified loans. And, of course, borrowers, housing counselors, and activist groups have complained that the application process is a confusing, bureaucratic nightmare. On the servicer side, they have had to hire and train thousands of employees, and work out logistics with hundreds of investors who often have differing rules about changes. Needless to say, this growth industry will likely benefit the servicing companies, and likely not trickle down to non-servicing brokers. Where do I send my resume?

Home Prices Drop Again
Yesterday, for the first time in three years, the S&P/Case-Shiller home-price index rose 0.5% in May from the prior month (although it is down 17% from May of last year). On the flip side, however, the Conference Board report showed consumer confidence fell more than forecast. But the housing price news was greeted as very good news, as more folks believe that things aren’t going to get any worse in the housing market. For the 14th straight month, every region declined from year-ago levels. Phoenix and Las Vegas were again the worst performers, with drops of 34% and 32%, respectively, followed by San Francisco with a 26% drop. (Phoenix is down 55% from its peak in mid-2006!) Now, if only they had jobs…

Stocks Selloff On Consumer Confidence Dip
Stocks were impacted with the Consumer Confidence number, on top of the fact that equity markets have improved so much recently that some kind of pull back was/is expected. Confidence hit a low in February, and has come back until the last two months of declines. The proportion of people who said jobs are hard to get climbed to 48.1 percent from 44.8 percent – is that surprising?

Mortgage Applications Up
For the week ending July 17, 2009, the MBAA reported that applications were up almost 3%. Refinancing apps were up about 4%, and purchase apps were up a little over 1%. Currently, just so you know, refinancing is about 55% of total applications, and fixed-rate loans make up about 95% of apps.

Durable Goods Down, Oil Inventories Up, Treasury Auctions Continue
Today for economic news we have Durable Goods Orders, normally pretty volatile and expected to fall, along with the release of the Fed’s Beige Book. Bond prices were up, thus rates are down, to start the day due to the biggest drop in Chinese stocks in eight months. As it turns out, Durable Goods had their biggest decline in 5 months and fell more sharply than expected in June, falling 2.5% after rising by a revised 1.3 percent in May. Gosh, maybe we’re not out of the recession yet? Oil inventories are up, which either means companies are refining more or people are using less – let’s hope it is the latter. We also have that small matter of selling $39 billion of 5-yr notes, and analysts are hoping that the auction is better received than the 2-yr sale was yesterday. Currently the yield on the 10-yr is down to 3.65% and the 5-yr Treasury and mortgage prices are better by about .125.

Lender Guideline Updates
GMAC Bank Correspondents should note that GMAC is following Fannie’s announcement regarding “Updates to Credit Score Requirements and Nontraditional Credit Report Requirements”: when at least one borrower in the loan transaction has non-traditional credit the representative credit score will be determined by using the lowest median credit score for all borrowers with traditional credit, and the representative credit score may not be lower than that allowed for the program. For pricing, underwriters should use the representative credit score as though no borrowers have traditional credit. “If a credit score is provided with a foreign credit report and the credit score is not the classic FICO, the score may not be used to establish eligibility.” GMAC also notes that a minimum of four sources of credit must be obtained and of those four sources, at least one source must be housing related (e.g., mortgage, rental housing payments) If the credit history for all borrowers consists only of non-traditional credit sources then the credit history must be defined as “high primary risk” when completed the Comprehensive Risk Assessment for Manual Underwriting.”

Wells Fargo’s correspondent group, also going along with Fannie & Freddie (and who doesn’t go along with Fannie or Freddie these days?), came out with their policy on properties listed for sale: regarding properties that have been listed for sale prior to application date, for rate/term refi’s Wells Fargo will purchase conforming rate/term refinance transactions where the subject property was listed for sale within the last six months, but was taken off the market prior to the application date. For cash-out refi’s Wells Fargo Funding will purchase conforming cash-out refinance transactions where the subject property was listed for sale within the last six months, prior to the loan application if the property was taken off the market prior to the application date and the maximum LTV/TLTV/CLTV is the lower of 70 percent or the maximum for product/occupancy/property type. (Wells Fargo will not purchase loan transactions where the subject property was listed for sale at the time of application.)

On the wholesale side of Wells Fargo, they “will accept properties listed for sale within the last six months for conventional conforming and High Balance Conforming Loan Program transactions with the following requirements: Subject property is an Investment Property AND rental income from that property is being used to qualify. Borrower must have two years property management experience documented with the most current two years filed and signed Federal IRS 1040 Tax Returns.”

Daily Humor
Bob, a handsome guy, walked into a sports bar around 9:58 pm. He sat down next to a blonde at the bar and stared up at the TV. The 10 pm news was coming on. The news crew was covering the story of a man on the ledge of a large building preparing to jump.

The blonde looked at Bob and said, “Do you think he’ll jump?”

Bob said, “You know, I bet he’ll jump.”

The blonde replied, “Well, I bet he won’t.”

Bob placed a $20 bill on the bar and said, “You’re on!”

Just as the blonde placed her money on the bar, the guy on the ledge did a swan dive off the building, falling to his death.

The blonde was very upset, but willingly handed her $20 to Bob, saying, “Fair’s fair. Here’s your money.”

Bob replied, “I can’t take your money. I saw this earlier on the 5 pm news, and so I knew he would jump.”

The blonde replied, “I did too, but didn’t think he’d do it again.”

Bob took the money…

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