FHA vs CONFORMING LOAN PRICING
Loan agents often have trouble explaining to clients why why pricing on FHA loans (which are often securitized in Ginnie Mae pools) is different than conforming conventional loans. Looking at the basic security marketing pricing, Ginnie Mae securities have a better price than Fannie Mae securities, given the same coupon. Fannie and Freddie don’t guarantee payments on home loans, but the FHA does. Fannie and Freddie guarantee payment made by servicers on their securities, similar to GNMA, but they don’t guarantee payments on the underlying collateral. That’s why a GNMA historically trades at a better spread to Treasury securities than FNMA or FHLMC securities: not only are the loan payments guaranteed by FHA and VA, but the security payments are also guaranteed by GNMA. Recently, however, this relationship has changed, and continues to change, based on investors’ interest in new loan limits, investors’ loss forecasts, the ability of HUD to absorb losses, the LTV make-up of pools, etc. By the time the basic securities market price is passed through to borrowers and agents, FHA pricing is often worse than conforming pricing!
MORTGAGE INDUSTRY ROUNDUP
- Is Washington Mutual still a force to be reckoned with in mortgage origination? They just announced plans to slash another 1,200 jobs, or 3% of their workforce, in its home lending unit as well as support staff in human resources and technology. Two months ago they cut 3,000 jobs, and this latest round gives WaMu 10% fewer employees than it did at the end of 2006. And note that WaMu’s stock has declined 85% over the last year.
- Speaking of declining stock prices, Lehman Brothers has cut their mortgage holdings by 20% in the second quarter to curb further damage after losing $2.8 billion. Their stock is down 60% this year. A good chunk of Lehman’s holdings were/are “AAA-rated” bonds backed by Alt-A mortgages which are priced at 70 cents on the dollar.
- Let me set the record straight: I did not receive a preferential loan from Countrywide. (Or any loan, for that matter!) Regulators are investigating allegations that some members of Congress received special mortgage rates from CW after word has leaked out about other “special loans”. It is rumored that senators Christopher Dodd and Kent Conrad (D-N.D.), among others, received lower interest rates on their mortgages because they were friends with Countrywide CEO Angelo Mozilo. Dodd and Conrad have denied that they knew they were receiving any preferential treatment, and Conrad has already agreed to donate the $10,700 in savings from his lower interest rate.
- US Bank’s wholesale group announced their new 3/1 and 5/1 IO qualifying guidelines: a maximum 45% DTI, a qualifying rate using the fully indexed rate of 1 year LIBOR + margin + 100 bps or the start rate + 100 bps, which ever is higher, and a qualifying payment: their 3/1 uses a 27 year amortization, and their 5/1 uses a 25 year amortization for qualifying payment.
- Chase is eliminating the Non-Agency Income Express products and Liquid Express reduced documentation programs available with their Non-Agency amortizing and interest only products.
In terms of news that is directly impacting mortgage rates, yesterday we had the weekly Jobless Claims showing 381,000 new claims for benefits were filed last week. This was higher than the 375,000 that was expected, which might have helped somewhat if May’s Leading Economic Indicators (LEI) hadn’t risen 0.1%, slightly exceeding forecasts. This means that economic activity is being predicted to rise slightly over the next three to six months. Generally speaking, however, mortgages have done very well this week – 30-yr prices are .375 better in price than they were at the end of last week, in spite of 10-yr yields being very close to where they were. The market has seemed content with the 10-yr Treasury in the 4.25%-4.10% range, and if locks continue to slow nation-wide mortgages should continue to outperform.
There is no news today, or really much until June 24th with the FOMC meeting and a large Treasury auction. That said, the 10-yr yield is down to 4.14% this morning, and 30-yr prices are better than yesterday afternoon by roughly .125 in price.
JOKE OF THE DAY
Why females should avoid a girl’s night out after they are married…
The other night I was invited out for a night with the ‘girls.’ I told my husband that I would be home by midnight, ‘I promise!’ Well, the hours passed and the margaritas went down way too easily. Around 3 a.m., a bit loaded, I headed for home.
Just as I got in the door, the cuckoo clock in the hallway started up and cuckooed 3 times. Quickly, realizing my husband would probably wake up, I cuckooed another 9 times. I was really proud of myself for coming up with such a quick-witted solution, in order to escape a possible conflict with him. (Even when totally smashed… 3 cuckoos plus 9 cuckoos totals 12 cuckoos = MIDNIGHT!)
The next morning my husband asked me what time I got in, I told him, “Midnight”. He didn’t seem upset in the least. Whew, I got away with that one!
Then he said, “We need a new cuckoo clock.”
When I asked him why, he said, “Well, last night our clock cuckooed three times, and then swore. Cuckooed 4 more times, cleared its throat, cuckooed another three times, giggled, cuckooed twice more, and then tripped over the coffee table and swore again.