Harvard Housing Study, RESPA primer, Thornburg Update

“Here in California why is it that a real estate agent (through their broker of record), can refer business to another, and ask/get a referral fee, while, for a loan agent, we cannot refer business to another loan agent, and get a referral fee, even if it was paid to our broker of record?” Loans are federally governed by RESPA — the Real Estate Settlement Procedures Act. California’s Real Estate law allows commission splits for the sale of real estate (one could call it a referral). RESPA only governs the settlement process, which starts with the loan, but the sale of real estate is not part of the settlement process. The RESPA rule applies to 1-4 family loans that will end up in the secondary market, and other than a small employee exemption RESPA doesn’t allow anyone to receive “any thing of value” for the referral of a settlement service. No RESPA regulation says you cannot pay or receive a thing of value for the referral of a settlement service (a loan, appraisal, title policy etc.).

RESPA applies to all transactions involving a “federally related mortgage loan,” which “includes most loans secured by a first or subordinate lien on residential property. Home purchase loans, refinances, lender-approved assumptions, property improvement loans, equity lines of credit, and reverse mortgages all fall under the purview of RESPA. RESPA defines a “federally related mortgage loan” with a multitude of clauses, including “any loan which is secured by a first or subordinate lien on residential real property upon which there is located, or will be constructed using the proceeds of the loan, a structure designed principally for the occupancy of 1 to 4 families and that is made in whole or in part by any lender the deposits or accounts of which are insured by any agency of the federal government, or is made in whole or in part by any lender which is regulated by any agency of the federal government; is made in whole or in part, or insured, guaranteed, supplemented, or assisted in any way, by the Secretary or any other officer or agency of the federal government or under or in connection with a housing or urban development program administered by the Secretary or a housing or related program administered by any other such officer or agency; is intended to be sold by the originating lender to Fannie Mae, Ginnie Mae, Freddie Mac, or a financial institution from which it is to be purchased by Freddie Mac…” etc.

Thornburg’s securitization has been delayed, and this is what Thornburg uses in creating their prices and rates. And there are issues with the buyback of the preferred stock. New investors who helped the company a few months ago with a cash infusion have agreed to wait until Sept. 30 for the company to convince its preferred stockholders to tender their shares. (As part of the deal, two-thirds of preferred shareholders had to tender their shares for $5 in cash and 3.5 shares of common stock by June 30 in order to avoid a number of adverse consequences for current shareholders.) The revised agreement gives the company three more months. If the tender offer is not completed, the interest rate on the company’s Senior Subordinated Secured Notes due 2015 stays at 18% instead of dropping to 12%, costing an additional $69 million per year. Expect a July issue now, which puts Thornburg’s issuance of a rate sheet into late July or August.


This morning the Labor Department announced that in June US employers cut workers from their payrolls for the sixth straight month – the country’s longest losing streak since 2002. As expected, 62k jobs were lost from non-farm payrolls while the unemployment rate was unchanged at 5.5%. For 2008, non-farm payrolls are -438,000. April was also revised lower, taking combined April and May U.S. job losses 129,000, or 52,000 more than previously thought. Unemployment is up, and the stock market is down 15% in 2008, so anyone who thinks that the economy is doing well is off-base. But inflation is a problem – oil went above $145 per barrel, just in time for me to fill up my Prius. Later we have the ISM non-manufacturing index, expected to drop -0.7 points to 51.0 adding to the -0.3 decline seen in May. Our good ol’ 10-yr seems pretty comfortable around 3.99%, and mortgage prices are about unchanged from yesterday afternoon.

We had some sobering news from a study on Harvard on housing. “The weakness of the economy does not bode well for income growth in the short run. But even in the longer run, the housing cost pressures on working Americans are unlikely to lighten. Much of employment growth will continue to be in part-time and low wage positions. This trend, together with the high operating costs of housing and the restrictions on building modest homes at higher densities, makes efforts to meet the nation’s affordability challenges an uphill battle. Thus far, there has been little national outcry about the fact that growing numbers of low- and middle-income families are spending half or more of their incomes on housing, and that so many children are living in unhealthy, unsafe conditions—or, worse yet, forced to make their way on the streets…”

A mortgage broker goes to the doctor with a long history of migraine headaches. When the doctor does his history and physical, he discovers that his poor patient has had practically every therapy known to man for his migraines and STILL no improvement.

“Listen,” says the Doc, “I have migraines too, and the advice I’m going to give you isn’t really anything I learned in medical school, but it’s advice that I’ve gotten from my own experience. When I have a migraine, I go home, get in a nice hot bathtub, and soak for a while. Then I have my wife sponge me off with the hottest water I can stand, especially around the forehead. This helps a little. Then I get out of the tub, take her into the bedroom, and even if my head is killing me, we’re “intimate”. Almost always, the headache is immediately gone. Now, give it a try, and come back and see me in six weeks.”

Six weeks later, the broker returns with a big grin.
“Doc! I took your advice and it works! It REALLY WORKS! I’ve had migraines for 17 years and this is the FIRST time anyone has ever helped me!”
“Well,” says the physician, “I’m glad I could help.”
“By the way, Doc,” the broker adds, “you have a REALLY nice house.”