Homebuyer Tax Credit Expiration Reminder, Seven More Banks Closed, CitiMortgage Re-Emerging

Homebuyer Tax Credit Expiration Reminder
Two nuns, a penguin, and a man with a parrot on his shoulder walk into a bar. The bartender says, “What is this – some kind of joke?” Not a joke are two key deadlines looking: the end of the first time home buyer tax credit is in sight, and I have heard nothing about any extensions. Borrowers need to be in contract by April 30 and close by June 30. Also the FHA upfront MIP is increasing from 1.75% to 2.25% with case numbers issued after April 5.

CitiMortgage Re-Emerging
CitiGroup’s CitiMortgage has been in the press (here and here), apparently re-entering the correspondent lending business channel (that buys loans from mortgage banks who originate, fund and close the loans) in spite of earlier reports that it was scaling back home lending. The company is reportedly reactivating 50-70 clients on a rolling basis, so not every client that was approved by them “in the old days” from over a year ago will be reactivated. The words “focus on quality and long-term sustainability” were used, along with “high-quality lenders who provide superior quality loans”, which should put taxpayers’ minds at ease since the US Treasury still owns roughly 30% of CitiGroup’s common stock.

Mid-Tier Firm Stearns To Serve Mortgage Banks
And according to one report Stearns Lending, a wholesaler headquartered in Southern California, will be launching a new correspondent program next month according to its founder and CEO. This was reported in National Mortgage News.

Don’t Ignore Reverse Mortgages
Pentagon Federal Credit Union (PenFed) and Sun West Mortgage Company announced a joint initiative that allows PenFed to offer the FHA reverse mortgage program to its members. This will initially take place in Washington, D.C., Maryland, and Virginia. The credit union will offer its members a HECM without an origination fee nor the typical monthly servicing fee. SWMC will provide systems to originate and service the loans.

This reminds originators that no one is getting any younger, and it would seem that reverse mortgages, which essentially allow homeowners to exchange the equity in their homes for a stream of income, will only increase in volume in the near future. For investors, reverse mortgages provide unique cash flows with limited average life variability, especially with FHA’s Home Equity Conversion Mortgage (HECM) program and GNMA HMBS securities. FHA’s HECM program is the dominant producer of reverse mortgage loans, and these loans are being securitized into GNMA HMBS pass-throughs. Investors seem to like them, especially with the non-agency security business at a standstill, since the cash flows are extremely stable and refinancing risk is extremely limited for these loans so these bonds have essentially no convexity.

Seven More Banks Closed
Seven banks with assets of over $3.3 billion were closed Friday, with the FDIC acting as receiver in all seven at a cost to its deposit insurance fund of about $1.3 billion. American National Bank (OH) was acquired by The National Bank & Trust Company (OH), Century Security Bank’s (GA) assets were assumed by Bank of Upson (GA), Appalachian Community Bank’s (GA) were assumed by Community & Southern Bank (GA), Bank of Hiawassee (GA) was taken over by Citizens South Bank (NC), First Lowndes Bank (AL) was taken over by First Citizens Bank (AL), State Bank of Aurora (MN) was taken over by Northern State Bank (WI), and lastly Advanta Bank (UT) was closed, but no buyer was found.

Economic Preview For Week
Let’s talk about interest rates! This week we will see the Treasury auctioning off another $118 billion, with the usual questions about demand from foreign investors. Certainly there is little fear of inflation eating away fixed-income earnings. After a long winning streak, stocks took a dip Friday, and appear to be continuing that today. There is no news today, but tomorrow we have Existing Home Sales and Wednesday New Home Sales. Durable Goods is also scheduled for Wednesday. Thursday is Initial Jobless Claims along with Personal Income and Consumption, and on Friday we have a report on first quarter Gross Domestic Product (GDP) along with Consumer Sentiment from the University of Michigan.

Mortgage Bond Performance
In mortgage-land, we finished last week with moderate originator selling (estimated to be about average at $1.5 billion) with the Fed, hedge funds, and pension funds doing some buying. Investors were mostly focused on the implications of Fannie’s buyout program over the next few months, and trying to align their portfolios with the expected consequences. In addition, over time the Fed may want to shrink their now massive holdings of mortgage securities. Smarter minds than mine estimate that about $200 billion worth will run off by the end of 2011 as the loans mature or are paid off by borrowers – but will the Fed gradually sell some of the rest? Probably. Today’s 10-yr yield is sitting around 3.69% and the 5-yr Treasury price, along with mortgage prices, is roughly unchanged.

Daily Humor
On his 74th birthday, a man received a gift certificate from his wife. The certificate paid for a visit to a medicine man living on a nearby reservation who was rumored to have a wonderful cure for erectile dysfunction. After being persuaded, he drove to the reservation, handed his ticket to the medicine man.
The old man slowly, methodically produced a potion, handed it to him, and with a grip on his shoulder, warned, “This is powerful medicine and it must be respected. You take only a teaspoonful and then say ‘1-2-3′. When you do that, you will become more manly than you have ever been in your life and you can perform as long as you want.”

The man was encouraged. As he walked away, he turned and asked, “How do I stop the medicine from working?”

“Your partner must say’1-2-3-4,’ he responded, “But when she does, the medicine will not work again until the next full moon.”

He was very eager to see if it worked so he went home, showered, shaved, took a spoonful of the medicine, and then invited his wife to join him in the bedroom. When she came in, He took off his clothes and said, “1-2-3!”

Immediately, he was the manliest of men. His wife was excited and began throwing off her clothes. And then she asked, “What was the 1-2-3 for?”

And that, boys and girls, is why we should never end our sentences with a preposition because we could end up with a dangling participle.