How TARP Banks Work With Treasury, Mortgage Banks vs. Brokers, Is Fed Helping Rates?

Counterfeit money arrests are at a five year high. Apparently there is one group in particular that is printing all kinds of worthless money: the U.S. Treasury. Seriously, Wells Fargo is paying the Federal Government (and therefore us, the taxpayers, right?) a total quarterly dividend of $371.5 million based on the U.S. Treasury owning 25,000 shares of Fixed Rate Cumulative Perpetual Preferred Stock ($14,861 per share). Wells Fargo went on to say:

Since credit began contracting 18 months ago, Wells Fargo has made almost half a trillion dollars in new loan commitments and mortgage originations…last quarter alone, Wells made $22 billion in loan commitments and $50 billion in mortgage originations. That’s more than $70 billion or almost three times the amount of the U.S. Treasury’s investment in Wells Fargo.

Citi’s new U.S. lending totaled $75.0 billion in the 4th quarter, which is spelled out in a report they issued this morning detailing the deployment of the $45 billion of capital the U.S. Treasury invested in them as part of TARP.

Mortgage Brokers vs. Mortgage Bankers
Let’s say that you are an investor, and still buying loans from brokers. You want to scale back this broker business, however, but don’t want a nasty public relations mess on your hands? Why not just slowly raise credit requirements, increase underwriting guidelines, make having an appraisal done more difficult, and slow down/eliminate new approvals, therefore skipping that whole nasty announcement thing. One Maryland broker sent me an e-mail saying:

I sent my broker package in to SunTrust last week and they are no longer accepting new brokers…or at least for now. I was told they are going through current ones and weeding out the dead weight.

Suddenly brokers are learning a new word(s): “pull through”, or “pullthrough”. However it is spelled, many point to poor TPO pull through as one of the primary reasons that hedge costs have gone up, the spread between best efforts and mandatory is approaching 2 points, and large investors have bailed on their wholesale channel.

Are mortgage brokers being “marginalized”? You bet they are.

Fed Still Buying Higher Rate Bond Pools & What It Means For Consumers
The Fed is continuing to buy pools of mortgages. But are the loans new, or older stuff that banks have had on the books. The Fed definitely has the authority to purchase seasoned pools, but so far, based on their statements, their focus has been on new production (“TBA” – to be announced – pools). However, when you seen the Fed in buying 6% or higher coupons, the logical conclusion is that they are buying older loans.

In this case, banks may “deleverage assets”, and sell older loans to Wall Street firms or the Fed in order to make new loans. Besides, these pools of seasoned loans may represent a good value, IF the loans are paying and stay on their books.

Is something broken out there? Uh, you tell me. During the month of January, the 10-yr Treasury yield went from 2.46% up to 2.87%. The Fannie 5% security, which generally includes mortgages from 5.25% to 5.625%, was roughly unchanged. But investor’s whole loan, best efforts, prices worsened by .5%. So, approximately, best efforts whole loan pricing followed the 10-yr higher, whereas the Fed’s buying helped mortgage-backed securities.

Click here for more on what this means for consumers looking for low rates.

FHA Loan Training in CA
Looking for some training on FHA loans in California? The California Mortgage Bankers Association (CMBA) and CampusMBA, the education department of the Mortgage Bankers Association (MBA), are teaming up to bring you essential FHA education. As more loans are originated through the program, it is important that lenders understand these loans and lend responsibly. Check out this link for more.

Economic Preview for the Week
We had a nice little Treasury rally yesterday, and although mortgage prices didn’t keep up, it was a good thing – especially in the face of the supply that will soon hit the market and the unemployment data coming out Friday. There isn’t much news today, which is good because Denny’s announced, during the 3rd quarter of the Super Bowl, that it will give away a free Grand Slam breakfast to any customer visiting its restaurants today between 6AM and 2PM. The only news today is Pending Home Sales for December. Tomorrow we have the “ADP Employment Change” always of questionable worth compared to the actual government job statistics, along with the ISM Services number. Thursday is, yes, you guess it, weekly Jobless Claims, along with some productivity, labor cost, and factory order figures. On Friday we have the Unemployment Data (the workweek and hourly earnings are expected unchanged, but Nonfarm Payrolls are expected to drop about 525,000 and the unemployment rate go from 7.2% to 7.5%). The 10-yr is up to 2.77%, and mortgage prices are a shade worse than yesterday afternoon.

Daily Humor
I asked my wife, “Where do you want to go for our anniversary?”
It warmed my heart to see her face melt in sweet appreciation.

“Somewhere I haven’t been in a long time!” she said.
So I suggested, “How about the kitchen?”

And that’s when the fight started….