THE BASIS POINT

Income Down & Consumption Up In June, Start Your Own Warehouse Bank, Fraud At Taylor Bean?,

In my spare time I have very little to do, or so my family tells me. So the other day I carried out a little research project. Using the standard key board found on typewriters and computers, how many words can one type using only their left hand (like exaggerate or stewardesses)? I added up 3,000! By comparison, by my calculations my right hand can only type 300 words on its own. A little known fact….

US vs. Non-US Saving & Spending
Are saving patterns different among countries? You bet they are! Singapore, for example, has a gross national savings rate of around 50%. China copied Singapore’s savings plan, and, on average, have a similar savings rate. Here in the US for the last several years the savings rate has been close to 0% (zero): Personal Income comes pretty close to Personal Consumption. Maybe there are too many flat-screen TV’s and ATV’s to buy. It is easy to see how China is able to buy so much of our debt: they are using their savings to invest and earn more! We saw the latest figures this morning (see below), but recently savings have increased here as people are spending less.

Time To Start A Warehouse Bank?
Last week I suggested gathering a group of folks together and creating a warehouse bank. One person wrote, “Why not let the Fed be the direct warehouse line since the banks just clog the process? The Fed is buying the agency paper anyway, and this way we can make rates cheaper and make more money AND jump start the economy!” Ward Harrington, from Directions Advisors, wrote, “While the pendulum has swung too far to the conservative side, I can’t imagine that there are many bank CEO’s waking up wanting to get into highly levered lending, with collateral that is declining in value, where mortgage is a four letter word to regulators, and to a customer with a cowboy businessman reputation who has a history of walking away when the going gets rough. Mortgage warehousing risk was mispriced for the last 6-10 years, both on the leverage and price side. Banks can make solid commercial loans with a 6.0-6.5% floor now.” And a note of caution: “Especially with smaller bankers, the risk is not as much in fraud as it is in more mundane areas such as weak pre-closing QC. A loan that goes to the table with significant stips is a more risky loan not because it won’t eventually sell, but because the passage of time may, through the expense of lock extensions and possible adverse movement of the market, cause the loan to sell for less than cost (paying back the warehouse advance and covering commissions and operational costs).” It takes comparatively few loss loans to shut down a mortgage bank and, once that happens, there is practically
nothing left for the warehouse lender to recover.

Homebuilder Earnings
D.R. Horton, the builder based in Texas, said its fiscal third-quarter loss narrowed from the year-ago period as the home builder saw a quarter-over-quarter rise in home sales. Their net loss was “only” $142.3 million, compared with a loss of $399.3 million. The chairman said, “Market conditions in the home-building industry are still challenging, characterized by rising foreclosures, high inventory levels of available homes, increasing unemployment, tight credit for home buyers and weak consumer confidence.”

Fraud Investigation At Taylor Bean
Selling loans to Taylor, Bean, and Whitaker? You should note that Federal agents locked down TBW’s Ocala, Florida headquarters yesterday. “I can confirm for you that our office, the Office of the Special Inspector General for the Troubled Asset Relief Program, has executed two search warrants today in the state of Florida,” said Kristine Belisle, communications director. “It’s our investigation. It’s our agents that have executed search warrants.” The agency investigates cases of fraud, waste and abuse of TARP funds and programs. “We have cooperated with the FBI on a search warrant relating to dealings we have had with Colonial Bank,” TBW Chairman Lee Farkas said. “Taylor Bean has had a large lending relationship with Colonial Bank and has for many years. The company is a borrower and does a lot of business with Colonial Bank.” For the full story.

GMAC & Wells Lender Guideline Changes
GMAC Bank’s correspondent group released a lengthy announcement to their clients covering Fannie’s Announcement 09-19. Titled “Miscellaneous Underwriting, Eligibility, and Property-Related Updates (Fannie Mae Announcement 09-19)”, GMAC basically follows Fannie’s guidelines for manually underwritten loans (which have some changes for “refer” loans concerning age of credit documents, credit card financing, etc.), and for “approved” loans. Clients, however, should note that there are some GMAC overlays that they should be aware of, and thus read the announcement for themselves.

Speaking of lender changes, Wells Fargo’s wholesale group stated that, “The following Third Party Contract Underwriting companies have updated their policy and will no longer contract underwrite loans on Wells Fargo’s behalf which have an LTV less than or equal to 80% and/or do not require mortgage insurance: Genworth, MGIC, and Radian. As a result of this change, loans ineligible for Third Party Contract Underwriting can be sent to Wells Fargo Wholesale Lending or an alternative MI Company to be underwritten.”

Spending vs. Saving Data Out Today
Back to something simple, like interest rates. Yesterday things were pretty bad rate-wise, with rates shooting up the most in over two months. Fixed-rate prices improved slightly overnight as the market settled down. We will see some pending home sale numbers later today, but for now the market is digesting the Personal Income and Consumption numbers. Consumer spending rose slightly more than expected in June, in spite of incomes having their biggest drop in four-and-a-half years. Personal Income was -1.3%, and Personal Consumption (Spending) was +.4% after a revised 0.1% increase in May. Adjusted for inflation, however, spending fell 0.1 percent after being flat in May. Personal Income was worse than market expectations of -1.0%, and the two numbers combined (remember, if you’re spending more than you are making, you’re not saving!) led to a decrease in savings during the month. Savings fell to an annual rate of $505 billion, with the saving rate slipping to 4.6 percent versus 6.2 percent in May. After the news we find the 10-yr at 3.59% and mortgage prices about .125 better than Monday afternoon.

Daily Humor
The first testicular guard “Cup” was used in Hockey in 1874 and helmets were made mandatory in 1979. Some believe that it took over 100 years for men to realize that the brain is also important…