ING To Increase Down Payment Requirements, More on Loan Modifications

Jay Leno mentioned that, “Former President Jimmy Carter blasted President Bush, blaming the financial crisis on him. Carter called this the worst financial crisis since…the Carter Administration.” (Thank you Jonathan K.)

ING To Increase Down Payment Requirements
ING, who originates either entirely or mostly wholesale business, will soon be cutting their LTV’s. Their release stated, “Upcoming LTV & CLTV Changes: Please note that due to changing market conditions, we will be reducing slightly some of our LTV and CLTV limits for loans submitted or relocked on or after November 17th.” This is rumored to be taking the form of a 10% LTV cut across the board in California and other states.

Citi Eliminates Programs
CitiMortgage, effective November 15, 2008, “due to current market conditions, is eliminating the following: Non-Agency Fixed Rate full amortization, Non-Agency Fixed Rate interest only, Asset Based Stated Income Program, DU for Non-Agency Loans, and LP for Non-Agency Fixed Rate loans. (Citi discontinued Non-Agency ARM products effective 11/7/08.)”

Loan Modification Overview
Freddie & Fannie’s regulator unveiled a plan that could cut payments for hundreds of thousands of struggling homeowners to help reverse defaults. Homeowners facing foreclosure who are spending more than 38 percent of their income on mortgage payments could have monthly payments reduced by Fannie Mae and Freddie Mac in an effort to keep their homes. Since it is generally believed that mortgage defaults are at the root of the global credit crisis and the recession here in the US, steps like this are important to “put a floor under the housing market” and are a prerequisite to recovery. Companies like Indymac, Chase and BofA are halted foreclosures, but since Fannie Mae and Freddie Mac own or insure 31 million mortgages (58% of SFH’s), this is big news. Eligible homeowners must first be contacted (I don’t know all the exact criteria, although one is that borrowers need to be delinquent 90 days or more to qualify) and could see their mortgage rates cut, the life of their loans extended or their principal reduced in an effort to ease payments.

The plan does not apply to private-label mortgage securities, which typically have a much greater proportion of underwater borrowers. It will instruct servicers to change the terms of the loan so that the monthly payment (including principal, interest, taxes and insurance) would be lowered to 38% of the borrower’s income (income must be documented). This would be done in up to three steps: 1) the term of the loan would be stretched to 40 years. If the monthly payment is still too high relative to income, then 2) the interest rate would be reduced to as low as 3%. Finally, if the implied monthly payment were still greater than 38% of the borrower’s income, 3) forbearance could be provided on loan principal down to the current appraised value of the property. (However, the reduced principal would not be written off entirely, but instead would be payable as a balloon payment at sale or maturity of the loan.)

Interest Rates Today
Interest rates today? They’re pretty quiet, with mortgages about the same as Monday, and the 10-yr around 3.71%. Yesterday’s stock market once again fell (is this a surprise anymore?) and there is no scheduled economic news aside from the second leg of the refunding with $20 billion of 10-yr notes to be sold. (The 30-yr is tomorrow.) Oil is now down below $60, as worldwide demand falls. If you don’t have a job, you’re not commuting, right? The first economic data of the week is September’s Goods and Services Trade Balance report tomorrow morning. It helps us measure the size of the U.S. trade deficit, but usually is not a major influence on bond trading or mortgage pricing. It does affect the value of the U.S. dollar, which makes U.S. securities more attractive to international investors when the dollar is strong. This is because the securities’ proceeds are worth more when sold and converted to the investor’s domestic currency. However, its results will not likely directly lead to changes in mortgage rates given everything else going on.

Daily Humor
Cowboy: ‘That your dog?’
Indian: ‘Yep.’
Cowboy: ‘Mind if I speak to him?’
Indian: ‘Dog no talk.’
Cowboy: ‘Hey dog, how’s it going?’
Dog: ‘Doin’ all right.’
Indian: (Look of shock!)
Cowboy: ‘Is this Indian your owner?’ (Pointing at the Indian.)
Dog: ‘Yep.’
Cowboy: ‘How’s he treating you?’
Dog: ‘Real good. He walks me twice a day, feeds me great food and takes me to the lake once a week to play.’
Indian: (Look of total disbelief)
Cowboy: ‘Mind if I talk to your horse?’
Indian: ‘Horse no talk.’
Cowboy: ‘Hey horse, how’s it going?’
Horse: ‘Cool.’
Indian: (Extreme look of shock!)
Cowboy: ‘Is this your owner?’ (Pointing to the Indian…)
Horse: ‘Yep.’
Cowboy: ‘How’s he treating you?’
Horse: ‘Pretty good, thanks for asking, he rides me, brushes me down often and keeps me in a lean-to to protect me from the weather.’
Indian: (Look of total amazement)
Cowboy: ‘Mind if I talk to your sheep?’
Indian: ‘Sheep lie.’