THE BASIS POINT

Mortgage Fraud Crackdown, Consumer Confidence Improves

The administration unveiled a new set of incentives for second mortgage modifications: the government will pay mortgage servicers (not originators) $500 upfront and $250 a year for three years for successfully modifying a second mortgage, such as a home equity loan.

FBI To Hire Hundreds of Mortgage Fraud Agents
The news yesterday also included the latest mortgage growth industry that is hiring. The Senate voted to hire hundreds more FBI agents and prosecutors to go after mortgage fraud and make a better attempt at dealing with the 5,000 incidents reported each month. The Senate bill is estimated to cost more than $265 million a year for the next two years, but is also expected to pay for itself because of the fines and penalties that would result from more aggressive government investigations. Another 160 special FBI agents and more than 200 support staff, including forensic analysts would be hired – a large increase from the 250 special agents currently assigned to financial fraud cases, and the Justice Department would hire 200 more prosecutors and civil enforcement attorneys, along with 100 support staff.

Deutsche Mortgage Company
Speaking of hiring, remember Deutsche Bank’s MortgageIT platform? Sun West Mortgage, out of California, is picking up MortgageIT’s core platform. They are setting up the office and training their staff, and expect to start taking new business (government & agency products, including reverse and 203(k) products) next month. This is yet another example of the wholesale business model surviving.

Private Mortgage Insurance Companies Hurting
MGIC reported its seventh straight unprofitable quarter, posting a $184.6 million loss. The loss widened from the $34.5 million they lost in the same quarter a year ago. Chief Executive Officer Curt Culver said he’s talking with regulators and the U.S. Treasury about raising funds to continue offering policies.

US Bank’s New Government Refi Program
US Bank Home Mortgage rolled out their FNMA refinance plus program for both conforming and jumbo conforming loans. As most brokers know, this program goes up to 105% LTV, and is being used to reduce the monthly mortgage principal and interest payment or offer a more stable mortgage product (i.e. refinance from an ARM to a fixed rate or a interest only to a fixed rate amortizing). The borrower can finance closing costs, prepaid expenses and points, and get cash back to the borrower in an amount no more than the lesser of 2% of the balance of the new refinance mortgage or $2,000.

Mortgage Apps Down
The MBAA reported that U.S. home loan applications fell last week to the lowest level since mid-March, driven by a big drop in refinancing demand. Refinance applications fell almost 22% in the week ended April 24, and purchase applications were down .6%. The total loan index was -18.1%.

Consumer Confidence Improved
Are you, as a consumer, more confident? The Conference Board Consumer Confidence Index, up slightly last month, improved considerably in April. The index, which samples 5,000 households, jumped from 26.9 in March to 39.2 (1985=100). Although that didn’t have a huge impact on the market, what did cause some prices changes for the worse yesterday was the fact that our stock market did not plummet, and this morning appears to be on the rise since suddenly swine flu concerns may be over-stated. And although companies around the world are exceeding profit estimates, here in the US the first three months of 2009 are expected to be the seventh straight quarter of falling U.S. profits, the longest stretch since at least the Great Depression.

GDP Dismal, FOMC Announcement Later Today
The big news today, in addition to the $26 billion auction of 7-year notes and the May refunding announcement of 3, 10, and 30-yr Treasury debt next week, will be the FOMC announcement this afternoon. Look for no change in rates, but the verbiage of the announcement can often move the markets. We’ve already seen GDP, which measures total goods and services output within U.S. borders, dropped at a surprising 6.1% annual rate after shrinking 6.3% in the fourth quarter. Output has declined for three straight quarters for the first time since 1974-1975. After the news we find the 10-yr back at 3.0% and mortgage security prices worse by about .125.

Daily Humor
(Warning: PG-rated.)
So last week I checked into a motel and said to the receptionist, “I hope the porn channel in my room is disabled.”

“No,” she said, “it’s regular porn; you’re a sick guy.”