Paulson’s Recommendations For Fannie/Freddie

Citi + Morgan Stanley To Be Called CITIMORG
According to current financial reports, a deal to combine the brokerages of Citigroup and Morgan Stanley — which would give Citi more cash, and Morgan Stanley more manpower — appears just days away. In light of the new venture with Morgan Stanley, the new entity name will be…“CITIMORG”.

What’s Happening Inside Mortgage Companies
Mortgage companies are inundated with locks. Brokers and agents are scrambling to focus on refi deals that are “slam dunks” and pushing other, harder-to-do deals aside. It would appear that successful operations are trying to avoid low probability locks – experienced agents know the ones – since they will drag down your closing ratio and take your time away from fundings that will result in a commission. So many production teams are running potential borrowers through a pre-qualification program. Once pre-qualified, others are utilizing a signed lock agreement that reinforces the commitment of the borrower to close if approved, and the commitment of the lender to protect the borrowers if rates go up.

Best Efforts vs. Mandatory Pricing for Mortgage Companies
What is happening with the spread between best efforts and mandatory? I had to scratch my eyes in wonder when I saw one investor’s rate sheet, with over a 1.5 point price difference between the two. No wonder some lenders are priced out of the market, if a company is selling loans on a best efforts basis compared to a company selling loans on a mandatory basis! If a company is selling loans on a best efforts basis, the investor is the one doing the hedging, and apparently fall out costs are climbing. The price these companies are seeing from investors is considerably less than where the agencies are pricing, for example, on a servicing retained basis! “Assignment of trade” execution, which larger originators are doing, is relatively good, but is very investor specific as some larger companies are “paying up” for the value of servicing whereas others seem not to want it. Interesting.

A Lock Is Now A Lock at ING
ING’s float down policy, long waved in the faces of Secondary Marketing folks by brokers, is coming to an end. ING announced

“Please note that loans submitted today (January 12, 2009) after 10:00 am ET (7:00 am PT) will not have the float-down option. Loans in the pipeline that currently have a lock in effect will continue to have the float-down option during their existing lock or re-lock period. Loans that expire will still be re-locked on the business day after expiration at the rate/price offered at that time (unless they are scheduled for closing/signing within the next 3 business days). The price adjustments and loan limits shown on the rate sheet at the time of re-lock will apply and the float-down option will not be available.”

US Bank Changes Refi Guidelines
Here is some improvement. US Bank’s correspondent group announced that, “U.S. Bank Home Mortgage Correspondent Lending Division would like to announce changes to our Anti-Flipping policy. Our prior requirement for Refinance Transactions was that the applicant must have taken title to the subject property more than 90 days prior to the loan application date. Given today’s environment, USBHM is revising our policy which will enable a shorter time frame for refinance eligibility. Effective immediately, USBHM will allow “no cash-out” refinance transactions on loans where the borrower has taken title to the subject property a minimum of 30 days prior to the loan application date. New cash-out refinance transactions are ineligible if the borrower has not owned the property for at least 6 months.”

Paulson’s Recommendations For Fannie/Freddie
Treasury Secretary Henry Paulson on Wednesday called for abolishing Fannie Mae and Freddie Mac (seized in September, are they still separate companies?) and replacing them with highly regulated private entities that would play a more narrow role in supporting the U.S. housing finance system. These private entities would purchase and bundle mortgages that, in exchange for a fee, would carry U.S. backing in the case of default. Paulson’s opinion is that the new entities would not hold investment portfolios, as opposed to Fannie and Freddie who own about $1.5 trillion in mortgages today.

Mortgage Rates A Bit Higher
The market performed well yesterday, but by the end of the day mortgage spreads “widened out”, meaning they worsened relative to Treasury prices. Not that they are directly linked, but Wall Street traders like to watch their spreads. Dealers estimate that originators sold somewhere between $1.5 to $3 in agency loans, and most of it was purchased by the Fed. Showing how fickle it can be, apparently “the market” is becoming a little concerned with the temporary nature of Fed buying, which has only been promised through the end of June. In addition, the market is still somewhat overbought, and that would weaken support for mortgages at these prices. With no scheduled news today, we awaken to find the 10-yr hovering around 2.32% and mortgages perhaps slightly worse than Monday afternoon’s levels.