THE BASIS POINT

Paying Points Doesn’t Pay Right Now, FHA Loan Limits, Retail Sales & PPI Results

The economy is pretty bad right now. Yesterday I was putting a foreclosed sign on my house, and while I was doing that, another guy came by and repossessed my car. Did someone mention cars? Stock markets overnight got hammered after the Senate rejected the automaker bailout plan, and our stocks markets are expected to do the same. As one would expect, interest rates are down this morning, continuing the improvement from yesterday, although the dollar is down significantly, reaching a 13-yr low versus the yen.

Jobless Claims Spike on Financial Sector Layoffs
Yesterday, as you recall, we had Jobless Claims come in much higher than expected (and the highest level in 26 years), the October trade deficit unexpectedly widened to -$57.2 billion, and Bank of America announced that they would be cutting over 30,000 jobs in the next three years. They made this decision based on the struggling economy, the credit crisis, and the integration with Merrill Lynch and Countrywide. (There are 308,000 employees combined between Bank of American and Merrill Lynch.) When you add this to Citigroup cutting 75,000 jobs, JPMorgan cutting 7,000 jobs plus another 9,200 jobs at WaMu, and Goldman Sachs and Morgan Stanley cutting 10 percent of their staffs, you are talking about sizeable banking numbers.

Retail Sales Fell 1.8%, Producer Prices Evening Out
Today we have already had Retail Sales falling 1.8 percent, following the 2.9 percent decline in October. We have also seen the Producer Price Index falling 2.2 percent in October, which is the 4th straight month of drops. Core producer prices excluding food and energy costs increased by 0.1 percent in November, matching market expectations and slowing from October’s 0.4 percent increase. Core producer prices were up 4.2 percent over the last 12 months. After all of this, the 2-yr is at .76%, the 10yr is at 2.60%, and mortgage prices are… roughly .125 worse than yesterday afternoon.

Deutsche Closing MortgageIT
Arguably never a great fit anyway, Deutsche Bank is closing the last vestiges of the MortgageIT US Wholesale Lending Division. MortgageIT will cease accepting new business as of December 11th. Do not be surprised if MortgageIT finds a new home for its multi-state wholesale platform.

Paying Points Doesn’t Pay Right Now
Earlier this week, the January buy-up/buy-down grids were posted. The ratios changed dramatically, and are impacting the prices investors will pay for certain rates. One can chalk this up to the sharp contraction in the ”coupon stack”, which is the various mortgage-backed security rates. (Think of them as buckets to put various mortgages into.) The lower mortgage rates have improved much more in price than the higher rates, compressing the price differences. After all, what investor wants to pay 102 or 103 for a mortgage that is going to refinance quickly? With buy-ups now as low as .125% for 10 basis points, expect brokers to charge origination fees and/or discount points to get a competitive rate. This is particularly true on loans with an LTV or credit score “hit” which can easily eliminate the entire yield spread premium.

Ordering Appraisals With Wells Fargo
Wells Fargo Wholesale came out with the broker appraisal process, to be implemented on January 5th. They have a new preferred process for ordering appraisals through RESdirect and their four approved Appraisal Management Companies (AMCs). Under the wholesale preferred process, clients set up their AMC and RESdirect accounts, order appraisals for conventional conforming and non-conforming loans through RESdirect using an AMC with whom they have an account, and then RESdirect sends the appraisal request to the selected AMC, who assigns the appraiser. The assigned appraiser completes the request and delivers the appraisal to the AMC, who then sends the appraisal to RESdirect, who then sends the appraisal to Wells Fargo and notifies the client that the appraisal is ready for downloading from their Web site. Just dandy.

More Tax Transcripts Required At The Beginning of Underwriting
Franklin American announced that for loans delivered for purchase on and after February 2nd, in an effort to manage exposure to fraud, they will require processed tax transcripts to be included in closed loan files submitted for purchase on loans originated by third party entities. A correspondent lender who delivers both retail and third party originated loans to FAMC must only deliver the processed tax transcripts on their third party originated loans. Retail originated loan files must include an IRS Form 4506T executed by the borrower(s).

Notes on 2009 FHA Limits
GMAC, for FHA loans, has released their maximum mortgage limits based on county for 2009. The mortgage limits are effective for loans that have a final credit approval on or after January 1, 2009 or for those transactions that did not close by 12/31/08. The FHA establishes a floor and a ceiling for its county limits. The “floor” is calculated as 65% of Freddie Mac’s loan limits and indicates the lowest limits that can be set for any county. The “ceiling” is calculated as 150% of Freddie Mac’s loan limits and indicates the highest limit that can be set for any county in the continental United States. GMAC also stated that the minimum down payment requirement is 3.5% of the lesser of the appraised value or sales price and applies to purchase transactions only. It does not apply to refinance transactions. Closing costs, pre-paid expenses or discount points paid by the borrower cannot be used to meet this requirement. Closing costs may continue to be covered by premium pricing and down payment assistance from an acceptable provider.”

US Bank Guideline Adjustments
U.S. Bank Home Mortgage Correspondent Lending Division set forth several changes impacting their Home Possible Program, which include Caution – A-Minus Eligible is no longer an acceptable LP response for HP, manually underwritten loans are now limited to maximum 95% LTV, minimum FICO scores for manually underwritten loans increased to 640 for 1 unit purchase, 680 for 1 unite rate/term, 700 for 2-4 units, and 720 for manufactured housing.

Daily Humor
It takes your food seven seconds to get from your mouth to your stomach.

One human hair can support 6 lb.

The average man’s “manhood” is three times the length of his thumb.

Human thighbones are stronger than concrete.

A woman’s heart beats faster than a man’s.

There are about one trillion bacteria on each of your feet.

Women blink twice as often as men.

The average person’s skin weighs twice as much as the brain.

Your body uses 300 muscles to balance itself when you are standing still.

If saliva cannot dissolve something you cannot taste it.

Women reading this will be finished now.

Men who read this are probably still busy checking their thumbs.