THE BASIS POINT

Productivity Up 6%, Wholesale Inventories Down 10th Month, Today’s 10yr Auction

It is well known that big investors, who are servicing large portfolios of home equity loans, are seeing increasing delinquencies. If home equity loans start having more major problems, is the US Government going to come out with HEMP (Home Equity Modification Program)? (I can’t take credit for that one – it came from Rich at Aurora Bank.)

Do you have your new warehouse line with Citi yet? In addition to Citigroup providing $4 billion in municipal letters of credit, Citi has pledged another $2 billion for mortgage originators. The $2 billion for mortgage originators, probably destined for only their clients, will be available as warehouse lines of credit, allowing their warehouse clients to make more loans! I bet their clients are glad to hear that one.

Private Mortgage Insurance
I am no expert on mortgage insurance. But this note seemed pretty nifty: MGIC came out with a their “Rate Finder – Plus” software, which adds eligibility with rates.In addition to finding rates, MGIC’s Rate Finder – Plus now gives you the option of checking eligibility or doing both at the same time. No ID or password needed. A loan found eligible by Rate Finder – Plus should also be eligible when you submit it through any MGIC MI application channel, assuming there is no change in the loan data or any additional data.” Is this a future competitor to some of the pricing engines out there?

iPhone App For Title Data
Speaking of nifty, First American CoreLogic launched a free Apple iPhone application that enables folks to view market data on over 140 million residential properties using their iPhone. Clients can use RealQuest Home Value Pro can view property values, foreclosure information and housing trends, estimated home values for a given subject property and neighboring properties, and a whole list of other items. I don’t think that I can get it on my rotary phone…

UBOC Broker Changes
Union Bank of California let their wholesale clients know that some changes were made to their underwriting guidelines. Regarding Condominiums and PUDs, UBOC clarified the number of units for owner occupied and pre-sale requirements. In addition, UBOC enhanced the guidelines for the disposition of borrower’s current residence, and noted that each vested owner of property with tenants-in-common vesting is required to be a borrower.

Toll Brother Whisper Numbers
Toll Brothers, who won’t actually release their results until August 27th, said that they expect to see a 42% drop in third-quarter homebuilding revenue, but said net signed contracts increased in the quarter. “Net signed contracts” are expected +3%, which will be the first time in 4 (four!) years that net signed contracts exceeded the year-ago figures.

Mortgage Apps Down
According to the MBAA, mortgage applications in the U.S. fell last week by 3.5% due to slightly higher rates. Refinancing was down a little over 7%, but purchases were up about 1%.

Flavor of the Year
Some originators don’t remember the last time that they did a non-government loan, destined for a portfolio. In fact, currently 90% of originations are backed by the US Government through Freddie, Fannie, or FHA. In recent months, the growth of FHA-insured mortgages has raised some eyebrows. The FHA now insures $560 billion of mortgages, four times the amount that they did only 3 years ago. Many agents and brokers view FHA as replacing the subprime or Alt-A loans that they processed previously. This is unfortunate for taxpayers, especially since these loans typically have low down payments (3.5%), and the borrowers often have below-average to poor credit ratings, leading critics to point out their riskiness. And given the huge volume increase, is fraud being adequately protected against?

Taylor Bean Fallout
Taylor Bean’s recent demise reminded everyone how a big government originator is not too big to fail: TBW funded $17 billion in loans this year, and was a top FHA loan producer. HUD announced that starting this week the FHA will refinance troubled mortgages by reducing up to 30% of the principal under the Home Affordable Modification Program. Critics claim that it is simply the taxpayer will end up paying the cost, especially for the high LTV refi loans. And the MBAA is backing the FHA Multifamily Loan Limit Adjustment Act of 2009 which would increase the multifamily loan limits for elevator properties and in extremely high cost areas. “Currently, FHA’s multifamily loan limits are inhibiting the financing of affordable rental housing in a number of urban areas,” said Michael Berman, MBA’s Vice Chairman.

Franklin American Guideline Changes
Speaking of FHA and VA loans, Franklin American came out with their VA Jumbo Loan Limits and updates to the standard VA Fixed Rate product – catching up with other investors who have rolled this out. On Monday FAMC began accepting locks on loans originated under their VA Jumbo guidelines, and revised their product guide. FAMC will take loan amounts up to $650,000, subject to veteran’s available entitlement and VA County Loan Limits with certain restrictions: VA guaranty or a combination of the VA guaranty plus borrower’s down payment and/or equity must equal at least 25% of the lesser of purchase price or Notice of Value, 30-year fixed, 1-unit owner occupied primary residence, 100% maximum LTV/CLTV on purchases, 90% maximum LTV/CLTV on Rate Term and Cash Out refinances (IRRRL’s not allowed). Cash Out Refinance – up to $325,000 cash back, 720 minimum credit score, Cash Reserves – 6 months, Maximum 41% DTI, gifts and subordinate financing are not allowed, and a mortgage/rental history with 0 x 30.” Be sure to check their guides.

Franklin reminded their clients that all appraisals for VA loans must be ordered through the VA Appraisal System and performed by VA-approved appraisers, clarified that on IRRRL’s the conventional appraisal should not be ordered through the VA Appraisal System and does not have to be performed by a VA approved appraiser, added that in lieu of a Certificate of Eligibility (COE), eligibility for an IRRRL is determined by a Prior Loan Validation (PLV), and clarified several other underwriting criteria. Like I said, be sure to check their guides.

Productivity Up 6%, Wholesale Inventories Down 10th Straight Month
Are you being productive at your job, assuming you have one? If the answer is “yes”, join the crowd: Productivity here in the US was up over 6% during the 2nd quarter, while unit labor costs actually fell almost 6%. So if the same amount of work is being done in less time, and for less money, that is a good thing, right? It certainly keeps inflation down, and over the long run productivity is key to improved living standards by increasing output, employment, incomes and asset values. In other news, typically not market moving, wholesale inventories were down for the 10th month in a row, although sales were up slightly. That news wasn’t huge, but once the $37 billion 3-year Treasury auction went off well, we saw a nice improvement in rates.

Today’s Auction and Fed Meeting
Today we have $23 billion of 10-yr notes to sell (tomorrow $15 billion of 30-yr bonds). It doesn’t hurt that Treasury buying by the central bank is helping to support the market. I am not smart enough to know how, if the US Government is both selling and buying securities, it helps rates… Later this morning we’ll also have the policy statement from the Fed’s Open Market Committee, and although overnight rates should be steady watch for verbiage about the central bank’s strategy to withdraw the special lending and asset-purchase programs that have seen the financial system through the crisis. With this in mind the 10-yr. is at 3.66% and 30-yr mortgage prices are better by about .125 versus Tuesday.

Daily Humor
Three brothers married wives from different states. The first brother married a girl from Oregon. He told her that she was to do the dishes and house cleaning. It took a couple of days, but on the third day, he came home to see a clean house and dishes washed and put away.

The second brother married a girl from Florida. He gave his wife orders that she was to do all the cleaning, dishes and the cooking. The first day he didn’t see any results, but the next day he saw it was better. By the third day, he saw his house was clean, the dishes were done and there was a huge dinner on the table.

The third brother married a lady from California. He ordered her to keep the house cleaned, dishes washed, lawn mowed, laundry washed, and hot meals on the table for every meal. He said the first day he didn’t see anything, the second day he didn’t see anything but by the third day, some of the swelling had gone down and he could see a little out of his left eye, and his arm was healed enough that he could fix himself a sandwich and load the dishwasher.