THE BASIS POINT

Quote on Bernanke’s Desk, Mortgage Fraud Regulation, Industry News Roundup

My son was flipping through the channels last night and asked me, “Did you hear about the new giveaway on Oprah this week? Oprah gave everyone in her audience a free Chrysler dealership.” I told him to keep his day job.

Quote on Bernanke’s Desk
During the Civil War President Lincoln was being heavily criticized for military blunders. In 1862 he wrote, “If I were to try to read, much less answer, all the attacks made on me, this shop might as well be closed for any other business. I do the very best I know how – the very best I can; and I mean to keep doing so until the end. If the end brings me out all right, what is said against me won’t amount to anything. If the end brings me out wrong, ten angels swearing I was right will make no difference.” Ben Bernanke keeps that statement on his desk – interesting.

Wells Mortgage Bank and Broker Division Updates
Wells Fargo’s correspondent group (servicing mortgage banks), who announced last month that they would take the new high balances with DU approvals, starting tomorrow will buy high balance LP (Freddie) loans. “New 2009 Higher Conventional Conforming Loan Limits Available for Delegated Loan Prospector® Transactions. Wells Fargo Funding will accept Loan Prospector delegated transactions with the 2009 temporary loan limits…Sellers should refer to Freddie Mac’s Super Conforming guidelines for details and revised eligibility requirements for all Super Conforming Loans. In addition to Freddie Mac’s guidelines, Sellers must also comply with the Wells Fargo Seller Guide.”

Wells Fargo’s wholesale group (servicing mortgage brokers) tweaked the requirements for Freddie Mac Relief Refinance Mortgage loans with a debt ratio greater than 50%. “A loan with debt ratio greater than 50% may be approved when all of the following are met: A letter from the borrower regarding any reduction of income/job loss in the last six months is required. If the borrower indicates nothing has changed, the following compensating factors must be present to demonstrate borrower ability to pay: minimum 12 months of seasoning on existing first mortgage, no more than 1 x 30 late, payment is decreasing, and borrower has maintained a DTI that is higher than the new DTI for a minimum of 12 months (e.g. no significant new debt or reduced income).” If the loan is for a second home or investment property, standard reserve requirements (two months of reserves on each other financed second home or investment property) must be met.

Also note that Wells’ wholesale group stated that “DU will determine the appraisal product or PIW eligibility. However, for DU Refi Plus loans, when the property is a condominium, cooperative, 2-4 unit or the property was previously purchased as an REO/foreclosure in the past 12 months, a full appraisal is required regardless of the DU response provided. For the Freddie Mac Relief Refinance Mortgage program, Wells Fargo will indicate on the validation form whether an appraisal is required.”

JP Morgan Chase Changes In Northeast
JPMorgan Chase & Co. is pulling back on its mortgage operations in Massachusetts, closing offices and reducing its headcount throughout the region. Chase, apparently, will remain active in the area but also continue to focus on their “depository footprint” where it has a banking retail presence. Six of seven state offices are expected to be closed, as was a Rhode Island office in December.

Mortgage News Roundup
Mortgage applications, according to the MBAA, rose 2.3% for the week ended May 15. The refinancing gauge was +4.5%, but purchases were -4.4%.

Regions Financial, which has received $3.5 billion of TARP money but was told by stress tests that it needs to raise more capital, said it plans to raise $1.25 billion through stock offerings, half of the sum that federal regulators told it to raise to withstand a potentially deep recession. The public offerings include $1 billion of common stock and $250 million of preferred shares automatically convertible into common stock.

Toll Brothers, currently the largest U.S. builder of luxury homes, saw its second-quarter revenue fall 51%. Based in Pennsylvania, they are the second-worst performing U.S. homebuilding stock this year having lost more than a third of its value since 2006.

Mortgage Regulation Roundup
On Monday night the House voted in favor of legislation that will give federal authorities more tools to combat mortgage fraud and create a commission to examine the financial crisis. It would authorize $490 million over two years to hire fraud prosecutors, increase enforcement actions and add funds to the Secret Service and Housing and Urban Development Inspector General. It also allocates funds to the Postal Inspection Service and sets up a commission of outside experts with subpoena power to examine the financial crisis and make recommendations. It also creates a bipartisan commission of experts with authority to review the causes of the economic situation and recommend changes.

In other Washington DC related news, Fannie Mae announced plans to securitize its holdings of mortgages that are not already packaged, into bonds. Per one trader, this helped fuel the issuance of $55 billion this month of debt backed by “seasoned” loans. Fannie’s plan is to take $256 billion of its single-family whole loan portfolio and $108 billion of multi-family loan portfolio and securitize that as well. Let’s hope that there are buyers out there! Speaking of buyers, this market is very, very quiet. “Dead in the water” as we used to say on the trading desk. The 10-yr seems happy around 3.23%, and mortgage security prices are about unchanged from Tuesday afternoon.

Daily Humor
I am pretty good about giving people advice on careers. I tried selling real estate but I found my career listing. So I then tried mortgages but that just did not rate. Finally I tried doing appraisals but that was incomparably boring.