Will Residential Rate Lock Policies Soon Mirror Commercial Policies?

LENDER LOAN LOCK FALLOUT
A few weeks ago I was out with a gal. When I asked her about her social life, she replied, “Hah! Do you think if I had a social life, I’d be here with you?” And then she asked if she could have a few bites of my surf & turf platter. I made me realize that in the current mortgage banking environment, many originators find themselves dealing with partners that, given their druthers, they’re probably only dealing with out of necessity. And in a similar vein, brokers and agents are being asked to change the way in which they’ve been doing business for several years. Like not being able to change or move locks as freely as in the past, either due to fewer investors, or to tighter restrictions on that tactic.

How do commercial lenders deal with fallout? One commercial guy Jim Larsen writes, “Commercial lenders will either let you float the rate until docs are drawn (only then is it locked and even then it is only for a few days until the loan funds) or they will allow you to advance rate lock for a deposit (usually .5 to 1.0 in cost for 30 to 60 days). Many lenders explain this deposit as needed to have their capital markets put in a hedge to protect them from the market moving against them until the loan is funded. This is one of the tricky aspects of commercial lending, if you’ve rate locked and the terms (i.e. loan proceeds) change due to underwriting you’re out your deposit or you eat the change. As you would expect there is little fallout on commercial loans. But there is also a high chance for customer dissatisfaction if the ultimate loan terms are not what were quoted.”

MARKET ROUNDUP
Aside from oil dropping to less than $120 per barrel (break out the “2for1” coupon on Lincoln Navigators!) there is very little going on in mortgages. Yesterday we had Personal Spending +.6% in June and Personal Income+.1%, along with the PCE Price Deflator jump the most since 1981 (+4.1% on a year over year basis). Lastly yesterday we saw Factory Orders increase by 1.7% in June, more than forecast. Is any of this going to change the Fed’s course today? Probably not: inflation is too high because of commodity prices, but here in the US growth is too slow, our job market is anemic, housing is still grim in many markets, the credit markets are not in good shape, and high fuel prices continue to crimp consumer spending.

So why would rates creep up? The stock market appears poised to do well today, and we have $27 billion in refunding auctions ahead in the next two days. The 10-yr is back up to 3.97, and mortgage prices are roughly .125 worse than yesterday afternoon’s levels ahead of the Fed meeting. Some economists feel that we are going to see another slow down in growth, and are lowering their GDP forecasts. The housing and credit issues are not racing toward being resolved, and we still have the huge supply overhang.

FANNIE MAE CHANGES PRICING
Fannie Mae has announced pricing updates to “better align price with credit risks, mitigate losses, and support our ability to provide a stable source of liquidity”. Although accumulators and other investors will probably changes their prices sooner, Fannie’s changes take place October 1st. They updated the Adverse Market Delivery Charge, moving it from 0.25% to 0.50%, and Fannie “Updated the loan-level price adjustments (LLPAs) for loans with certain risk characteristics – we will increase prices for some attributes, while decreasing the price for others, including the establishment of credits for certain segments. The changes include: LLPA credits for certain mortgage loans with LTV ratios over 85% and representative credit scores of 720 and greater, Decreased LLPAs for certain loans with LTV ratios over 85% and representative credit scores of 620 and greater, Increased LLPAs for certain loans with LTV ratios from 75.01 to 85%.”

JOKE OF THE DAY
There once was a religious young woman who went to Confession. Upon entering the confessional, she said, ‘Forgive me, Father, for I have sinned.’
The priest said, ‘Confess your sins and be forgiven.’
The young woman said, ‘Last night my boyfriend made mad, passionate love to me seven times.’
The priest thought long and hard and then said, ‘Squeeze seven lemons into a glass and then drink the juice.’
The young woman asked, ‘Will this cleanse me of my sins?’
The priest said, ‘No, but it will wipe that smile off of your face.’