Rate Lows For 2010, Lawmakers Target Lender Compensation, Problems Beyond Greece,

Rate Lows For 2010
Mortgage rates are the lowest they’ve been all year – is your production heading higher? Probably not, so why isn’t mortgage production per agent picking up? Analysts point out that mortgage spreads have not done much, and even if Treasury rates drop, mortgage rates may not follow. On the other hand, many lenders believe that the majority of borrowers who can refinance already have done so, and that until appreciation or guideline loosening appear, things will be slow. Every loan is a battle and borrowers appear to be in no hurry whatsoever. If your staff is busy, you are bucking the trend, and it seems companies have begun to cut profit margins. Mortgage traders continue to report low volumes being sold to them of about $1 billion a day. Although this is not good for the overall industry, it is good for mortgage prices relative to Treasury prices: the laws of supply and demand should help mortgage rates.

Lender Comment On Regulation
Here is a word from the broker trenches on “steering borrowers toward higher interest rate subprime loans” so that the originator could make a higher fee. One producer wrote, “It would stand to reason that at least part of what prompted the originators to do this was laziness. Some time ago, investors would pay a price of 104 for an FHA loan, but most of the sub-prime loans were capped at 102-103 so in reality if the originator was trying to make the most premium, then they would have steered the borrower to an FHA loan.”

Lawmakers Target Lender Compensation
The news continues from Washington DC. Besides the update on YSP (the amendment that prohibits direct and indirect compensation – YSPs and overages – to mortgage originators based on the terms of a loan that would include its rate and establishes new minimum underwriting standards for residential mortgage loans) one item of importance that actually went well for mortgage bankers is that the dreaded “5% risk retention provision” (where a securitizer would be required to keep 5% in reserves for securitized mortgages, effectively shutting down that avenue) was denied for qualified mortgages that meet underwriting and product standards. The amendment directs regulators to establish a category of well-underwritten single family mortgage loans (“qualified residential mortgages” – pretty much full doc Fannie, Freddie, FHA/VA) that would be exempt from the bill’s risk retention requirements.

The Merkley amendment that passed (but is not law yet), while prohibiting compensation based on the terms of a loan, would allow compensation to an originator based on the principal amount of the loan. It allows compensation to an originator, other than compensation based on the terms of the loan, would be financed through the loan’s rate as long as the originator does not receive any other compensation from the consumer (or anyone else), other than the compensation financed through the rate. Also compensation to the originator through the rate would not be permitted if there is also upfront payment of discount points, or origination points, or fees however denominated, other than third party settlement charges. There is no presumption of compliance where the total points and fees (defined under TILA) payable in connection with the loan exceed three percent of the loan amount. For purposes of computing the three percent, the points and fees for mortgage guarantee insurance under a state or federal program in excess of one percent of the loan amount are excluded.

Problems Beyond Greece
Although Greece still has issues some of the focus is now on other countries. Whether or not the people go along with them, the Portuguese leaders have agreed to tough austerity measures (pay cuts, increase in various taxes), but Spanish unions are talking about a general strike. In Portugal the goal is to cut the deficit to 7.3 percent of GDP this year and 4.6 percent in 2011. (Last year it was 9.4%, compared to about 11% here in the US.)

Market Update
Buyers of mortgage securities include banks flush with cash, servicers, and hedge funds. Overall, however, the fixed income markets didn’t see all that much change from Wednesday’s levels in spite of a good $16 billion 30-yr auction (a yield of 4.49% and a bid-to-cover ratio of 2.60) and a slide in the stock market. Unlike the last four days, today we have lots of scheduled news. We have already had Retail Sales, +.4%, a little higher than expected. I guess someone is out there buying things besides my daughter, as Retail Sales have gained in 12 out of the last 13 months. At 6:15AM PST we will have Industrial Production and Capacity Utilization, both expected higher. And then 45 minutes later we have Factory Orders and the University of Michigan Consumer Sentiment Survey numbers – also expected higher. (I am sure all those graduate econ students are busy calculating.) Industrial Production dropped by almost 15% during the recession (which apparently ended almost a year ago) IP has posted gains in each and every month since July 2009 and, in the process, has regained about 35% of what it lost – it is expected to rise about .5% this time around. After Retail Sales we have the 10-yr yield down to 3.49% and mortgage prices about .250 better.

Daily Humor
Two little boys, ages 8 and 10, were excessively mischievous. They were always getting into trouble and their parents knew all about it. If any mischief occurred in their town, the two boys were probably involved.
The boys’ mother heard that a preacher in town had been successful in disciplining children, so she asked if he would speak with her boys.

The preacher agreed, but he asked to see them individually. So the mother sent the 8 year old first, in the morning, with the older boy to see the preacher in the afternoon.

The preacher, a huge man with a booming voice, sat the younger boy down and asked him sternly, “Do you know where God is, son?”

The boy’s mouth dropped open, but he made no response, sitting there wide-eyed with his mouth hanging open.

So the preacher repeated the question in an even sterner tone, “Where is God?”

Again, the boy made no attempt to answer. The preacher raised his voice even more and shook his finger in the boy’s face and bellowed, “Where is God?”

The boy screamed and bolted from the room, ran directly home and dove into his closet, slamming the door behind him.

When his older brother found him in the closet, he asked, “What happened?”

The younger brother, gasping for breath, replied, “We are in BIG trouble this time…GOD is missing, and they think we did it!”