THE BASIS POINT

Refis 76% of All Mortgage Apps, GMAC Bailout 3.0, Treasury Issuance $2.1t for 2009

Goodbye, 2009. Typing “2009” is so much easier than typing “2010”, but such is life. And folks who are better at using words than I am (“than me”?) say 2010 is pronounced “twenty-ten”, not “two-thousand ten”. Speaking of “2’s” and “1’s”, The U.S. Treasury had a record year of debt sales last year, selling more than $2.1 trillion in bonds and notes, a record and more than the amount in the previous two years combined.

Rates Up on Fewer Jobless Claims, 4yr High For ISM Index
Why are rates where they are? The answer is stronger-than-expected economic news. Well, Thursday morning we learned that Jobless Claims unexpectedly fell by 22,000 to 432,000, which is their lowest level in almost a year and a half. Continuing Claims fell by 57,000. So the thinking goes that “if fewer people are filing jobless claims, the employment picture is starting to look a little rosier, which means that the economy must be doing better…” We also had the ISM Index print its highest level in almost 4 years.

Economic Preview For Week
This week promises to be a busier week, news-wise, than last. Today we start with an “amuse bouche” of ISM Manufacturing data. Tomorrow we throw in a few Pending Home Sales and Construction Spending numbers, Wednesday ISM Services, Thursday Jobless Claims, and on Friday, for desert, we have all the Unemployment numbers. The odds continue to drop for the Fed keeping their “0-.25% Fed Funds target” past April – it is down into the low 80% range. We start the year here in the US with the 10-yr yield at 3.85% and mortgage prices roughly unchanged from Thursday’s levels.

Mortgage Apps Down, Refis Are 76% of Apps
As it happens at this time every year, lock desks are slowing down. The week before last, the MBAA’s application index dropped almost 11%, with refinancing down about 10% and purchases down almost 12%. One thing to note, which I find most distressing, is that refinancing accounts for almost 76% of apps. If rates move higher (why wouldn’t they if the economy improves?), and/or underwriting guidelines don’t loosen up (why would they given projected delinquencies?) what will this do to the average mortgage banker’s pipeline.

FHA Broker Compensation Caps Removed (For Now)
FHA lenders should know that HUD removed the 1% origination fee cap. Under the new RESPA changes, the single origination charge on the GFE and HUD-1 must include all administrative and processing fees related to the origination of the loans, including compensation for both the mortgage lender and broker, and HUD recognized the bundled charge would exceed the 1% cap. In effect, HUD will no longer limit the amount of the origination fee charged to FHA borrowers to 1%; the FHA will expect lenders to charge “fair and reasonable” fees. Subjectivity is not popular these days, so look for additional guidance on fee limitations soon. See 09-53 at this link.

GMAC Bailout 3.0
GMAC received a third rescue package from taxpayers valued at $3.8 billion that gives you and me a majority stake. (You were going to buy stock in them anyway, right?) “The infusion will bolster lending at GMAC as it absorbs $3.8 billion in new pretax charges and decides what to do with its loss-plagued home mortgage unit. Proponents say GMAC is crucial to the U.S. auto industry. Res Cap is not viewed as being a big plus for the income statement, and apparently is on the block.

Lender Guideline Roundup

  • One traditional way of controlling a pipeline is to cancel a lock if the file doesn’t come in by a certain number of days after locking. It makes sense – “Give us some documents if the lock is real!” The most recent example is Union Bank of California, which has a minimum lock period of 60 days, who informs their brokers that “All loans will be re-priced at ‘the higher of’ when a package is not received within 30 days of lock expiration date.” UBOC also adjusted their lock breaking policy, which is available one time during original lock period and only after the loan submission: to current rate: 0.500 rebate, or one-eighth (0.125) higher than current rate for a reduced rebate of +.125% for loans with rebates or +.125% cost to points, or lastly split rate if at least .500 difference in rate: free.
  • GMAC correspondents addressed questions about FHA loans that move from one lender to another. “When a borrower switches from one lender to another, the first lender must, at the borrower’s request, transfer the case to the second lender. Transferring the case requires the first lender to transfer the FHA case number to the second lender using the Case Transfer functionality within FHA Connection, and provide the second lender with a copy of the appraisal report ordered by and completed for the first lender.” GMAC, and the FHA, does not require that the client name on the original appraisal be changed to that of the second lender. GMAC’s memo goes on to discuss the responsibilities of the second lender’s DE underwriter, how to reduce processing delays caused by appraisal issues (“…the second lender is permitted to order a second appraisal under the limited circumstances…”), and gives guidance on the second appraisal.
  • GMAC also has a new validity period for appraisals (used for FHA insured mortgages) for loans on existing, proposed, or under construction less than one year, and is now 120 days.
  • Well, it would appear that all of the “decisioning” companies have moved over to Fannie DU 8.0. Huh – a new product? Wouldn’t you know it relates to foreclosures? US Bank’s wholesale group is giving their brokers up to 80% LTV for purchases of Bank Owned Properties (i.e., REO) although in some states they will only go to 75% LTV. “1st position liens only, no 2nd mortgages, appraisals must be ordered thru U.S. Bank, foreclosure process must be complete, full home inspection required for bank owned properties, current residence must be sold, and mechanics lien coverage is required on title insurance.
  • Starting today Caliber Funding is following HUD Mortgagee Letter 2009-48 and will remove the second appraisal requirement for loan amounts greater than $417,000 (excluding upfront mortgage insurance premium (UFMIP) with an LTV greater than or equal to 95% and located in a declining market, and cash-out refinance transactions with a loan amount greater than $417,000 and located in a declining market. Caliper also tweaked their pricing on loans between $40-$49,999 and REO’s (both more expensive to originate), raised the minimum loan amount for “Texas Section 50 A6” from $40,000 to $100,000, and will no longer allow FHA-Approved Project Reviews for Condominiums.

Daily Humor
Tony and Yvonne were 85 years old and had been married for sixty years. Though they were far from rich, they managed to get by because Tony watched their pennies. Though not young, they were both in very good health, largely due to Yvonne’s insistence on healthy foods and exercise for the last decade.

One day, their good health didn’t help when they went on yet another holiday and their plane crashed, sending them off to Heaven.
They reached the pearly gates, and St. Peter escorted them inside. He took them to a beautiful mansion, furnished in gold and fine silks, with a fully stocked kitchen and a waterfall in the master bath. A maid could be seen hanging their favorite clothes in the closet. They gasped in astonishment when he said, “Welcome to Heaven. This will be your home now.”

Tony asked Peter how much all this was going to cost. “Why, nothing,” Peter replied, “Remember, this is your reward in Heaven.”

Tony looked out the window and right there he saw a championship golf course, finer and more beautiful than any ever built on Earth.

“What are the greens fees?” grumbled Tony.
“This is heaven,” St. Peter replied. “You can play for free, every day.”
Next they went to the clubhouse and saw the lavish buffet lunch, with every imaginable cuisine laid out before them, from seafood to steaks to exotic deserts, free flowing beverages.
“Don’t even ask,” said St. Peter to Tony. “This is Heaven, it is all free for you to enjoy.”
Tony looked around and glanced nervously at Yvonne.
“Well, where are the low fat and low cholesterol foods and the decaffeinated tea?” he asked.
“That’s the best part,” St. Peter replied. “You can eat and drink as much as you like of whatever you like and you will never get fat or sick. This is Heaven!”
“No gym to work out at?” said Tony
“Not unless you want to,” was the answer.
“No testing my sugar or blood pressure or…”
“Never again. All you do here is enjoy yourself.”

Tony glared at Yvonne and said, “You and your damn bran Flakes. We could have been here ten years ago!”