THE BASIS POINT

Sentate Passes $700b Rescue 74-25, House Vote Tomorrow. Super Conforming Limits Expiring. Thornburg Layoffs.

If you want a mortgage in Hungary, you’d better hurry! Their central bank deputy governor said that Hungary needs to tighten rules for mortgage loans combined with unit-linked insurance products, to reduce risks in the financial sector. Interestingly, not only are Hungarian banks predominantly owned by foreign banks, but only 30% of homes are mortgaged. “Linked products” are prevalent, whereby the use of investment products linked to loans as collateral was very common.

Senate Passes Rescue Package
Last night the Senate passed the $700 billion rescue plan (74-25), as expected, and the House is anticipated to vote on it tomorrow. Passage is already priced into the markets. (The current 10-yr is 3.70% and mortgages are better by .125-.250 in price.) The new bill includes a temporary boost to the FDIC insurance limit ($100k up to $250k through 2009) and increased tax breaks (some would suggest pork barrel tax breaks…) to appease some of the Congressman who voted against the measure earlier this week. In other economic news yesterday, the Institute for Supply Management’s Factory Index dropped to 43.5, the lowest level since October 2001. One analyst cried, “There are no orders, no jobs and there is really no incentive for businesses to invest.” Construction Spending was unchanged in August after July’s drop of 1.4%.

Roundup of Lender and Loan Guideline Updates

  • Thornburg update? Apparently they are proceeding with their stock manipulations, although they laid off staff on Tuesday.
  • Wells Fargo wholesale sent out a reminder to their brokers regarding the approaching January 1st date, whereby the 2008 temporary loan limits will soon be expiring. Wells is taking a defensive, probably wise, path and saying:

    “The ‘must close and fund date’ for the High Balance Conforming Loan Program has changed from Dec. 31st to Dec. 1st, to mitigate the risk of unsalable loans. Lock Period Deadlines: High Balance Conforming Loan Program loans should not be locked with lock expiration dates later than Dec. 1st.” For their High Balance FHA Loan Program, which also expires on December 31st, “these loans must close and fund on or before Dec. 31st. Since the 2009 loan limits may be decreasing from the current 2008 limits, FHA loans (other than the High Balance FHA Loan Program) may also be impacted if the closing date is after Dec. 31st. High Balance FHA Loan Program loans should not be locked with lock expiration dates later than Dec. 31st. Although all lock periods will be allowed up to Dec. 31st, these loans must close and fund on or before Dec. 31st. There will be no exceptions granted to the ‘must close and fund date’ of Dec. 31st, and lock periods extending beyond Dec. 31st will not supersede the ‘must close and fund date’ of Dec. 31st.”

  • FHA HOPE is being offered by some banks, such as Wells Fargo, strictly through their retail channel – not through wholesale or correspondent. In other words, little hope for brokers or smaller mortgage banks.
  • Speaking of Wells, their wholesale channel started their performance pricing (“PerformanceWorks” – yet another combined word with a capital in the middle to remember…) yesterday. During the next three months, brokers in “Tier 1” will receive a .250 pricing incentive on locked volume, whereas “Tier 3” clients will be charged a .125 negative price adjuster on locked volume. I wonder if this plan is also being implemented in people’s dating lives…
  • Effective yesterday Chase is eliminating several property types, reducing the maximum allowable LTV/CLTV and imposing minimum credit score requirements for all loans with properties located in the State of Florida, and is also requesting that all Agency Jumbo 5/1 Interest Only ARM products must receive a DU Approve/Eligible recommendation. Put another way, manual underwriting will no longer be an eligible underwriting method for Agency Jumbo 5/1 Interest Only ARMs.
  • Mortgage insurer Radian declared some sweeping changes that begin on the 20th. Changes such as “Maximum LTV for Declining Markets will be 90% for all products”, “Maximum LTV for Stable Markets will be 95% for all products”, “Maximum DTI of 55% for Blue Box Loans (Conforming, 1-2 Unit Owner Occupied, Purchase / Rate and Term Refi, AUS Approve/Eligible or Accept/Eligible)”, “Minimum Borrower Equity Rules will apply on all ‘Blue Box Loans’ (Conforming, 1-2 Unit Owner Occupied, Purchase / Rate and Term Refi, AUS Approve/Eligible or Accept/Eligible). In addition, all Condo’s submitted to Radian for insurance will be required to be submitted through Retail Channels only. No Radian insurance will be eligible via Wholesale Channels. Their fee structure is also changing.
  • Fannie introduced a number of important policy provisions for the lenders with which Fannie Mae does business, and set forth additional eligibility standards that lenders must meet to become a Fannie Mae lender or to remain an eligible and approved Fannie Mae lender. On the plus side, they provide a list of additional, more flexible remedies that Fannie Mae may use with lenders that are having trouble complying with their standards. These additional remedies allow Fannie Mae to offer a greater range of responses than the stricter remedies of suspension or termination. Fannie also clarified and increased of the minimum net worth requirement and established several new requirements (including a broader provision regarding a material adverse change in the lender’s financial or business condition or its operations, provisions related to a significant decline in the lender’s net worth, minimum profitability standards, minimum capital requirements, and a cap on the maximum amount of outstanding repurchase obligations, cross default provisions with other obligations, and a minimum servicer rating.) These changes take affect 12/31.

Daily Humor
What are Indymac employees doing now? Some are writing books on golf. Here’s a brief look at the Table of Contents:

Chapter 1 – How to Properly Line Up Your Fourth Putt
Chapter 2 – How to Hit a Dunlop from the Rough When You Hit a Titleist from the Tee
Chapter 3 – How to Get More Distance off the Shank
Chapter 4 – Using Your Shadow on the Greens to Maximize Earnings
Chapter 5 – When to Implement Handicap Management
Chapter 6 – Proper Excuses for Drinking Beer Before 9:00AM
Chapter 7 – How to Rationalize a Six-Hour Round
Chapter 8 – How to Let a Foursome Play Through Your Twosome
Chapter 9 – When to Suggest Major Swing Corrections to Your Opponent
Chapter 10 – God and the Meaning of the Birdie-to-Bogey Three Putt
Chapter 11 – Can You Purchase a Better Golf Game?
Chapter 12 – Rules Interpretation: ‘Loss of Ball is Penalty Enough’
Chapter 13 – Why Male Golfers Will Pay $5.00 a Beer from the Cart Girl and Give Her a $3 Tip, but will balk at $3.50 for a beer at the 19th Hole and stiff the Bartender.