THE BASIS POINT

State of Mortgage Banking/Brokering (video), Thornburg on Ropes, Housing Starts Even, Rates Down

When I was a kid, boy bands wrote songs about girls, cars, and school. Well, I guess the times have changed. This one, from Isaac Hollingsworth, comes from the son of a principal in a mortgage-related recruiting firm.

State of Mortgage Banking/Brokering
Where are the investors going? How about, “Away”? A good-sized, relatively well capitalized retail lender here in Northern California sold loans to 26 different correspondent investors and brokered loans to 35 different wholesale investors in 2007. In 2008, interestingly, this same company has used 16 correspondent investors, but the brokered list has increased to over 50 different wholesalers. There is any number of reasons for this. Obviously on the correspondent side, the industry has lost American Home, Greenpoint, National City, Aurora, etc. On the wholesale side, as volume has dropped and each deal becomes more precious, and they have more time on their hands, agents everywhere have become resourceful about finding outlets for the loans. Sometimes it appears that the only thing that’s really moving is the first time homebuyer market. Interestingly, there are companies in this market that are expanding, whether they are retailers or wholesalers. As some large investors have exited the market for broker business, mid-sized companies are now expanding their market share, and making some nice profits doing it.

[Note: Wholesale lending means mortgage brokering—brokers place consumer loans through wholesale divisions of banks. Correspondent means mortgage banking—mortgage banks fund and close consumer loans, then sell these closed loans to correspondent divisions of banks.]

HSBC Exits Mortgage Broker Business
Speaking of the loss of investors, HSBC released a flyer that said, “We wish to advise you that unprecedented market conditions have made it necessary for HSBC Mortgage Corporation (USA) to cease Wholesale/Correspondent origination operations effective immediately. HSBC Mortgage Corporation (USA) will continue to process any loans that are registered as of November 18, 2008. Floating loans registered as of November 18th, 2008 must be locked by December 2, 2008. All loans will have until January 20, 2009 to fund. There will be no fundings after January 21, 2009. On behalf of HSBC Mortgage Corporation (USA) we would like to thank you for the relationship we have enjoyed with you in the past and wish you the best for the future.”

Wells Fargo’s Policy on New Loan Limits
I must be getting old, since I found myself confused by Wells Fargo wholesale’s recent announcement about new loan amounts until I read it 4-5 times. And even then, I would be hard pressed to explain it. Here is it, verbatim:

Recently, the Federal Housing Finance Agency and the U.S. Department of Housing and Urban Development (Mortgagee Letter 2008-36) announced the new 2009 loan limits. Effective with registrations on and after Nov. 17, 2008, Wells Fargo Wholesale Lending will begin accepting the 2009 loan limits for conventional conforming and FHA transactions meeting the following guidelines.

2009 Conventional Conforming Loan Limits
Wells Fargo Wholesale Lending will accept new registrations on and after Nov. 17, 2008, for the 2009 conventional conforming loan limits as long as the closing date is after Dec. 1, 2008. Reminder: 2008 High Balance Conforming Loan Program transactions must fund and close by Dec. 1, 2008.

Pricing Loans with the 2009 Conventional Conforming Loan Limits
The High Balance Conforming Loan Program pricing, including applicable adjusters, is located on page five on the Wholesale state rate sheets. Clients should enter Temporary Loan Limits as the program code on Broker’s First®. 2009 High Balance Conforming Loan Program loans must close after Dec. 1, 2008.

Reminder: 2008 High Balance Conforming Loan Program transactions are not eligible for locks on and after Nov. 17. Loans locked after Nov. 17 will be considered a 2009 High Balance Conforming Loan Program loan and must close after Dec. 1.

Thornburg In Trouble
Thornburg Mortgage announced that the company has not paid the interest payment due on November 15, 2008 on its 8% Senior Notes, because it currently does not have available funds to do so. The company is in active negotiations with the counterparties to the Override Agreement and expects to pay the $12.2 million interest payment once an amended and restated agreement has been reached with the counterparties to the Override Agreement and within the 30-day grace period under the indenture.

Mortgage Insurance
In order to continue their efforts to adapt to recent and anticipated trends in the mortgage market, PMI has revised the credit score requirement for High Balance loans to a minimum of 700 effective December 1, 2008.

Market Update, Consumer Price Index
Let’s get back to the market. Today we’ve already seen The Consumer Price Index. It was expected to be -0.8%, ex-food and energy +0.1%, and came out at -1.0% and -.1% respectively. October’s Housing Starts came out as expected, -4.5%, and Building Permits, at -12%, fell further than expected. Later today we’ll have the release of the October 28-29 FOMC meeting. Note that the next Fed meeting isn’t until December 16th, and it appears that the chances of overnight funds declining to .5% above 80%, with a very slim chance of them either leaving Fed Funds the same or reduction closer to 0%. We also saw a drop last week in mortgage applications, which were -6.2%. Compared to last year, applications are -41% according to the MBAA. Purchases were -12.6%, and refinancing were +2.6%. After all this chatter, the 10-yr rests down in the mid-3.40% area, but mortgage prices are roughly unchanged from yesterday afternoon.

Daily Humor
A man takes his Rottweiler to the vet. “My dog’s cross-eyed. Is there anything you can do for him?”

“Well,” says the vet, “let’s have a look at him” So he picks the dog up and examines his eyes, then checks his teeth.

Finally, he says, “I’m going to have to put him down.”

“What? Because he’s cross-eyed?”

“No, because he’s really heavy”