Stocks and Bonds Both Improving, IRS Help For Commercial Refis, A Word On Credit Scores

Do prices for the same item vary in the same area? Of course they do. A gallon of milk, or a paint brush, costs more or less in some stores than in others. Consumers, like you and me, know this but still often buy goods for more money than they have to. Convenience, loyalty, and perceived quality all come into play in purchases, and in mortgage origination. The price of labor is no different. An underwriter’s salary at one mortgage shop, for the same skills, could be +/- 20 or 30% of what it is at another shop less than 10 miles away. Why is that? Is the labor market that inefficient? Are the working conditions that different? Probably not. Workers are much less likely to leave a high paying job than a low paying job. And during a recession, and unemployment is high, fewer people will quit their jobs, since they almost think that they are lucky to have a job. Perhaps their employer has convinced them of that! And a sense of duty and fairness obviously factor into it.

IRS Help For Commercial Refis
Yesterday the IRS issued new rules which impact the refinance of commercial loans. Most believe that it will be easier to refinance some commercial real estate loans. The new IRS rules would allow commercial loans that are part of REMIC’s (Real Estate Mortgage Investment Conduits), to be refinanced without triggering tax penalties for investors. Those in the commercial side of mortgage banking are seeing a potential tsunami of delinquencies and foreclosures, and hopefully this will help but probably not enough to cover the lack of available financing seen in the industry. At this time the changes will not affect commercial mortgage loans held by investment trusts.

Rate Lock Volume
Volume fell off a little at locks desks last week as mortgage applications fell 8.6% from the prior week. Even adjusting for Labor Day, apps to refinance were down a little over 7%, and purchases were down about 10%. (Remember that the week before, apps were up 17%) Although apps were down almost 19% from a year ago, the four-week moving average for all mortgages was up 2.9%. Refi’s were at 61% of all activity.

Stocks and Bonds Both Improving
How about these markets? Both stocks and bonds continue to improve. The strong economic numbers yesterday helped stocks, and should have driven rates higher – but didn’t have too much of an impact. In addition to Retail Sales, the Empire State Manufacturing Index went from 12.1 last month up to 18.9 this month. Mortgage prices were only off a few ticks by the end of the day. We were helped, in part, by continued reports that the Fed will likely continue to buy mortgage-backed securities. (The Fed meets early next week, and this is considered to be a topic of conversation. They are, by most accounts, buying the lion’s share of production.)

CPI A Bit Hotter Than Expected
This morning we have already had the Consumer Price Index. Later on we will see Industrial Production and Capacity Utilization. U.S. consumer prices in August were +.4%, faster than the +.3% expected and after being flat in July. As anyone with a car knows, gasoline was the primary culprit – it was up over 9%. The core CPI was +.1%. Year-over-year, however, the CPI is still down 1.5%, and “experts” think that continued weakness in the labor market and modest consumer spending will keep price pressures in check for a while. After the news 30-yr mortgage security prices are better by .125 and the 10-yr yield is at 3.40%.

A Word On Credit Scores
With “everyone and their brother” being bombarded for advertisements about services lowering your credit card debt (is that really a good thing for the economy?), does taking advantage of credit counseling affect your credit? According to Fair Isaac, counseling is not a ding, not even if it appears on your credit report. Of course, what you do with the information, like stop paying your bills, can affect your FICO score.

But what should an originator tell their client a credit score, like FICO, is? The score helps the creditor understand the borrower’s likelihood to repay a debt. Borrowers may want to know that the FICO score, for example, is composed of one’s payment history, the length of credit history, is the borrower adding additional credit, one’s current limits, and what type of credit does the borrower have. The folks at Fair Isaac are coming out with a “new and improved” FICO scoring scheme will allow more individuals access to refinancing their present home or buying a new one, and at the same time help lenders reduce default rates on consumer loans from 5-15%. Basically unusual, one-time events carry less of a penalty. Unfortunately, the last I’d heard, Fannie and Freddie have yet to approve the new credit scoring.

Mortgage Brokers Continue To Take Heat
Mortgage brokers have taken a lot of heat lately. Here’s an article that may be of interest to those brokers still in the biz.

Update SunTrust Loan Guidelines
I apologize for this being a few days late, but SunTrust told clients that for any locks on new first mortgages being refinanced the mortgage “must the same or a more stable product then the current first mortgage when a subordination of a Combo Second Mortgage is required. Fixed rate mortgages are only eligible for refinance to a new fixed rate mortgage, ARM loans must go to either a same term ARM, longer term ARM or a fixed rate mortgage.”

In addition, SunTrust followed other large investors regarding TBW loans. “Correspondent clients…are required to meet all current applicable loan guidelines. New loan documentation, including a new loan application (1003), appraisal, income/asset documents, and any other documentation required by the applicable loan program, must be obtained if any of the documentation is in the name of (TBW). The loan must be completely underwritten to current SunTrust Mortgage guidelines. If the loan was previously underwritten through an Automated Underwriting System (AUS), a new AUS submission is required. AUS reports in the name of Taylor, Bean & Whitaker Mortgage Corp (TBW) are not acceptable. As a reminder, the Correspondent Fraud Prevention Certification (COR 0601) is required on all loan transactions and on all loan programs (both conventional and government). All conventional appraisals must be compliant with the Home Valuation Code of Conduct (HVCC).”

And lastly, if you were looking for a home for that 125% loan, SunTrust is not the answer. “At this time, current SunTrust guidelines allow for a maximum LTV of 105% and will remain unchanged.”

Daily Humor
One day the old German Shepherd starts chasing rabbits and before long, discovers that he’s lost. Wandering about, he notices a panther heading rapidly in his direction with the intention of having lunch.
The old German Shepherd thinks, “Uh-oh! I’m in trouble!” Noticing some bones on the ground close by, he immediately settles down to chew on the bones with his back to the approaching cat. Just as the panther is about to leap, the old German Shepherd exclaims loudly, “Boy, that was one delicious panther! I wonder if there are any more around here?”
Hearing this, the young panther halts his attack in mid-strike, a look of terror comes over him and he slinks away into the trees. “Whew!” says the panther, “That was close! That old German Shepherd nearly had me!”
Meanwhile, a squirrel who had been watching the whole scene from a nearby tree figures he can put this knowledge to good use and trade it for protection from the panther. So, off he goes, but the old German Shepherd sees him heading after the panther with great speed, and figures that something must be up.
The squirrel soon catches up with the panther, spills the beans and strikes a deal for himself with the panther.
The young panther is furious at being made a fool of and says, “Here, squirrel, hop on my back and see what’s going to happen to that conniving canine!”
Now, the old German Shepherd sees the panther coming with the squirrel on his back and thinks, “What am I going to do now?”, but instead of running, the dog sits down with his back to his attackers, pretending he hasn’t seen them yet, and just when they get close enough to hear, the old German Shepherd says, “Where’s that squirrel? I sent him off an hour ago to bring me another panther!”

Moral of this story….
Don’t mess with the old dogs… age and skill will always overcome youth and treachery!
Brilliance only comes with age and experience.