THE BASIS POINT

Taylor Bean In Trouble, Lobbying Mortgage Disclosure Rules, Behavioral Economics, Pending Home Sales Up

Well, we haven’t had a well known mortgage company collapse for quite some time, and you can bet that the folks at Taylor, Bean, & Whitaker are hoping that streak continues. Unfortunately they are spending their time in damage control. The latest development is an investigation by HUD after allegedly failing to submit a required financial report, raising concerns of fraud. On top of that, the FHA suspended TBW from originating new FHA-insured mortgages. HUD said that TBW’s CEO gave false or misleading information regarding the company’s delay in submitting audited reports for the fiscal year ending March 31, and that the president is accused of submitting two false certifications to HUD on a yearly report. TBW also was barred from issuing mortgage backed securities for the Government National Mortgage Association, or Ginnie Mae. Ginnie Mae will take control of the company’s nearly $25 billion portfolio of its loans, HUD said.

With this kind of press, convincing clients to lock or sell loans to them is a difficult, if not impossible, sales job. This comes at a time when FHA mortgages represent about half of all purchases. Taylor Bean, according to Inside Mortgage Finance, ranked 12th among U.S. mortgage originators in the first half of this year with $17 billion of loans. Check out full Bloomberg story

Freddie Announces Stimulus Refi Guidelines
Freddie informed clients about future requirements for all fixed-rate cash contracts taken out for Relief Refinance Mortgages with LTV ratios greater than 105 percent and less than or equal to 125 percent, effective on or after August 5, 2009. “Fixed-rate cash contracts for Relief Refinance Mortgages with LTV ratios greater than 105 percent and less than or equal to 125 percent may only include Relief Refinance Mortgages with these higher LTV ratios. You may not commingle these Relief Refinance Mortgages with any other mortgages that have LTV ratios less than or equal to 105 percent. To identify fixed-rate cash contracts for Relief Refinance Mortgages with LTV ratios greater than 105 percent, you must enter “Over105” with no space in the “Contract Name” field on the “Take Out a Cash Contract” screen in the selling system. If you currently use this field for identifying contracts internally, you may continue to do so as long as the field also includes ‘Over105.’” Freddie will apply a cash adjustor, which may change, to all fixed-rate Relief Refinance Mortgages with LTV ratios greater than 105 percent that are sold to Freddie Mac for cash.

Mortgage Apps Up Last Week
Lock Desks around the nation were a little busier last week. According to the MBAA, apps were up 4.4% from the week before. And versus the same week in 2008, apps were up 18%. Refi’s were up about 7%, and purchases were up about 1%. The retail lenders who make up the survey group say that refi’s accounted for about 52% of all the applications.

NAMB Fights Loan Disclosure Rules
Many brokers belong to NAMB, and many don’t like the new disclosure rules. NAMB expressed its disappointment with the U.S. District Court’s decision on its lawsuit against HUD’s Real Estate Settlement and Procedures Act (RESPA) final rule issued late last year. The court ruled in favor of HUD, stating that the agency, in fact, did not violate the Administrative Procedures Act before issuing the RESPA final rule and that NAMB did not demonstrate that HUD acted in an “arbitrary and capricious” manner.

Behavioral Economics
Yesterday we had the Personal Income and Consumption numbers, which in turn are used in helping calculate the savings rate here in the US. How much do you save? The savings rate is closely monitored by economists, and, although last month it dropped, lately it has been increasing. Here in the US, given our safety net of social security and health care (I hope), most people may only save for retirement – after all, it is certainly easy to spend with so many credit cards and home equity lines of credit. Interesting psychological studies have shown that people, if they are given a lump sum now, or several payments over time, or a sum that is “locked up” in an interest-bearing account, will spend very little of the money that is locked up, and spend the most if they are given a lump sum. Generally speaking, folks put money into different categories in their minds, with some to be spent and some to be saved. Many workers see this every pay check in the form of a 401(k), a plan devised to encourage saving among many US workers. If savings rates continue to increase, however, the economic recovery will be slower than the forecasts. Behavioral economics at work!

Pending Home Sales Up
What is going on with interest rates? Well, rates began yesterday in decent shape, but once the Pending Home Sales numbers came out, and rates sagged (i.e., prices worsened). No one should expect rates to do much of anything, really, for quite some time, aside from some daily fluctuations. There is some speculation that the unemployment data that is announced on Friday will be weaker than expected, although it is not really helping us rate-wise. (Non-farm Payroll is expected to be down about 325k.) For economic news, later this morning we’ll see the ISM Non-Manufacturing Index, along with Factory Orders. We will also have the Treasury Department announced their auction totals for next week, when they’ll be selling 3, 10, and 30-yr securities. Prior to this, the 10-yr is up to 3.74% and mortgage securities are worse by about .375.

Daily Humor
A cruise ship suddenly hits rough waters and a huge storm. Lightening comes out of the sky and strikes the ship in half! There is only one survivor, a man, who wakes up on the shore of an island with its only other residents being a dog and a pig.

Months and months go by and after numerous days of watching the seas for help and the occasional smoke signals, no rescue. One day as the man is lying on the beach in the hot sun and starting to go a little nuts. He looks over at the pig and with the help of a little hallucinating the pig appears to be a beautiful woman. He crawls over towards the pig and as soon as he touches the pig the dog bites onto his ankle growling madly. He lets the pig go and the dog releases him. The man comes to his senses and thinks, “Holy Cow! What am I doing?” But over the next few months this happens a few more times: pig transforms into a beautiful woman, man grabs pig, dog snaps onto his ankle growling, man let’s go of pig, dog releases the man and the man awakes from his daze.

One day he spots a cruise ship in the distance. He can’t believe what he is seeing and is sure that it’s another mirage. He starts a fire, sends smoke signals, and jumps up and down screaming! The boat sounds its horns and turns towards the island. Tragically, the ship hits a rock and sinks. He is devastated, but soon the man sees something floating out in the ocean. He swims out, and amazingly it’s a beautiful woman. He brings her to shore, applies CPR and resuscitates her back to life. She sits up, stares into his eyes and tells him that after he has saved her life she will do anything for him. He replies “anything?” and she nods yes.

He jumps up an immediately says, “Do you see that dog over there? Can you please take him for a walk”?