THE BASIS POINT

Trouble For Wells REO Exec, More TaylorBean Fallout, Economic Preview For Week

“Talk like a pirate day” isn’t until this weekend, on the 19th, but lock desks all over the nation are already practicing: “Hello, Lock Desk? You know that loan I locked in two weeks ago? Well, the borrower said that if I don’t get a better rate, she’s going to pull it and go elsewhere. Aaarrrggghhhh.”

Supposedly Groucho Marx toured the New York Stock Exchange many years ago, and a stock trader asked him, “Groucho, where do you put all your money?” Groucho was said to have replied, “In Treasury bonds”, and the trader said, “You can’t make much money on those.” Groucho said, “You can if you have enough of them!” I mention this clever exchange because Groucho’s house in Beverly Hills is on the market for $12.9 million. He lived there from 1956 until his death in 1977, and has five bedrooms and six bathrooms in 6,000 square feet on a three-quarter acre lot.

Wells Fargo REO Execs In Trouble
When I grow up, I want to work for Wells Fargo in their REO department. Friday the press carried stories about a WF commercial real estate exec that had moved into a $12 million Malibu beach house shortly after it was handed back to the bank. Cheronda Guyton, who is/was responsible for foreclosed commercial properties (which typically include high-value homes), used the house for parties and weekends frequently this summer. Heck, I never got an invite! Wells is investigating, but I doubt if they welcome the publicity.

Taylor Bean and BofA
It appears that much of the news about Taylor Bean Whitaker loans has settled down. At Bank of America Home Loans, remembering that BofA’s servicing department took 180,000 of the TBW loans, they will take them of course – kind of. “Effective immediately, the following guideline changes apply to loans where Taylor, Bean and Whitaker Mortgage Corporation (TBW) or its affiliates were involved in any part of the origination process, including borrower application, processing, obtaining documentation, or underwriting. Conventional and bond loans transferred from TBW or its affiliates must be re-documented and re-underwritten to current requirements for purchase eligibility with Correspondent Lending and to be eligible for financing with Warehouse Lending. Re-documentation includes, but is not limited to, loan application, AUS approval, and appraisal. For all loan programs (including FHA and VA), if TBW or its affiliates were the closing lender, the loan is ineligible for purchase by Correspondent Lending.”

Speaking of Bank of America, BofA told clients that the 2009 Area Median Incomes (AMI) limits are updated. After the 19th clients will be required to use them with all loan casefiles submitted to DU. You can always find them here.

BofA also told clients that after the 19th loans submitted to DU, DU Refi Plus loans with LTV’s up to 125% may be approved. But “at this time, Bank of America will not purchase Fannie Mae’s DU Refi Plus program with loan-to-values greater than 105%.” Nor will they purchase Freddie Mac’s Open Access program which will be available in LP for loans input on or after October 1, 2009.

New Fannie Mae Underwriting Engine
Regardless of who and who is not buying high LTV loans, this weekend, in celebration of Pirate’s Day, Fannie Mae will implement the DU Version 7.1. Fannie’s release implements the maximum LTV ratio to 125% for DU Refi Plus loan casefiles, updates to Home Affordable Refinance, committing whole loans, etc. “DU Refi Plus loan casefiles with LTV ratios greater than 105% will reflect an updated DU credit risk assessment and will be limited in product eligibility to fully amortizing fixed-rate 30-year mortgages. The required borrower benefit (either a reduced monthly mortgage payment or a more stable product) will continue to apply, which lenders represent and warrant when selling the loan to Fannie Mae.”

Other Lender Updates
Wells Fargo, however, like BofA, will not buy the higher LTV loans. Neither Wells Fargo’s correspondent nor broker channels will adopt this change: both continue to limit the maximum allowable LTV for DU Refi Plus loans to 105% and will not purchase loans with an LTV greater than 105%. I guess, as a servicer, do you really want the risk of servicing a loan with a 125% LTV?

In a few weeks (the 1st of October) Flagstar will be changing the way they look at qualifying rates of loans with a temporary buydown. “Fixed rate loans registered under any Fannie Mae product with an interest rate buydown option must be qualified at the note rate. Adjustable rate loans with an interest rate buydown option must be qualified at the greater of the note rate or the fully indexed rate.” And on that day ARM’s “registered under any Fannie Mae product with an initial 5-year fixed period must be qualified at the greater of the note rate or the fully indexed rate. These loans are currently qualified at the note rate.

Economic Preview For Week
Back to the economy! Whereas last week we didn’t have much news, aside from the well-received auctions which helped rates, this week we have the monthly inflation reports. The Producer Price Index (PPI) comes out tomorrow, focusing on the increase in prices of “intermediate” goods used by companies. The Consumer Price Index (CPI) comes out Wednesday, and is watched closely since it looks at the price changes that consumers see. Given the current economic environment, inflation is not a major issue, but these can definitely move the markets. We also have Retail Sales tomorrow, Industrial Production and Capacity Utilization comes out Wednesday, on Thursday we have Jobless Claims, Housing Starts, and the Treasury’s announcement of the size of next week’s auctions. To start the week the 10-yr is chopping around 3.38% and mortgage security prices are worse than Friday afternoon by .125.

Daily Humor
The coach had put together the perfect team for the Oakland Raiders. The only thing that was missing was a good quarterback. He had scouted all the colleges and even the Canadian and European Leagues, but he couldn’t find a ringer who could ensure a Super Bowl win.

Then one night while watching CNN he saw a war-zone scene in Afghanistan. In the background, he spotted a young Afghan Muslim soldier with a truly incredible arm. He threw a hand-grenade straight into a 10th story window 50 yards away.
KABOOM!
He threw another hand-grenade 75 yards away, right into a chimney.
KA-BLOOEY!
Then he threw another at a passing car going 50 mph.
BULLS-EYE!
“I’ve got to get this guy!” Coach said to himself. “He has the perfect arm!”
So, he brings him to the States and teaches him the great game of football. And the Raiders go on to win the Super Bowl.
The young Afghan is hailed as the great hero of football, and when the coach asks him what he wants, all the young man wants is to call his mother.
“Mom,” he says into the phone, “I just won the Super Bowl!”
“I don’t want to talk to you, the old Muslim woman says.”You are not my son!”
“I don’t think you understand, Mother,” the young man pleads. “I’ve won the greatest sporting event in the world. I’m here among thousands of my adoring fans.”

“No! Let me tell you!” his mother retorts. “At this very moment, there are gunshots all around us. The neighborhood is a pile of rubble. Your two brothers were beaten within an inch of their lives last week, and I have to keep your sister in the house so she doesn’t get assaulted!”

The old lady pauses, and then tearfully says, “I will never forgive you for making us move to Oakland!”