What Ratings Agencies & Lindsay Lohan Have In Common. Jumbo Loan & FHA Down Payment News

Signs of Life In Jumbo Mortgages
There are definitely signs of the ice cracking in non-agency (or Jumbo) lending. For example, folks in the biz know that Quicken Loans is the largest online mortgage lender. But in recent weeks Quicken, who is also the 4th largest FHA lender, has moved into “private-label” originations. PHH, according to an article in American Banker, is the largest private-label originator (and which handles originating mortgages for Charles Schwab and Merrill Lynch) expanded into correspondent and wholesale lending. An executive with PHH stated that most clients prohibit PHH from selling servicing, especially to one of the competitors.

Will FHA Down Payments Go To 5%?
From Washington DC: the House is taking up HR 5072, the FHA Reform Act. While it seems that mortgage industry organizations are in favor of the Act, which provides the FHA with resources to manage risk, there are a few amendments that are raising some eyebrows. The first is the Garrett Amendment, which raises the minimum FHA down payment to 5%. The second is the Price Amendment that would limit FHA’s market share to 10% of the housing finance market. Third, the Turner Amendment would reduce FHA’s loan limits, which were “temporarily” increased in 2008. Stay tuned… or call your Congressman ASAP.

Which States Have Most Public Employees?
The concern about a jobless recovery, and the growing government deficit, brings up an interesting issue. What states have the highest percentage of “public employees” – those working for government? Nebraska, Kansas, Idaho, Nebraska, New York, West Virginia, and North Dakota are all in the 16% range. Mississippi is nearly 19%, New Mexico is about 20%, and Alaska is nearly at 21%. And the residents of Wyoming, with one of the lowest overall state populations, can chant “We’re #1” with 22% of them working for the government. Tying this in with mortgage banking, HUD & FHA, and other government agencies, have job openings online at

What Ratings Agencies & Lindsay Lohan Have In Common
One critic likened rating agencies assigning ratings to being like having Lindsay Lohan for a guidance counselor. The latest Bloomberg report from the commercial securitization market:

“Moody’s Investors Service plans to grant top ratings to U.S. commercial-mortgage bonds with less investor protection and potentially riskier underlying loans than in the market’s previous sale.”

JPMorgan Chase is giving the bond a 15% credit enhancement (the amount of protection against the underlying loans’ losses, such as by having junior-ranked notes lose principal first) compared to over 22% on the last deal done. The LTV’s are higher and tenant income less on the new deal, but the bonds will be linked to 36 different loans, compared with only six in an April sale by Royal Bank of Scotland Plc. The greater diversity is the main reason Moody’s is allowing the lower credit enhancement. Critics are quick to point out that it seems that nothing has changed with the rating agencies: they are still being paid by the issuer, and don’t seem to realize that although diversity is good, nationwide real estate trends can impact the risk of a diversified portfolio of loans.

S&P’s Opinion of Housing & REIT Markets
What does another rating agency – Standard & Poor’s – think about the housing market and specifically apartment REIT’s? “While we anticipate gradual, yet choppy improvement in the single-family for-sale market, recent market data suggest that operating fundamentals among public REITs have bottomed and that this area may turn the corner quicker than we expected. The company believes rated apartment REITs will continue to recover and outperform national and local market trends because they typically own above-average quality, well-located, and professionally managed communities. They’ve also been able to maintain their credit profiles during the housing downturn, albeit with some help from Fannie Mae and Freddie Mac.” Certain trends are helping apartments: consumer confidence is improving, homeownership is down, occupancy rates are high, and there is a historically low level of new supply in the market.

Bernanke: Economic Growth Will Be Modest
Two items nudged markets yesterday.

The first was the release of the Fed’s Beige Book, which comes out eight times a year and presents information and data on current economic conditions from the 12 Fed districts. In what shouldn’t be a surprise to anyone in the residential or commercial loan business, loan quality is improving since credit standards have tightened, but the housing market still must deal with its “shadow inventory” of short sales and REO properties.

The second was a series of statements by Federal Reserve Chairman Ben Bernanke. There wasn’t anything too exciting that came out of the testimony for the House Budget Committee, but it still grabbed some headlines. Regarding the situation in Europe, “The impact of the crisis on U.S. growth is likely to be modest if financial markets continue to stabilize.” “The U.S. recovery is being restrained by the housing and commercial real-estate markets.” And he re-warned us about a lack of a long-term deficit-reduction plan. But don’t look for any change in overnight Fed Funds (0-.25%) in the near future, especially at the June 22 FOMC meeting – things are not that rosy.

Mortgage and Treasury Bond Market Update
Yesterday mortgage traders saw a pick-up in selling from mortgage bankers – maybe as much as $2 billion. So either locks picked up, or un-hedged loans were being sold. And it was a nice rally in MBS’s to sell into as the stock market sank yet again. The old adage “higher should read wider” isn’t holding, meaning that even with Treasury rates dropping, mortgage rates are dropping right along with them, in spite of prepayment fears. (Maybe the prepayment fears have abated?) In general, locks and supply are down, the appetite for mortgages (especially with this credit quality) is good, so supply & demand laws dictate good mortgage prices. Recently we seem to be in a pattern: the stock market starts off ok, but then fades in the last hour or two of trading. Bonds sit around for some of the day, but then seem to magically improve. Yesterday all kinds of investors sent out price improvements, and current coupon products went from being worse by about .250 to being better by .125.

Rates Up as Euro Rallies
This morning Initial Jobless Claims came in as expected, down 3,000 to 456,000, and the 4-week moving average of claims was up 2,500. Of course, looking back to last week’s employment data, one of the most disappointing aspects was the stall in non-government hiring. The government may be putting out globs of stimulus money, but really, where is it being spent? With the 3-yr and 10-yr out of the way, we have a $13 billion 30-yr auction today. Aside from that, watch rallying stocks and Euro, which are both causing rates to rise (as mortgage bonds sell off). Yesterday’s 10-yr is yielding 3.22% and mortgage prices are currently worse by about .125.

Weather & Rates: Things We Can’t Do Anything About
Weather, like interest rates, is something everyone talks about but no one can do anything about. Weather trivia?

The longest rain-free period in the United States was 767 days (2 years, 37 days) in Bagdad, California, in 1912.

A world record rainfall occurred at Holt, MO on June 22, 1947 when it rained 12 inches in just 42 minutes. On July 4th, 1956 In Unionville, MD 1.23 inches of rain fell in 1 minute.

The average (not median) yearly temperature of New York, St. Louis and San Francisco differs by only 1.8F degrees.

Which is the least rainy city – Seattle, New York City or Miami? Although on average Seattle is cloudy 227 days a year, it only receives 39 inches of rain per year, compared to New York City (42 inches) and Miami (60 inches).

Is Chicago really “The Windy City?” Of the 262 major weather reporting stations in the United States, 27% average higher annual wind speeds than Chicago (which averages 10.3 mph). For example, New York City’s annual wind speed is 12.2 mph.

Cheyenne, Wyoming averages the most hail storms in the United States per year with 10 and Tulsa, Oklahoma experiences the most severe hail storms annually.

The United States leads the world with an average of over 1,000 reported tornadoes each year. Kansas has received the most F5 tornadoes since 1880. Oklahoma encounters the highest number of significant and violent tornadoes per square mile. Of the total reported tornadoes in the United States each year, 20 can be expected to be F5 tornadoes with winds over 200 mph and nearly complete destruction.