Guy at the bar: “I drink to forget’. Other guy: “Me too. Why do you?”
That is a reminder that no one should forget that the economy moves in cycles. Tomorrow we will have the conclusion of the FOMC meeting, and the statement is widely expected to indicate an improved growth prospect for the economy but certainly leaving overnight rates alone. Why would the Fed want any verbiage that would threaten the recovery? Today also brings the first in another record week of Treasury auctions, with a $43 billion offer of 2-year notes (tomorrow and Thursday we have the 5- and 7-yr sales).
For economic news yesterday we had the Conference Board’s Leading Economic Indicators. Once again, we had a number that shows that the economy’s fall has either turned around or at least stopped – forget all those out-of-work people, or the “For Rent” signs on Main Street. LEI was +.6% after also being up in July and June, and in fact has risen since April after being negative since the summer of 2007. But we also have the Fed continuing to buy Treasuries and mortgage-backed securities – programs that most analysts believe will be gently scaled back as investor interest creeps back into the secondary markets. But both stocks and bonds ended up the day on a down-note, with a few investors even changing prices for the worse. The question for mortgage rates, and rates in general, is how much more money will be pulled out of the bond market and put into stocks? Currently the yield on the 10-yr is back up to 3.48%, and mortgages are “worse a tad”.
Loan Guideline Updates
GMAC, following the Fed’s July 30th Reg. Z publication, states that they “will not originate, purchase or table fund loans that meet the definition of a “higher priced mortgage loan” under Regulation Z § 26.35 and the official commentary to the regulation. The loan file delivered to GMAC Bank must contain evidence of the date the lender on the note set the interest rate with the consumer for the last time before consummation.” Evidence includes a rate lock-in agreement, screen print from the client’s system indicating the lock date, or an internally generated document stating the interest rate lock date.
In further GMAC news, their correspondents were pleased to learn that they are adding new FHA and VA 5/1 Hybrid ARMs with 1/1/5 caps which will follow the existing ARM product criteria aside from having different rate cap adjustments. In addition, GMAC Bank will start accepting Homebuyer Assistance Programs (HAP), also known as Down Payment Assistance (DPA), in conjunction with VA Loans, although they must close before the end of the year. GMAC also listed some other requirements, including to meeting VA credit and minimum property standards, the HAP must be administered by a government agency, the assistance must be in the form of an outright grant with no repayment provisions or a soft second mortgage, etc.
Speaking of “higher priced mortgage loans”, starting 10/1 both US Bank Home Loan and Flagstar announced that HPML rules become effective for all loans. For anyone who hasn’t been paying attention HPML loans are defined as “consumer-purpose, closed-end loans secured by a consumer’s principal dwelling that have an APR equal to or greater than the Average Prime Offer Rate (APOR published by the Fed and posted on the Federal Financial Institutions Examination Council website) by 1.5 percentage points for first-lien loans, or 3.5 percentage points for subordinate-lien loans for a comparable transaction.” Where’s my HP?
Freddie Mac released a new bulletin (2009-23) which focuses on updates to Home Affordable Modification program (HAMP) requirements, along with some important dates. For example, after November 1 Freddie servicers are required to use Workout Prospector when evaluating all borrowers for a modification under HAMP, although you may rely on your own proprietary or third-party system, as long as it adheres to the requirements outlined in Freddie’s bulletin. (If a modification cannot be completed under HAMP, the Servicer must continue to use Workout Prospector to evaluate the borrower for other Freddie Mac foreclosure alternatives.) Prior to the November 1 date, starting on 9/30 “Servicers must begin using the revised HAMP Modification Agreement, Trial Period Plan, and Hardship Affidavit with the August 2009 revision date, starting 10/1 Servicers must report the new EDR codes, and by 10/26 Servicers must have updated their systems to support the new file formats for reporting additional default action codes.
Fannie Mae Going Green?
Is Fannie Mae going “green”? Not really. Fannie did, however, issue Lender Letter 07-2009 (“Energy Loan Tax Assessment Programs”), addressing loans for energy efficiency programs. Generally, these loans are repaid via the homeowners’ real property tax assessments, and have statutory first lien priority over all other liens on the property, including first mortgage loans. Fannie is reviewing the situation, but tells lenders that currently ELTAP’s are not eligible for sale to Fannie Mae, and that they are providing guidance to lenders concerning ELTAP payments (treat them as a special assessment in underwriting a borrower where the security property is subject to an existing ELTAP loan), and to servicers.
The scene: a crowded church in a small town.
“Anyone with needs to be prayed over, come forward, to the front at the altar,” the Preacher says.
Leroy gets in line, and when it’s his turn, the preacher asks: “Leroy, what do you want me to pray about for you.”
Leroy replies: “Preacher, I need you to pray for my hearing.” The preacher puts one finger in Leroy’s ear, and he places the other hand on top of Leroy’s head and prays and prays and prays; he prays a blue streak for Leroy.
After a few minutes, the Preacher removes his hands, stands back and asks, “Leroy, how is your hearing now?”
Leroy says, “I don’t know, Reverend, it ain’t ‘til next Wednesday!”