THE BASIS POINT

Will Jumbos Ever Come Back?, More on Short Sale/Foreclosures, Philly Fed & Leading Indicators,

One top ex-secondary guy wrote to me and said, “Things I sort of miss hearing in mortgage banking: “What are rates gonna do tomorrow?” “Why is IndyMac a point better than we are?” Anything associated with “Did you hear what they said on CNBC this morning…….?” “How come I’m losing money on the hedge?” And “See that rep over there? We ended up naked in a hot tub at a conference back in ’94.” I tell you, sometimes this commentary writes itself.

Right now, companies all over the US are talking about next Friday. Either the companies are closed, and the employees have the day off to go spur the economy, or companies are open. Those that are open may have low seniority people at the desks, or people who don’t care about taking the day off and would rather “bite the bullet” and come in for the day after Thanksgiving. US Postal service is in effect, and therefore it counts as a rescission day. But lock desks, and loan sales, will slow down next week with the holiday coming up.

Maybe folks are out there thinking about their upcoming holiday parties, assuming lay-offs have not been too dramatic and they’re actually going to have one. So here is one for you men out there.

Will Jumbos Ever Come Back?
Will the jumbo market ever come back? I, for one, believe that it will. Obviously many banks offer the product through their retail branches – it earns them a very nice spread versus their cost of deposits. Things are a little iffier through the correspondent channel, but moving in the right direction. Chase, for example, offers non-agency product to eligible Chase clients. Their maximum loan amount is $2 million with a maximum LTV/CLTV of 80% and only for a primary residence. It is available for purchases and cash-out/no cash-out refinances with a fully executed 4506-T. Chase’s correspondent clients must be approved by the Chase Customer Management Group prior to participation, be approved to do business with Chase Correspondent for at least one year and minimum volume of $6MM for the previous 12 months, have a minimum audited HUD adjusted net worth of $1MM, and have a 12-month Conventional 90+ active ongoing delinquency <100% of channel average. Not everyone fits, but still, it’s a step. GMAC Bank Correspondent Funding followed suit on the 2010 conforming loan limits, so as determined by the Federal Housing Finance Agency (FHFA) they remain unchanged. The maximum general conforming loan limit for one-unit properties will remain at $417,000. The maximum high-cost area conforming loan limits have been extended for 2010 originations. DR Horton Earnings
Builder D.R. Horton, based in Fort Worth, said it lost “only” $232 million in its fiscal fourth quarter, compared to a loss of $800 million a year ago. Inventory write down costs and other expenses totaled $192.6 million pretax in the latest quarter. And, as with most other builders, sales orders during the quarter were better than last year, but more foreclosures, high inventories and rising unemployment remain a challenge for the industry.

Philly Fed & Leading Indicators
It was a somewhat interesting market yesterday. The stock market sold off, mostly blamed on profit taking, and Leading Economic Indicators only being +.3% instead of the +.4% that was expected. (Forget that it was balanced out by the Philly Fed survey coming in much stronger than expected – stocks and bonds chose to ignore that one this time around given that manufacturing in the Philadelphia area might not be indicative of the entire US economy.) LEI were up 1% in September, so generally speaking it is pointing to a recovery in the future.

Fed MBS Purchases
In the fixed income markets, mortgage-backed securities were a little “wider” yesterday, meaning that their rates went up slightly relative to Treasury rates. It was announced that NY Federal Reserve would use its own staff on “select days” in executing MBS purchases instead of being in the market every day, so one can expect more choppiness on those days. And the Treasury announced next week’s auctions for Monday, Tuesday, and Wednesday: $44 billion in 2-yr notes, $42 billion in 5-yr notes, and $32 billion in 7-yr notes for a total of $118 billion.

The Fed noted that they had purchased another $16 billion of MBS’s during the week ending 11/18 after adding $13.5 billion during the previous holiday-shortened week. For those keeping score at home, year-to-date net purchases of agency MBS is now at $1.023 trillion. If the average loan size is $250,000, and I am not saying it is, that means that they have bought almost 4.1 million home loans! They have been buying securities mostly made up of 4.75-5.625% 30-yr mortgages. There is no substantive economic news today, and the 10-yr is hovering around a yield of 3.34% and mortgage prices are about unchanged.

More on Short Sales & Foreclosures
My comments about short sales versus foreclosures brought some very welcome comments. See Below:

“With FHA, as long as you’ve paid your mortgage through the entire short sale process on time and that you did not short an FHA mortgage, you can obtain a new FHA mortgage without a waiting period – in other words, if you short a conventional mortgage and had always paid on time, FHA will not treat it the same as a foreclosure which has a 3 year waiting period. It is 48 months from foreclosure for Fannie and Freddie. It is 36 months for FHA. In all situations, an Approval from the AUS would overrule this (if the lender is OK with that).”

“The problem we’ve seen with short sales is the approval process of either the 2nd position lender – who basically is getting nothing – but given this is not a foreclosure process, their approval is required, or a home equity line of credit lender – where the borrow is still liable. And for any PMI company – what recourse do they have against the borrower and what hurdles do they face in approving a short sale and maintaining any recourse rights they may have or must they do their own property appraisal to make sure they don’t want to step in and prevent the short sale?”

“One of the possible benefits I’m seeing from short sales and how long they’re taking is that with a firming market price-wise off the bottom, the price we agreed upon 6 months ago is below market now – so we’re realizing a bit of a benefit. Realtors, who rely on transaction volume, hate short sales. Realtors, like mortgage brokers, are working twice as hard for a third of the money per transaction. By the time we’re done with this economic cycle, both industries will have done substantial culling.”

Daily Humor
Like most of America I’ve gained a little weight lately, so I decided that I needed to figure out an exercise routine. I happened upon this one:

“Begin by standing on a comfortable surface, where you have plenty of room at each side. With a 5-LB potato sack in each hand, extend your arms straight out from your sides and hold them there as long as you can. Try to reach a full minute, and then relax. Each day you’ll find that you can hold this position for just a bit longer.
After a couple of weeks, move up to 10-LB potato sacks. Then try 50-LB potato sacks and then eventually try to get to where you can lift a 100-LB potato sack in each hand and hold your arms straight for more than a full minute.
After you feel confident at that level, put a potato in each sack.