Will Rates Go Higher or Lower?, CA Housing Inventory Drops, Higher Loan Limits To Expire

Morgan/Goldman Now Traditional Banks
The last two remaining Wall Street investment banks gave up their relatively non-regulated status and are now commercial banks as the Federal Reserve approved Goldman Sachs and Morgan Stanley to become bank holding companies yesterday. The reason? Morgan and Goldman can now permanently borrow from the government, since banks can borrow from the Federal Reserve at the discount window. Less risk, less profit, but the ability to buy retail banks and add stability. It is an interesting trade-off.

Will Rates Be Higher or Lower Going Forward?
From a loan agent’s view point, mortgage rates relative to Treasury rates improved late last week, which is certainly good news. But what about rates going forward? There are conflicting arguments: the stability should help rates, but increased government debt will push long-term yields higher, but the economy is weak which will keep rates low. Take your pick. This morning those thinking that higher rates are in the forecast are winning, as the 10-yr is worse by a point (yield: 3.89%) and 30-yr mortgages are worse by about .5-.75 in price. For scheduled economic news today and tomorrow there is very little. Wednesday we have August’s Existing Home Sales, and then on Thursday we have Jobless Claims, Durable Goods, and New Home Sales, and then on Friday we have the GDP numbers.

Rake Locks Renegotiations on FHA
Do FHA borrowers really shop rates? Any agent originating FHA loans, when speaking to their Lock Desk about a better price, will jump up and down and shout, “You bet they do! I get beat up all the time!” But logic would suggest otherwise. Many of these borrowers are simply happy to have a loan, given that many of them would have been subprime borrowers at 12%, and often feel lucky to get approved. Do they really ask about floating down, or are agents behind this?

Fannie Mae Ups Net Worth Requirements for Originators
Want to do business directly with Fannie? It’s going to cost a little more. On December 31, Fannie Mae is increasing its net-worth requirements for approved seller/servicers, along with new minimum capital requirements for banks, thrifts, and other customers, to $1.6 million for approved seller/servicers and $2.5 million for new lenders seeking Fannie Mae approval, plus 0.25% of the outstanding principal balance of the lender’s portfolio of loans serviced for Fannie. All approved lenders must meet the minimum $2.5 million net worth starting Dec. 31, 2009.

Lehman Fallout
Apparently Nomura Securities is close to buying Lehman’s Asian operations as Lehman continues to be divvied up.

Higher Loan Limits Set To Expire
Does anything happen to loan amounts or pricing on October 1st due to the Foreclosure Prevention Act signed a few months ago? That is a good question – none of my investors seem to know. Fannie Mae knows, however, and the changes they enact quickly trickle down to those investors who sell to them. Through December 31, 2008, Fannie Mae will continue to purchase Jumbo Conforming Mortgages at a price identical to that of conforming loans except that, “as of October 1, such pricing will not be applicable to an MBS execution for fixed-rate JCMs. Effective October 1, 2008, flat to conforming pricing for JCM fully amortizing 15- and 30-year FRMs will be offered for whole loan delivery only, and will not apply to MBS acquired for portfolio. We will bid for JCM FRM MBS, but at a market price behind TBA prices.” Fannie, and I assume Freddie, will “continue to provide flat to conforming pricing for both JCM whole loans purchased by December 31, 2008 and JCM MBS (October, November, and December 2008 issuances) executions for ARMs and interest-only (IO) loans.

Along the same lines, on January 1, 2009, “Fannie Mae will have a permanent authority to purchase high-balance loans. The Securities Industry and Financial Markets Association (SIFMA) has announced that it will allow high-balance loans up to 10% in TBA MBS pools. Everyone is still waiting for SIFMA’s update of its “Good Delivery Guidelines” to formalize its decision and provide details, and an announcement of high-cost areas and loan limits for each high-cost area from the Federal Housing Finance Agency (FHFA), along with the eligibility and pricing guidelines that apply to high balance loans.

Fannie Mae will continue to accept jumbo conforming mortgages through flow and bulk business. The current criteria for flow business are: Original principal balance (OPB) greater than $417,000, up to the 2008 ESA loan limits, origination date between March 1, 2008 and December 31, 2008, and the eligible products are 15-year and 30-year FRMs (IO and fully amortizing), and 5/1, 7/1, and 10/1 ARMS (IO and fully amortizing). Look for Fannie to begin providing MBS pooling capability for high-balance loans using the 2009 HERA loan limits beginning in December 2008 for January TBA-eligible MBS issuances.

Housing Inventory Drops in CA
In another sign that there might be a glimmer of hope somewhere, After such a long spell of lousy news on the housing front – for sellers and owners, that is – here’s a surprise: In today’s housing market, there are just 3.9 months of for-sale inventory in Sacramento County and West Sacramento versus 11.4 months a year ago. Thank goodness for REO’s, short sales, and non-owner purchases. Currently 25% of listings are on homes repossessed by banks.