http://www.floridalowestrates.com

“What does the mummy do when he goes to the bookstore? He gets all wrapped up in a good book!” But in three headlines from last night, a paradigm shift is evident. The cost of placing ads on Facebook is rising rapidly: the “cost per click” of an ad placed on Facebook has increased by 74% over last year. Reader’s Digest Association, the 90-year-old publishing and marketing company that emerged from bankruptcy last year, is looking to sell itself for at least $1 billion (the company publishes more than 90 magazines and runs a successful direct marketing operation). And U.S. book retailer Borders is fast moving toward liquidation of the company’s assets as it will begin to sell its remaining 399 stores on Friday after Borders failed to reach an agreement with a potential buyer. (Borders Group President Mike Edwards said they tried to avert liquidation, but could not prevent it because of the changes in the book industry, the rise of the electronic reader and the weak American economy.)

The high cost of living hasn’t affected its popularity. But it does impact company earnings, and some came out this morning. Wells Fargo’s came in slightly better than expected, 70 cents per share versus 68 cents. Bank of America came out in line with a loss of 90 cents per share. And Goldman Sachs did much worse: $1.85 per share versus $2.25 (primarily due to fixed-income trading).

Shares of MGIC tumbled yesterday after the company swung to a second-quarter loss. MGIC is the largest MI company, and its stock fell 23% in one day. Radian (#2) fell 14%, PMI dropped 13%. Group Inc. (PMI) dropped 13 percent, and Genworth Financial’s stock was down almost 8%. MGIC reported a net loss of $151.7 million for the quarter, its 15th unprofitable period in 16 quarters.

Anything labeled “JPMorgan Chase overhauls troubled mortgage unit” catches one’s attention: ChaseMortgageUnit .

What is happening with some of the non-top 10 lenders & vendors out there? Many are rolling out correspondent channels (seeing a huge opportunity calling on small banks and thrifts and credit unions, and offering customized correspondent service and servicing). Guild is seeing success in this channel. Others are expanding. Stearns Lending ($7.2 billion in 2010), which also offers retail, wholesale, and correspondent channels, announced that John Cady recently joined the organization as a SVP of Retail (after leaving Prime. Stearns also recently hired Greg Davis (ex-Impac) as its new SVP for Correspondent Lending.

For vendors, a la mode’s Mercury Network is now listed as an appraisal submission platform for Fannie Mae and Freddie Mac’s Uniform Collateral Data Portal (UCDP). The UCDP is the single portal for the electronic submission of appraisal data files to the GSEs. Lenders know that the GSEs announced that UCDP is now live, but that appraisal reports for all conventional mortgage loans delivered on or after March 19, 2012, must be submitted to the UCDP before the delivery date of the mortgage if the loan application is dated on or after Dec. 1, 2011 and an appraisal report is required.
New Penn Financial, a nationwide lender and wholly-owned subsidiary of Shellpoint Partners, spread the word that it has introduced a portfolio of “new mortgage programs designed to fill the gap where agency and government programs end.” It is designed for borrowers with strong credit, significant reserves and disposable income, but who still fall outside Fannie Mae, Freddie Mac and Federal Housing Administration (FHA) guidelines. Sound familiar? The products are available up to 85% LTV without MI and loan amounts up to $2 million at lower LTV’s, and will include loans to investors, foreign nationals, those with credit blemishes, and those who will rehab a home they intend to live in. For those playing along at home, Shellpoint Partners LLC is a joint venture between management and Ranieri Partners.

Real Estate Mortgage Network, Inc. (REMN), is continuing its retail expansion in Southern California with the opening of a new office in Pasadena headed up by Tami Murphy.

In the MI sector, Citi approved Essent Guaranty as an eligible mortgage insurance provider for Correspondent Lending. So at this point, Citi’s correspondent channel has approved Essent, UGIC, MGIC, Radian, RMIC, Genworth, PMI, and CMG. (Essent is already an approved mortgage insurer in the correspondent channel for Bank of America, Wells Fargo, Chase, US Bank, GMAC/Ally, BB&T, SunTrust, PHH, Franklin American, Affiliated, & MetLife.)

Kinecta Federal Credit Union also announced that it has approved Essent Guaranty as its newest mortgage insurance partner.

Kinecta, for its jumbo insured ARM 90% LTV loans, told sellers that, “Radian has lowered the maximum loan amount, limited the LTV allowance and reduced the minimum FICO for their standard jumbo insured program. However, Kinecta has retained the ability to lend up to $250,000 over the agency high balance limits! There will now be two tiers of this program (standard and Kinecta), with reduced credit union rates on the standard tier but subject to the national rates for the Kinecta tier.

Kinecta’s ARM changes remind us that ARM loans are still out there. It is common knowledge that fixed-rate mortgage rates are low – it is hard for a loan officer or borrower to complain about 4.625%. But at some point rates will head higher (whether it is in five weeks or five years) and the yield curve will steepen to the point where longer rates (mortgage rates) will elevate to a level where ARM’s look sufficiently attractive to borrowers and adjustable rate mortgages will gain a larger share of total originations. And companies everywhere will examine ARM execution, best-effort to mandatory spreads, and try to figure out how to hedge their ARM production – if at all.

ARM loans have always been problematic compared to fixed-rate mortgages in terms of hedging production due to a lack of liquidity and the inefficiency of ARM MBS prices. But like fixed rate mortgages, ARMs can be securitized, delivered and sold into MBS’s. But if “the Secondary Marketing Dude” wants to put the time and energy into it, ARM pricing can be derived & hedged, since Agency Hybrid ARMs are quoted and traded in terms of Z-Spreads or Zero-Volatility Spreads.  A Z-Spread is the “zero-volatility spread over the spot rate Treasury curve that causes the price of the security ARM to be equal to the Net Present Value (“NPV”) of its cash flows.” Another way to think about a Z-Spread would be that it is the excess yield an investor would demand/receive for investing in a risky asset like an ARM over a riskless asset like a treasury security with a similar term. The industry uses a 15% Constant Prepayment Rate (“CPR”) for all coupons and products (3/1, 5/1, 7/1 etc.), and pricing also assumes that the borrower will make a balloon payment of the remaining principal balance at the end of the fixed-rate term of the loan. Without going in to the math, pricing models use Z-Spread quotes in order to calculate coupon pricing for ARM pools. And larger originators, instead of taking an investor’s ARM prices and merely adding a spread, actually use Z-Spreads to capture market MBS pricing and produce rate sheet pricing by using Z-Spreads and current yield curves as part of their ARM rate sheet workflow.

Last week the 10-year note yield held below 3.0%, but that may change this week given this morning’s housing numbers. Remember that our economy is struggling to grow and as long as the housing sector remains in a downward trend, and job growth is non-existent, that will continue. Unlike last week, this week there is no Treasury borrowing, and it is all about housing and earnings with expectations high for strong housing numbers – which is exactly what we saw this morning. Existing Home Sales are expected to be up about 2.0% and home prices are expected to be up slightly as well. It was reported that homebuilder sentiment increased slightly this month (but builders still have competition from distressed properties, inaccurate appraisals of new homes, and tight lending). Yesterday the 10-yr closed at a yield of 2.91%, mostly focused on the ongoing saga with US and European deficits. “Traders reported light buying from money managers and insurance companies; hedge funds were better sellers, particularly in 4s and 4.5s, while overseas was quiet with Japan closed for a holiday. Mortgage banker selling was on track for another limited session…”

This morning we learned that Housing Starts came in much higher than expected, up 14.6% at 629k. Building Permits were up 2.5%. After this strong news, as you would expect, rates moved higher, fixed-income prices lower. The 10-yr is sitting around 2.94% and MBS prices are worse by about .125. Rob Chrisman

Just want to say sorry that I have written anything in my Blog for a long time but promise to get it going again.

www.FloridaLowestRates.com

Fun with numbers: Freddie Mac’s mortgage delinquencies on single-family homes declined in March from both month- and year-earlier levels. March’s delinquencies on single-family residences fell to 3.63% from 3.78% in February, according to Freddie’s report, and were lower than the 4.13% rate reported for the year-earlier month. The rate has now decreased for four consecutive months. Before a two-month period of increases last year, the rate had fallen sequentially for three years. Its mortgage portfolio now stands at $2.14 trillion with single-family refinance-loan purchase volume of $19.4 billion in March, reflecting 72% of total mortgage purchases and issuances. A month earlier, volume was $31.4 billion.

The hiring continues, paragraphs below in production but this time on the risk management side of things. Compass Analytics, a leading provider of pipeline and servicing rights valuation and hedging analytics and solutions, is seeking a seasoned account/hedge manager with at least five years of hedging and secondary marketing experience for Compass’ Washington DC office (in Potomac, MD). If a reader is interested, or knows someone who is interested, they should submit cover letters and resumes to Lucy Poole at lpoole@compass-analytics.com. And you may want to visit with them in New York in a few days.

And there are production jobs out there in the wholesale channel calling on brokers. Nationstar Mortgage is looking for wholesale AE’s in Northern California, Oregon, Washington, and Idaho. You can view their website at Nationstar. The company is owned by Fortress Investment Group and servicing $65 billion, and lends in 48 states. AE’s can contact Tim McAvenia at Tim.McAvenia@nationstarmail.com.

In the retail arena, mortgage banker iServe Residential Lending is continuing to expand its national branching platform which is now in 18 states. The company is a direct lender providing loan servicing, mortgage origination, and real estate under one roof.  iServe is expanding its network of retail branches, and is looking for LO’s AND branches in order to establish a “local branch presence, leveraging established mortgage broker and loan officer relationships.” LO’s and/or branch owners can visit iServeResidential. For more information on the Western US, contact Allen Friedman at afriedman@iservelending.com, and in the Eastern US contact Ken Michael at kmichael@iservelending.com.

In Ohio, Chase announced that it will add between 500 and 1,000 mortgage-servicing jobs to its Central Ohio workforce when it moves into new office space in Gahanna later this year. Chase already is the region’s largest private employer with 17,000 Columbus area workers.

Don’t be the last on your block to buy troubled loans from Flagstar. Flagstar Bancorp reported that it lost less money ($32 million) in the first quarter than it did in 2010′s 1^st quarter ($82 million).  In the first quarter of 2010, Flagstar unloaded $80 million in nonperforming mortgages, taking the total down to $547 million at the end of the quarter, certainly better than the $1.3 billion reported the same time last year. (In November alone Flag sold over $400 million of nonperforming loans.) Flagstar decreased the amount loan-loss provisions in the first quarter to $271 million from $538 million one year ago and $274 million in the previous quarter. But income from the mortgage origination department remains down. Gains on loan sales totaled $50.2 million in the first quarter, down from $76.9 million a year ago and $52.6 million in the previous quarter – probably due to the decrease in interest rate lock commitments, lower originations, and lower margins.

Not a day goes by when someone doesn’t walk up to me on the street and either tell me to put my clothes on, or ask, “What is hedge cost?” It is not an easy question to answer in practice, but in theory it is pretty straightforward. Companies that only sell loans on a best-efforts basis (where they will make the best effort to fund that loan, and then it must be delivered to the investor) are not really dealing directly with the hedge cost – the investor is. (But don’t worry – the investor passes their hedge costs on to the lender.) By choosing to sell loans on a mandatory basis (the investor expects that loan, or a similar loan, and the lender is on the hook for it even if it doesn’t close) and therefore holding locks until they fund and are eligible for sale, lenders expose themselves to both interest rate and fallout risks. The interest rate risk (rates go up, and you’ve guaranteed the borrower a lower rate) can be hedged, primarily with mortgage-backed securities. But the very act of buying and selling these MBS’s adds to hedge cost. But wait – there’s more! There are several other factors that can contribute to increased hedge cost, including mismanaged and inaccurate loan and hedge data, inaccurate pullthrough modeling, bad or out of date pipeline assumptions, and various other operational issues that are not the fault of the old geezer running Secondary Marketing.

It helps to know what one’s margins are on your rate sheet. No LO expects their company to not price a profit into the rate sheet prices, but it is important for the calculation of hedge cost to know exactly what this profit margin is. Pricing a loan to an investor’s mandatory price and delivering it via best efforts, or visa versa, creates a pricing mismatch that is not in the “cost of hedge” category since the price spread between best efforts and mandatory is either added in or subtracted. (And this price spread varies by day, by investor, etc.) Companies know hedging costs will increase and/or secondary marketing margins will decline if loan-level data is incorrect, if loans are extended at no cost, if a loan is underwritten to one investor but then it is forced to be sold to another investor due to an underwriting oversight, locks are not entered into the tracking system, estimating pull through incorrectly, and so on.

What have some of the investors and originators been up to lately?

Chase Correspondent updated its non-agency distressed market counties. Bank of America told its correspondents to switch to using its “Disaster Area Policy” for Atoka County Oklahoma, and for 18 counties in North Carolina. (We all wish the residents, and those in Alabama, the best.)

Wells Fargo’s wholesale channel has been busy in recent weeks – and (editor’s opinion) don’t ask me how brokers can keep up with this. Wells has sent out updates on, “Appraisal Disclosure Changes for USDA Rural Development, FHA and Conventional Loans, Appraisal Orders for USDA Rural Development Loans, Requirements to Use Job Loss Insurance, an expansion of its non-conforming Debt-to-Income Ratio to 40%, an enhancement for Owner Concentration Increases for 2-Unit Condominium Projects, LTV Increases to 95% in Florida and Nevada, 3-4 unit Condominium Commercial Space Allowed to 35% in New Jersey, Compensation and Anti-Steering: Reminder – New MBFD Process and Tools & appraisal fees, an updated conventional Borrower Appraisal Disclosure Form, a WFHM/WFHE Market Classification List Update, changes to Property Insurance Loss Payee Clause, a reminder of Hazard and Flood Conditions, a reminder of the FHA MIP changes and that FHA Loans with Case Numbers Assigned on or After April 18 are not allowed with Amortization Terms of 15-years or Fewer and LTV Equal to or Less Than 78%, seven FHA Refinance Credit Policy Changes (effective on the 18^th), a note that Arkansas Amends Usury Limitations, a 3-Day Rate Lock Extension Added, notes on how to use the Pricing Calculator to Determine Compensation, Appraisal Order Functionality Change on RESDirect, on how a Workaround is Required for Accurate Annual MIP Calculations on the Broker’s First Website, HVE Expiration Date for the Freddie Mac Relief Refinance Mortgage Program, New Rules for Same-Lender Refinance Recording Tax Exemption in Fairfax County, VA, a note about Fee Validation in Blocks 3-7 and Block 8 of the GFE on Lender-Paid Transactions and a Change in Compensation Calculation for Government Loans, a reminder that Appraisal and Credit Report Invoices Required for VA Loans, Best Practices to Avoid Loan Delays, and Clarification for Properties with an Unexpired Right of Redemption. Holy smokes!

Real Estate Mortgage Network (REMN), a national mortgage lender, announced the opening of an office near San Diego, CA.

Gateway Funding (PA) rolled out a free Home Warranty & Job Loss Protection plan on select purchases. The home warranty lasts for one year, and the job loss protection plan makes the borrower’s mortgage payment for three months following a 30-day period after a job loss.

CitiMortgage reminded its correspondent clients that it performs post-purchase due diligence on a sample of loans. “Among other check-points, this process identifies defects or instances of non-compliance with investor policies, procedures, and quality expectations, and regulatory requirements.  Our post-purchase audit process includes compliance with RESPA and TILA disclosure requirements.” Citi’s bulletin goes on to provide its clients with a checklist and list of tools to help them comply with RESPA and TILA disclosure requirements.
Stearns Lending told brokers, “You are now eligible to select a flat fee option in addition to a percentage of the loan amount for your Lender Compensation.  You have a choice of zero (no flat fee), $350, $500 or $750 or $950.  The maximum income on each transaction is 4% of the loan amount which must include the flat fee.” Stearns Lending also stated that it has been notified by its investors that “we must limit our Broker Compensation Plans to one compensation rate (percentage) for all programs to our brokers. This change is effective with new locked loans and/or submitted loans starting May 7.”

GMAC released a set of additional guidance guidelines to its correspondents to determine second home eligibility, including items such as “Often located in a vacation/resort area, the property must be suitable for year-round occupancy, the subject property should not be located in the same market area as the borrower’s primary residence” and so on. GMAC also adjusted their policies on deferred student loan and timeshare debt payment underwriting.

Direct Mortgage is now allowing cash-out to 80% LTV on Super-Conforming Fixed with an LP approval. A 720 FICO, with compensating factors, is required.

Affiliated sent out a series of revisions to checklists, programs, underwriting checklists, appraiser and settlement agent lists.

Pinnacle Capital Mortgage has updated its underwriting guidelines including such areas as 2055 & 2075 appraisals are now eligible per DU findings for conforming loans, for enhanced DU Refi Plus loans allowing 2^nd homes and NOO to 125%, no limit on the number of financed properties the borrower may own, regardless of occupancy, etc., Standard DU Refi Plus, HomePath, and jumbo changes (Second Homes are now available, one full appraisal required on loan amounts <=$1mil).

It was another low-volatility day in the markets Wednesday, although 10-yr Treasury notes dropped by about .375 to a yield of 3.37%. Agency MBS prices were worse by about .125. As most expected, the Federal Open Market Committee’s statement was uneventful, as was the press conference afterward. “Information received since the Federal Open Market Committee met in March indicates that the economic recovery is proceeding at a moderate pace and overall conditions in the labor market are improving gradually.” This is not “stop the presses!” news. The Fed will complete its $600 billion in Treasury purchases as scheduled at the end of June. Most economists are not expecting the Fed to increase overnight rates until the end of 2011 at the earliest. Finally, the statement did make its obligatory comment on housing saying “the housing sector continues to be depressed.”

Today is a new day, however, with Jobless Claims and the 2^nd reading on the 1^st quarter’s GDP number – a downgrade is expected. Later in the morning we’ll see yet another housing number, this time Pending Home Sales, and a $29 billion 7-yr note auction. Rob Chrisman

www.FloridaLowestRates.com

Two soap operas created more than 40 years ago, who taught us not to bother getting married since it’s only going to last until next season anyway, were canceled: “All My Children” and “One Life to Live” are history. My soap opera knowledge extends to seeing the doc drawers sobbing while watching Luke & Laura in the lunch room so I am not an expert on those or “General Hospital,” but supposedly this leaves only four English-speaking soaps on network TV.

25 basis point increase…FHA…MIP…Monday. ‘Nuff said – FHA lenders everywhere are scrambling to take down those FHA case numbers ahead of Monday’s MI change. Operators standing by!

Mortgage originators are required, under the SAFE Act, to authorize a credit report be pulled. (“All licensees will be required to authorize a credit report through NMLS”: NMLS  But it seems that state governments don’t like employers “discriminating” potential hires based on credit history, and in fact state governments & consumer groups are very concerned about the trend of employers to use credit check in the hiring process and might start offering legislation against it. Here is the latest on this potential double standard: CreditReportsforHiring?

One area of confusion is compensation based on product type, which has increased to the point of Wells Fargo’s correspondent group notifying clients, “…loans from originators or aggregators where compensation policies allow for varied compensation based on product type are not eligible for purchase…the rule states that LO compensation cannot be based upon a transaction’s terms or conditions. The rules also prohibit ‘steering’ a consumer to a product offering less favorable terms in order to increase LO compensation. According to the Federal Reserve Board, while product type is not a “term or condition”, it is likely a ‘proxy’ for a term or condition. Under the regulation, compensation that varies based on a characteristic that is a proxy for a term or condition is also prohibited…Wells Fargo remains concerned about the viability of proving compliance, even in instances where a variation of time and effort of the loan originator can be established.”

(Editor’s note: I have not seen other aggregators come out with scrutiny on their correspondent clients’ compliance to LO Comp, in spite of the servicer who is first in line to refund fees and pay penalties on a non-compliant foreclosure. And it’s also the large aggregators who are also the prime targets for class action suits, which is always a risk with new and untested regulations.  If the correspondent’s client shuts down, or can’t pay the penalty, then it’s the servicer who will have to take the hit. Maybe I’m missing something…)

Another is occupancy. Yesterday I mentioned that, “EverBank spread the word to brokers that, “Since N/O/O loans do not follow the new Dodd Frank Rule, ‘We can continue business as usual with them when registering and submitting. Please note you will not have to price them under Lender Paid, brokers can use the previous procedures, and when registering the loan (EverBank’s system) will not give you that option.” This is a great example of the subjective interpretative nature that still exists in the industry around many of these rules, and the discrepancy between Dodd Frank and TILA.

Any companies sending folks to the Secondary Conference in New York in a few weeks, and dealing with repurchase requests, may want to spend some time with The Prieston Group and the American Mortgage Law Group. They’ll be there for “consultations, information and solutions related to repurchase defense and management.” You may want to shoot an e-mail to sales@priestongroup.com if you have questions about services and strategies that reduce the incidence of repurchases (This is not a paid announcement, by the way.)

Regarding the proposed Qualified Residential Mortgage provisions, Brian B. from Two River Mortgage wrote, “One of the errors that Congress fails to note about the 20% down payment requirement is that it is basically wrong! The focus of QRM should not be on LTV, and instead be on reserves & credit history and use the historical numbers, pre-2005. One of the reasons Thornburg’s portfolio actually performed so well was the required reserves. Yes, some of the P&I payments were $5-$10,000, but if the borrower had $800,000 that’s a much better ‘burn rate’ than a borrower who has a $1,200 PITI payment and only $3,600 in reserves. Both could lose their job, but whose in a better position to survive? I’m willing to bet that the foreclosure rate has a direct correlation to the savings rate of the borrowers, and that those with a 401(k) but unemployed are more likely to be current on their mortgage. Stressed, but current.” Here is the latest: BloombergQRM

Bank of America announced it is eliminating 1,500 jobs in its mortgage origination business (by closing 100 regional fulfillment centers) and shifting another 350 jobs from creating new home loans to handling troubled existing loans. Per the WSJ article, “This is just the latest move by (BofA) to get away from creating new home loans and instead turn its focus on the massive pile of bad home loans it has, many of which it got from the purchase of Countrywide Financial…Through a series of announcements the bank has now moved about 4,000 employees from the creating side to the troubled mortgage side. Executives have also been rotated.”

Bank of America released its results this morning. Revenue came in close to expectations, but per the CEO mortgage operations and compensation issues impacted earnings. The bank reported net income of $2.0 billion, less than expected, compared with $3.2 billion in the same quarter a year ago, and lost $2.39 billion in its residential mortgage unit, compared with a $2.07 billion loss in the same quarter a year earlier. On the mortgage side, revenue dropped and expenses increased – according to the earnings release, Bank of America’s “representations and warranties provision” was $1 billion in the first quarter, compared to $526 million in the first quarter of 2010. The bank said more than half of the provision is attributable to mortgage repurchases funneled through Fannie May and Freddie Mac.

Fannie & Freddie are often lumped together, especially since they are both under FHFA. But Wall Street traders and mortgage investors have noticed a trend recently: the Freddie Mac MBS market share has declined over the last few quarters, attributed to a combination of best execution strategies on the part of originators, acquisitions or closures of originators that were traditionally only Freddie Mac MBS issuers (like TBW & WAMU) and a more aggressive tightening/pricing of credit by Freddie Mac. Between 7/10 and 3/11, the outstanding balance of Fannie MBS’s increased by $17 billion whereas it has decreased by $75 billion for Freddie Mac MBS during this period. Freddie Mac’s share of new issuance declined from more than 40% in 2005-07 to around 36% in 2011, much due to BofA & Wells reducing the amount they securitize through Freddie, as well as WAMU and TBW’s demise. Sellers are reporting that the historical Gold-Fannie spread has suffered in the last 6 months, and originators are seeing better execution by putting loans into Fannie securities.

RealtyTrac’s March housing study reports a 15% decrease in foreclosure activity between the fourth quarter of 2010 and the first quarter of 2011, as well as a 27% decline compared to the same period a year ago. But before you break out the champagne, the decline is being attributed to extended processing timelines, not an improving market. Per the CEO, “Weak demand, declining home prices and the lack of credit availability are weighing heavily on the market, which is still facing the dual threat of a looming shadow inventory of distressed properties and the probability that foreclosure activity will begin to increase again as lenders and servicers gradually work their way through the backlog of thousands of foreclosures that have been delayed due to improperly processed paperwork.”

Their report noted that judicial foreclosure states, such as Florida and Massachusetts, “accounted for some of the biggest quarterly and annual decreases in the first quarter.” For the month of March, foreclosure filings were up 7% from February and were reported on 239,795 U.S. properties. Nevada has the highest rate of foreclosure filings with a total 32,000 properties, or one in every 35, receiving one, and Las Vegas posted the highest number of filings on the metropolitan level, at 26,275, or one in every 31 homes. Nevada was followed closely by Arizona and California at the top of the foreclosure activity lists. California foreclosures currently account for 25% of the entire market.

In spite of a decent amount of news yesterday (CPI, a strong $13 billion 30-yr auction), there wasn’t much volatility yesterday, and by the end of the day the 10-yr closed at 3.49%, the Dow was up about 20 points, MBS selling volume was light, and MBS prices closed the day nearly unchanged from Wednesday’s levels.
Last month the Consumer Price Index was +.5%, the largest monthly gain since June 2009. It would seem that producers have been grappling with higher raw material costs for some time and due to sluggish demand have been unable to pass on much of the increased costs to us. It was expected to be +.5 for March also, and came in at that with the core rate +.1%. The Empire State Manufacturing Index shot up to “21.7″, a strong number. Later we have Industrial Production and Capacity Utilization, and a preliminary Michigan Sentiment reading, which are generally not as “market moving” as the CPI number, or for that matter the debt problems with which the US and Europe are grappling. After the numbers the 10-yr is at 3.43%, and agency MBS prices are better by .250 or more depending on coupon. Rob Chrisman

http://www.floridalowestrates.com

As if the mortgage biz doesn’t have enough other things to worry about, how about a US government shut down? There are dozens of HUD programs that may be impacted, but focusing on FHA loans, there are two important steps in the origination process where FHA lenders have a dependency on FHA:  obtaining a case number for a new FHA loan and after it closes being endorsed by FHA so that a mortgage insurance certificate can be issued. The case number for an FHA loan is obtained via FHA Connection. It is possible that FHA Connection may continue to operate even if there is a government shutdown. If that is the case, obtaining case numbers would not be a problem. (During the November 1995 shutdown, case numbers could not be obtained.) The last I checked most believe that it is very likely that loans will not be endorsed and “mortgage insurance certificates will not be issued in the event of a shutdown. Lenders could continue to originate FHA eligible loans but they will need to wait to obtain an endorsement and an MI certificate. It should be noted that lenders with DE authority can potentially obtain MI certificates if FHA Connection continues to operate.” The shutdown in 1995 mainly caused a delay rather than drop in FHA loan origination, but if lenders decide to stop accepting FHA applications, it could be a problem. I have heard nothing about Fannie or Freddie’s operations.

With the comp issue settled, but in no way forgotten, our business turns its attention to the release recently of the set of Proposed Risk Retention Rules, with a comment period ending on June 10, 2011. These rules encompass more than residential mortgages – they also impact ABS & CMBS (asset-backed, like credit card debt, and commercial mortgage) instruments. Industry followers believe that the portions that seem to be generating the most discussions will include the exemption of Fannie Mae and Freddie Mac from risk retention; the narrow definitions of qualified residential mortgage (QRM), commercial real estate (CRE) loan, commercial loan, and auto loan; the creation of a premium capture cash reserve account; and the limited exemption for re-securitizations. If you’d like to comment on the risk retention proposals, go to RiskRetentionComments.
 
In spite of this being very much an agency-centric residential lending environment, there are some “off the beaten path” loan products that continue to evolve. CMG Mortgage, in California, continues to offer its HOA program with success. A few other recent entries include:

Avant Capital Partnerslaunched its “Bank Lending Program for Small Business & Owner Occupied Real Estate” program. ”Loans range from $500,000 to $10,000,000 with leverage up to 90% LTV. The program offers conventional and SBA guaranteed financing solutions for owner-occupied real estate.  Acceptable property types include: office, retail and industrial (including condominium), mixed use, and many more like funeral homes, grocery stores, convenience stores and markets.  Interest rates range from 4.15% to 6.45%.” For more information, contact Adam Luysterborghs at adam@avant-capital.com.  Avant is hosting a webinar April 12^th: AvantWebinar
 

 And Mortgage Harmony Corp. initiated “rate resetting” mortgage, which upon the first consumer initiated change compensates originators with monthly recurring commission. The marketing material suggests that the program, HarmonyLoan, is catching on with credit unions for both conforming and jumbo loans, “mitigates investor churn, increases MSR values, offers consumer protection (improves credit risk), and provides originator income stability.” Programs include conforming and jumbo 5/1, 7/1, 10/1 ARMS and 15 year fixed, and if you want a demo go to MHarmony or read the recent press release: MortgageHarmonyNews.

Franklin American reminded clients that, starting on the 18^th, “Appraisals may no longer be used to increase the insurable mortgage balance above the sum of the outstanding principal balance and the new UFMIP. In other words, closing costs, discount points or prepaid items may not be included in the new loan balance. The insurable balance may only increase above the sum of the outstanding principal balance and the new UFMIP by using a credit qualifying (streamline or rate/term) refinance with an appraisal. FHA requirements for three and four unit purchase transactions regarding self-sufficiency test, net rental income calculations, reserves and monthly payment calculations also apply to all refinance transactions of three and four unit properties.” In addition, “Maximum financing is allowed for a refinance of a former investment property at the same level as an owner-occupant if the borrower re-occupied the property 12 months or more prior to the loan application. For those who re-occupied less than 12 months prior to application, the maximum LTV is limited to 85%.”

Provident Funding told brokers of its “Section 7 of the new Loan Origination Agreement that broker compensation must be the subject of a written agreement between the mortgage broker and the borrower.  A copy of the agreement must accompany each completed loan package delivered to Provident Funding by the mortgage broker.  The written agreement must indicate that (1) broker compensation may or may not be negotiable, and (2) in setting the amount of compensation the mortgage broker has not discriminated on the basis of race, color, religion, national origin, sex, marital status, handicap, familial status, or any other legally prohibited basis.” The agreement must be executed and returned to the Broker Approval department by next Wednesday.

Parkside Lending, a West Coast wholesaler, provided its brokers with a “RESPA and TILA Disclosure” form which the agents fills to guarantee that the borrower received a valid and timely GFE, and has not been steered in any matter in their loan choice given the anti-steering provisions.

Wednesday was another not-so-good day for rates, with MBS sales volumes picking up a little bit but current-coupon prices losing about .125. Ten year Treasury notes were worse by about .5, closing with a yield of 3.54% given the inflation fears picking up again (oil is nearing $110 per barrel) along with some weakness in the US dollar ahead of an expected interest rate hike from the ECB (which did indeed happen). “REITs, banks and money managers” were better buyers at these rates.

Weekly Jobless Claims dropped from a revised 392k down to 382k, another little bit of good news for our job market (as opposed to going the other way), but more importantly the ECB (European Community Bank) raised their rates. The Jobless Claims number was about as expected, but the ECB move tends to put a little pressure on our own Fed. Regardless, the 10-yr is up to 3.57% and MBS prices are worse by .125-.250.