News from BofA, Freddie, Flagstar; Markets are like Rubber Bands, Remember?

I never did well in the corporate world. Any employee knows, when you "take a long time", you're "slow". When your boss takes a long time, he's "thorough". When you "don't do it", you're "lazy". When your boss doesn't do it, he's "too busy". Such a double standard.

And the economy seems to have a double standard, but as most analysts will tell you markets eventually correct themselves. For example, does it really make sense that the price of gold, often associated with inflation or the value of the dollar, continues to climb and the price of bonds continue to improve?

Friday's price action was a sign that markets can move quickly, and not always in expected ways. Why did rates shoot up Friday? I don't buy off on the reason many suggest: "...Federal Reserve Chairman Ben S. Bernanke said the central bank will be ready to raise interest rates when the economic outlook 'has improved sufficiently'." He is stating the obvious. Is there some kind of surprise there? The fact of the matter is that rates have come down, and stayed down, in spite of the supply last week and in spite of signs that the economy is not as bad as it was 6 months ago. Many mortgage lenders are/were back offering 30-yr rates in the high 4's. And when markets move one way or the other to a large degree, or for an extended period of time, they are likely to rebound the other way - just like a rubber band. Plain and Simple.

I have yet to hear a broker complain about mortgage rates being too high - guidelines and equity are usually the issue. But it doesn't help when the recently auction 30-yr bond goes down 4 points, and the yield go up .25% in two days. Traders blamed the supply finally "getting to" the market, evening up positions ahead of a 3-day weekend, renewed fears about the eventual actions of the Fed, rumors of big sellers, Asian selling (always a good excuse in the old days), bad technicals, a good stock market, the list goes on. And speaking of the stock market, we're near or at the highs of the year, despite a stagnant housing and employment picture. More U.S. stocks are trading at 52-week highs than at any time since June 2007.

This week has, as usual, more economic news. Today, of course, is the Columbus Day Holiday, and the bond markets are closed - any investors that are open will price conservatively. Tomorrow we have a private consumer confidence survey, on Wednesday we have Retail Sales, Thursday Consumer Price Index and Jobless Claims, and then on Friday Industrial Production and Capacity Utilization, and the University of Michigan Consumer Confidence number. The most significant economic data next week will be the CPI monthly inflation report. The minutes from the September 23 Fed meeting will come out on Wednesday.

At this point, mortgage originators don't need higher rates, and the changes by investors continued unabated. (I love that kind of language.) But some of it is good news!

Freddie Mac announced updates to their mortgage eligibility requirements. They will, for the Freddie Mac Relief Refinance Mortgage, allow any "Freddie Mac-approved Seller/Servicer originating a Relief Refinance Mortgage to refinance existing junior liens simultaneously with the first mortgage. All other Relief Refinance Mortgage requirements related to junior liens still apply, including the requirement that no new or increased secondary financing is permitted." Freddie has plans for eliminating the purchase of certain cash-out refinance mortgages and streamlined refinance mortgages to address the layered risk associated with these mortgages, along with strengthening their credit requirements and updating their property eligibility requirements.

Bank of America Home Loans sent out their definition of "maximum borrowers". Starting on the 15th, "for all conventional and government loans, Bank of America will allow a maximum of four borrowers on a transaction." And BofA also reminded clients that on FHA 203k loans clients "must obtain W-9 forms for all borrowers and contractors involved in the property rehabilitation and provide copies in the loan file."

Flagstar, not to be outdone, came out with a large number of changes and clarifications. These included clarifying that a recertification of value is not permitted on appraisals submitted to underwriting. "Once an appraisal is 120 days old, a new appraisal will be required." They followed the FHA guidance on Streamline Refinances, which take effect in mid-November. For example, borrowers must have made six consecutive payments on the loan being refinanced, if the payment history for the loan being refinanced is less than 12 months, all payments must have been made within the month due, etc. For many programs, the new total mortgage payment must be at least 5% lower than the existing total mortgage payment. Flagstar also went along with the FHA guidelines for employment verification, asset verification, credit score, CLTV maximums, scorecard values, application forms, and maximum loan amount calculations. And their clients should note that Flagstar is increasing the maximum total debt ratio for FHA loans that receive a Total Scorecard "approve" or "accept" response to 55%. "There is no maximum housing ratio for loans approved through automated underwriting. If you have a loan that received a Total Scorecard "approve" or "accept" response but the loan was denied because the borrower's total debt ratio exceeded 48%, please contact the underwriter and request review of the loan."

An 80-year-old man goes for a physical. All of his tests come back with normal results. The doctor says, "Bert, everything looks great. How are you doing mentally and emotionally? Are you at peace with God?"
Bert replies, "God and I are tight. He knows I have poor eyesight, so he's fixed it for when I get up in the middle of the night to go to the bathroom. Poof! The light goes on. When I'm done, poof, the light goes off."

"Wow, that's incredible," the doctor says.

A little later in the day, the doctor calls Bert's wife.

"Ethel," he says, "Bert is doing fine but I had to call you because I'm in awe of his relationship with God. Is it true that he gets up during the night and poof, the light goes on in the bathroom, and when he's done, poof the light goes off?"

"OH MY GAWD!" Ethel exclaims.  "He's piddling in the refrigerator again!"