Loan Officers Who Sell Real Estate; Wells Expands Market Making in Mortgage-Backeds; FDIC Acts on a Thursday; Freddie Mac Bulletin

Don't forget to "Spring Ahead" this Sunday morning. We lose an hour of sleep.

The FDIC made a rare Thursday move and shut down LibertyPointe Bank This bank catered to the Orthodox Jewish community in Manhattan and Brooklyn, and will be taken over by Valley National.

For anyone hedging with securities, there's a new broker dealer in town. Well, maybe not so new, but Wells Fargo Securities, who apparently is making a market in trading MBS's, according to news sources will add Kevin Jackson to its residential mortgage-backed securities (MBS) team. Jackson is leaving Merrill Lynch Bank of America to join Wells as part of a broader move to expand that platform.

Did you hear the one about the parrot and Bank of America? A nun and a parrot walked into a branch... never mind. Seriously, last October BofA employee erroneously believed a house in Pennsylvania (state motto: Cook with Coal) was vacant when the borrower defaulted and sent a contractor there with instructions to install a new lock and otherwise "secure" the property". It turned out that the owner wasn't in default and the house wasn't vacant. Regardless, BofA has apologized for its contractor entering the home of a mortgage borrower when she was away, cutting off utilities, padlocking the door, and confiscating her 11-yr old pet parrot, Luke, for over a week. The result was supposedly emotional distress and a prescription medication for anxiety. HERE is the story

Janet Yellen, ex-Cal professor, apparently is expected to accept President Obama's offer to replace Donald Kohn as Vice Chairman of the Federal Reserve.

Aristotle once wrote in "Politics", "It remains true that the greatest injustices proceed from those who pursue excess, not from those who are driven by necessity."

"Can a real estate broker who sells homes also do FHA loans?" This question came up yesterday. "I would imagine it would not work when the broker is selling a home and doing the loan in the same transaction, but would it be possible to sell homes and do FHA loans as long as they are not in the same transaction?" As it turns out, HUD does not allow it. A veteran government compliance expert told me, "To do an FHA loan you must be an employee of the lender.  As an employee doing FHA loans you cannot have a second job that is in a real estate related field.  This is spelled out in the HUD mortgagee approval handbook.  Brokers have disregarded this for years but I would not in today's world. Punishment could be swift and painful."

Freddie Mac fired off quite a bulletin yesterday, directed at its credit and property eligibility requirements. Recently Freddie has begun adding application date requirements, although smaller lenders should remember that their investors may pad these somewhat to allow for a time cushion. The 50,000 view is that Freddie will no longer purchase Initial Interest Mortgages or any Mortgage with an interest only option, changing the "Minimum Indicator Score" requirements with increases for certain manually underwritten mortgages and adding a Minimum Indicator Score of 620 for non-assumable Rural Housing Service mortgages, amended requirements for "age of credit and capacity documentation, seasoning, and eligible Borrowers for Mortgages for Newly Constructed Homes, and permitting super conforming Mortgages to be sold as a Mortgage for a Newly Constructed Homes," is requiring sellers to use specified versions of FICO scores, addressed mortgages secured by properties with incomplete improvements and discussed the appraising of leasehold estates.

Freddie had come out with the IO news a few weeks ago, but now we have actual dates: mortgages with applications dated on or after June 13, and for mortgages with settlement dates on or after September 1. Usually I try to make investor updates readable, and condense them, but in this case if you are interested, you should read the actual bulletin to get a headstart on what investors will soon be doing: http://www.freddiemac.com/singlefamily/news/2010/0311_advisory.html

The trend toward increased documentation is continuing. Recently, for example, SunTrust, for FHA and VA loan applications, stated that it requires an initial Uniform Residential Loan Application (FNMA 1003), as well as "pages one and two of the HUD/VA Addendum to Uniform Residential Loan Application (HUD-92900-A/VA-26-1802a) to be fully executed by all borrowers and the lender's interviewer prior to submission." And for conventional loans, SunTrust requires "the initial Uniform Residential Loan Application (FNMA 1003) to be fully executed by all borrowers and the lender's interviewer prior to submission."

Although my personal opinion is that mortgage rates won't skyrocket relative to other rates during that first week in April when the Fed's purchase program goes away, there are many that believe that mortgage rates will indeed increase relative to Treasury rates. One argument, of course, is that the market has become complacent around the artificially low rates and low spread volatility. The bulk of its purchases have been in 4.5% securities, containing current coupon mortgages, roughly matching current production. Obviously traders have had to take this into account during their daily activities, and when it goes away, "the smartest guys in the room" will have to adjust to a new dynamic. In addition, the spreads between mortgages and Treasuries is the tightest/best/lowest it has ever been - is there any where to go but up? And there is some anticipation, already, that the first Friday of April's Non-farm Payroll will show some strength, possibly leading to higher rates in general.

But heck, origination isn't exactly setting records, and mortgage investors who have their delinquent loans bought back by Fannie/Freddie will be buying more in future months. Traders are seeing buying at every dip in price, in spite of spreads being tight. Insurance companies, traditional buyers of some of this stuff, have been creeping back in. The current production of loans is arguably the best in credit quality, most likely to stay on the books, and least likely to give investors problems down the road.

Yesterday's $13 billion 30-yr (theoretically, 29 year and 11 month, since they "re-opened" last month's issue) bond sale went pretty well. Almost 25% went to indirect bidders, the bid-to-cover was 2.89:1, and the yield was 4.68%. How 'bout the ol' yield curve? Prior to the auction, the difference between the 2-yr note and the 30-yr bond was 378 basis points (3.78%), close to the all-time high. And the 2-10-year spread was 280 basis points.

This morning's Retail Sales figure, expected to show a slight decrease, was up .3%, ex-autos were up .8%. Overall, these were strong numbers for a market that hasn't had much news lately, and should push the equity markets higher. Interest rates, however, as you would expect were not helped by this, and the yield curve has once again steepened - a sign of future strength in the economy. The yield on the 10-yr moved to 3.77%, and mortgage prices are worse, depending on coupon, between .250 and .50.

As a bagpiper, I play many gigs. (Just go along with this, ok?)

Recently I was asked by a funeral director to play at a grave side service for a homeless man.  He had no family or friends, so the service was to be at a pauper's cemetery in the Kentucky back-country. 

As I was not familiar with the backwoods, I got lost; and being a typical man I didn't stop for directions. I finally arrived an hour late and saw the funeral guy had evidently gone and the hearse was nowhere in sight.

There were only the diggers and crew left and they were eating lunch. I felt badly and apologized to the men for being late. I went to the side of the grave and looked down and the vault lid was already in place. I didn't know what else to do, so I started to play. 

The workers put down their lunches and began to gather around. I played out my heart and soul for this man with no family and friends. I played like I've never played before for this homeless man.

And as I played "Amazing Grace," the workers began to weep. They wept, I wept, we all wept together. When I finished I packed up my bagpipes and started for my car.  Though my head hung low my heart was full.

As I was opened the door to my car, I heard one of the workers say, " I never seen nothin' like that before and I've been putting in septic tanks for twenty years."