The Cost of Labor in the Mortgage Market; FHA Origination Down 10% in January; Wells to Modify 2nd Liens; Condo Questions

Whether it is a house, a bushel of wheat, or a share of stock---when a buyer and seller come together an item trades hands. A lower price will always benefit the buyer.

Is that the case in the labor market, where buyers (employers) and sellers (employees) come together? Not necessarily, since the employee, given a low wage, will likely be less motivated to perform services. What will typically happen is employers will pay more than the base wage for a given task, and employees will often work for less than the maximum that employers will pay. Therefore the labor market is not quite like other markets.

I mention this because the cost of labor in the mortgage business, whether it is for underwriters or loan agents, has always been a huge piece of the overhead pie for company owners. I have heard from dozens of agents saying, "I am working twice as hard for half the pay." I have also heard from a few owners that productivity, measured in loans per day per employee, is down considerably. For example, underwriters who in the past underwrote 5-6 loans per day are down to 2-3 loans per day due to documentation and other issues. But is anyone cutting an underwriter's pay by 50%? Few, if any, companies are doing that, and are basically absorbing the added expense as a cost of doing business in the current environment. Commissioned loan sales staffs, however, have seen their compensation drop, in some cases dramatically.

The FHA has set up a special on-line mailbox for all condominium questions. Go to CondoProjectApprovalInquiries@hud.gov  In fact, HUD would prefer that anyone with FHA condo questions write to this address rather than FHA Homeownership Centers (HOCs) or the FHA Resource Center. Per HUD, questions will be answered within 24-48 hours, unless additional research is required; in such cases, the inquirer will be advised that there is a delayed response forthcoming. 

Lenders originated $26.9 billion of FHA single-family loans in January, down over 10% from the previous month, according to a FHA activity report. Refinancings totaled $11.5 billion and comprised 40% of January originations. FHA originations per month have been ranging between $26 billion and $30 billion for the previous five months. But as many in our industry would expect, FHA's serious delinquency rate continues to rise: 9.4% of FHA loans are 90 days or more past due in January, up from 9.12% the previous month. FHA servicers have foreclosed on 28,000 homes from October 2009 through January 2010, up 42% from the same period a year ago. Short sales totaled 4,000 during that four-month period, up 132% from a year ago.

Here is some more news on the USDA Rural Program. The Federal Government recently announced that funding for guarantee fees of USDA loans will be depleted sometime next month. And lenders have been reacting.

The latest is Freedom Mortgage, who told clients that "All USDA loans without an application received status of March 19, 2010 will not be eligible for financing with FMC. Commitments must be secured and indexed in EDMS prior to Thursday, April 1st. Regardless, any USDA loan with a 'Restricted/Conditional Commitment' is ineligible for financing with Freedom Mortgage Corporation. At this time there will not be any mandatory close and fund date as long as the loan has an effective commitment with no restrictions or has not expired. Freedom Mortgage Corporation will provide notification to reinstate the programs
as soon as additional funds become available. It has been stated that new funds probably will not be available until October 2010."

On to somewhat brighter news, but unfortunately yet another abbreviation of which to keep track. Wells Fargo signed on to participate in the Second Lien Modification Program (2MP) under the Home Affordable Modification Program (HAMP). The 2MP program deals with modifications that reduce monthly payments on qualifying home equity loans and lines of credit under certain conditions, including the completion of a HAMP modification of the first mortgage.

HOPE NOW, another program based on an alliance between mortgage servicers and non-profit counselors, reported 99,499 modifications in January, 74% of which involved interest and principal reductions. This compares to about 50,000 new permanent modifications under the Home Affordable Modification Program (HAMP - started a year ago by the Treasury to provide incentives to servicers). January HOPE NOW modification numbers dropped only slightly from 104,423 non-HAMP modifications in December, compared to roughly 35,000 permanent modifications under HAMP in that same month.

The number of started trial modifications dropped again in February to just under 73k from 86k. Given the considerable focus by servicers on conversion to permanent modifications, this is not too surprising and could continue to slide in future months since there is still a substantial backlog of trial modifications that needs to be converted. The numbers are indeed large. There were almost 53,000 permanent modifications in February, up from the 50,000 the month before. In addition, there were another 92,000 approved permanent modifications awaiting borrower approval and still more of a backlog past that. Early 2009 modifications have been performing better than those from late 2008 and the early data from modifications in the second half of 2009 show this trend continuing with performance as good if not better than those from the first half. READ MORE

Yesterday was more of the same, which is not a terrible thing: hedge fund, pension fund, money manager, servicer, and Fed buying of mortgages, met with a pick-up in selling by originators. But looking at the overall economy, last week we saw the second week in a row that weekly unemployment claims have declined. This is perhaps implying that businesses are finished firing workers. Continuing claims however, increased for the first time in weeks, and so far there is not any evidence that hiring is occurring. Until more jobs are created, the economic outlook will remain muddled. To get the economy moving, most believe that we need new jobs that will get consumer spending going. You have heard it many times; consumers normally account for 70% of economic growth. Up to this point, consumer spending has not engaged much. Unless consumer spending improves, the economic outlook will remain questionable and subject to rapid sentiment changes.

The CPI came out at unchanged in February, slightly less inflationary than expected. The core rate, ex-food and energy, was +.1%, as expected. Year-over-year numbers for CPI showed an increase of +2.1%, well within expectations and certainly indicative of a suitable amount of inflation at the consumer level. Initial claims for jobless insurance came out about as expected at 457,000, with continuing claims coming in at 4.579 million. Bonds seemed happy with the news, although stocks don't care. The 10-yr went from 3.63% down to 3.62% but is now up to 3.64%, and mortgage prices, which improved a little, are now about unchanged. READ MORE

A man walks into a bar, notices a very large jar on the counter, and sees that it's filled to the rim with $10 bills. He guesses there must be at least ten thousand dollars in it. He approaches the bartender and asks, "What's with the money in the jar?"

"Well..., you pay $10, and if you pass three tests, you get all the money in the jar and the keys to a brand new Lexus."

The man certainly isn't going to pass this up, so he asks, "What are the three tests?"

"You gotta pay first," says the bartender, "those are the rules."

So, after thinking it over a while, the man gives the bartender $10 which he stuffs into the jar.

"Okay," says the bartender, "here's what you need to do. First - You have to drink a whole quart of tequila, in 60 seconds or less, and you can't make a face while doing it.

"Second - There's a pit bull chained in the back with a bad tooth. You have to remove that tooth with your bare hands.

"Third - There's a 90-year old lady upstairs who's never had sex. You have to take care of that problem."

The man is stunned! "I know I paid my $10 -- but I'm not an idiot! I won't do it! You'd have to be nuts to drink a quart of tequila and then do all those other things!"

"Your call," says the bartender, "but, your money stays where it is."

As time goes on, the man has a few more drinks and finally says, "Where's the damn tequila?!"

He grabs the bottle with both hands and drinks it as fast as he can. Tears stream down both cheeks -- but he doesn't make a face -- and he drinks it in 58 seconds!

Next, he staggers out the back door where he sees the pit bull chained to a pole. Soon, the people inside the bar hear loud growling, screaming, and sounds of a terrible fight -- then nothing but silence!

Just when they think that the man surely must be dead, he staggers back into the bar. His clothes are ripped to shreds and he's bleeding from bites and gashes all over his body. He drunkenly says, "Now..., where's that old woman with the bad tooth?"