Mortgage Insurance Updates; Credit Union Shuts Down; HUD Accepts Electronic Signatures; Wells Reminds About Appraisal Flipping

Recently I saw an interesting new story headline. "Kids Make Nutritious Snacks." (Do they taste like chicken?)

The FDIC shut down Beach First National Bank, and the branches have re-opened this morning as Bank of North Carolina. Per the press release, Beach First was heavily invested in coastal real estate development. But banks are not the only savings institutions that are shut down. Connecticut's South End Mutual Benefit Association, which has been around since 1945, has passed a resolution to cease operation and terminate its business, and has petitioned the National Credit Union Administration (NCUA) as receiver. With a credit union, accounts are insured up to at least $250,000 by the National Credit Union Share Insurance Fund (NCUSIF) - a federal fund managed by NCUA and backed by the full faith and credit of the U.S. government.

HUD came out with a new Mortgagee Letter, stating that the FHA will accept electronic signatures on third party documents "included in the case binder for mortgage insurance endorsement in accordance with Electronic Signatures in Global and National Commerce Act (ESIGN) and the Uniform Electronic Transactions Act (UETA), as applicable." It is good for regular mortgages as well as HECM's, and applies to documents that are originated and signed outside of the mortgagee's control, such as a sales contract. Remember that the origination case binder must be maintained in either hard copy or electronic format for two years from the date of endorsement [HUD Handbook 4000.2 REV-3].

MGIC addressed short sales in response to the Home Affordable Foreclosure Alternatives (HAFA) program. In a MGIC press release, the company says that its program lowers the MI approval time for short sales down to 120 days from 6 months. The borrower must be at least 60 days delinquent on the owner-occupied property, the loss on the sale must be less than $75,000 (based on a broker price opinion (BPO) or appraisal performed within 90 days of the sale), the property must not only be sold in "as-is" condition, but the sales price must be within 90% of the home's value after repairs, and net proceeds at closing must be at least 82% of the "as-is" value. There are other stipulations - check with MGIC for list.

Starting today, Genworth has removed FL, CA, AZ, NV & MI from its declining market list, aside from saying that cash-out refi's are not allowed in Florida, and still not allowing condos or attached housing in that state. In a related statement, Genworth also introduced "new definitions" for retail and non-retail originations which in effect removes its existing Third Party Origination definition. "For a loan to qualify as a Retail Origination, the entity that orders the mortgage insurance coverage (the Insured) must have performed all of the following loan tasks: taking the loan application, processing the loan application, underwriting the loan application for MI eligibility, and funding & closing of the loan. Check with Genworth for other requirements, such as "loans must be funded from a warehouse line in the lender's name or from the lender's own funds - table-funded loans are considered Non-Retail."

In the Great State of Texas some lenders offer Veteran Land Board loans. (http://wwwdb.glo.state.tx.us/vlb/general/interest.cfm) Military veterans can obtain below-market rates, with CitiMortgage as the master seller/servicer. One originator wrote to me about some confusion at the originator level on these loans. "Citi will not accept an appraisal from someone on their declined list - even though we have no appraiser choice on VA loans. There may be loans where we will have to get a 2nd appraisal. So can lenders obtain a copy of Citi's declined list to share with VA and some AMC's to avoid the obvious expense and delays of a 2nd appraisal? I was told 'no'. I also just found out that all conventional loans being sold to BofA are now going to require a LARA, BofA's AVM."

Wells Fargo's broker customers learned that when converting an appraisal from a conventional loan into an FHA loan, they had better verify that the original appraiser is HUD approved. If the appraiser was not HUD approved, a new appraisal is required. "The original conventional appraisal must have been in Wells Fargo's name, completed by Rels Valuation and the broker is responsible for obtaining an FHA Case Number for FHA appraisals."

Of great interest to investors in mortgages are the buyouts by Freddie and Fannie. There is one important difference between Fannie & Freddie in terms of how the 120-day delinquency status is defined for buyout eligibility. For Fannie a loan is eligible to be bought out if it stays uncured for 4 consecutive months. For example, if a borrower misses one payment, but then makes all the subsequent payments, then the loan is eligible to be bought out under Fannie Mae rules. In the case of Freddie, however, a loan can be bought out only if a loan is 120 days delinquent based on the MBA method. Traders know that, due to this difference, Fannie pools will have higher delinquency "roll rates", and the delinquency status would increase month over month when a borrower makes trial payments that are less than the full payment. Freddie Mac investors might end up receiving a few extra months of cash flows, which is positive for Freddie Mac premium pools.

Monopolies are not dead. Once a week our garbage is picked up, usually early in the morning. (Sometimes, if I go outside, the garbage man will ask me what I am doing up at 4:30AM. Rather than embarrass myself by telling him that I write a commentary about the mortgage industry, I tell him I'm still liquored up.) In San Francisco, the cost for this service is $37 per can per week. That seemed pretty steep to one contractor, who canceled his service, had his neighbor do the same, and then took their garbage to the dump and paid $40. Word spread, and soon many neighbors were paying the guy $10 per household for him to take their garbage, saving everyone over a thousand a year. Unfortunately for free enterprise, the local garbage company and the union found out what was happening, and convinced the city to pass a law banning this type of activity. READ THE FULL STORY

Overall, few economists disagree that here in the US we've come off the bottom. It is odd, however, that the recovery is not being led by a rebound in housing and consumer durable spending, or by much job growth. And don't we need job growth to create more borrowers to either refinance or to buy houses? If the economy really takes off and jobs don't, the mortgage industry could be hit by the famous "double whammy" of higher interest rates and fewer qualified borrowers. Uh oh.

Last week we had a very limited amount of economic news, so bonds were pushed around by the auction results. When the yield on the 10-yr hit 4%, it seems to have attracted investors, so we "bounced". Overall the auctions were received well; although there is continued nervousness about whether or not the US will see others support our deficit. Regardless, mortgage rates actually ended the week on a decent note - certainly no disaster has occurred since the Fed stopped buying MBS's - and are following Treasury rates. Money managers, insurance companies, and pension funds are buyers of mortgages, and although there are weekly volume fluctuations, most indicators still point to a slower year in 2010 than 2009. And if production (supply) is down, and demand steady...

This week we have a little  more substantive economic news, including Wednesday's Consumer Price Index (CPI), Retail Sales report, and Beige Book. Tomorrow we'll see some trade balance figures. Industrial Production & Capacity Utilization and the Philly Fed survey are announced on Thursday (after Initial Jobless Claims come out). Housing Starts ("New Residential Construction") are on for Friday. Inflation certainly appears under control and the March CPI is expected to be +.3% with the core rate only up .1% (which the Fed likes). And March's Retail Sales figure is expected to be +1.8%, probably due to strong auto sales. Ahead of all that, the 10-yr is at 3.88% and mortgage prices are better by about .125. THE WEEK AHEAD

A distinguished young woman on a flight from Ireland asked the priest sitting beside her, "Father, may I ask a favor?"

"Of course, child. What may I do for you?"

"Well, I bought an expensive electronic hair dryer for my mother's birthday. It is well over the Customs limits and I'm afraid they'll confiscate it. Is there any way you could carry it through Customs for me...under your robe, perhaps?"

"I would love to help you, dear, but I must warn you ... I will not lie."

"With your honest face, Father, no one will question you."

Then they got to Customs, the woman let the priest go ahead of her.

The official asked, "Father, do you have anything to declare?"

"From the top of my head down to my waist, I have nothing to declare."

The official thought this answer strange, so asked, "And what do you have to declare from your waist to the floor?"

"I have a marvelous instrument designed to be used on a woman, but which is, to date, unused."

Roaring with laughter, the official said, "Go ahead, Father. Next!