How FICO Scores Are Calculated; Chatter from the Trenches; JP Morgan Chase Earnings; Updates: Wells, Freddie, Provident, Citi, USB

Some time ago my daughter asked me what my FICO score was. Somewhat taken aback, I replied, "Eight". She glared at me as only a 15-yr old girl can glare, and volunteered that her math class had learned about them that day, and she wanted to know my score. I don't know what my score is, but it did remind me that FICO, like Band-Aid or Kleenex, has become a generic symbol of credit worthiness. Scores can range from 300-850 and is a statistical calculation which is based upon payment history (35%), credit utilization (30%), length of history (15%), credit type (10%), and recent credit checks (10%). Items stick around for seven years; bankruptcy for ten. Maxing out a card, a 30-day late payment, debt settlement, foreclosure (150 point ding) or bankruptcy (150-200 point hit) all negatively impact FICO. Sometimes folks wonder about whether or not a short sale hurts your credit score as much as a foreclosure, and apparently it depends on whether the borrower stays current on their payments and how the lender reports the sale (try for "debt repaid in full").

What are folks saying in the trenches out there? "Things in my area are good since we didn't take the value hits that other areas have. Business has been volatile during the last two quarters, but as compared to the record production year we had in 2009 any normal production environment would be off." "In specific regions where employment is more stable and values have leveled off, purchase activity has picked up relative to recent months." "Purchase deals are slow moving. Prospective homebuyers are requesting prequels, but many of them are being rejected leading to lots of frustrated, hungry loan officers fighting it out for every deal." Lastly, "The industry has become so competitive at the moment - rates rose quickly and borrowers started to panic. This likely resulted in an increased amount of 'rate shopping' which forced loan officers to lower their costs to save the deal. Either that or loan officers did not want to re-work GFE's so they cut points charged to keep APR from rising."

John Hudson with Premier Nationwide Lending summed up the current challenges facing brokers out there: RESPA Reform, FRB Proposal R-1366, HVCC, FHA Appraiser Independence, FHA Reform, S.A.F.E. Act, tightening guidelines, educating consumers and others, loan modifications, fraud and QC, investor compliance, industry parity, uphill PR battles, and surviving as a small business are some of them.

JPMorgan Chase was in the news today, for two reasons. First, the company's earnings were better than expected with net income of $3.3 billion and earnings-per-share 10 cents higher. It had Tier 1 capital of $131 billion. But David Lowman, who runs Chase's home mortgage business, was "mobbed by angry borrowers" yesterday during a congressional hearing. He was asked by a lawmaker who borrowers could turn to if they felt his bank's employees were not helping them, and he invited customers to speak to him. As if on cue, 50 borrowers burst from the audience and presented Lowman with a 6-page document alleging his bank reneged on a pledge to help struggling homeowners.

Freddie Mac sent out a bulletin pointed at strengthening its cash, servicing-released execution and introducing new eligibility and approval requirements. Freddie also put in place new LTV and total LTV (TLTV) ratio requirements for Guaranteed Rural Housing (GRH) Mortgages, recent MI changes, and updated its servicing requirements pertaining to Section 404 of the Helping Families Save Their Homes Act of 2009. For complete details, which are extensive and are expected to be implemented by large investors who sell to Freddie, go to http://www.freddiemac.com/sell/guide/bulletins/pdf/bll1009.pdf

Wells Fargo is the latest lender to drop service fees for reverse mortgage products. Starting this week, "the Service Fee amount for all Home Equity Conversion Mortgage (HECM) products - including the LIBOR ARM and HECM fixed-rate mortgages - has been eliminated until further notice."

Provident Funding has released an update to its program guidelines for loans with LTV's greater than 80%. Starting yesterday, the 0.5% price adjustor for loans with LTV over 90% in a declining market has been eliminated for new locks, and for loans with an LTV greater than 80% "declining market restrictions have been eliminated from the 'Maximum LTV/CLTV' matrices, the minimum FICO was increased to 720, if a borrower is a non-permanent resident alien the transaction must be a 1-unit Owner-Occupied Purchase and the LTV must be < 90%, properties located in Georgia are now eligible, payoff of a purchase money second is now eligible for a rate/term transaction (but a payoff of a second that was obtained through the rate/term refinance of the original purchase money is ineligible), Construction-to-Perm financing is ineligible, and minimum credit history and tradeline requirements now apply."

Citi has suspended their CalPERS Expanded Approval product line.

Wells Fargo wholesale's broker clients were notified of several changes that the investor is making to various programs, including its upfront MI premiums for high balance loans with DTI's greater than 45%, and to loans with LTV's less than 80% and FHA loans' credit policies. Wells also followed FHA's increasing the factors used to calculate Upfront Mortgage Insurance Premiums (UFMIP) on all FHA loans with case numbers assigned on or after April 5, 2010. Conventional Conforming and High Balance Conforming Program loans (not government programs or nonconforming loans) with the Interest-Only payment feature requiring mortgage insurance had their LTV's adjusted. Wells' "Market Classification Lists" are being updated, although this does not impact Market Classification Policy.

Be sure to check out HUD's website for the revised frequently asked questions. I mentioned this Friday, but though it was important enough to re-mention. There is quite a bit of relevant information in those 62 pages! http://www.hud.gov/offices/hsg/ramh/res/resparulefaqs422010.pdf

US Bank's National Wholesale Sales Division told clients about it expanding FHA's provision that requires HO-6 insurance, which is a "walls-in" coverage policy, be placed on all attached condominium units. Originally announced on Pearl Harbor Day of last year, starting on April 26 USBHM will expand this requirement to include all Conventional and VA loans made on an attached condominium. The policy amount must be equal to at least 20% of the appraised value of the condominium unit, and the monthly cost of the insurance must be included in the applicants monthly PITI. "The only exception is if it can be proved that the Home Owners Association's Hazard insurance covers the content "walls-in" of each unit."

The MBA reported that applications fell by 9.6% last week and hitting the same volume levels as last June. Is your company ready for what analysts have been predicting about volumes this year? Refinance activity fell 9% in the latest week and accounted for about 59% of all retail residential applications. The four-week moving average for all mortgage applications fell 6.2%. It appears, however, that locks have increased lately, specifically yesterday.

Volatility picked up a little bit yesterday in the markets, with mortgage investor prices both improving and worsening during the day. Yields, however, hit their lowest levels since March. Can the economy rebound with no inflation? That would be nice... The day started off slowly from an origination point-of-view (estimated to be less than $1 billion). But as the day wore on, buyers "faded away" according to one trader, and origination doubled in size from levels we saw late last week to almost $2.5 billion. Mortgage spreads widened to Treasury securities, especially higher coupon mortgages, and if Treasury rates drop much one can expect mortgage prices and rates to lag somewhat.

This morning we had a spate of economic news. Prior to the news the 10-yr was at 3.84%. CPI for March was +.1%, with the core rate (ex-food & energy, for whatever that is worth) unchanged. The CPI was up 2.3% year over year. This is certainly within expectations, and within the Fed's targeted inflation rate. We also had Retail Sales, doing well recently, for March +1.6% and last month's figures were revised higher. After the news the 10-yr went to 3.82% and mortgage prices are roughly unchanged to "worse by .125".  HERE ARE SOME CHARTS

A man is watching a game of golf on TV.  But he keeps switching channels to a dirty movie featuring a lusty couple having raucous sex.

"I don't know whether to watch them or the game," he says to his wife

"For Heaven's sake, watch them," his wife says. "You already know how to play golf!"