Loan Quality Initiative Reminder; Pricing Discrepancies Explained; More Mortgage Jobs; Primer On Case-Shiller Index; Plenty Of Investor Updates
In 1930, during the Great Depression, Babe Ruth was earning a salary of $80,000 a year. A reporter suggested that perhaps he was overpaid, since Herbert Hoover, the president of the United States, was only earning $75,000. Ruth replied, "Why not? I had a better year than he did."
If Congress can set loan officer compensation on a per loan basis, many are asking, "Why shouldn't they set the pay for doctors, lawyers, title company officers, etc.?" Some expect the ability for Congress to set maximum compensation levels to be challenged in court, since the government is not setting limits on Realtors, heart procedures, dog grooming fees, boat rigging work, etc., etc.
Fannie's "Loan Quality Initiative" has a lot of syllables. It's a mouthful, in more ways than one, so the buzz-syllables "LQI" are much easier for busy mortgage bankers to say. Of course, there is much more to LQI than just running a second credit report before the loan funds to make sure that the borrowers didn't visit Macy's Home Furnishings to run up their credit card. And given that it the full implementation date is less than a week away, folks had better know as much as possible about it. HERE is the full release. HERE is more perspective
More mortgage jobs? You bet. The mortgage industry, despite some pretty dire predictions out there, continues to show some signs of growth. Regional players continue to expand, especially on the retail side of the business. About the time Lehman Brothers collapsed, in the autumn of 2008, MetLife Bank acquired First Horizon Home Loans. Although First Tennessee Bank retained most of the servicing portfolio in a holding company, MetLife has continued to expand and is now in the top ten retail mortgage banks with plans to increase market share. In Northern California, for example, Met Life is actively looking for seasoned loan consultants for their various branches, as well as qualified branch manager and sales manager candidates. Contact Cheri Nunez, Area Director, at cnunez2@metlife.com.
Helped by Barclays, the FDIC closed a sale of notes backed by commercial real estate loans from twenty-two financial institutions, the fourth such sale of structured notes by them since the early 1990's and the fourth backed by the full faith and credit of the United States. The $233 million of notes are backed by performing and non-performing commercial real estate loans with a related aggregate unpaid balance of approximately $1.0 billion. The FDIC still retains its 60% equity interest issued by the LLC, and ColFin DB Funding, formed by entities affiliated with Colony Capital, still owns the 40% equity interest sold to it by the FDIC in January 2010. The notes don't pay interest, but were sold at a discount like a T-bill. PRESSER
Freddie Mac, in a note to servicers, developed more streamlined instructions that will help them process loans in the HAMP Backup Modification program. Look for "Reissued Guide Bulletin 2010-11. HERE IS THE BULLETIN
Wells Fargo's wholesale channel reminded brokers of its FHA Streamline Refinance transaction deadlines. A complete credit package must be received by June 10, all conditions received by the 17th, by the 22nd the loan must be clear to close and not require re-disclosure due to HOPEA/HERA regulations, by June 25th the borrowers must sign the loan documents and no revisions to the loan parameters will be allowed after that time. Wells wholesale also alerted brokers that a principal curtailment at loan closing is not allowed on Rate/Term Refinance transactions. Principal curtailments are not allowed on the Freddie Mac Relief Refinance Mortgage.
Investor changes continue unabated. Citi updated its FHA Streamlines & VA IRRRLs (Standard & Jumbo) product line(s). Suntrust updated its Agency Plus and Standard Agency IO product lines and discontinued its Conforming Flex and My Community IO product lines.
US Bank's wholesale sales division, for correspondent clients, will implement additional income verification requirements on June 1 that will help identify loans that may be subject to fraud. (This does not apply to Streamline refinance loans.) "All loan files must contain documentation from the IRS to validate the income used for qualification. The most recent year's available IRS Tax Return Transcripts (1040) for all borrowers must be included in the loan file. The income used to qualify the borrower must be supported by the income reported on tax transcripts from the IRS. Additional IRS verifications such as W2 or 1099 transmittals should also be included if they are required to validate income. If a borrower is not required to file an income tax return, the loan file must include a written explanation as to why the borrower was not required to file an income tax return. For Delegated Correspondents, after June 15th the underwriter must provide a written explanation for any discrepancies between the IRS transcript income and the income they used to qualify the borrower. This explanation can be included in a separate document."
Franklin American, effective today, has not only implemented HUD's Mortgagee Letters but also adjusted its FHA & VA underwriting. "Guidelines have been revised to address the use and acceptability of the AUS recommendation in the underwriting process, and to identify some additional circumstances requiring underwriter discretion or a downgrade to manual underwriting." FAMC notified its clients that, regardless of the AUS finding, "a thorough review of credit, capacity, and collateral must be considered on all loans as part of the underwriting process." For example, multiple non-sufficient funds (NSF) charges require a downgrade to manual underwriting. FAMC's bulletin address gift funds documentation, refined its FHA flipping requirements, stated that "mortgages included in a bankruptcy for less than the amount owed are treated as a short sale transaction and require a 3 year waiting period, versus the previously published 4 year waiting period", expanded guidelines to include the maximum age for credit documents of 120 days for existing properties and 180 for new construction, expanded guidelines to specify that for existing properties, energy-related weatherization items may be combined with the EEM,, etc., etc.
What Is the Case-Shiller Index? The Case-Shiller Index, which showed mixed results this morning, was developed in the 1980s by three economists: Allan Weiss, Karl Case and Robert Shiller, and distributed by Standard & Poor's. (I guess Weiss was out of the room when they were deciding on a name.) The index includes foreclosures and is actually not one index, but 23! The national home price index, which covers nine major census divisions, is calculated quarterly and published on the last Tuesday of February, May, August and November. The 10-city composite index covers Boston, Chicago, Denver, Las Vegas, Los Angeles, Miami, New York, San Diego, San Francisco and Washington, DC. The 20-city composite index includes all of the above cities plus Atlanta, Charlotte, Cleveland, Dallas, Detroit, Minneapolis, Phoenix, Portland (Oregon), Seattle and Tampa. Twenty individual metro area indexes for each of the cities listed above. The indices, aside from the national index, are published on the last Tuesday of each month at 9AM EST. There is a two-month lag time in the data that is reported, so the report issued in May only covers home sales through March. Each index measures changes in the prices of single-family, detached residences using the repeat-sales method, which compares the arm-length sale prices of the same properties over time (so there is no new construction).
Yesterday we learned from NAR that Existing Home Sales data for April 2010 rose 7.6% due to the tax credit, improving consumer confidence and favorable affordability conditions. The pace of sales is almost 23% higher than April 2009. Is the housing market going to be saved by a strengthening economy and improving labor market? Honestly, I kind of doubt it - but what do I know? The inventory of existing homes for sale in April jumped 11.5 percent to 4.04 million units, the highest since July, and over an 8 month supply although the national median home price rose 4 percent from April last year to $173,100 -- the highest since September. HERE ARE CHARTS
What is up with these agency mortgage prices, especially on the lower rates? The answer lies in the security price difference between a 4% and a 4.5% security. This relationship has "gotten out of whack" with the latest volatility and prepayment fears in the mortgage-backed security sector. Currently the price difference between a 4.0% security and a 4.5% security is now 2.75 in price (instead of about 2.00), so therefore the difference in price between a 4.75% loan, which would typically be slotted into a 4.50% security, and a 4.625% loan, which would go into a 4.00% security, same impounds, same LTV, same credit score, is now much greater.
With FNMA 4.5's around 102 (a 2 point premium) and FNMA 4's trading near par, everyone is in uncharted territory - and the mortgage market is roiled. Low coupon product, now trading near par, has not yet been originated in any kind of volume that helps liquidity. News yesterday out of Spain, that Spain's central bank had to prop up a regional bank, did not help the stock market, and stock prices are back down to early February levels. Bond prices also worsened, with traders attributing that to some profit taking by investors. And this morning the markets are not only spooked by Europe, but now also by some tension coming out of Korea - just what we need. The 10-yr is down to 3.11% ahead of the $42 billion 2-yr auction ($40 billion 5-yr's tomorrow, $31 billion 7-yr's Thursday) and mortgages are better by about .250. Can you believe that this Friday is the last early close for the bond market until Thanksgiving?
Nancy and her husband Peter went for counseling after 43 years of marriage. When asked what the problem was, Nancy went into a passionate, painful tirade listing every problem they had ever had in the 43 years they had been married.
She went on and on and on: neglect, lack of intimacy, emptiness, loneliness, feeling unloved and unlovable, an entire laundry list of unmet needs she had endured over the course of their marriage.
Finally, after allowing this to go on for a sufficient length of time, the therapist got up, walked around the desk and after asking Nancy to stand, embraced her, and proceeded to eventually "have his way with her" for 30 minutes all the while kissing her passionately, as her husband Pete watched with a raised eyebrows!
Nancy shut up, buttoned up her blouse, and quietly sat down while basking in the glow of the event.
The therapist turned to Pete and said, "This is what your wife needs at least three times a week. Can you do this?"
Pete thought for a moment and replied, "Well, I can drop her off here on Mondays and Wednesdays, but on Fridays, I play golf."