Wells Fargo Cutting Jobs; Consumer Credit; SAFE Act Resource; M.I. Update; Manufactured Housing Lenders

"I don't want to brag or make anybody jealous or anything, but I can still fit into the earrings I wore in high school"...so I overheard at a dinner last night.

But most change is inevitable, especially if you're in mortgage banking. Just ask the folks at "the Coach" - Wells is closing more than 600 Wells Fargo Financial offices, cutting 3-4k employees, and will no longer originate non-prime mortgages. The bank said the Wells Fargo Financial offices are no longer necessary after its 2008 acquisition of Wachovia Corp and it will offer mortgage services through its other banking locations. Wells Fargo will cut about 2,800 employees in the next 60 days from its 14,000-person Wells Fargo Financial unit and it will likely cut a further 1,000 in the next 12 months, the bank said in a statement. (Yesterday Wells' stock was up over $1.50 a share, or 6% in one day.)

Anyone in your company who cares about SAFE Compliance should take a look at http://nmlssafeact.wordpress.com/

The FHA announced changes to its multifamily insurance programs that will "update underwriting policies, increase lender and underwriter quality, and align loan application, submission and approval standards". One can watch for revised underwriting standards to "raise debt service coverage ratios, lower loan to value and loan to cost ratios, increase project reserves and sponsor equity investment, and limit sponsor cash out. Underwriting ratios will be targeted to different property types based on their risk profiles, with lower ratios for subsidized affordable housing properties and higher ratios for market rate properties." Past property financial performance will be more closely examined, borrowers' credit will be examined more closely, etc.

"What do a divorce in Tennessee, a tornado in Kansas and a hurricane in Florida have in common? Somebody is fixin' to lose them a house trailer." Manufactured housing (not to be confused with modular housing) does not have the best of reputations in the lending arena - or among tornado experts. Manufactured housing, often known as single-wide or double-wide trailers, is normally treated as "personal property" when it is built. This is as opposed to "real property", which, from a lender's point of view, represents a simpler foreclosure process should the borrower default. ("You can't tow away a house" said one agent.) Large servicers found themselves saddled with inventories of manufactured housing, which is not a viable business model, and helped result in the near-demise of lending in that sector.

From a manufactured home retailer's perspective, business is not so good.  Deliveries of factory built homes have taken a dive due to the abundance of site-built inventory and lack of financing options. One expert noted, "In a normal market factory built homes are considered an affordable housing alternative while in today's market a spike in foreclosures and motivated seller's has brought the site-built market into a realm that manufactured housing previously ruled."

On the wholesale side, where investors arguably have more control over the underwriting and processing of the file, Bank of America does not offer the product, nor does Wells Fargo. As of yet, no one has stepped into the void left by Taylor, Bean, and Whittaker - and we all know what happened to them. CountryPlace Mortgage is one wholesaler that specializes in manufactured home financing on a retail and wholesale basis - FHA Title 2 loans. It is a Fannie/Ginnie approved seller/servicer targeting community banks, credit unions and strong mortgage brokers to offer FHA and Conforming conventional manufactured home products.

Most correspondent lenders stay away from manufactured housing, and the larger investors like Wells and Bank of America, Citi, SunTrust, Chase, Franklin American, GMAC/Ally, etc. do not buy them. Flagstar, however, does make a market in them with some strict guidelines. On the conventional side, Flag will purchase loans secured by double wide manufactured homes under Fannie's fixed-rate programs but not in CO, IL, LA, KY, MO, NY, Puerto Rico, PN, TX, or the Virgin Islands. "For Flagstar to consider for purchase of a manufactured home the following criteria must be met: Loan must be a rate and term refinance of the Flagstar Bank serviced loan, principal residences and second homes only - no investment properties, no subordinate financing, etc."

On the MI front, the same thing has taken place. PMI does not insure them, nor does Essent, although Genworth and Radian do. Radian has specific guidelines (primary residence, purchase and R&T refi, 90% LTV, $417k, 680 min FICO, 41 DTI, no IO's). MGIC will insure them, but in very specific geographic areas and for very specific, proven lenders.

How about that market yesterday? Tuesday night fixed-rate securities had "a decent bid", in trader talk, Asia was quiet, and stocks were pretty quiet. But then, as Wednesday progressed, things changed. News came out about stress tests on European banks, a poor German factory orders number & mediocre bund auction, etc. Economists were talking about all the cash still "sitting on the sidelines", which certainly makes a lot of sense seeing the current credit and underwriting environment. Consumer Credit is declining, although last quarter the net percentage of banks reporting an increased willingness to make consumer installment loans totaled 14%, up from 9.6% in Q1 2009 and up sharply from the cyclical low of -47.2% in Q4 2008 when real consumer outlays fell at over a 3% annualized rate. The current willingness to extend credit is the highest since Q2 2006. It would appear that many households are paying
down older, higher interest bearing debt.

Stocks got all the headlines yesterday, what with their "technical bounce" and biggest jump in a month. On the fixed income side, the 10-yr yield eased above 3% and mortgage securities backed by current coupon first liens finished the day .250 in price worse. Traders reported between $4-5 billion in MBS sales - over twice the "normal" day's sales volume - from originators, hedge funds, money managers, insurance companies, etc. Higher coupon, existing securities did pretty well, with some news on the early pay-off/prepayment front. Basically, fewer borrowers are paying off their mortgages than analysts expected.

In a light news week, any straw will be grasped - in this case today's Initial Jobless Claims number received a fair amount of attention. Last week's number showed that initial jobless claims rose by 13,000 for the week ended June 26 to 472,000, remaining stubbornly above levels that would suggest sustainable employment growth. Claims have been trending around in the 450,000-480,000 range for months now, and this morning's number was still in that range. Many expect the unemployment rate to rise to 10.0 percent by year end - which would help keep rates low but unemployed people don't make good home loan borrowers.  This morning we learned that Claims came in at 454,000, down 21k from last week's revised number and better for the economy than expected.

Three handsome male dogs are walking down the street when they see a beautiful, enticing, female Poodle.

The three male dogs fall all over themselves in an effort to be the one to reach her first, but end up arriving in front of her at the same time.

The males are speechless before her beauty, slobbering on themselves and hoping for just a glance from her in return.

Aware of her charms and her obvious effect on the three suitors, she decides to be kind and tells them, "The first one who can use the words 'liver' and 'cheese' together in an imaginative, intelligent sentence can go out with me."

The sturdy, muscular black Lab speaks up quickly and says, "I love liver and cheese."

"Oh, how childish," said the Poodle. "That shows no imagination or intelligence whatsoever."

She turns to the tall, shiny Golden Retriever and says "How well can you do?"

"Um. I HATE liver and cheese," blurts the Golden Retriever.

"My, my," said the Poodle. "I guess it's hopeless. That's just as dumb as the Lab's sentence."

She then turns to the last of the three dogs and says, "How about you, little guy?"

The last of the three, tiny in stature but big in fame and finesse, is the Taco Bell Chihuahua.

He gives her a smile, a sly wink, turns to the Golden Retriever and the Lab and says, "Liver alone. Cheese mine!"