HARP Subordination Scenario; Jumbo Loan Foreclosure Numbers; Rates Low But Fewer Qualified Borrowers; International Homebuyers

To burn off a "mere" two beers a night, you'd need to run for two hours a week. Or, said another way, in order for your body to replace the calories lost by running two hours a week you'd need to drink two beers a night. There are different ways to look at numbers. A slow economy will keep rates low, but few borrowers may qualify given current underwriting guidelines - be careful what you wish for.

As has been mentioned for quite some time, given economic issues around the world, at this time most economists don't believe that our economy can handle higher rates until 2011. In fact, the bond market has priced in slower growth and lower inflation over the next 12-18 months, and some believe that the Fed's first overnight rate hike won't be until the 2nd half of 2011. And if you like the yield on the 10-yr near 3%, you should be in luck since smarter minds than mine think it will sit here in the autumn, and mortgage rates right along with it. But in spite of low rates, the housing market is pretty stagnant. Mortgage purchase applications are down 41% from their peak in April, although apps to refinance are up about 33% from their low May levels.

The housing and mortgage industry have had to grapple with a number of issues: RESPA and compliance, the First Time Home Buyer Tax Credit's demise, appraisal and HVCC, questions about the flood insurance program, etc., not to mention borrower's credit concerns. Looking at the single-family market, home builder confidence is low as building permits have now declined in each of the past two months but are well above their historical low reached in early 2009. Multifamily construction outlays peaked well before the onset of the recession and are now at their lowest level in almost 16 years. Declines have largely been due to competition from the oversupply of for-sale housing for rent, although there are some signs of that market stabilizing.

Late last week I heard from a broker about a HARP subordination issue. "I am doing a HARP refinance for a Florida borrower, who really can benefit from the refinance, and they have a HELOC with Regents Bank that needs to be subordinated. It is a Fannie HARP with a 91% 1st, and with the 2nd the CLTV it is 105%. Regents Bank is charging a $200 fee, which is certainly understandable, but in addition Regents wants to raise the interest rate on the HELOC by 1.5%! Over the life of the HELOC this will add over $2,000 in payments to the borrower. I understand the fee, but I have not seen the larger lenders do this - is it typical for small HELOC lenders to raise the rate and take advantage of the public like this?" Of course, it depends on what the Regents' note states since a change in rate may constitute a new loan, and the borrower can always write to their representatives and use the word "extort". Fannie's stance: https://www.efanniemae.com/sf/mha/index.jsp

Did YOU contribute to the losses of Freddie and Fannie? I hope not. The Federal Housing Finance Authority, which oversees those agencies, issued 64 subpoenas to various entities, seeking documents related to private-label mortgage-backed securities in which both Fannie and Freddie invested. The various entities, which were not identified but are thought to be primarily Wall Street banks, have 30 days to respond. F&F "have attempted to determine whether misrepresentations, breaches of warranties or other acts or omissions by PLS (private-label securities) counterparties would require repurchase of loans underlying the PLS by the counterparties and whether other remedies might be appropriate," FHFA said in a statement. And we're talking billions here. At the end of March, Freddie and Fannie's balance sheets showed $97.4 billion and $44.3 billion, respectively, and let's not forget that the U.S. Treasury has injected more than $145 billion to keep the companies afloat. READ MORE

Cambridge Place Investment Management, out of Boston, is suing 15 Wall Street of banks for misleading investors about a total of $2.4 billion in mortgage-backed securities they sold.

Included are HSBC, Barclays, Royal Bank of Scotland, JPMorgan Chase, Citigroup, Credit Suisse, Deutsche Bank, Merrill Lynch, UBS, Goldman Sachs and Morgan Stanley. Cambridge Place also blames the "mortgage originators" - the subprime lenders responsible for assessing borrowers - for bending the truth about the worth of the loans, and says banks failed to conduct proper due diligence before packaging the loans into financial instruments and repeated untrue statements about the sub-prime mortgages in their prospectuses and sales pitches.

The National Association of Realtors reported that international customers accounted for about $66 billion (7%) of residential real estate purchases in the U.S. during the calendar year ending March 31.  NAR surveyed realtors and found that 28% of its members who responded have worked with at least one international client during that period, up from 23% the year before, and 18% indicated they had completed at least one sale with a foreign client, up from 12 percent a year ago. Only 1% of Realtors reported that they obtained 75% or more of their sales from international customers.

Foreign clients with permanent residences outside the United States accounted for $41 billion or 4 percent of the residential market, and clients who are recent immigrants or temporary visa holders in the U.S. and looking for a primary residence accounted for $26 billion.  These customers were responsible for about 3 percent or $26 billion in sales. NAR reported that international buyers came from 53 different countries, led by Canada, Mexico, the UK, and China/Hong Kong, and Florida, California, Arizona, and Texas were the primary states. Cash was king with 55% of international buyers paying cash for their houses, but NAR's survey showed respondents reported that 34% of their customers were unable to complete a purchase because of financing problems - primarily due to a lack of social security card. FULL STORY

Anyone hoping for an immediate come back of the jumbo loan market is grappling with some recent foreclosure news. More than one in seven homeowners with loans in excess of a million dollars are seriously delinquent, according to data compiled for The New York Times by CoreLogic. Interestingly, about 1 in 12 mortgages below the million-dollar mark is delinquent. Ritzy areas across the nation are feeling the impact, including the San Francisco area, areas to the north and west of Chicago, New York, Miami, etc. Apparently stats show that 11 million homeowners are underwater (their debt is greater than the value of the house), and if these walkaway/"strategic defaults" continue to increase, it will take even longer for the housing market to improve. That being said, rates for jumbo mortgages are at their lowest since 2003. 30-yr jumbo paper has come down from the high 6's a year ago down into the mid-5's.

What does one do after being a HUD Secretary? In Mel Martinez's case, he will join JPMorgan Chase to be its Chairman of Florida, Mexico, Central America and the Caribbean, overseeing large business, government, and non-profit relationships.

Optimal Blue has released US Bank's FHA Credit Qualifying Streamline product lines.

Franklin American tweaked its VA Fixed Rate products and made some other changes starting Thursday.  FAMC added some guideline clarification to its "Pending Sale of Real Estate and Conversion of Current Residence to Second Home or Investment Property" guidelines ("the borrower must qualify with both payments and meet minimum reserve requirements"); and revised its guidelines to specify that the CLTV on IRRRL transactions with existing
subordinate financing may not exceed 100%. FAMC's bulletin also addressed private road agreements, cash reserves, bonus entitlements, energy efficient mortgages, re-marrying spouse eligibility for the VA IRRRL program, etc.

The market started off Monday relatively slowly, but unfortunately the rally in stocks combined with a "sloppy" $35 billion 3-yr Treasury auction pushed bond prices lower and rates higher. (Investors have to ask themselves, if one ties up their money for 3 years earning about 1% with a Treasury note, is the meager return worth the safety?) Although it closed at a yield of about 3.05%, the yield on the 10-yr shot up to 3.11%, and mortgage prices on rate sheets everywhere ended the day worse by about .375 with investor rates changes. Mortgage security sales totaled about $1.6 billion -  roughly average these days, with most of the production still 30-yr 4.25-5.125% mortgages.

Today the Trade Deficit numbers ($42.3 billion, the highest since late 2008) did not have a big impact on the interest rate market - the yield on the 10-yr is chopping around 3.08%. We do have a $21 billion 10-yr Treasury auction today. Tomorrow we have Retail Sales, followed Thursday with PPI, empire manufacturing, & Industrial Production, with the CPI and U. of Michigan survey on Friday. So far mortgage prices are slightly worse (.125-.250) given the price action in the 10-yr.

You know you live in the Pacific Northwest when...

You know the state flower (Mildew).

You feel guilty throwing aluminum cans or paper in the trash.

You know more than 10 ways to order coffee.

You know more people who own boats than air conditioners.

You feel overdressed wearing a suit to a nice restaurant.

You consider that if it has no snow or has not recently erupted, it is not a real mountain.

You know the difference between Chinook, Coho, and Sockeye Salmon.

You know how to pronounce Sequim, Puyallup, Issaquah, Oregon, Yakima, Willamette, and Poulsbo.

You consider swimming an indoor sport.

In winter, you go to work in the dark and come home in the dark while working eight-hour days.

You are not fazed by 'Today's forecast: showers followed by rain,' and 'Tomorrow's forecast: rain followed by showers.'

You put on your shorts when the temperature gets above 50, but still wear your hiking boots and parka.

You buy new sunglasses every year, because you cannot find the old ones.

You design your kid's Halloween costume to fit under a raincoat.

You know all the important seasons: Almost Winter, Winter, Still Raining (Spring), Road Construction (Summer), Deer & Elk Season (Fall).