HAMP Fallout Quadruples; FHA Condo Recertification Requirements; Rapid Refinance as Means to Distribute Money Around the Economy;

I don't know about you, but whenever I've had too much to drink and find myself loitering around a mortgage company's computer server, I feel like unholstering my .45 and opening fire. I guess I'm not alone: WOW

Jefferies and other Wall Street analysts have recently pointed out that the effective rate of interest on all US mortgage debt outstanding (about $11 trillion - more than US Treasury and corporate debt combined) has barely budged in recent years at just over 6%. Like a kid looking through the window at candy, originators know this, and that the overwhelming number of households, on average, are paying the same rate they have for quite some time, and funding conditions "for the largest and most important part of the US economy - the consumer sector - continue to be bad. And if a borrower can't refinance, and lower their monthly payment, they tend to hunker down and put the money into savings - which often time is invested by banks into Treasuries. And of course this serves to push rates down even more.

Analysts believe that if overall rates drop by 1% for all borrowers, it may translate into potential annual savings of more than $30 billion in lower monthly payments. (No, I didn't run the numbers myself.) This transfer would shift money away from market makers and money managers and into the pockets of borrowers - the fabled consumer sector, which has been lagging. And it follows that this desperately needed money would help stimulate the economy, right? But as we all know, origination capacity remains a bottleneck either through regulation or through lack of equity/credit. Investors would probably rather have their holdings of 6% (on average) mortgages ratchet down to 5% then go to 4%. And so the conjecture about a massive government-led refi wave continues.

But few people, if any, who follow mortgage statistics are arguing that any of the government's modification plans are working. In fact, few, if any, of the people with whom I have spoken who are actually in the front lines doing the modifications say that it is going well. Even the US Treasury, in its latest report on 17-month old HAMP, noted that "the percentage of homeowners dropping out of the Obama administration's premier housing rescue program rose in July to nearly half of participants, as owners receiving aid continued to struggle with documenting their eligibility."

According to the Treasury Department, about 48% of the 1.3 million homeowners who started a mortgage modification through July have dropped out, up from the 41% noted in June. Modification trials offered in the program prior to June 1 did not require up-front documentation of income or eligibility, and many trials are now being canceled. As a result, Treasury said 100,114 participants dropped out of the program in July -- more than four times the 24,577 new modification trials started. Overall, the Treasury said HAMP has lowered payments for a total of 1.3 million homeowners that received trial modifications since the program was launched.

It's been a while since CitiMortgage sent out an update to its correspondent clients. But Monday one went out, covering a multitude of changes. Credit policy updates were made to LP (for multiple financed properties), and FHA, along with credit policy changes to general underwriting guidelines along with various "notifications, clarifications, and corrections".

For Citi's correspondents, going forward, under LP, "If the property is a second home or investment property, the Underwriter must confirm that each borrower individually and all borrowers collectively have no more than four 1-4 unit properties that are financed, including the subject property. Product for the subject property loan must be a fixed rate, 7/1 or 10/1 ARM. In Citi's FHA program, starting September 7th, "the maximum CLTV for a rate/term refinance has been reduced to 97.75%. Additionally, for cash out refinances the subordinate financing may remain in place as long as the CLTV does not exceed 85%." For FHA Streamline Refinances, "When calculating the maximum loan amount for an owner-occupied property, a maximum of 2 months of interest can be included in the new mortgage calculation."

Citi's bulletin goes on to discuss tax transcripts versus returns ("For manually underwritten loans, IRS transcripts may be used in lieu of tax returns; however if any income or information used in the transaction is from a Schedule other than Schedule A or Form 2106, the applicable schedules must be obtained and reviewed by the underwriter. Transcripts in lieu of tax returns may not be used for loans approved via DU/LP"), how acceptable borrowed funds may now be used for the down payment on investment properties as well as primary residences and second homes, updated appraisal photograph policies starting 9/1 per Fannie guidelines, and review appraiser and appraisal standards.

In addition, the bulletin address co-op project review requirements (the co-op project in which the secured unit is located must qualify as a cooperative housing corporation under Section 216 of the Internal Revenue Service Code), updated Area Median Income limits for Freddie and Fannie programs, and reminded clients that Citi expects them to comply with RESPA guidelines regardless of any time that has elapsed since the sale to Citi.

Mountain West Financial told its broker customers that all conventional condominium loans will now require a Fannie Mae Condo approval, or condo Project Manager Certification and MWF's HOA Cert Form, whether or not the loan has DU or LP automated findings.

Condominiums appear to be the hot topic. HUD notified FHA & VA sellers that Mortgagee Letter 2009-46 B, Section VII, provided basic information regarding condominium recertification requirements, and that these recertification requests may be processed using two options. Sellers may use the HUD Review and Approval Process (HRAP), or the Direct Endorsement Lender Review and Approval process, depending on approval date (prior to January 1, 2000, full project approval will be required, after that then the project is eligible for recertification process).  http://www.hud.gov/offices/hsg/sfh/condo/

Nationstar Mortgage (a wholesaler owned by Fortress Investment Group) told brokers that it is now offering a FHA 20-Year fixed-rate fully amortizing mortgage and Freddie Mac's Open Access program. Nationstar is also implementing MI changes reflecting MGIC's changes from earlier this month, using a new matrix with adjusted DTI and FICO levels.

For folks who follow policies like private transfer fees, they noted that recently the Federal Housing Finance Agency (FHFA - in charge of Freddie and Fannie) announced a public comment period on new regulations that would restrict F&F, and the Federal Home Loan Banks, from investing in mortgages with private transfer fee covenants. Could this spell the end of private transfer fees before the end of the year? Transfer fees are enabled by covenants on a deed which require a payment to a third party every time property ownership is transferred and are typically 1 percent of the amount of the sale. Stay tuned...

In a story out of Bloomberg Businessweek, Wells Fargo & Co. is plunging back into the commercial mortgage-backed securities market by adding more than 20 bankers and support personnel during the past three months to increase loan originations and bundle them into CMBS. (I sure hope that they know what they're doing, since every time I drive by a shopping center or office building I see plenty of "for rent" signs.) Wachovia, now owned by Wells, was the #1 underwriter of CMBS's from 2005 to 2007, and then had over $2 billion in losses in 2007 and 2008. As we know, commercial property values have declined 39 percent from the 2007 peak, according to Moody's Investors Service. The decline has made underwriting loans less risky, and banks can dictate more conservative terms and choose the most creditworthy borrowers.

The stock and bond markets were somewhat quiet yesterday until NAR's Existing Home Sales number "hit the tape", plunging 27.2% to sales' lowest levels since 1995 and setting a new record low for this series which goes back to 1999. In addition, the data was revised to show a bigger drop of 7.1% in June, which was the last month that homebuyers were able to receive the homebuyer tax credit, and pushes out the housing inventory to over a year. The national median home price rose 0.7 percent from July last year to $182,600, but why build a new house when there is a year's inventory at current sales rates, and the huge overhang of foreclosures that are set to enter the market as re-sales over the next several years?

As we saw, rates dropped and fixed-income prices improved. Two-year Treasury yields hit another record low, 10-year notes rose 29/32 to yield 2.50% from 2.60%, and mortgage securities were better by a solid .375 in price (some portion of which made its way onto rate sheets for originators). (Sometimes economists, when they are feeling their most dour, compare the US economy to Japan's. As a point of reference, Japan's 10-yr note first closed below 2.00% in the autumn of 1997, and since that time it's averaged 1.48%) Reuters released a poll showing that 72% of Americans are "very concerned" about unemployment and more people now disapprove of President Barack Obama than approve of him - more evidence of a slowing economy and the consumer hunkering down.

This morning we have already learned from the MBA what lock desks already knew - that mortgage applications up 4.9% to highest level since May 2009.  Refi applications were up 5.7% while purchase only increased .6%. And we have already had the Durable Goods number for July. (In the debatable recovery from March 2009 through April 2010, durable goods orders rose more than 20 %.) Durable Goods were expected to be up between 2 and 3%, but were only up .3%, and ex-Transportation they were down almost 4%. Once again, stocks dropped, and bonds rallied. The 10-yr yield is now at 2.42%, and current coupon mortgage security prices are better by roughly .250 in price. Perhaps we really are headed for a 4% 30-yr fixed rate world on rate sheets. We still have a $36 billion 5-yr. Note auction ahead of us, along with New Home Sales.

Charley, a new retiree-greeter at Wall-Mart, just couldn't seem to get to work on time. Every day he was 5, 10, 15 minutes late. But he was a good worker, really tidy, clean-shaven, sharp minded and a real credit to the company and obviously demonstrating their "Older Person Friendly" policies.

One day the boss called him into the office for a talk.

"Charlie, I have to tell you, I like your work ethic, you do a bang up job, but your being late so often is quite bothersome."

"Yes, I know boss, and I am working on it."

''Well good, you are a team player. That's what I like to hear. It's odd though, you coming in late.

I know you're retired from the Armed Forces. What did they say if you came in late there?"

''They said, "Good morning Admiral, can I get your coffee, sir?'''