Reader Feedback on Potential Government Refi Plan; Markets Calm After Storm

An IT person is someone who understands this joke: "The definition of 'Installation routine': A process employed by many applications to overwrite and thereby trash the user's existing and painstakingly created AUTOEXEC.BAT and CONFIG.SYS files." Mortgage banking has become extremely dependent on computers and systems, speaking of which...

I have been retained by an expanding residential retail lender that is searching for a Business Applications. The lender is looking for someone who either lives in California or is willing to relocate. The role is relatively straightforward: "to strategize and maintain the organization's business applications for mortgage banking, accounting and customer support software applications through best practices, appropriate integration and meaningful reporting for the sake of the business needs, and is responsible for planning and coordinating the processes required for the provision of user applications and systems necessary for business operations. This individual will apply proven communication and problem-solving skills to guide and assist the division heads on issues related to the design, development, and deployment of mission-critical information and software systems." The person should be very familiar with Document Management Systems, Citrix, Windows, DataTrac, Point, and so on. I am happy to send anyone the description, which is too lengthy for the commentary, so if you know of someone who might be interested, please pass them my way: rchrisman@robchrisman.com.

Along those lines, Citi sent its clients a reminder that, in spite of the "suite of technology products that makes it easier for you to do business with us, errors occur when using the eImaging program that can be easily avoided." Citi goes on to explain that, "Some documents, most frequently appraisals and HUD-1s, are locked by the provider to prevent tampering with the contents. This 'protection' also causes problems when attempting to image for long term storage. Please remove this security feature prior to sending your images to Citi. A PDF print driver (or other tool that allows printing/imaging without permitting other access to the documents) is a great tool for this." Citi's bulletin also goes on to make recommendations regarding naming convention errors, examining the eImaging Report itself, acceptable file types (eImaging accepts PDF and TIFF files contained within a zip file. Including documents of other file types like .doc, .xls, etc., will cause upload errors and/or omissions of loan documents.), and image resolution (300 dots per inch recommended, 200 and below unacceptable).

Last week we had a flurry of chatter about some potential, vague government-backed refinance plan, and I received a number of valuable comments. "The elephant in the room that's being ignored is mortgage insurance.  With today's PMI structure, the rate for an FHA refi loan needs to be an average of at least 1.25% below the old loan's rate in order to meet the benefit to the borrower standard.  Existing underwater conventional loans that have MI on them can only be refi'd by the servicing lender.  Borrowers I've talked with in this situation are telling me that their existing lenders are in no hurry to do the refinances.  That pulls a huge number of loans off the market. Government and elected officials can talk all they want, but until the MI issue is dealt with, the vast majority of quality borrowers who bought at the wrong time are not going to receive significant, meaningful help."

"Very few borrowers can do a Streamline Refinance do to the two recent increases in the monthly mortgage insurance premium (MMI). The higher MMI eats up most of the interest rate savings, and prevents borrowers from achieving the '5% month's' savings requirement. Why wouldn't the government just simply grandfather in all borrowers current MMI premiums when they Streamline a mortgage? This way, a borrower who took out an FHA loan prior to October 2010, when the factor changed from .55 to .90 can lower the rate on their mortgage from say 5% to 4% or 4.25% and meet the 5% savings rule. The way things stand now, they would need an approximate rate of 3.75% to achieve the savings. The Government can actually make money on this Idea as they could simply create new guidance that states the MMI will be grandfathered in but the Upfront on a Streamline will increase to 2%. The Increase in the UFMIP will have little impact on the overall monthly payment as compared to going from .55 to 1.15 on the MMI the way things stand now. If this window of low rates were to last and this was implemented immediately, you would see refinancing on an epic scale. What are the negatives in your opinion of this idea?"

"Your reader/analyst who argues that homeowners would accept lower monthly payments, while keeping underwater equity status is an insult to any homeowner with an ounce of intelligence and an understanding of basic math. Let's take an example.  A homeowner purchased a home in 2007 (at the height) for $400,000. Fast forward 4 years, and from their perspective that home they thought would at least retain the original purchase price in value is now valued at $200,000 with no drop in property taxes. Does anyone really think they are not going to throw their hands in the air and walk away?  What reasonably intelligent person is going to say, 'Hey!  At least my new payment is lower... deal!  I'm going to keep this place and keep pouring money into it, because my 'rent', less 'taxes', is cheaper and I won't have to move!' Wrong!  Most intelligent people are going to say, 'Hmmm... $200,000 underwater.  I wonder if I will break even in the next 30 years. This isn't an investment, it's a money pit.  I can rent the same house down the street and not have to pay for maintenance, property taxes and MI payments... and finally save some money!'

"In my simplistic opinion, this market, the industry, and the economy are not going to "correct itself" or "recover" until this mess runs its course.  Underwater properties and foreclosed properties are going to have to sit on the market until sold, at the new, much lower price.  Banks, Servicers, and Agencies are going to have to take heavy hits/losses and Loan Officers selling payment, not rate, are going to have to start getting real about what their futures look like. Homeownership will once again become something you work hard to earn, not something handed to you on a silver platter. Simply put, there is no way government involvement is going to be able to make 'right' contracts between borrowers, lenders, servicers, and investors without some, or all of those parties realizing losses.  You can't just make it disappear."

Meanwhile, investors & MI companies continue to make changes. MGIC announced changes to its underwriting requirements, effective with MI applications received on or after today. "MGIC is revising its underwriting requirements to allow for loans up to $750,000." Revised requirements for loans greater than $625,500 include the $750k loan amount, primary residence, purchase or construction-permanent, maximum LTV/CLTV of 90%, maximum DTI of 41%, minimum FICO of 740, and so on. Consult the MGIC bulletin for exact details.

At Bank of America, starting today, "the Agency Price Guide for Conventional and Government loans is updated to include the following changes: the adjustment for Conforming 30 Year Fixed Rate High Balance loans is now 1%," as is the adjustment for DU Refi Plus Conforming 30 Year Fixed Rate High Balance loans.

Turning to the markets - there isn't a heckuva lot going on. Friday's speech by Ben Bernanke was largely as expected: no QE3, the Fed has options if needed, growth is on track but the recovery is erratic and healing will take time, and the Fed has limited ability to ensure long run growth. There is a tacit warning from Bernanke that Washington need to get their act together, and that monetary policy alone can't sustain long term growth. Treasury 10-year notes improved by about .250 in price, down to 2.19%, although for the week 10-yr notes about 1 point and the yield was up 12 basis points.

Today we had Personal Income and Consumption. (In the old days it was called "Consumption, now it is called "Spending.") Personal Income was +.3% and Spending was +.8%, neither of which really moved the markets. PCE prices were +.4%. Later we have Pending Home Sales. Tomorrow is yet another housing measure with the Case-Shiller 20-City Index, and Consumer Confidence. Wednesday is some ADP job information (private sector only) and the Chicago Purchasing Manager's number, Thursday is Jobless Claims, Productivity, Unit Labor Costs, an ISM Index, and Construction Spending. Friday is the Big Daddy: unemployment. In the early going the 10-yr.'s yield is up to 2.25% and MBS prices are worse by about .125.

(From 9/1 through 9/9 I will be out of the country. I have lined up several very knowledgeable "guest writers" of varying mortgage backgrounds who will be taking my place every day.)

Here's some hurricane advice for the next one, I believe thanks to Dave Berry:

First, you need to understand two basic meteorological points: (1) there is no need to panic.
(2) We could all be killed.

You need to consider these important hurricane preparedness items. Homeowner's insurance: If you own a home, you must have hurricane insurance.   Unfortunately, if your home is located in Florida, or any other area that might actually be hit by a hurricane, most insurance companies would prefer not to sell you hurricane insurance, because then they might be required to pay you money, and that is certainly not why they got into the insurance business in the first place.

If you live in a low-lying area, you should have an evacuation route planned out.  (To determine whether you live in a low-lying area, look at your driver's license; if it says "Florida" you live in a low-lying area.) The purpose of having an evacuation route is to avoid being trapped in your home when a major storm hits.  Instead, you will be trapped in a gigantic traffic jam several miles from your home, along with two hundred thousand other evacuees.

If you don't evacuate, you will need a mess of supplies.  Do not buy them now!  Tradition requires that you wait until the last possible minute, then go to the supermarket and get into vicious fights with strangers over who gets the last bottle of water.

Of course these are just basic precautions.  As the hurricane draws near,  it is vitally important that you keep abreast of the situation by turning  on your television and watching TV reporters in rain slickers stand right next to the ocean and tell you over and over how vitally important it is for everybody to stay away from the ocean.

If you're interested, visit my twice-a-month blog at the STRATMOR Group web site located at www.stratmorgroup.com . The current blog takes a look at the recent news sweeping the MBS investor market regarding a new mass refi plan by the government. If you have both the time and inclination, make a comment on what I have written, or on other comments so that folks can learn what's going on out there from the other readers.