Fed's Vote Next Week on Basel III Will Impact Rate Sheets; Beazer to Form Rental REIT

Are politicians always calm and collected and afraid to voice their opinion? Not necessarily - you gotta check this out. (You'd think those around him would show a little more interest...)

The north Atlantic hurricane season begins today and lasts through Nov. 30. The U.S. Census Bureau, who like numbers, point out that about 37 million (12% of the nation's population) live in the coastal portion of states stretching from North Carolina to Texas - the areas most threatened by Atlantic hurricanes. Last year there were "only" seven hurricanes during the 2011 Atlantic hurricane season, four of them Category 3-strength or higher with Irene being the only hurricane to make landfall. Speaking of names, the Weather Bureau officially began naming hurricanes in 1950. Hurricane names rotate in a six-year cycle with the 2012 list being a repeat of the 2006 names with "bad" storm names being retired. For the first time since 1997, the World Meteorological Center did not retire a storm name.

Speaking of names, I've heard of a fish, but not a storm, named Wanda. And Wanda DeLeo is now Deputy Director of the FHFA, and running a new office to implement its Strategic Plan for Fannie Mae and Freddie Mac Conservatorships: the Office of Strategic Initiatives. Remember that this is the plan which was sent to Congress is February established objectives and steps for FHFA to take to meet its obligations as conservator of the two government sponsored enterprises (GSEs).  Under the plan, the next phase of the conservatorship will require FHFA to build a new infrastructure for the secondary mortgage market, contract in a gradually manner the GSEs dominant presence in the marketplace while simplifying and shrinking their operations, and maintain foreclosure prevention activities and credit availability for new and refinanced mortgages.

Europe is probably getting vertigo from standing on the edge of the financial cliff for so long, as a Chase trader put it. But that has not stopped Basel III, which impacts many things including the ability for depositories to hold various amounts of servicing, which in turn directly impacts servicing values and rates/prices for borrowers. The plan is going to be voted on next week by the Federal Reserve.

The Wall Street Journal reports that "investors can buy stakes in malls, apartment towers, timber forests and even cellphone towers through real-estate investment trusts. Now, add to the list: single-family homes transformed into rental properties. Beazer Pre-Owned Rental Homes Inc., which hopes to expand beyond Phoenix and Las Vegas to at least one other, as-yet unidentified market. Within two years, Beazer said the number of rental homes under the new REIT's control could number in the thousands." Beazer has formed a REIT that will buy and then rent single-family homes. It, and KKR, will eventually take the REIT public. Of course, a certain percentage of the rentals are homes that Beazer built and sold originally, recently purchased through foreclosure auctions, short-sales or other distressed home-buying strategies. It is not the first - Paulson & Co., Starwood Capital Group and Och-Ziff Capital Management LLC have expressed interest in gathering portfolios of single-family homes with plans to rent them out until the market turns and they can be sold for a profit.

The WSJ story goes on. "The company said an initial public offering will come after the company's assets reach at least $150 million. REIT experts say that similar companies could follow, especially if the Beazer venture is successful. According to Census Bureau data analyzed by Green Street Advisors Inc., there are about 25.5 million single-family rental properties, defined by Green Street as houses with between one and four units in the country, compared with just 18 million rental apartments in buildings with five or more units."

Investor and MI changes just continue to flow through. What's a mother to do? Reading the actual bulletin is important, but here are some somewhat recent changes of note:

Citibank has updated several of its credit overlays.  Following a policy change in March, the section on FHA Loan Limits has been removed, and the guidelines on Amended Subordinate Financing have been clarified to indicate that they also apply to LP and LP Open Access. Loans on PUD properties, both primary residences and investment homes, may be a 2-unit property and should be submitted to DU and LP as such; this affects loans registered on or after May 19th.  In light of Fannie's release of DU Version 8.3 back in April, Citi will accept property values determined by DU if the loan is eligible for a property fieldwork waiver.

Lenders registering their loans on the Citi Correspondent website will now find additional fields that will allow for the registration of up to four borrowers, including their respective FICO scores.

Citi has clarified guidelines on subordinate lien documentation such that when the subordinate lien is refinanced concurrently with the first mortgage, the note, security instrument, GFE, final TIL statement, HUD-1 Settlement Statement, maximum permitted credit advance, and the HELOC Agreement where appropriate must all be included in the final loan package.  Certain DU and LP guidelines have been clarified as well.  DU will not take trade lines that are reported as disputed (disputed accounts with multiple derogatory payments, multiple disputed trade lines) into consideration for its credit analysis.  The disputed trade line message won't appear if there's only one disputed account with no derogatory payments, but the payment for the trade line must be included in the debt ratios.  For LP Open Access, a tri-merged report is preferable, but an in-file merged/joint credit report will also be accepted.

Citi reminds clients that they are required to comply with the Fannie policy on lenders' reviews of the General Services Administration Excluded Party List or the HUD Limited Denial of Participation List when it comes to hiring employees involved in the origination process.  The same goes for the corresponding Freddie policy.

A few more miscellaneous Citi reminders on documentation: lenders should supply the appraiser with all the necessary financing data and sales concessions, which includes the sales contract, primary and secondary financing terms, gifts, and buydowns.  When documenting a borrower's income, all income-related schedules and forms must be provided (W-2s, 1099s, and the like).  If the borrower has requested an extension to file their most recent tax returns, a copy of the extension request should be provided along with all filed tax returns from the previous two years.

In response to some improvement in the Florida, Arizona, and Nevada markets, MGIC is loosening up some of its underwriting guidelines for these areas.  For borrowers taking out loans of up to $625,000 on primary residences, the minimum credit scores has been reduced from 720 to 700, and the maximum DTI for loans that are fixed rate for at least the first five years has been increased from 41% to 51%.

Flagstar reminds clients that, for all FHA table funded refinance transactions, its Funding Department must receive all FHA Refinance pre-funding documents by the monthly deadlines so as to meet all UFMIP refund and loan calculation deadlines (the next one is June 25th).  Funding requests should be submitted before closing and not during the rescission period to ensure that lenders have enough time to review and correct the HUD-1 settlement statement.  Funding will be cancelled if the necessary documentation isn't submitted in time, which will require the loan to be resubmitted to Flagstar Underwriting for review and, in certain cases, result in extra fees.  All funding requests should include a copy of the "Notice to Settlement/Escrow Agent" closing form, RESPA 2010 compliant HUD-1 settlement statement, MDIA compliant TILs, completed GFE History-Broker, all GFEs provided to the borrower, verbal VOE, transaction-specific Closing Protection letter, E&O insurance, wire instructions on the agent's letterhead, hazard insurance, any other required insurances, and either the short form title policy or title commitment.

As of Friday the 25th, Kinecta Federal Credit Union is no longer offering the 40-year amortization option for Jumbo ARM loans.

"Hedge funds were active buyers of lower coupons, and, in Specified Pool space, we saw good money manager demand for call protection 4.0s and low-pay up 3.5s.  The decline in longer-dated vol (2y10y down approx 2 normals on the day) and shortage of afternoon supply (less than 500mm, to total 1.9BN on the day) certainly supported the basis as well.  We are turning more negative on 30yr 4.0s as the 3.625 primary rate has now re-appeared and the potential for a 1.50-1.75% type 10yr environment seems more and more likely. The refi-incentive for 4.0% coupon borrowers now becomes very real (which makes the roll look that much richer).  Furthermore, 3.5s should become increasingly attractive for investors looking to move down-in-coupon as 3.0s take on a greater share of origination."

What the heck does that trader talk mean? It boils down to an explanation of why investors are nervous about owning higher-coupon mortgages (anything going into a 4% security). Yesterday's fixed income security markets continued to improve, thanks to European problems and weak economic news here, and our 10-yr note hit a low of 1.57%. And with it came more talk about Quantitative Easing 3 (QE3). Mortgage selling/volume picked up, but although the 10-yr T-note improved by about .50 in price, mortgages lagged somewhat improving by about .25, and lagged even more on consumer's rate sheets.

Today, prior to the unemployment data, our 10-yr was down to 1.52%. Nonfarm Payrolls were projected to increase to 150k from 115k with the unemployment rate holding at 8.1%. But Payrolls were only up 69k, and the unemployment rate was 8.2%, up from April's 8.1%. In addition, there were some back-month revisions (March -11k, April -38k). Personal Spending was +.3%, but really, this, and a few numbers due out later this morning, pale in comparison to the disappointing employment data.

Jobs and housing, housing and jobs...housing appears to be on the upswing in many places, but we can't have much of a recovery without more folks working. And, of course, rates are great, but it is hard to qualify without a job. That being said, folks who have a job, and who obtained a loan a few months ago, could be ready for a refinance already! Soon after the employment news the 10-yr dropped to 1.47% - look for a solid improvement in MBS prices and in rate sheets.

Puns (Part 4 of 4)
I changed my iPod's name to "Titanic"; it's syncing now.
When chemists die, they barium.
I thought I made a mistake once, but I was wrong.
Jokes about German sausage are the wurst.
A soldier who survived mustard gas and pepper spray is now a seasoned veteran.
I know a guy who's addicted to brake fluid. He says he can stop any time.
How does Moses make his tea? Hebrews it.
I stayed up all night to see where the sun went. Then it dawned on me.
This girl said she recognized me from the vegetarian club, but I'd never met herbivore.
A guy got arrested for playing the guitar -- for fingering A minor.
I'm reading a book about anti-gravity and I can't put it down.