All of us could take a lesson from the weather. It pays no attention to criticism, right? Critics are still blasting the TSA for allowing an alleged Nigerian terrorist to board a plane headed to Detroit on Christmas day. Experts say screeners missed several suspicious behaviors, especially the fact that someone was willingly going to Detroit.

The big news yesterday, if there was any, were the minutes from the mid-December Fed meeting (with the usual 3 week lag). The Federal Open Market Committee (FOMC) still sees a modest recovery this year, e.g., one that will bring only a "slow improvement" in the nation's severe unemployment problem. Although the FOMC's role is not to provide jobs, employment is still a concern, and they expect unemployment to remain elevated for quite some time. But of most interest to mortgage lenders is the appearance that they are in no hurry to raise overnight Fed Funds which have been near 0% for over a year. In addition, a weak recovery could warrant expanding or extending the $1.25 trillion mortgage-backed securities purchase program, although there is no change now. Winding it down, the minutes stated, may hurt housing since the securitization markets are still "impaired", and the commercial sector is still deteriorating. READ MORE

If you're interested in the 11 pages of minutes check them out HERE

In the meantime, ahead of tomorrow's unemployment data we had yesterday's ADP Employment Report (which showed that the private sector dropped 84,000 jobs in December, ADP's 23rd month in a row of declines - "employment losses are now rapidly diminishing") and today's weekly Jobless Claims data. Today's number showed that the number of U.S. workers filing new applications for unemployment insurance rose less than expected last week (up only 1,000 to 434,000) and the 4-week moving average hit a 16-month low at 450,000. Yesterday's jobs data, however, was enough to push rates higher during the day, resulting in several investors changing prices. (Mortgage prices did better than Treasury prices, presumably due to lack of supply versus the Fed buying.) Ahead of us we still have the supply announcement for next week's auction of 3's, 10's, 30's and 10yr TIPS, but for now the 10-yr yield is back up to 3.84% and mortgage prices are worse between .125 and .250.

Did someone mention "Fed buying" yet again? Analysts at firms like Barclays and Cantor Fitzgerald freely agree that the $1.25 trillion purchase program has caused significant spread tightening (relative to Treasury prices) and has provided positive effects in the housing market. And they freely agree that if the Fed stops, agency mortgage-backed securities look "rich" and would sell-off relative to Treasury prices by 30-50 basis points. That being said, once again they generally agree that if that happens, strong demand will come from the banks that seem to be flush with cash. A return to a normal market would be a good thing!

The National Association of Mortgage Brokers have publicly voiced their opinion that the HUD plan on FHA lenders is extreme to the point of being non-productive." HUD should continue to set standards for loan correspondents and share oversight of the quality and performance of broker loans with FHA-approved lenders," according to NAMB. HUD has proposed making FHA-approved lenders totally responsible for supervising brokers because the agency wants to focus more on FHA lenders that buy loans from brokers. However, brokers still want to deal with the FHA and want to have the authority to obtain case numbers for FHA loans.

In "the old days", when we'd hedge using mortgage-backed securities, accounts would be open with companies like Drexel Burnham, Goldman Sachs, DLJ, Morgan Stanley, Pru Bache, Smith Barney, Bank of America, Chase, etc. Required net worth was less than a million, one typically used the telephone instead of Trade Web or Bloomberg, and so forth. Things have changed, although it looks like there is a move back to verbally doing trades, and although net worth requirements in many instances are several million dollars, there are still firms that are seeking to open accounts with a smaller net worth. Merrill Lynch, for example, is looking to open up mortgage accounts that fund less than $100 million a month, subject to a credit review. If this might be of interest, contact Jason Ortman at

SunTrust has been busy updating their guides. For example, they've updated their Agency Affordable and Agency Plus programs, and their FHA 203(b) loan programs (with regard to incorporating the new appraisal requirements, 12 month mortgage history requirements for cash-outs, and the new HUD appraiser independence guidelines), and the approved condominium project list. SunTrust also reminded clients that "FHA case numbers assigned on or after January 1, 2010, are not eligible for submission to or purchase by SunTrust under the SunTrust FHA Government Sponsorship Program."

My calculations might be wrong. (Ops was never my strong suit. Come to think about it, I've never had a strong suit!) But I think today might be "D-Day" with regard to loans passing the 3-day Right of Rescission and/or actually funding loans using the RESPA requirements. Good luck to everyone!

Those helpful folks at HUD released an updated FAQ document before New Year's Eve,   which goes along with their "RESPA Plain English 12-09" 

The "word for today" is "herding". What is herding, and why should anyone in the mortgage business care about it? In conditions of uncertainty, humans, like lemmings and any other animal, herd together for protection. In unstable markets (bonds, stocks, whatever) this leads to trend-following: buy when others buy, sell when others sell. "The trend is your friend." Fancy money managers do it constantly so their performance won't diverge too much from the norm, or so that they can piggyback on the knowledge of their competitors' research. So if a stock, or interest rates, starts to move in one direction, traders assume that there must be a good reason, and they don't want to miss out.  So everyone piles in, and at the end of the day commentators and capital markets folks are left trying to explain why rates went up or down a lot when there is no real reason.

A DEA officer stops at a ranch in Texas, and talks with an old rancher. He tells the rancher, "I need to inspect your ranch for illegally grown drugs."

The rancher says, "Okay, but do not go in that field over there," as he points out the location.

The DEA officer verbally explodes saying, "Mister, I have the authority of the Federal Government with me."  Reaching into his rear pants pocket, he removes his badge and proudly displays it to the rancher.  "See this badge? This badge means I am allowed to go wherever I wish. On any land. No questions asked or answers given.  Have I made myself clear?  Do you understand?"

The rancher nods politely, apologizes, and goes about his chores.

A short time later, the old rancher hears loud screams and sees the DEA officer running for his life chased by the rancher's big Santa Gertrudis bull......

With every step the bull is gaining ground on the officer, and it seems likely that he'll get gored before he reaches safety.  The officer is clearly terrified. The rancher throws down his tools, runs to the fence and yells at the top of his lungs, "Your badge! Show him your BADGE!"