My daughter and I went through the McDonald's take-out window and I gave the clerk a $5 bill. Our total was $4.25, so I also handed her a quarter. She said, "You gave me too much money." I said, "Yes I know, but this way you can just give me a dollar bill back." She sighed and went to get the manager, who asked me to repeat my request. I did so, and he handed me back the quarter, and said, "We're sorry but we could not do that kind of thing."

The clerk then proceeded to give me back $1 and 75 cents in change.

Numbers can really be confusing. And when you are dealing with companies that back half of the $11 trillion home loans, things become even more confusing. What would you do about the role of the agencies in the mortgage industry? The National Association of Realtors has put forth a proposal to convert Freddie & Fannie into nonprofit corporations that would largely leave the mortgage-finance giants intact. Of course, the NAR or anyone else just can't snap their fingers to make this happen: the proposal is likely to meet stiff political resistance because of the bail out money already spent and Congress's desire to make bold changes. NAR suggests that unlike a federal agency, the new government non-profit authorities will function as self-sustaining organizations, without needing annual appropriations from Congress and without a profit motive but with government backing and guarantees. MI companies would continue to mitigate risk on loans above 80% LTV, and MBS guarantee fees would still be paid by originators. Of course no one wants to endanger the currently fragile housing and credit markets, least of all the NAR and Congress, so look for this process to be a very long and involved one.

MGIC announced a set of pricing and criteria changes to be rolled out in March, most likely in response to losing market share to FHA loans and also to keep their #1 position among MI companies. The changes are set to occur in March, and the new pricing scale will use borrowers' credit scores to set premium rates with lower prices for borrowers with the best credit history and higher premiums for those with worse scores. MGIC has lost money for ten straight quarters, so the company hopes this new grid will not only increase revenue but also shift their book of business toward borrowers with FICO's above 720. For all markets and origination sources, MGIC will require a minimum of 3 tradelines evaluated for 12 months - otherwise the loan must meet MGIC's nontraditional credit guidelines. For other pricing and criteria, go HERE.

Speaking of MI companies, Radian said its fourth-quarter loss narrowed to $1.12 a share, better than the $1.69-a-share loss predicted by some, and the firm said it expects to have "excess liquidity" through 2012. Radian and others are seeing lower delinquencies with the newer product, as one would expect given tighter guidelines and less housing price depreciation.

With slower volumes, originators seem to be focused more on reducing profit margins than in increasing warehouse capacity. But it may be a good time to expand your lines, and one warehouse lender - ViewPoint Bank - is actively looking for new business outside of California. If you are interested write to or check them out at

Wells Fargo came out with some suggestions (not requirements) on collecting adequate income and employment documentation, and accurately evaluating it, in order to determine qualifying income that is stable and likely to continue. For example, an AUS cannot assess a transaction accurately without a full description of the borrower and their type of income. Therefore underwriters and processors should "seek an explanation of any decreases - as well as any sharp increases - in income, and include these details in your file; providing this type of rationalization in your file will assist investors in understanding the thought process used to determine qualifying income." Don't be afraid to request additional documentation, especially in this environment. For written explanations of income calculations, required by investors, if the calculation "departs from customary industry guidelines, underwriters should support their calculation with a strong and sound explanation" and use cash flow analysis worksheets from Fannie & Freddie. Lastly, for borrowers who have recently had their work hours reduced or been laid-off, Wells suggests looking "for any decrease in income, which could indicate a layoff or reduction in hours, and incorporate this information into your qualifying income calculation." And of course a VVOE is required no more than ten days prior to closing.

The S&P Case-Shiller US National Home Price Index, besides claiming the longest name for an economic release, showed a 2.5% decrease in the fourth quarter from a year earlier. This was much less of a decrease than in previous quarters, and only a slight decrease from the prior month. In addition, Consumer Confidence slipped dramatically in February, going back to April '09 levels. And if a consumer is not confident, don't look for them to rush out and buy that new 3-D television! In fact, concerns about the economy and the labor market pushed an "index of current conditions" to its lowest level in 27 years and helped push the stock markets down. So not only did the bond market have those two items to help it rally, but there is renewed thinking that Greece's fiscal crisis may spread to other nations, so there was some "safe haven" buying of U.S. government debt.

So the markets saw declining stocks, improving rates, still-slow (but improving) origination from mortgage companies, and a decent $44 billion 2-yr Treasury note auction. (This is the fifth consecutive month that the 2-yr sale has been $44 billion, and in the last month 2-yr yields have ranged from .72% up to .97% last Friday.) The Fed and money managers were in doing their usual buying. Generally speaking, continued global sovereign risk issues will continue to be a larger issue than, say, what last month's economic news was, and thus investors may very well return to buying debt issues by the United States. And when folks like Federal Reserve Bank of San Francisco President Janet Yellen say that the U.S. economy will operate below potential this year and next and still needs low interest rates to gain strength that helps interest rates.

Today we have New Home Sales, a 5-yr auction, and Ben Bernanke's testimony for the Federal Reserve's semi-annual monetary policy report to Congress. Last week the Fed raised the discount rate by 0.25 point to 0.75 percent, said the term of these direct loans to banks will revert to overnight next month from 28 days currently, and left Fed Funds unchanged at 0-.25%. There has been nothing to suggest an extension or expansion of the MBS purchase program, which ends March 31st, so it will be interesting to see what he says. Currently the 10-yr yield is at 3.70% and mortgage prices are flat.

Three blondes were all applying for the last available position on the Texas Highway Patrol.  The detective conducting the interview looked at the three of them and said, "So y'all want to be cops, huh?"

The blondes all nodded.

The detective got up, opened a file drawer, and pulled out a folder.  Sitting back down, he opened it, pulled out a picture, and said, "To be a detective, you have to be able to detect.  You must be able to notice things such as distinguishing features and oddities like scars and so forth."

So saying, he stuck the photo in the face of the first blonde and withdrew it after about two seconds, "Now," he said, "did you notice any distinguishing features about this man?"

The blonde immediately said, "Yes, I did.  He has only one eye!"

The detective shook his head and said, "Of course he has only one eye in this picture!  It's a profile of his face!  You're dismissed!"

The first blonde hung her head and walked out of the office.

The detective then turned to the second blonde, stuck the photo in her face for two seconds, pulled it back, and said, "What about you?  Notice anything unusual or outstanding about this man?"

"Yes! He only has one ear!"

The detective put his head in his hands and exclaimed, "Didn't you hear what I just told the other lady?  This is a profile of the man's face!  Of course you can only see one ear!  You're excused too!"

The second blonde sheepishly walked out of the office.

The detective turned his attention to the third and last blonde and said, "This is probably a waste of time, but..." He flashed the photo in her face for a couple of seconds and withdrew it, saying, "All right, did you notice anything distinguishing or unusual about this man?"

The blonde said, "I sure did.  This man wears contact lenses."

The detective frowned, took another look at the picture, and began looking at some of the papers in the folder.  He looked up at the blonde with a puzzled expression and said, "You're absolutely right!  His bio says he wears contacts!  How in the world could you tell that by looking at his picture?"

The blonde rolled her eyes and said, "Well, Hellooooooooooooo! With only one eye and one ear, he certainly can't wear glasses."