Congratulations to MF Global Inc. and SG Americas Securities, who have been added to the list of primary dealers. Others on the list include DLJ, Smith Barney, Bear Stearns, Drexel Burnham... oh, wait a minute. I'm showing my age. You're better off checking the Primary Dealer List.

Yesterday I was speaking to a regional production manager for a large investor about business conditions for mortgage brokers and bankers. He summed it up by saying, "'Hope is not a good business plan."

But there is some hope out there. The likelihood of investors buying MBS's, especially non-agency securities, is pretty slim without some kind of analysis & grading, in the past provided by the rating agencies. Being able to grade non-agency products is viewed as a critical step to restoring that market. "Fitch Ratings unveiled a new model to determine potential losses from securities backed by US home mortgages. The agency uses a new home price model to help predict which borrowers will end up owing more than their home's value." FULL STORY

Many well remember the influence had by the rating agencies, given their sad predictive performance from 2005-2008. Nonetheless, the agencies do exist, and produce interesting information. Moody's projects some markets will have to wait decades for home prices to return to pre-recession levels. In order, the 10 worst are

Naples, FL and Salinas, CA which will take until 2038 to recover. They are followed by Detroit, MI; Hanford, CA; Punta Gorda, FL; Palm Bay, FL; North Port, FL; Phoenix, AZ; Stockton, CA; and Modesto, CA. The best areas include Pittsburgh, PA; Syracuse, NY; Rochester, NY; Clarksville, TN and Spokane, WA, which are expected to return to peak levels in 3 years. The question is, in 2005, did Moody's predict what values would do in the following 5 years?

Yes, appraisals are still an issue out there. Many of you have asked for documentation regarding AVMs and compliance to the new FFIEC (Federal Financial Institutions Examination Council) regulations. The latest news that I have heard is that MDA Lending Solutions and DataQuick's appraisal products and "Non-Appraisal Evaluations" meet the new interagency guidelines issued by the FFIEC for valuation standards. One of the primary changes affecting lenders is the requirement that all non-appraisal eligible loans must be supported by evaluations that include data or photos verifying the condition of the specific property. The MDA/DataQuick product supports this in its AVM and AVM-Assisted Desktop solutions. For more information, because I can't do it justice, contact your existing MDA Lending or DataQuick Account Executive or Wendy Barnett at for more information. And no, this was not a paid announcement.

As was mentioned yesterday, ARM business is on the rise. Buried in the MBA's weekly survey yesterday was a note: applications for adjustable rate mortgages posted a weekly jump of +17.8%.

Chase has been busy. It announced plans to add 25 new Chase Homeownership Centers in 19 states this year, which would bring the total number of Chase Homeownership Centers to 76 nationwide. Per Chase's press release, "since 2009, Chase has met with 120,000 customers at its 51 Chase Homeownership Centers...This year, Chase will open centers for the first time in 12 states: CT, IN, KY, LA, MD, MA, MN, MO, NC, OR, UT, and WI. Given the weather, maybe they'll wait until the spring for some of those states.

Genworth Financial reported loss of $161 million, for the fourth quarter, apparently due to boosting reserves for bad mortgages by $228 million. The company paid $268 million in claims from its mortgage operations during the quarter.

Winston Churchill said, "The Americans will always do the right thing...after they have exhausted all the alternatives." An article recently by Kate Berry in American Banker points out that most banks are expected to switch to a flat compensation model for loan officers and will have to put more management controls in place if they pay incentives based on the volume of loans produced. The controls would be necessary to ensure that such awards don't create a perverse incentive to make risky loans.  "Banks also are expected to revise branch managers' compensation, because they can no longer share in the branch profits generated by mortgages.  Meanwhile, mortgage banks see an opportunity to poach high-producing loan officers or add brokers as affiliates with promises to find ways to preserve their income. But loan officers that work for banks are in a bind, since they are exempt from state licensing requirements in working for a traditional bank and would have to become licensed in individual states to join a mortgage bank.  The mortgage banks likely will tie compensation to the volume of loans produced, a flat fee per loan or even a combination of both."

On to Part VIII of compensation Q&A - remember that company's individual policies may differ from these answers some extent. The questions were posed by the MBA to Federal regulators, and there is still a lot of interpretation. Many company's policies will vary as long as there is no ability or an originator to steer the consumer into a less favorable product.

Q27. Should a mortgage broker evidence its compliance with the safe harbor provisions by
providing a written disclosure to the consumer specifying the three loan choices available and that also would require the consumer to specify which loan he or she chose and sign the form?
A. Fed Response - The Board is not compliance counsel and will not advise on how best to comply.

Q28. It is practically impossible for a lender to know whether a broker has in fact complied with the anti-steering provision. Does the Board regard creditors as liable for an originator's violation of the anti-steering provisions?
A. Fed Response - No. A creditor is not liable for violation of 226.36 (e)(1). That section applies to originators. The section prohibits an originator, particularly a mortgage broker or mortgage broker loan originator, from directing or steering a consumer to consummate a transaction based on the fact that the loan originator would greater compensation for that transaction as compared to other transactions, unless the transaction is in the consumer's interest. By its terms, the section does not apply to creditors and make them liable for originator/mortgage broker steering.

Q29. May a creditor charge fees to a loan originator by deducting the fees from the compensation due the loan originator when the loan originator fails to follow the creditor's
policy and, as a result, the creditor is not able to impose fees on the consumer under RESPA, which it would otherwise impose?
A. Fed Response - No. The Board views this as a variation in pricing or a concession akin to an underage that would be impermissible. However, the creditor can consider the error in resetting compensation to the creditor going forward assuming such reset considers a reasonable period of time.

Mortgage Services III recently sent out six pages of underwriting, policy, and price adjustments to its clients. Six pages is too much to reproduce here, but the changes centered on 4506-T and Tax Transcripts Reminders, MSI's "amortization policy" for purchased loans, MSI's required Seller Warranties regarding "environmental issues and other hazards," MSI guidelines regarding Reserve Requirements, a revision to the language "HVCC" to Appraisal Independence Requirements (AIR) per Fannie Mae and Freddie Mac, and corrects/clarifies the MSI Escrow Waiver Policy and MI for MSI-Underwritten loans.

Mountain West released a 15-page list, also too long to repeat here, of FHA and VA underwriting overlays. These ranged from credit scores, appraisal procedures, condominiums, all the way to units and VA rate reductions. As usual, it is advised for clients to read all 15 pages directly.

NYCB recently let its brokers know that for any loan where the property being purchased is a short sale transaction, NYCB Mortgage requires written documentation on company letterhead from the current lien holder(s), approving the short sale and indicating the amount they will accept for the short sale, and several other requirements. NYCB Mortgage will not approve new first mortgage financing for short sales that involve any "off the HUD-1" payments to a subordinated lien holder by the buyer, seller or a third party. There are other restrictions. The firm reminded clients that for jumbo fixed rate loans, the program is available with a 60 day lock term only. "Jumbo loans are not eligible for eSign closings and escrow accounts required for all jumbo loans (excluding properties in California and Washington, D.C. as restricted by state law. (The company also told its customers that to avoid confusion related to the registration date or state-specific rules, Blanket Closing Protection Letters issued in both company names are highly recommended to avoid any possible delays at closing: AmTrust Bank, a Division of New York Community Bank NYCB Mortgage Company, LLC.) It is always best to look at the investor's update.

I have yet to hear anyone give a convincing argument about why rates should go down much or up much from here. One trader from Jefferies wrote, "Given that we have spent so much time in and around these dollar prices market participants are where they need to be for current rate levels and will need a catalyst before significantly altering portfolio allocations.  That being said, we did see two-way activity from money managers and insurance companies along with hedge fund selling of discounts both outright and versus treasuries/swaps.  Up-in-coupon was performing nicely early in the session but ultimately underperformed on profit taking as well as mortgage bankers moving their hedges from 4s to 4.5s and 5s."

Yesterday was not the best day for the fixed-income markets. They started off pretty well, in spite of the strong ADP number, and the yield on the 10-yr was sitting around 3.40% - comfortably inside the range it has been in for a few months. But by the end of the day the 10-yr had touched 3.50%, and MBS prices were worse by .125-.250, blamed on another better-than-expected economic report (ADP) and worries about inflation related to higher commodity prices.

(Since last Friday's close, 10-year Treasuries have dropped 1.25 in price with the yield increasing about .16 %.)

The graveside service just barely finished, when there was massive clap of thunder, followed by a tremendous bolt of lightning, accompanied by even more thunder rumbling in the distance...
The little old man looked at the pastor and calmly said, 'Well, she's there.'