Who says numbers aren't fun? A top muni bond analyst at Wells Fargo sent THIS to me. Numbers are fun!

Sometimes time drags, and sometimes it flies. I came to this brilliant observation yesterday while waiting in the California DMV, waiting for my 15 year old daughter to obtain her driver's permit. Time flies doesn't it? On the other hand, in the mortgage business, it seems like a lifetime ago when companies were offering stated/stated 90% neg AM loans. Can anyone seriously push to have those days come back?

That being said, ING notified its brokers that it raised LTV's and CLTV's, especially on Jumbo adjustable rate mortgages. US Bank's wholesale division is pushing its 1/1, 3/1, 5/1, 7/1, 10/1 ARM programs with IO options, cash out, up to $1.5 million. EverBank is "dipping their toe" back into the Jumbo market but with elevated credit guidelines & asset requirements." For example, its "Preferred ARM" products were tweaked to only include 5/1 & 7/1 Fully Amortizing ARM or 5/1 & 7/1 10 year Interest Only ARM's, with a maximum LTV/CLTV remaining at 80%, maximum loan amount reduced to $1.5 million. The pricing is rumored to be good, but on single family detached & attached only, including FNMA-eligible Condominiums & PUDs with a minimum FICO of 740 and a minimum reserve requirement of 12 months PITIA .

Wells' correspondent clients were notified that after April 1st Wells, in response to HOEPA, requires specific interest rate data for higher-priced mortgage loans (HPML) to be reported to HMDA and the Agencies. "In our ongoing effort to ensure regulatory compliance, Wells Fargo Funding will begin requiring and reviewing for documentation of the borrower interest rate set date." Clients need to include the Borrower Interest Rate Set Date Form, a screen-print of a populated FFIEC rate spread calculator, or a lock agreement with the borrower. Starting now, however, Wells Fargo Funding will now accept signed overnight delivery and courier receipts as proof of receipt of the Truth-in-Lending document by the borrower. There are, of course, policies and procedures to follow - check the actual newsflash for details.

Wells' wholesale shifted its PUD review requirements in order to meet Agency requirements. "Additional reviews are necessary for Planned Unit Developments (PUDs) with unit-owner responsibility for amenities (specifically golf courses) that are funded by the association" for conforming and non-conforming conventional loans. After March 15th, "If the PUD project is an ineligible project, or if the PUD is associated with a golf course, the Homeowner's Association budget must be reviewed. If the HOA budget makes a contribution of more than 10% of the HOA dues for the maintenance of the golf course, the loan will be reviewed."

After March 29th, MGIC will have changed underwriting guidelines, restricted market changes, and new premium plans "for loans originated for and sold to MGIC-Approved State and Local HFAs." And MGIC's "HFA Affordability+" rates will be replaced with MGIC's new national premium plans effective Saturday, May 1, 2010, subject to regulatory approval. But getting back to the changes after the 29th, MGIC has instituted a series of credit changes (minimum of 3 tradelines evaluated for 12 months, loans without valid credit scores must meet MGIC's Nontraditional Credit guidelines, and Nontraditional Credit maximum 90% LTV), adjusted its DTI and LTV's for certain FICO scores. Changes, too numerous to list here, also involve minimum borrower contributions, subordinate financing, and restricted market states.

In California (state motto: "By age 30, our women have more plastic than your Honda) last year 47% of all homebuyers were first-time homebuyers, up from 35.9% in 2008. And REO and short sales made up half of the assets sold in the state, up from 36% in 2008, according to the California Association of Realtors. Of those surveyed by CAR, 40% of the homebuyers said they would not have purchased a home without the first time buyer tax credit. Lastly, the higher FHA loan amounts ($729,750 for single family) helped: in 2009 FHA loans accounted for 32% of the market compared to 18.9% in 2008, according to CAR.

HUD issued a new Mortgagee Letter that addressed the validity period for appraisals for HUD's Real Estate Owned (REO) properties and also announced the conditions for which a second appraisal may be ordered for purchasers of REO properties utilizing FHA financing. After 4/1 all appraisals utilized to establish the listing price on an REO property owned by HUD will be valid for a period of 120 days from the effective date of the appraisal instead of the current 6 months. And effective immediately, with the exception of 203(k) as-repaired appraisals, "when a buyer is using FHA financing to purchase a HUD REO property, the appraisal that was utilized in determining the list price will remain effective for purposes of obtaining the FHA-insured mortgage. A second appraisal may not be ordered simply to support a purchase price that is higher than the value on the current appraisal...only if there are material deficiencies with the current appraisal or the current appraisal will not be valid on the date of contract ratification."

Mortgage analysts and traders often talk about "negative convexity." What is that? It is critical to remember that, for fixed income instruments, when rates go up, prices go down. (In a 5% environment, a $100 bond pays $5 per year. But if rates go up to 10%, investors want $10 per year, so the price of the original bond has to go down so that the $5 per year it pays will equal 10% of the purchase price for an investor.) Conversely, if rates go down, prices go up - simple!

But if the bond is "callable", meaning that the issuer can pay it off, like a mortgage, as interest rates fall, the incentive for the issuer to call the bond at par increases; therefore, its price will not rise as quickly as the price of a non-callable bond. In fact, the price of a callable bond (like a mortgage) might actually drop as the likelihood that the bond will be called increases. This is why the shape of a callable bond's curve of price with respect to yield is concave, or "negatively convex." A very simple way to explain it is that mortgages pay off when rates drop, just when servicers and investors don't want them to pay off, so mortgage prices don't improve as much in a rally as, say, a Treasury bond!

There is definitely an argument for higher rates over the next few years. Although some analysts believe that the economy is going to head back down, everything I have seen suggests that everyone believes things are better than they were. If the economy is indeed beginning to do better and expand, in the past five-year Treasury rates have tracked fairly closely to nominal growth (growth not adjusted for inflation), and in fact nominal growth and long-term rates tend to converge. So if history is a guide, the 10-year Treasury yield will likely double from the lows of the recession to the end of 2011, due at least in part to much improved economic growth. Of course the good news in this scenario is that more borrowers will actually have jobs, and homes will be appreciating.

But for now, mortgage rates and prices are darn good. In fact, 4.5% securities are above a price of 101 (1 point premium), and if you add the value of servicing onto these 4.75-5.125% 30-yr loans, agents should have a very nice rebate. Origination, while still slow, has picked up to $1.5-2 billion a day, and there is still demand for the product. And there is certainly demand for the Treasury securities - yesterday's $21 billion 10-yr sale went well. In fact, the bid-to-cover ratio set a record of 3.45:1. Today we have $13 billion of 30-yr bonds to sell, a "re-opening" of the last batch. We have already had the weekly jobless claims and the Trade Balance figures (actually somewhat smaller than expected). Jobless Claims came in at 462,000, down from a revised 468k, but continuing claims were up slightly. The impact on the market of these numbers was nil: the new 10-yr is yielding 3.74% and mortgage prices are worse by about .125.

An Irish priest is driving down to New York and gets stopped for speeding in Connecticut. The state trooper smells alcohol on the priest's breath and then sees an empty wine bottle on the floor of the car.

He says, "Sir, have you been drinking?"

"Just water," says the priest.

The trooper says, "Then why do I smell wine?"

The priest looks at the bottle, smells it, and says, "Good Lord! He's done it again!"