St. Patrick's Day is Sunday. St. Patrick introduced Christianity to Ireland in the fifth century, but the world's first St. Patrick's Day parade didn't occur until March 17, 1762, in New York City, featuring Irish soldiers serving in the English military. Congress, back when it could agree on things, proclaimed March as Irish-American Heritage Month in 1995. The Census Bureau tells us that there are about 35 million U.S. residents who claim Irish ancestry (with a median age of 39). This number was more than seven times the population of Ireland itself (5 million). Irish is the U.S.'s second most frequently reported ancestry, trailing only German. There were 150,990 Irish-born naturalized U.S. residents in 2011. The Irish are well educated, with 33.3% 25 or older, having a bachelor's degree or higher. In addition, 92.9 percent of Irish-Americans in this age group had at least a high school diploma. For the nation as a whole, the corresponding rates were 28.5 percent and 85.9 percent, respectively. Median income for households headed by an Irish-American was $57,319, higher than the $50,502 for all households. In addition, 7% of families of Irish ancestry were in poverty, lower than the rate of 12% for all Americans families. 69% of householders of Irish ancestry owned the home in which they live versus the national home ownership percentage of 65.

What is "Jumpstart GSE Reform"? It is a new bill that requires the government to keep its mitts off of gfees. Odds of passage are unknown.

Here's a question that comes up periodically. "We have some real estate companies near us that are advertising for loan officers as well. They state they can do both. From my understanding of the NMLS you can only do one, right? I know FHA has a rule that you cannot do both. Are they getting by just doing conventional? How do the regulators look at this?" As it turns out, the FHA's policy actually states that if you are "active in Real Estate, you are ineligible for the FHA program". I am not an attorney, or a RESPA expert, but it seems that we continue to see folks involved in a transaction say, "Oh, well if you are the Realtor on the deal, you just can't do the loan on that transaction, just give it to another loan officer." As best I can tell, that is not correct. FHA's commentary is that the real estate activity disqualifies you from originating all FHA loans until you become inactive. Taking it a step further, the FHA also addressed, "Can a manger be an active Realtor and supervise loan officers who have nothing to do with real estate?" by basically asking, "If you are ineligible to originate, how can you be qualified to supervise?" (Editor's note: that logic is somewhat flawed - look at all the LOs out there managed by people not licensed to originate.) But here is a list of similar, frequently asked questions.

"Since 1999, Titanium Solutions has provided In Person Outreach Services to the Mortgage Industry. We have helped Mortgage Servicers, Insurers and Investors reconnect with their borrowers, helping to preserve the dream of home ownership. Over the years we have engaged over thirty thousand professionals who have served our business well. We have reached out to hundreds of thousands of borrowers, assisting them with their financial situations...And while this service has delivered success to our clients and their borrowers, improving mortgage delinquency, declining foreclosures, and improved servicer processes have taken their toll on face-to face outreach volumes. As a result of declining volumes and marketplace changes, Titanium has suspended operations and is no longer accepting new business. We are grateful to our clients, HRC's and employees, who have supported Titanium over the past fourteen years."

Here is a note of clarification for some information in yesterday's commentary regarding the performance of loans originated by commission versus non-commission originators. The study focused on commercial loans. That study quoted ( was done on commercial loan officers and relates only to commercial lending where the LO is part of the scoring and decision making process. As one residential LO wrote, "Is there a residential origination model that allows the LO approval input?  If so I'd like to work there!  I am not familiar with any residential lender where the approval process is distinct and separate out of the hands of any commissioned loan officer.  Likely I suppose for the reasons shown in this study."

Switching topics, a) it is an agency world for most originators, and b) investor demand drives the bulk of the origination markets. What is influencing the price of Ginnie's, Fannie's, and Freddie's these days? Fortunately for originators, mortgages have tightened every day this week, meaning that their prices have done better than the corresponding Treasury securities. As one trader wrote, "Technicals have led the basis tighter as supply has been very light, especially Monday & Tuesday, with a slight uptick in locks Wednesday.  On the other side of the equation demand in MBS has been "ok", but when you add in the Fed purchases the demand has certainly been enough to outweigh the selling."

"Rob, my Secondary guy talks about 'specified pools' and how investors will pay up for certain loans? Is that true? And what if we're selling loans directly to Fannie and Freddie - do they pay up for certain loans also?" First, specified pools are bundles of loans with certain, specific characteristics. You can have 30-yr Freddie, Fannie, and Ginnie pools, or 15-yr pools of loans made up of the same agency loans. And yes, certain investors are looking for pools with certain traits, and will pay higher prices for them. The basic traits are whether or not the pool is filled with new production, loans of less than $175k, certain high LTV buckets, lower credit scores, certain states, high balance conforming and even 10 or 20 year maturities. If you're seeing a trend here you are correct: investors want loans to stay on their books longer, and anything that helps that will command a premium. Regarding whether or not Fannie or Freddie will pay 1-1.5 points more for a given loan because of loan amount or credit score - ask your secondary person, or your agency rep.

For FHA & VA loans, this week Ginnie Mae securities have performed extremely well and the Ginnie II/Fannie 3% swap has appreciated from (roughly) 1 point to 1.5 points. Why the price move of FHA/VA loans versus Fannie loans? Traders point to the following factors. First, approximately 30% of the Fed's agency MBS purchases are in GNMAs over the past 6-7 weeks. This percentage used to be close to 20-21% until the beginning of December but increased to above 30% levels since then. If this pace were to continue, the Fed should be a buyer of about $220-$240 billion GNMA MBS in 2013. Comparing this number with the current expected gross and issuances for GNMA MBS in 2013 of $370-$380 billion and $105 billion, respectively, shows us that the overall supply/demand situation is very positive for Ginnie securities.

Second, as this commentary mentioned last week, the agency MBS sector is looking attractively priced to Japanese investors following the recent rally in Japanese bonds, the spike in US Treasury yields, and the widening of MBS spreads. So GNMA securities, filled mostly with FHA & VA loans, should see very good demand from Japan (and overseas investors in general) starting in early April. And third, and we're delving into some technical issues here, the true float available in the GNMA MBS market is very limited and dollar rolls in this market could stay "special" for a long time. Suffice it to say, the demand for GNMA securities has grown relative to conventional (Fannie & Freddie) securities. Any hesitation is based on the thinking that although the GNMA market has grown rapidly over the past 5 years and the current outstanding balance of GNMA MBS market is about $1.25 trillion, liquidity issues continue to plague this sector.

The FHFA does not control HUD, and the Ginnie program, yet. So when analysts discuss "GSE reform", which is happening right under our noses, most of the talk focuses on Fannie & Freddie - but still includes GNMA. Recently the FHFA announced plans to spin-off duplicate Enterprise operations into one new company - perhaps providing a securitization template for Ginnie as well as non-agency mortgage-backed securities. There is also chatter of a "Risk Transfer Program," aka federally mandated legacy MBS sales. Fannie and Freddie will start selling legacy mortgage securities (now non-agency) this year with the FHFA putting a large $30 billion target for each. What this will do, of course, is move credit risk off the tax-payer balance sheet, and we'll see how the private money market reacts.

As mentioned in the commentary recently, on May 1 much of the industry will see a 2-3 basis point increase in Fannie gfees in what is expected to be a continued gradual increase in agency guarantee fees. This is a leveling of the playing field for private money. Gfees will continue to rise, and seller specific disparity will decline, as will any gfee disparity between Freddie and Fannie. Fannie and Freddie coupon swaps should start to level out if this is true.

That all being said, recently a research piece by Deutsche Bank suggested that, "Weak Freddie Mac security prices compared to Fannie Mae's despite QE and increasing share of liquidity may be proof of investor concern over agency's future." "Liquidity shortfall in Freddie TBAs compared to FN TBAs likely cause of price differences, even as latest QE has caused Freddie TBA volume, as a percentage of Fannie, to rise to 20% from 10%." The piece noted that Freddie 3% securities, considered current coupon, are trading about .5 in price below the fundamental value of its cash flows, and that Freddie often compensates originators for part of this shortfall via reduced g-fees. But Freddie may not be able to maintain g-fee pricing concession indefinitely, reducing agency's securitization share and future liquidity for its securities. The piece suggests that investors may begin to raise value they place in liquidity faster than Freddie can close the gap.

So what happens if one agency, like Freddie as suggested by the Deutsche Bank research piece, disappears? The implications could include legacy (existing) Freddie pools would lose liquidity, and therefore value, versus a corresponding gain in Fannie. The market would become simpler with only one set of underwriting and servicing guidelines. But would Fannie see a backlash as investors foresee this, and bid up Freddie securities and continue to support an alternative outlet for conventional loans in order to avoid a Fannie monopoly? It is interesting to think about, especially with recent trading volumes favoring Fannie by a 10:1 ratio. Most believe that the FHFA will eventually meld the two.

As mentioned above, residential MBS are outperforming Treasuries, especially with sales volumes, reflective of daily lock volumes, staying under the average for the last 30 days. Of course, when volumes drop, companies cut margins and originator compensation levels to boost production and "continue to grease the machine." Yesterday we had a smattering of economic news, but not enough to move rates out of the recent range: the 10-yr T-note closed at a yield of 2.03% and MBS prices improved slightly.

We've had more news out this morning. Inflation has not been much of a problem since the 1980's. At some point it will be again, but not right now. The Consumer Price Index for February, expected to increase to +0.5%, came out at +0.7%, ex-food and energy +.2%, but year-over-year only up 2%. The minor number of Empire State Manufacturing for March came out about as expected at "9.24." Ahead of us we have the Industrial Production and Capacity Utilization duo, expected +0.4 percent and 79.3% respectively, and the preliminary March Consumer Sentiment reading. In the early going, the 10-yr is nearly unchanged at 2.04% as are MBS prices.

In a convent in Ireland, the 98-year-old Mother Superior lay dying. The nuns gathered around her bed trying to make her last journey comfortable. They tried giving her warm milk to drink but she refused it.
One of the nuns took the glass back to the kitchen. Then, remembering a bottle of Irish whiskey that had been received as a gift the previous Christmas, she opened it and poured a generous amount into the warm milk.
Back at Mother Superior's bed, they held the glass to her lips. The frail nun drank a little, then a little more and before they knew it, she had finished the whole glass down to the last drop.
As her eyes brightened, the nuns thought it would be a good opportunity to have one last talk with their spiritual leader. "Mother," the nuns asked earnestly, "Please give us some of your wisdom before you leave us."
She raised herself up in bed on one elbow, looked at them and said, "Don't sell that cow."