This plan is simple, like my brother-in-law Tony. But unlike Tony, this plan just might work.

When an originator locks a loan with an investor on a best-efforts basis, and the loan funds, they deliver it (one assumes). If the loan doesn't close, they have nothing to deliver, and there is no penalty (within certain limits). When an originator locks a loan with an investor on a mandatory basis, and it funds, the originator delivers it, and when it doesn't fund, the originator is "on the hook" to the investor and owes a penalty. Of course, both parties attempt to negotiate penalties, trying to stay away from talk of "broken thumbs" and "first born male children", but those are the basics.

When a company who hedges their origination pipeline by selling mortgage-backed securities is ready to "reduce coverage", they buy back their MBS hedge (pair off) and either owe the dealer money, or visa versa, and this money changes hands on settlement day. But what if they, uh, just don't? The Treasury Market Practices Group, which the Federal Reserve Bank of New York helped form in 2007 to offer advice on debt markets, proposed "fail" charges similar to those for U.S. government bonds. Dealers and investors that fail to complete trades in agency debt and mortgage bonds may pay as much as 3% in penalties.

Interestingly, near-0% overnight interest rates has encouraged failures by reducing the cost of uncompleted trades, while at the same time the Fed's purchase of $1.25 trillion of mortgage bonds through March 2010 made it more difficult to find bonds to settle contracts in a timely manner. The press released noted, "Uncompleted trades in agency mortgage securities remain elevated after rising to a record of almost $2.4 trillion during a week in November, according to Fed data. Failures to receive or deliver the securities, which totaled $1.5 trillion in the week ended April 20, averaged about $330 billion weekly over the past 10 years." Not so fast, say some investors including PIMCO, who say 3% will reduce intentional fails but sharply reduce liquidity and incent accounts to attempt short squeezes - 1% is better. Do I hear 2%? Public comments are due by 6/10, with any changes expected in 2012. At this point dealers are not expecting much impact, as some kind of charge is anticipated by the market. CHART OF FAILED TRADES

CitiMortgage (#4 lender in the 4th quarter with a 4% market share) announced it is laying off 400 employees who work in its loan sales and fulfillment operations in five cities (O'Fallon, Dallas, San Antonio, Ann Arbor, Mich., and Las Vegas) due to declining demand for mortgages. CitiLayoffs

The bankruptcy trustee for Thornburg Mortgage has sued Goldman Sachs, Barclays and other big banks for a combined $2.2 billion, blaming them for its bankruptcy. Thornburg 

You can only beat up on someone for so long before they (hopefully) put up some resistance. The financial services industry is voicing concerns as it works to comply with the Dodd-Frank Act, saying more needs to be done to ease the uncertainty hindering financial institutions and the marketplace. The Financial Stability Oversight Council, led by Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke, is overseeing the process. "We thought that when you set up this Financial Stability Oversight Council that you, as Treasury secretary, were going, essentially, to be the air-traffic controller, and you are not doing that job," said Tim Ryan, president and CEO of SIFMA. But it appears that getting the Dodd-Frank Act approved by Congress was the easy part. Now, regulators are muddling through the process of writing the rules mandated by the law. The law firm Davis Polk & Wardwell estimates that roughly 62% of the hundreds of rules have yet to be proposed. Regulators continue to miss deadlines established by Congress. "Dodd-Frank is Sarbanes-Oxley on steroids. It's an exponentially greater volume of regulation," said Margaret Tahyar, a partner at Davis Polk. The "sheer number of rules still in the pipeline makes it almost inevitable agencies will miss an increasing number of deadlines over the next year."

Yesterday I discussed some Mortgagee Letters, and received some input regarding my HUD bulletin quotes. "Actually the new ML DELETES the max 1% Origination fee on 203k's, and keeps the 'supplemental origination fee' of 1.5%.  The importance of this is it now allows for 'borrower paid' 203k's." And, "The new ML 2011-18 does eliminate the 1% origination fee cap for 203(k) mortgages.  It amends guidance provided in Mortgagee Letter (ML) 2009-53 which already removed the one percent origination fee cap for standard FHA insurance programs, except for the 203(k) Rehabilitation Mortgage Insurance and Home Equity Conversion Mortgage programs.  This ML removes the one percent origination fee cap from the 203(k) Rehabilitation Mortgage Insurance Program, and clarifies that the supplemental origination fee permitted under this program is not affected.  The established limits for the Home Equity Conversion Mortgage program remain unchanged."

Barclays Capital recently noted that Non-agency prepayment rates continue to fall as the rate incentive dies out, and credit availability remains very restricted. That said, refinancing opportunities beyond GSE loans for high quality borrowers have expanded over the past several quarters. Barclays finds, what lenders already have seen, that an increasing number of borrowers are putting additional cash into their existing mortgage to refinance into a new one. This explains higher prepayment rates from higher LTV loans than could be expected based on GSE/FHA guidelines. "We use updated consumer financial information from Equifax to incorporate the latest credit scores, true occupancy, and adjusted CLTV into eligibility estimates. We define a three-tier refi eligibility metric to rate pools: refiable (effective GSE and FHA eligible and high-quality private lending eligible with positive rate incentive), non-refiable (high CLTV, dirty payment history or modified) and borderline (everything in between). Seasoned jumbo fixed rates have the highest proportion of refi-eligible loans and the lowest proportion of ineligible, whereas the numbers are reversed for subprime. We expect the top refi-eligible tier to continue to have credit available across home price and regulatory scenarios; the bottom tier will find it hard to refinance even in much improved economic scenarios. Middle tier borrowers will drive all of the prepayment variations in coming years. Our base expectation is for a gradual improvement in credit availability that improves non-agency prepayments in the coming years."

Anyone looking for some FHA training and lives near (or wants a vacation to) San Diego should check out the HUD FHA class May 12. "FHA will conduct a 1-day class on recent changes, highlights of underwriting the FHA appraisal, recap of underwriting & documentation requirements. This training is for Underwriters, Processors, & Loan Officers. Registration required: HUDTraining

CitiMortgage recently gave its brokers tips on how to improve the quality of broker-submitted tax transcript requests. "We would like to share with you the most common submissions errors and the best practices to reduce or eliminate these errors:  1. Submitting a tax transcript request when the borrower is not self employed or receiving rental income.  Tax transcripts are NOT required for salaried borrowers.  You should only submit requests for tax transcripts to Rapid Reporting for self employed borrowers, or for borrowers using rental income to qualify for the mortgage. 2. Registration date of the loan was prior to the March 9, 2011 process change.  Loans registered prior to March 9 are NOT required to have tax transcript requests submitted by the broker to Rapid Reporting.  Tax transcripts for these loans will be requested by CitiMortgage under the process in effect at the time of registration. 3. Entering the incorrect loan number on the submission request.  The correct CitiMortgage loan number needs to be entered on the request in order to match up the tax transcript results with the correct loan. 4. Submitting duplicate or triplicate orders for tax transcripts on the same loan.   Ensure that only one request is submitted for each loan requiring tax transcripts. 5. The borrowers are married, and tax transcripts are requested for each of the spouses.  Only one tax transcript is necessary with married borrowers, as tax returns are typically filed jointly. 6. Information on the 4506-T form is incomplete, inconsistent, or illegible. Missing, incomplete, or illegible information such as borrower name(s), SSN(s) signature(s), dates(s), tax return years, unchecked boxes, or conflicting data of any kind make it difficult, if not impossible to process the request and slows down the underwriting process.  Ensure that all information is complete, accurate and legible prior to submission for timely processing of the tax transcript request.   The attached document provides helpful tips on how to correctly complete the 4506-T form."

Citi also recently released clarifications and changes to brokers on credit policy updates. Its memo addressed topics such as principal curtailments due to 'at close premium rate credits,' using bonus and OT income to qualify, co-ops, suspending partial term buy-downs, HARP being extended, Texas Section 50(A)(6) loans, liability insurance for co-ops, FHA Streamline Refi updates, minimum FICO requirements for MI, clarifications on revolving debt & non-permanent clients, and so forth.

U.S. Bank Home Mortgage Wholesale Division reminded its clients that it restructured its loan delivery and deficiency timelines for all conventional and government products. "USBHM will no longer offer the option of delivering a closed loan file ten days from disbursement.  Effective with loans locked on or after April 20th, 2011, the loan file must be delivered in purchasable form by the lock expiration date. This includes all mortgage documents and all collateral documents." Separately, "for certain programs, USBHMWD increased the LTV from 75% to 80% on $650,001-1,000,000 loan size for Purchase & R/T Refi and 70 to 75% in Declining Markets for a 1-2 Unit Primary."

Recently MGIC moved California from its Tier 2 ranking to Tier 1. California will be a Tier 1 market, including CBSAs that are currently classified as Tier 2 markets. MGIC also changed the classifications for CSBA's in Georgia, Illinois and New York-New Jersey. "For loans with both traditional and nontraditional credit with a primary* occupant-borrower who has at least 2 valid credit scores, the primary occupant-borrower's indicator score is the loan's indicator score and is used for underwriting and pricing. In all other cases, MGIC's nontraditional credit and pricing guidelines apply even if any co-borrowers have valid credit scores. MGIC will no longer require properties appraised as "subject to completion" to follow construction-permanent guidelines when they meet either purchase or rate/term refinance guidelines."

ClearPoint Funding brought out some changes to its guidelines for conventional and FHA guidelines. The bulletin mentions W2 requirements, tax transcripts, and so forth.


Rarely seen letters:

Dear Noah,

We could have sworn you said the ark wasn't leaving till 5.
Dear Icebergs,
Sorry to hear about the global warming. Karma's a b-tch.
The Titanic

Dear J.K. Rowling,
Your books are entirely unrealistic.. I mean, a ginger kid with two friends?

Dear America,
You produced Miley Cyrus. Bieber is your punishment.

Dear Yahoo,
I've never heard anyone say, "I don't know, let's Yahoo! it..." just saying...
Dear Windshield Wipers,
Can't touch this.
That Little Triangle

Dear Saturn,
I liked it, so I put a ring on it.

Dear jf;ldsfa/kvsmmklnn,
Please lknvfdmv.xvn.
Sincerely, Stevie Wonder

Dear Scissors,
I feel your one wants to run with me either.
Sincerely, Sarah Palin

Dear World of Warcraft,
Thank you for ensuring my son's virginity.
Sincerely, Parents Everywhere