One critic likened rating agencies being able to assign rating to having Lindsay Lohan as a guidance counselor. The latest headline out from the commercial securitization market: "Moody's Gives Aaa Grades to Riskier CMBS on Loan Diversity".

In the story from Bloomberg, "Moody's Investors Service plans to grant top ratings to U.S. commercial-mortgage bonds with less investor protection and potentially riskier underlying loans than in the market's previous sale." JPMorgan Chase is giving the bond a 15% credit enhancement (the amount of protection against the underlying loans' losses, such as by having junior-ranked notes lose principal first) compared to over 22% on the last deal done. The LTV's are higher and tenant income less on the new deal, but the bonds will be linked to 36 different loans, compared with only six in an April sale by Royal Bank of Scotland Plc. The greater diversity is the main reason Moody's is allowing the lower credit enhancement. Critics are quick to point out that it seems that nothing has changed with the rating agencies: they are still being paid by the issuer, and don't seem to realize that although diversity is good, nationwide real estate trends can impact the risk of a diversified portfolio of loans.

What does another rating agency - Standard & Poor's - think about the housing market and specifically apartment REIT's? "While we anticipate gradual, yet choppy improvement in the single-family for-sale market, recent market data suggest that operating fundamentals among public REITs have bottomed and that this area may turn the corner quicker than we expected. The company believes rated apartment REITs will continue to recover and outperform national and local market trends because they typically own above-average quality, well-located, and professionally managed communities. They've also been able to maintain their credit profiles during the housing downturn, albeit with some help from Fannie Mae and Freddie Mac." Certain trends are helping apartments: consumer confidence is improving, homeownership is down, occupancy rates are high, and there is a historically low level of new supply in the market.

There are definitely signs of the ice cracking in non-agency lending.

For example, folks in the biz know that Quicken Loans is the largest online mortgage lender. But in recent weeks Quicken, who is also the 4th largest FHA lender, has moved into "private-label" originations.

PHH, according to an article in American Banker, is the largest private-label originator (and which handles originating mortgages for Charles Schwab and Merrill Lynch) expanded into correspondent and wholesale lending. An executive with PHH stated that most clients prohibit PHH from selling servicing, especially to one of the competitors.

From Washington DC: the House is taking up HR 5072, the FHA Reform Act. While it seems that mortgage industry organizations are in favor of the Act, which provides the FHA with resources to manage risk, there are a few amendments that are raising some eyebrows. The first is the Garrett Amendment, which raises the minimum FHA down payment to 5%. The second is the Price Amendment that would limit FHA's market share to 10% of the housing finance market. Third, the Turner Amendment would reduce FHA's loan limits, which were "temporarily" increased in 2008. Stay tuned... or call your Congressman ASAP.

The concern about a jobless recovery, and the growing government deficit, brings up an interesting issue. What states have the highest percentage of "public employees" - those working for government? Nebraska, Kansas, Idaho, Nebraska, New York, West Virginia, and North Dakota are all in the 16% range. Mississippi is nearly 19%, New Mexico is about 20%, and Alaska is nearly at 21%. And the residents of Wyoming, with one of the lowest overall state populations, can chant "We're #1" with 22% of them working for the government. Tying this in with mortgage banking, HUD & FHA, and other government agencies, have job openings online at

Yesterday I received several well thought out e-mails from folks (more educated than I in the ways of MI and FHA) regarding my mortgage insurance update. They were on both sides of the fence.  As usual, I have their comments to share...

"Your comment about private MI products allowing far more flexible underwriting processes than the FHA, including delegated and contract underwriting, is far from true.  It is actually the opposite: MI companies have far stricter credit score requirements (720 and up) than FHA (620).  Furthermore, MI companies have a strict 41% DTI versus FHA with a DU approval up to 56% DTI!  I rarely have a borrower putting less than 20% down who has scores over 720 and DTI under 41.  It's a no-brainer that PMI is cheaper than FHA MIP, but it doesn't matter if the loan doesn't meet their strict criteria."

And another one: "It is an extremely dangerous statement that 'FHA is touted as the new subprime' - FHA has taken the stance over and over again that FHA is not the new subprime. I think publishing this statement is very irresponsible. FHA has reduced its LTV to 90% when the score is below 500 (true sub-prime) to reduce the risk that was taken with the high LTV and low score borrowers of 2005 -2008. And in underwriting, in many instances FHA offers much more flexibility. For example, DE is a delegated process, 100% can be gift for down payment closing costs and prepaids at 96.50% LTV, non-owner occupied borrowers do not require a maximum occupant ratio, cash out to 85% (including 2-4 units) and on and on ~  including delegated and contract underwriting."

With rates being so wonderful, but the pool of qualified borrowers and properties declining, investors are reminding everyone of their early pay-off policies. For example, Wells Fargo tells brokers that for closed loans they can "refinance a loan within 6 months (180 days), but you are limited to the net rebate caps...There is no waiting time between last closing date and new refinance submission."

Wells also reiterates its renegotiation policy: "It may be possible to exercise a ONE-TIME*option to renegotiate the terms of the rate lock in order to improve the rate offered to the borrower. In certain situations, it may be possible to relock a loan on the current market price minus a .500% fee at a lower rate. Renegotiations must provide an improvement to the borrower in rate or reduce discount charged by Wells Fargo." Often investors give more favorable relock flexibility to their top tier brokers and clients.

Two items nudged markets yesterday. The first was the release of the Fed's Beige Book, which comes out eight times a year and presents information and data on current economic conditions from the 12 Fed districts. In what shouldn't be a surprise to anyone in the residential or commercial loan business, loan quality is improving since credit standards have tightened, but the housing market still must deal with its "shadow inventory" of short sales and REO properties.

The second was a series of statements by Federal Reserve Chairman Ben Bernanke. There wasn't anything too exciting that came out of the testimony for the House Budget Committee, but it still grabbed some headlines. Regarding the situation in Europe, "The impact of the crisis on U.S. growth is likely to be modest if financial markets continue to stabilize." "The U.S. recovery is being restrained by the housing and commercial real-estate markets." And he re-warned us about a lack of a long-term deficit-reduction plan. But don't look for any change in overnight Fed Funds (0-.25%) in the near future, especially at the June 22 FOMC meeting - things are not that rosy.

Yesterday mortgage traders saw a pick-up in selling from mortgage bankers - maybe as much as $2 billion. So either locks picked up, or un-hedged loans were being sold. And it was a nice rally in MBS's to sell into as the stock market sank yet again. The old adage "higher should read wider" isn't holding, meaning that even with Treasury rates dropping, mortgage rates are dropping right along with them, in spite of prepayment fears. (Maybe the prepayment fears have abated?) In general, locks and supply are down, the appetite for mortgages (especially with this credit quality) is good, so supply & demand laws dictate good mortgage prices. Recently we seem to be in a pattern: the stock market starts off ok, but then fades in the last hour or two of trading. Bonds sit around for some of the day, but then seem to magically improve. Yesterday all kinds of investors sent out price improvements, and current coupon products went from being worse by about .250 to being better by .125.

This morning Initial Jobless Claims came in as expected, down 3,000 to 456,000, and the 4-week moving average of claims was up 2,500. Of course, looking back to last week's employment data, one of the most disappointing aspects was the stall in non-government hiring. The government may be putting out globs of stimulus money, but really, where is it being spent? 

(As I mentioned yesterday, there is no commentary planned for tomorrow. Things should resume Monday, and I apologize for the break.)

Weather, like interest rates, is something everyone talks about but no one can do anything about. Weather trivia?

The longest rain-free period in the United States was 767 days (2 years, 37 days) in Bagdad, California, in 1912.

A world record rainfall occurred at Holt, MO on June 22, 1947 when it rained 12 inches in just 42 minutes. On July 4th, 1956 in Unionville, MD 1.23 inches of rain fell in 1 minute.

The average (not median) yearly temperature of New York, St. Louis and San Francisco differs by only 1.8F degrees.

Which is the least rainy city - Seattle, New York City or Miami?  Although on average Seattle is cloudy 227 days a year, it only receives 39 inches of rain per year, compared to New York City (42 inches) and Miami (60 inches).

Is Chicago really "The Windy City?"  Of the 262 major weather reporting stations in the United States, 27% average higher annual wind speeds than Chicago (which averages 10.3 mph). For example, New York City's annual wind speed is 12.2 mph.

Cheyenne, Wyoming averages the most hail storms in the United States per year with 10 and Tulsa, Oklahoma experiences the most severe hail storms annually.

The United States leads the world with an average of over 1,000 reported tornadoes each year. Kansas has received the most F5 tornadoes since 1880. Oklahoma encounters the highest number of significant and violent tornadoes per square mile. Of the total reported tornadoes in the United States each year, 20 can be expected to be F5 tornadoes with winds over 200 mph and nearly complete destruction.