There are some pretty creative folks out there, even in banking. Every once in a while someone will suggest a reward to residential borrowers for making their payment, instead of (what some would say) a reward for not making their payments.

In some news out yesterday, Chase announced an incentive that rewards small businesses for each new employee they hire this year. The bank will lower its interest rate on a new Chase Business Line of Credit by 0.5 percentage point for each new hire, up to three, for the life of the loan. It is not a huge amount, but nonetheless helps.

We're halfway done with 2010, and companies are wondering if the dire volume and profit predictions that started off 2010 are going to come true or not. I will opine here and say that given that mortgage employment is thought to be down about 50% from 2008, anyone still in the business should pat themselves on the shoulder. And any company making money and expanding should do the same.

U.S. mortgage-backed securities issuance jumped in the first six months of 2010 from the same period a year earlier. Thomson Reuters said U.S. mortgage-backed securities issuance totaled $217.6 billion in the first half of 2010, nearly double the $112.5 billion total in the same period a year earlier.

Bank of America was the top underwriter with a 26% market share. Barclays was #2 with about an 11% share, and Goldman Sachs was #3 with a 9.5% share. The survey does not monitor loan production, nor IO or principal-only securities, but instead looks at mortgage bonds backed by whole commercial and residential real estate loans as well as the mortgage-backed securities initially packaged by Fannie Mae, Freddie Mac and Ginnie Mae.

We've passed the June 30 deadline for extending the tax credit deadline, but the U.S. Congress has finally approved a bill to extend the closing deadline for homebuyers trying to take advantage of tax credits ($8k for first timers and $6,500 for primary residences). Homebuyers with contracts signed by April 30 who failed to go to closing by the June 30 deadline will now have until September 30 to complete their purchases, the President signs it. READ MORE

A rising tide raises all boats...According to the Mortgage Bankers Association, independent mortgage bankers and subsidiaries made an average profit of $1,135 on each loan they originated in 2009, compared to $305 per loan in 2008. Total loan production expenses dropped to $3,685 per loan from $4,717 per loan in 2008, and per loan income also dropped to $4,820 from $5,023 per loan in 2008. Sixty one (61) basis points is nothing to sneeze out, and certainly beat the 15 basis points from 2008. Per the MBA, the profit for mortgage subsidiaries for bank and thrifts averaged 79.5 basis points per loan, but only 54.9 basis points for independent mortgage companies. For pull through numbers and more stats: HERE IS THE STORY

The Financial Reform Bill passed the House, but will not be voted on by the Senate until mid-July. Afterward, one can expect that brokers and agents of mortgage banks won't be compensated based on any of the terms or conditions of a loan. Originators can be paid only by base salary or by percentage of the loan amount, or from a bonus if the employer chooses. Origination fees may be capped at 3%, and consumers will now decide to pay those fees all up front or have them built into the interest rate. Before, borrowers sometimes had to pay both upfront and the fees embedded into the interest rate. The president of the National Association of Mortgage Brokers said, "We are trying to get language added to that portion so that the consumer has a choice to make a combination of the two,"

A president of a mortgage company wrote, "The compensation a mortgage company derives is not a meaningful way to determine the best offer.  Only the rate and closing costs matter in making this determination.  Disclosing compensation only clouds the water by confusing the consumer and does not improve 'transparency', a word no doubt selected to cast suspicion for a cause.  The benefit of brokers is to find the least expensive source of funds which is determined by rate and closing costs.  If brokers improve value to the consumer while getting paid for the effort they spend in creating the added value, they both win.  When was the last time you were told the amount of gross income you paid for a can of peas, a gallon of gas, or a new car, and you were still able to determine the best price? The consumer does not need this and in fact without it, the process would be much less confusing and make it easier for the consumer to determine the best offer."

RealtyTrac told us that foreclosure sales currently account for 31% of all residential sales and have calculated that these homes sell at a 27% discount to the current market. (Uh, but doesn't the "current market" include these?) Over a quarter million homes sold in the first quarter had a default or auction notice or were seized by banks. Fortunately this number is down slightly from the last quarter of 2009. MND discusses the timing of bank REO sales and its relation to the housing recovery: HERE

GMAC Bank Correspondent Funding (GMACB) gave its clients an update on DU/LP switches. It is ok with GMAC if "a client runs initial AUS and receives a negative response and subsequently runs another/different AUS and receives a positive response, they must request an exception in order for GMACB to purchase the loan." Clients must follow GMAC's exception request process alerting us that multiple findings were run on a single loan, and GMACB will process and return a response to the client with a price adjustment of five (5) basis points (subject to change) for exception.  

GMAC also clarified its HomePath product for delegated and non-delegated correspondents. "Fannie Mae requires delivery of property data such as the number of bedrooms and year built on the HomePath product. Since the HomePath product does not mandate an appraisal, it will be necessary to print out the property information containing number of bedrooms and year built and rental income, if required, from Fannie Mae's HomePath website and must be in the file.  

Bank of America's correspondent clients were reminded that in California, new regulations under Assembly Bill 260 are effective today that impacts everyone except national banks. The bill establishes a new category of regulated loans called "Higher-Priced Mortgage Loans" (HPML), which has the same meaning as the federal Truth-in-Lending HPML designation. It prohibits the making of false, deceptive or misleading statements, from encouraging the borrower to default, and prohibits mortgage brokers from steering borrowers to higher riskier interest loans when they qualify for lower interest and less-expensive loans. "A mortgage broker who arranges a HPML that includes a prepayment penalty may not receive compensation, including a YSP that exceeds the compensation the mortgage broker would otherwise receive for arranging a HPML without a prepayment penalty."

BofA also reminded its clients doing business in Illinois that Senate Bill 1894 becomes effective today. "Illinois' Predatory Lending Database will expand to include Kane, Peoria and Will counties. The Predatory Lending Database program, initially including only Cook County, requires that loan originating entities submit loan application data to the database online."

Here is some good news for the market for 2nd mortgages. Earlier this week SunTrust told its clients about its "Jumbo Solution" second mortgage loan program for purchases. It is a fully amortizing, fixed rate 2nd behind various SunTrust 1st mortgages. "All eligible first mortgage products must be processed through Fannie Mae's Desktop Underwriter (DU) or Freddie Mac's Loan Prospector (LP). Traditional underwriting of the first mortgage is not permitted." The loan size can range from $25k up to $417k, depending on the size and LTV.

Lenders One Mortgage Cooperative (with 165 members) announced the addition of PHH Mortgage as a preferred investor. As with other investors, Lenders One states that this relationship "provides several key advantages: direct access to PHH Mortgage underwriters; 24/7 online access to products, rates and pricing scenarios, ability to upload documents electronically, and ongoing training for governmental compliance and other regulatory requirements."

What moved, or didn't move, interest rates yesterday? The private payroll measure done by ADP disappointed many, indicating the jobs picture is still slow. The Chicago ISM number dropped in June, although it has been in "expansionary" territory for 9 months. "Across the pond", in Europe, there was some optimism as banks sought less cash from the European Central Bank - maybe they're stronger than folks think?

Generally, rates improved Tuesday, and they improved again yesterday with the 10-yr firmly below 3% in yield. But although many fixed-income rates declined, MBS's and mortgage rates did very little and in fact worsened in some areas, leading to the inevitable questions to rate sheet creators, "Hey, if rates are dropping, how come your prices are hardly budging?" Investors once again fear "negative convexity" in mortgages, whereby if rates drop prepayment fears creep into the market and mortgage prices don't really tag along with the rally. And at this point, if rates keep dropping, we will find 30-yr mortgages in the low 4% range, and everyone with a mortgage rate higher than 4.75% will be the target for a refinance. I'd tell loan officers to "dust off the rolodex" but it hasn't even gotten dusty from the last batch of refinancing! That will be an interesting dynamic if much of the $1.25 trillion that the Fed purchased of MBS's begins to refinance.

(Warning: PG)
She was standing in the kitchen, preparing our usual soft-boiled eggs and toast for breakfast, wearing only the 'T' shirt that she normally slept in.

As I walked in, almost awake, she turned to me and said softly, "You've got to make love to me this very moment!"

My eyes lit up and I thought, "I am either still dreaming or this is going to be my lucky day!"

Not wanting to lose the moment, I embraced her and then gave it my all; right there on the kitchen table.

Afterward she said, "Thanks," and returned to the stove, her T-shirt still around her neck.

Happy, but a little puzzled, I asked, "What was that all about?"

She explained, "The egg timer's broken."