Here at the Western Secondary conference in San Francisco, talk is focused on investors pushing purchase clearing numbers down and speeding up purchase times. But anytime you mix two beautiful young heiresses, big money real estate purchases, and Formula 1 racing money, it is newsworthy. (Don't worry - the video ad is short.)

Those two will never have to worry about working. But lots of folks do, and Wells Fargo's economic team put out an interesting piece given the recent employment trends which don't seem to be helping the current administration's reelection hopes. Men and women have changed over time with respect to their involvement in the workforce. Male participation is historically higher, but male participation has been on the decline for decades. And since the past recession (past?) in 2008, the trajectory of the decline has sharpened. For women, participation rates had been rising until about 2000, but then steadied before turning down in 2009. Wells ventures, "The decline in participation among both men and women present two challenges for the labor market. First, if there is a loss of highly skilled workers, like the anecdotes we hear about the aging engineering and scientific workforce, where are we going to get replacements? Second, do declining participation rates mean that potential GDP will be more limited going forward than in the past?" These issues remind me of what I see as an issue for mortgage banking and Realtors: who will replace the aging work population?


Some folks wonder what the current status of the Fed buying agency mortgage-backed securities. (By the way, the key word in that has always been "agency.") The Fed is reinvesting principal paydowns/prepays from their MBS portfolio. Every month they publish a forecast of what they expect to buy.

The industry continues to watch ResCap's bankruptcy, even though at this point it is not front page news. The highly leveraged ResCap subsidiary had made Ally (its parent company) an unattractive asset because of the fears that the bank may become responsible for ResCap's debt. On May 15, 2012, Ally put the company into bankruptcy as ResCap had posted a $402 million loss in 2011 and had missed a $20 million payment on unsecured debt in April. Ally agreed to pay ResCap $750 million to settle any claims against the parent, buy as much as $1.6 billion of securities if others don't, and provide $150 million to help finance ResCap's operations during bankruptcy, according to a company statement. Existing are various claims that Ally harvested assets from ResCap before seeking a quick and easy divorce through bankruptcy, evidenced by the debtors' plan of separating itself, once and for all, from ResCap.

But whether Ally's agenda also happens to be in the best interest of ResCap and its creditors is another question. The claim here is that Ally stripped ResCap of some juicy assets at below-market prices via "affiliate transactions" prior to filing. As one report put it, "That would be the equivalent of someone selling a piece of bank-funded property to their uncle before walking away from the mortgage. The bank would surely go after the uncle." Goldman and Citi faced off during the CDS auction about the recovery of these unsecured bonds, and the bonds fell. The 6.5 percent bonds that matured on June 1 dropped more than 7 percent as of yesterday. The 6.5 percent bonds maturing next year fell 16 percent. And the 6.875 percent bonds fell almost 12 percent. All were selling for 17.6 cents on the dollar. It is unclear if Citi made money on this transaction, although it looks like the bank (which coincidentally is also partially US government owned) was more in the loop than Goldman. GS is now stuck with $345 million in unsecured bonds (which it bought in the CDS auction) as part of the game of ResCap musical chairs.

What has been the impact of HARP revisions on loan defaults and pricing? When the Home Affordable Refinance Program (HARP) was initiated, its goal was to stimulate the economy and reducing defaults by lowering mortgage payments in households with high loan-to-value mortgages. As every LO knows, these were borrowers who were otherwise unable to refinance. Refinancing activity was much lower than expected when HARP was implemented in 2009, and these lackluster results have reminded us about impediments to refinancing including credit risk fees, limited lender capacity, a costly and time consuming appraisal process, limitations on marketing, and legal risks for lenders. (Is anyone surprised?) Concerns about revising HARP included doubts about its fairness efficiency, and it was recently revised. One outcome of a potentially improved program would be more borrowers in a position to refinance. The impact of refinancing on future default risk is important to the current debate of the GSE fee structure for HARP loans, as these results suggest that refinancing can be employed as a tool for loss mitigation by investors and lenders.  The optimal refinance fee will be lower if this reduction in credit losses is recognized. Reducing fees will increase incentives to refinance but at the cost of fee income to the GSEs, as the offset to this lower fee income today is lower credit losses in the future. The HARP chatter has greatly died down, but the large banks still account for the majority of the volumes.

Here are some somewhat recent investor/agency updates, providing a flavor for the environment. They just don't stop. As always, it is best to read the actual bulletin.

Fannie Mae and Freddie Mac have announced that, as of July 16th, they will not be purchasing or securitizing mortgages with private transfer fee covenants that were created on or after February 8, 2011 (certain properties may be exempted due to FHFA regulation).  Such mortgages should be purchased as whole loans by July 13th at the latest or delivered into MBS pools with issue dates preceding July 1, 2012.

"Acceptable Conventional Mortgage Insurers and Related Delivery Codes" and "Special Feature Codes" documents and the FAQ on the HO-6 and master/blanket insurance requirements on the Fannie website have been updated, as have the sections on volume limitations, private transfer fee covenants, and ULDD terminology in the Selling Guide.  The 2000-Character MI Codes used to identify MI companies in ULDD have been changed as well, and the ULDD Enumerated Values are now included in what was previously called the Acceptable Conventional Mortgage Insurers and MI Codes for Loan Delivery table.

The July 2012 DU Release Notes are now available at, and changes pertaining to the VA Bankruptcy and Foreclosure messaging system, various underwriting issues, FHA Reserves Calculation on 3-4 unit properties, and the FHA TOTAL Mortgage Scorecard are scheduled to be made over the weekend of July 21st.

Fannie sellers and servicers are encouraged to report key businesses changes as they occur using the Lender Record Information application (Form 582), which is the same form used to provide annual certification.  Changes in staffing, principal purpose, activities, or facilities should be communicated to Fannie as soon as possible.

Another reminder for servicers: in situations where a borrower's mortgage loan modification request was declined on a date at which the borrower was current, servicers are required by the Servicing Guide to provide an Adverse Action Notice.

Additional guidance has been provided on the Uniform Appraisal Dataset in the form of a resource document with various updates and reminders on submitting UAD appraisal reports to the UCDP.  UAD Specifications Appendix D ("Field-Specific Standardization Requirements") has been revised as well.  Both resources may be found at, and the GSEs will continue to issue guidance as necessary.

Fannie has issued a reminder about the "unused" Social Security Numbers employed in the development of test credit scores for DO and DU practice cases.  Due to changes in the methodology of assigning SSNs, the test case SSN's have been updated.  Test credit reports that used the old SSN information were retired on June 16, 2012; with this in mind, those who use the test credit report information in their testing suits should remember to use the new SSNs and Credit Report Reference Numbers.

A referendum has placed the state of Washington's decision on same-sex marriage on hold until November.  Registered domestic partnerships will continue to be recognized.

Wells Fargo Funding reminds sellers that they are required to comply with the Fair Housing Act, which states that lenders may not discriminate against borrowers due to a handicap, when qualifying borrowers with long-term disability income.  The borrower's condition should not be identified, either by the borrower or anyone associated with the borrower, under any circumstance.  When qualifying borrowers who receive Social Security disability benefits, the award letter should disclose the benefit amount, but the benefits' continuance does not need to be verified.  Effective immediately for all government and conventional loans, borrowers with Social Security Disability Income Award Letters that support their disability income need not supply any further documentation.    Borrowers seeking a government loan should not be asked to supply a doctor's letter with details of the disability, Social Security Award 1099s, or tax returns to support the award letter, which satisfies the three-year income continuance expectation on its own.

Yup, rates are great. No one is complaining, although Wednesday we had a little hiccup leading to a few price "worsenings." Agency MBS volume was a little stronger than average, which didn't help. But traders were more focused on the minutes from the June Federal Open Market Committee meeting which offered nothing concrete on Quantitative Easing (QE 3). Basically, the Fed's minutes were more hawkish (but also are a bit stale) and meanwhile appeared to hint that MBS may form a larger part of any QE3 program (it seems like if there is one signal factor weighing on equities overnight leading into this morning, it was disappointment with the tone from the Fed minutes). But returning to Wednesday, the 10-yr closed at 1.51%.

However, leading into this morning, overseas banks continue to cut rates due to the slow economies. Brazil cut rates, Korea cut rates (an unexpected surprise), and the Bank of Japan increased its asset purchase program (also a surprise although they reduced a loan facility so net/net the BOJ isn't seen as having eased all that much).  Remember that last week the central banks of China, England, Denmark, and others all eased rates.

Today has another moderate calendar of economic news and other events scheduled. We had Import Prices for June (-2.7%) and Initial Claims (376k down to 350k - the lowest since March 2008). At 1PM EST the Treasury concludes its latest round of coupon auctions with $13 billion 30-year bonds. In the early going the 10-yr is at 1.49% and MBS prices are a shade better.

(Some things even stump Dear Abby. These are supposedly true notes - I think some are classics. Part 1 of 2.)
Dear Abby,
A couple of women moved in across the hall from me.  One is a middle-aged gym teacher and the other is a social worker in her mid-twenties. These two women go everywhere together, and I've never seen a man go into or leave their apartment.  Do you think they could be Lebanese?
Dear Abby,
What can I do about all the sex, nudity, fowl language, and violence on my VCR?
Dear Abby,
I have a man I can't trust. He cheats so much, I'm not even sure the baby I'm carrying is his.
Dear Abby,
I am a twenty-three year old liberated woman who has been on the pill for two years.  It's getting expensive and I think my boyfriend should share half the cost, but I don't know him well enough to discuss money with him.
Dear Abby,
I've suspected that my husband has been fooling around, and when confronted with the evidence, he denied everything and said it would never happen again.