A friend wrote to me and reported, "One member of our board asked, 'If we're not approving any mortgages, why don't we just lower our 30-yr rates to 2% and get the free publicity?"

Lending was expected to be boosted by the TARP funds banks borrowed from Treasury, but there continues to be concern about the TARP monies that were lent out and then paid back, or not paid back, depending. The Congressional Oversight Committee, whose duties include reviewing the execution of TARP and other facets of the financial services rescue, has reported that $205 billion was disbursed under the program, to 707 banks. Seventeen of 19 banks with assets greater than $100 billion received 81% of those funds, and 690 banks with assets less than $100 billion received the rest of the money. All of the 17 large banks have repaid their TARP investments while less than 10% of the smaller banks have done so, and about 15% of the small banks have missed a payment.

For any Realtor or Mortgage Banker looking for statistical information about a specific area, they may want to start with the FDIC's recently released stats: http://www2.fdic.gov/recon/index.asp. It is a compilation of key economic data in graphic format for the United States as a whole and for each state, county and certain metropolitan statistical areas.

Who says I'm not well-read? In a column from the Highland Times (Southern California) comes a story stating that in the last 18 months, banks have sold more homes than home builders have! Stats show , nationwide in late 2006, new homes accounted for nearly 20% of all transactions, but in early 2009 the new home share was down to 14%, and starting in that month there were more REO sales in the preceding 12 month period than new homes sold. So for the last year and a half, banks have sold more houses than home builders. However, despite the confidence numbers from yesterday, in some areas home builders with cash (Standard Pacific, Taylor Morrison, etc.) are now buying lots, which, given the lag time to build (1 ½ - 3 years) points to some optimism about building in the future.

The Reform Bill is a done deal, and now the hard work begins. The legislation is well-intended, as legislation usually is, but will no doubt have many unintended consequences. Big banks now will try to figure out the eventual costs. One of the things that the Reform Bill does is to call for the formation of the Bureau of Consumer Financial Protection ("BCFP") inside of the Federal Reserve.  Anyone afraid of "Big Brother" will certainly be watching this one as the months and years pass while it is being developed. "The Bureau will be granted broad, significant, and discretionary authority to regulate all acts, practices, programs, etc. it determines to be abusive, predatory, unfair, deceptive, or otherwise not in the best interest of consumers relating to mortgage lending (and all other financial products and services). The Bureau's scope will extend to all entity types, including federal and state chartered financial institutions, independent mortgage lenders, licensed mortgage brokers, credit unions, investment bankers, finance companies, etc."

Yesterday I mentioned a note that I had received from an industry vet regarding broker compensation. I received some responses. One said, "There is a huge movement in origination. Good originators and branches are finding the regulatory hassles too much, and are aligning themselves with mid-size lenders with sturdy compliance groups. Less experienced brokers or agents, who don't have a book of business, are often heading off to 'the Big Banks' and this will probably continue well into the future."

Another wrote, "After this law goes into effect he will not get to 'tell my customer what I'm worth' any longer as his pay, or his employee's pay if he has any, can't be based on the profitability of the loan anymore. Only basis points at best. So no matter what basis points he/she thinks they're worth and charge, he can only get the same basis points on every loan he closes. Loan agents won't be able to have different profit levels for different loans, depending on risk or loan size criteria. It is an equalizer for consumers when we all know every loan has very different risks and work involved. Does anyone think this means a pay raise, pay cut or same old for individuals? This law is a paradigm shift in the truest sense of the Webster definition of the word."

And another wrote, "Loan officers will no longer be able to set a price point of 150 bps and then put the risk on borrower on locking. There will be a flat fee for all loans since the compensation cannot vary by term, rate or product.  That means that all loans to a specific originator will be compensated the same way (with variations only based on production).  Also, he cannot get the 150 bps and then deal with YSP later since you are prohibited from getting paid by lender and borrower.  You can only get paid by one of them."

For a typical real estate agent, or mortgage "hack" (a term of endearment) what difference does it make that U.S. Prime RMBS (Residential Mortgage Backed Securities) serious delinquencies rose for the 37th consecutive month, according to the latest Performance Metrics results from Fitch Ratings? Or that Alt-A RMBS delinquencies declined for the third successive month while Subprime late-pays fell for the fourth straight month? Basically, no typical investor wants a pool of loans to go bad, so if delinquencies and defaults are declining, hopefully investors will feel comfortable owning pools, and want to buy more. These numbers are sliced and diced many ways in order to ascertain future performance.

Along those lines, in spite of low mortgage rates and cheap(er) housing prices, purchases are down. Many investment banks' research departments estimate that home prices are 4% above fair value as defined by income growth, although low mortgage rates make buying a home very attractive relative to renting in almost all local markets. With that in mind, analysts are recommending that investors buy more Agency MBS. Tight spreads and low yields suggest it may be time to lighten up exposure, but the weak application activity supports the low net supply/tight spread story and the risk of a near term overshoot to the downside on home prices says owning higher yielding high quality bonds still makes sense.

MGIC announced that New York has approved MGIC's Credit-Tiered premium rates. The new rates will be effective for MI applications received on or after tomorrow, and after August 1st Missouri, Ohio, and Virginia will have Credit-Tiered rate. Alaska has not yet been approved for this.

RMIC told its clients that, in addition to updating its Market Classification list, it is "modifying the naming convention and definitions used to classify housing markets to reflect the relative strength of multiple economic factors that influence the performance of its insured loans". The MI company announced an expansion to its maximum debt-to-income (DTI) ratio to 45%, an adjustment to maximum seller contributions in certain markets, and a restriction on second homes to borrowers with a previous foreclosure. Lastly, RMIC is retiring its "Easy IQ2" program. Clients are best advised to read the actual bulletin, as it is fairly extensive.

As many economists point out, Treasury yields, and most rates in general, are extremely low from a longer horizon historical perspective, but are likely to remain relatively low in the near term. The Fed remains on hold, inflation is low, the asset shortage continues, and there is continued uncertainty and lack of confidence in the market surrounding the European crisis, financial regulation and health of the US economy. Last week's auctions, however, were not all that well received, with the 30-yr bond auction being the strongest.

Yesterday we saw a weaker-than-expected NAHB HMI, with homebuilder sentiment dropping from "16" to "14". Whatever the numbers mean exactly, I don't know, but their confidence is the lowest it has been since early 2009. In spite of low rates and affordable prices, builders point to continued issues with the tax credit expiring, the overall economy, the employment picture, tight underwriting standards, and competition from foreclosed and distressed properties (that are often priced below the cost of new construction or replacement cost). Overall, housing as a share of GDP is just 2.4% (a record low), and none of those factors are expected to improve any time soon. HERE IS A CHART

Housing numbers dominate the economic news this week, and today we have Housing Starts and Building Permits. Most expect them to drop (Starts dropped more than expected, down 5%), but remain within the range that has been maintained since the beginning of 2009, and few, if any, believe that we don't have an oversupply of homes already. Therefore most builders are not adding to it, and are especially cautious after the tax credit ended and with unemployment at these levels.

Monday stocks rallied - a not unsurprising bounce from Friday's big sell-off. Treasury and mortgage rates also bounced, moving higher enough to warrant price changes and rate sheet revisions from residential investors. The 10-yr ended the day around 2.96%, still a low yield. Overall, MBS volume was above average, with $2.8 billion of new agency production trading hands, and today is looking like a weak stock market (Goldman Sachs' earnings were below expectations) may just push some cash into bonds and we find the 10-yr down to 2.92% and mortgages better by 6 ticks.

Ken and his wife Edna went to the state fair every year, and every year Ken would say, "Edna, I'd like to ride in that helicopter."

Edna always replied, "I know Ken, but that helicopter ride is fifty bucks, and fifty bucks is fifty bucks."

One year Ken and Edna went to the fair, and Ken said, "Edna, I'm 75 years old. If I don't ride that helicopter, I might never get another chance."

To this, Edna replied, "Ken that helicopter ride is fifty bucks, and fifty bucks is fifty bucks."

The pilot overheard the couple and said, "Folks, I'll make you a deal. I'll take the both of you for a ride. If you can stay quiet for the entire ride and don't say a word I won't charge you a penny!  But if you say one word its fifty dollars."

Ken and Edna agreed and up they went.

The pilot did all kinds of fancy maneuvers, but not a word was heard. He did his daredevil tricks over and over again. But still not a word.

When they landed, the pilot turned to Ken and said, "By golly, I did everything I could to get you to yell out, but you didn't. I'm impressed!"

Ken replied, "Well, to tell you the truth, I almost said something when Edna fell out, but you know, fifty bucks is fifty bucks!"