Everyone's dusting off their relock policies, or thinking about revising the ones they've had in place. Agents and brokers who locked in a loan in the last week or two is once again worried that their borrowers may walk, and preparing arguments to keep them (appraisal stickiness, processing hassles, loan complexity, time invested, compliance issues, honoring a commitment, etc.). Mortgage security prices are at all-time highs, and originators are hoping these appreciations flow down into rate sheet pricing.

The Fed's announcement yesterday did indeed move the markets. There is concern, talked about endlessly in the press, about a double dip recession. There are reasons why some analysts believe the economy will take another dip, of course. The housing market is not going anywhere fast, although there are pockets of solid improvement. Consumer bankruptcies are on the rise (in 2006 there were less than 600,000 filed; last year there were 1.4 million, and this year is on pace to top 1.6 million). The private sector is still not hiring, and compared to December of 2007, total private employment is still off by nearly 8 million jobs. And food stamp use is at record highs - almost 41 million of our fellow citizens are using them - 1/8 of the US population!

On the other hand, there is some good economic news out there. PMI, for example, in its "3rd Quarter 2010 Economic and Real Estate Trends (ERET)" report, stated that of the nation's 384 MSAs (Metropolitan Statistical Areas) and Metropolitan Divisions, 290 (75.5%) had a declining Risk Score. During the first quarter of 2010, risk decreased in 40 of the nation's 50 most populated (Top-50) MSA's, and overall. Unfortunately, PMI's economists believe that 70% of the nation's Top-50 MSAs have a greater than 50% chance of lower house prices by the end of the first quarter of 2012.

Remember all the commotion surrounding the rollout of the FHA's new insurance premium structure (the upfront premium going down to 100 basis points, and the annual premium increasing to 85-90 basis points)? It turns out that the target date for the FHA premium changes has been moved out from 9/7 to 10/4. I guess those FHA computer folks, along with all the investor IT staffs, didn't want to work over the Labor Day Weekend.

From the FHA Press Release:

“Last week, FHA Commissioner David H. Stevens announced plans for implementing FHA’s new mortgage insurance premium structure. As we work to publish a Mortgagee Letter, it is our intention to announce that based on industry feedback and our desire to have this change implemented successfully in the marketplace, FHA will make the premium fee changes on all new case numbers effective October 4, 2010. Over this past week, the industry responded with support of the new fee structure, but voiced strong concern about having system changes ready in time to meet the original September 7, 2010 deadline. Since these system changes impact regulatory disclosures, lenders expressed they must have the additional time to implement and test systems. FHA took this feedback seriously and has accommodated the need for additional time.”

For more good news, there was some movement in the commercial loan business. JPMorgan Chase announced that it has purchased a $3.5 billion portfolio of 3,800 multifamily and commercial real estate loans in CA, NY, and IL from Citibank. Terms were not disclosed.

Starting today, MGIC's Refinance Policy is changing to allow Rate & Term refinances of loans not currently insured by MGIC in Tier One and Tier Two Markets. "The payoff of a Purchase-Money Second in all markets if the junior lien was originated as a Purchase-Money Second (seller or institutional financing) with the first and second lien recorded simultaneously, or the only draw of a Home Equity Line of Credit (HELOC) was for the acquisition of the subject property and is supported by the HUD-1 and loan history."

MountainView Capital Holdings, "a provider of solutions for mortgage and capital market participants" will be purchasing Capmark Securities and be hiring a team of fixed-income professionals from Madison Williams and Company. Capmark Securities (now MountainView Securities) was around in the 1990's, trading commercial MBS's, Ginnie Mae project loans and Fannie Mae Delegated Underwriting and Servicing securities. MountainView Securities is now offering trading and hedging lines to loan originators (e.g., pipeline hedging) in the mortgage banking industry.

Wells Fargo told its brokers that the Super Conforming Mortgage Program will be available next Monday (I mentioned this yesterday), told them about the new approved MI company (Essent), that Wells is rolling out an MI enhancement that allows for 90% LTV on 2nd homes, and of adjustments to its Home Opportunities and Easy-to-Own programs. (Regarding the MI for 2nd homes up to 90%: "Conventional conforming loans for one unit single-family dwelling (SFD) or Planned Urban Development (PUD) Second Homes requiring mortgage insurance. Not impacted: AZ, CA, FL, and NV, High Balance Conforming Program, Home Affordable Refinance Program and Fannie Mae HomePath Mortgage loans.")

Here's a disturbing phenomenon: "buy and bail borrowers". 

PBIS Insurance Services, a subsidiary of The Prieston Group, expanded its insurance products to include the Mortgage Bankers Bond (i.e.  Mortgage Errors and Omissions, Fidelity Bond, and Professional Indemnity Coverage's). "The combination of Mortgage Bankers Bond with the Repurchase Loss Insurance, coverage third party fraud, increases assurance that you are protected from employee errors or theft and fraud committed by a third party." Current TPG clients receive a discount under certain scenarios. Contact Justin Vedder if you're interested at jvedder@priestongroup.com.

Dutch ING Group, which here in the US mortgage biz is known for its wholesale ARM production, reported a better-than-expected profit in the second quarter. ING had lower impairment charges and a stronger investment result at its banking arm.

Navy Federal Credit Union, with $41 billion in assets and the largest credit union player in mortgages, said it funded $944 million of single-family loans in the second quarter, a 56% decline from the year earlier. In a move that some may say smacks of desperation, the credit union now offers 100% mortgage financing up to $650,000 nationwide. It provides banking services to current and former Department of Defense employees and their families. My 87-yr old Dad was in the navy from 1942-1962, so I guess that he could open an account and away we go! READ MORE

Occasionally I am asked about loans on short sales. US Bank has a short sale program. It is for 1st lien, SFR primary residences only, 80% maximum LTV's, the current residence must be sold at or before closing, and pending foreclosure buyouts are not accepted. As one would expect, the appraisal must be ordered through an independent third party appraisal portal, a home inspection is required, and approval is needed from the current lien holder releasing their lien upon receipt of short sales funds.

The FDIC has created the new Office of Complex Financial Institutions (CFI) and Division of Depositor and Consumer Protection (DCP) to help carry out its responsibilities under the Dodd-Frank Wall Street Reform and Consumer Protection Act. "The CFI will perform continuous review and oversight of bank holding companies with more than $100 billion in assets as well as non-bank financial companies designated as systemically important by the new Financial Stability Oversight Council. CFI will also be responsible for carrying out the FDIC's new authority under the Act to implement orderly liquidations of bank holding companies and non-bank financial companies that fail."

The federal banking agencies have agreed to publish an advance notice of proposed rulemaking regarding alternatives to the use of credit ratings in their risk-based capital rules for banking organizations. With financial reform comes a requirement that agencies review regulations that (1) require an assessment of the credit-worthiness of a security or money market instrument and (2) contain references to or requirements regarding credit ratings. In addition, the agencies are required to remove such references and requirements and substitute in their place uniform standards of credit-worthiness, where feasible. Through this advance notice, the agencies are seeking to gather information as they begin to develop alternatives to the use of credit ratings in their capital rules. It also seeks comment on the feasibility of and burden associated with alternative methods of measuring creditworthiness for banking organizations of varying size and complexity.

Yesterday's 3-yr Treasury auction was solid, coming in at .844%. Right after the auction took place the Federal Open Market Committee came out with its announcement. "The pace of recovery in output and employment has slowed in recent months. Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit." Slow housing, no inflation, no change in overnight rates.

But the key statement that fired up the fixed income markets was "To help support the economic recovery in a context of price stability, the Committee will keep constant the Federal Reserve's holdings of securities at the current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities."

So as mortgages prepay/refinance, and/or borrowers make their payments, the money will be put to work in the 2-yr to 10-yr part of the Treasury yield curve. Mortgages have done very well in the last several months, which serves to increase the refinancing of the Fed's portfolio, which in turn puts more money (estimated around $300 billion) into intermediate Treasury notes. The Fed's intention is to keep its balance sheet elevated at approximately $2.1 trillion - which apparently does not include buying new mortgage production. But as a former Federal Reserve president (William Poole) stated, more bond buying from the Federal Reserve won't help the U.S. economy, because purchases can't remedy the main problem plaguing the U.S., which is fiscal and regulatory uncertainty. "While the Fed buying more debt will bring rates down, it won't inspire spending and lending given uncertainties in the U.S. ranging from tax cuts to health care reforms." READ MORE

Tuesday saw originator sales of about $2.5 billion, and again focused in the 4% MBS coupon (containing 4.25-4.625% mortgages). Mortgage prices, in spite of the news of the Fed's plan to buy Treasury notes, tagged along for the ride. Practically every investor had price improvements and mortgage security prices improved by the end of the day by about .125. New price highs were set on FN 4s through 5s. The demand for MBS's is expected to continue, given their clean underwriting and limited supply.

This morning we learned that the Mortgage Bankers Association's application index rose 1.3 percent in the week ended July 30. The purchase index was +1.5%, a third straight gain, while refinancing advanced 1.3%. The Trade Deficit numbers came in at -$49.9 billion came in this morning, serving to push stocks down even more but also pushed rates lower. The 30-yr bond is now below 4%, the 2-yr note is down to .51%, the 10-yr is at 2.70%, and mortgages are better by .125-.250 - yowza!

A married couple of many years are in bed together, and the woman feels the husband's hand under her leg, says "Oh boy, this is going to be a pleasant evening."

A little bit later she feels his hand under her behind, and says, "Now, this is like the old days!"

Finally, she feels his hand around her thigh, but then everything stops.

She asks, "Irving, what happened?"

He says, "I found the remote."