(Sorry the commentary is a little late today. It took me a long time to wade through all of the investor price-change e-mails from yesterday. So let's all take a deep breath...)

Q: How many auditors does it take to change a light bulb? A: Auditors don't change anything. They just report that it's dark.

But auditors catch fraud, which is never a good thing (the fraud, not the catching of it). HUD is hosting a "Mortgage and Foreclosure Fraud Awareness Workshop" in Ontario, CA in the morning of August 27 - mostly for borrowers but also for lenders. "Learn how to keep your home and protect yourself from fraud. The workshops will be both in English and Spanish. The workshop will also include the following topics: Impact of Foreclosure Fraud, Foreclosure 101, Reverse Mortgage Fraud & Other Fraud Against Seniors, Foreclosure Prevention by Neighborhood Partnerships." Reserve a spot by calling (909) 902-9606.

Whether it is due to a backlog, or the improving stability of the remaining borrowers, foreclosure numbers are improving. But it is still an issue to be reckoned with in our industry. In a Deed of Trust state (like "Cali"), as opposed to a Mortgage state (like Michigan), foreclosure is accomplished through a "trustee's sale" rather than a judicial proceeding. Trustee sales (and now short sales) don't allow for subsequent suits for deficiencies, i.e. the amount by which sale proceeds fall short of unpaid balances. A recent law in California makes it clear that mortgagors can "negatively impact" junior lienholders with impunity. Senate Bill 458 expanded anti-deficiency protection to all 1-4 residential mortgages or deeds of trust where the beneficiary consents to a short sale, whether a first deed of trust or a junior deed of trust. The headline read, "Short Sale Law Effective Immediately in California - No Fee to Approve Short Sales and Short Sale Law Now Applies to Junior Loans." Interested parties can see the details here: http://clta.org/for-members/express1112/express_1112-11_072511.html.

Speaking of which, Sterne Agee released a study showing a comparison of the credit performance of RMBS collateral located in judicial and non-judicial foreclosure states. "We find that judicial states generally have longer liquidation lags, slower annualized liquidation rates (i.e. CDR) and higher loss severities relative to non-judicial states. The difference in delinquency rates indicates that non-judicial states will experience credit burnout faster than judicial states." (Please don't ask for the report from me, as permission is required. But this is, in part, why the value of servicing varies in different states.

A broker from San Diego wrote, "What is the best way to stop the selling of leads by credit agencies? We need to address 'trigger leads' in our industry: credit agencies need to stop the practice of selling these leads now.   I know there are proposals to make the purchase of 'trigger leads' unlawful in many states however this needs to be accelerated.   Privacy issues and the trust of the client are being breached.  Some of these lead generation companies are even given access to client's cell phone numbers. It is not right that a loan company can pay for the right to steal a client away from another company that has taken an application and pulled a credit report.  I am all for getting the client the best deal and I am not too worried about a loan being stolen from me after application but the ethics seem skewed.   This practice is not helping our industry recover from the tainted reputation we currently have with the public.  Over the past month XXX (a large internet lender) has contacted every one of my clients after a credit report has been run."

Understandably, investors are concerned about loans refinancing that they just purchased at premium prices and expected to have on their books for a while. But while mortgage rates may see a new record low, the conditions that are preventing many homeowners from refinancing remain unchanged: tight credit conditions, poor home values, higher loan costs, and a weak economy and jobs market. Barclays Capital points out that the population of good-credit borrowers, defined as FICOs above 740 and LTV's below 80%, has declined by more than 20% in the past year due primarily to declining home prices. "As a result, the balance of good credit-borrowers more than 50 basis points in the money at a 4.5% mortgage rate is roughly half the level of August 2010." J.P. Morgan analysts point out that in conventionals, 40% of the universe is credit-impaired, 40% were originated within the past two years and so can't streamline refi under HARP, which leaves only 20% of borrowers that can clear the refi hurdles at current rates.

But Wall Street traders and analysts are quick to point out that the 4.5% coupon contains plenty of borrowers (who have loans at 4.75-5.125%) that will be able to refi at a 4.00-4.25% mortgage rate. If this is true, few investors will want to pay hefty premiums, which is why this MBS coupon, and that of higher coupons, exhibit more symptoms of "negative convexity." And "current coupons" are usually near par, but the production has not crept down into the 3% range for 30-yr. mortgages, as Dean Brown from MCM points out. So anyone hedging a pipeline is selling 4% securities for the most part, and hoping that this coupon is not subject to short squeezes a few months down the road if there are no loans to fill commitments.

Margaret Wright of Bankers Advisory Inc. described recent changes in advertising as the FTC published the Mortgage Acts and Practices- Advertising Final Rule "relating to unfair or deceptive acts and practices that may occur with regard to mortgage advertising". The MAP Rule applies to mortgage lenders, brokers, servicers and others who engage in mortgage advertising such as real estate agents or advertising agencies, but does not apply to banks, S&L's, federal credit unions and other entities that are excluded from the FTC's jurisdiction. Previously, mortgage lenders have been subject to advertising regulation through other regulations including the Truth in Lending Act (TILA), the Home Ownership and Equity Protection Act (HOEPA) and state specific requirements. The MAP Rule "prohibits any material misrepresentation, whether made expressly or by implication, in any commercial communication, regarding any term of any mortgage credit product." The detail that Ms. Wright goes into could fill up this entire commentary, but any mortgage company that advertises should be familiar with the changes. Ignorance of the law is no excuse, and the FTC's Final MAP Rule may be viewed at: http://ftc.gov/os/fedreg/2011/07/110719mortgagead-finalrule.pdf.

My head is still spinning from all of the rate changes yesterday. Lock desks, pricing engines, secondary marketing staffs... they'll all be ready for a stiff drink tonight - if they haven't started already with Bloody Mary's. European fears settled down somewhat temporarily, stocks decided that, since it was Thursday, they'd rally, and a lousy 30-yr bond auction all conspired to move our fixed-income markets around. The Dow's range was nearly 500 points, while 10-year notes ranged nearly 2 points between high and low - it finally closed up around a yield of 2.34%. And investors in mortgage-backed securities don't seem to know quite what to do - buy low coupon production, so it will be on their books for a while, buy high coupon product, because those folks probably can't refi anyway and MBS prices are good, or sit on the sidelines. But by the end of the day, mortgage prices were worse by about a point, and much of that was passed on to originators in the form of intra-day price changes.

We are in the midst of BBQ season. Therefore it is important to refresh your memory on the etiquette of this sublime outdoor cooking activity. When a man volunteers to do the BBQ the following chain of events are put into motion:

(1) The woman buys the food.
(2) The woman makes the salad, prepares the vegetables and makes dessert.
(3) The woman prepares the meat for cooking, places it on a tray along with the necessary cooking utensils and sauces, and takes it to the man who is lounging beside the grill - drink in hand.
(4) The woman remains outside the compulsory three meter exclusion zone where the exuberance of testosterone and other manly bonding activities can take place without the interference of the woman.
Here comes the important part: (5) THE MAN PLACES THE MEAT ON THE GRILL.
(6) The woman goes inside to organize the plates and cutlery.
(7) The woman comes out to tell the man that the meat is looking great. He thanks her and asks if she will bring another drink while he flips the meat.
Important again:
(9) The woman prepares the plates, salad, bread, utensils, napkins, sauce and brings them to the table.
(10) After eating, the woman clears the table and does the dishes.
And most important of all:
(11) Everyone PRAISES the MAN and THANKS HIM for his cooking efforts.
(12) The man asks the woman how she enjoyed her 'night off,' and, upon seeing her annoyed reaction, concludes that there's just no pleasing some women