One aspect of mortgage banking that can sometimes confuse those on the origination side is what investors like, or don't like, about a mortgage. One basic question is, "Who wants to pay 102 or 104 (a 2 or 4 point premium) for a loan that pays off in 3 months?"
It was reported that both fixed and ARM jumbo prepayment speeds increased in July. Investors feel that prepayments will continue to increase, although are constrained by current LTVs and borrower credit constraints. (The rise in GNMA prepayment speeds recently is not only due to refinancing, but also to mass buyouts by Taylor Bean and Whitaker pools. Looking ahead, the FHA annual MIP is scheduled to go up to 85bp from 50bp in October, which should moderately dampen GNMA speeds.)
Barclays reported that "Overall non-agency delinquencies were relatively flat with 30.4% of loans 60+ or more delinquent. Subprime delinquencies continued their decline dropping by 0.8% to 43.9%. Alt-A and option ARM delinquencies modestly improved by 0.2% and 1.2%, respectively. Prime delinquencies rose by 0.2% to 10.5%."
Barclays continues, "REO and foreclosure inventory have also been declining due to lengthened timelines associated with modifications efforts. Looking at the absolute number of units, taking out the denominator effect of paydowns and defaults, the declines are more pronounced. In non-agencies, the number of homes in REO declined to 160k homes from the October 2008 peak of 327k. Since the start of the year, the number of REOs has dropped by 7% while the number of loans in foreclosure has dropped by 12.4%. This supports our view that government efforts and modification programs will keep the liquidation process orderly at a level that can be absorbed by the market without causing a double dip in housing prices."
The Federal Housing Administration, which is either running out of money or is doing just fine, depending on who you ask, is raising some eyebrows by insuring mortgages for apartments at a 98-unit Gramercy Park development in New York. The insurance enables buyers to make a down payment of as little as 3.5% in a building where apartments are listed at $820,000 to $3 million. Of course the developers of the project think its fine that the FHA, founded during the Great Depression, has the ability to do this. In Southern California, where the median home price is $300,000 (well above the national average), about 40% of the loans in the last 16 months have been insured by the FHA. Critics believe that it is time for HUD to brush off the FHA's mission statement. READ MORE
Late last week word broke about the proposed acquisition of NewAlliance Bancshares by First Niagara Financial Group for $1.5 billion - two healthy institutions! (It's been a while since that happened in any large scale.) But then on Friday the folks at the FDIC were busy, "shuttering" 8 banks and assigning assets to other, hopefully stronger, institutions. This has happened 118 times this year, and Friday four banks were shut down in California, two in Florida and one each in Virginia and Illinois. ShoreBank (IL) went to Urban Partnership Bank (IL). Butte Community Bank, Pacific State Bank, Los Padres Bank, and Sonoma Valley Bank (all CA) were shut down, with Pacific Western Bank taking over Los Padres and Westamerica Bank taking over Sonoma Valley Bank. In Florida Community National Bank and Independent National Bank were folded into CenterState Bank. Lastly, in Virginia Imperial Savings and Loan Association went into River Community Bank.
Flagstar raised the minimum credit score requirements for all its Freddie Mac programs. "The minimum credit score requirements are also being increased on all Agency ARMs with a DTI exceeding 45%, targeted to Freddie Mac. Purchase and rate/term refinance transactions will be subject to a minimum credit score of 660. Cash-out transactions will be subject to a minimum credit score of 680." This does not, however, apply to the Relief Refinance or the Open Access programs. And starting in a week, Flagstar Bank will be changing the price adjustment on FICOs 640-659 for the Guaranteed Rural Housing program from a hit of .250 to a hit of .50.
U.S. Bank Home Mortgage Wholesale Division applied additional restrictions to transactions involving a non-purchasing spouse (when a married applicant wishes to either buy or refi a property that was previously acquired without the spouse). After 9/1, for loans going to USB, it will be "necessary to have the non-purchasing spouse sign the mortgage/deed of trust (and applicable mortgage riders and disclosures) as a non- purchasing spouse and not as a borrower. Having the spouse sign the mortgage as a non-purchasing spouse relinquishes the non-purchasing spouse's marital right to the property and to the mortgage transaction in the event the spouse responsible for the mortgage defaults on the mortgage payments. Typically the non-purchasing spouse's signature is required only to acknowledge in writing that the spouse has no claim on the property and that the spouse is not a borrower and not required to sign the loan contract. USB's wholesale group also recently came out with a new Mortgage Loan Origination Agreement, to be signed prior to docs. USB is not requiring credit to be re-pulled prior to funding, but instead has provided clients with a form that is to be signed at application.
Lenders may remember that last month Fannie began requiring sellers & servicers to direct mortgage insurers to provide Fannie Mae with information concerning its insured loans, along with a form to do so. Folks selling to Fannie may know that by October 1, 2010, "each seller must instruct, in writing, each mortgage insurer of mortgage loans it is in the process of selling or may in the future sell to Fannie Mae to provide Fannie Mae with any and all information Fannie Mae may request concerning the mortgage and the insurance." The Mortgage Insurance Disclosure Instructions and Release form is available at eFannieMae.com. "The new MI reporting and validation requirements do not relieve sellers or servicers of their obligations to report mortgage insurance coverage terms completely and accurately to Fannie Mae, nor do they imply that the mortgage insurer rather than the seller or servicer will be the initial source of this data for Fannie Mae."
Union Bank, starting Wednesday, is increasing the estimated fee for credit reports pulled by the company to $30 per report.
PHH told its correspondent clients that expanded guidelines will be permitted for loans that exceed PHH product eligibility but are within GSE allowances. (This exception is not permissible when PHH is ordering MI, and the lender must comply with any declining markets restrictions.) It is available for Conforming Fixed, Conforming P&I ARMs and Conforming Plus Fixed products (loan amounts </= $625,500), credit scores down to 660 are permitted, drive-by appraisals are allowed if ok'd by DU/LP, but loans with subordinate financing are not permitted.
Mountain West Financial told its brokers that, "All loans requiring MI with the following characteristics will require prior approval from the MI company: (1) Credit scores below 720 (2) Any LTV's >90% (3) All Rate and Term Refinance transactions. MI Coverage is only available on Primary Residence Purchase transactions and Rate and Term Refinances. Second Home and Investment Property transactions are not available for MI Coverage. Maximum 41% DTI and 2 months reserves required."
There will be Treasury auctions tomorrow, Wednesday, and Thursday. But of note are U.S. municipal bond sales this week, expected to total over $13 billion in 149 deals according to Thomson Reuters. Negotiated deals are estimated at $4.0 billion in 52 sales. Sellers such as Build America Bonds, the Southern California Public Power Authority, Windy Point/Windy Flats project, the Government Development Bank of Puerto Rico, and the states of Texas and New Hampshire, among others, are hoping that buyers step up. But these bonds, just like Treasury securities, compete with mortgage debt for investor's capital.
Friday - both stocks and bonds worsened, mortgages by .375 in price by the end of the day which resulted in numerous rate sheet changes. (There wasn't much news, but no market goes up or down forever, right?) $3.4 billion in production MBS crossed the wires, with the lion's share being 4% securities as U.S. 10-yr Treasury notes fell 12/32 to yield 2.62%.
This week's economic data will begin with housing market reports: the ever popular Existing Home Sales tomorrow and its brother New Home Sales Wednesday. Durable Goods Orders, an important albeit erratic indicator of economic growth, will also be released on Wednesday. And the week wouldn't be complete without some previous release being revised - in this case 2nd quarter's GDP number, due out Friday. Later this week, we have Fed Chairman Bernanke's speech at the annual Jackson Hole Conference, titled, "The Economic Outlook and the Federal Reserve's Policy Response." FULL ECON CALENDAR FOR THE WEEK AHEAD
What A Real Man Does
A real man is a woman's best friend. He will never stand her up and never let her down. He will reassure her when she feels insecure and comfort her after a bad day. He will inspire her to do things she never thought she could do; to live without fear and forget regret. He will enable her to express her deepest emotions and give in to her most intimate desires. He will make sure she always feels as though she's the most beautiful woman in the room and will enable her to be the most confident, sexy, seductive, and invincible........
No wait... sorry... I'm thinking of bourbon. That's what bourbon does...