With the jostling in the wholesale arena, it serves a purpose to take a step back and look at the top lenders, by volume, during the first half of 2010. Obviously many are banks, and many have a wholesale channel. (My apologies for saying that Wells was the last big bank with wholesale - that is too subjective.) By total volume we have Wells Fargo, Bank of America, Chase, GMAC,  CitiMortgage,  U.S. Bank Home Mortgage, PHH Mortgage, SunTrust Mortgage, MetLife Home Loans, Branch Banking & Trust (BB&T), Flagstar, Quicken Loans, Provident Funding, USAA Federal Savings Bank, Franklin American Mortgage, Fifth Third Mortgage, ING Bank,  PNC Mortgage/National City, AmTrust Bank, and Regions Mortgage.

Remember when Wells Fargo took over Wachovia, wrote down the option ARM's, and thought that was the end of the problem? It wasn't: at least 531 Illinois homeowners will be offered mortgage loan modifications by Wells after an investigation into allegedly deceptive marketing of Option ARM's. Illinois and seven other states investigated Wachovia and Golden West's marketing of pay-option ARM's. Under the settlement, Illinois borrowers will be offered $39.5 million in mortgage relief in the form of loan modifications, including almost $17 million in principal forgiveness. Wells Fargo will also pay $2.2 million to the state to compensate affected borrowers who have lost their homes to foreclosure, to cover the cost of the investigation and to provide assistance to struggling Illinois mortgage borrowers. FULL STORY

Earlier this week HUD stripped 20 mortgage lenders of their ability to write FHA mortgages. Yesterday it did the same to a JPMorgan Chase branch on Long Island. HUD terminates approvals if enough FHA-insured loans originated at one branch no longer perform. If a branch's FHA defaults exceed 200 within two years, the approval can be stripped. Lenders who lose origination approval can still purchase, hold, or service the loans, and a terminated lender can apply for reinstatement after six months if it has maintained certain requirements. Regardless, that's one phone call you don't want to receive.

This foreclosure nightmare is bringing many things to light, and in fact many are wondering about the lending business in general. "Why would anyone pay their mortgage ever again? Why would any business want to make mortgages, or buy them as an investment ever again? Compensation is about to change, individual loan officer TILA liability, being asked to do certain refi's at no compensation to lenders. There are many federal agencies pushing lenders to write down principal on loans underwater. Will borrowers who are making their payments on time be viewed as 'stupid'? Anarchy in mortgage lending!"

And what are investors thinking about this foreclosure issue? If a foreclosure is delayed, the servicer must typically keep advancing payments that will go to all bondholders, including the junior debt holders, even though the home loan itself is producing no revenue stream. Costs of reprocessing foreclosures will have to be absorbed. But the delay and confusion makes subordinate bond holders happy, and they don't mind the wait. But senior debt holders want banks to foreclose faster to reduce expenses. Junior bondholders are generally happy to stretch things out. An article in the WSJ reminds us that "mortgage servicers enter into contracts called pooling and servicing agreements with bondholders that spell out the servicers' obligations to manage the loans in the best interests of the investors. These agreements provide that the servicers be reimbursed by funds in the trust for all costs related to litigation and extra processing of foreclosures, provided they follow standard industry practices." GMAC & Chase think the reviews will take a few weeks - unless system-wide problems are found, and/or documents are missing. Uh oh.

It is obviously a very tough situation, as you don't just want to throw away contract law, and forget what a "debt" means. Who would ever want to lend large sums of money if the borrower can walk with no penalty? On the other hand, someone wrote, "Maybe buyers should be allowed back into the market sooner after foreclosure. People who lost their home already - not now - and earlier on in the crisis, before modifications, before buy and bails were prevalent, could be given some type of leniency. A job loss, or an escalating option ARM, might be acceptable reasons. I don't agree with walking away from a home that you can make the payments on, but a majority of the earlier default loans in this crisis were not preventable by the borrowers."

Any time the market sees a move in rates, up or down, investors inevitably either remind clients of rate lock policies, or change them. Chase was the latest, adjusting its float down policy for Best Effort loans locked or relocked on or after tomorrow. "Chase will no longer offer the float down option on extended rate locks on 5/1, 7/1, and 10/1 ARMs, but a float down option continues to be available on the Rate Cap Program option." And what is an "MCC"? Dating from 1984, Mortgage Credit Certificates, issued by state or local financial agencies, allow the borrower to claim a tax credit for a specified percentage of the mortgage interest payments made during a given tax year. Chase currently permits the use of Mortgage Credit Certificates (MCCs) for the purposes of qualification on FHA transactions only. "However, due to low volume and increased risk, Chase is eliminating the availability of MCCs for loan qualification purposes."

RMIC sees things getting better out there. It is making changes to its market classifications. Twenty seven markets improved from their previous classification, including large markets such as Atlanta, Boston, Chicago, and Minneapolis-St. Paul, and only one market became more restrictive (Grand Junction, CO).

Fifth Third announced a change, albeit a little confusing, to its title transfer policy. For all products now, "If the title was held by an ineligible entity (i.e. LLC) in the last 24 months, OR since the borrower purchased the property if less than 24 months, the transaction is ineligible. An eligible entity is defined as any entity that is not a natural person, qualifying Inter Vivo Revocable Trust or Illinois Land Trust. Title vested in an LLC (or other ineligible entity) is unacceptable and cannot be transferred back to individual(s) for eligibility purposes. The following information is stated in the Mortgage document signed by the borrower at closing: If all or any part of the property or any interest in the property is sold or transferred (or if the Borrower is not a natural person and a beneficial interest in the Borrower is sold or transferred) without Lender's prior written consent, Lender may require immediate payment in full of all sums secured by this Security Instrument."

There was an interesting HARP & mortgage pooling write-up done by Paul Jacob of Banc of Manhattan. "Though we haven't seen any official announcements, there have been widespread reports that the GSEs are now prohibiting originators from marketing pools as "HARP-only" or "MHA-only".  By way of background, HARP refers to the Home Affordable Refi Program, by which borrowers whose loans are already guaranteed by Fannie or Freddie, but whose current LTVs are very high because of declining home prices, can refi into lower-rate loans despite the high LTVs.  LTVs > 105 have to go into non-TBA pool types (FNCQ for Fannie, FGU6 for Freddie).  But HARP loans with 80-105 LTVs can go into TBA-eligible pools that carry regular pool types; these are the ones the GSEs are mad about.   Here's what originators won't be able to do going forward:  Label pools as "HARP-only".  Here's what they will be able to do: pool high-LTV loans separately and sell them as "high LTVs" in the same way that they sell max-$85 K.  We've heard talk that some originators may pool "high LTV + refi-only" to further refine the category. The vast majority of these borrowers won't be able to get "best rates" refi's until they get enough home price appreciation to get their LTVs back around 80 - and that's going to take awhile in this housing market."

Prepayment speeds were released yesterday. What difference do those make? If you're an investor, hoping to hang on to those high-rate mortgages for a while, they've very important. And in general, how long mortgages stay on books impacts all mortgage pricing. Speeds came in at the lower end of estimates: lower coupons remained the most responsive to lower mortgage rates in the latest report, owing to their excellent credit profile and large loan size. Freddie's speeds were a little faster than Fannie, possibly reflective of a higher concentration of more efficient servicers? Higher coupons continued to display little sensitivity to rates - those folks can't refinance. Across vintages, the 2002 vintage continued to prepay faster than 2003, which in turn was faster than the 2004/05 production.

We had another good day yesterday for rates. And stocks rallied also, leading pundits to repeat their belief that either bonds are "wrong" or stocks are "wrong". And although mortgage prices initially were stagnant during the improvement in Treasury yields following a worse than expected ADP number, they caught up. It helped that only $1.2 billion in MBS's were sold. Mortgage traders saw buying from originators buying back hedges, money managers, servicers, etc. By the end of the day the 10-yr note was better by .625 in price & down to 2.40%, and current coupon mortgage security prices were better by .375. 30-yr Fannie 3.5% securities, into which would go 3.75-4.125% mortgages, closed at 101.375 - a nice 1.375 rebate!


Jennifer's wedding day was fast approaching.

Nothing could dampen her excitement - not even her parent's nasty divorce.  Her mother had found the PERFECT dress to wear, and would be the best-dressed mother-of-the-bride ever!  A week later, Jennifer was horrified to learn that her father's new young wife had bought the exact same dress as her mother!

Jennifer asked her father's new young wife to exchange it, but she refused. ''Absolutely not! I look like million bucks in this dress, and I'm wearing it,'' she replied.

Jennifer told her mother who graciously said, ''Never mind sweetheart. I'll get another dress. After all, it's your special day.''

A few days later, they went shopping, and did find another gorgeous dress for her mother.

When they stopped for lunch, Jennifer asked her mother, ''Aren't you going to return the other dress?  You really don't have another occasion where you could wear it."

Her mother just smiled and replied, ''Of course I do, dear. I'm wearing it to the rehearsal dinner the night before the wedding.''