A co-worker recently asked me about "instant messaging". I told him that the only instant messaging that I do is with my middle finger. (Illustration not necessary.)
In a move that other states may take note of, North Carolina, the N.C. Office of the Commissioner of Banks (NCCOB) is sending a message by announcing that it is proposing mortgage rules to help reduce foreclosures, to improve consumer protection and the functioning of the mortgage market, and to implement the S.A.F.E. Act. (North Carolina's NCCOB regulates state-chartered banks, thrifts, savings and loans, trust companies, and more than 875 mortgage lenders/servicers/brokers and 9,800 mortgage loan originators, as well as numerous consumer finance companies, check-cashers, and other financial services.) They are considering a rule that would require a mortgage servicer to stop foreclosure efforts pending the consideration of a request by the homeowner for assistance, and require a mortgage servicer to respond promptly and clearly to homeowner requests for assistance.
In addition, the state is considering a prohibition on lenders from making loans if the use of the lender was required in order to obtain a discount from an affiliated party, such as a homebuilder (supposedly it would not prevent homebuilders from offering discounts to homebuyers, as long as they were not tied to the use of a particular lender), require mortgage lenders to provide an early disclosure that compares a proposed loan offer to a standard 30-year fixed-rate mortgage loan, prohibit compensation to lenders and brokers that are based on the terms of the loan, and require clear labels of solicitations for refinance.
Well, the tax credit extension is about to be signed. I can hardly wait for my son to turn 18 in March! Yesterday the House voted 403-12 to extend and expand the tax credit to include many buyers who already own homes. The Senate approved the measure Wednesday, and the White House said President Barack Obama would sign it today. "Buyers who have owned their current homes at least five years would be eligible for tax credits of up to $6,500. First-time homebuyers - or anyone who hasn't owned a home in the last three years - would still get up to $8,000. To qualify, buyers in both groups have to sign a purchase agreement by April 30, 2010, and close by June 30. The credit is available for the purchase of principal homes costing $800,000 or less, meaning vacation homes are ineligible. The credit would be phased out for individuals with annual incomes above $125,000 and for joint filers with incomes above $225,000." READ MORE
Speaking of the Fed supporting the market, last week's purchases declined by $2 billion to $16 billion, and mostly in 5% securities (5.25-5.625% mortgages). The YTD purchases of agency MBS is now at $993 billion. For FHA & VA fans out there, the net purchases in GNMAs have dropped significantly, down to 175 million from 1.35 billion in the previous week. READ MORE
Fannie Mae posted a quarterly loss of $19.76 billion, driven by $22 billion in credit losses, and is reported to be asking our government for another $15 billion in aid which would bring the total to $60 billion. The loss is slightly better their loss of about $29 billion a year ago and includes $883 million in dividends paid to the Treasury Department. At the end of last month, about 4.7 percent of Fannie Mae's borrowers nationwide had missed at least three payments (Florida and Nevada are hovering around 11%). Combined with Freddie, the aid package could hit $111 billion. Between the two of them, they own or guarantee almost 31 million home loans worth about $5.5 trillion - about half of all mortgages.
For many good reasons, Fannie Mae is introducing the Deed-for-Lease Program (D4L). "D4L allows qualifying borrowers of properties transferred through deed-in-lieu of foreclosure (DIL) to remain in their home and community by executing a lease of up to 12 months in conjunction with a DIL. Critics, however, say the company is simply gambling that the properties will eventually sell for a higher price. Investment properties that are tenant-occupied may also be considered as long as the borrower is cooperative in providing information from the tenant to facilitate the D4L." After a servicer (not the broker or banker) determines that a borrower may qualify for a DIL, they will notify Fannie Mae that the borrower may also be eligible for D4L based on "an initial screen of predetermined eligibility criteria. Fannie Mae, or its designee, will take the steps necessary to further verify property and borrower eligibility, determine the rental rate, and, if appropriate, execute the lease agreement." Qualifications include the ability to pay market rent not to exceed 31 percent of his or her monthly gross income.
American International Group Inc. (AIG) made a profit of over $450 million in the third quarter, its second straight profit and better than expected. After the stock hit a low in March, it is up almost 6x! Taxpayers, through the government, have thrown $180 billion at the company. AIG has been helped by an "ok" housing market, a doubling of profits in their life insurance division, and changes in how financial firms can value assets although in this last quarter they had $1.8 billion in capital losses.
PMI Group lost about $93 million in the latest quarter, less than expected and certainly less than the $229 million that they lost in the same quarter a year ago. Many analysts feel that between the quality of the paper being written now, and some stabilization in housing prices, losses for MI companies in general may lessen. In PMI's statement they said that losses and loss-adjustment expenses as well as reduced premiums earned and investment income drove the latest quarter's red ink, in addition to a change in the fair value of some debt. Since hitting their low price in March, PMI's stock is up eightfold!
Freddie Mac issued their 2209-26 bulletin which has details of the changes in the Home Affordable Modification program (HAMP) forbearance and net present value (NPV) requirements that will be effective on 12/1. More specifically, "if it is necessary to use partial principal forbearance to achieve the target payment as outlined in Guide Section C65.6, the Servicer must apply the new limit on the amount of permissible forbearance, as described in today's Guide Bulletin, to determine if the mortgage is eligible for HAMP." And "if the U.S. Department of the Treasury (Treasury) NPV result is negative $5,000.01 or lower, the mortgage is ineligible for HAMP and the Servicer should consider the borrower for another foreclosure alternative." Freddie also told their clients that the new IRS form 4506T-EZ is acceptable under HAMP, and that at this point all servicers must now use Workout Prospector to evaluate all borrowers for a modification under HAMP.
Mortgage rates and Treasury rates don't always trade exactly the same. Traders on Wall Street use Treasury rates to help them price mortgage backed securities, based on a variety of factors such as supply and demand, perceived risk, and duration. This week has been a little unusual, as dealers are reporting that mortgage selling has been limited whereas the Fed continues to buy, which in turn has driven mortgage prices up and rates down relative to Treasury securities - up to a point. "Whenever we approach or eclipse 101-00 on 4.5s supply from originators picks up substantially." said one trader.
Tomorrow morning the headlines will all read, "Unemployment Rate hits 26 year high at 10.2%". Nonfarm Payroll dropped 190,000, 15k worse than expected although August and September were revised to show 91,000 fewer jobs lost than previously reported. Payrolls have declined for 22 consecutive months now - and even many who are back at work are either "under-employed" - working part time, or not making as much as they were. Manufacturing employment fell 61k, construction was down 62k, the service-providing sector cut 61k and goods-producing industries cut 129k. How will we have a recovery with those numbers? As one would expect, stocks fell on the news and bonds have rallied: the 10-yr note and mortgage prices are better by about .250, and the 10-yr yield is bouncing between 3.46 and 3.50%.
Two old guys, one 80 and one 87, were sitting on their usual park bench one morning.
The 87 year old had just finished his morning jog and wasn't even short of breath. The 80 year old was amazed at his friend's stamina and asked him what he did to have so much energy.
The 87 year old said, "Well, I eat rye bread every day. It keeps your energy level high and you'll have great stamina with the ladies."
So, on the way home, the 80 year old stops at the bakery. As he was looking around, the lady asked if he needed any help.
He asks, "Do you have any rye bread?"
She said, "Yes, there's a whole shelf of it. Would you like some?"
He said, "I want 5 loaves."
She said, "My goodness, 5 loaves.... by the time you get to the 5th loaf, it'll be hard."
He replied, "I can't believe it, everybody knows about this stuff but me."