Ronald Reagan said, "The taxpayer is someone who works for the federal government but doesn't have to take the civil service examination."

Taxpayers pretty much own Freddie and Fannie, and the latest news (besides some rumored Freddie Mac lay-offs) is that U.S. Rep. Scott Garrett will be the chairman for the House subcommittee overseeing financial markets and the mortgage giants Fannie Mae and Freddie Mac next year. "While there will be a number of very important issues on the subcommittee's plate during the 112th Congress, winding down Fannie Mae and Freddie Mac will be priority No. 1," Garrett said in a statement. "With the American taxpayers already on the hook for $150 billion and counting to bail them out, we need to be taking concrete steps to reduce the ongoing financial risk they pose to the country and eradicating the bailout culture of Capitol Hill." READ MORE ABOUT GSE REFORM

In addition, Joseph Smith, who is Obama's nominee to be the director of FHFA (Fannie, Freddie, Federal Home Loan Banks, etc.) and is currently the North Carolina banking commissioner, has been meeting with senators, congressional staff and other officials. Obama must offer Congress a plan in January for reorganizing the agencies. The Senate Banking Committee, and the the full Senate, must vote on Smith's nomination this month before Congress adjourns. Otherwise, the nomination expires and Obama must put forward his name again in the next Congress.

There was no lack of comments on the NCRC's allegations of FICO overlays by banks causing discrimination. "Mortgage lenders as well as the general tax payer have suffered enough at the hands of subprime borrowers getting home loans they couldn't afford.  FICO scores have nothing to do with your ethnicity, only your propensity to pay your bills on time or your bills at all (and in most cases your ability to live within your means).  Many mortgage lenders have learned their lesson that just because someone is willing to buy a loan doesn't mean you should originate it.  Maybe the only discrimination is against potential delinquent borrowers.  Too bad FHA hasn't learned their lesson - 580 FICO at 95% LTV?"

"Unfortunately, I don't think NCRC has a leg to stand on. FICO scores by themselves are designed to eliminate the heritage of the borrower and to look at the risk from a numbers stand point. The courts have ruled that restrictions based upon economics are not discrimination.  But from an economic stand point, the country as a whole really needs the NCRC to win: with the new DU rule banning foreclosures and short sale histories for 7 years, we are removing almost 20% of the buyers from the market for 7 years. The continued loss of buyers will only continue to drive down values or personal net worth.  Seems the banks have become over defensive and it will result in their own demise."

The Community Mortgage Banking Project wrote, "The FHA has always recognized the need for lenders and investors in FHA loans to establish and maintain their own risk management tolerances. The NCRC argues that there is "no legitimate business justification" for establishing credit score requirements that exceed FHA's minimum standard, and has referred many of the lenders it contacted to the federal regulators urging an investigation of these practices. To ask mortgage lenders to ignore the risk factors for certain loans is reckless and misguided." The CMBP believes NCRC's analysis and reasoning is flawed for several reasons, which include lower credit score loans defaulting at a higher rate resulting in increased costs for lenders and servicers.

"Although FHA insures mortgages against default risk, the lenders and servicers on these loans are still exposed to significant costs when loans default. These costs are not borne by the FHA. Servicers must advance principal and interest payments to investors whenever an FHA loan goes delinquent. In addition, servicers must pay a defaulted borrower's unpaid property taxes and homeowners insurance. Defaulted loans experience significantly higher servicing costs than performing loans. Investors in FHA loans face prepayment risks whenever loans default. Thus, high percentages of low FICO score borrowers expose investors to increased prepayment risk. Lenders are facing increased disciplinary scrutiny by FHA for default rates that significantly exceed the average. Lenders that originate too many low credit score loans face the prospect of increased indemnification requests and could lose the ability to participate in FHA's premier programs (e.g., the Direct Endorsement, Lender Insurance).

The CMPB went on to say that the FHA requirements are not the only lending standards, as investors set criteria as well and smaller lenders cannot very well originate loans that have limited investor acceptance. It also reminds us that "lenders and investors in FHA loans have always been permitted to establish and maintain their own risk management standards. FHA does not "require" lenders to originate each and every loan that meets its minimum credit parameters. These are guidelines to protect the FHA insurance fund and taxpayers from shoddy lending practices, not a mandate to lend. Expanded lending to borrowers with a 20% default rate is not the kind of sustainable mortgage credit that our struggling housing markets need."

In a related, but unrelated, matter, PrimeLending, a national mortgage lender with 168 offices in 32 states, has agreed to pay $2 million to resolve allegations that it engaged in a pattern or practice of discrimination against African-American borrowers between 2006 and 2009.  The settlement comes after the Department of Justice filed a complaint that Prime, with headquarters in Dallas, violated the federal Fair Housing Act and Equal Credit Opportunity Act by charging African-American borrowers higher prices on retail loans made through PrimeLending's branch offices. "PrimeLending cooperated fully with the Justice Department's investigation into its lending practices and agreed to settle this matter without contested litigation." FULL STORY

My expertise does not reside in commercial lending, but this report from S&P, carried by Barclays, caught my eye. "The second-largest CMBS loan, Beacon Seattle & D.C. Portfolio, was modified. Details of the modification are expected to be available within the next 30 days, but the key features include the maturity date being extended to May 7, 2017 (5-year extension), the pay rate will use a reduced coupon (from 5.797% to 3%) triggering shortfalls, the difference between the accrual (5.797%) and pay (3%) rates will be deferred and outstanding."

And what would this commentary be without some exciting investor news, besides this weekend's rollout of DU 8.2?

Wells' broker clients learned about some new price adjusters for non-conforming products (two new adjusters improved price by .250 for non-conforming products that meet the following LTV and Loan Score requirements: Loan-to-Value less than or equal to 50% Loan Score greater than or equal to 780), Price Adjuster Change for FHA, VA and USDA Rural Development Loans, Minimum Loan Score Increase to 640 for FHA, VA and USDA Rural Development Loans, and the update of a USDA Rural Development Form RD 1980-21.

Today Flagstar Bank will be lowering its Super Conforming price adjustment by .75, and Flag also removed the NY Mortgage Tax adjustment for correspondent locks on New York properties. "In conjunction, we are also removing the credit at time of correspondent loan purchase that offsets this adjustment."

Over at PHH, which handles many private label mortgages for companies like Charles Schwab,  told clients about the new USDA Rural Development's form 1980-21, "Request for Single Family Housing Loan Guarantee" which will be leveraged for all USDA Rural Development loans.

US Bank National Wholesale Sales reminded patrons that it will be following the FHLMC (Freddie) increase in the HASP Open Access delivery fee. "The changes are to FICO/LTV fees and Secondary Financing delivery fees.  The changes are widespread affecting most transactions; therefore U.S. Bank Home Mortgage Wholesale Division will implement these new fees effective with all locks taken on or after Monday." Loans already locked with the current delivery fees must be closed, disbursed and be delivered for purchased by USBHM no later than January 20, 2011. Lock extensions with expiration dates beyond January 20, 2011 will be subject to the new delivery fees.

Automation is certainly a sign of the times. Stearns Lending, for example, has told brokers that all loan locks must be done through its "SNAP". "Faxed and e-mailed locks will not be accepted and there will be no lock protection unless submitted through our automated system."

On Thursday the fixed-income markets took a little break from the day-over-day volatility, although we had some intra-day price movement. Mortgage-backed security prices closed about unchanged from Wednesday afternoon's levels on slightly-less-than-average volumes. Interestingly, inflation still trending lower, this has left the real (inflation-adjusted) 10-year rate at one of the highest levels it has been in during the last ten years. As usual, as Paul Jacob from BoM points out, either the markets are pricing in a big upswing in inflation going forward, the market's pricing in terrific growth for 2011-2012, with Fed tightening just around the corner, or lastly the market's become very afraid of dollar-denominated debt because of the fiscal deficit. Or maybe this selloff was overdone.

The $13 billion 30-year auction went pretty well, and certainly helped to keep bond prices "off the bottom." The 30-year came "5.4bps through its 1PM level at 4.41%, a massive 49.5% allotted to indirect bidders the highest percentage since July 2009, 8.1 by directs and a 2.74 bid to cover." Traders saw MBS buying from insurance companies and pension funds, and some originators buying back hedges. The 10-yr closed at 3.23%.

A firefighter was working on the engine outside the Station, when he noticed a little girl nearby in a little red wagon with little ladders hung off the sides and a garden hose tightly coiled in the middle.

The girl was wearing a firefighter's helmet.  The wagon was being pulled by her dog and her cat.

The firefighter walked over to take a closer look.

"That sure is a nice fire truck," the firefighter said with admiration.

"Thanks," the girl replied.

The firefighter looked a little closer.  The girl had tied the wagon to her dog's collar and to the cat's testicles.

"Little partner," the firefighter said, "I don't want to tell you how to run your rig, but if you were to tie that rope around the cat's collar, I think you could go faster."

The little girl replied thoughtfully, "You're probably right, but then I wouldn't have a siren."