A pig and a chicken are walking down a road. The chicken looks at the pig and says "Hey, why don't we open a restaurant?" The pig looks back at the chicken and says "Good idea, what do you want to call it?" The chicken thinks about it and says "Why don't we call it 'Ham and Eggs'?" "I don't think so" says the pig, "I'd be committed, but you'd only be involved."

LO's committed to refinances continue to be encouraged by the mortgage application numbers. The latest numbers (this morning, for last week) from the MBA show that applications for refinancing on home mortgages were up over 9% last week versus a drop of about 8% for purchases. Overall, apps were up 4.1%. The refinance share of total mortgage activity rose to 79.7 percent of applications from 76.0 percent the week before. How long have we heard, "Well, those refi's are going to go away at some point!"? That is true, but not quite yet.

Who is refinancing, and how are they doing it? Math and statistics majors have been slicing and dicing the numbers for us. Prepayments have been concentrated in the largest, best-credit loans, with TPO (broker biz/ providing a substantial boost. "The money doesn't get any hotter than 15-years (outstanding credit) and 5/1 hybrids (serial refinancers)" said one analyst. LO's know that they have already rifled through the easiest loans in their rolodexes. What's also interesting is that the primary-secondary mortgage rate spread (rate sheet versus MBS + servicing value) has been holding around 80 bps (based on the Freddie survey rate), indicating that originators are maintaining healthy margins. But correspondent lending capacity continues to be a big problem - and there's no way that this phenomenon translates into a more competitive origination environment or faster prepayments.

Sterne, Agee & Leach, Inc. produced an extensive research piece (not for redistribution by me, so if you're interested in learning more about Sterne Agee and the analysis contact Kevin Cavin at kcavin@sterneagee.com) which analyzed various prepayment speeds. It is, of course, not as simple as it was 20 years ago, when, if current rates were .5% lower than the borrower's rate, it made sense to refi. "Information is king." Prepayment speeds are not only based on rate, but also loan size, current LTV, owner occupancy, TPO versus retail, servicer ((Provident, Fifth Third, and Citi are very efficient), state, loan type (rural housing, for example), and so on.

In Georgia (where in Gainesville, the Chicken Capital of the World, it is illegal to eat chicken with a fork), the deal between Flagstar and PNC Bank closed, with "Flag" selling its 27-branch retail bank franchise to PNC. The deal was announced earlier this year, and follows Flagstar's December decision sell off of its Indiana branches. (The total number of bank franchises sold stands at 49.)

And over in Washington, remember WAMU? They're baaaack... or are they? Check out http://m.apnews.com/ap/db_8560/contentdetail.htm?contentguid=CAIJZ7CK.

Occasionally I am asked about credit scores for FHA loans (remember that many underwriting criteria are determined by the investor/aggregator). Here is a site for those wannabe government underwriters out there: http://www.homebuyinginstitute.com/news/fha-credit-scores-199.


In vendor news, DocuTech (mortgage compliance services for mortgage documents) has acquired the assets of Lender Support Systems (LSSI) Docs3D mortgage document software from parent company, Emphasys Software. "The acquisition of LSSI's Docs3D software and customer base enables DocuTech to continue growing its existing presence among regional banks and credit unions. Current LSSI customers will see no disruption of services and can look forward to benefitting from the expanded compliance services offered by DocuTech, including dedicated legal staff tracking all regulatory changes and monthly updates to ensure all systems are up-to-date."

MIAC sent out news yesterday to the industry focused on FHFA's proposals to modify the structure of mortgage servicing fees.  FHFA is requesting public input on the two proposals and the comment period expires on December 25. "MIAC is strongly recommending that you contact FHFA to voice your opinion on this matter.  Written materials may be submitted to FHFA at Servicing_Comp_Public_Comments@fhfa.gov." MIAC believes that the changes are bad news for small servicers. "In the existing servicing compensation model, servicers retain an economic interest in the performance of the loans they are servicing.  Since non-performing loans are more costly to service than current loans, the servicer is incentivized to reduce the level of delinquencies in order to maximize profits.  Any proposal that compensates a servicer with additional fees for non-performing loans simply doesn't make sense, since it encourages servicers to allow performance to deteriorate.  Furthermore, a flat fee-for-service model would represent a net decrease in overall servicer compensation and would ultimately cause mortgage servicing to become nothing more than a business requiring massive economies of scale.   The obvious result is that the industry would undergo further consolidation, forcing smaller and medium-sized servicers to exit the business completely. The adoption of the FHFA proposal will have a major impact on the mortgage industry and will dramatically change the economics of servicing residential mortgage loans.  While this may be beneficial for mega-servicers to help them comply with capital requirements under Basel III, it will have a negative effect for all other small and medium-size servicers, and would effectively reduce the role of all servicers to that of a subservicer for Fannie Mae and Freddie Mac." The original paper can be found at:

For investor news, SunTrust announced that e-mail will soon replace webdocs and faxing. Also, starting a few days ago, SunTrust eliminated Agency Affordable Lending Loan Programs MyCommunity and "Teacher, Healthcare Worker and Safety 1st Loan".

ING sent word out to its broker clients that, "Open enrollment to revise your company's 1st Quarter Lender-Paid Compensation plan runs through December 23rd. If your plan will not be changing, you DO NOT need to do anything. Your current comp plan will remain in place if your company does not elect to make any changes. If your company chooses a new plan it will take effect on loans submitted January 1st and after. You must confirm with your company's authorized officer or owner which plan has been selected before submitting a loan as Lender-Paid. Any applications Advance-Locked prior to January 1st, and submitted on or after January 1st, will be subject to your new 1st Quarter Lender-Paid Compensation plan."

Things continue to be fine on the interest rate area. Reuters noted, "A strong 10-year note auction and uneventful FOMC statement rallied the bond market following a lower start as supply and uncertainty kept investors cautious. 10-year notes recovered from an intraday low of -14/32nds this morning to be marked 14/32nds higher to 100-11 (1.962%)." This accounted for several investor rate sheet price improvements, and MBS prices closed higher/better by over .250. As expected the FOMC notes said little new: "Strains in global financial markets continue to pose significant downside risks to the economic outlook." The FOMC said it would keep its target range for Fed Funds holding at 0 to 1/4 percent through at least mid-2013, while principal paydowns from agency debt and MBS securities would continue to be reinvested in MBS.

For thrills and chills today we have a $13 billion 30-year bond auction that goes off at 13:00. We also saw Import Prices for November, called at +0.9% from a revised -0.5%, were +.7%. But few seem overly concerned with inflation at this point in the economic cycle. The focus continues on Europe, and some debt auctions over there. So far this morning we're unchanged in bonds from Tuesday afternoon with the 10-yr at 1.96%.

Boudreaux, a furniture dealer from downtown New Iberia decided to expand the line of furniture in his store, so he decided to go to Europe to see what he could find.
He arrived in Paris in early morning, but had an afternoon appointment with the furniture maker, so he decided to visit a small bistro during his wait.
As he sat enjoying his wine, he noticed that the small place was quite crowded, and that the other chair at his table was the only vacant seat in the house. Before long, a very beautiful young Parisian girl came to his table, asked him something in German (which Boudreaux couldn't understand), so he motioned to the vacant chair and invited her to sit down.
He tried to speak to her in English, but she did not speak his language. After a couple of minutes of trying to communicate with her, he took a napkin and drew a picture of a wine glass and showed it to her. She nodded, so he ordered a glass of wine for her.
After sitting together at the table for a while, he took another napkin, and drew a picture of a plate with food on it, and she nodded. They left the bistro and found a quiet cafe near-by that featured a small group playing romantic music. They ordered lunch.... after which he took another napkin and drew a picture of a couple dancing.
She nodded, and they got up to dance. Boudreaux never had so much fun!
Back at their table, the young lady took a napkin and drew a picture of a four-poster bed, which reminded Boudreaux of his appointment, so he abruptly left.
To this day Boudreaux still has no idea how she figured out he was in the furniture business.

If you're interested, visit my twice-a-month blog at the STRATMOR Group web site located at www.stratmorgroup.com. The current blog discusses the time frames for borrowers returning to A-paper status after a short sale or foreclosure. If you have both the time and inclination, make a comment on what I have written, or on other comments so that folks can learn what's going on out there from the other readers.