What the hell is going on out there???
Simple, market conditions have increased loan volumes by over 50 percent and many major investors have not been able to keep up. The Federal Government has turned on the spigot and they are forcing interest rates down. This has created a refinance boom that, quite frankly, the industry cannot handle. It is projected that the mortgage industry will do two times the volume in 2009 as it did in 2008. If this is true, it would mean that we would do approximately $3.6 trillion as an industry. To give you some perspective, in 2003 (the mother of all years) total loan volume amounted to $3.8 trillion. The significant differences between 2003 and 2009 are that only one third of the lenders are still in business, the average loan is twice as hard to get through the underwriting process, and investors are still in fear mode.
The Federal Government will continue to force interest rates down so that the vast majority of Americans can refinance out of loans that are resetting. Additionally, it is my belief that the Federal Government will soon be stepping in to partially insure jumbo loans so that many Americans, who are locked out of a refinancing, will be able to take advantage of these historically low rates. Stay tuned…
Ryan Ogata
Senior Mortgage Consultant
Thursday, February 26, 2009
Thursday, February 19, 2009
There has been little done to help the actual borrower in the present market condition since it is near-impossible to find a solution that will satisfy both the borrower and the investor. Though many steps have been taken, with the Fed buying MBS’s and lower mortgage rates probably being the most helpful, what I would consider to be actual aid has been scarce to say the least. Principal reductions may help many stay in their homes but will it make the economy turn around?
If you were a mortgage servicer like Wells or Chase, and you have been buying 5.5% mortgages at a 2 or 3 point premium above par, thinking that you might have them on your books a while, would you be excited about “Homeowner Affordability and Stability Plan” announced yesterday? The jury is still out since prepayments might increase, but banks, money managers and hedge funds were selling their higher rate mortgage pools and selling 4 and 4.5% MBS’s, which would include 4.25 – 5.125% mortgage rates.
Ryan Ogata
Senior Mortgage Consultant
From: Rob Chrisman Subject: Feb. 19, 2009: Appraisal update; Homeowner Affordability and Stability Plan.
The Homeowner Affordability and Stability Plan may assist as many as 9 million homeowners, but will it help the mid-size mortgage banker? Many hope so. The plan applies to primary residences, and only to loans that don’t exceed Freddie Mac/Fannie Mae conforming loan limits. Homeowners who have conforming loans owned or guaranteed by Freddie Mac and Fannie Mae will be allowed to refinance their homes, even if they do not have 20 percent equity. If homeowners are actually underwater, but not necessarily delinquent, the “Homeowner Stability Initiative” takes over and lenders, servicers, and the government will work together to share in the cost of the modification which reduces the monthly payments to not exceed a 38% DTI. (Servicers would receive an up-front fee of $1,000 for every eligible modification meeting the initiative’s guidelines. Guidelines Mortgage holders will receive an incentive payment of $1,500, and servicers $500, for modifications made on loans that are current but at risk of imminent default.) And lastly, and this should help smaller mortgage companies, the Treasury Dept. plans to increase their Preferred Stock Purchase Agreements with both Fannie Mae and Freddie Mac, and will continue to purchase Fannie Mae and Freddie Mac mortgage-back securities in order to help promote stability and liquidity in the marketplace.
May 1 will be here before we know it and supposedly on that date mortgage brokers can no longer order appraisals direct. Instead they will be forced to use a designated pool of appraisers of unknown quality and efficiency. The New Home Valuation Protection Code, used by Fannie & Freddie, created requirements governing appraisal selection, solicitation, compensation, conflicts of interest and corporate independence. Mortgage brokers will be prohibited from selecting appraisers, lenders are prohibited from using in-house staff appraisers to conduct initial appraisals, and lenders are prohibited from using appraisal management that they own or control. Appraisers, good and bad, are scrambling to sign up with management companies who have placed them on rotating lists, typically at a cost to the appraiser. Interestingly, the code mandates that mortgage brokers adhere to the rules of using a management company’s pool of appraisers, but mortgage bankers are not.
For scheduled news today, we had Jobless Claims remain unchanged from the previous week at 627,000, still near a 26-year high and slightly higher than the 620,000 forecast. U.S. producer prices climbed more than forecast in January, +0.8%, also higher than projected and which followed a 1.9 percent drop in December. The core rate, excluding food and fuel, was +0.4%, also more than anticipated. Later, at 7AM PST, we will see Leading Economic Indicators, expected about unchanged, and the Philly Fed survey. Unfortunately rates have moved higher this morning, both before and after this news. Maybe focused on the supply issue of $97 billion of debt to be sold next week to support the government’s spending? The 10-yr is back to 2.85% and mortgages are worse by .250-.375 in price.
Rob Chrisman
If you were a mortgage servicer like Wells or Chase, and you have been buying 5.5% mortgages at a 2 or 3 point premium above par, thinking that you might have them on your books a while, would you be excited about “Homeowner Affordability and Stability Plan” announced yesterday? The jury is still out since prepayments might increase, but banks, money managers and hedge funds were selling their higher rate mortgage pools and selling 4 and 4.5% MBS’s, which would include 4.25 – 5.125% mortgage rates.
Ryan Ogata
Senior Mortgage Consultant
From: Rob Chrisman Subject: Feb. 19, 2009: Appraisal update; Homeowner Affordability and Stability Plan.
The Homeowner Affordability and Stability Plan may assist as many as 9 million homeowners, but will it help the mid-size mortgage banker? Many hope so. The plan applies to primary residences, and only to loans that don’t exceed Freddie Mac/Fannie Mae conforming loan limits. Homeowners who have conforming loans owned or guaranteed by Freddie Mac and Fannie Mae will be allowed to refinance their homes, even if they do not have 20 percent equity. If homeowners are actually underwater, but not necessarily delinquent, the “Homeowner Stability Initiative” takes over and lenders, servicers, and the government will work together to share in the cost of the modification which reduces the monthly payments to not exceed a 38% DTI. (Servicers would receive an up-front fee of $1,000 for every eligible modification meeting the initiative’s guidelines. Guidelines Mortgage holders will receive an incentive payment of $1,500, and servicers $500, for modifications made on loans that are current but at risk of imminent default.) And lastly, and this should help smaller mortgage companies, the Treasury Dept. plans to increase their Preferred Stock Purchase Agreements with both Fannie Mae and Freddie Mac, and will continue to purchase Fannie Mae and Freddie Mac mortgage-back securities in order to help promote stability and liquidity in the marketplace.
May 1 will be here before we know it and supposedly on that date mortgage brokers can no longer order appraisals direct. Instead they will be forced to use a designated pool of appraisers of unknown quality and efficiency. The New Home Valuation Protection Code, used by Fannie & Freddie, created requirements governing appraisal selection, solicitation, compensation, conflicts of interest and corporate independence. Mortgage brokers will be prohibited from selecting appraisers, lenders are prohibited from using in-house staff appraisers to conduct initial appraisals, and lenders are prohibited from using appraisal management that they own or control. Appraisers, good and bad, are scrambling to sign up with management companies who have placed them on rotating lists, typically at a cost to the appraiser. Interestingly, the code mandates that mortgage brokers adhere to the rules of using a management company’s pool of appraisers, but mortgage bankers are not.
For scheduled news today, we had Jobless Claims remain unchanged from the previous week at 627,000, still near a 26-year high and slightly higher than the 620,000 forecast. U.S. producer prices climbed more than forecast in January, +0.8%, also higher than projected and which followed a 1.9 percent drop in December. The core rate, excluding food and fuel, was +0.4%, also more than anticipated. Later, at 7AM PST, we will see Leading Economic Indicators, expected about unchanged, and the Philly Fed survey. Unfortunately rates have moved higher this morning, both before and after this news. Maybe focused on the supply issue of $97 billion of debt to be sold next week to support the government’s spending? The 10-yr is back to 2.85% and mortgages are worse by .250-.375 in price.
Rob Chrisman
Wednesday, February 18, 2009
General Motors and Chrysler said Tuesday they could need an additional $21.6 billion in federal loans because of “worsening” demand for their cars and trucks. Huh? Because consumers refuse to buy a GM or Chrysler vehicle, the tax payer should invest more money in these companies? If anyone else finds this is to be a ridiculous statement, please feel free to agree.
In other news, Obama is unveiling his mortgage foreclosure prevention plan today. The program is seeking to help some 9 million borrowers through a combination of principle relief and interest rate reductions. Unlike previous initiatives, this one compensates mortgage servicers for both the initial modification, and further compensates them if the newly modified loan remains in good standing. Furthermore, for the first time, lenders are being incentivized to proactively modify mortgages before they go into default. Rocket Science!
Ryan Ogata
Senior Mortgage Consultant
From: Rob Chrisman Subject: Feb. 18, 2009: EquiFirst calls it a day; locks skyrocket everywhere & brokers are maxing out locks, MI companies in the news.
CitiMortgage now requires the following minimum FICO scores on all FHA and VA loans, including FHA Streamline and VA IRRRL. For loans ≤ $417,000, it is 620, above $417 borrowers need a 660.
EquiFirst, a 20-year veteran retailer and wholesaler headquartered in Charlotte and owned by Barclays, yesterday announced, “Effective immediately, EquiFirst Corporation is ceasing its lending operations and will no longer accept mortgage loan applications for any type of mortgage loan product. EquiFirst will continue to process any completed mortgage loan application upon completion of underwriting and processing.”
For the markets, yesterday was another day of “stocks down, bond prices up” although as we know that is not always the case. It depends on the reasons, but with every country’s economy doing poorly, they can’t support higher rates. Along with Japan’s dismal data, manufacturing in the New York area contracted at the fastest pace on record, spurring concern the government’s stimulus package won’t be enough to curb the recession, which some think will lead to a depression. Today is Housing Starts (expected -3.6% but was down almost 17 %!), Building Permits (expected -4% but down almost 5%), Industrial Production (expected -1.5% but down1.8%), and Capacity Utilization. Later on we will have a flurry of Fed speakers, along with the release of the Fed minutes from the January 28th meeting. After this we find mortgage prices roughly unchanged from yesterday afternoon, and the 10-yr around 2.63%.
The MBAA announced that last week’s mortgage applications were up 46% due to refinancing being up 64%! Purchases were up over 9%, which was a welcome sign that at some point, and some interest rate level, purchases are starting to pick up. Originators who are still locking on a loan-by-loan basis are regularly hitting the daily caps set by large investors for them, whereas it appears that companies that are hedging their locked pipelines using securities or bulk forwards are avoiding this problem.
Rob Chrisman
In other news, Obama is unveiling his mortgage foreclosure prevention plan today. The program is seeking to help some 9 million borrowers through a combination of principle relief and interest rate reductions. Unlike previous initiatives, this one compensates mortgage servicers for both the initial modification, and further compensates them if the newly modified loan remains in good standing. Furthermore, for the first time, lenders are being incentivized to proactively modify mortgages before they go into default. Rocket Science!
Ryan Ogata
Senior Mortgage Consultant
From: Rob Chrisman Subject: Feb. 18, 2009: EquiFirst calls it a day; locks skyrocket everywhere & brokers are maxing out locks, MI companies in the news.
CitiMortgage now requires the following minimum FICO scores on all FHA and VA loans, including FHA Streamline and VA IRRRL. For loans ≤ $417,000, it is 620, above $417 borrowers need a 660.
EquiFirst, a 20-year veteran retailer and wholesaler headquartered in Charlotte and owned by Barclays, yesterday announced, “Effective immediately, EquiFirst Corporation is ceasing its lending operations and will no longer accept mortgage loan applications for any type of mortgage loan product. EquiFirst will continue to process any completed mortgage loan application upon completion of underwriting and processing.”
For the markets, yesterday was another day of “stocks down, bond prices up” although as we know that is not always the case. It depends on the reasons, but with every country’s economy doing poorly, they can’t support higher rates. Along with Japan’s dismal data, manufacturing in the New York area contracted at the fastest pace on record, spurring concern the government’s stimulus package won’t be enough to curb the recession, which some think will lead to a depression. Today is Housing Starts (expected -3.6% but was down almost 17 %!), Building Permits (expected -4% but down almost 5%), Industrial Production (expected -1.5% but down1.8%), and Capacity Utilization. Later on we will have a flurry of Fed speakers, along with the release of the Fed minutes from the January 28th meeting. After this we find mortgage prices roughly unchanged from yesterday afternoon, and the 10-yr around 2.63%.
The MBAA announced that last week’s mortgage applications were up 46% due to refinancing being up 64%! Purchases were up over 9%, which was a welcome sign that at some point, and some interest rate level, purchases are starting to pick up. Originators who are still locking on a loan-by-loan basis are regularly hitting the daily caps set by large investors for them, whereas it appears that companies that are hedging their locked pipelines using securities or bulk forwards are avoiding this problem.
Rob Chrisman
Tuesday, February 17, 2009
President Obama has signed the $790 billion economic stimulus bill. It includes an expansion of the first-time homebuyer tax credit ($8k, no pay-back) and restores to $729,750 (in the 2008 Stimulus Act) the upper loan limit in high-cost areas for Fannie Mae, Freddie Mac and FHA loan guarantee programs.
Just like last year however, a few things MUST happen before any investor will accept applications with higher loan amounts. Ultimately, the Agencies (Fannie Mae and Freddie Mac) and FHA must determine whether pricing, policy and/or delivery requirements will be changed. In short, I expect the lenders to take about 30 days to try and figure out some scheme to ultimately screw the consumer. If you remember the first time the loan amounts were raised to this level you can understand my skepticism.
Ryan Ogata
Senior Mortgage Consultant
Just like last year however, a few things MUST happen before any investor will accept applications with higher loan amounts. Ultimately, the Agencies (Fannie Mae and Freddie Mac) and FHA must determine whether pricing, policy and/or delivery requirements will be changed. In short, I expect the lenders to take about 30 days to try and figure out some scheme to ultimately screw the consumer. If you remember the first time the loan amounts were raised to this level you can understand my skepticism.
Ryan Ogata
Senior Mortgage Consultant
Friday, February 13, 2009
What a day we had yesterday in the mortgage business. Lock volume exploded as rates for conforming loans dropped drastically amidst another rally in the bond market this week (at least that’s what I hear…)
The Senate and House are set to vote today on the new stimulus package. Looks like the $15,000 tax credit we were all hoping for is off the table and has been replaced with the $8,000 tax credit that won’t work in San Francisco. Oh well...
Long overdue news from ING: Beginning today, “Interest-Only is no longer available on properties located in California. Financing on second homes is no longer available on properties located in California. And LTV price incentives are no longer available on properties in California.” I thought this was the Golden State”.
Ryan Ogata
Senior Mortgage Consultant
From: Rob Chrisman Subject: Feb. 13, 2009: ING cracks down in CA, what the stimulus plan will do for housing, locks snowing investors under.
Is it any wonder that Bill Gross wants mortgage rates to come down? Pacific Investment Management Co. (PIMCO) is rumored to have made large investments in mortgage-backed securities last month, and their “Total Return Fund” has $136 billion under management – 83% of which are mortgage-backed securities. Mortgages are “a very safe and well-supported security based upon what the Treasury has announced and the Fed has announced that it’s going to do,” Gross said in a Feb. 6 interview on Bloomberg television. One cannot argue with their performance last year, which beat many other funds.
The $790 billion economic stimulus plan is on track for vote today in the House, and the Senate will either vote later today or over the weekend. There will be $4 billion to repair and make more energy efficient public housing projects; $2 billion for the redevelop foreclosed and abandoned homes; $1.5 billion for homeless shelters and $2 billion to pay off loans on public housing accounts. $6.6 billion will be allocated to repeal a requirement that an $8,000 first-time home buyer tax credit be paid back over time for homes purchased from Jan. 1 to Nov. 30, unless the home is sold within three years. The bill increases the size of an existing temporary and refundable first-time home buyer credit to $8,000, up from $7,500. It also removes the requirement under current law that the credit be paid back if the buyer stays in the home for at least three years. And it would extend the credit's expiration date to Dec. 1, 2009, from July 1. Those eligible for this credit must have purchased a home after Jan. 1, 2009, and before Dec. 1, 2009. The full credit is available to those making $75,000 or less ($150,000 for joint filers).
Obama administration was creating a plan to subsidize mortgage payments for troubled homeowners. Reuters reported yesterday afternoon that the administration will work with mortgagors to re-write and subsidize mortgage payments for those with difficulty, but must pass a means test. There are no details, but the news did help to reverse a Dow Jones that was down another 250 points. This speculation that the government will support the housing market by working with borrowers rather than in buying treasuries seems to have energized portions of the financial community. Speaking of the Fed, they bought $23.2 billion of mortgage-backed securities last week, mostly 4 & 4.5% coupons, which include 4.25-5.125% 30-yr mortgages. The only news out today is the University of Michigan Consumer Confidence Survey, which is expected to drop slightly.
Rob Chrisman
The Senate and House are set to vote today on the new stimulus package. Looks like the $15,000 tax credit we were all hoping for is off the table and has been replaced with the $8,000 tax credit that won’t work in San Francisco. Oh well...
Long overdue news from ING: Beginning today, “Interest-Only is no longer available on properties located in California. Financing on second homes is no longer available on properties located in California. And LTV price incentives are no longer available on properties in California.” I thought this was the Golden State”.
Ryan Ogata
Senior Mortgage Consultant
From: Rob Chrisman Subject: Feb. 13, 2009: ING cracks down in CA, what the stimulus plan will do for housing, locks snowing investors under.
Is it any wonder that Bill Gross wants mortgage rates to come down? Pacific Investment Management Co. (PIMCO) is rumored to have made large investments in mortgage-backed securities last month, and their “Total Return Fund” has $136 billion under management – 83% of which are mortgage-backed securities. Mortgages are “a very safe and well-supported security based upon what the Treasury has announced and the Fed has announced that it’s going to do,” Gross said in a Feb. 6 interview on Bloomberg television. One cannot argue with their performance last year, which beat many other funds.
The $790 billion economic stimulus plan is on track for vote today in the House, and the Senate will either vote later today or over the weekend. There will be $4 billion to repair and make more energy efficient public housing projects; $2 billion for the redevelop foreclosed and abandoned homes; $1.5 billion for homeless shelters and $2 billion to pay off loans on public housing accounts. $6.6 billion will be allocated to repeal a requirement that an $8,000 first-time home buyer tax credit be paid back over time for homes purchased from Jan. 1 to Nov. 30, unless the home is sold within three years. The bill increases the size of an existing temporary and refundable first-time home buyer credit to $8,000, up from $7,500. It also removes the requirement under current law that the credit be paid back if the buyer stays in the home for at least three years. And it would extend the credit's expiration date to Dec. 1, 2009, from July 1. Those eligible for this credit must have purchased a home after Jan. 1, 2009, and before Dec. 1, 2009. The full credit is available to those making $75,000 or less ($150,000 for joint filers).
Obama administration was creating a plan to subsidize mortgage payments for troubled homeowners. Reuters reported yesterday afternoon that the administration will work with mortgagors to re-write and subsidize mortgage payments for those with difficulty, but must pass a means test. There are no details, but the news did help to reverse a Dow Jones that was down another 250 points. This speculation that the government will support the housing market by working with borrowers rather than in buying treasuries seems to have energized portions of the financial community. Speaking of the Fed, they bought $23.2 billion of mortgage-backed securities last week, mostly 4 & 4.5% coupons, which include 4.25-5.125% 30-yr mortgages. The only news out today is the University of Michigan Consumer Confidence Survey, which is expected to drop slightly.
Rob Chrisman
Tuesday, February 10, 2009
Sometime “early this week” is what legislators are saying about the Senate vote on the stimulus bill. Remember, however, that even if it passes, the differences between their bill and the House bill need to be worked out. Last Friday Senate Republicans and Democrats cut back the package, and Senate Democrats (who control the chamber with a 58-41 majority) were able to close off debate yesterday. If approved, the package would go to a vote today.
The key difference is the $35.5 billion measure that would create a new tax credit equal to 10% of a primary-home purchase, up to $15,000. The House bill has much smaller $2.5 billion housing provision, which would waive the repayment requirement for a $7,500 tax credit that already exists for first-time home buyers.
Also, read below regarding the potential outsourcing of key mortgage origination positions. Can you imagine how much of a pain it would be to call India to get your docs to escrow.
Ryan Ogata
Senior Mortgage Consultant
From: Rob Chrisman Subject: Feb 10: lay-offs, who doesn't do them, and how to avoid them. Rates drop overnight.
What do Aflac, Nugget Markets, Devon Energy, Scottrade, Quik Trip, The Container Store, NuStar Energy, Stew Leonard, and Publix Super Markets have in common? None of them have ever had a lay-off! Strategies and comments include not replacing employees who leave voluntarily, locations within 15 miles of each other sharing staff, cross-training employees, using past employees for temp work, keeping costs low, no raises in slow times but mid-year raises in boom times, telecommuting and flex schedules helping streamline operations, and cushioning p&l swings by giving the employees a share of profits rather than giving them to stockholders/owners.
Let’s hope that owners of mortgage companies out there aren’t thinking about lay-offs already, unless funding volumes pick up. STRATMOR, a consulting and investment banking company that specializes in mortgage banking recently released the results of a survey they performed. They state that “lenders strongly believe that a large proportion of mortgage banking origination tasks or functions have the potential to be outsourced. In general, however, those functions that typically involve direct contact with borrowers are not viewed as candidates for outsourcing. Independent of company size, a majority of lenders approach origination outsourcing on an ‘a la carte basis’ and most lenders want to be able to pick and choose those functions that they will outsource. Lenders perceive that outsourcing all or most of their back office origination functions puts them at great strategic risk to the pricing, performance and continued business operation of their outsource service provider, so would like to be able to adopt outsourcing on a gradual basis and, as only where it makes economic and strategic sense. Lenders told us that controlling costs, managing operational risks and improving efficiency and productivity are the primary reasons for outsourcing.”
UBS posted the biggest annual loss in Swiss history and said it would cut a further 2,000 investment banking jobs. UBS lost $7 billion in the 4th quarter, but also said that net new money turned positive in both wealth and asset management in January, after three consecutive negative quarters.
Fortunately we are seeing some buying in the fixed-income markets, and rates have crept back down. Yesterday, in a speech, FHFA Director Lockhart said Fannie/Freddie may need more than the $200 billion already pledged by the US Government if the housing market continues to deteriorate. Once again there is no scheduled economic news, but rates have dropped: the 10-yr is back to 2.94% and mortgage prices are better by .250 or more. Apparently, there is some sense that today’s $32 billion 3-yr Treasury auction will generate investor demand. Will the US Government turn around and buy the Treasury instruments? I can’t quite figure that one out, but perhaps Fed Chairman Ben Bernanke will help explain things when he testifies today before the House Financial Services Committee on the Fed’s lending programs at 1PM EST. We also have Treasury Secretary Timothy Geithner testifying before the Senate at 10AM EST on the oversight of the financial rescue plan before outlining the details an hour later.
Rob Chrisman
The key difference is the $35.5 billion measure that would create a new tax credit equal to 10% of a primary-home purchase, up to $15,000. The House bill has much smaller $2.5 billion housing provision, which would waive the repayment requirement for a $7,500 tax credit that already exists for first-time home buyers.
Also, read below regarding the potential outsourcing of key mortgage origination positions. Can you imagine how much of a pain it would be to call India to get your docs to escrow.
Ryan Ogata
Senior Mortgage Consultant
From: Rob Chrisman Subject: Feb 10: lay-offs, who doesn't do them, and how to avoid them. Rates drop overnight.
What do Aflac, Nugget Markets, Devon Energy, Scottrade, Quik Trip, The Container Store, NuStar Energy, Stew Leonard, and Publix Super Markets have in common? None of them have ever had a lay-off! Strategies and comments include not replacing employees who leave voluntarily, locations within 15 miles of each other sharing staff, cross-training employees, using past employees for temp work, keeping costs low, no raises in slow times but mid-year raises in boom times, telecommuting and flex schedules helping streamline operations, and cushioning p&l swings by giving the employees a share of profits rather than giving them to stockholders/owners.
Let’s hope that owners of mortgage companies out there aren’t thinking about lay-offs already, unless funding volumes pick up. STRATMOR, a consulting and investment banking company that specializes in mortgage banking recently released the results of a survey they performed. They state that “lenders strongly believe that a large proportion of mortgage banking origination tasks or functions have the potential to be outsourced. In general, however, those functions that typically involve direct contact with borrowers are not viewed as candidates for outsourcing. Independent of company size, a majority of lenders approach origination outsourcing on an ‘a la carte basis’ and most lenders want to be able to pick and choose those functions that they will outsource. Lenders perceive that outsourcing all or most of their back office origination functions puts them at great strategic risk to the pricing, performance and continued business operation of their outsource service provider, so would like to be able to adopt outsourcing on a gradual basis and, as only where it makes economic and strategic sense. Lenders told us that controlling costs, managing operational risks and improving efficiency and productivity are the primary reasons for outsourcing.”
UBS posted the biggest annual loss in Swiss history and said it would cut a further 2,000 investment banking jobs. UBS lost $7 billion in the 4th quarter, but also said that net new money turned positive in both wealth and asset management in January, after three consecutive negative quarters.
Fortunately we are seeing some buying in the fixed-income markets, and rates have crept back down. Yesterday, in a speech, FHFA Director Lockhart said Fannie/Freddie may need more than the $200 billion already pledged by the US Government if the housing market continues to deteriorate. Once again there is no scheduled economic news, but rates have dropped: the 10-yr is back to 2.94% and mortgage prices are better by .250 or more. Apparently, there is some sense that today’s $32 billion 3-yr Treasury auction will generate investor demand. Will the US Government turn around and buy the Treasury instruments? I can’t quite figure that one out, but perhaps Fed Chairman Ben Bernanke will help explain things when he testifies today before the House Financial Services Committee on the Fed’s lending programs at 1PM EST. We also have Treasury Secretary Timothy Geithner testifying before the Senate at 10AM EST on the oversight of the financial rescue plan before outlining the details an hour later.
Rob Chrisman
Monday, February 9, 2009
How big exactly is a “trillion” dollars? Lawmakers and economists throw “billions” and “trillions” around every day, but we rarely stop to think about just how big these numbers are. To put a “trillion” in perspective, at a $58,000 salary per year it would take 17,241,379 years to reach 1 trillion dollars. That’s a lot of overtime.
If you want scheduled economic news of any substance, you’ll have to wait until later in the week, and even then it is light. The first will be the Trade Balance on Wednesday. Thursday we have Jobless Claims and Retail Sales (try to guess how those numbers are going to look), and on Friday we have the University of Michigan Consumer Sentiment number. Treasury Secretary Timothy Geithner was initially scheduled to speak today at noon to unveil details of the Obama administration’s plan, but it has been delayed until tomorrow at 11 a.m. EST. Why? Since the Senate is voting on stimulus plan today, the administration’s economic officials need to focus on that. They may also need more time to finalize the main points of the rescue plan and firm them up with key members of Congress.
News regarding the Senate's fiscal stimulus proposal and the Treasury's financial institution cleanup plan may be the biggest drivers of mortgage rates this week. Bond markets will close early on Friday in observance of Presidents Day. We do, however, have a $32 billion 3-yr auction tomorrow, $21 billion 10-yr on Wednesday, and $14 billion of 30-yr on Thursday, which will also be guiding the market – and this news has not been kind to interest rates.
Ryan Ogata
Senior Mortgage Consultant
From: Rob Chrisman Subject: Feb 9: Fannie loosens non-owner limits. GMAC wants houses with kitchens - is that too much to ask? Who is Chris Warren?
Federal prosecutors said Friday that they charged 27-year-old Christopher J. Warren of Sacramento (who had been cooperating in their investigation before he fled) in a $100 million mortgage fraud and investment scheme that spanned five states after he fled the country in a private jet last week. Prosecutors allege that Loomis Wealth Solutions attracted investors through public investment seminars. First, the investors bought a life insurance policy through the company's president, Lawrence Leland "Lee" Loomis, and then they invested their home equity and retirement plans through the company in what prosecutors allege was a Ponzi scheme that used money from later investors to pay off earlier investors. Finally, investors were used to purchase real estate under false premises from lenders across the nation, prosecutors said. The arrest warrant says that the scam involved 500 properties in at least five states, including Arizona, California, Florida and Illinois. According to the IRS affidavit, Citimortgage Inc. alone lost more than $6 million on 15 bogus loans.
Fannie Mae has issued Announcement 09-02, “Updates to Multiple Mortgages to the Same Borrower Policy, Reserve Requirements, Reserves Definition, and Form 3170.” In what is good news for “professional borrowers” with multiple investment properties, Fannie Mae is changing their current limit of four financed properties per borrower when the mortgage being delivered to Fannie Mae is secured by an investment property or second home. They will allow “five to ten financed properties per borrower, with certain eligibility and underwriting requirements, including a 720 minimum credit score and 70–75% maximum LTV/CLTV/HCLTV (depending on the transaction and property type). The requirements apply to any investment property or second home loan being delivered to Fannie Mae, regardless of whether Fannie Mae is the investor on the borrower’s other mortgages. Second home and investment property loans to borrowers with five to ten financed properties will be accepted for whole loan purchase or delivery into MBS with purchase dates on or after March 1, 2009, and new Special Feature Code 150 will be required at delivery.” Brokers everywhere await Wells, Citi, Chase, etc. to follow.
GMAC Bank Correspondent announced that all Jumbo loans with a LTV/CLTV's greater than 80% require a minimum FICO of 700. And, this is classic, “due to the numerous inquiries about the condition of the kitchen in real estate transactions, GMAC Bank has confirmed with the agencies, HUD and VA, that the kitchen must be functional, meaning that there must be kitchen cabinets, and a working sink and working stove. This applies to all real estate transfers. In addition, all property must be habitable and all appliances, plumbing, electrical, etc. must be functional and in good working condition. GMAC Bank will not purchase a loan unless these minimum property standards are met. This policy applies to all conventional, FHA and VA loan programs.”
Rob Chrisman
If you want scheduled economic news of any substance, you’ll have to wait until later in the week, and even then it is light. The first will be the Trade Balance on Wednesday. Thursday we have Jobless Claims and Retail Sales (try to guess how those numbers are going to look), and on Friday we have the University of Michigan Consumer Sentiment number. Treasury Secretary Timothy Geithner was initially scheduled to speak today at noon to unveil details of the Obama administration’s plan, but it has been delayed until tomorrow at 11 a.m. EST. Why? Since the Senate is voting on stimulus plan today, the administration’s economic officials need to focus on that. They may also need more time to finalize the main points of the rescue plan and firm them up with key members of Congress.
News regarding the Senate's fiscal stimulus proposal and the Treasury's financial institution cleanup plan may be the biggest drivers of mortgage rates this week. Bond markets will close early on Friday in observance of Presidents Day. We do, however, have a $32 billion 3-yr auction tomorrow, $21 billion 10-yr on Wednesday, and $14 billion of 30-yr on Thursday, which will also be guiding the market – and this news has not been kind to interest rates.
Ryan Ogata
Senior Mortgage Consultant
From: Rob Chrisman Subject: Feb 9: Fannie loosens non-owner limits. GMAC wants houses with kitchens - is that too much to ask? Who is Chris Warren?
Federal prosecutors said Friday that they charged 27-year-old Christopher J. Warren of Sacramento (who had been cooperating in their investigation before he fled) in a $100 million mortgage fraud and investment scheme that spanned five states after he fled the country in a private jet last week. Prosecutors allege that Loomis Wealth Solutions attracted investors through public investment seminars. First, the investors bought a life insurance policy through the company's president, Lawrence Leland "Lee" Loomis, and then they invested their home equity and retirement plans through the company in what prosecutors allege was a Ponzi scheme that used money from later investors to pay off earlier investors. Finally, investors were used to purchase real estate under false premises from lenders across the nation, prosecutors said. The arrest warrant says that the scam involved 500 properties in at least five states, including Arizona, California, Florida and Illinois. According to the IRS affidavit, Citimortgage Inc. alone lost more than $6 million on 15 bogus loans.
Fannie Mae has issued Announcement 09-02, “Updates to Multiple Mortgages to the Same Borrower Policy, Reserve Requirements, Reserves Definition, and Form 3170.” In what is good news for “professional borrowers” with multiple investment properties, Fannie Mae is changing their current limit of four financed properties per borrower when the mortgage being delivered to Fannie Mae is secured by an investment property or second home. They will allow “five to ten financed properties per borrower, with certain eligibility and underwriting requirements, including a 720 minimum credit score and 70–75% maximum LTV/CLTV/HCLTV (depending on the transaction and property type). The requirements apply to any investment property or second home loan being delivered to Fannie Mae, regardless of whether Fannie Mae is the investor on the borrower’s other mortgages. Second home and investment property loans to borrowers with five to ten financed properties will be accepted for whole loan purchase or delivery into MBS with purchase dates on or after March 1, 2009, and new Special Feature Code 150 will be required at delivery.” Brokers everywhere await Wells, Citi, Chase, etc. to follow.
GMAC Bank Correspondent announced that all Jumbo loans with a LTV/CLTV's greater than 80% require a minimum FICO of 700. And, this is classic, “due to the numerous inquiries about the condition of the kitchen in real estate transactions, GMAC Bank has confirmed with the agencies, HUD and VA, that the kitchen must be functional, meaning that there must be kitchen cabinets, and a working sink and working stove. This applies to all real estate transfers. In addition, all property must be habitable and all appliances, plumbing, electrical, etc. must be functional and in good working condition. GMAC Bank will not purchase a loan unless these minimum property standards are met. This policy applies to all conventional, FHA and VA loan programs.”
Rob Chrisman
Friday, February 6, 2009
Lots of great things going on out there! Fannie just announced that they will purchase non owner properties from investors with 5-10 properties. This is excellent news for the market!!! Property Investors (my Bread and Butter) have unfortunately been subject to the most extensive lending reform of any property owning demographic. Prior to today, in order to qualify for financing, borrowers were limited to a maximum of 4 financed properties. I guess that desperate times called for desperate measures, but the 4 financed property rule made absolutely no sense…
Next week will be a big week for the markets in general. The next stimulus package should be voted in and we will hopefully see the conforming loan limit raised back to $729,750. Treasury Secretary Geithner (spelling?) will be laying out the second half of TARP and further stimulus programs for mortgages. I expect to see rates go lower next week, all predicated however on the new stimulus plan getting through Congress.
In other good news, there is now a Republican amendment that would temporarily offer homebuyers a tax credit worth $15,000 or 10% of a home’s purchase price, whichever is less, with the option to utilize all in one year or spread out over two years. The credit does not have to be paid back. It would be available to all purchases of any home from date of enactment for one full year - no longer just a first time homebuyer credit, and borrowers would be able to claim the credit against the 2008 tax return.
Rates for a conforming 30-yr fixed rate are about 5.75% with no points, 5.00% with one point, and 4.5% for a cost of 1.5 points. As much as our clients have been taught to believe that points are bad, are they going to get a better return from their 1.5 points by investing it in the stock market???
Ryan Ogata
Senior Mortgage Consultant
From: Rob Chrisman Subject: Feb 6: Senate's version contains a $15k tax credit. The jobs number is ugly but rates haven't dropped – yet
How about this idea, from a mortgage industry veteran? “With the lending criteria becoming too strict, the stimulus program needs to include a conventional (FNMA/FHLMC) Rollover Program similar to what was done in the 1980’s for FHA. The only qualification is that the property be an owner-occupied primary residence, the payments are current, and the borrower has equity to cover closings costs and prepays. Peg the rate at the stimulus rate. Like the FHA programs, fees should be restricted and instead closing a whole new loan, maybe a modification or rollover agreement form could be recorded to keep the costs and loss of equity (what equity is left) down. Money can still be made and the customer is once again protected. A FNMA/FHLMC rollover plan could help those of us that are not delinquent, using our hard earned income and savings to keep making our mortgage payments. Yes, the “forgotten” group of us that deserves a break too!! Lower those rates through a Rollover Program so we can put that hard earned income or savings back into the economy.”
Citigroup is selling the billing-and-collections rights on 185,000 mortgages (face value: $37 billion of mostly subprime and Alt-A) to Wilbur Ross’s American Home Mortgage Servicing for $1.5 billion. The deal lets Citigroup wind down Citi Residential Lending, formed from the remnants of ACC Capital Holdings/Ameriquest. As of last autumn, Citi Residential held servicing rights on about 247,000 loans, compared with about 6 million for Citigroup’s consumer-banking division. The deal will increase the number of loans American Home services by 45% to 575,000.
The Federal Reserve Bank of New York released its "Agency Mortgage-Backed Securities Purchase Program" report for the period January 29th through February 4th. Purchases totaled about $22 billion with $10 billion in Freddie securities and $10.5 billion in Fannie’s. Approximately 60% of the Gold purchases were in 30yr 4.5’s (4.75-5.125% mortgages) while the Fannie purchases were more evenly distributed from 4.5% up to 6.5 securities.
The market is currently digesting the Unemployment data, which (this should be no surprise) points to a grim economy. Nonfarm Payroll was down 598,000 in January, the deepest cut in payrolls in 34 years, and the Unemployment Rate hit 7.6%. These numbers are worse than expected, and in addition we saw some downward revisions to December and November. "January's sharp drop in employment brings job losses to 3.6 million since the start of the recession in December 2007," Commissioner of Labor Statistics Keith Hall said in a statement, and "about half the decline occurred in the last three months."
Manufacturing was down 207,000, the worst since October 1982, construction industries were down 111,000 jobs, and retail businesses cut another 45,000. Normally, an economy as bad as this would push rates lower, but instead, due to the supply and demand concerns, we find the 10-yr back up 2.95% and 30-yr mortgages either unchanged or worse by .125.
Rob Chrisman
Next week will be a big week for the markets in general. The next stimulus package should be voted in and we will hopefully see the conforming loan limit raised back to $729,750. Treasury Secretary Geithner (spelling?) will be laying out the second half of TARP and further stimulus programs for mortgages. I expect to see rates go lower next week, all predicated however on the new stimulus plan getting through Congress.
In other good news, there is now a Republican amendment that would temporarily offer homebuyers a tax credit worth $15,000 or 10% of a home’s purchase price, whichever is less, with the option to utilize all in one year or spread out over two years. The credit does not have to be paid back. It would be available to all purchases of any home from date of enactment for one full year - no longer just a first time homebuyer credit, and borrowers would be able to claim the credit against the 2008 tax return.
Rates for a conforming 30-yr fixed rate are about 5.75% with no points, 5.00% with one point, and 4.5% for a cost of 1.5 points. As much as our clients have been taught to believe that points are bad, are they going to get a better return from their 1.5 points by investing it in the stock market???
Ryan Ogata
Senior Mortgage Consultant
From: Rob Chrisman Subject: Feb 6: Senate's version contains a $15k tax credit. The jobs number is ugly but rates haven't dropped – yet
How about this idea, from a mortgage industry veteran? “With the lending criteria becoming too strict, the stimulus program needs to include a conventional (FNMA/FHLMC) Rollover Program similar to what was done in the 1980’s for FHA. The only qualification is that the property be an owner-occupied primary residence, the payments are current, and the borrower has equity to cover closings costs and prepays. Peg the rate at the stimulus rate. Like the FHA programs, fees should be restricted and instead closing a whole new loan, maybe a modification or rollover agreement form could be recorded to keep the costs and loss of equity (what equity is left) down. Money can still be made and the customer is once again protected. A FNMA/FHLMC rollover plan could help those of us that are not delinquent, using our hard earned income and savings to keep making our mortgage payments. Yes, the “forgotten” group of us that deserves a break too!! Lower those rates through a Rollover Program so we can put that hard earned income or savings back into the economy.”
Citigroup is selling the billing-and-collections rights on 185,000 mortgages (face value: $37 billion of mostly subprime and Alt-A) to Wilbur Ross’s American Home Mortgage Servicing for $1.5 billion. The deal lets Citigroup wind down Citi Residential Lending, formed from the remnants of ACC Capital Holdings/Ameriquest. As of last autumn, Citi Residential held servicing rights on about 247,000 loans, compared with about 6 million for Citigroup’s consumer-banking division. The deal will increase the number of loans American Home services by 45% to 575,000.
The Federal Reserve Bank of New York released its "Agency Mortgage-Backed Securities Purchase Program" report for the period January 29th through February 4th. Purchases totaled about $22 billion with $10 billion in Freddie securities and $10.5 billion in Fannie’s. Approximately 60% of the Gold purchases were in 30yr 4.5’s (4.75-5.125% mortgages) while the Fannie purchases were more evenly distributed from 4.5% up to 6.5 securities.
The market is currently digesting the Unemployment data, which (this should be no surprise) points to a grim economy. Nonfarm Payroll was down 598,000 in January, the deepest cut in payrolls in 34 years, and the Unemployment Rate hit 7.6%. These numbers are worse than expected, and in addition we saw some downward revisions to December and November. "January's sharp drop in employment brings job losses to 3.6 million since the start of the recession in December 2007," Commissioner of Labor Statistics Keith Hall said in a statement, and "about half the decline occurred in the last three months."
Manufacturing was down 207,000, the worst since October 1982, construction industries were down 111,000 jobs, and retail businesses cut another 45,000. Normally, an economy as bad as this would push rates lower, but instead, due to the supply and demand concerns, we find the 10-yr back up 2.95% and 30-yr mortgages either unchanged or worse by .125.
Rob Chrisman
Monday, February 2, 2009
The figures are in and personal income and consumption are both down, -0.2% and -1.0% respectively. 0.2%??? It feels more like 20% if you ask me. Since spending is falling even faster than income, the savings rate actually rose to 3.6%. I guess the only positive outcome for us Americans is that spending less than we earn is becoming a new trend for this country. Rocket science if you ask me.
In fact, personal consumption is down for the sixth straight month. That’s almost three holes on my belt!
In other news, Conforming loan amounts may be increased back to the 2008 level of $729,750. Do you remember that useless program that was introduced as part of the original economic stimulus package? The problem was that it was priced way too high and almost never made sense. Well, the decision makers have finally figured out that they may have canceled the program prematurely. Maybe they counted up the loans that were funded and realized that they only need two hands…
Ryan Ogata
Senior Mortgage Consultant
From: Rob Chrisman Subject: Feb 2: Quite the January! Some investor updates. And the return of $729,750 loan amounts!?
According to Mortgage Daily, Wells Fargo was the largest residential lender in 2008, originating $230 billion worth of residential mortgages. Chase was second at $185 billion. Bank of America, Countrywide and Citigroup Inc. made up the rest of the top five. Countrywide's figures were just for the first six months of last year since it was bought by Bank of America in July. U.S. originations were down 36% in 2008 compared to 2007 – but most expect a nice volume rebound in 2009.
On the correspondent side of Wells, starting on the 4th they will have new requirements for non-conforming loans. Eligible loans include 30-yr fixed and 5/1 ARM products – 15-yr, 7/1, and 10/1’s become ineligible. Borrowers must have a minimum 720 FICO, and LTV’s will be limited to 75% for 1-2 units, 70% for 3-4 units, and 70% for cash out depending on market classification. In addition, money held in retirement accounts cannot be used to meet post-close liquidity requirements.
Chase increased the hit for loans with FICO’s from 600-619 from .250 to 1.0. They also made some changes in the documentation used in identifying and documenting undisclosed debt that brokers should be aware of.
Are lenders in major metropolitan areas hoping for the return of the $729,750 loan amount? They may get their wish! In the version of the Stimulus Bill passed by the House, and moving on to the Senate, the loan levels revert to where they were last year.
Here, read it for yourself - “(a) Loan Limit Floor Based on 2008 Levels- For mortgages originated during calendar year 2009, if the limitation on the maximum original principal obligation of a mortgage that may purchased by the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation determined under section 302(b)(2) of the Federal National Mortgage Association Charter Act (12 U.S.C. 1717(b)(2)) or section 305(a)(2) of the Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1754(a)(2)), respectively, for any size residence for any area is less than such maximum original principal obligation limitation that was in effect for such size residence for such area for 2008 pursuant to section 201 of the Economic Stimulus Act of 2008 (Public Law 110-185; 122 Stat. 619), notwithstanding any other provision of law, the limitation on the maximum original principal obligation of a mortgage for such Association and Corporation for such size residence for such area shall be such maximum limitation in effect for such size residence for such area for 2008….the Director may, for mortgages originated during 2009, increase the maximum original principal obligation limitation for such size or sizes of residences for such sub-area that is otherwise in effect (including pursuant to subsection (a) of this section) for such Association and Corporation, but in no case to an amount that exceeds the amount specified in the matter following the comma in section 201(a)(1)(B) of the Economic Stimulus Act of 2008.”
Rob Chrisman
In fact, personal consumption is down for the sixth straight month. That’s almost three holes on my belt!
In other news, Conforming loan amounts may be increased back to the 2008 level of $729,750. Do you remember that useless program that was introduced as part of the original economic stimulus package? The problem was that it was priced way too high and almost never made sense. Well, the decision makers have finally figured out that they may have canceled the program prematurely. Maybe they counted up the loans that were funded and realized that they only need two hands…
Ryan Ogata
Senior Mortgage Consultant
From: Rob Chrisman Subject: Feb 2: Quite the January! Some investor updates. And the return of $729,750 loan amounts!?
According to Mortgage Daily, Wells Fargo was the largest residential lender in 2008, originating $230 billion worth of residential mortgages. Chase was second at $185 billion. Bank of America, Countrywide and Citigroup Inc. made up the rest of the top five. Countrywide's figures were just for the first six months of last year since it was bought by Bank of America in July. U.S. originations were down 36% in 2008 compared to 2007 – but most expect a nice volume rebound in 2009.
On the correspondent side of Wells, starting on the 4th they will have new requirements for non-conforming loans. Eligible loans include 30-yr fixed and 5/1 ARM products – 15-yr, 7/1, and 10/1’s become ineligible. Borrowers must have a minimum 720 FICO, and LTV’s will be limited to 75% for 1-2 units, 70% for 3-4 units, and 70% for cash out depending on market classification. In addition, money held in retirement accounts cannot be used to meet post-close liquidity requirements.
Chase increased the hit for loans with FICO’s from 600-619 from .250 to 1.0. They also made some changes in the documentation used in identifying and documenting undisclosed debt that brokers should be aware of.
Are lenders in major metropolitan areas hoping for the return of the $729,750 loan amount? They may get their wish! In the version of the Stimulus Bill passed by the House, and moving on to the Senate, the loan levels revert to where they were last year.
Here, read it for yourself - “(a) Loan Limit Floor Based on 2008 Levels- For mortgages originated during calendar year 2009, if the limitation on the maximum original principal obligation of a mortgage that may purchased by the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation determined under section 302(b)(2) of the Federal National Mortgage Association Charter Act (12 U.S.C. 1717(b)(2)) or section 305(a)(2) of the Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1754(a)(2)), respectively, for any size residence for any area is less than such maximum original principal obligation limitation that was in effect for such size residence for such area for 2008 pursuant to section 201 of the Economic Stimulus Act of 2008 (Public Law 110-185; 122 Stat. 619), notwithstanding any other provision of law, the limitation on the maximum original principal obligation of a mortgage for such Association and Corporation for such size residence for such area shall be such maximum limitation in effect for such size residence for such area for 2008….the Director may, for mortgages originated during 2009, increase the maximum original principal obligation limitation for such size or sizes of residences for such sub-area that is otherwise in effect (including pursuant to subsection (a) of this section) for such Association and Corporation, but in no case to an amount that exceeds the amount specified in the matter following the comma in section 201(a)(1)(B) of the Economic Stimulus Act of 2008.”
Rob Chrisman
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