Fannie 4.5’s are trading above 101. What does that mean? For every dollar of debt that gets sold to Fannie Mae at 4.5%, the seller collects a 1% commission for the transaction. So, imagine how much money a lender is making if they sell your loan at 5.25%, at 5.5%, at 5.75%. This is what truly infuriates me about the bailout. The US tax payer has just given the financial sector a transfusion of greenback and how does the financial thank us? They turn around and gauge the consumer with a wide profit margin on the loans that they fund and ultimately sell.

Sound a bit screwy to you? Maybe this explains how Citi actually had the nerve to try and buy a $50 million dollar corporate jet.

Here's your financial vocabulary lesson for today:

"Liquidity" - When you look at your investments and wet your pants.

Ryan Ogata
Senior Mortgage Consultant

From: Rob Chrisman Subject: Jan 27: Wells opens mod program to Wachovia; FHA guidelines starting to tighten; First Fed bails on wholesale lending - who is left?

First Federal of California is the latest lender to close their wholesale channel to brokers. Files received today, January 26, 2009, will be returned un-processed. Files that have not been previously approved (in suspense) as of January 26, 2009 will be declined. All files that are approved and in the funding process must be funded by February 27, 2009, and only files that satisfy all of the Bank’s conditions by such date will be funded. Any fees previously collected on a file that has not been approved will be returned within 30 days.

Franklin American, reflecting the market, adjusted their FHA guidelines. Effective for locks on or after Wednesday, January 28, 2009, all loans must meet the new guidelines as stated below. Minimum Credit Score All FHA and VA loans must have a minimum 600 credit score. All FHA streamline refinances and VA IRRRL’s require the borrower to not have had any late payment on any mortgage account during the last 12 months. Late payments are defined as any 30-day or greater mortgage late.

Are we having fun yet?

Wells Fargo, with their stock down dramatically in recent weeks, will extend its mortgage modification program to customers of Wachovia. 478,000 Wachovia customers, with loans totaling about $120 billion, will have access to the program, and the customers within this portfolio that are being referred to foreclosure or are in foreclosure will receive an extension until Feb. 28 so they can apply for the modification program which includes the goal of reducing mortgage payments to about 38 percent of the size of a customer's income.

Yesterday we had some interesting economic news. The Conference Board’s Leading Economic Index rose .3%, which is the first gain in six months. Four of the 10 indicators the report were positive, unfortunately led by a 0.99 percent increase in the money supply adjusted for inflation, which is due to increased lending and purchases of securities by the Federal Reserve to unclog credit markets and ease borrowing costs. We also had Existing Home Sales unexpectedly rise 6.5% in December, mostly attributed to prices being down and a brisk market in foreclosures.

What is weighing prices down, and keeping rates relatively high given the current state of the economy, is the supply coming on to the market. On top of the $2-3 billion or so of daily mortgage origination, we have a record $40 billion 2-yr note auction today and a record 5-yr note auction Thursday. There are always worries about who will soak up the supply, and the holiday in Asia tends to add to this consternation. The Fed’s meeting today and tomorrow is expected to result in no change to their 0-.25% overnight rates, but analysts will be watching for any change to their language in the post-meeting wrap up. They are exploring the purchase of longer-dated Treasury securities in an effort to push up their price and bring down their yield in order to reduce long-term borrowing costs at a time when the Fed can’t lower short-term interest rates any further because they are effectively at zero. Speaking of rates, the 10-yr is at 2.63% and mortgages are roughly unchanged.

Rob Chrisman