The Wall Street Bailout

Once upon a time a man appeared in a village and announced to the villagers that he would buy monkeys for $10 each.

The villagers, knowing that there were plenty of monkeys around, went to the forest and started catching them. The man bought thousands at $10 each. As supply started to diminish, the villagers stopped their effort.

The man then announced that he would buy monkeys at $20 each. This renewed the villagers efforts and they started catching monkeys again.

Soon the supply diminished and people started going back to their farms. The offer was increased to $25 each and the supply of monkeys became so scarce it became an effort to even find a monkey, let alone catch it!

The man then announced that he would buy monkeys at $50 each! However, since he had to go to the city on some business, his assistant would buy them on his behalf.

The assistant told the villagers: "Look at all these monkeys in the big cage that my boss has already collected. I will sell them to you at $35 and when my boss returns, you can sell them to him for $50."

The villagers rounded up all their savings and bought all the monkeys for 700 billion dollars. They never saw the man or his assistant again, only lots and lots of monkeys!

Now you have a better understanding of how the Wall Street “BAILOUT” plan works.

Ryan Ogata
Senior Mortgage Consultant

From: Rob Chrisman Subject: Jan 21 - a reminder of Fannie's fee increases, along with loan-level identifiers for originators and appraisers

Anyone who owns stocks in financial companies got whacked yesterday. Citigroup, Bank of America, Wells Fargo - no one was immune from losing a large percentage of their value in one day. Is Wells Fargo really worth 25% less than it was last Friday? The overall stock market was down about 4%, and the S&P 500 is already down 11% in the last two weeks! Is this helping interest rates? At some level, yes, although both Treasury and mortgage rates are not doing as well as one would expect given the general economic picture. In fact, this morning the 10-yr is up to 2.46% and mortgage prices are worse by about .250. Generally speaking, investors are questioning whether or not banks’ assets, which contribute toward net worth and stock price, are really worth what banks say they are.

Mortgages continue to be viewed as risky, and even if the base rate is acceptable, loan-level fees are on the rise. For example, effective April 1 Fannie Mae is raising its loan fees. The change was announced December 19, 2008, and impacts risk-based fees known as “loan-level pricing adjustments”. LLPAs aren't just limited to credit score and LTV, and the new Fannie Mae guidelines impact three other loan characteristics: Condo and co-op mortgages over 75% LTV - add 0.750 percent to fee; Interest only mortgages - add 0.250 percent to fee for ARMs, 0.750 for fixed rate; Mortgages under 75% LTV with subordinate financing - add up to 0.500 percent to fee. The loan fees don't have to be paid in the form of cash due at closing, but instead can be financed in the mortgage rate at roughly .25% for every 1 point in fee.

US Bank’s Correspondent Division, for example, will implement these fees beginning tomorrow in spite of Fannie not requiring them until April. Their pricing changes impact FICO/LTV fees, Cashout Refinance fees, IO ARM fees and now specific Condominium fees, and one should expect to pay more for transactions with an LTV > 60% and FICO score <> 90%, and additional .250 point in fee, and condominiums with LTV > 75% will be charged an additional .750 pt. fee.

James B. Lockhart, director of the Federal Housing Finance Agency (FHFA), announced that with mortgage applications taken on or after Jan. 1, 2010, Freddie Mac and Fannie Mae are required to obtain loan-level identifiers for the loan originator, loan origination company, field appraiser and supervisory appraiser. This is the result of Title V of the Housing and Economic Recovery Act of 2008, the S.A.F.E. Mortgage Licensing Act through which Congress required the creation of a nationwide mortgage Licensing system and registry. With enactment of the S.A.F.E. Mortgage Licensing Act, identifiers will now be available for each individual loan originator.

Rob Chrisman