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