Those dues that you pay to the Mortgage Bankers Association – where does the money go? Education, lobbying, etc., but some probably went into buying the MBAA its $90 million headquarters in downtown Washington which it sold last week for $41 million after 3 years. Ouch! CoStar Group, who is moving its headquarters from Maryland to DC, also received a $6 million property tax break – hats off to them. Not only did the MBAA’s interest rate expense increase, but it had trouble finding tenants for its additional office space. To make matters worse, and this should be of no surprise, according to the MBAA their membership has been noticeably falling off, resulting in less revenue.

Secondary marketing employees, especially those that sell loans, are notorious for splitting off the CRA loans (Community Reinvestment Act, designed to meet local credit needs) and selling them to investors for a point or two more than the broker or agent was paid for them without a rate sheet adjustment. That entirely aside, as it turns out, the FDIC monitors institutions and their compliance with CRA regulations. The FDIC announced that it has come out with a new drug to treat small banker heart palpitations. Okay, I was just kidding to see if anyone reads this stuff. Late last week, however, the FDIC did issue its list of state nonmember banks recently evaluated for compliance with the Community Reinvestment Act (CRA). One can see the list for themselves at http://www.fdic.gov/regulations/community/monthly/2010/crafeb10.html

I ain’t no tax expert, so when a broker from Idaho wrote to me and asked, “How long do I have to keep statements from banks that don’t exist anymore?” I was flummoxed. “Only” one bank was shut down by the FDIC on Friday. It was in Minnesota (1st American State Bank of Minnesota), and Community Development Bank, also in Minnesota, agreed to assume the assets and deposits of the failed bank. The loss of $11.7 million will be shared, with the taxpayer, picking up about $3 million of the expense.

Fannie Mae and Freddie MAC both updated their Home Affordable Modification Program (HAMP) program, addressing issues that primarily concern servicers of the product. Previously Fannie & Freddie had set forth eligibility, underwriting and servicing requirements for the Home Affordable Modification Program (HAMP), and last week amended key features of the program. For example, starting June 1 (how do you like that for advance notice?) F&F changed the verified income documentation “for all HAMP trial period plans.” F&F’s amendments, which can be viewed on their respective websites, concern the process of modifying a loan, the initial package, income & asset documentation, timelines, making a modification permanent, eliminating the stated income trial plans, etc.

Investors in mortgage securities usually are betting on how long they will hold a particular pool of loans. Some want them to be paid off quickly; others would prefer that the loans stay on their books for a long time. When either group sees unexpected prepayments, for whatever reason, that is cause for concern. Last week prepayment information was released showing that fixed rate prepayments declined 15% in the latest survey, due to a lower day count and weaker housing “seasonals”. Higher coupons saw some buyouts, although the new SFAS 166/167 implementation (where the delinquent loans that are bought out by the GSEs no longer have to be marked at their market values, and possibly requiring the agencies to issue short-term debt in order to accomplish the buyouts) did not appear to be a driving force. Of interest to originators, however, is the expectation that with rates steady, and the percent of refi’s expected to drop, prepayment speeds are also expected to drop.

GMAC told its correspondents last week that after 2/15 it has adopted/followed the FHA’s adoption of the Appraisal Completion Report from Fannie Mae. This included GMAC’s announcement discussed when to use the form, who can use it (FHA appraisers in good standing on the FHA Appraiser Roster). https://www.efanniemae.com/sf/formsdocs/forms/pdf/sellingtrans/1004d.pdf
GMAC stated that “the Completion Report may not be used in lieu of form HUD-92051, Compliance Inspection Report, for new construction and manufactured housing.” And along these lines, focusing on appraiser independence, “Delegated clients are prohibited from accepting appraisals prepared by FHA Roster appraisers who are selected, retained or compensated in any manner by a mortgage broker or any member of a lender's staff who is compensated on a commission basis tied to the successful completion of a loan.” For their non-delegated FHA clients, after February 15, appraisals on loans underwritten by GMAC Bank must be ordered through their on-line appraisal ordering process.

And anyone submitting packages to GMAC were reminded “all loan files must contain a worksheet to show how income was calculated. Income submitted to DU or LP must be in line, and within agency resubmission tolerances, with income identified on the worksheet, if the file contains tax returns, the returns must be signed by the borrower(s), all loans require a signed and executed 4506-T (lines 1-6, and line 9 must be completed and form must be signed and dated by borrowers), all loan files must include tax transcripts for the prior two years. If submitting the loan to GMAC Bank for underwriting, the tax transcripts must be included in the file prior to underwriting.” GMAC’s announcement went on to discuss DU/LP certificates, feedback certificates, subordinate financing (must meet GMAC guidelines!), condo warranties, verbal VOE’s (within 10 days of the note date, or 30 days for self employed borrowers), down payment documentation, escrow holdbacks, and payoff statement requirements. Check out the original for details.

Franklin American will be enforcing the existing policy requiring a copy of the signed title commitment which discloses the correct coverage amount to be present in the closed loan file prior to purchase.

What are you doing Wednesday at 10AM EST? Federal Reserve Chairman Bernanke plans to testify before the House Financial Services on that day about the central bank’s plans to withdraw emergency stimulus from the U.S. economy. No one believes that the goal of the Fed is to mess up the markets, or the recover, but the Fed has options in unwinding emergency aid “while not causing inflationary fears, hurting job growth or stunting the fragile economy recovery underway.” We already know that they will keep overnight rates near 0% for quite some time. And in fact late last week a Fed official (the president of the Federal Reserve Bank of New York) said the Fed might reconsider ending the mortgage buying program if rates rose sharply.

There are those in the industry that feel in the long run it would be better if the Fed withdrew its support, end of story. As in the “old days” investors would come in, but would probably demand a higher yield on their mortgage investment, causing prices to drop and mortgage rates to rise until a balance was eventually achieved. Until this happened we’d see some increased volatility, and portfolio lenders continuing to have the upper hand. Lastly, unfortunately, the rating agencies, who stamp certifying a particular pool would be relied upon by investors (especially overseas investors), currently have little idea how to rate a current mortgage security. In other words, the rating agencies’ old models don’t work, and many don’t trust them. This is a problem.

It would seem that the biggest influence on mortgage rates last week came from outside the US. Concerns about the possible default of sovereign debt in smaller nations caused investors to seek the relative safety of US fixed income securities, which of course helps the US market – assuming one has faith in the US markets. Grabbing headlines was the unexpected drop in the Unemployment Rate to 9.7% from 10.0% in December, but those “in the know” realize that two separate sources of data are used to compute the change in jobs and the change in the unemployment rate, and during volatile periods the two methods can show widely divergent results.

Of course Friday the markets were focused on the unemployment data, the equity markets, and continued worries about debt around the world. There is a tremendous amount of worry about the mounting debt everywhere, including here in the US: so even though our economy is not booming, at some point issuing more debt, not being able to back the debt up with revenue, printing more money, or a lack of buyers for the debt can all cause rates to go up. Friday afternoon I was hunkered down over a tall cool one, talking to a student of the economy, who simply said, “We’re going to hell in a hand basket.”

Speaking of auctions, this week the government will sell a total of $81 billion in 3-year, 10-year and 30-year Treasury securities. There is no economic news today, nor really any tomorrow of any consequence. Wednesday the 10^th we will see some Trade Balance figures, and on Thursday Retail Sales, Jobless Claims, and Business Inventories. Friday we finish off the light week with the University of Michigan Consumer Sentiment Survey. With not much going on, the yield on the 10-yr stands at 3.57% and mortgage prices are about .125 worse than Friday afternoon.

A guy took his blonde girlfriend to her first Super Bowl party. They had great seats right on the couch in front of the big screen TV.
After the Saints won, he asked her how she liked the experience.
“Oh, I really liked it,” she replied, “especially the tight pants and all the big muscles, but I just couldn't understand why they were killing each other over 25 cents.”
Dumbfounded, her date asked, “What do you mean?”
“Well, they flipped a coin, one team got it and then for the rest of the game, all they kept screaming was: 'Get the quarterback! Get the quarterback!' I'm like............... Helloooooo? It's only 25 cents!!!!”

Rob

(Check out http://www.mortgagenewsdaily.com/channels/pipelinepress/default.aspx. For archived commentaries, check www.robchrisman.com, or to subscribe/unsubscibe write to rchrisman@robchrisman.com.)