Will Fannie be receiving a refund? Fannie Mae reported a $72 billion net loss for 2009, $15 billion in the 4^th quarter, and greater than the $59 billion the company lost in 2008. Fannie said it asked the U.S. Treasury for another $15.3 billion to stay afloat, bringing its total bailout tab past $76 billion. (Freddie Mac lost $6.5 billion in the 4^th quarter and almost $22 billion for the year, but didn't ask for more bailout cash.)

Fannie Mae has updated their Release Notes for the DO/DU Version 8.0 April Update, which will be implemented the weekend of April 17, specifically related to borrower eligibility and verification requirements (see paragraph above). At that point lenders will be allowed to remove borrowers from the new loan with a DU Refi Plus transaction; and lenders must confirm that borrowers on a loan case file match all borrowers on the existing Fannie Mae loan when a Social Security number does not match. (See paragraph above.) https://www.efanniemae.com/sf/guides/duguides/dureleasenotes/

On top of this, Fannie (see paragraph above) came out with its “Loan Quality Initiative,” which “provides advance notice of upcoming changes to policies, business processes, and tools to support delivery data on the loans delivered to Fannie Mae that is complete, accurate, and fully reflective of the actual terms of the mortgage, as well as aligned with Fannie Mae policies and standards.” The investor hopes that this will raise Fannie loan quality (see paragraph above) and lower repurchase requests. Watch for changes over the next several months. Rather than summarize all nine pages, you’re better off reading it directly from the source: https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2010/ll1003.pdf

Freddie Mac declared several changes to their requirements to “help improve the quality of appraisals for mortgages we purchase, strengthen our business processes, and enhance information available to you to originate and service mortgages.” The end-investor (which means that others are soon to follow) will allow sellers to use Home Value Explorer (HVE) point value estimates returned by LP when reviewing appraised property values during the loan origination process (starting yesterday LP began providing HVE information on the LP Feedback Certificate). Freddie is also now requiring sellers to “retain a copy of the entire note in the mortgage file for post-funding quality control review effective for mortgages. Note endorsements via power of attorney are not permitted! Lastly, Freddie adjusted some of their state-specific guidelines for NH, RI, CA, GA, and NC. Details: http://www.freddiemac.com/sell/guide/bulletins/pdf/bll1005.pdf

I don’t know what I’ll be doing around Labor Day, but Freddie Mac will be eliminating its Interest Only product. At that time the company announced that on or about September 1, it will cease purchasing and securitizing IO mortgages, including Freddie Mac Initial Interest fixed-rate and adjustable-rate mortgages. As agents and brokers know, what Fannie or Freddie do, the other usually follows, and with them, most investors. This will leave portfolio and hard money lenders as the only entities possibly offering IO products by late summer.

What is the latest on HUD and RESPA and GFE’s? Darned if I know. But on 2/18 HUD met with major FHA lenders “to help promote consistency” for the new RESPA. HUD addressed its “restrained enforcement” position and advised that this only covers a party that has implemented the new RESPA rule in good faith. Implementation in good faith requires use of the new good faith estimate (GFE) and HUD-1 forms, and abiding by the intent of the new rule with regard to fee categories and tolerances. As for “worksheets”, HUD advised that although worksheets can be useful for generic rate quotes, a worksheet should not look like a GFE and it should be clear that the worksheet is not a GFE, it never should be used “in lieu of” a GFE, and a consumer should not have to show an “intent to move forward” to receive a GFE. HUD advised that a pre-approval without the issuance of a GFE may be used in a purchase transaction only if the consumer has not executed a purchase contract on a property. HUD also explained that a pre-approval may not be used with a refinance, and that a lender should never advise a consumer not to disclose their property address in order to avoid providing a GFE.

Here is a riddle for you. What happens every Friday, is tragic, and is only expected to become worse? The answer is regulators shutting down banks, this time in Nevada and Washington. The assets of Carson River Community Bank (NV) will be assumed by Heritage Bank (NV), and those of Rainier Pacific Bank (WA) by Umpqua Bank (OR). It is reported that FDIC officials claim that the pace of bank seizures will likely accelerate.

If you gearing up to sell mandatory, or have you based your business model on it, be careful! The word is out that some dealer clearing houses will be requiring counter-party agreements with the MBS security dealers, so in case a dealer “goes down” (like Lehman or Bear or Drexel Burnham) the counterparties will stand behind the trades. This means the originator. It is rumored that anyone selling securities may be asked to pony up points based on perceived counterparty risk plus any negative mark-to-market for mandatory hedging purposes. And new trade lines will be, in effect, traded with margin. So whether you calculate the difference between best efforts and mandatory execution is .250 or .625 in price, there may be hurdles.

Are we heading for lower rates, or higher rates? Certainly there is no inflationary pressure, although GDP for the fourth quarter (generally thought of as “old news”) was revised slightly higher, and was the strongest quarter of economic growth in more than six years. But Existing Home Sales decreased over 7% in January and was much weaker than expected. At over 3 million units available for sale, at the current pace this is almost an eight month supply. And for the sales in January, 38% were “distressed” sales which include foreclosures. (Maybe we’ll get another tax related surge in the coming months based on the April 30^th date, maybe not.)

Also on Friday we had the Chicago Purchasing Managers Index show a little increase in February, but the Michigan Consumer Sentiment Index dropping slightly from January’s levels. But how do Purchasing Managers stack up against news from Greece, or the level of foreign interest in buying our debt? They don’t. The threat of ratings cuts for Greece fueled demand for the safety of U.S. debt and Federal Reserve Chairman Bernanke pledged to hold interest rates at a record low – so don’t look for (short term) rates moving much higher. But continued faith in U.S. economy could fade quickly without signs that Congress is crafting plans to address the very large deficit in which we find ourselves - Bernanke believes that deficits need to be brought down to 2.5% to 3% of the nation's gross domestic product to be sustainable.

Rate-wise, dealers and investors become a little nervous about mortgages (relative to Treasury securities) if 4.5% securities approach a price of 101. Looking ahead to March, however, we have some uncertainty about the Fannie & Freddie buyout impact, consumer concern over the employment situation and we have the employment number this Friday, scheduled termination of the Fed MBS purchase program, an FOMC meeting mid-month, the usual 2 rounds of treasury auctions, and shaky equity and currency markets.

This week is full of news, beginning with Personal Income & Consumption and Construction Spending today, along with the Institute of Supply Managers Index. Tomorrow we have a break, and then on Wednesday we have the ADP employment number (which doesn’t include government jobs), the ISM services number, and the Beige Book from the Fed. Thursday is Jobless Claims, 4^th quarter Productivity, Factory Orders, and Pending Home Sales. Lastly, Friday we have the usual set of employment data, which is the biggest economic event of the week. Look for a decrease of about 20,000 jobs in February. But ahead of all this rates are quiet, with mortgages a shade better and the 10-yr steady at 3.63%.

Every day I wake up bright-eyed and bushy-tailed at 4AM to work on this commentary. Or, at least, most mornings – sometimes I need a little motivation. The decision has been made to put in occasional one-paragraph advertisement, in addition to our market news and information. Would you like to reach a few dozen (ok, maybe a few more) people every morning?  Share the word about your products and services in this daily commentary, and drive business to your website or social media? Contact Carolyn Roark at Carolyn@taeinternational.com for information.

A man and a woman, who had never met before but who were both married to other people, found themselves assigned to the same sleeping room on a Trans-continental train.
Though initially embarrassed and uneasy over sharing a room, they were both very tired and fell asleep quickly, he in the upper berth and she in the lower.
At 1:00 AM, the man leaned down and gently woke the woman saying, “Ma'am, I'm sorry to bother you, but would you be willing to reach into the closet to get me a second blanket? I'm awfully cold.”
“I have a better idea,” she replied. “Just for tonight, let's pretend that we're married.”
“Wow! That's a great idea!” he exclaimed.
“Good,” she replied. “Get your own *&^% blanket.”
After a moment of silence, he belched.

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.)