In the mid-60's Woody Allen had a nightclub routine. The contraceptive pill had just come out and he said, "I recently had my first experience with oral contraception.  I was at a party the other evening and saw this absolutely fantastic woman!  I went over to her and asked if she would go to bed with me. And she said 'No'".

Some things are simple, others not. On January 15, 2010, HUD issued a Waiver of Requirements of 24 CFR 203.37a(b)(2) revising exceptions to the FHA Flipping Rule policies. (Notice that HUD did not actually issue a Mortgagee Letter.) The FHA Flipping Rule prohibits FHA financing if the contract of sale for the purchase of the subject property is executed within 90 days of the prior acquisition by the seller, and the waiver temporarily puts this aside. Where do the various mortgage investors stand on following or not following the waiver?

Wells Fargo has taken the approach of being silent on the issue - and if WF is silent on an issue, the default policy is to follow the agencies with their policies. Therefore these loans are a “go”.

Neither Bank of America, SunTrust, nor GMAC have adopted the FHA issued directive on the waiver of the 90-day FHA Flip Rule, however.

With other investors, the issue is not black and white. Chase will buy FHA loans with a sales contract executed in less than 90 days with overlays. If the property seller is a government entity or a Chase REO, and the sales price is less than 20% higher than the purchase price, it is ok. If the gain to the "flipper" is greater than 20%, the loan is unacceptable under the waiver. If the seller is a non-Chase bank, or even Chase, and the gain is greater than 20%, it is not eligible. The same 20% line applies to inheritances; private sales are not eligible.

CitiMortgage also has policy overlays. Any increase of sales price over seller acquisition costs should be documented if the increase is 10% or more, instead of the 20% allowed by Citi’s original announcement. The increase in sales price over the seller acquisition cost may not exceed 20%, even if documented per the announcement. If the sales price is greater than $500,000, the increase in sales price over the seller acquisition cost may not exceed $100,000. For Citi, and other investors, all other requirements per the HUD Announcement must be followed.

For Flagstar, the purchase transaction must be arms-length with no identity of interest between borrower and seller or any other parties participating in the transaction, FHA’s guidelines, and there is no history of flipping for the subject property. If the sales price is 20% or more higher than the seller’s acquisition cost, the property flipping waiver applies only if the lender obtains certain documentation (such as complete documentation for renovations and repairs, a very solid property inspection, etc.). “While FHA’s temporary property flipping exemption applies to all purchase transactions that meet these criteria, Flagstar will continue to prohibit FHA and VA financing for properties owned less than 90 days unless the seller meets one of the following Flagstar seller exemptions: seller is a relocation company or employer who acquired the subject property as the result of an employee transfer, seller is any one of the following: HUD, VA, GNMA, FNMA, FHLMC, seller is a non-profit approved to purchase and sell HUD-owned properties with re-sale restrictions, etc. (Check with Flagstar for the complete list.) And Flagstar Bank requires a second appraisal from an FHA-approved and Flagstar-eligible appraiser or a Flagstar-approved appraisal management company for all transactions having a new purchase price that is 20% or more higher than the seller’s acquisition cost.

The SAFE Act continues to weigh on some agents’ minds. Different states have different interpretations. In general, the SAFE Act requires all MLO license applicants to complete 20 hours of pre-license education, including three hours of federal law and regulations, three hours of ethics, including fraud, consumer protection, and fair lending issues, and two hours of training related to lending standards for the nontraditional mortgage product marketplace. Here in California, “Approval has been granted for individuals who are currently licensed by DRE to obtain certification that the pre-license education requirement has been satisfied based on the education completed to obtain their DRE license. However, to be eligible for this process, licensees must file Form MU 4 by August 31, 2010.” There are a few other things to keep in mind, but this appears to be some good news. The California site is www.dre.ca.gov/lic_safe.html#5 .

In a story out of Reuters, four top executives of Thornburg Mortgage improperly paid themselves handsome bonuses just before the mortgage lender filed for bankruptcy last year, and stole money and ideas from Thornburg to secretly launch a new firm, the bankruptcy trustee in charge of liquidating the lender alleged in a lawsuit. Per the complaint, the four executives and their outside lawyer and law firm conspired to launch a new company, called SAF Financial, using a strategy created by Thornburg to try to save itself. CEO Larry Goldstone, former CFO Clarence Simmons, and former VP’s Deborah Burns and Amy Pell were mentioned.

The New York Fed released an interesting paper, if you find these things interesting, on the events in the Fed Funds market in the 2008 financial crisis. In the immediate aftermath of the Lehman’s bankruptcy we see that the market seems to become sensitive to bank specific characteristics, not only in the amounts lent to borrowers but even in the cost of funds. There were sharp differences between large and small banks in their access to credit: large banks show reduced amounts of daily borrowing after Lehman and borrowed from fewer counterparties. In contrast, smaller banks were able to increase the amount borrowed from the interbank market and even managed to add lending counterparties during the crisis. The study showed that the worst performing banks in terms of ROA started accessing the Federal Reserve’s discount window after the Lehman’s bankruptcy. It seems reasonable to assume that these are banks which were rationed by the Fed Funds market since private banks were not willing to lend to them.

Obviously the end of the Fed’s purchase program is coming to an end in a matter of weeks – but maybe mortgage rates won’t skyrocket. Once should keep in mind, however, that every estimate out there points to a mortgage origination market that is 40-50% less than 2009’s, so there is some hope that supply & demand functions enter into keeping mortgage rates relatively low – so maybe the rate increase will be less than 50 basis point. Traditionally, mortgage rates widen when Treasury prices rally, and tighten when Treasury prices worsen (and rates go up). “Negative convexity.”  In addition, Fannie and Freddie will be buying hundreds of billions of delinquent loans. This has hurt the pricing on higher rate mortgages, but overall could be positive for the markets and mortgage rates.

Both the stock and bond markets improved on Thursday, which was nice to see. Both the initial and continuing jobless claims posted week-over-week drops, causing traders to ratchet their estimates for today’s jobs data downward, and pending home sales dropped. Greece began selling 5 billion Euros of 10-yr debt after promising to reduce Europe's largest budget deficit, which included wage cuts that has prompted more protests.  Right now, the futures market is pricing in an 86% chance that the Fed keeps rates somewhere between 0% and .25% through June 23rd, 2010. But a rumor swept the markets yesterday that a very large buyer in 4.5% securities moved mortgages relative to Treasury rates. Supply from lenders (read: locks) has increased lately as rates have crept back down.

This morning’s news, however, has really moved interest rates initially. Non-Farm Payroll “only” dropped by 36,000, and the unemployment rate held steady at 9.7%. Hourly Earnings were up, and the average workweek was down slightly. Rates shot up on the news, as did the stock markets. Call it a knee-jerk reaction, and sometimes you wonder if the market conveniently forgets that the unemployment rate is still near 10%, but stock market futures did indeed rally on the news, the yield on the 10-yr rose from 3.61% up to 3.67%, and mortgage prices worsened by upwards of .250 in price.

Barack Obama was out jogging along the parkway one morning when he tripped, fell over the bridge railing, and landed in the creek below.
Before the Secret Service guys could get to him, three kids who were fishing pulled him out of the water. He was so grateful he offered the kids whatever they wanted.
The first kid said, "I want to go to Disneyland."
"No problem," Barack said, "I'll take you there on my special airplane."
The second kid said, "I want a new pair of Nike Air Jordan shoes."
"I'll get them for you and even have Michael sign them," Barack said.
The third kid said, "I want a motorized wheelchair with a built-in TV and stereo headset!"
Barack was a little perplexed by this and said, "But you don't look like you're handicapped."
The kid said, "I will be after my dad finds out I saved you from drowning!"

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.)