Arthur is 90 years old. He's played golf every day since his retirement 25 years ago.  One day he arrives home looking downcast. "That's it", he tells his wife. "I'm giving up golf. My eyesight has gotten so bad.... once I've hit the ball, I can't see where it went." His wife sympathizes, and pours him a cold drink.  As they sit down she says, "Why don't you take my brother with you, and give it one more try?"

That's no good" sighs Arthur. "Your brother's a hundred and three. He can't help."  He may be a hundred and three", says the wife, "but his eyesight is perfect."

So the next day Arthur heads off to the golf course with his brother-in-law.  He tees up, takes a mighty swing and squints down the fairway. He turns to his brother-in-law and asks, "Did you see the ball?"  "Of course I did!" 

"Where did it go?" says Arthur.

"I can't remember."

Treasury Secretary Henry Paulson favors temporarily allowing Freddie and Fannie to purchase jumbo loans which exceed $417,000. Currently the two own or guarantee 40% of the $11.5 trillion home loan market, and Paulson said he agreed with Fed Chairman Bernanke who suggested to lawmakers that they consider allowing Fannie Mae and Freddie Mac into the jumbo mortgage market. (It is up to Congress to determine the maximum loan amount, but Bernanke indicated in a Nov. 8 hearing that he favored letting Fannie Mae and Freddie Mac buy mortgages of up to $1 million.) OFHEO Director James Lockhart last week said they will begin considering the removal of a 30% excess reserve capital rule when the companies release 2007 results in February as a way of giving them freer rein for making loans.

Onto the “FHA bill”. A Senate bill, which passed last week, would expand the functions of the Federal Housing Administration (FHA) and hopes to make low-cost, fixed-rate mortgages available to more homebuyers and to homeowners seeking to refinance out of expensive adjustable rate mortgages (Arm’s). FHA-insured loans have become an important element in the proposed solutions to the subprime mortgage crisis. There is bipartisan Congressional support for the measures and from the Bush administration, and lenders like FHA’s because the government guarantee enables the lenders to easily sell off the loans.

The Senate FHA-modernization bill differs in some significant ways from the House bill. Both the House and the Senate versions raise cap limits, the maximum dollar amount of mortgages that are eligible for FHA insurance, but the House bill is much more aggressive in nearly every one of its provisions. The Senate’s version sets the cap at $417,000, while the House would set the cap at $729,750, which is more than twice its current amount. That will give many more home buyers, especially those in high-priced areas like California, access to FHA-insured loans. The House will also allow more people in by accepting no-money-down deals, unlike the current policy, which mandates a 3 percent down payment. The Senate bill still requires a down payment but halves it to 1.5 percent. Both bills relax the strict provisions that have kept FHA insured mortgages of limited use in buying condos and manufactured homes. The next step for the FHA modernization bill is for members of the House and Senate to work out the differences in the two versions. That may happen as early as this week.

A couple more things about VA loans that agents need to keep in mind. While they do not require PMI, the borrower pays a VA funding fee which is typically wrapped into the loan balance similar to the upfront MIP on FHA loans.  Also the VA guarantee to lenders is only 25% coverage. The VA guarantees the top 25% of the loan which means that, unlike FHA who guarantees 100% of the loss, the VA only covers a portion. So if a lender loses more than 25% they are on the hook for the rest and in severely declining markets, VA loans can cost a lender.

November Housing Starts came out as expected, -3.7%, but showed a big drop, and Building Permits were -1.5%. On thing to note – the decline in Building Permits is decreasing, which is a stretch for good news. What has that done to the market so far? The 10-yr is down to 4.18% and mortgage prices are about .125 higher (better). Goldman Sachs released their earnings, which were slightly stronger than expected, and the dollar has improved somewhat. But generally speaking, given the surprising resiliency in the economy with better than expected economic data and worse inflation indications, most do not expect much improvement in mortgage rates or in treasury yields for the rest of the year. The Fed may be done lowering rates for now and the markets are reflecting that. A catastrophic event in the financial markets such as a large bank going bust will need to happen before the next Fed meeting if we are going to see more cuts.

• Campbell, CA-based Alliance Title, with nearly 200 branch offices and more than 2,000 employees, unexpectedly shut down its operations over the weekend. Customers are advised to call the Insurance Department's hotline at 1-800-927-HELP (4357).
• On Friday CitiMortgage discontinued their FNMA EA III and EA TPR-III programs, changed their Expanded Lending Product FICO/LTV’s and Non Agency Alt-A LTV/FICO, and made other related adjustments.