The OTS issued simultaneous cease and desist orders against AmTrust Financial Corp. and unit AmTrust Bank. The orders require the holding company and its nondepository subsidiaries to “seek prior approval from the OTS before incurring, issuing, renewing or rolling over any debt, increasing any lines of credit or guaranteeing the debt of any entity. The parent company cannot pay dividends or repurchase or redeem stock without the regulator's consent. AmTrust Financial also is ordered to enact a plan to boost AmTrust Bank's capital ratios to at least 7% of Tier 1 capital and 12% of total risk-based capital by no later than Dec. 31. In addition, the bank cannot make any new loans or issue lines of credit for land acquisition or development or for speculative residential construction. The bank also is barred from granting any new reduced- or no-documentation mortgage loans.”

In a move that either has been or will be followed by other investors, Chase proclaimed that they will be implementing a prepurchase review. “As an industry, we are faced with an evolving credit profile, declining property values, and concerns about fraud and misrepresentation. To ensure that you are originating and we are purchasing loans that will protect us and our borrowers in years to come, Chase has implemented a prepurchase review for selected correspondent loan files. This review will include: Credit risk assessment, validation of the credit documentation to ensure it meets the AU findings requirements and/or Chase Credit Policy for manually underwritten loans, appraisal analysis, and the use of various quality assurance tools.” If a loan is selected for a prepurchase review, it does not relieve the Correspondent from any obligations relating to the loan, including but not limited to origination, underwriting, or closing the loan or from any of Correspondent's representations, warranties, or covenants or repurchase or indemnification obligations contained in the Chase Correspondent Lending Guide, the Origination and Sales Agreement or elsewhere.

Lock desks across the nation bore the brunt of a feeding frenzy yesterday after the Federal Reserve and Treasury took more action to help the frozen markets. Locks shot through the roof, if systems were automated. If not, some desks were too busy dealing with renegotiations! Was this another 2 hour refi period? Most think not. The Fed instituted direct purchases of $100 billion of Fannie/Freddie obligations, and plans to buy another $500 billion of mortgage backed securities. The Fed set up a Term Asset-Backed Securities Loan Facility (TALF) with the help of $20 billion from the Treasury, and will purchase up to $200 billion in commercial paper backed by consumer loans. The Fed’s actions are a big step, but they have made big steps in the past. The fact that they will now buy mortgage-backed securities is huge, and is a direct help to housing, one of the main areas of economic weakness.  These programs are a way for the Fed to further expand the total amount of reserves outstanding while directing the new money toward areas where it is needed.

As everyone saw, mortgage rates dropped dramatically, although they have worsened this morning. 30-yr fixed rate mortgages dropped from the low 6’s into the mid 5’s, which may help borrowers overcome some of the tight underwriting guidelines that don’t seem to be going away any time soon. Speaking of which, Freddie clarified some DTI and FICO information. Freddie has established a maximum debt-to-income ratio of 45% for all manually underwritten mortgages, but not for all mortgages. Most mortgages that are sold to Freddie will have a minimum indicator score of 620, except for Loan Prospector A- mortgages, and a few other isolated programs.

FHFA, the regulator of Fannie Mae and Freddie Mac, requested that over 40 servicers and trustees of private-label mortgage securities adopt their streamlined loan modification program. The specific instructions come out on December 15th, but the program’s goal is to identify and then help seriously delinquent borrowers avoid preventable foreclosures. Servicers will receive an $800 payment for each modification.

Yesterday I had a paragraph on Fannie & Freddie that began, “Recently, Freddie & Fannie have been caught up in the debate over how the companies will be reshaped and even whether they will continue to exist, which has made many investors wary of buying their bonds.” Credit should be given to Bob Hagerty of the Wall Street Journal for this information.

So what’s happening in the economy? GDP was -.5% in the 3rd quarter, Consumer Confidence moved up from 38.8 in October to 44.9 in November, and the Case Shiller Home Price Index for 20 U.S. Cities Declined 17.4% in September from a year earlier. But the big news yesterday was the Fed’s announcement mentioned above. This morning we’ve seen that MBA mortgage applications are out with a 1.5% increase last week. Purchases were +5.3% and refinances were -2.1%. Durable Goods orders (items lasting 3 or more years) plummeted in October by 6.2%, double what was expected, and was the largest drop since October of 2006. Jobless Claims fell by 14,000 last week to 529,000 in the week ended Nov. 22 from an upwardly revised 543,000 the previous week. And consumers cut spending during October by 1.0%, the steepest rate in more than seven years. Given that consumer spending accounts for two-thirds of economic activity in the US, this is significant.

Later we will see the Chicago Purchasing Managers survey, the University of Michigan Consumer Confidence number, and the New Home Sales numbers. We still have an early bond market close, and many companies are closing early for the holiday. The bond markets are open on Friday, but many originators are closed unless they’re trying to get in some last minute November fundings. Wouldn’t you know that rates have moved higher this morning, with many mortgage prices about .5-.75 worse than yesterday afternoon’s, while the 10-yr sits at 3.08%.

A lady was picking through the frozen turkeys at the grocery store, but couldn't find one that would be big enough for her family reunion.
She asked a stock boy, "Do these turkeys get any bigger?"
The stock boy replied, "No ma'am, they're dead."