In traditional capitalism, you have two cows. You sell one
and buy a bull. Your herd multiplies, and the economy grows. You sell them and
retire on the income.
In American capitalism you have two cows. You sell one, and
force the other to produce the milk of four cows. You are surprised when the
cow drops dead.
In French capitalism you have two cows. You go on strike
because you want three cows.
In Italian capitalism you have two cows, but you don’t know
where they are. You break for lunch.
In Real capitalism you don’t have any cows. The bank will
not lend you money to buy cows, because you don’t have any cows to put up as collateral.
Are foreclosures a thing of the past? That is an interesting
concept in a capitalist society. But Fannie Mae announced that it is
suspending all foreclosure sales and evictions of occupied properties through
March 6 in anticipation of the Administration's national foreclosure
prevention and loan modification program. In addition, the company adopted a
national Real Estate Owned (REO) Rental Policy that allows renters in Fannie
Mae-owned foreclosed properties to remain in their homes or receive transitional
financial assistance should they choose to seek new housing. JPMorgan Chase
and Bank of America followed Fannie, using the March 6th date. Citi, in a
blatant display of one-upmanship, suspended foreclosures until March 12th
if Citi owns the 1st mortgage. The White House is considering a plan that would
use federal funds to buy at-risk mortgages and refinance them, thereby making
them more affordable to the homeowner.
Freddie Mac said it will allow some borrowers to rent out their
homes after losing them to foreclosure so as to prevent
properties from becoming vacant so they won't fall into disrepair. Freddie also
said it will allow renters to remain in their homes even if their landlord
enters foreclosure. It has about 8,500 properties in the foreclosure process,
but many are vacant. Fannie has been doing the same thing since January.
Tenants and former property owners need to demonstrate they have enough income
to pay the rental bill. Freddie Mac also said it would consider reinstating a
mortgage for those borrowers who can qualify for a modified loan.
I think that it will be fascinating, with all of the
potential millions of folks who are watching their credit scores drop, to see
how all the investor FICO changes impact the future of lending. For example,
just in the last few days: CitiMortgage now requires the following minimum
FICO scores on all FHA and VA loans, including FHA Streamline and VA IRRRL. For
loans ≤ $417,000, it is 620, above $417 borrowers need a 660. Well Fargo wholesale will require, for MI in Florida,
Arizona, and Nevada, all conforming loans to have a
minimum FICO of 720.
Wells Wholesale put additional restrictions on mortgages,
for mortgage insurance purposes, primarily in Florida, Arizona, and Nevada. For
example, 2nd homes in Florida
are to have a maximum LTV of 80%, and non-conforming loans are not allowed on 2nd
homes in those three states. In addition, they lowered DTI levels and lowered
LTV levels for condos.
President Obama is expected to sign the $790 billion
economic stimulus bill today. It includes an expansion of the first-time
homebuyer tax credit ($8k, no pay-back) and restores to $729,750 (in the 2008
Stimulus Act) the upper loan limit in high-cost areas for Fannie Mae, Freddie
Mac and FHA loan guarantee programs. For HECM (reverse mortgages) the Act
allows for an increase in the current loan limits. The bill has over $50
billion in it for foreclosure mitigation. Remember that, just like last
year, a few things MUST happen before any investor will accept applications
with higher loan amounts. The first is that the Agencies (Fannie Mae and
Freddie Mac) and FHA must determine whether pricing, policy and/or delivery
requirements will be changed. Second, they will let investors know what the criteria
are. Lastly, given this information, the investors will identify impacts caused
by the Agencies’ and FHA’s requirements and implement the changes. I have heard
comments on the expected pricing hits that range from “They will be somewhat
punitive” to “They will stink.”
GMAC Bank Correspondent came out with “The
FHA High Balance loan, defined as loans amounts greater than the GSE conforming
loan limits, will be separated from the existing products. New product codes
will apply to all FHA High Balance loans. Loans that are registered into these
new products must meet both the below minimum loan amounts and the FHA 2009
Maximum Mortgage limits (https://entp.hud.gov/idapp/html/hicostlook.cfm).”
Minimum loan amounts for the new products will be the standard $417,001 for one
unit ($625,501 for HI and AK).
Any GMAC correspondents originating TPO loans (a loan for
which the loan origination, taking the loan application, or processing
functions are performed by an entity other than the entity closing and funding
the loan) should know that “TPO approval is restricted to Delegated Clients who
have received TPO approval authority from GMACB Credit Risk. TPO loans
are not eligible for funding on Table-Funding transactions. Effective with
March 9, 2009 deliveries, the following information and pre-fund diligence red
flags checks must be included in each TPO loan file when submitting to GMACB
for purchase. Any and all discrepancies must be supported, explained and
documented. All TPO loans will continue to go through an additional pre-fund
audit review. Clients must obtain an in-file credit report at or prior to
underwriting and at a minimum check for undisclosed debt, deterioration in FICO
and/or credit ratings, etc., along with verbal verification of employment,
validation of the 4506T, and the generation of an AVM.
OK, back to the markets. With four business days left, today
our markets will be concerned with some miserable news coming out of Japan.
The economy there is doing unexpectedly poorly, leading to our stocks being
down, leading to a nice rally in our bond market. Currently the 10-yr is down
to 2.72% and mortgage prices are better by about .250 in price. Tomorrow we
have Housing Starts and Building Permits, along with Industrial Production and
Capacity Utilization. Thursday we have the Producer Price Index, Leading
Economic Indicators and Jobless Claims, and then on Friday we have the Consumer
Price Index.
In Enron Capitalism you have two cows.
You sell three of them to your publicly listed company, using letters of credit
opened by your brother-in-law at the bank, then execute a debt/equity swap with
an associated general offer so that you get all four cows back, with a tax
exemption for five cows. The milk rights of the six cows are transferred via an
intermediary to a Cayman
Island company secretly
owned by the majority shareholder who sells the rights to all seven cows back
to your listed company. The annual report says the company owns eight cows,
with an option on one more. Sell one cow to buy a new president of the United States,
leaving you with nine cows. No balance sheet provided with the release.
The public buys your bull.
In Californian Capitalism you have two cows. They are happy.
In Arkansas
capitalism you have two cows. That one on the left is kinda cute…
Rob
