“I thought that I could love no other

Until that is, until I met your brother.”

“I see your face when I am dreaming

That’s why I always wake up screaming.”

“Kind, intelligent, loving and hot; 
This describes everything you are not.”

The current economic environment certainly has one line of good news, one line of bad. The bond market was “weighted down” yesterday with decent economic numbers, the size of next week’s refunding (with $14 billion of new cash after retiring maturing debt), and a decent stock market. (“What do those guys in the equity markets know that we don’t?”) This morning we had the Unemployment data. It was a surprise: instead of Nonfarm Payroll dropping 325k, employers cut “only” 247,000 jobs in July, the least in any month since last August. The Unemployment Rate actually dropped to 9.4% in July from 9.5% the prior month, the first time the jobless rate had fallen since April 2008. And the government revised job losses for May and June to show 43,000 fewer jobs lost than previously reported. After the news, we find the 10-yr yield up to 3.88%, and 5-yr Treasury and 30-yr mortgage prices worse by .5-.75, depending on coupon.
 

The Federal Reserve Bank of New York Agency Mortgage-Backed Securities Purchase Program came out with their figures which surprised some. Purchases actually shrank slightly, and they were the lowest gross and net since January. And gee, if the Fed isn’t going to buy our mortgages, who is? Of the securities purchased, 30-yr 5% coupons (5.25-5.625% mortgage rates) were over half. The next largest block was 30-yr 5.5% coupons.

East of the Mississippi, many transactions use an attorney rather than a title company. How do they ensure that a closing attorney does not change any of the APR fees after a broker approves the final HUD? Send an instruction letter? Most lenders use a closing instruction letter that requires the closing agent to adhere to the lender’s instructions, and liability may attach for unauthorized changes. Some lenders also require the closing agent to fax the final HUD-1 to the lender to ensure that no changes have been made.

OK, sometimes I use alcohol to cure my problems. And sometimes I use alcohol when I write this commentary at 5AM, along with listening to “Alice in Chains”, and I inadvertently left off several key wholesale lenders yesterday. I apologize. Left off the list were companies such as Bank of America, AmTrust, US Bank, MetLife Home Loans, Franklin American, PMC Bancorp, Guild, Everbank, Stonewater, and Sierra Pacific. Of course, for a more definitive guide, you can always go to http://www.scotsmanguide.com/default.asp?ID23

What does the IRS have to say about individual taxes on short sales? Here is the word straight from the source: http://www.irs.gov/individuals/article/0,,id9414,00.html

Not only did I leave some lenders off, but I trusted a Bloomberg article at face value. As was pointed out to me by astute readers, Radian is its own company and not owned by AIG. AIG actually owns UGIC so when Radian put up good numbers all the financial guarantors rallied Wednesday for that and other reasons.

Rumored to be a result of TBW’s demise, which was rumored to have no FHA overlays, Flagstar Bank made some changes to their FHA & VA loans registered on or after August 15. From that date on, loans had better meet these guidelines: “All FHA loans will require a minimum credit score of 640 for all borrowers. This minimum score guideline applies to all loan purposes, including Flagstar to Flagstar Streamline refinance transactions.” In addition, FHA loans to Flagstar must meet the following ratio requirements: “The total debt ratio for loans that receive a Total Scorecard “approve” or “accept” response must not exceed 48%. There is no maximum housing ratio for loans approved through automated underwriting. The housing ratio for loans that receive a Total Scorecard “refer” response must not exceed 35%. The total debt ratio for loans that receive a Total Scorecard “refer” response must not exceed 45%. Strong compensating factors must be documented for loans that receive a Total Scorecard “refer” response and exceed FHA’s standard ratio guidelines of 31% for housing and/or 43% for total debt.” On top of that, if any portion of a borrower’s funds to close is derived from a gift, grant, community second program or eligible down payment assistance program, the loan must meet all of the criteria listed: Loan must receive a Total Scorecard “approve” or “accept” response, Maximum housing ratio is 31%, Maximum total debt ratio is 43%, and borrowers must have two months reserves after funding – Reserves may not be gifted.”

For VA loans, Flagstar is requiring a minimum credit score of 600 for all borrowers. In addition, they changed several key criteria for all IRRRL’s, so be sure to check with them on changes to credit scores, underwriting, etc. Lastly, and those folks at Flagstar were busy, they worsened their price adjustments for Flex 97 Fixed Interest-Only products. No one wants to be adversely selected against by being the last on the block to have better pricing for non-vanilla product.

HAMP stands for “Home Affordable Modification Program” as any loan servicer can tell you. How is it doing? The government released a report giving a status update – 5 months after the guidelines were set. The program is tied in to the Making Home Affordable (MHA) loan modification program, which provides $75 billion for sustainable mortgage modifications through HAMP. 38 servicing companies are in the program, covering 85% of loans in the country. More than 400,000 modification offers have been extended and more than 230,000 trial modifications have begun, with the target being “offering assistance to up to 3 to 4 million homeowners over the next three years.” In recent weeks the Obama administration has turned up the heat a little on the servicing companies and as an additional protection for borrowers has asked the program compliance agent, Freddie Mac, to develop a “second look” process to audit MHA modification applications that have been declined on an ongoing basis.

In other news, the Obama Administration is talking about changing the role of Fannie and Freddie and the ground rules for the securities. As we all know, the markets don’t like uncertainty, and there are several implications of the administration's plan, should it come to pass. First, any privatization presumably refers to the guarantee business going forward. So loans done recently, which are generally thought to have tighter guidelines than those from a few years ago, will keep a solid rating. If the investment portfolio were privatized, the debt would go along with it, implying that the debt loses government backing – and there is no way that is going to happen. Nor would any foreign entities be excited about buying mortgage securities that don’t have a US government guarantee. So don’t look for anything too bold.

Sally, on “Who Wants to be a Millionaire?” had reached the final plateau. If she answered the next question correctly, she would win $1,000,000. If she answered incorrectly, she would pocket only the $25,000 milestone money. And as she suspected it would be, the million-dollar question was no pushover.

The host asks, “Which of the following species of birds does not build its own nest but instead lays its eggs in the nests of other birds?
Is it:
A) the condor
B) the buzzard
C) the cuckoo
D) the vulture?”
Sally was on the spot. She did not know the answer. She had used up her “50/50 Lifeline” and her “Ask the Audience Lifeline”. All that remained was her “Phone-a-Friend Lifeline”. She hoped she would not have to use it because…her friend was, well, blonde. But she had no alternative.
She called her friend and gave her the question and the four choices. The blonde responded unhesitatingly: “That's easy. The answer is C: the cuckoo.”
Sally had to make a decision and make it fast. She considered employing a reverse strategy and giving the host any answer except the one that her friend had given her. And considering her friend was a blonde that would seem to be the logical thing to do. But her friend had responded with such confidence, such certitude, that the contestant could not help but be convinced.
“I need an answer,” said the host.

Crossing her fingers, Sally said, “C: The cuckoo.”
"'Is that your final answer?”
“Yes, that is my final answer.”
And the host replied, “That answer is.... Absolutely correct! You are now a millionaire!”
Three days later, the contestant hosted a party for her family and friends, including the blonde who had helped her win the million dollars.
“Joni, I just do not know how to thank you,” said the contestant. “How did you happen to know the right answer?”
“Oh come on,” said the blonde... “Everybody knows that cuckoos don't build nests. They live in clocks.”

Rob

(For archived commentaries, check www.robchrisman.com, or to subscribe/unsubscibe write to rchrisman@robchrisman.com. The commentary is produced every business day, but there always seem to be vague e-mail “issues”, so if you don’t receive it, let me know.)