Yesterday…

• President Jimmy Carter’s press secretary Jody Powell died of a heart attack at age 65 and actor Patrick Swayze died of pancreatic cancer at age 57 – both tragic.
• Wells Fargo fired the commercial department’s SVP after investigating reports, and apparently determining, that she held parties and perhaps squatted at a foreclosed beachfront Malibu house held as REO. If you need someone to run your own REO department, contact Cheronda Guyton – she’s probably on Face book. The Malibu mayor said that he appreciated the fact that Wells Fargo took the issue seriously.
• Last month Bank of America and the SEC supposedly had settled, for $33 million, a suit concerning BofA’s inadequate disclosures over bonuses paid at Merrill Lynch. Unfortunately for the two of them, a federal judge rejected the settlement saying the SEC's accusations of inadequate disclosure by the bank over bonuses paid at Merrill Lynch must now go to trial. Now the SEC must mount a case against BofA over executive pay. On top of that, NY Attorney General Andrew Cuomo's office is preparing to file charges within the next couple of weeks against several high-ranking executives at Bank of America, claiming they failed to disclose details about the bank's acquisition of Merrill Lynch.

Last week was a slow news week, but one thing to note was the July consumer credit report. It showed that the consumer reduced their spending through credit 5x larger than any expectations. For a mortgage banker, was this good or bad? Stocks ignored the report, in spite of everyone knowing that consumer spending accounts for 2/3 of GDP. As I have mentioned, obviously the consumer tends to hunker down if they are losing money on the value of their homes or in their stock holdings. Keep in mind that if no one spends, the economy continues to slow, in theory rates drop. When credit tightens, consumer spending tightens. And as any loan agent or broker can tell you, the tighter lending remains, the tighter the consumer will get thus demanding less credit. Once credit loosens again, the consumer will demand more.

The historical cure for most recessions is a reduction in interest rates (standard monetary policy) and fiscal expansion. The problem with the current recession is that its primary cause is the credit crunch. Whoever was in the working world in the 1980’s remembers the S&L crisis, the resolution of which cost us $40 billion, which was only about 2% of GDP at the time. This time around, the impact is being felt in every aspect of the economy, from state budgets like California’s, the shuttering of investment banks like Lehman Brothers, the consumer who needs a new car but can’t get credit to buy one. The only good thing is that I am receiving fewer offers of credit cards in the mail!

Disasters are a fact of life, from California to New York. Fortunately the US Government does us a favor by identifying disaster areas on the web.

http://www.fema.gov/news/disasters.fema

http://www.fema.gov/news/disaster_totals_annual.fema

Most, if not all, investors require that a re-inspection/certification be obtained prior to the closing or funding of the loan in a FEMA listed area. Often the underwriter (including delegated underwriters and MI Company contract underwriters) will determine whether a re-inspection is required, based on information from FEMA, State, or other resources available, and will condition for it. Any investor wants to make sure that the home can be lived in, and hopefully contains no evidence of damage based on the exterior inspection carried out by the original appraiser, the homeowner’s insurance company, or a firm specializing in property inspection.

Brokers, rightly or wrongly, have been accused of shopping loans, moving locks for .125 in price, etc. And, rightly or wrongly, many blame brokers for having fallout. That being said, there has been a trend in the last year or two to increase the pullthrough from brokers. In fact, investors do all they can to help. They point out that originators should run loans through AUS before one locks, making sure they know the risk class. Brokers and agents should double-check current guidelines and check for compliance with all guidelines to ensure a valid product and avoid denial status. The lender should choose their rate lock period correctly, since extensions are costly either to the borrower, the broker, or the investor. Make sure the deal is “do-able” before locking, and take the time to check the loan status with the investor.

In your down time, check out http://www.freddiemac.com/sell/guide/bulletins/pdf/bll0918.pdf Freddie Mac, for lack of a better term, is increasing documentation requirements for a mortgage loan file. The changes relate to income calculation and verification, asset verification, liability calculation, occupancy, and appraisal quality for all conventional loans. And US Bank Home Loan is asking their clients to comply with the new Freddie requirements. (USBHL reminded their clients that it only addresses areas that need clarification or emphasis; it is not a substitute for complying with FHLMC guidelines.) For example, in most instances a two year history of receipt of income is required, trailing co-borrower income can no longer be used to qualify, borrower(s) not self employed require a verbal VOE, if the borrower is self-employed, evidence of the existence of the business through a third party source must be provided not more than 30 days prior to date of Note, etc., etc. It would be best to directly read the bulletin from US Bank for specific underwriting requirements.

But while we’re talking about US Bank, their wholesale division “will adapt Fannie Mae’s guidelines (FNMA Announcement 09-19) on reducing the allowed maximum age of credit documents from 120 days to 90 days for all conventional loans. Credit documents include credit reports, employment, income, and asset documentation.  The age of the documents is measured from the date of the document to the date the note is signed.

Back in January ING reached an agreement with the Dutch government to guarantee 80% of a 28 billion euro portfolio of Alt-A and subprime residential mortgage-backed securities. The European Commission, however, has extended a review of the portfolio guarantee to determine if the government paid ING too much (90% of face value). The government is due to receive 80% of the cash generated from the portfolio. I don’t know of anyone over here in the US paying 90 cents on the dollar for subprime and Alt-A loans…

Although the market was basically unchanged overnight, this morning we have had a good dose of economic news which has moved rates higher. Retail Sales had their biggest monthly advance in over 3 years, +2.7%, obviously attributed to car sales but also outside of that sector. (Auto sales were up 10.6% in August.) We also had the US Producer Price Index come out twice as much as was expected. It didn’t help that gasoline prices saw their biggest jump in more than 10 years. The Labor Department said PPI jumped 1.7% last month and fell 4.3% from August 2008. Although we still have the Empire State Manufacturing data, the PPI and Retail Sales numbers knocked bond prices down and rates up. Currently the 10-yr is worse by 20 ticks and is yielding 3.46% while 30-yr mortgage prices are worse from Monday afternoon by .125.

A guy and a girl meet at a bar. They get along so well that they decide to go to the girl's place.

A few drinks later, the guy takes off his shirt and then washes his hands. He then takes off his trousers and washes his hands. The girl has been watching him and says, "You must be a dentist."

The guy, surprised, says "Yes....how did you figure that out?"

"Easy," she replied, "you keep washing your hands."
One thing led to another and they make love. After they are done, the girl says, "You must be a good dentist."

The guy, now with a boosted ego, says, "Sure, I'm a good dentist, how did you figure that out?"

The gal says, "Didn't feel a thing......"

Rob

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