Friday, however, the FHA Commissioner announced that after January 1, the FHA will require appraisals to be ordered via HVCC, and that instead of a net worth of $250,000 lenders must have a net worth of $1million sometime in the next year. The FHA sent out a Mortgagee Letter to all lenders that they are adopting HVCC in most of its current form – the same one adopted by Fannie & Freddie in May. Mortgage originators will no longer be able to order appraisals from appraisers, but instead use AMC’s, which contributed to some of the popularity of FHA loans. Appraisers stand to make a little more, brokers will have less control, FHA appraisals will only be good for 4 months and not 6, and the FHA will allow appraisals to be transferred to another lender. Realtors can still give appraisers comparable sales data, but just not value: a fine distinction. In addition, the FHA said it may fall below its mandated capital level (2% reserves) for the first time in its history, but it will not require a taxpayer bailout, and that they will be hiring a chief risk officer. (Talk about a piece of cake job, right?)

Mini-eagle questions? “Lenders seeking approval to originate, underwrite, or service an FHA loan must meet the eligibility criteria for a supervised or non-supervised mortgagee. Mortgagees with this approval status must assume liability for all the loans they originate and/or underwrite. Loan Correspondents (mortgage brokers) will continue to be able to originate FHA-insured loans through their relationships with approved mortgagees; however they will no longer receive independent FHA approval for origination eligibility. Check it all out at: http://portal.hud.gov/portal/page/portal/HUD/press/press_releases_media_advisories/HUDNo.09-177

Why the changes? According to the MBAA, almost 20% of FHA loans are delinquent in some form. The number of loans that they insure has grown from slightly more than 4 million 3 years ago to almost 5 ½ million now. Many originators view FHA loans as a substitute for the subprime loans from days gone by and some analysts feel that these loans will cause a huge negative impact on the industry and on the taxpayer. (Not everyone deserves a home loan, right? Why allow DTI’s above 36%? 3.5% or less down?)

PMI made some adjustments to their Distressed Markets List, at the same time increasing the maximum debt-to-income (DTI) ratios to 45% for all loans.  While this will allow more borrowers to qualify, “we caution our customers to carefully analyze the borrower’s ability to repay the loan using a higher ratio.  We will require that your submissions represent a balanced range of DTI ratios.”

Lennar, the third-largest U.S. homebuilder, lost more money in their 3^rd quarter than analysts had expected. Revenue dropped and interest costs increased... a bad combination. The company reported a loss for the three months which ended Aug. 31 of almost $172 million versus $89 million from a year earlier. Lennar has reported 10 straight quarterly losses.

GMAC Bank Correspondent Funding reported that effective immediately, GMAC Bank will not underwrite closed loans, and that all loans must be underwritten prior to closing. Closed loans currently in pipeline, submitted to GMAC Bank for underwriting, will be underwritten but may be subject to additional conditions by the underwriter including but not limited to updated credit documents.

GMAC updated their jumbo program. (Not jumbo conventional, but real-live jumbo loans!) Most of the programs require a FICO above 700 and even 720, but LTV's can go as high as 80% for loans up to $2 million. (3-4 units have a maximum LTV of 70 %.) LTV's are reduced for Declining Markets, as one would expect, but an upgrade of 5% LTV/CLTV “is permitted if the loan meets all of the criteria listed here. The LTV/CLTV may not exceed the maximum permitted for the product: minimum 720 FICO, maximum DTI 35%, SFR (condos not permitted), purchase or rate/term only, two full appraisals, full amortization, and a maximum combined loan amount of $2 million.

GMAC also adjusted some of their other lending criteria. For example, they stated that properties that have recently been listed for sale are eligible for rate and term refinances and cash out refinances if the property listing has been cancelled at least six months prior to the application date. Also, concerning VOE’s, a verbal VOE dated within 10 calendar days of the Note date for employment income or within 30 calendar days for self-employment income, whether manually underwritten or underwritten by Desktop Underwriter is required on all transactions. GMAC’s bulletin states their verbal VOE requirements (independently obtaining the phone number and address, documenting the call, etc.) For self-employed borrowers, the lender is required to verify the existence of the borrower's business within 30 calendar days prior to the Note date from a third party, such as a CPA, regulatory agency, or the applicable licensing bureau, if possible; and by verifying a phone listing and address for the borrower's business using a telephone book, the internet, or directory assistance.

Flagstar, known to buy a mortgage or two, announced that the New York Stock Exchange gave them notice that it did not satisfy one of the NYSE's standards for continued listing applicable to the company's common stock. (Unlike the stock of other financial institutions, which have been doing well lately, Flag’s stock has been below $1 per share for a consecutive 30-day trading period.) “Under NYSE policy, in order to cure the deficiency for this continued listing standard, the company's common stock share price and the average share price over a consecutive 30-trading-day period both must exceed $1.00 within six months following receipt of the non-compliance notice.” Flagstar will need to tell the NYSE what they plan to do to correct the price deficiency.

Maybe offering 125% LTV loans will help them, maybe not. Starting today, Flagstar Bank is offering the Fannie Mae DU Refi Plus Program. “Loans meeting the guidelines of the Fannie Mae DU Refi Plus Program will now be eligible up to 125% loan-to-value (LTV). Loans with an LTV between 105.01-125% must be registered under one of their new product codes. Loans being refinanced must have been sold to Fannie Mae, and if the new loan requires the existing
mortgage insurance be modified, Flagstar Bank must be the current servicer.

Wells Correspondent told patrons that after October 1, Standard Renegotiations – The cost of an initial renegotiation for standard renegotiations is current market, less .500, capped at original price, and that multiple renegotiations will not be offered. A minimum market movement of 1.00 is required to exercise the “free float to current with PerformanceWorks” option. Wells will require reimbursement of the full SRP recapture amount if the loan is refinanced and sold to Wells Fargo Funding by the original seller of the loan that is being paid off.

Back to the economy! We have the Conference Board’s Leading Economic Indicators today at 10AM EST, but after that there is no scheduled economic news until Thursday. In its place we have the $112 billion Treasury auction (starting with the 2-yr tomorrow, then the 5-yr Wednesday and the 7-yr Thursday), along with the FOMC meeting. Don’t look for any change in overnight rates (remember that they do not set mortgage rates – supply & demand does that). Later in the week we have Existing Home Sales, New Home Sales, Durable Goods, and Consumer Sentiment. The prices for 30-yr mortgages are roughly unchanged from Friday afternoon, and the yield on the 10-yr is at 3.44%.

(Friday I posted a joke about a boy attending confessional in a Catholic church. One reader wrote, “Do you find it odd that I spent 13 years in Catholic school and not one priest made a move on me? Not one! You have no idea what that does to your sexual self-esteem.” I thought it was funnier than the joke.)

A circus owner runs an ad for a lion tamer and two people show up. One person is a good-looking, older, retired mortgage banker in his early sixties and the other is a gorgeous blonde in her mid-twenties.
The circus owner tells them, "I'm not going to sugar coat it. This is one ferocious lion. He ate my last tamer so you two had better be good or you're history. Here's your equipment -- chair, whip and a gun. Who wants to try out first?"  
The girl says, "I'll go first."
She walks past the chair, the whip and the gun and steps right into the lion's cage. The lion starts to snarl and pant and begins to charge her. About halfway there, she throws open her coat revealing her beautiful naked body. 
The lion stops dead in his tracks, sheepishly crawls up to her and starts licking her feet and ankles.  He continues to lick and kiss her entire body for several minutes and then rests his head at her feet.  
The circus owner's jaw is on the floor. He says, "I've never seen a display like that in my life."
He then turns to the retired mortgage banker and asks, "Can you top that?"
The tough old golfer replies, "No problem, just get that lion out of the way."

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.)