Nov. 17, 2010: Interesting industry-wide and FHA & Ginnie numbers; credit score explanation from the Fed; commercial sector holding in well
Rob Chrisman

I love notes from brokers that start off, "Last month we did a loan for a professional cage fighter who was going through a divorce in Georgia but wanted to buy a 12th story condo in Las Vegas..."

I guess that all those refinancing cage fighters did their loans before last week: the number of U.S. mortgage applications dropped last week by the most this year. The MBA reported what lock desks everywhere already knew, which was that apps were down 14%. Refinances were down 17%, and purchases were down 5%. (Refinancing accounted for about 80% of applications.) Of course we had a holiday and higher rates last week, but any lender focused solely on refi’s might be a tad nervous.

With all this talk about who can legally foreclose, where are the documents, MERS, custodians, servicers, and so forth, it is easy to become confused. Kate Berry, with American Banker, offers up this tidy explanation: “New Century, the originator, funds some loans and sells the servicing rights on them to GMAC, but the loans are bundled into a security sponsored by Lehman, which acts as the interim servicer. (Lehman also is moving the debt around its balance sheet or transferring it to BNC Mortgage). Another firm is appointed the trustee. Lehman is packaging the loans and because it is a broker, has traders sell the pool to investors. New Century's post-closing department is supposed to send the documents to their collateral custodian, Bankers Trust. (The note is the collateral, the trading instrument.) Bankers Trust is supposed to review the documents for completeness and then approve the collateral package. They literally put the loan package into a manila file that is stored in a fireproof vault. The loan has been sold into an MBS pool and the collateral package is supposed to be reviewed by a custodial agent (which is likely another department at Bankers Trust). In the best-case scenario, the trustee reviews or certifies the files.” Good luck!

The Federal Reserve has a new bulletin explaining credit reports, and scores, to the masses. It is worth a skim to either learn something new about credit reports, or see what borrowers tend to see. “The Consumer's Guide to Credit Reports and Credit Scores” describes the content of a credit report, explains how a credit score is used, and discusses the role of credit bureaus in collecting and disseminating this information. http://www.federalreserve.gov/newsevents/press/other/20101110a.htm

On to the titillating, almost-an-every-day-listing of investor updates. (I had one loan agent tell me, while I was giving a speech in Missouri earlier this week, that one of the reasons she is successful at originating loans is because she ignores the subtle guideline changes...) First, I was corrected. "Your announcement about Wells Fargo raising its FHA FICO floor to 640 is only for correspondent - NOT wholesale."

A long time ago, SunTrust "temporarily" suspended delegated underwriting authority on loans where non-SunTrust new or existing subordinate financing was present. The investor told its correspondent clients with Delegated Level II and Expanded Delegated Underwriting Authority that they may now underwrite all loans with non-SunTrust subordinate financing. This includes loans that are currently registered and/or locked.

Kinecta Credit Union, rumored to be rolling out a correspondent division, told its broker clients that it is adding "the Split Premium mortgage insurance option to our suite of products. This option is available through Kinecta-approved mortgage insurance providers" and is available along with the Single Premium and Monthly Premium paid by the borrower or third party.

Tree.com, the parent company of LendingTree, announced that it (through LendingTree) has "signed a definitive agreement to acquire assets of Louisville, KY-based SurePoint Lending, a DBA of First Residential Mortgage Network." The acquisition is expected to close in the first quarter of 2011. SurePoint has been a LendingTree lender for 11 years and was LendingTree's top refinance lender last year. Its headquarters are in Louisville but has 300 loan officers in Nashville, Tampa, and Indianapolis.

If you’re looking for a cake-walk of a job, Fannie Mae is looking for a new CFO. David M. Johnson is leaving at the end of the year after a couple years on the job. If you’re interested, call Michael Williams, the CEO. Also in the job front, American Home Mortgage Servicing (#15 with $83 billion) has a new president and CEO - David Applegate. He came from GMAC Mortgage, GMAC Bank, and Radian.
 
All the critics who were spelling out the dire straits that HUD and the FHA insurance fund were in, and predicting "the end is near", appear to have been... wrong. Or, at least, let’s hope so.
http://portal.hud.gov/portal/page/portal/ver-1/HUD/federal_housing_administration/docs/FromTheDeskOfSpecialEdition_Actuarial_Nov2010.pdf
 
And all those FHA and VA loans typically go into Ginnie Mae securities. Ginnie Mae announced it guaranteed about $34 billion in MBS’s in September. On the reverse mortgage side, however, Issuance for the HMBS program fell to $796 million in September, down from $994 in August, although Ginnie reportedly has plans to lift the moratorium on new HECM MBS issuers by the end of the year.
 
And while I am droning on about industry numbers, for the nine months leading up to June 2010, FHA loans were used to close 38% of all home purchase mortgages, including 60% of all African-American and Hispanic home purchases. Refi’s were at 9%. These recently originated loans actually boosted the FHA’s capital resources by $1.5 billion since last year to $33.3 billion, their highest level ever. Loans prior to 2009 continue to be a problem, with most of the blame being pointed at the seller-assisted down payment loans along with lower allowed credit scores.
 
Looking at a very big picture, overseas holdings of Agency MBS’s is down by $17 billion. Treasury International Capital (TIC) shows that Agency MBS holdings went down by $17 billion (net of paydowns) in September, and that overseas' holdings of Agency debt decreased by $8 billion. China sold $26 billion of Agency securities (Agency MBS + debt). But Treasury holdings in overseas accounts continued to climb, and were up by $71 billion in September.
 
Yes, residential real estate is showing signs of life, and certainly many mortgage companies are busy. On the commercial side, analysts are noting something similar. One report reads, "Demand for commercial real estate continues to show surprising resiliency in the face of this sluggish economic recovery. The operating fundamentals for all major property types are either improving or showing signs of stabilizing. Leasing has picked up, rents are rising or stabilizing and sales have increased. Demand for high quality properties in choice locations remains exceptionally strong, which has helped pull prices higher for non-distressed deals. There are still plenty of troubled projects that need to be disposed of, however, and prices for distressed projects are likely to fall further once lenders become committed to cleansing their portfolios."

If you're a trader, running a position and inclined to make occasional knee-jerk buy/sell decisions based on economic news, what would you have done yesterday with these headlines:  Producer Prices show inflation is less than expected, Industrial Production rose 0.5% in October, the most in three months, Capacity Utilization was flat at 74.8% but still above the lows seen in mid-2009, and home builder confidence improved slightly in November? (Slight increases in expected six month's sales and in prospective buyer's traffic accounted for the uptick, though current home sales stayed level.) Markets are often like springs, and, when stretched too far, can zip back the opposite way. After last week's and Monday's rate increases, the bond market improved Tuesday. It might have done that anyway, even without the economic news.
 
Fixed-income markets were helped by the NY Fed President stating that the central bank’s bond purchases won’t cause an inflation problem (prompting one critic to write, "Pay no attention to that man behind the curtain!"). The technical 3% level held for the 10-yr, and 4% MBS were better between .375 and .50 during "choppy" trading. MBS yields, which are often quoted as a spread off of Treasury yields, closed Monday at very wide levels (a high difference between mortgage & Treasury yields) but then yesterday the spread narrowed as money managers, insurance companies, and hedge funds came in buying and mortgage companies’ selling was down to $2.3 billion

Today we've already had the MBA's application index for the Veteran's Day week (noted above), some construction numbers, and the Consumer Price Index number. September's was originally reported at +.1%, mostly due to food gasoline prices. For October the Consumer Price Index was +.2%, ex-food & energy it was unchanged. Housing Starts were down almost 12% but Building Permits were +.5%. After the news the 10-yr yield went from 2.87% down to 2.84%, and mortgage security prices are showing some signs of another day of improvement – up (better) about .125.


Although they won last weekend…
The Texas State Police are cracking down on speeders heading into Dallas.
For the first offense, they give you 2 Dallas Cowboy tickets. If you get stopped a second time, they make you use them.
Q. What do you call 47 millionaires around a TV watching the Super Bowl?
A. The Dallas Cowboys
Q. What do the Dallas Cowboys and Billy Graham have in common?
A. They both can make 70,000 people stand up and yell "Jesus Christ".
Q. How do you keep a Dallas Cowboy out of your yard?
A. Put up a goal post.
Q. What do you call a Dallas Cowboy with a Super Bowl ring?
A. Old
Q. What's the difference between the Dallas Cowboys and a dollar bill?
A. You can still get four quarters out of a dollar bill.
Q. How many Dallas Cowboys does it take to win a Super Bowl?
A. Nobody remembers.
Q. What do the Cowboys and a possums have in common?
A. Both play dead at home and get killed on the road!