Folks who are hedging a pipeline, or who have vocal borrowers they locked in earlier this week, or who own any stocks, could probably use a decent Happy Hour later today. Operation Twist is not the issue causing the volatility. The surprise earlier this week is that the Fed will also start reinvesting maturing cash flows from existing mortgage holdings back into mortgages (it was buying Treasuries), as it seeks to support housing. And stocks were hit, since the FOMC’s language on the outlook of our economy was also downgraded, as the Fed said there are "significant downside risks to the economic outlook, including strains in global financial markets." An MBS trader wrote, "Originators are moving rate sheets lower into this move but as locks start pouring in, primary secondary spreads are bound to widen on capacity constraints."

In my talks around the country, it seems that mortgage bankers care less about lower rates at this point, and more about the credit pendulum swinging back to "normal" or "makes sense." As one mortgage research person stated, "So the next step is 'Refi.gov.'  It's highly likely that this fed action is the first of a few steps - the most likely outcome is a 125-150% LTV program." As I mentioned to the New England Mortgage Banker's group yesterday in Rhode Island, it makes all the sense in the world to take borrowers who have a history of making their payments and (wanting to make their payments), and let them refinance regardless of LTV. And if the Fed wants refinancing to put money in consumers' hands (at the expense of MBS holders, of course), then why not take this step?

(Of course one of the issues with this is that about 19% of borrowers who owned a home in 2007 no longer qualify for a mortgage based on payment history alone, according to 9/20 testimony from Laurie S. Goodman, a Senior Managing Director at Amherst Securities Group: http://www.banking.senate.gov/public/index.cfm?

And while they're at it how about this, which I received from a politically active loan broker: "Let's call for the FHA to allow the use of the current MIP in place on a mortgage on all Streamline refinances. I just calculated out a Streamline on a $560k borrower moving his rate from 4.625 to 3.75% when you net affect his MIP from the old to the new his payment only drops about $90 per month. So in retrospect, the increased MIP is actually harming the FHA system by preventing borrowers from refinancing to a) lower their monthly expenses and b) to revitalize the country."

Shame on me, given the number of times that I have taken my 88-yr old father to Costco for a hot dog lunch, that I did not remember that Costco has offered mortgages for years both online and with brochures at their retail locations. "Costco does offer mortgages! And with some of Lender One's investor partners (Bank of Internet), vendor partner (NYLX), and member companies (First Choice Bank, Weststar Mortgage, and Sterling Savings Bank) helping out." https://www.costcofinance.com/LoginAndPricing.aspx. Lastly, Costco offers mortgages - well sorta. They sell the leads to a small group of lenders (including us). We provide rates and fees that are drastically lower than what we normally charge, and Costco members get a screaming deal."

Was it Fannie Mae's fault that it didn't catch law firms automatically signing documents without looking at them? It appears so, given this new report from the FHFA: http://finance.yahoo.com/news/Fannie-Mae-cited-for-failing-apf-197671809.html?x0&sectopStories&pos3&asset&ccode.

(Last Thursday the commentary mentioned mortgage-banking movies, and this reader wrote in. “I saw the movie Margin Call at The Sundance Film Festival last year.  It’s scheduled to be released October 21st nationwide & is a must see for anyone in the industry. Margin Call is a thriller that revolves around the key people at an investment bank over a 24-hour period during the early stages of the financial crisis.  Demi Moore & Kevin Spacey are the key players in an interesting plot where a junior analyst realizes that the i-bank holds billions in worthless subprime notes. It’s well done & not a hokey Wall Street II version of the crisis. See it at: http://www.imdb.com/title/tt1615147/.”)

Did you know that MERS only has a 60% market share? (Why would a company - retail - putting a loan into their portfolio pay the $12-or-so registration costs?) That bit of public market share trivia aside, MERS also offers training courses, the next being October 18 in Atlanta. Instructors will discuss new compliance requirements, reconciliation and quality assurance topics, the Corporate Resolution Management System, and so on.  Online registration and more information are available at www.mersinc.org/events. Seating is limited, and its 75 smackers. PLEASE NOTE: No onsite registration is available. "A must-attend event for secondary managers, post-closing, shipping and servicing managers, and compliance officers, this workshop is an excellent opportunity for anyone who wants to harness the power of MERS and the MERS® System for their organization."

The push to extend the temporary loan limits is pretty much over, raising questions about the housing industry’s clout. The new limits differ by location, but will drop to $625,500 in expensive markets such as San Francisco and New York from the current $729,750. Lobbyists for real estate agents and mortgage bankers tried to convince lawmakers to extend the current limits with no success, especially among Republicans incensed about government bailouts. A year ago, when Congress was controlled by Democrats, lawmakers extended the loan limits with little discussion. But this year the Obama administration let it be known that it supported letting the current limits fall and did not change its stance as some Democrats had hoped. Now, real estate industry lobbyists are looking toward a spending bill that may be hashed out by year-end to enact a one-year extension of the current limits.

The FTC is going after false mortgage modification websites. It is good to see: http://www.pcworld.com/businesscenter/article/240398/ftc_targets_mortgage_and_debt_relief_websites.html

With the drop in rate, once again investors are publicizing their renegotiation policies. Wells' wholesale, for example, reminds brokers, "When renegotiating a rate, the Broker’s First website only displays lock periods long enough to cover the current expiration. If a 45-day lock price is better than a shorter term lock and you want to renegotiate to the 45-day term, you should use the Email Renegotiation Form…In improving rate environments, it may be possible to exercise a one-time option to renegotiate the terms of the rate lock in order to improve the rate offered to the borrower. In certain situations, it may be possible to relock a loan on the current market price minus a .500% fee at a lower rate. Renegotiations must provide an improvement to the borrower in rate or reduce discount charged by Wells Fargo. All benefits must go to the borrower. The new renegotiated lock expiration date will be the lesser of the new lock period chosen or the current expiration date. Loans must close within the current expiration date or extend at the borrower’s cost. The pricing and lock period may be subject to additional restrictions and current guidelines.” For details & restrictions it is best to check Wells’ bulletin.

Across the proverbial investor street at Bank of America, the California State Teachers Retirement System (CalSTRS) Home Loan Program sent out an update. “As announced on August 18, 2011, the CalSTRS 80/17 program will be discontinued. The last day to lock any 80/17 loans will be September 30, 2011. Due to the announcement on August 31, 2011, that Bank of America Home Loans intends to sell its Correspondent Lending business, the anticipated CalSTRS Home Connection Program will not be released. The CalSTRS Conventional Standard Program will be discontinued as well; the last day to lock any Conventional Standard loan will also be September 30…CalSTRS will be working to re-launch the Home Loan Program in the future. Interested parties can contact the CalSTRS Home Loan Program Manager at hlp@calstrs.com .”

There is also a rumor that BofA is suspending FHA/VA streamline refinancings, but I have seen nothing in writing.

Yesterday I mentioned that, "GMAC's correspondent clients were shown changes in pricing adjustments for 5/1 ARM's of various shapes, sizes, amounts, and geographic locations." I failed to mention that GMAC wholesale also had similar changes - my apologies.

In terms of economic news, yesterday we learned that Initial jobless claims dropped by 9k to 423k for the week ended Sept. 17, as expected, although the four-week moving average of new claims, a more reliable indicator of the labor market's recent performance, rose by 500 to 421,000. We also saw the FHFA House Price Index Up 0.8 Percent in July, and the Conference Board Leading Economic Index (LEI) +.3%. It was a "risk off" day, with major stock exchanges around the world falling between 4 percent and 5 percent as global economic slowing and recession fears escalated.

As mentioned above, I think that many in our industry could do with “less lower rates and more qualified borrowers and properties.” Regardless, the US 10-year note jumped 1.375 in price down to a yield of 1.72%. MBS prices soared 50 and 47 ticks, respectively, on 30-year 3.0s and 3.5’s, but passing that through onto rate sheets will take some time. Today there is no scheduled news to push us around, just further trading based on Europe’s problems and our economy being in the doldrums. Stocks are pointing down, gold is down over $50 an ounce (!), the 10-yr yield is down to 1.70%, and MBS prices are a shade better. But watch for rate sheet prices to improve further, catching up a little with yesterday.

This clip has been kicking around for quite some time, but is just as relevant now: a semi-humorous dissection of the European debt crisis: http://biggeekdad.com/2010/09/eu-economy/.