Yesterday the commentary mentioned AllRegs’ offer of a complimentary FHA Online Guide. Readers should know that HUD has a response (thank you Karen Deis): “The website hosting FHA’s Online Guide (Handbooks 4155.1, 4155.2, and 7610.1) is temporarily unavailable. In the interim, the full handbooks in PDF version can be accessed on HUD’s website.

4155.1: http://portal.hud.gov/hudportal/HUD?src/program_offices/administration/hudclips/handbooks/hsgh/4155.1

4155.2: http://portal.hud.gov/hudportal/documents/huddoc?idA552HSGH.pdf

7610.1: http://portal.hud.gov/hudportal/HUD?src/program_offices/administration/hudclips/handbooks/hsgh/7610.1

Mortgage insurance: can’t live with it, can’t live without it? One MI industry vet wrote, "I felt compelled to comment on: 'Apparently the higher MI prices and tighter underwriting standards of the current environment are enticing.'  Actually the MI prices today are lower than when I started decades ago and are lower than at any point in those years. Regarding the tighter underwriting standards - it depends on one's point of reference. Tighter than the bubble era, yes. But tighter than any point from 1957 leading up to the bubble era, no." Both very good points.

The good news is that private mortgage insurance defaults declined last month, according to the Mortgage Insurance Companies of America’s (MICA) monthly report. Private mortgage insurance companies reported September defaults fell to 38,719 from 48,187 the previous month. The bad news is that new biz is down 29%:  private mortgage insurers represented by MICA wrote $4.9 billion in new business September, down 29% from $6.9 billion the same month a year ago. The group (which is made up of MGIC, Radian, RMIC, PMI, and Genworth; not listed on its website are Essent and UG) had $477 billion in primary insurance in force in September. That is down 38% from nearly $773 billion in September 2010.

"Rob, in looking at a large investor & servicer, I wanted to mention that a company is doing very close to No Doc refinances on agency loans in their servicing portfolios assuming the borrower is current, has a track record of making on time payments, AND they can verify employment.   I am sure this has much to do with the fact that many of these loans were originated during low doc times and incomes weren’t documented then, but they have a history of on time payment of their mortgages.   And the no appraisal is simply a means to bypass the current 125 LTV restriction on HARP transactions. That is pretty much it as far as my understanding (which may not be complete). Our question centers on the ultimate disposition of these loans.  Presumably the investor/servicer is re-delivering these into Agency MBS without the documentation requirements that are imposed on other lenders delivering into agency pools. If so, are MBS investors purchasing pools of loans that are not documented in a standardized manner? If that is the case and these investors are aware of this, it stands to reason that there is a full expectation that the US government is actually standing behind these pools. If not, why would an investor buy a pool that has non-documented loans in it versus a pool of fully documented loans? I am just curious as to the accuracy of my understanding of what is happening on these refinances as well as your understanding of how the agencies are dealing with the delivery of these loans from it.”

Per my two teens, I don’t know much about anything. But I will take a shot at an answer. One can’t “presume” that the servicer is re-delivering to the Agencies.  It may be choosing to hold the loans in their own portfolio.  Also, one of the government’s Agency plans reduces documentation on performing loans, but isn’t made available to 3rd party originators by the large investors, because of the rep and warrant issue.  (I believe its Freddie Mac’s.) IF the investor is issuing MBS securities, then you can’t presume that it is selling them in the open market; the company may be issuing them and holding the securities.  Capital reserve ratios are better on securities than on whole loans, and they have a bunch of cash to deploy.  Mortgage returns are decent, and they know this is a book that performs. If the Agencies are behind it at all, then the servicer may have negotiated a deal with the Agencies to reduce documentation, and sell With Recourse.   This is a sales structure that is never offered to third party originators, since the risk transference is too great.  I don’t know how With Recourse deals are disclosed in MBS securities.

Mountain West Financial spread the word to brokers that, "Effective with loans locked on and after November 1, 2011, all non-owner occupied transactions must comply with Loan Officer Compensation guidelines." It appears that MWF joined the pack on this one.

Poor Ben Bernanke. No one told him the job would be easy, but in today & tomorrow’s meeting of the Federal Reserve’s Open Market Committee, three conservative members will say the Fed has already done too much and two liberals will say the Fed needs to do much more. No one expects much, aside from BB communicating the benefits of existing policies in order to increase their impact. Those in the mortgage biz should remember that the Fed only exerts direct influence on short term interest rates, but is focused on communication because it wants to reduce long-term interest rates, which determine the cost of borrowing for businesses and consumers. Think parents and kids…

Why does anyone think that the problems in Europe are going to go away soon? Last Thursday news of a proposed settlement moved markets around the world, but now it appears to be crumbling. Yesterday rates improved, and stocks worsened (remember – they don’t always move in opposite directions!) as the lack of details about how to implement  the plan and the realization that a lot of the measures will weigh on economic growth in the near-term is bringing U.S. fixed-income securities back into  favor. Arguably, after an improvement in stocks of 10% and 10-yr yields being higher by 25% during October, they have an inclination to move the other way. But European fears will, and should, continue to overshadow any minor U.S. economic numbers.

Yesterday 10-yr notes improved by 1.125 in price and closed near 2.17%. But as one would expect in a rally MBS prices lagged somewhat and only improved .375-.50 depending on coupon. (How much of that improvement was passed on to rate sheets, of course, remains to be seen – increased volatility leads to higher hedge costs.) Later we’ll have Construction Spending and an ISM Index, but rates are moving due to Greece unexpectedly called for a referendum (a direct vote of the people) on the latest bailout deal sometime in the next few weeks. If the Greek people use the referendum to reject the latest bailout deal, it would put the next aid tranche to Greece in jeopardy, moving it towards the brink of disorderly default, raising the risk of further contagion and financial market instability. Stocks are down, oil is down, gold is down, and rates are down: the 10-yr is around 2.04% and MBS prices are better by about .5.