I had to have the garage door repaired. The Sears repairman told me that one of our problems was that we did not have a ”large” enough motor on the opener. I thought for a minute, and said that we had the largest one Sears made at that time, a 1/2 horsepower. He shook his head and said, “Buddy, you need a 1/4 horsepower.” I responded that 1/2 was larger than 1/4. He said, “No it’s not. Four is larger than two.”

I haven’t used Sears repair since. (Although maybe he as a career in Capital Markets.)

In the past a mortgage brokers definition of “no problem” meant “I’ll do my best to figure what you are talking about after you say we have a deal.” Sometimes that meant pointing the borrower toward a subprime loan, sometimes toward a VA loan. But VA mortgage origination dropped during the real estate boom since many who qualified for the VA guarantee found it easier to take a subprime loan that required no down payment and little documentation of income or assets. Lenders were offering easy terms such as interest-only payments, which are not available through the VA program, and VA loans took longer to process. VA loans rules prohibit buyers from paying some closing costs, such as the home inspector’s fee, and sellers can expect to pay such expenses if their buyer is using a VA loan.

Remember that the government does not lend the money for VA mortgages – the government provides lenders a guarantee in lieu of the veteran’s cash down payment. If the veteran fails to pay back the loan, the lender can collect on that guarantee and with that government assurance, participating lenders are willing to give borrowers loans for the full price of their homes with no MI required. The absence of PMI saves borrowers hundreds of dollars each month. Qualified veterans and active-duty military personnel can buy a home for as much as $417,000 without a down payment or private mortgage insurance. Borrowers can add some down payment money to the mix and use the VA program for homes that cost more than $417,000. Larger VA loans may become more common now that GNMA (which packages VA loans for the secondary market) has changed its rules to allow larger VA loans if the borrower makes a down payment for at least a 25% of the portion of the home’s price that exceeds $417,000. Some investors will actually lend up to $1 million for VA: if a veteran were to buy a $500,000 home, for example, the first $417,000 would require no down payment. For the remaining $83,000, the veteran would need to make down payment of 25%, or $20,750. All together, the veteran would be making a 4.15% down payment on a $500,000 home, without owing PMI. Agents can visit http://www.homeloans.va.gov for more information.

Wells Fargo announced tough changes to their products. “Non-conforming: Additional LTV/CLTV changes are also effective – LTV: LTV greater than 90 is no longer allowed. Additional requirements for LTV/CLTV above 80/80: LTV/CLTV greater than 80/80 require Full Documentation Option, Feedback Response from Direct Express (Full Doc or “none” selected for doc type) with no ineligible messages, Maximum DTI of 38%, 1-2 unit properties only, and Primary Residences only.” Wells also made changes for loans with FICO’s lower than 680, Limited Doc/VOA loans (minimum FICO of 740, maximum LTV/CLTV of 80/80, etc.), and for their “Jumbo LP and Jumbo DU Programs, a minimum Loan Score of 680 , maximum DTI of 45%.

SunTrust announced new risk-based pricing guidelines with locks starting today for the Agency loan programs. All affected loans will be evaluated on the basis of attributes such as FICO score, loan –to-value (LTV) ratio, total loan-to-value (TLTV) ratio, interest only feature, secondary financing, etc.

Late last week Treasury and mortgage prices fell (worsened) after an unexpected spike in retail sales and a small drop in jobless claims. Retail sales surged +1.2% during November, as the PPI jumped 3.2% in November, the biggest one-month jump since August 1973. Regardless of the cut in overnight Fed Funds, the fact is that fixed mortgage rates tend to move in line with yields on long-term Treasury bonds, not short-term rates. The benchmark for a 30-year mortgage is actually the 10-year Treasury, because after 10 years, the average borrower has sold his or her house or refinanced.

This week we already had the Current Account Balance for the 3rd quarter (it shrank from $188 billion to $178 billion, evidence that the weak dollar has increased exports which should help to strengthen the dollar eventually) and the Empire State Manufacturing Index (a drop from 27.4 to 10.3). After that the 10-yr stands at 4.21% and mortgages are roughly unchanged. November’s Housing Starts report will be released tomorrow morning, no news Wednesday, but Thursday we have the final to the 3rd Quarter GDP and the Conference Board’s Leading Economic Indicators (LEI) for the month of November. Lastly, heading into what appears to be the holiday weekend, we have November’s Personal Income and Outlays and the revised University of Michigan Index of Consumer Sentiment for December.

.Rob Chrisman rchrisman@rpm-mortgage.com 925-295-9380