Is it the last day of September already? Wasn’t it just Memorial Day? Things are getting a little tight here around the Chrisman household. Yesterday my son came to me and told me that “management” knew that I had taken a stapler from my home office. “From now on”, he continued, “If you plan on continuing to work here, you’ll have to obtain an updated photo ID, and furnish your own salary.” It must be that econ class he’s taking…

This morning we had our final revision to the 2^nd quarter’s GDP number. Folks always wonder, “Why can’t the statisticians get it right the first time instead of always revising an economic report?” Many of the government’s statistics are revised in the months that follow. Errors in the original number arise from the sampling errors and bias that later prove to be incorrect: initially the government uses a sample to guess at the actual number, but then it turns out that the actual number is different. A house under contract, and counted as a sale, falls out of escrow due to an inspection issue. A sampling of factories that produce shirts indicates “x amount” of shirts being produced, but the actual count turns out that “y amount” were woven. Sometimes the data is just not available when the statistic is released the first time. And so on.

Today we had the ADP jobs number (more job losses than estimated, but it does not include government jobs), and the final GDP number for the 2nd quarter. Later we’ll have the Chicago Purchasing Manager’s survey. The Commerce Department’s final number for GDP showed it fell at a 0.7% annual rate instead of the 1.0% decline reported last month, in theory better for the economy and worse for rates especially since he economy is believed to have rebounded in the last few months – or at least leveled off. After the news the 5-yr Treasury and 30-yr mortgage prices are both worse by about .125, and the 10-yr yield’s at 3.32%.

Mortgage rates are doing pretty well, all things considered. The yield curve is flattening, which is helping ARM rates relative to fixed rates. It appears that origination is slowing somewhat, as one would expect given stable rates, continued tight guidelines, and the time of year. The Fed continues to buy their $4-5 billion a day – and many await the weekly Thursday 3PM posting to see if those Fed numbers change. But things became slightly quieter on lock desks last week. The MBAA reported that mortgage applications fell by 2.8% from a four-month high. Refi’s were down less than 1%, but purchase apps were down more than 6%.

According to the Conference Board, we’re slightly less confident than we were last month – Consumer Confidence went from 54.5 to 53.1 and versus the 57 that economists estimated. “So what?” you ask? Well, many feel that, with the commercial loan sector becoming ugly, housing still relatively slow, and unemployment still high, the mentality of the consumer is what is going to pull us through. After that news came out yesterday the bond market improved slightly, and as you would expect it did not help the stock market.

Are you doing any VA loans? In some markets an increase in the VA loan limit, along with no required down payment, has brought additional homes within reach of military buyers. Of course VA loans include tougher appraisals and closer scrutiny of the properties, along with the VA requiring that repairs and termite work be completed before escrow closes. In addition, VA buyers get their upfront fees repaid if escrow does not close, while other buyers have to absorb such costs. The delinquency rate on VA loans is lower than most other loan types, making them attractive to servicers. Interestingly, many low-cost, foreclosure homes do not qualify for VA loans since they must be “move-in ready” and undamaged which is often not the case.

GMAC Bank Correspondent Funding (GMACB) Approved Correspondents please note for all 5/1 ARM transactions and/or transactions subject to a temporary interest rate buydown, borrowers must be qualified based on the greater of the Note rate or the fully indexed rate (margin plus current index value). These updated guidelines are effective for all loans locked or trades committed on and after October 1, 2009.

The National Mortgage News reports that under the terms of some proposed legislation, Nonbank mortgage lenders would be required to register with the (proposed new) Consumer Financial Protection Agency (CFPA), which would be given the power to conduct financial exams and take enforcement actions.” “Nonbanks will be subject to a level of supervision and scrutiny that is no less burdensome or comprehensive than that governing traditional banks and thrifts and will fully reflect the risks posed by these previously unregulated entities,” according to an outline of the CFPA bill. According to the story, the bill removes federal pre-emption of state and local laws and creates a new agency with extensive new powers that could conflict with bank safety and soundness regulators.

For some, the only time that they think of “USDA” is when it’s on the label when they’re figuring out which pork chop to buy. But with the changes going on in the FHA world, some originators in rural areas are toting out the ol’ USDA program that has $0 down and 100% financing. It began back in the 1940’s to help farmers, but has apparently gained traction this year with USDA guaranteed loans hitting 120,000 in the first nine months of 2009, up from roughly 35,000 in all of 2007. The USA program offers, for very specific rural areas, 100% financing with no MI, SFR,  condo, or PUD (manufactured housing is allowed if the unit if 12 months old or never and never has been occupied), and the borrower’s income is limited to 115% of the US median income, adjusted to number of people in the household. There are no sale price restrictions, no declining markets issues, no cash reserve requirements, and the loans can be manually underwritten or go thru USDA’s AUS GUS. At the current time, the USDA does not require a minimum credit score of 620 – if the score is below 620, verification of rent will be required. Step right up! http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do

Tomorrow the new rules adopted by the Federal Reserve will go into effect, requiring greater diligence on the part of mortgage lenders and brokers who make high cost loans (1.5% or more above the average prime mortgage rate) for borrowers with weak credit. Originators can’t make one of these loans without verifying that a borrower could repay the loan in the conventional way, and not simply through a foreclosure sale. In addition to that change, FHA appraisers must be certified – hopefully they were aware of this months ago!

A salesman goes up to a house and knocks on the front door. It’s opened by a little fifteen year-old boy who has a lighted cigar in one hand, a glass of whiskey in the other and a Penthouse magazine tucked under his arm.
Salesman: “Hello son. Is your mom or dad home?”
Little boy: “What the heck do you think?”

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 at times there are vague e-mail “issues”, so if you don’t receive it, let me know.)

As my grandfather used to say, “If you find yourself in a hole, the first thing to do is stop digging.”* Apparently the folks at Sunwest Bank, out of Tustin, CA, felt the same way. Clients received a letter saying, “I regret to inform you that as of October 2, 2009, Sunwest Bank will be suspending its mortgage banking operations. My staff and I will be available through October 2, 2009 to assist you or answer any questions you may have.” (* Unlike my uncle the convicted felon, who always said,  “If you find yourself in a hole, keep digging – you probably aren’t under the wall and out the fence yet.”)

Reuters reported that state housing agencies around the U.S. that provide mortgages to low-income borrowers would get as much as $35 billion in federal aid under a new U.S. Treasury Department program. Through it the government would provide up to $15 billion in new funding for as long as three years and would purchase as much as $20 billion in tax-exempt mortgage bonds issued by state- sponsored housing finance agencies through the end of this year. Critics point to evidence that one of the primary reasons that we are in the credit crisis is by extending home loans to borrowers who may not qualify. Proponents argue that adequate controls are in place.

Last night at sun down the Jewish observance of Yom Kippur came to a close. (Although as one person wrote to me about the observance, “I’m supposed to be repentant for all my transgressions. I couldn’t think of any sins in ’08 & ‘09, so I’m probably exempt. If God gave us free will, why should he be surprised we cheat sometimes? It’s his fault.”) In Israel property owners are subject to several types of tax, including a sales tax, a purchase tax, a capital gains tax, various municipal taxes, income tax on any rent collected, and a “betterment” tax. This is a tax paid when the authorities allow a change of zoning for a neighborhood which causes the value of the property to rise, and is 50% of the added value to the property due to the change in the zoning!

While we’re trotting around the globe, the Canadian government announced it would extend a mortgage purchase program through March 2010 in a bid to make it easier for banks to lend more. (Canada has about 33 million residents, not including meese or beavers.) And Russia’s central bank lowered its key interest rates by half a percentage point to help stimulate lending.  Bank Rossil cut their refinancing rate to 10 percent from 10.5 percent and lowered the repurchase rate charged on central bank loans to 9 percent from 9.5 percent, effective tomorrow.

Originators should also note that the FHA permits approved lenders to outsource certain mortgage functions, provided they do not “materially affect underwriting decisions or increase risk to FHA.” The origination and underwriting functions may never be outsourced. Any function performed by someone other than an employee of the FHA-approved lender is outsourced. FHA permits outsourcing of actions such as clerical duties, including but not limited to copying, filing, placing documents in stacking order, etc., loan processing, including but not limited to typing loan documents, mailing and collecting verifications, ordering credit reports and/or preparing loans for endorsement and/or shipment to investors, loan servicing, including but not limited to processing foreclosure actions, loss mitigation, and/or tax servicing, legal functions, and quality control reviews. But be careful, as the contract must be with a commercial provider and the lender is responsible for adherence to all Real Estate Settlement Procedures Act (RESPA) laws.

The wholesale group of Wells Fargo, who recently pulled out of doing business in Canada, reminded their clients that effective 1/1/10 HUD will require that lenders and mortgage brokers provide borrowers with a new RESPA Reform GFE and HUD-1 Settlement Statement. But their clients should know that Wells Fargo Wholesale Lending and Wells Fargo Home Equity channels “are unable to accept the new GFE and HUD-1 forms until further notice.” The GFE can no longer be issued for pre-approvals as a property address is now required for the application to be complete, and will require the borrower’s name, borrower’s monthly income, borrower’s social security number, property address, estimate of the property’s value, and loan amount being sought. Wells goes on to discuss their HUD-1 policies, fee changes, tolerance limitations, and the requirements for matching the charges.

Potomac Partners sent out an informative message about the current “potential” plight the FHA has, along with some predictions that make sense. First, with $30 billion in current cash reserves to pay claims, the FHA could pay claims for 50 months without considering any premium income from existing or new originations given their current rate. As for the future, Potomac Partners expects that the FHA will not only tighten their underwriting standards, especially in poorly performing products, but also develop their own automated underwriting system. Watch for increased post-endorsement reviews, greater counter-party responsibilities and indemnifications, and increased vigilance on wholesalers. Seller-servicers will be held accountable for the production of the originator, and “the FHA proposal, in effect, would be substituting the Direct Endorsement lender for the GSE seller-servicer.  We would expect the DE lender would have to underwrite and close the loan in its name.”

Most folks in the business know what MERS is: Mortgage Electronic Registration System. The system is 12 years old, and is designed to improve efficiency in lenders by, among other things, eliminating the need to record changes in property ownership (assignments) in local land records by doing it electronically. It has been very successful, saving the industry an estimated $1 billion per year and having approximately 60 million loans registered in the name of MERS. But in the event of a foreclosure, are they a creditor who is able to file an action? In other words, can an electronic registry with no ownership claims have the right to evict borrowers? In the latest case, a ruling that the Kansas Supreme Court may have some implications for loans involving MERS.

The case involves a borrower with a 1^st and a 2^nd where the owner of the 1^st foreclosed. The 2^nd was done with Millennia Mortgage, registered in MERS’s name, and then transferred to Sovereign Bank – but the county records show no such assignment. Upon foreclosure the 1^st was paid off and the borrower received the small remainder. Sovereign received nothing, but arguing that it hadn’t been alerted to the deal because its nominee, MERS, wasn’t named in the proceedings. Kansas ruled that Sovereign’s failure to register its interest with the county barred it from asserting rights to the mortgage after the judgment had been entered. The court also said that even though MERS was named as mortgagee on the second loan, it didn’t have an interest in the underlying property. What about the millions of loans that are recorded in MERS’s name? MERS believes that “…the Kansas Supreme Court used an erroneous standard of review…” and will be continuing the judicial process. Stay tuned!

Regarding FHA and HUD, Flagstar, and every investor, reminds their clients that starting Thursday all FHA-approved customers use appraisers that are both investor eligible and state certified on all FHA loans. We’ve know about this for several months, but the time is here. If the appraiser is not certified, the appraisal will be rejected “and a second appraisal, performed by a state certified appraiser, must be completed at the customer’s expense.”

If I owned a purple Ford Pinto, would you buy it? I guess only if you really needed a car, perhaps, but at a very low price. The basic rules of supply and demand would apply, as they do with the housing market. The current market for cheaper homes in many areas is doing very well, so watch for continued declines in median prices – since cheaper homes are the ones selling and shifting the numbers. First-time home buying tax breaks, originally meant to potentially increase high-end purchases, have not worked well in that market, and buyers are finding nice, large homes in good neighborhoods for reasonable prices. And they expire at the end of November. Last week’s sales data bore that out. Single family home prices financed through the agencies in July were +.3%. New Home Sales were +.7%, but the median price of a new house was -9.5% as homes selling for less than $150k increased their market share.

On to interest rates, where things are currently a little quieter. We have already had the S&P Case-Shiller Index, expected to have fallen about 14% in July
from a year earlier, the least in 17 months. And at 7AM PST, 10AM EST we’ll have Consumer Confidence. But getting back to the Index, it was “only” down
13.3% in July from a year earlier. Optimists point to this as a sign that the housing slump is winding down. Pessimists note that we’re still down! Regardless,
rates have crept up slightly after the number: the yield on the Treasury’s 10-yr stands at 3.32% and mortgage prices are worse by about .125 versus Monday
afternoon.

(Warning: PG)
An Irish woman of advanced age visited her physician to ask his advice in reviving her husband’s libido.
“What about trying Viagra?” asked the doctor.
“Not a chance”, she said. “He won’t even take an aspirin.”
“Not a problem,” replied the doctor. “Give him an ‘Irish Viagra’. It’s when you drop the Viagra tablet into his coffee. He won’t even taste it. Give it a try and call me in a week to let me know how things went.”
It wasn’t a week later when she called the doctor, who directly inquired as to her progress. The poor dear exclaimed, “Oh, faith, bejaysus and begorrah! T’was horrid! Just terrible, doctor!”
“Really? What happened?” asked the doctor.
“Well, I did as you advised and slipped it in his coffee and the effect was almost immediate. He jumped straight up, with a twinkle in his eye and with his pants a-bulging fiercely! With one swoop of his arm, he sent me cups and tablecloth flying, ripped me clothes to tatters and took me then and there passionately on the tabletop! It was a nightmare, I tell you, an absolute nightmare!”
“Why so terrible?” asked the doctor. “Do you mean the “passion” your husband provided wasn’t good?”
“Feckin jaysus, ’twas the best I’ve had in 25 years! But sure as I’m sittin’ here, I’ll never be able to show me face in Starbucks again!”

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 at times there are vague e-mail “issues”, so if you don’t receive it, let me know.)