MUST READS: Robert Arnott, Options – Who makes money?, CLOs, Securitization Future

Must read – THE “3-D” HURRICANE FORCE HEADWIND – Robert D. Arnott – on deficit, debt, demographics, and asset allocation for the years ahead - RAFI Newsletter by Research Afiliates - hattip Prieur du Plessis
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Must read – Options, who makes more money? Buyers or sellers? – Do Black Swans Negate Option Premiums? – Surly Trader

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liquidity returning? – The CLO market may be making a comeback - Amazingly, the primary CLO market, which has been shut down since late 2007, may be making a comeback in 2010. The volumes will be a fraction of the peak, the capital structure will be simple, and the equity structures will be thicker, but the deals will get done … This may be the first securitization market that comes back (even as a shadow of what it used to be) without government (TALF) assistance. … – Sober Look Blog

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The Future of the Securitization Business, Part I – Daniel Harrison – Seeking Alpha

The Future of the Securitization Business, Part II – Daniel Harrison – Seeking Alpha
Part One is pessimistic
Part 2 is optimistic

Mortgage and Lending Related: Reps and Warrants, Fed Buying, Home Sales, Citi on Principal Forgiveness, Underwater NOT, Home Value Insurance, FNMA Shrinks, Tax Credits vs. FHA, Case Shiller Up, 2 on FNMA

good read – On the future of reps and warrants – The New Rules For Compliance In The Post-Crash Environment – BY LOUIS PIZANTE – Mortgage Orb

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Mortgage valuation: how much is due to Fed purchases? – Scott Grannis – … If rates are going to rise in the future (and I think they will), it will not be because the Fed stops buying MBS, it will be when the Fed and the market realize that policymakers and market participants have mistakenly assumed that inflation risk is extremely low because of the economy’s excess capacity … – Calafia Beach Pundit

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New Home Sales Highest in a Year, Inventory Measure of New Homes Lowest Since 2006 - Mark Perry’s Carpe Diem Blog

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Citi Says Mortgage Principal Forgiveness Must Rise – As unemployment rises, more borrowers need principal forgiveness on their mortgages, not just restructured loans, Citigroup Inc.’s mortgage chief said. The comments by Sanjiv Das, president and chief executive of Citigroup unit CitiMortgage Inc., came as Citigroup issued its latest quarterly report on its own mortgage modification efforts. – DJ Money CNN
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Many ‘underwater’ mortgage holders really aren’t, data firm says – By E. Scott Reckard – First American CoreLogic says its new methodology shows that the owners of 23% of all mortgaged homes had negative equity in the third quarter. Under the old formula, it would have been 33.8%. … First American CoreLogic said it changed its methodology to take into account two things that the firm’s previous data hadn’t reflected: how much of a loan’s principal had been paid down, and how much of a home equity line of credit was actually being used. … – LA Times

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Product Developed to Protect Borrowers Home Values - Working Equity released an interesting solution that allows homeowners to protect 100% of the value of their home even while real estate values fluctuates said a company statement. – has a link to a calculator - Reverse Mortgage Daily

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Fannie Mae cuts portfolio, delinquencies jump – Fannie Mae shrunk its gross mortgage portfolio by an annual rate of about 28 percent in October and delinquencies on loans it guarantees rose sharply in September … The conventional single-family serious delinquency rate rose 27 basis points to 4.72 percent … One year ago, these rates were sharply lower at 1.72 percent for single-family … – Reuters

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Homebuyer Tax Credits Threaten the FHA – By ROBERT C. POZEN – A few weeks ago, President Barack Obama signed legislation extending an $8,000 tax credit for first-time home buyers – The extension the president signed makes the credit available to first-time buyers, but also to people who have owned a home for at least five years. … The problem is that the FHA insures mortgages of homes below certain price levels with such a low down payment that it can be funded solely by the refundable tax credit … Owners who don’t sink their own money into a house are much more likely to default on the mortgage. .. – WSJ Opinion

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Case-Shiller Home Price Index up for 5th time, but cracks showing – Posted by Edward Harrison – … When Case-Shiller reported in September, 18 of 20 cities showed price increases. Then, last month the number turned down slightly to 17 of 20 markets. This month the number really turned down. Only 10 of 20 markets rose in the data (for sales through September). That is not good. is this a one-month aberration? It’s hard to say …. – Credit Writedowns

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Fannie Mae to tighten lending standards – By Dina ElBoghdady – Banks will demand higher credit scores, lower borrower debt – Starting Dec. 12, the automated system that Fannie Mae uses to approve loans will reject borrowers who have at least a 20 percent down payment but whose credit scores fall below 620 out of 850. Previously, the cut-off was 580. Also, for borrowers with a 20 percent down payment, no more than 45 percent of their gross monthly income can go toward paying debts. … – Washington Post
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Fannie Mae Introduces ‘First Look’ Initiative - BY: BRITTANY DUNN – … Through Fannie Mae’s First Look, only offers from owner occupants and buyers using public funds will be considered during the first 15 days a property is on the market, and offers from investors will only be considered after the first 15 days have passed. … – DS News

Deutsche Bank & BNP Paribas vs. BofA; Dubai’s woes helping our rates; Fannie & FHA chatter

An uncle once told me, “I’ve had bad luck with both my wives. The first one left me. And the second one didn’t.” In a story from Reuters,both Deutsche Bank and France’s BNP Paribas SA separately sued Bank of America last Wednesday, “claiming that the largest U.S. bank breached its obligations on a total of more than $1.7 billion of mortgage-related transactions.” Both lawsuits relate to Ocala Funding LLC, a funding vehicle used by Taylor, Bean & Whitaker. TBW used Colonial Bank for warehouse lending, which Bank of America sued in August. Deutsche Bank accused BofA of breach of contract for failing to safeguard more than $1.25 billion of cash and mortgage loans from deals in 2007 and 2008. In the other lawsuit, BNP Paribas Mortgage Corp said BofA refused to pay $480.7 million of principal and interest on secured notes when the sum came due in August. A Bank of America spokesman said the bank had fulfilled its contractual obligations and would defend itself against the allegations in court. “BNP and Deutsche Bank’s effort to hold Bank of America responsible, however, is misguided. We fulfilled our contractual obligations in our limited administrative role with respect to the Ocala facility.”

Dubai, home of the palm tree-shaped island, sail-shaped high-rise hotel, and indoor skiing, is not immune to the credit crisis. Apparently they borrowed quite a bit to finance their world-famous expansion, but on Wednesday the city-state said it would restructure its largest corporate entity, Dubai World and announced a six-month standstill on the company’s debt. Of course this news immediately pushed up the price of insuring against a default and reminded everyone of the collapse in its once-booming real-estate sector late last year. Fortunately it appears that our banks, and the mortgage business, have limited exposure to Dubai’s problems. But the question is whether Dubai World is isolated, or a sign of widespread sovereign debt defaults in emerging markets? One investor said, “I always thought that Dubai was way too flashy anyway, and they’re getting what they deserve – it’s fine unless its problems impact me.”

more news – Fannie Mae to tighten, FHA credit scores rise, Charles Schwab mortgage, Caliber Funding, rates and markets, and joke of the day >>> CLICK HERE

Markets, Policy, and Economy: Japan Default?, Lo Rates Crush Savers, China, Dollar, Black Friday, Inflation, G.M., Budget Gap, 3 more

Will Japan Default? – Credit default swaps (CDS) bet on the default probability of individual companies and nations. The sovereign CDS of Japan gives us the best estimation of the probability that Japan will default in the next 5 years: … At a current spread of 70 bps and assuming a 40% recovery rate , that implies that Japan has default probability of 6% in the next 5 years. … – Surly Trader

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Federal Reserve Super Low Rate Policy Crushes Savers And The Elderly – By Bill Zielinski – … The Fed’s low interest rate policy effectively represents a massive wealth transfer from savers to debtors. FDIC insured deposits of bank savings and CDs currently total $4.8 trillion and there is approximately $5 trillion in money market funds for a total of $10 trillion that is earning at best 1% compared to 5% in 2006. The drop in interest rates from 5% to 1% represents an annual income loss to savers of $400 billion dollars per year. … – Mortgaged Future

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3 great charts – Foreign Treasury Holders – What is China Doing Now? – Andrew Horowitz – TIC Data and the U.S. Current Account Deficit: Foreign Investors Still Buying Treasuries – That is what it looks like. With all of the huffing and hooting by Brazil, Russia, India and China, we are still seeing inflows. That’s important because someone has to foot the bill for all of the money that is being spent on bailing out the sinking ship know as the U.S. Economy. – The Disciplined Investor

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Chart of the Day – … the US dollar continues to trend lower. After all, a virtual collapse of the banking sector does have its consequences. For some perspective, today’s chart illustrates the current trend in the US dollar (blue line) as well as that other world currency, gold (gray line).
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Black Friday: Boom or Bust? – By Paul Kedrosky – interesting charts – hattip John Cervarich – Infectuous Greed Blog

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Big Gov’t Spending–>Big Inflation – Will all the big spending, big borrowing and big monetary expansion occurring now cause inflation once again? - Plan B Economics
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G.M. Is Taking Taxpayers for a Ride – General Motors raised more than a few eyebrows last week by announcing plans to repay what it describes as $6.7 billion in outstanding loans to taxpayers. So provocative was this announcement that it all but overshadowed the real news of the day: G.M. had lost $1.2 billion since exiting bankruptcy in July, and its fourth-quarter results were expected to be worse. – NY Times Dealbook

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Budget Gap Charts – Plan B Economics

Chart One: Outlays oustrip receipts by a very wide margin
Chart Two: USA Inc. is increasingly reliant on creditors
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Should America worry about its deficit? - THE easy answer is yes, America should worry about its deficit. The hard question is how much should it worry about it relative to other potential problems. Tyler Cowen attempts to make the case that the deficit should be given some priority: The Economist Free Exchange

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The Ides of March and the Fed exit strategy – the author puts forth a way that the Fed’s huge expansion of money supply could be unwound. – Bronte Capital

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Another V-sign - Scott Grannis – … Back to the chart above. What it shows is that the downturn in spending has been much deeper (with the negative growth lasting longer) than in other recessions. But it also shows that the turnaround has been just about as sharp as in other recessions, hence my claim that this is a V-sign. … – (goes into how this recovery will be different with cautious optimistic overtones) – Calafia Beach Pundit

The Garrett, Watts Report (Nov. 28, 2009)

To Our Clients, Colleagues and Friends,

Here’s a weird statistic: Bert Blyleven pitched 75 complete games which he lost. He had an excellent 3.19 ERA in those games, but his teams just didn’t give him enough run support. Another example of not getting enough offensive support is the great Nolan Ryan. Ryan pitched 75 games in his career in which he allowed 2 or fewer runs, and still lost. His ERA in those 75 losses was 2.03.
Here are the top eight banks by assets:

Bank of America	$2.232 trillion
JP Morgan Chase	$2.041 trillion
Citigroup	$1.888 trillion
Wells Fargo	$1.228 trillion
HSBC No. American	$ 390 billion
PNC Financial	$ 271 billion
U.S. Bancorp	$ 265 billion
Bank of New York	$ 212 billion

Here are a few others: #9 Suntrust ($172 billion), #11 BB&T ($163 billion), #14 Regions ($140 billion), #25 Comerica ($60 billion), #30 Huntington ($52 billion), #33 Charles Schwab Bank ($38 billion), #49 City National ($18 billion).
Here they’re ranked by deposits, with U.S. Bancorp and PNC moving up in the rankings and HSBC moving down.

JP Morgan Chase	$868 billion
Citigroup	$832 billion
Wells Fargo	$796 billion
PNC Financial	$183 billion
U.S. Bancorp	$169 billion
HSBC No. American	$161 billion
Bank of New York	$133 billion

Remember how the sub-prime crisis morphed into the mortgage crisis and then became the global economic crisis? Today just might be the three anniversary of when it all started. On November 28, 2006, a Wall Street warehouse lender cut off subprime lender Ownit, which then promptly failed. And from what we recall, that was the first such failure, a ground-zero for what was yet to come. Kind of an après moi, le deluge.
In response to some stuff on e-mail manners, we just got this. “In my 20 years in the business, I think a simple thank you is one of the most important things we can teach our employees. It’s not just e-mail etiquette; it’s etiquette in everything we do. Please, thank you, andyou’re welcome are still important words, and thank you notes after meeting someone are always the right thing to do.”

We’re still puzzled by companies who do over $20-25 million a month and continue selling best efforts. The pick-up between best efforts and going mandatory has never been so wide. And those who agonize over it too long will, perhaps, finally decide to go to the party and find that the punch bowl has already been taken away, the band leaving, and nothing left but cold pizza and warm beer. Put another way, no one wants to be the first one at a party, but you miss all the fun if you show up too late.

Florida is the worst hit with non-performing mortgages including foreclosures, totaling 24.9% compared to 23.4% in Nevada , 18.1% in Arizona , and 16.3% in California . That 24.9% for Florida is just a disaster.
David Stein at Residential Finance Corp. wrote us that the basket building from the last issue is in a suburb of Columbus . On our next trip, maybe we’ll go see it.
When growing up as teen age boys, we always tried figuring out how to be cool and be popular with girls. We read Playboy to learn Hugh Hefner’s techniques, but wearing silk pajamas and smoking a pipe looked pretty idiotic for a 15 year old. We watched James Bond movies to learn how to be cool, but 16 year old boys asking for martinis stirred rather shaken was really moronic. The mystery has now been solved for 15 year old boys. If they go see The Twilight Saga: New Moon, they’ll learn exactly what makes girls scream. We watched the first 15 minutes while waiting for 2012 to start, and if there were any teenage boys in the audience, they should have been taking notes.

Here’s a trailer for 2012. If you don’t see the movie, take a few minutes and watch this preview.
Despite $62 billion in loan loss provisions and $51 billion in charge-offs, the banking industry still managed to make a profit of $2.8 billion for the recent quarter. This shows real underlying strength and portends strong bank earnings once the economy is back to normal.

And what’s going on with that warehouse lender who’s raising haircuts from two points to five points and eliminating bulge lines? Has that happened to you, or are we just seeing isolated instances?

The FDIC just hit Pacific International Bank (Seattle) with civil money penalties because they failed to get flood insurance on 7 of 23 mortgage loans. The penalty was charged to the bank, but when it gets really ugly is when they fine individual officers and directors.

Did you know it’s been 28 years since Natalie Wood drowned? Within hours of her death, MBS traders were telling sick jokes about her, but her acting in movies like Splendor in the Grass was nothing les than terrific.

Transparency International has ranked 181 nations from the least corrupt to the most corrupt. The top five in order are New Zealand , Denmark , Singapore , Sweden and Switzerland . The worst were Iraq , Sudan , Burma , Afghanistan , and finally, Somalia . Russia was #146, Pakistan was #139, China was #79, and the U.S. was #19.

We made a list of fifty books we want to read or re-read. Here are twenty of them and we’ll show the rest next week. If you think of any classics that should be on a must read list, let us know.

A Doll’s House (Ibsen)	Love (Stendhal)
All Quiet on the Western Front	Madame Bovary (Flaubert)
Confession (Augustine)	Notes from the Underground
Crime & Punishment	Pride & Prejudice (Jane Austen)
East of Eden (Steinbeck)	Sons & Lovers (D.H. Lawrence)
Far from the Madding Crowd	The American (Thomas Hardy)
First Love (Turgenev)	The Genius (Dreiser)
Jayne Eyre (Bronte)	Last of the Mohicans (Cooper)
The Dead (James Joyce)	Wuthering Heights (Bronte)
Essays (Schopenhauer)	The Way of All Flesh ( Butler )

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We’ve been doing a lot of FOCIS-plus Reviews lately, and they’re one of the more gratifying aspects of our work. We look at all the areas of risk, but the best part is figuring out how a company can make more money. Sometimes it’s really obvious, and other times we need to tear apart the entire organization and put it back together before we find the source of the problem.
And it’s not that we’re the smartest people in the world. We’re not. But the three of us have over 80 years experience in the mortgage banking industry and lending to it, and we’re in dozens and dozens of mortgage companies every year. It’s the latter which proves so useful, as we see over and over again what works and what doesn’t. We see certain processes and ways of doing certain things over and over again at all the highly profitable companies. If ten companies perform a certain function one way and make good money, and you’re doing it a totally different way and losing money, maybe learning how the top performers do it can help you.
The FOCIS-plus looks at about 67 areas, and we typically have very specific recommendations on about 40-45 of them. Interestingly, the key to going from a low-performing company to a high-performing one is usually found in less than five recommendations. The solution is usually not all that complicated.
We’ve gone into companies that were making a ton of money and where our recommendations were more along the lines of how to better manage risk and have better financial reporting. When someone’s making 125 bps per loan, we’re hard pressed to find ways for them to make even more. But when companies make 50-60 bops, and less, these are our favorite ones where we’ve been able to make a real difference and help them really grow their revenues. Those are the most gratifying. *

. Garrett, Watts & Co. Helping mortgage lenders increase revenues, control costs, and better manage risk.

Corky Watts (CWatts@GarrettWatts.com)
Joe Garrett (JGarrett@GarrettWatts.com )
Mike McAuley (MMcauley@GarrettWatts.com )

Oh Me, Oh My, … Dubai – 4 posts

Initial reaction …. meltdown probably averted. (BC)

Dubai gambles with its financial reputation – By Jim Krane – … The ambitious sheikh wants Dubai to become the financial centre for a quarter of the globe, the under-served and fast-growing markets between Singapore and Frankfurt. Wednesday’s announcement makes that goal less likely, damaging Dubai’s reputation among the investors and financiers it has worked so assiduously to court. “Naturally they are not amused,” says Eckart Woertz, chief economist at the Dubai-based Gulf Research Centre. “It will be a case of once bitten, twice shy should Dubai try to tap international markets again.” … – FT.com

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Emirate has a lot of explaining to do – By Roula Khalaf – … It came in a short statement about the restructuring of Dubai World, one of the emirate’s biggest and best-known companies, with the big news buried near the end. But the decision to ask bondholders of the company and its most troubled subsidiary, Nakheel, to extend maturities from December to May 2010 was a bombshell. And the Middle East’s most glamorous and creative emirate will pay the price of its decision for a long time to come … – FT.com

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Black Swans - By Ray – The term “Black Swan” is used far too often in today’s discussions about the financial markets and it pertains to unforeseen events that cause havoc on the economy or the markets themselves. … In today’s discussion the news coming out of Dubai is being hailed as another Black Swan event as they are talking about delaying payment on some of their debt on December 14th. The events in Dubai is the furthest thing from a black swan event as we have all known about this problem for the better part of 6 months or more. … – AnnuityIQ Blog

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The Problems in Dubai – Bob Eisenbeis – Will the spillover effects require action in the U.S. by the Federal Reserve? The answer is, not likely. … Short-term, there is a movement away from the Middle East , but that is not likely to carry with it negative spillovers to Asian markets whose fundamentals haven’t changed. … Longer-term, US fundamentals haven’t changed, and the dollar is likely to continue to drift downward relative to other currencies. Asian economies haven’t changed either. … – Cumberland Advisors

The Garrett, Watts Report (The Day After)

To Our Clients, Colleagues and Friends,

We always like it when governments sell off those things that can be better operated by the private sector, so we were pleased to read that Connecticut has sold off its 23 freeway rest stops. Private equity firm The Carlyle Group paid the State $178 million for the right to re-build and operate them. Most rest stop bathrooms are pretty gross, so maybe they’ll do something about them. They also plan to put a Dunkin’ Donuts at each rest stop.

Remember how Apple’s share of the PC market dropped to a low of 4.4% a few years back? Well, they win the Comeback Player Award with a 9.2% market share now.

Here’s an interesting office building. It’s the corporate offices of an Ohio company that makes baskets.
Way too many companies we visit let the doc-draw person send docs to escrow without a second set of eyes taking a look at them. We were in a shop 5-6 years ago where this was the case, and here’s what happened: They were doing a lot of 2-1 arms with a 4.5% rate for the first two years and 2% & 5% caps thereafter. The doc-draw person assumed that a 5% life cap meant the loan could never go above 5%, which does sound pretty logical, so as a result of no one checking her work, she sent to title a ton of loans which were 4.5% for two years and then 5% for the next 28 years. Rates were quite a bit higher back then, and these loans had to ultimately be sold at 88.5 for an 11.5 point loss. If you don’t have a second signature before docs go out, you should probably start doing so.
Lenders who’ve gone totally paperless tell us that their loans get purchased a minimum of one day faster! It was weird walking through San Francisco-based Bay Equity the other day and seeing literarily no loans files.
To go paperless, we like what DataTrac has and we also like DocVelocity. Most of the companies we’ve seen successfully make this transition have used the DataTrac piece, but there are other vendors we just haven’t run across yet.
Venezuelan Idiot-in-Chief Hugo Chavez is showing his true colors. He recently praised Carlos the Jackal, the terrorist who murdered innocent people for years throughout Europe, then praised Zimbabwe ’s Robert Mugabe and Iran ’s Mahmoud Ahmadinejad. To show the world that he’s completely psycho, he then said that Uganda ’s Idi Amin was a good guy who was simply misunderstood.
Take a look at the attached Ten Keys to Survival in Tough Times. Are there any specific ones you should pay attention to? We wrote this in 2007 when the mortgage world was falling apart, but we think it applies just as much today. Number two is critical (Maintain maximum liquidity) as is #7 (Commit to better financial reporting). When we look at it, though, they all still apply.
Congratulations to MVP winners Joe Mauer and Albert Pujols. To those who nostalgically look back on previous decades as the good old days of baseball, today’s kids will someday look back on the current era as their good old days. Watching Pujols has to be just as exciting as having watched Ted William s, Babe Ruth or Lou Gehrig 60-70 years ago.
We just read a 1954 book about lawyers, and it made us wonder what corporate attorneys charged back then. Maybe $25 an hour, maybe $50? And now $400 is totally normal, and some New York firms can charge up to $800-900. What’s the most you’ve seen?
We used to think highly of Frontier Bank up in the Seattle area, but we just noticed that their Texas Ratio is 335%. Once you go over 100%, it’s quite possible you’ll fail, and at 150% it’s highly probable you will. A very simplified explanation of the Texas Ratio is that 100% means that your capital + your loans loss reserves is exactly equal to your bad loans. There’s more to it than that, but that’s enough to help you understand that for every $100 of capital & reserves at Frontier, they have $335 of “bad” loans.
If you’re on the Board of a bank that’s in trouble, you need to be very careful. The FDIC is going after Directors of failed banks by sending “claim letters” informing them of the intent to sue. And don’t assume that your D&O insurance policy will protect you. Many of these policies have exclusions that don’t pay on suits brought by regulatory agencies. We get asked occasionally to join various bank Boards, and this is a pretty big part of why we decline such invitations.
Someone wrote us about the whereabouts of Rod P. of Capitol Commerce infamy, telling us that he lives in the multimillion dollar house that Capital Commerce “built”. is wearing a Mohawk haircut, probably looks like an idiot, races cars, and is apparently living the good life. Question: Why isn’t this bank robber in jail?
Including mortgages in foreclosure, total FHA non-performing loans increased to 17.7% from 17.4%. Subprime delinquency rates increased to 26.4%. None of this is good news.
Have you noticed that the stock of Hormel Foods is up 52% in the past year? Hormel makes the world’s greatest breakfast food, Spam, and generates over $6 billion in revenue a year. Bacon and eggs is nice, but Spam and eggs is heaven. In Hawaii they serve Spam sushi.

We used to think that we would end up someday with only three national papers, the Wall Street Journal, The Washington Post, and the New York Times. We can probably exclude the Washington Post now, as they just closed their remaining bureaus around the country. This symbolic retreat from being a truly national newspaper was evidenced by their statement that they need to “… concentrate our journalistic firepower on our central mission of covering Washington … and the region.”

We were in Columbus, Ohio again last week, and we really like it! A clean, vibrant downtown, nice neighborhoods and friendly people. Next stop, two days in Seattle where we seem to go at least twice a month. If you have a company or bank in New Hampshire , Vermont , Hawaii or the Virgin Islands , call us and maybe we can give you a special deal. These are all beautiful places we’d like to visit.

Garrett, Watts & Co.

Helping mortgage lenders increase revenues, control costs, and better manage risk.

Corky Watts (Cwatts@garrettwatts.com)

Joe Garrett (Jgarrett@garrettwatts.com)

Mike McAuley (Mmcauley@garrettwatts.com)

Make More With Servicing Retained – the Right Choice? – by Pat Cutler

In our Spring 2009 issue we discussed the price differential between mandatory and best efforts execution. We showed you how to make an extra 50 basis points switching from “best efforts” to mandatory delivery. Want to make even more money? Consider selling your loans servicing retained. Climbing delinquencies, historically low interest rates, and industry consolidation have combined to sink mortgage servicing values to one of the lowest points in history.

Many lenders are considering retaining servicing.

Our 3 page paper below goes through the major considerations to help you determine if servicing retained is the right choice.

Cutler Consulting Newsletter Fall 2009

Give us a call if you would like to learn more.

E. Patrick Cutler
pat.cutler@cutlerconsultinggroup.com
803.461.0168

Miscellany: Mortgages, Government, Life, and Resources and Economy – 12 posts

Mortgages – 5 posts

FHA: Reaching Out to Condo Buyers – By BOB TEDESCHI – But last year, the federal government raised the maximum F.H.A. loan amount to $729,750 from $362,790 for high-cost areas like Manhattan and northern New Jersey. … Lenders can now approve condos without applying to the government, if they believe the condominium complies with F.H.A. lending policies. … The government also relaxed rules that had limited the number of condominiums that would qualify for F.H.A. loans. Under the old rules, if more than 50 percent of a new development was unsold, the F.H.A. would deny a loan. Now, just 30 percent of a development must be sold before an F.H.A. borrower can qualify. … – NY Times
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New rules might be cutting home values – Dian Hymer – Are appraisals hurting home values? If financing is involved, the answer is probably yes. Ever since May 1, when Fannie Mae’s new appraisal guidelines for home mortgages went into effect, buyers, sellers, real estate agents and loan originators have complained about the new process. It’s inefficient, often inaccurate and time-consuming. In some cases, it could be contributing to lower home prices. – SF Gate.com

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FDIC on REO Sales: Keep’em in the Dark! – Submitted by Bruce Krasting – … The answer is that the REO problem for the D.C. lenders and the FDIC is reaching a crisis level. … There are approximately 55 million mortgages outstanding today. At least 10% will/have gone into default before this is over. Of those half will result in foreclosure. These numbers create an estimate of the Federal share of REO at about 1.5 mm homes. Depending on unemployment and the economy going forward that number could be much higher. Before this is over the Feds could own up to 5% of all residential RE. … – Zero Hedge Blog

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Combined Loan to Values Swell to 107% in July 2009: Equifax – By JON PRIOR – … The average CLTV, a ratio used to determine the risk of default when more than one loan is used, for current Alt-A loans ballooned from 75% in July 2005 to 107% in July 2009 … – Housingwire

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Freddie Mac says TBW losses ‘could be significant’ – Mortgage finance company Freddie Mac on Monday put its initial loss estimate related to the bankruptcy of Taylor, Bean & Whitaker Mortgage Corp. at $500 million, and noted the figure could be much higher. – AP Yahoo

Government: 2 posts

Bullard Favors Extending Fed Asset Buying – BY MICHAEL DERBY – Federal Reserve Bank of St. Louis President James Bullard wants the Fed to continue to buy mortgage-backed securities beyond the March 2010 cutoff to give policy makers more flexibility as they seek to shepherd the economy toward recovery. – Wall Street Journal

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Jamie Dimon seen as good fit for Treasury - By MARK DeCAMBRE – As support for Treasury Secretary Timothy Geithner wanes on Capitol Hill amid frustration with the Obama administration’s handling of the economy, JPMorgan Chase CEO Jamie Dimon is emerging as a potential replacement. Sources tell The Post that a number of policy makers have begun mentioning Dimon as a successor to Geithner, whose standing in Washington has suffered because of the country’s high unemployment rate, the weakness of the dollar, the slow pace of the recovery and the government’s mounting deficit. – NY Post

Life: 2 posts

Trading: Tiger Wood’s Secret is really the key to your success - Adam Hewitt – INO.com
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Runners and joggers increase in this recession – The Upside of the Downside? – Michael Panzner – In a country often lampooned as being populated with obese soda-swilling TV junkies, around 9.2 million people completed a certified foot race in the United States in 2008, up from 3.7 million in 1987. … Why the growth? … But that’s only part of the answer. We live in a financially uncertain, violence-scarred world, and running “gives you something to control – you can’t control the stock market or the economy, but you can control your health,” said Lamppa. … – Financial Armageddon

Resources and Economy: 4 posts

Is that a Bubble in Your Natural Gas? Interview with Jim Lucier – Chris Whalen – The Institutional Risk Analyst

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Sulfur emissions – 16 Cargo Ships Worse than the World’s Automobiles – … Apart from the usual environmental rhetoric I ran across a rather startling article that claims that the 16 dirtiest cargo ships emit more sulfur per year than all of the cars on the planet. ... – Surly Trader

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on the future of oil – Oil’s Expanding Frontiers – By George Will – What city contributed most to the making of the modern world? The Paris of the Enlightenment and then of Napoleon, pioneer of mass armies and nationalist statism? London, seat of parliamentary democracy and center of finance? Or perhaps Titusville, Pa. – Real Clear Politics

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NABE Panel: Recovery Soon to Lose “Jobless” Label – … Reaffirming last month’s call that the Great Recession is over, NABE panelists have marked up their predictions for economic growth in 2010 and expect performance to exceed its long-term trend. “While the recovery has been jobless so far, that should soon change. Within the next few months, companies should be adding instead of cutting jobs,” said NABE President Lynn Reaser, chief economist at Point Loma Nazarene University. … – National Association for Business Economics

Rates great but agents working twice as hard for half the business; Where is the economy going?

Earlier this week, the country’s first marijuana cafe opened up, which not only sells medical marijuana, but also has a restaurant where customers can eat. In a related story, the recession is over!

Whoever wants a 4.50% 30-yr fixed rate conforming loan with a point back to cover closing costs, raise your hand! Well, we’re just about there. Fannie 4% securities are shuffling around 99 or 100, and when you throw some servicing-released premiums on the price, you’re easily above par. And who wouldn’t want to own this servicing? Even I am thinking about refinancing, and I don’t even own a place! Seriously, heck, I have a 7-yr ARM that closed in 2003 at 4.75% (so it starts adjusting next year) that I am thinking about refinancing. Given the 30% LTV maybe I can even find an investor!

So if rates are so great, why are applications dropping and agents continuing to work twice as hard for half as much business?For last week, the MBAA’s weekly application index dropped 4.5% with applications to buy a home up 9.6% and refi’s down 9.5%. (“The MBA revised the indices for the prior week.) Does this data support what many in the business already are feeling: That most people who can refinance already have, that the economy would have to go further into the tank for mortgage rates to drop much more, and we’d better get used to a purchase market in the coming months and next year?

How long does it take the MBAA to compile multifamily statistics? I guess eleven months, since Monday’s headline read, “MBA Reports Multifamily Lending 40 Percent Lower in 2008 Than 2007; Market Remained Broad and Diverse”. Their report stated that “2,877 different multifamily lenders provided a total of more than $88 billion in new financing for apartment buildings with five or more units, which is a 40% decline from 2007 levels, and the top five were PNC Real Estate, Wachovia, Wells Fargo Bank, N.A, Capmark Financial Group Inc, and Deutsche Bank Commercial Real Estate. The report also mentioned that 26% of lenders who made multifamily loans in 2008 made just one, and two-thirds made five or fewer!

more news on FOMC Statement, HAMP and FNMA, bond market, and joke of the day ,,, <<< CLICK HERE

(There will be no commentary on Friday – I’ll be in Best Buy looking for bargains.)

Rob

Mortgage News Clips

News, Opinions, & Research for the Mortgage Professional

Monthly Archives for November 2009

MUST READS: Robert Arnott, Options – Who makes money?, CLOs, Securitization Future

Mortgage and Lending Related: Reps and Warrants, Fed Buying, Home Sales, Citi on Principal Forgiveness, Underwater NOT, Home Value Insurance, FNMA Shrinks, Tax Credits vs. FHA, Case Shiller Up, 2 on FNMA

Deutsche Bank & BNP Paribas vs. BofA; Dubai’s woes helping our rates; Fannie & FHA chatter

Markets, Policy, and Economy: Japan Default?, Lo Rates Crush Savers, China, Dollar, Black Friday, Inflation, G.M., Budget Gap, 3 more

The Garrett, Watts Report (Nov. 28, 2009)

Oh Me, Oh My, … Dubai – 4 posts

The Garrett, Watts Report (The Day After)

Make More With Servicing Retained – the Right Choice? – by Pat Cutler

Miscellany: Mortgages, Government, Life, and Resources and Economy – 12 posts

Rates great but agents working twice as hard for half the business; Where is the economy going?

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