Remember when everyone was more concerned about the market and interest rates rather than the President’s schedule and how long it takes investors to change their internal systems to accommodate conforming loan amounts based on MSA? Ah, those were the days. This morning mortgage prices are worse by roughly .125 and the 10-yr is back up to 3.70% after Retail Sales were stronger than expected (+.3%). 3.75% is viewed as a key support level for the 10-yr, technically, so if the economy’s health begins to improve watch for that level.

The two major questions on the new conforming & FHA loans rage on: when and how? The President is expected to sign the bill this afternoon.  However, James Lockhart, OFHEO Director (the regulator for Fannie Mae and Freddie Mac) indicated that any increase in the GSE limits would require “new product approval process” to evaluate credit risk, concerns about geographic concentration in high risk markets and prepayment risk associated with jumbo purchases. He went on to say that implementation could take between one and up to three months for enactment, and that operational issues including system changes could delay implementation. Since FNMA & FHLMC follow OFHEO’s lead, these comments must be taken seriously, especially since he was opposed to the mortgage limit increase.

That aside, it should have no impact on the implementation of the higher “floor” ($271,050) for FHA loans since that increase is included in the law, although for high cost areas it could possibly impact the methodology for calculating the maximum mortgage amount in addition to the timing of implementation. Some analysts believe that it would be unusual if FHA’s loan limits went up before conforming limits. Fannie and Freddie both said if the changes were MSA (or zip) specific, it would take them 3 months to implement: there are so many origination, locking, underwriting, and servicing systems that must be updated and tested. HUD (and therefore FHA) is expected to able to adjust by mid-March.

Both Wells Fargo and Suntrust released memos directed at the proposed changes. “The GSEs and FHA must assess their internal impacts to determine the delivery approach they will require of mortgage lenders and investors,” communicate their requirements to mortgage lenders and investors, and then the large investors “will work to identify impacts and implement the changes as quickly as possible.” Therefore Wells, for one, believes that the higher loan limits offered by the GSEs and FHA as a result of this bill will not be immediately available to their clients under conforming guidelines. $729,750 will not be the nationwide loan limit, but be available in high-cost areas based on the median area sales prices and will follow the standard HUD mortgage limit calculation process.

• The “good” news just won’t stop. Indymac reported a net loss of $509 million for the fourth quarter because of provisions for bad debt in the mortgage market.
• Effective for locks on or after Feb. 25, Wells Fargo will require compliance with the “Interagency Guidance on Nontraditional Mortgage Product Risks” for all non-conforming conventional loans with an IO payment feature. For IO’s, all fixed rate loans must be qualified using the fully amortizing payment, not the interest-only payment, and all ARM loans must be qualified using the fully amortizing payment, not the interest-only payment, and greater of the fully indexed rate (index plus margin), or the initial note rate. Additionally, regardless of the LTV all non-conforming short-term ARM products must be qualified using the greater of the fully indexed rate (index plus margin), or Initial note rate, not to exceed the initial/start rate plus the lifetime cap.
• HELOC borrowers across the nation continue to receive letters from their lenders freezing their accounts. Chase, Countrywide, and Indy mention declines in property values, a potential in borrower’s credit quality, and servicing records as the primary reasons for freezing accounts. Fortunately companies are allowing their borrowers to appeal the decision, using recent credit reports or documentation of stable property values, if they want to continue to use the line.

While shopping in a food store, two nuns happened to pass by the beer, wine and liquor section.  One asked the other if she would like a beer.
The second nun answered that, indeed, it would be very nice to have one, but that she would feel uncomfortable about purchasing it.
The first nun replied that she would handle that without a problem.  She picked up a six-pack and took it to the cashier.
The cashier had a surprised look so the nun said, “This is for washing our hair.’”
Without blinking an eye, the cashier reached under the counter and put a package of pretzel sticks in the bag with the beer.  “The curlers are on me.”

Rob Chrisman