Happy Thanksgiving!

MBS Market Rallies, Mortgage Rates Set To Improve

10:20am



I guess this is what happens when the Federal Reserve announces a plan to purchase $500b MBS from Fannie Mae and Freddie Mac. Here's today's Bloomberg article about the plan.

And here's the Treasury's announcement to purchase $200b in additional asset backed securities.

Looks like the Administration is directly targeting mortgage rates.

I expect rates to be ~.25% better this morning, and wouldn't be surprised to see the 30yr fixed in the low to mid 5% range this week.


FNMA 30yr 5.5 coupon
up 130bps at 10:15am

The Fixin might need Fixin

Chairman of the Federal Deposit Insurance Corporation, Shelia Bair has found religion.  She believes that she has found the solution to the foreclosure crisis:  loan modifications.

Qualifying homeowners in serious delinquency get a letter from the FDIC offering them a way off the foreclosure highway:  more affordable monthly payments! 

The Feds can do this through reducing the interest rates on the loans, extending the amortization and deferring principal payments.  We commented on this here.

As we mentioned in an earlier post, the FDIC has used this pilot program on more than 5000 formerly Indymac borrowers the corporation inherited when the bank collapsed. In congressional testimony over the last several weeks, Bair has been hailing the success and wants other banks to follow the FDIC’s example.

Of course, all this costs money.  Millions so far.  Which will make Barney Frank and some of his Democratic colleagues on the Hill very happy.  They want some of Paulson’s 700 billion bailout money to be used for homeowner relief instead of the many curious ways the Treasury Secretary has disbursed it so far.

But will this work?

The Wall Street Journal’s MarketWatch does not fill me with confidence.  “For the industry in general, after mortgages are modified roughly 25% go delinquent again after just one post-modification payment and more than half end up delinquent after several post-modification payments. . .”

Maybe the solution will need a solution.

Better than BOGO for Genworth

What's better than "buy one, get one" free? How about "buy one, get more" free. That's the kind of deal Genworth Financial is looking for.

On Sunday the Richmond, VA based Fortune 500 company announced that they were applying to the Office of Thrift Supervision to become a savings and loan. Genworth isn't a bank or a thrift but a self proclaimed "financial security" company. And one of their main businesses is mortgage insurance - they are, in fact, the spinoff of GE's mortgage insurance unit.

So why does the company want to be a federally regulated bank? Because it wants to qualify for government assistance through the TARP (Troubled Assets Relief Program). As you can imagine the mortgage insurer hasn't been doing well lately, after an abysmal 3rd quarter and recent credit rating downgrade. I would guess that management is depending on government funding to stay afloat. And they know they they need to get in the handout line ASAP.

But in order to get money they need to spend money. In the same press release they announced that they have reached an agreement to buy a bank. Specifically, they're going to purchase Interbank FSB of Minnesota, which has $1b in assets.

At this point the sales price has not been disclosed and we don't know how much Genworth would receive (if any) from the US Treasury. But I doubt that they would go through the trouble just to break even.

Here's the Bloomberg story.

Final RESPA rule issued

HUD ISSUES NEW MORTGAGE RULES TO HELP CONSUMERS SHOP FOR LOWER COST HOME LOANS: New 'Good Faith Estimate' will help borrowers save nearly $700 (HUD press release, 11/12/2008)

"For the first time in more than 30 years, the U.S. Department of Housing and Urban Development today issued long-anticipated mortgage reforms that will help consumers to shop for the lowest cost mortgage and avoid costly and potentially harmful loan offers. HUD will require, for the first time ever, that lenders and mortgage brokers provide consumers with a standard Good Faith Estimate (GFE) that clearly discloses key loan terms and closing costs. HUD estimates its new regulation will save consumers nearly $700 at the closing table."

And from Inman News, HUD: New Respa rule out this week:

"The new rules are intended to help borrowers avoid paying excessive loan origination and closing costs, and understand potential issues like payment shock from adjustable-rate mortgage (ARM) loans, balloon payments, and prepayment penalties for refinancing.

Preston said HUD plans to publish the new regulations under the Real Estate Settlement Procedures Act, or RESPA, in Friday's Federal Register. If Congress does not stand in the way, the RESPA rule changes would take effect within 60 days after publication."

(bolding mine)

The final rule deals primarily with the new Good Faith Estimate and revised Settlement Statement.

New Standardized Good Faith Estimate (GFE)

• Make GFE easier to read/understand
• Increased up front disclosures
  
• Makes it easier to compare offers
  
• Increased from 1 page to 3 pages
  

Revised Settlement Statement (HUD-1)

• Easier comparison of charges between the GFE & HUD-1
  
• Will limit the amount fees can change from GFE
  
• HUD-1 terminology conforms more with GFE terminology
• Increased from 2 pages to 3 pages.
  

The requirements on the new GFE and HUD-1 would not go into effect until January 1, 2010. Other provisions will be effective January 16, 2009


No complaints here about the changes. If it provides more consumer protection, more transparency and a clearer understanding of the loan product(s), we're all for it. Besides, as an UpFront Mortgage Broker, we're ahead of the curve.

The 341 page rule is HERE.

Remember our Veterans

Today is Veteran's Day

Visit a charity and give if you can:

Wounded Warrior Project
Operation Shoebox
Fisher House
Disabled American Veterans

2009 Conventional Loan Limits Announced

Fannie Mae confirms conventional loan limits for 2009 (Announcement 08-29 issued 11/7/2008)

Limits are unchanged from FNMA's previous announcement on the introduction of high cost loan limits and the elimination of jumbo conforming.

2009 Loan Limits

Fannie Mae's new minimum income doc requirements

Just thought I should reiterate the minimum income and employment documentation requirements coming down the pike. Listed as #5 in Monday's post on the new FNMA guidelines, effective December 13, 2008.

Income & Employment Documentation Requirements (click for FNMA announcement)

• Salary/Bonus/Overtime: The minimum documentation level required will be one current paystub and a verbal verification of employment.
• Commission/Self Employment: The minimum documentation level required will be one year’s personal federal income tax return.

Believe it or not, until recently, many of our files have only required a verbal VOE (salary/wage borrowers) or verbal VOE & independent verification of business address/phone # (self employed borrowers).

MBS WOW!

MBS Update 11/04/2008:

The FNMA 30yr opened up approx. -20bps from yesterday, and by 3:30pm we were up 109bps from the open. That's almost 110bps in a single day, and we're heading higher. This is the largest single day climb since the FNMA/FHLMC takeover in September. The 30yr fixed has improved ~1/4% since yesterday.



We have seen 2-3 rate improvements (depending on the lender) so far today and we might see one more by 5pm. The 30yr fixed was 6.5% last Thursday. Currently we are at 6.125%. What (or who) is moving today's market? Unsure at this point, but obviously buyers have entered the market in a big way.

Do you want to know how mortgage rates are moving? Sign up for our free daily rates email - No obligation.

You can also contact us if you want up-to-date analysis on the MBS market and how it's affecting mortgage rates.

Fannie Mae guideline changes coming

FNMA announced guideline changes on October 16, 2008, effective December 13, 2008.

The changes:

1.) High Cost Area Loan Limits - Phase out of Jumbo Conforming and implementation of Permanent High Cost Area Limits. The general loan limits will continue to be used, although it is unclear if the limits will change. In the past, FNMA increased the limits as home prices rose. But even now that we have seen a 25% decline in the national average home price since peak in 2006, I doubt FNMA will reduce the limits. In fact, some industry groups (including the Mortgage Bankers Association) are pushing FNMA to lift the limits altogether.

Permanent High Cost Area Limits will be a loan feature (add on charge to conforming limit product) instead of a separate product like the Jumbo Conforming. The 2009 High Cost Limits will be announced by the FHFA, expected November 7. Jumbo Conforming will be phased out on December 31, 2008.

2008 Limits:


2.) Bankruptcy policy change - extended the minimum allowable time period between a bankruptcy file date and the date of the credit report from 24mo. to 48mo. The bankruptcy still must be satisfied prior to the date of application.

3.) LTV Eligibility Requirements - new LTV limits for specific transaction types. Most notable:
Primary Residence
** Cashout Refi --> from 90 to 85%
2nd Home
** Purchase/rate & term refi --> from 95 to 90%
** Construction --> from 95 to 90%
** Cashout refi --> from 90 to 75%
Investment
** Purchase --> from 90 to 85%
** Construction --> from 90 to 85%
** Rate & term refi --> from 90 to 75%
** Cashout refi --> from 85 to 75%

Here is the fully updated Eligibility Matrix.

4.) Mortgage loans with interest only feature - interest only period must be for 10 or more years.

5.) Income & Employment Documentation Requirements

• Salary/Bonus/Overtime: The minimum documentation level required will be one current paystub and a verbal verification of employment.
• Commission/Self Employment: The minimum documentation level required will be one year’s personal federal income tax return.

6.) Miscellaneous

• Verification of rental income (crackdown on "buy & bail")- "If the property was formerly a primary residence, a fully executed lease agreement, receipt of a security deposit, and documented equity in the property of at least 30 percent must be provided.
• Disputed credit report tradelines - lenders must confirm accuracy of disputed tradelines.
• Borrowers without traditional credit (no credit scores) - ineligible for interest only loans
  

FNMA requirements effective January 1, 2009:
Homebuyer education for first time home buyers (FTHB) on all MyCommunity Mortgage loans and all borrowers relying on non-traditional credit to qualify.