CME's Duffy Says a Trader's Hedge Caused Stocks to Slide

Goldman Sachs Hearing

If you missed the coverage of yesterday's Senate hearings on Goldman Sachs, you owe it to yourself to take a look. There was a lot of political theatrics, but also some valuable information about their operations, and the backs they were creating derivatives for.

Click To Watch The Hearings

Continues Funding For USDA Guaranteed Mortgages?

Well it looks like there is finally some good news to report on this topic. As you may or may not know, the USDA Guaranteed rural housing program provides zero down payment loans for moderate income families in targeted "rural" areas. The House passage of HR.5017 virtually assures continued funding for these loans.

Full Story Here

Be Prepared For Processing Bottlenecks

Just a word of caution moving forward. Be prepared for delays in the mortgage process as the Home Buyers Tax credit deadline approaches. The number of property under contract seems to be climbing steadily as the we approach the April 30th cut off. In my conversations with appraisers and home inspectors, it seems their schedules are filling up rapidly. Make sure that you allow enough time in your purchase agreements to allow for third party provider scheduling delays.

You're Hired! Top Four Reasons Realtors Get The Nod

You're Hired! Top Four Reasons Realtors Get The Nod
by Jim Remley

Imagine for a minute you had the resources to send out 100,000 questionnaires to buyers and sellers from across the nation, people that had actually closed a real estate transaction in the previous 12 months!

What would you ask? You and I could probably think of countless questions but no doubt one of the most important for any agent would be this: As a real estate consumer what is your most important factor when choosing a real estate agent?

The good news is that when the National Association of REALTORS® released their 2004 Profile of Home Buyers and Sellers, it included this question (as well as many more). They sent out 100,000 questionnaires and received over 8,000 back, and their findings are downright shocking!

The top four reasons why a consumer chooses a REALTOR®:
Read The Complete Atricle Here

Super Cool Real Estate Search Page

So Key Realty Group Inc. just rolled out its new search engine. Wow, talk about a huge step up in technology! The new search tool not only searches for properties based on client criteria (lots of sites do that), but this one also maps them. Tying into MLS and Google maps allows the client to not only see the images from the MLS file but also the Google street view if available! The mapping feature also provides a ton of other data, including but not limited too location and distance to schools, shopping, bus lines, restaurants, etc. You really have to check it out and play around with it for a few minutes to appreciate what a powerful tool this is for a prospective home buyer!

Check it out Real Estate Search and Mapping Tool

Home Buyer Tax Credit Extension

Members of the military and certain other federal employees serving outside the U.S. have an extra year to buy a principal residence in the U.S. and qualify for the credit. Thus, an eligible taxpayer must buy, or enter into a binding contract to buy, a principal residence on or before April 30, 2011. If a binding contract is entered into by that date, the taxpayer has until June 30, 2011, to close on the purchase. Members of the uniformed services, members of the Foreign Service and employees of the intelligence community are eligible for this special rule. It applies to any individual (and, if married, the individual’s spouse) who serves on qualified official extended duty service outside of the United States for at least 90 days during the period beginning after Dec. 31, 2008, and ending before May 1, 2010.
In many cases, the credit repayment (recapture) requirement is waived for members of the uniformed services, members of the Foreign Service and employees of the intelligence community. This relief applies where a home is sold or stops being the taxpayer’s principal residence after Dec. 31, 2008, in connection with government orders received by the individual (or the individual’s spouse) for qualified official extended duty service. The credit is still allowable even if this happens during the year of purchase. Qualified official extended duty is any period of extended duty while serving at a place of duty at least 50 miles away from the taxpayer’s principal residence (whether inside or outside the U.S.) or while residing under government orders in government quarters. Extended duty is defined as any period of duty pursuant to a call or order to such duty for a period in excess of 90 days or for an indefinite period.

Interesting Confrence Call On Interest Rate Direction & Risk

I just finished a great conference call with Mortgage interest guru Barry Habbib. He had a pretty detailed rational behind his forecast for higher rates going higher as the year continues. As an industry insider I tend to take for granted that "everyone" understands what drives the interest rates and how the media puts out numbers on rates that are useful within their context but a little misleading when out of context. So I thought I would cover a few key points today.

The media tends to put out numbers without fully explaining the context. First off, the Freddie Mac rate survey and the MBA rate survey. These numbers are generated by the organization but have build in margin (.75% on the Freddie and 1.25% on MBA). What they don't mention is that these are rates from the PAST! The information is a week old when published and older than that when typically reported. Not to useful as a "shopping tool".

There are a lot of players in the mortgage food chain. The lender (bank) does not typically keep the mortgage (interest rate risk of keeping the mortgage is too great). So the lender then sells the asset, but retains the servicing. In the process they take a slice. They sell the asset to Fannie Mae or Freddie Mac. Fannie and Freddie don't want to hold these assets, so they pool them and create a mortgage backed security to sell on the bond market (and take a slice of the pie too). So say you have a mortgage at 5.25%, the end investor buying the loan as a mortgage backed security might only being seeing an actual yield of 4% or less after everyone has taken their piece of the transaction.

The Fed has been buying huge amounts of MBS at 4% and 4.5% range, holding the market down. Now they are no longer buying those securities and we have seen the price being offered at the MBS auctions decrease (price decrease equals rate hike). The government is sitting on about 1.25 Trillion worth the MBS. Now the government has said if they see inflation they will sell these securities to keep inflation under check. When they start selling this portfolio rates will rise as the market because of market saturation.

The long and sort of the call is that the upside for mortgages would be a decrease in rate of maybe .25% (best case scenario) but the risk of rate increase is significant and if they move they have the potential of worsening by 1% to 1.5%! Bottom line, he feels locking in rates (and profit) is the best course of action.

Quick News Of The Week

1. FHA mortgage insurance increased from 1.75% to 2.25%

2. USDA has indicated that they will be out of 502 guaranteed fund money by mid April

3. The Fed has withdrawn from the mortgage secondary market yet rates have only increased nominally.

4. Home buyer's tax credit ends this month. Contracts must be in place before 4/30/2010

Bank of America Holds Parrot Hostage

Just an amussing tale about how Bank of America accidently siezes a home that is not in default, and takes the owner's bird. Then denies they have the bird, before admitting they have the bird.....

Hit the link for the full story.

Bank Of America Seizes Wrong House, Holds Parrot Hostage

Mortgage Rates May Become Volatile

This holiday shortened week should be interesting for mortgage rates. Investors will be repositioning their portfolios with the end of the first quarter looming. Additional pressure on the market is expected as the Federal Reserve concludes its direct purchase of mortgage backed securities program (1.25 trillion, yep trillion with a T). The big question mark looks like non farm payrolls (due out Friday). Rumor in the market is that barring higher than expected unemployment (9.7% to 9.8% range) there is very little chance of rates moving lower. By contrast any better than expected news could trigger a major rally in the stock market and typically that tends to drag mortgage rates higher.

Citi Bank Back In The Correspondent Lending Game

Citi has announced that they will be reactivating it's correspondent lending channel. They had frozen that channel last year over quality control issues. They apparently have fixed the underlying issues and are going phase lenders back into this channel. Good news for lenders that had lost that sales channel last summer.

Citi correspondent had done almost 115 billion in 2008. It's a glimmer of hope for some of the smaller mortgage banks that have taken some big hits over the last year. It will be interesting to see what effect Citi's move will have on other players like GMAC, Suntrust, Franklin American, Etc.

Tiss The Season To Sue

Bank of America has filed suit against First American Title for 500 million dollars. It would seem the good ole boys at B of A think that the limited title policies issued as a part of their quick close program have resulted in losses. What's fantastic about this lawsuit is that it seems inconceivable that title issues could have contributed to a loss of this magnitude. Maybe the Boys of BofA should look a little harder at the limited documentation (stated income stated asset) requirements THEY developed as well as the negative amortization arms that they marketed rather than fishing for money courthouse.

I would be very interested in seeing what actual losses B of A is claiming directly from title defects. Rarely do you see a title defect as the underlying reason for someone to default on a mortgage. After all the title insurance protects the lender from underlying liens, property line disputes, etc. Title insurance unlike mortgage insurance does not protect from underlying credit risk.

Also it appears that the SEC is being sued for failing to detect and stop Bernie Madoff's ponzie scheme. I have not had a chance to see the actual filing so I have no idea by what theory they plan to prevail. Should make for some interesting reading.

Timothy Geithner - His Role In Lehman's Demise

Speechless. That's all I have after reading the article detailing the collapse of Lehman and the role our new Secretary of the Treasury played in the events leading to the collapse and his subsequent efforts to cover up the rampant fraud.

Read The Article Here

USDA Will Run Out Of Funds For Rural Development Mortgages In April

It looks like USDA will exhaust it's allocated funds for Rural Development mortgages by mid April. Unless Congress acts to supplement USDA's budget, there will be no funding available until late fall of this year or possibly early 2011. This would be yet another blow to the already strained housing recovery.

USDA Rural Development loans provide 100% financing for properties located in targeted areas. While USDA does limit the income of borrowers that can participate it is practically the only option for 100% financing other than VA.

Looks Like FHA is Going To Hold The Line On Down Payment Requirements

Good news out of Washington DC. It looks like the HUD Secretary feels that raising the FHA minimum down payment from 3.5% to 5%. It seems that the Secretary based on his comments feels that the extra "skin" in the game will hurt sales whole doing little to stem the default rate. Instead he favors raising the mortgage insurance premiums. Part of that has already been decided, see the previous post on the increase in the upfront MI premium.

New FHA Flipping Guidelines

• 90 Day Flipping Policy Waiver: Effective February 1, 2010, HUD has issued a waiver of the 90 day rule (flipping rule) that applies to sellers other than HUD and exempt entities. At this time, we can accept properties if the contract of sale for purchase is executed within 90 days of the prior acquisition by the seller under the following circumstances:
 The transaction must be arms-length with no identity of interest between the buyer and the seller or other parties in the sales transaction.
 The seller must hold title to the property at the time of the purchase contract.
 LLCs, corporations or trusts that are serving as sellers must be established and operated in accordance with applicable state & Federal law.
 No pattern of previous flipping activity exists for the subject property, as evidenced by multiple title transfers within a 12 month time frame.
 The property must be marketed openly and fairly via MLS, auction, FSBO offering or developer marketing (any sales contracts that refer to an “assignment of contract of sale” which represents a special arrangement between seller and buyer may be a red flag).
 The sales price of the property must be less than 20% above the seller’s acquisition price. We are not accepting the additional HUD waiver conditions for increases of 20% or more at this time.

FHA Upfront Mortgage Insurance Premium Is Being Increased

Effective for case numbers issued on or after April 5th 2010, the upfront portion of the FHA insurance premium is being raised from 1.75% to 2.25%. The good news is that the actual monthly premium remains unchanged at this time at .55%. This is per letter 2010-02.

Judge Slams One West Bank

The news is a little stale, but I still got a little laugh out of the judges decision to wipe out the family's debt on their home in retaliation for the banks actions. No word on what the state of One West Bank's appeal that I can find. I am betting that the judge gets reversed, but boy I wish this would stand.

Read The Full Story Here!

Hiding From The Test

Interesting point being brought up today by a good friend of mine. The NMLS test is only seeing a 30% pass rate at this point. As a result he (recruiting for a one of the nations largest banks) has seen a dramatic increase in loan officers running for the shelter of the FDIC's little shelter! You see, FDIC bank employees are only subject to the fingerprinting and fraud check. They get a complete pass on the educational requirements. No national test! No state test! At a bank, the only educational requirements for a mortgage loan officer is whatever the bank thinks you need.

It seems, the banks are turning into the employer of last resort for the mortgage "professionals" that can't pass the NMLS test or are too afraid to take it! Thankfully, rumor has it, that certain politicians are starting to question why the banks are not forced to meet the same educational levels as the mortgage brokers. Hopefully, Congress will strip the FDIC insured banks of their protection from NMLS educational requirements. I think it is the only real way that they can assure the public as to the basic educational qualifications of the person writing their loan.

Interesting Concept

Since the inception of the Home Valuation Code of Conduct (HVCC) in May 2009, there has been much discussion, and misinformation, about the benefits and harm caused by the controversial agreement with the New York Attorney Generals office and the Federal Housing Finance Agency. This agreement, originally made with the Office of Federal Housing Enterprise Oversight, requires Fannie Mae and Freddie Mac to only accept appraisals ordered from parties independent to the loan production process. Essentially, this means, anyone that may get paid by a successful closing of the loan cannot order the appraisal.

In the past 6 months while the Realtors© and Mortgage Brokers associations point fingers at appraisal management companies for their use of incompetent appraisers who don’t understand the local markets, appraisers are complaining that banks are abdicating their regulatory requirements to obtain credible appraisals by forcing them to go through appraisal management companies at half of their normal fee.

Read The Full Story Here

Underwriting a Mortgage In The New Era

Been interesting talking to underwriters these days. Back when I first started, underwriters were very skilled and valued assets of a mortgage lender. They were given a set of guidelines to follow but were largely allowed to evaluate each file on its individual risk. The underwriter was largely "trusted" to make a decision.

Then came the world of automated underwriting. Fannie Mae rolled out Desktop Underwriter and Freddie Mac had Loan Prospector. At that point there was a noticeable shift in underwriting. Underwriters were largely responsible for verifying information that the computer program thought "necessary". Underwriters were still largely able to manually underwrite a file even if the file did not fit neatly into the computer generated box.

Scroll forward to today. Try to find an underwriter that is allowed to manually underwrite a file. The risk of a purchase refusal are simply too great. Most lenders will not even entertain that notion that their underwriter is "capable" of assessing risk on a file. It's an unfortunate devaluing of the underwriter's value. So we as a nation have largely surrendered our underwriting decisions to computer programs.
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The HVCC Virus Has Spread

Yep, new rules regarding the ordering of FHA appraisals mirroring those of HVCC have come into effect. That's right, your FHA appraisal is now ordered by an AMC (appraisal management company), who tend to select, how should I put this........THE LOWEST BIDDER!

To think that pressuring an appraiser into coughing up half their fee to the AMC in order to get the job is not going to effect the quality of the end product is obtuse! The AMCs have no interest in the quality of their work.

So as a broker, you have the client pay the AMC $500 for an FHA appraisal, and the AMC collects $150-$250 for "their effort" and the appraisal is not satisfactory to the underwriter, does the client get their money back? No! They might have to spend another $500 to have a second appraisal done and the AMC collects another fee. Can you see where an AMC really does not have much of an incentive to make sure that the appraisers they hire are actually any good. It's not like it's costing them any money out of pocket. The check in this process is the actual lender possibly pulling the contract. Then again, there are a lot of lenders that actually own AMCs (PROFIT CENTER).

HUD does not want the broker to order the appraisal? Fine I understand the rational. I do not agree with it, but I understand it. Back when I first started as a broker we were assigned an appraiser by the Portland HUD office. They had a list of approved rostered appraisers and they picked who you got. Pretty simple stuff! Too simple by half for the boys back East! No, that would not help their friends in the banking and AMC lobby would it?

HUD $100 Home Mortgage

Had a call yesterday from a Realtor that read the breakdown of the HUD $100 down mortgage plan. She said "well I would hate to see the interest rate on that kind of loan!" She was pleasantly shocked to learn that the interest rate offered was the same as a regular FHA loan (currently less than 5% for a 30 year fixed). The rate is the same as a regular FHA loan, the upfront mortgage insurance premium is the same as a regular FHA loan, and the monthly mortgage insurance is the same as a regular FHA loan.

Her next question was "where is the catch?" I had to explain that the "catch" was that this was only for HUD owned properties. That's the only real "catch". Just the restrictions listed yesterday's program breakdown.

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HUD Foreclosured Homes With $100 Down Payment

Really! HUD offers a very specific product that allows borrowers to purchase HUD owned properties with $100 down. This is a very specific product with a very specific target market.

This is a traditional FHA loan complete with both upfront and monthly mortgage insurance, but without the 3.5% down payment. So lets hit the highlights:

1. Owner occupied only
2. HUD owned properties only
3. May add up to $5000 to the loan amount to finance required repairs
4. 1-4 units
5. Can use the existing HUD appraisal if sales contract was signed within 6 months completion
6. $100 down payment

Restrictions:

1. No Manufactured homes
2. No Spot approval condos
3. No Cooperatives
4. No working farms,
5. No foreclosure within the last 3 years
6. No bankruptcy within the last 2 years
7. No non occupant coborrowers
8. Max ratios 31%-43%

While this product is not a great fit for a lot of people, it is a home run for the people who fit!

Freddie Mac To Eliminate Interest Only Mortgages

Freddie Mac has announced that effective September 1, 2010 they will no longer purchase interest only mortgages. Undoubtedly lenders will will eliminate these mortgages from their product lines well in advance of the September deadline.

Currently interest only loans account for just over 7% of Freddie's portfolio. According to the release it is not the quality of the underlying borrowers that is at issue (the average credit score for IO borrowers in 2008-2009 was 720). Freddie Mac and Federal Housing Finance Agency feel that underlying weakness in the job market and the overall health of the housing industry that have led them to withdraw this option from their product line.

This is just the latest, in the trend to homogenize mortgage products. It would not surprise me at all to see even more products eliminated from both the Fannie Mae and Freddie Mac offerings as Federal Housing Finance Agency tightens their grip on the two GSE's. It is entirely possible that elimination of certain products will have a wholly negative impact on certain housing markets.

What remains to be seen, is when private equity will step in to fill the void left by Fannie and Freddie. Nature and the economy despise a vacuum. Foresee a company along the lines of the old Headlands Mortgage Group popping up to fill the gap. For those who do not remember Headlands, when I started as a mortgage broker they were practically the only game in town for a client that needed a "stated" income loan (stated income is where the client indicates what he earns on the mortgage application, but the lender does not verify it). Stated loans have taken a bad wrap both on Capital Hill and in the media as a cause for the current housing crisis. Unlike the stated loans offered over the last few years, Headlands had a make sense approach.

1. They made sure you had some "skin" in the game. A typical required down payment was 20%-25%.
2. You had to be self employed (figuring that a good accountant can make a self employed person look "bad" on paper by running expenses through the business)
3. You had to have verifiable assets! Typically Headlands wanted to see at least 6 months of your stated income in a bank account or other liquid asset
4. You needed EXCELLENT credit
5. They watched out for payment shock also
6. They wanted a REAL appraisal, sometimes a review appraisal too

This is a far cry from the types of stated loan that were being dished out by the banks over the last few years. I can actually remember Fannie Mae doing a deal that was stated income, stated asset, and did not even want an appraisal. That is a recipe for disaster.

Mortgage Insurance

An often overlooked issue with obtain mortgage financing these days is mortgage insurance. Up until recently, if a client received an automated approval from Fannie Mae or Freddie Mac the mortgage insurance companies would issue mortgage insurance on the loan and base their decision on the "findings" from the Fannie and Freddie underwriting program. Oh how things have changed!

Now almost every mortgage insurance company has an "overlay" for any mortgage program they are going to issue insurance on. It is now fairly common to see a mortgage receive an approval from the automated underwriting programs (DU and LP), yet be unable to secure mortgage insurance. While Fannie and Freddie might accept a file with a 45% debt ratio on a 95% loan, acquiring mortgage insurance is a whole other matter! Without that mortgage insurance you don't have a loan.

To complicate matters, in years past loan officers were able to structure loans with a second lien and avoid mortgage insurance. As a loan officer I did a lot of 80-10-10 loans and even some 80-15-5 loans. When foreclosures skyrocketed and values fell, these second lien holders took some MASSIVE losses. As a result it is currently almost impossible to find a lender that is willing to be second lien on one of these loans.

Complicating matters is that by and large the mortgage insurance companies guidelines are not uniform. So now a loan officer not only needs to match a client with a lender, but also a client with an MI company. Further complicating matters is that not all lenders have agreements with all MI companies.

FHA News

News coming out of the Washington D.C. National Association of Mortgage Brokers meetings. HUD says that for the time being, FHA minimum down payment will remain at 3.5% instead of the proposed 5% HUD had considered. However, HUD has not ruled out increases in the monthly mortgage insurance premiums as well as the upfront mortgage insurance charge.

HVCC - Boots On The Ground Assesment

At first glance, the HVCC and the agreement that spawned it seem like an appraiser's dream. Both lead off with language regarding the need for sound appraisals produced free of any influence or coercion on the part of the lender or any other party. Perhaps for that reason, many appraisers initially applauded it. But, as is always the case with any governmental or even de facto regulation, the devil is in the details. And in this case, here at a la mode we believe the details create a misleading and dangerous environment for both borrowers and for appraisers.Read the whole story here

In Case You Missed It, The Fed Raised The Discount Rate

The Fed has been talking about its "exit strategy" for quite some time. Few believed he would pull the trigger on anything soon. Yet, Bernanke, unexpectedly raised the discount rate headed into options expiration.

Please consider the Federal Reserve Discount Rate Announcement released after the market close on February 18, 2010.


The Federal Reserve Board on Thursday announced that in light of continued improvement in financial market conditions it had unanimously approved several modifications to the terms of its discount window lending programs.

Like the closure of a number of extraordinary credit programs earlier this month, these changes are intended as a further normalization of the Federal Reserve's lending facilities.

The changes to the discount window facilities include Board approval of requests by the boards of directors of the 12 Federal Reserve Banks to increase the primary credit rate (generally referred to as the discount rate) from 1/2 percent to 3/4 percent. This action is effective on February 19.

In addition, the Board announced that, effective on March 18, the typical maximum maturity for primary credit loans will be shortened to overnight. Finally, the Board announced that it had raised the minimum bid rate for the Term Auction Facility (TAF) by 1/4 percentage point to 1/2 percent. The final TAF auction will be on March 8, 2010. ....

The increase in the discount rate announced Thursday widens the spread between the primary credit rate and the top of the FOMC's 0 to 1/4 percent target range for the federal funds rate to 1/2 percentage point. The increase in the spread and reduction in maximum maturity will encourage depository institutions to rely on private funding markets for short-term credit and to use the Federal Reserve's primary credit facility only as a backup source of funds. The Federal Reserve will assess over time whether further increases in the spread are appropriate in view of experience with the 1/2 percentage point spread. Read The Full Article Here