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Finreg Summary For Lenders
The Financial Reform Bill passed the Senate, and will no doubt be signed by President Obama. It is 2,300 pages. From my limited view, there are hundreds of thousands of questions for regulators and investors to answer in the next several months (at least), and most large mortgage companies are doing their best to tell clients that “they just don’t know yet” what the answers are to many questions. Certainly nothing will happen overnight. I know very little, but here is a 15 page synopsis by the Mortgage Bankers Association which may be of some help with the lender-specific topics.

Many mortgage lenders are very concerned with the compensation portion of the bill, or at least how regulators interpret the guidance. As one industry veteran wrote to me, “There already is no Origination Fee/Point, Discount Fee/Point, Yield Spread Premium – they were all done away with the GFE RESPA changes last year. There is now only “Origination Charge” in Box 1, on the new 3 page GFE (the total in Box 1 & Box 2 encompasses all of the former Origination Fee, Discount Fee, Yield Spread Premium). The Origination Charge is a flat dollar charge. The new legislation actually just catches up to the new RESPA GFE changes.” more…

Fed’s Consumer Credit Card Search Site
Looking for a credit card? Knock yourself out on this Federal Reserve website. In an intersting move by the Federal Reserve, they have placed 300 credit card compnay agreements (mostly companies with 10,000 or more open credit card accounts) online in a searchable database for public viewing. Can something for mortgages be far behind?

Rates Low But Refis Still Tough
Rates certainly continue to surprise folks who expected higher rates by this time in 2010. The 10-yr neared 3.10%, closed at the lowest yield in over a year and some were beginning to yap about the 10-yr down into the 2%’s. We have a different story today, as hedging mortgage pipelines continues to be difficult, as the 10-yr yield has shot back up into the 3.20%’s. Overall the news yesterday helped bonds: continued European fears, the Euro hitting an 8-year low versus the yen, Korean fears, the Case-Shiller index lower, Consumer Confidence slightly higher. We also had a $42 billion 2-yr auction, which is now under water. At one point the DOW was down over 300 points and the 10-yr was up a point. Mortgage prices did well, relative to Treasury prices, as servicers apparently have been buying pools. Large servicers and investors are, of course, worried about prepayment risk of recently originated loans. more…

Greece’s Impact On U.S. Mortgage Rates
Turning to Greece, since that situation is certainly impacting our markets, the fear that a) the problems will spread beyond Greece, b) Greece may leave the 11-yr old single currency “euro-zone, or c) this is the beginning of the entire euro experiment are causing a drop in the value of the euro and a rally in the dollar. (Not that the dollar should be in great shape, but hey, we’ll take what we can get.) A general strike shut down Greek airports, tourist sites and public services and some 50,000 demonstrators marched against the planned public spending cuts and tax rises, demanding that tax cheats and corrupt politicians be put on trial. Off with their heads!

So what does it mean to our mortgage business (rates) if Europe “tightens its belt”? This would actually continue to help our rates since it would slow the recovery in Europe, reduce the chance of inflation around the world, and allow our Fed to keep short-term rates low (monetary policy to be more accommodative) for longer than expected. A stronger US dollar is good for keeping inflation down. more…

Rates Benefit on Stock Weakness
The drop in the equity markets yesterday, and possibly again today, certainly helped the flow of funds into “safer” investments – such as Treasuries and MBS’s. But we also had some economic news of note, the first being Pending Home Sales. The index was up 5.3% in March, with sales in the South up 13%, up 2% in the West, up 1% in the Midwest, but fell 3.3% in the Northeast. Second, Factory Orders here in the US were up 1.3% in March. And the Federal Reserve released its “Senior Loan Officer Survey” which showed that banks kept their lending standards tight during the first quarter – no surprise there, huh? There may have been a little movement in commercial and industrial loans to large and medium-size firms.

Greece Bailout Is Like US Needing 10x TARP Funds
Returning to the Greek issue for a moment, some believe that this will be the end of the Euro currency, at least in Greece. Let them print their own currency! The odds of sharp recession have increased, obviously, and naysayers are skeptical about any bailout plan based on the recession-stricken Portuguese and Spanish contributing billions of Euros to the cause. We have the ECB adopting a pure bailout strategy by accepting all Greek collateral and have seen almost $150 billion in potential economic aid offered to the Greeks. This figure is almost 50% of Greek GDP, and is the equivalent of the United States needing 10x the TARP funds! Greece’s GDP is only about 2% of US GDP and slightly less than that of Eurozone GDP, and one analyst likened it to Ohio going bankrupt and taking the entire US economic system with it. more…

Reshuffling Of Fed Members
Is the economy really in good enough shape for the Fed to start selling their $1.25 trillion of mortgage-backed securities? I don’t think so, but maybe the press doesn’t have enough else to talk about, so the Fed possibly lightning up on their balance sheet has been receiving some publicity. Federal Reserve Vice Chairman Donald Kohn declared on March 1 that he was planning to retire, and SF Federal Reserve’s Janet Yellen was immediately mentioned. But the nomination still hasn’t been made. In a story from the Washington Post, not only is that spot unresolved, but there have been two seats on the seven-member Fed board of governors that have been unfilled this year! MIT economist Peter Diamond and Maryland bank regulator Sarah Raskin have been mentioned. But unlike vacancies in the Supreme Court, open spots on the Fed don’t seem to garner many headlines in spite of the Fed determining short term interest rates, the pace of job creation and employment, even mortgage rates over the last year or two.

57 Failed Banks YTD
It’s Monday, so that means I get to write about the FDIC closing down banks. (We’re up to 57 this year compared to 140 for all of 2009.) In this case Illinois got whacked with seven banks from that state eliminated, with their mugs and t-shirts becoming collector’s items. The FDIC took over four banks in Chicago: New Century Bank, Citizens Bank & Trust, Broadway Bank, and Lincoln Park Savings. And just so the rest of the state didn’t feel left out, Amcore Bank (Rockford, IL), Peotone Bank and Trust Company (Peotone, IL), and Wheatland Bank (Naperville, IL) were shut down. MB Financial Bank agreed to acquire the deposits of both Broadway and New Century, Republic Bank (IL) assumed Citizens’ deposits, and Harris National Association (IL) agreed to acquire Amcore Bank’s deposits. Northbrook Bank and Trust Company took Lincoln Park Savings’ deposits; First Midwest Bank of Itasca agreed to assume Peotone Bank and Trust’s, while Wheaton Bank & Trust will acquire the deposits of Wheatland Bank. more…

Interpreting Latest Existing Home Sales Data
Everyone has an opinion about home sales. But most agree that new home sales are at record lows and will be slow to recover until inventory of existing homes and the foreclosure overhang are worked off in many locations around the US. Some indicators for existing home sales, however, including pending home sales and purchase applications, are showing small signs of a pickup, at least on a regional basis. The ending of the Fed’s MBS purchase program did not lead to a skyrocketing of mortgage rates, and it does appear that economic conditions are improving. The MBAA’s economist believes that the recession ended in June 2009. Heck, nobody told me!

But existing home sales have shown signs of weakness in recent months. Housing sales fell 0.6% in February, the third consecutive monthly decline, which boosted the number of months’ supply to 8.6 months. Tomorrow we will have some sales numbers, and an expectation that they will remain in the recently established narrow range increasing to a 5.25 million unit pace in March. Sales will likely continue to gain positive momentum in coming months due to the spring home buying season and the second scheduled expiration of the tax incentives in late April. more…

Citi Revenue $25b in Quarter
Citgroup announced earnings this morning with earnings per share of 15 cents versus a $0 expected. Revenue was $25 billion versus $21 billion anticipated. Like BofA’s, and Chase’s, these are solid results, but unfortunately overshadowed.

FDIC’s Bank Failure Update
The FDIC closed down several more banks on Friday. Tamalpais Bank (CA) is now under Union Bank (CA). TD Bank (FL) acquired the banking operations, including all the deposits, of three Florida-based institutions: AmericanFirst Bank, First Federal Bank, and Riverside National Bank. Butler Bank (MA) has new signs on its branches saying People’s United Bank (CT). Lakeside Community Bank (MI) is now part of First Michigan Bank. Innovative Bank (CA) was maybe too innovative, and was taken over by the FDIC and a purchase and assumption agreement was signed with Center Bank (CA). City Bank (WA) is now part of Whidbey Island Bank (WA). more…

Lawmakers Solicit Consumer Comments On 7 Financial & Housing Reform Topics
Do you want some input in financial reform? There are many ways to do this, and here is another. The public will have the opportunity to submit written responses to seven questions that will be published in the federal register online at www.regulations.gov. The administration also plans a series of public forums across the country on housing finance reform. The questions are:

1. How should federal housing finance objectives be prioritized in the context of the broader objectives of housing policy? more…

How Credit Scores Are Calculated
FICO, like Band-Aid or Kleenex, has become a generic symbol of credit worthiness. Scores can range from 300-850 and is a statistical calculation which is based upon payment history (35%), credit utilization (30%), length of history (15%), credit type (10%), and recent credit checks (10%). Items stick around for seven years; bankruptcy for ten. Maxing out a card, a 30-day late payment, debt settlement, foreclosure (150 point ding) or bankruptcy (150-200 point hit) all negatively impact FICO. Sometimes folks wonder about whether or not a short sale hurts your credit score as much as a foreclosure, and apparently it depends on whether the borrower stays current on their payments and how the lender reports the sale (try for “debt repaid in full”).

Comments From Mortgage Trenches
What are folks saying in the trenches out there? more…

NAR’s Proposal for Fannie/Freddie
My daughter and I went through the McDonald’s take-out window and I gave the clerk a $5 bill. Our total was $4.25, so I also handed her a quarter. She said, “You gave me too much money.” I said, “Yes I know, but this way you can just give me a dollar bill back.” She sighed and went to get the manager, who asked me to repeat my request. I did so, and he handed me back the quarter, and said, “We’re sorry but we could not do that kind of thing.” The clerk then proceeded to give me back $1 and 75 cents in change.

Numbers can really be confusing. And when you are dealing with companies that back half of the $11 trillion home loans, things become even more confusing. What would you do about the role of the agencies in the mortgage industry? The National Association of Realtors has put forth a proposal to convert Freddie & Fannie into nonprofit corporations that would largely leave the mortgage-finance giants intact. Of course, the NAR or anyone else just can’t snap their fingers to make this happen: the proposal is likely to meet stiff political resistance because of the bail out money already spent and Congress’s desire to make bold changes. NAR suggests that unlike a federal agency, the new government non-profit authorities will function as self-sustaining organizations, without needing annual appropriations from Congress and without a profit motive but with government backing and guarantees. MI companies would continue to mitigate risk on loans above 80% LTV, and MBS guarantee fees would still be paid by originators. Of course no one wants to endanger the currently fragile housing and credit markets, least of all the NAR and Congress, so look for this process to be a very long and involved one. more…