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Fed Bought 73% of All Agency MBS In 2009
Here’s something to ponder: Given the production statistics, in the past year the Fed has purchased 73% of the mortgages that government-backed Fannie Mae, Freddie Mac and Ginnie Mae have turned into securities. Nervous about the end of March, when the Fed plans/expects to end its purchase program? Remember that it is not in their best interest to just cut the mortgage market loose.

The Hiring Conundrum
As I mentioned yesterday, everyone is chewing on that unemployment data. We have over 15 million unemployed here in the US, and the length of time of unemployment continues to climb – it is now up to 20.5 weeks. Would you hire an underwriter who had been out of work for the last 5 months? (Well, maybe they could use the break…). The longer a worker is unemployed, the less relevance their skills have to employers looking to hire, and this can become a big problem. more…

Rate/Market Update
Rates have remained steady for the past two weeks at levels about .25% above all-time record lows. This despite the Fed’s easing off of mortgage bond buying. This past week the Fed bought $13.5b of mortgage bonds, the lowest amount since Week 1 of the program in January. The weekly averages have been $20-25b per week, and this has been the primary driver of low rates. Now we’re seeing the first signs of the Fed easing off their purchases to stretch their budget between now and March 30.

Below are summaries of three key regulatory updates that homebuyers and owners need to know. Here’s our revised FHA Q&A to reflect the new February 1, 2010 FHA condo ‘spot approval’ deadlines noted below. more…

No doubt the folks at Freddie Mac were tired of hearing people ask them about high-cost loan limits, and Thursday they released them. “Today, we are announcing that our base conforming loan limits will be maintained at their current 2009 levels for 2010, with the maximum loan limit for a 1-unit single-family property remaining at $417,000. The temporary high-cost loan limits for properties located in designated high-cost areas will remain unchanged for 2010 as well…the loan limits in designated high-cost areas are the higher of the temporary limits established by the Economic Stimulus Act of 2008 (maximum of $729,750 for 1-unit single-family properties in the contiguous United States) and the permanent limits established by the Housing and Economic Recovery Act of 2008 (maximum of $625,500 for 1-unit single-family properties in the contiguous United States).” If there is any confusion about Freddie’s loan amounts, one can visit this site or this site.

How Low Will Rates Go?
Some investors actually improved pricing yesterday, and mortgage rates even continued to do well versus Treasury yields. Will the rate on a 30-yr mortgage ever equal that of the 30-yr Treasury bond? No, since the Treasury yield is viewed as risk free, and the loan to Bob and Bobbi Borrower has default and early pay-off risk. more…

US Bank Expansion, CIT Bankruptcy
What do Bank USA, National Association of Phoenix; California National Bank of Los Angeles; San Diego National Bank; Pacific National Bank of San Francisco; Park National Bank of Chicago; Community Bank of Lemont, Illinois; North Houston Bank; Madisonville State Bank of Madisonville, Texas; and Citizens National Bank, of Teague, Texas have in common? Their deposits and assets all became part of US Bancorp after being shut down by the FDIC on Friday. The FDIC and taxpayers (in a roundabout way) are out $2.5 billion. USB, who has not been immune to their stock sliding almost 20% in the last year, has repaid almost $7 billion in TARP money. Friday they added 153 branches with combined assets of $19.4 billion and deposits of $15.4 billion.

And what do Eddie Bauer Holdings and Dunkin’ Donuts have in common? They, along with literally one million other businesses, have both received loans from commercial lender CIT Group. CIT filed for Chapter 11 bankruptcy protection, which analysts say will help bondholders and customers but not stockholders and taxpayers. Apparently we’ve put about $2.33 billion of our money into CIT, which is now the largest firm to go bankrupt after getting a federal bailout. None of CIT’s operating subsidiaries, including Utah-based CIT Bank, were included in the filing, CIT said in a statement. more…

Attack of the FHA loan files?

Most of the United States begins Daylight Saving Time at 2:00 a.m. on the second Sunday in March and reverts to standard time on the first Sunday in November. So by my calculations, that means that this Sunday here in the U.S. most of us “fall back” and it will dark by dinner time. more…

The MacArthur Foundation gave out its annual ‘genius’ awards last week. This year’s awards went to a journalist, a mental health scientist, and a couple who sold their house three years ago. Well, maybe they want to buy it back. Even though the availability for jumbo loans wasn’t what it once was, the IRS has apparently decided to give a break to jumbo mortgage holders. More specifically, Forbes reports that the IRS has concluded that a taxpayer can deduct interest on the first $1.1 million of a home mortgage, which is $100k more than an earlier limit. On top of that, taxpayers can file amended returns for the past three years and claim thousands in refunds. Yippee!

When I want a new car, which last happened with my ’01 Prius, I think that I took a look at JD Powers surveys of consumer satisfaction. (The Prius was too new to rank.) Most borrowers don’t know which company is going to end up servicing their loan, but if they could chose between servicers, they could take a look at the JD Powers customer service surveys. more…

The loan limits that make it possible for high-cost markets like the Bay Area and Los Angeles to have conforming loans up to $729,750 are set to expire December 31, and the $8000 tax credit available to homebuyers expires November 30.

As of this writing on October 5, there’s been no indication as to whether these housing stimulus items will be extended and/or adjusted. Both decisions are up to Congress.

Regarding loan limits, one thing we do know (from this quarter’s story evaluating bottoms for home prices and rates) is that the Fed will no longer be using the extremely expensive ($1.25 trillion) low-rate stimulus of buying mortgage bonds as of March 30. We also know there is a relationship between loan limits and rates. more…

The other day my boss commented that, “If every employee contributed half of their life savings to our firm, we’d be on the road to profitability!” I knew things were getting tough when they replaced “Bring Your Child to Work Day” with “Bring Your Child to do Work Day”. On the other hand, the margarita machine in the executive lunchroom still seems to be working just fine, regardless of the unemployment statistics.

Government Stabilizing GDP, Not Unemployment
The business world is still talking about the unemployment data, which showed that the number of people claiming unemployment benefits was much larger than expected. How can we have an economic recovery if unemployment is so high? Well, remember that job growth tends to trail in a recovery but here in the US, as we continue to move away from manufacturing, economists believe that technology and manufacturing are either eliminating jobs or moving them elsewhere. The steps that the Fed has focused on relate much more to limit banking problems, which at this point they have done, and stabilize or grow GDP, which also appears to have been done, rather than on directly lowering unemployment. more…

Rate Levels
Rates on conforming loans up to $417k and super-conforming loans up to $729k continue to trade up and down as much as .5% per week, and this week we’re on the wrong side of that. Rates on Jumbos from $729k to $3.5m are about the same. Unlike loans up to $729k, jumbos aren’t currently securitized, so while jumbo lenders look to mortgage bond markets for pricing cues, jumbo rates are priced more according to lender competition than mortgage bond trading levels.

With respect to mortgage bond trading, the question is whether this week is another brief rate spike or we’re entering into a generally higher rate range. The main drivers of this week’s mortgage bond selloff (when bond prices drop in a selloff, yields or rates rise) were concerns over Treasury supply diluting the bond complex in general, and today’s jobs report. more…

Rates on conforming loans up to $417k and super-conforming loans up to $729k have been on a wild ride in the last 7 weeks, spiking up .875% then regaining .625% of that in the past three weeks, for a net increase of .25%. Inflation and bond market oversupply concerns lead the run up, then worse than expected housing prices (latest Case Shiller Home Price Index -18.1%) and jobs numbers (-467,000 jobs lost in June) led rates dropping again. Investors flock to bonds when economic news looks weak, and when mortgage bond prices rise on rallies, yields (or rates) drop. Rate volatility is still huge day to day as bond markets trade furiously to reconcile the economic sentiment, so if a borrower sees a rate they like when they’re ready to transact, they should lock that rate and not get greedy. Rates on Jumbos from $729k to $3.5m are competitive for borrowers with strong down payments, income and credit profiles, but borrower scrutiny—even for the most stable borrowers—is still growing. And property valuations issues are front and center, more on this below.

Appraisal Rules Causing Problems
As of May 1, a new regulation prohibits loan officers from talking to home appraisers. Previously, this was one of the first steps in a loan agent’s client advisory process. The new regulation is called the Home Valuation Code of Conduct (HVCC) and was mandated by Fannie Mae and Freddie Mac, which both are regulated by the Federal Housing Finance Agency (FHFA). Now a bank has a stable of appraisers or contracts with an appraisal management company, then a loan officer submits an appraisal order which gets randomly assigned to an appraiser. more…