Hover over this image for caption and link ↓↓↓

An Underwriter Explains Why Are Loans So Hard To Approve
Lately I have been hearing from producers, some of whom are upset about the current lending environment, some not. But for a slightly different view of things, here is what one very experienced and knowledgeable underwriter wrote to me. This is worth the read even for consumers who wonder why their loans are so hard to do:

“It used to be that we could ‘underwrite’ a loan and use common sense to navigate individual circumstances and actually make a decision that a loan was a good credit risk. Then DU and LP [Fannie and Freddie's automated underwriting engines] came along and gave us the laundry list that had to be followed. We were still able to manually underwrite loans for those transactions that did not fit the box. Then the bottom fell out of the business and everyone got scared and new rules came out. Investors and Wall Street were to blame for allowing individuals who were not telling the truth to buy homes. Today investors are pre-underwriting loans prior to purchase and we have to ‘march to their tune’ including getting pieces of paper that seem ridiculous, but since we need the investor to purchase the loan so we obtain them anyway. Only the most qualified borrowers with all their ducks in a row get loans these days. Manually underwritten loans are subject to scrutiny such as we have never seen before and frankly, we do not have the courage to paint outside of the lines because we cannot afford to have a loan purchase refused. Today, it takes two to three times as long to underwrite a loan and we have checklist upon checklist that help us make sure all of the i’s are dotted and the t’s are crossed. I have been doing this for over 30 years and frankly we are back to the rules of the early 80′s or worse when it comes to documentation.” more…

Goodbye, 2009. Typing “2009″ is so much easier than typing “2010″, but such is life. And folks who are better at using words than I am (“than me”?) say 2010 is pronounced “twenty-ten”, not “two-thousand ten”. Speaking of “2’s” and “1’s”, The U.S. Treasury had a record year of debt sales last year, selling more than $2.1 trillion in bonds and notes, a record and more than the amount in the previous two years combined.

Rates Up on Fewer Jobless Claims, 4yr High For ISM Index
Why are rates where they are? The answer is stronger-than-expected economic news. Well, Thursday morning we learned that Jobless Claims unexpectedly fell by 22,000 to 432,000, which is their lowest level in almost a year and a half. Continuing Claims fell by 57,000. So the thinking goes that “if fewer people are filing jobless claims, the employment picture is starting to look a little rosier, which means that the economy must be doing better…” We also had the ISM Index print its highest level in almost 4 years. more…

Just when mortgage brokers thought that it was safe to go back into the water and they were out of the headlines… In a story based on a Columbia University working paper that studied 700,000 loans made by a major national mortgage bank from 2004 to 2008, every loan originated by brokers is performing! Oh, sorry, I misread that. Actually, for loans originated by brokers they were 50% more likely to be delinquent than loans originated by the bank. And here’s another shocker: higher reported incomes on low-doc loans often corresponded with higher delinquency rates. Stunning. The study goes on to suggest that securitization, whereby the banks didn’t necessarily have to hold on to their own production, also led to lower underwriting standards.

http://blogs.wsj.com/developments/2009/09/01/delinquency-rates-higher-on-broker-originated-mortgages/

IRS Loan Tracking
If you’re an honest, law-biding citizen, should you care if the IRS starts comparing mortgage payments and income? What about if you’re a roofer who makes half his income in cash? If Jane Doe claims she makes $2,000 per month on her taxes, yet her mortgage payment is $3,500, should that be a reason for Ms. Doe to be investigated? In yet another story yesterday, it appears that the IRS “will study whether it should make greater use of data on mortgage-interest payments provided to it by banks.” The IRS currently uses such data to send notices to non-filers who it believes should have filed a return. The data could also be used to target for audits individuals who don’t file tax returns, or who report less income than they paid in mortgage interest. Of course, if you’re a struggling borrower that is using money out of your savings account, or from Mom & Dad, to make the mortgage payment, you don’t need two guys with badges showing up at your office…. more…

I guess this is how some borrowers feel when they lock a loan in a volatile market. Or maybe that is how any agent who has a lock with TBW feels. Today is the anniversary of the bombing of Hiroshima, and the date that some are finding out yesterday’s news that a large lender is gone. “TAYLOR BEAN MUST CEASE ALL ORIGINATION OPERATIONS EFFECTIVE IMMEDIATETLY”. Taylor, Bean & Whitaker Mortgage Corp. (“TBW”) received notification from the U.S Department of Housing and Urban Development, Freddie Mac and Ginnie Mae (the “Agencies”) that it was being terminated and/or suspended as an approved seller and/or servicer for each of those respective federal agencies. “Regrettably, TBW will not be able to close or fund any mortgage loans currently pending in its pipeline. TBW is cooperating with each of the Agencies with respect to its servicing operations and expects to continue to service mortgage loans as it restructures its business in the wake of these events.” Supposedly TBW is returning all original notes to the appropriate warehouse lenders and returning any closed files delivered via hard copy to the lenders/banks.

With the unraveling of Taylor Bean, who are the better-known wholesale lenders out there receiving business from brokers? Wells Fargo is still in the game, as is ING, Flagstar, and Fifth Third. Citi is buying broker loans from their larger clients. United Mortgage, Security Atlantic, Provident, Platinum Mortgage, Luther Burbank, Stearns Lending, First Cal, Union Bank of CA, Assurity, and Bank of Ann Arbor are some of the other players that are still left standing. more…

Refinancers Must Pay Taxes Early
In California, the first half of regular secured property tax bills are due November 1st, and delinquent after December 10th; the second half are due February 1st, and delinquent after April 10th each year. Property taxes are interesting beasts, and although there are comparisons done by state, it is standard to have property taxes collected by the county, township, etc. Here’s a state-by-state comparison from 2007.

Why talk about property taxes now? Depending on the states in which an originator operates, investors may have restrictions for paid property taxes. For example, here in California if a loan funds on or after February 1st, which will mean it was probably recently locked, investors require that the 2nd Installment taxes be paid. (As they become due and payable on 2/1/09.) more…

Auto Bailout Update
The three big domestic automakers are now saying they are working jointly on a new hybrid car. It runs on a combination of state and federal bailout money. Today marks the major automakers’ deadline to submit restructuring plans as part of its $25 billion bailout package.

Conan O’Brien quipped, “A new study found that the Ford Motor Company makes the cars with the highest safety rating of all cars. Apparently, Ford cars are so safe because they never leave the dealer’s lot.” more…

Bank-to-Bank Rates OK, Consumer Rates Higher
When I moved away from home, I quickly learned that the best way to clean a floor was to get a dog and then occasionally sprinkle meat juice around the kitchen. The dog, of course, would lick the floor, and voila! Sometimes the bond market seems to be doing something similar. Many investors seem hesitant to buy anything related to mortgages, good or bad. And if investors are hesitant, the price drops to attract them, and rates rise. Last week we were all reminded that a cut in the overnight rate by the Fed has little correlation to immediate lower mortgage rates. Rates on 30-year mortgages shot up last week to about .375% higher than the week prior. Even ARM rates increased. We have auctions on the 10-yr note and the 30-yr bond to deal with – after all, the US Government must raise more money to pay for the rescue. On the flip side, many analysts believe that rates should slide back down – at least LIBOR rates are improving.

Mortgage Rates vs Last Year
Mortgage rates are certainly above last year’s levels, when the 30-year fixed-rate mortgage was at an average around 6.25%, and the highest that they’ve been in three months. The spread between current-coupon 30-year fixed-rate mortgage securities and interpolated 5 and 10-year U.S. Treasuries had soared to 277 points early last week, versus a historical average of 180 basis points, and near the previous all-time high in mortgage credit spreads of 284 points in March of this year. But as any agent will tell you, mortgage rates aren’t high by historical standards, and for most borrowers the underwriting obstacles are more of a concern. more…

If you want a mortgage in Hungary, you’d better hurry! Their central bank deputy governor said that Hungary needs to tighten rules for mortgage loans combined with unit-linked insurance products, to reduce risks in the financial sector. Interestingly, not only are Hungarian banks predominantly owned by foreign banks, but only 30% of homes are mortgaged. “Linked products” are prevalent, whereby the use of investment products linked to loans as collateral was very common.

Senate Passes Rescue Package
Last night the Senate passed the $700 billion rescue plan (74-25), as expected, and the House is anticipated to vote on it tomorrow. Passage is already priced into the markets. (The current 10-yr is 3.70% and mortgages are better by .125-.250 in price.) The new bill includes a temporary boost to the FDIC insurance limit ($100k up to $250k through 2009) and increased tax breaks (some would suggest pork barrel tax breaks…) to appease some of the Congressman who voted against the measure earlier this week. In other economic news yesterday, the Institute for Supply Management’s Factory Index dropped to 43.5, the lowest level since October 2001. One analyst cried, “There are no orders, no jobs and there is really no incentive for businesses to invest.” Construction Spending was unchanged in August after July’s drop of 1.4%. more…

The Institute for Supply Management reported its factory index dropped to 43.5 for September, showing that the housing slump is now spreading to the manufacturing sector. According to the index, 50 is the dividing line between expansion and contraction. The September reading was the lowest level since October 2001, the period immediately following the 9/11 attacks. Below are some additional figures from a Bloomberg report:

The Commerce Department also reported that construction spending stalled in August after a revised 1.4 percent drop the previous month that was more than twice as large as previously estimated. Private residential building increased for the first time since March 2007 and work on commercial projects fell for a fourth month. more…

What coffee drinker doesn’t want to open up some market commentary and get a coupon for free coffee? (Gosh, I hope that I don’t get sued on this one!).

FREDDIE MAC LOSES $821m, CUTS DIVIDEND
Freddie Mac lost $821 million in the 2nd quarter after taking $2.5 billion in provisions for credit losses. Revenue fell to $1.69 billion from $2.34 billion, and the loss was slightly greater than expected. They will cut their common stock dividend, but pay the full preferred dividend. In addition, “the company continues to review and consider other alternatives for managing its capital including issuing equity in amounts that could be substantial, reducing or rebalancing risk, slowing purchases into its credit guarantee portfolio, and limiting the growth or reducing the size of its retained portfolio.” Freddie CEO Richard Syron said that home prices could fall another 20%. more…