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Mortgage Fraud Categories
Mortgage Asset Research Institute (MARI) states that reported incidents of mortgage fraud and misrepresentation by professionals in the mortgage industry are continuing to climb and increased by 7% from 2008 to 2009. Is it more fraud or better reporting of previously undiscovered fraud? Either way, MARI believes that mortgage fraud is “significantly understated”. Florida has moved back into first place in the country for mortgage fraud and misrepresentation, followed by NY, CA, AZ, MI, MD, NJ, GA, IL, and VA. The top fraud incident type in 2009 – representing 59% of all reported fraud types – was application misrepresentation. Next were frauds related to appraisal and valuation misrepresentation, which increased from 22% of reported misrepresentation in 2008 to 33%. With an 11% increase, this is the most notable increase in reported fraud types in 2009. Thank you HVCC appraisal regs?

Ellie Mae IPO Filing
If you’d like to own a piece of Ellie Mae, you will soon have a chance. Ellie has filed papers with the SEC for an initial public offering worth up to $86.25 million. The company, which sells software to mortgage originators, has hired Goldman Sachs as the lead underwriter, along with William Blair, Keefe, Bruyette & Woods, Macquarie Capital, Piper Jaffray, and ThinkEquity. Maybe not so coincidentally, Ellie Mae reported earnings of $1.7 million on sales of $37.7 million in 2009. more…

Putin’s Russian Mortgage Stimulus
Any weapons race with Russia doesn’t receive the publicity it did 30 years ago. But whatever you call someone who originates loans in Russia (brokers?) received some good news last week, when Russia’s Prime Minister Vladimir Putin announced that the government will help to lower the mortgage rates investing more than $8.3 billion. The government will provide this money to the banks thus substantially subsidizing the current mortgage rates, which are currently at 14-15% in Russia. Putin set a target rate at 11% with a maximum down payment of 20%.

Is Jumbo Mortgage Comeback for Real?
Do folks here in the US and in the mortgage business have any good news to cheer about, besides rates not being 11%? Some are dealing with the changes in FHA lending and the effect on condominiums. The markets, and interest rates, are facing the end of the Treasury’s purchases of mortgage backed securities and the end of the first time homebuyer tax credit ($8000). The economy does not appear to be rebounding enough to generate much home buying interest, the unemployment rate is hovering around 10%, and foreclosure filings not yet abating. more…

Jargon Watch
I had my standard “beginning of the year” meeting with the family. My soon-to-be 18-yr old son reported that this time in his life is “unprecedented” for him, and that he is working on his “exit strategy” from high school. He then said that this would be an “historic opportunity” for me to provide him working capital. My 15-yr-old daughter (going on 25) said that although she is seeing “green shoots” in the economy, she will need to continue to spend in order to assist her Personal Consumption and that I shouldn’t let “uncertainty” keep that from happening. My wife thought that we should “circle back after the first quarter”, during which we can continue to “reach out” to our partners and vendors. Is this kind of talk the “new normal”?

Private MBS Investors To Replace Fed
OK, eventually the Fed will either end their $1.25 trillion mortgage-security purchase program, or extend it. Everyone, including the shoeshine boy, knows this – don’t pay any high priced consultants to tell you that. And rates will react accordingly. But heck, not only do we have several more months of the program, but we also have the possibility that either they will extend it, or that an investor-based market will re-develop – just like “the old days”. Let’s cheer for the private investors coming back in. more…

The scene from this movie was obviously a horrible period in history, but this take on it cracks me up every time:

My uncle used to say, “Do not corner something that you know is meaner than you.” Or bigger, for that matter. Speaking of big, the numbers yesterday show that the Fed’s purchases dipped somewhat, as expected. For the week ending on September 30th, the Federal Reserve’s MBS program was a net buyer of $20 billion agency MBS which indicates a $2 billion decline from their prior week’s purchases, entirely consistent with their announcement last week that they will gradually slowdown MBS purchases and also extend their $1.25 Trillion purchase program to into the first quarter of 2010. Anyone nervous about scaling back the Fed’s purchase program should remember that a) they don’t want to de-stabilize the markets, b) historically they are not buyers of MBS’s, c) they are currently buying more MBS’s than are being originated – do they need to buy older production? and d) in spite of the numbers yesterday that showed a decline, mortgage rates still improved nicely. more…

GM filed for bankruptcy a few days ago. A buddy told me, “This would be bad news if anyone had actually bought a GM car in the last five years. They say that the company will emerge from bankruptcy in three years or 36,000 miles, whichever comes first.” There are some witty folks out there.

Bernanke vs Greenspan
I guess when people become tired of Ben Bernanke, they look back at Alan Greenspan. The former Federal Reserve chief’s favorite economic indicator is men’s underwear sales. Supposedly, Greenspan often said one of the first things men stop buying when the economy is doing poorly is underwear, because it’s something no one really sees. You can reason that when men start buying new boxers and briefs, it means the economy is turning around. Interestingly, after a 12-month, 12% decline through the end of January, men’s underpants sales leveled off during February and March, according to NPD (a group which tracks clothing trends). That suggests the economy is stabilizing, right? Usually it goes up 2% to 3% annually – don’t ask me why, as I would think it would hover around population growth – so a return to that would be a good sign. more…

Loan Officer Quotes On Appraisal Rules & FHA Loans
Here are some quotes from real-live people in the mortgage business, concerning the HVCC & FHA loans:

“You are correct. Bank of America doesn’t buy without an appraisal on VA IRRR’s.”

“I am sure that Countrywide/BofA will NOT purchase them at all. The problem with GMAC and Citi is that they both keep you on the hook for 24 months for payments rather than the normal 1-4 months.” more…

Politics & Regulation
Election Day at last! It seems that this “election” has been going on for years, and I, for one, am at a loss wondering what the press is going to write and talk about, now that it is almost over. Maybe they’ll focus on FHA loans (the new subprime, with the taxpayer absorbing defaults in the future?) and HUD. If you’re still employed, how many employees does your company have? Ginnie Mae has 68. (As in “sixty-eight”.) Questions are arising about how they are going to monitor issuance of FHA-backed mortgage-backed securities. These have nearly tripled in the last year, and the bonds now account for 30% of new offerings. The renewed prominence has been accompanied by a return of old problems. But Ginnie has to make sure that when a borrower falls behind on payments, the servicer (typically the same company that issued the security) advances payments to bondholders until the loan is resolved. The liquidity crisis has increased the risk that servicers will fail to do so, making the job of monitoring them a lot tougher for Ginnie, which has limited resources. Sound familiar?

Mortgage Applications
How are loan agent applications? As one agent cleverly surmised, “Apps are only down 25%, but the problem is only 20% of those qualify. So 600 apps has declined to 450 apps, which are really 90 “do-able” apps. And in the past, 600 apps would probably result in 450 do-able loans, given underwriting, so to go from 450 to 90 is pretty bad. My company is at 20% probably of real deals if we’re lucky…..now we have new people in the business who are taking apps but know nothing, which is good for me.” more…

What is new besides Vice Presidential nominee Palin’s 17-yr old unmarried daughter being pregnant? Not much is new with mortgages, aside from rates being higher this morning. A farmer won $50 million in the multi-state lottery. When his local newspaper asked him what he was going to do with the money, he replied: “I’m going to invest all the money in my business and continue to farm until it’s all gone.” (Thank you Ted O.!) Remember, life is simpler when you plow around the stump. (The Palin news sure hits home with every parent, including myself.)

Current Market
Some firms had light lock days on Friday, others had heavy days. Interesting. But everyone who locked late last week should be happy, since rates have moved up over the weekend. Hurricane Gustav has become a heavy rain storm, missing oil production facilities, leading to a big drop in oil prices, a rally in the stock market, and thoughts of a strong economy. There is a large amount of economic news due out this week, causing some nervousness in the interest-rate markets. Today we get Construction Spending, the ISM Manufacturing Index and the ISM prices paid releases (the ISM index is expected to fall 0.5 points to 49.5, and the “Prices-Paid” index is expected to decrease 6.2 points to 82.3). more…

It seems that not a day goes by without someone asking, “Why are the numbers on a telephone key-pad reversed from those on a computer keyboard?” I don’t know why, but if one is really curious, or for that matter hadn’t even noticed until I just wrote that, click here.

MARKET & ECONOMY UPDATE
Why did I put my 401k into Starbucks stock two years ago? I thought that their share prices would go up forever, but instead, they have gone down for the last two years. Starbucks announced yesterday it will close 600 company-operated stores in the next year due to the faltering U.S. economy and over-expansion. more…

Fixed and ARM rates open this week approximately even over last week. We had a run up in rates in the two weeks leading up to last Wednesday’s FOMC announcement that they were holding the overnight bank-to-bank Fed Funds Rate at 2%, but increased credit crunch pressures have weighed on the market. As stocks have sold off, bonds have benefited, which pushes yields (or rates) down.

This tug of war will continue this week. If European inflation pressures are seen as spreading here, rates will rise. If jobs and manufacturing data is weak, rates will drop. Most of this action comes Thursday: The European Central Bank may hike rates that day, the June jobs report is released, as well as the ISM Manufacturing Index. more…