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Loan Apps At 9 Month High
The Mortgage Bankers Association reported that apps were up almost 7% last week, hitting a 9-month high mostly due to refinancing. And as one would expect, purchase apps sunk to a 13-year low. Refi’s were up over 9% last week, but purchase apps fell 2%.

Dividend vs. Bond Yields: Time To Buy Stocks?
Here is an interesting investment phenomenon. No one can foretell the future, but currently the dividend yield on the Dow Jones Industrial Average’s 30 stocks is roughly 3%. If you purchased a 10-yr Treasury Note, you would earn a risk-free yield of about 2.92% for the next ten years. So if the Dow’s stocks, and their dividends, go absolutely nowhere over the next 10 years, they will still outperform Treasury notes! Of course, stocks and bonds could both go up or down in price in the next 10 years, but still, stocks are increasingly attractive, on a relative basis, when compared to bonds. Heck, the dividend yield on many utility stocks is between 5-6%, and who doesn’t want to make money every time someone recharges their Blackberry or turns on their air conditioning? more…

Clever Chase Business Loan Promo
There are some pretty creative folks out there, even in banking. Every once in a while someone will suggest a reward to residential borrowers for making their payment, instead of (what some would say) a reward for not making their payments. In some news out yesterday, Chase announced an incentive that rewards small businesses for each new employee they hire this year. The bank will lower its interest rate on a new Chase Business Line of Credit by 0.5 percentage point for each new hire, up to three, for the life of the loan. It is not a huge amount, but nonetheless helps.

Jan-June Mortgage Securities Volume Of $217.6b Double 2009
We’re halfway done with 2010, and companies are wondering if the dire volume and profit predictions that started off 2010 are going to come true or not. I will opine here and say that given that mortgage employment is thought to be down about 50% from 2008, anyone still in the business should pat themselves on the shoulder. And any company making money and expanding should do the same. U.S. mortgage-backed securities issuance jumped in the first six months of 2010 from the same period a year earlier. Thomson Reuters said U.S. mortgage-backed securities issuance totaled $217.6 billion in the first half of 2010, nearly double the $112.5 billion total in the same period a year earlier. Bank of America was the top underwriter with a 26% market share. Barclays was #2 with about an 11% share, and Goldman Sachs was #3 with a 9.5% share. The survey does not monitor loan production, nor IO or principal-only securities, but instead looks at mortgage bonds backed by whole commercial and residential real estate loans as well as the mortgage-backed securities initially packaged by Fannie Mae, Freddie Mac and Ginnie Mae. more…

Subprime Investment Comeback?
As an investor would you rather own IBM or Pepsi stock, or subprime loans? Think hard… and buy them while you can? Apparently, subprime loans are making a comeback (investing, not originating). Remember that these older subprime loans are like old cars: the new ones are better, but the old ones that are still working have a place too. Those in the business know that credit risk, appropriately ascertained and valued, is typically a good investment.

Managing Mortgage Trades When Rates Drop
From the point of view of anyone originating mortgages, what is occurring in the investor ranks is not too interesting. Any A-paper pools of loans being bought or sold at prices near 107 or 108 or 109, as 30-yr 5.75%-and-above mortgages are, don’t impact current rate sheets. But investors are grappling with carry and prepayment projections, along with convexity issue. Overall MBS volume was below “normal” although Freddie Mac security volumes have increased recently as Freddie’s prepayment speeds have diverged from those of Fannie’s. more…

Can We Learn Anything From Europe’s Problems?
With all the talk of European debt problems, it’s useful to know how Europe is structured. The European Union is made up of 27 countries, though it may be 28 soon with Croatia. But only 16 countries use the euro, and those 16 make up the “euro zone”. Many potential countries – those that have been considering joining up – are now waiting. These include Poland, the Czechs, and several smaller Eastern European countries. Many of the entry rules and restrictions (like deficit size) are being broken by current members.

EU/Eurozone concerns seem, on the surface, to make it less critical that we address our own problems here in the U.S. Economists point out that with Treasury rates low the expense on debt service is low, but if politicians refuse to adopt fiscal sustainability then the markets will do it for them just like they’ve done in Europe. When markets lose confidence in a country’s bonds, they sell (or short) those bonds which pushes up the yield or rate the country has to pay to investors service that debt. Politicians tend toward surface level, short-term views on most topics, and this threatens U.S. economic health because it means our own austerity measures are ignored. “Austerity measures” is a term used to describe a country’s fiscal decision to cut spending and raise tax revenue, and while markets (and creditors) usually force austerity measures upon profligate countries already in crisis (as we’ve seen in Greece, Spain, and other EU/Eurozone countries), the lesson that the U.S. should take from all of this is to tighten fiscal policy before we reach the same fiscal crisis levels. Unfortunately, this isn’t politically convenient and is therefore unlikely to happen. more…

Are Your Sure Home Prices Don’t Always Rise?
According to a study released by the MBA (or the MBAA, depending on if you use “Mortgage Bankers Association of America”), multiple factors including poor data, incomplete performance metrics, and, short-term focus and unrealistic optimism among senior business managers contributed to the collapse in the US housing and mortgage markets.

“As home prices increased, lenders were pressured to offer innovative products that could help borrowers afford a home. The resulting increase and expansion of risk layering and change in borrower behavior, left risk managers unable to offer reliable risk estimates.” 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…

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…

Mortgage Applications Drop Last Week, Loan Profitability OK
The MBAA reported that mortgage applications in the U.S. declined 11% last week. Refinancing dropped 17% but purchases increased .2%. In fact, the share of applicants seeking to refinance fell to 58.7%, the lowest since August, from 63.2% the week before.

Those loans are still profitable, however, or at least in the 4th quarter they were. The MBAA released its latest study on loan profitability, and independent mortgage bankers and subsidiaries made an average profit of $890 on each loan they originated in the fourth quarter of 2009, down from $902 per loan in the third quarter of 2009, but up from $296 in the fourth quarter of 2008. Apparently strong servicing rights valuations and secondary marketing gains helped profits. But looking ahead, the MBAA believes that “provision expense for repurchase demands may weaken profitability in upcoming quarters. We saw the expense provision double to over 6 basis points from the fourth quarter of 2008.” more…

Author Tattoos ‘NYT Bestseller’ On Chest
When was the last time that you got a tattoo? Longtime mortgage and marketing expert Kevin Daum actually committed to his book ROAR!’s success by tattooing “New York Times Best Seller” on his chest backwards so he could see it every morning. We should all be that committed to closing more deals and making more money! Check out the tattoo story and order the book. Here we are all banging our heads trying to figure out how to say the right things to the right people in the right way and the answer has been around for 3,500 years! You have to check out this new Wiley book by Mr. Daum called “ROAR! Get Heard in the Sales and Marketing Jungle”.It’s a great story.

Thoughts On Home Prices
US S&P/Case-Shiller Home Price Index for January was up .3% over December, although it is negative .7% year-over-year. This gives us eight months of, on average, home prices in 20 cities being up on a seasonally-adjusted basis. This data bucks the trend seen by other index trackers, including the NAR median, RadarLogic’s RPX and the FHFA “Purchase-Only” index. One analyst noted that more…

Federal Home Loan Bank of SF Sues Dealers
The Federal Home Loan Bank of San Francisco sued nine securities dealers alleging they misled it about the credit quality and risks of loans behind $19.1 billion in private-label residential mortgage-backed securities. Among several dealers, Credit Suisse, Deutsche Bank, JPMorgan Chase, and Bank of America were named as defendants. The FHLB is seeking to rescind its purchases of the securities, which were rated AAA “based on the information provided by the securities dealers… the dealers made untrue or misleading statements about the characteristics of the mortgage loans underlying the securities…failed to disclose that appraisals were biased upward on properties that secured mortgage loans, that underwriting guidelines were ignored by originators and that loan to property value ratios were exaggerated. The Federal Home Loan Banks of Seattle and Pittsburgh last year sued banks including JPMorgan Chase, Morgan Stanley and Goldman Sachs Group. You can check it out for yourself.

Citi Modified Loans For 128k Borrowers
CitiMortgage, heavily rumored to be undergoing another downsizing on an undetermined scale, worked with nearly 128,000 borrowers last quarter to avoid foreclosure on almost $19 billion in mortgage loans. According to Citi, its loan modifications in the distressed asset portfolios outpaced both foreclosures and delinquencies. Modifications increased 17% in Q409 from the previous quarter. For the entire year of 2009, Citi loan modifications increased 47% from 2008. The US Treasury’s HAMP (Home Affordable Modification Program) began a year ago, and Citi rolled it out a month later. more…