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FHA Mortgage Insurance Increasing October 4
FHA mortgage insurance will be increasing as of October 4, 2010 because the FHA insurance pool only has $3.5 billion in cash and Treasury securities left in its “capital reserve account” The money sitting in the CRA represents a 71% decline in just the last three months. The Mutual Mortgage Insurance Fund (MMIF) capital ratio has fallen below its statutorily mandated threshold. On the good news side of the ledger, from October through June the FHA had 19,310 fewer insurance claims on loans gone bad and paid $3.7 billion less than projected by the audit, perhaps due to solid foreclosure efforts although some feel that this is only because some states are experiencing a backlog in processing foreclosures.

Under HR 5981, FHA plans to adjust its annual mortgage insurance premium (effective with any new loans October 4) from .55% to 1.55%, yielding approximately $300 million per month in value to the FHA Mutual Mortgage Insurance Fund at a time when its reserves are perilously low. To offset this, FHA will lower its upfront premium from 2.25% to 1.25%. This will be effective for 30yr fixed loans. As you can guess, mortgage insurance companies are pleased with this news, since annual FHA premiums will be closer to annual PMI premiums and that could encourage lenders and borrowers to turn to non-FHA products for more mortgages. Borrowers currently shopping for FHA loans should revisit their strategy with their lender given this new news. more…

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…

State of Home Equity Credit Lines
Crying out for home equity lines? Although many investors offer them through retail, wholesale, and correspondent channels, others do not. Don’t look for that to change any time in the near future as investors are dealing with many buy-back issues. That being said, reports from rating agencies such as Fitch indicate that home equity loans and lines past due 30-89 days or more have declined for many institutions. It is nice to see the trend, but risk departments at financial institutions are not enamored with the product – and it is hard to push it in front of the board of directors. At year-end 2009, FDIC-insured institutions collectively held approximately $842 billion of junior liens and home equity loans, averaging almost 12% of total gross loans.

Fed Maintains Independence
The U.S. Federal Reserve said, “Whew!” Thursday after winning another battle to maintain its independence. Congress, in crafting a final Wall Street reform bill, dropped a plan to make one of its top officials a political appointee. The U.S. central bank will actually see its powers increase under the sweeping overhaul of financial regulation. A central element of the bill would give regulators clear authority to seize unstable financial firms before they threaten the economy in an effort to avoid a repeat of the recent crisis. 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…

Bank & Credit Union Closures
The FDIC shut down Beach First National Bank, and the branches have re-opened this morning as Bank of North Carolina. Per the press release, Beach First was heavily invested in coastal real estate development. But banks are not the only savings institutions that are shut down. Connecticut’s South End Mutual Benefit Association, which has been around since 1945, has passed a resolution to cease operation and terminate its business, and has petitioned the National Credit Union Administration (NCUA) as receiver. With a credit union, accounts are insured up to at least $250,000 by the National Credit Union Share Insurance Fund (NCUSIF) – a federal fund managed by NCUA and backed by the full faith and credit of the U.S. government.

Mortgage Insurance Requirements Easing
Starting today, Genworth has removed FL, CA, AZ, NV & MI from its declining market list, aside from saying that cash-out refi’s are not allowed in Florida, and still not allowing condos or attached housing in that state. In a related statement, Genworth also introduced “new definitions” for retail and non-retail originations which in effect removes its existing Third Party Origination definition. “For a loan to qualify as a Retail Origination, the entity that orders the mortgage insurance coverage (the Insured) must have performed all of the following loan tasks: taking the loan application, processing the loan application, underwriting the loan application for MI eligibility, and funding & closing of the loan. Check with Genworth for other requirements, such as “loans must be funded from a warehouse line in the lender’s name or from the lender’s own funds – table-funded loans are considered Non-Retail.” more…

Have A Roommate This Recession? You’re Not Alone
The MBAA continues to churn out reports. The latest shows that in the four years (2005 through 2008) the US population increased by 3.4 million but that the number of households declined by 1.2 million. And if the number of households (demand) goes down, prices must drop to absorb the supply of apartments and single family homes on the market. The trend of individuals joining households that were already formed was expected to continue into 2009, or until the job market stabilizes. (See definition of boomerang generation). This recession has also caused a dramatic increase, almost five-fold, in the rates of overcrowding (defined as having more than one person per room in the household), indicating that many families are doubling up in response to the downturn. I asked the five unemployed guys that I share a bedroom with if this was true, and they didn’t agree. They only wanted to know why “phonics” is not spelled the way it sounds.

Mortgage With Job Loss Protection
Flagstar, in a sign of the times, has paired up with MI company Genworth to offer a low-down payment mortgage benefit designed to cover a home buyer’s mortgage payments if he or she becomes involuntarily unemployed. “Job Loss Protection” covers a borrower’s mortgage payment (principal, interest, taxes and insurance) of up to $2,000 a month for up to six months during their benefit period, with a maximum of three monthly payments per job-loss occurrence in the event of involuntary unemployment. The benefits are paid directly to the mortgage company just as if the borrower had made the payment, although the vesting period is 60 days after closing, and payments begin 30 days from the date of involuntary unemployment. Coverage stays in place for up to three years after the loan closes and the mortgage insurance remains in place. more…

Rates are net up .25% in the past 2 weeks, with rates up even higher on certain trading days. This WeeklyBasis report’s rate lock bias for the past two weeks continues into next week. Below is a recap of why rates have moved up and why they might continue up next week. Also remember that FHA up-front mortgage insurance increases from 1.75% to 2.25% as of Monday, April 5—all FHA mortgage shoppers should obtain revised quotes.

Rate Factors Last Week
The key rate factor 3/22 to 3/26 was Treasury auctions causing mortgage bonds to sell off. Key rate factors 3/29 to 4/2 were two jobs reports interpreted as signs of economic improvement. ADP, a private payroll company with data on 22m workers, showed 23k jobs lost and the official Bureau of Labor Statistics jobs showed 162k new jobs in March. more…

FHA Mortgage Insurance Increasing April 5
All investors (Citi, Chase, BofA, Flagstar, etc., etc.) are reminding their clients that, as a result of January’s FHA’s Mortgagee Letter 2010-02, the Upfront Mortgage Insurance Premium (UFMIP) will increase to 2.25% effective for all case number assigned on or after Monday, April 5, 2010. This applies to FHA purchase transactions and all refinance transactions including FHA-FHA Streamline credit qualifying and non-credit qualifying loans. Even ordering case numbers late this week may not get in under the deadline – best to do it as early as possible. (Title 1, HECM’s, Hope for Homeowners, Hawaiian Homelands, and a few others are exempt.) At this time, there is no change to the annual (monthly) mortgage insurance premium factors.

For More Banks Fail: 41 Since January
“FDIC”, “Friday”, and “four banks” all start with the letter “F”. Four U.S. banks were seized Friday by state regulators, two in Georgia (McIntosh Commercial Bank and Unity National Bank, taken over by CharterBank and Bank of the Ozarks, respectively), one in Florida (Key West Bank, assumed by Centennial Bank of AR), and one in Arizona (Desert Hills Bank, assumed by New York Community Bank), bringing the total number of bank failures since the beginning of 2008 to 206 and to 41 this year. more…

Geithner’s Testimony on Future of Housing Finance
Yesterday the House Financial Services Committee held a hearing to discuss the future of housing finance, trying to start answering questions about what the new system should do. Many people spoke, although Treasury Secretary Tim Geithner was the headline witness with 17 pages of testimony. “It’s important as we think about the future to make sure we retain what was good in this system.” But Geithner said that the old system, would not be re-created and that Fannie and Freddie’s status as shareholder-owned companies with the implicit backing of taxpayers would end. Basically, Fannie Mae and Freddie Mac won’t be allowed to return to a pre-crisis structure that rewarded shareholders with big profits for years but ultimately saddled taxpayers with massive losses. We covered this yesterday, and commented on how long reform might take.

For example, even if the market is under stress, mortgage credit should be available and distributed on an efficient basis to a wide range of borrowers, including those with low and moderate incomes, to support the purchase of homes they can afford. Affordable housing options should be available, and borrowers should have access to easily understood mortgage products. The mortgage finance system should not contribute to systemic risk or overly increase interconnectedness from the failure of any one institution. If there is government support provided, such as a guarantee, it should earn an appropriate return for taxpayers, ensure that private sector gains and profits do not come at the expense of public losses, and the role and risks assumed must be clear and transparent to all market participants and the American people. Regulations should ensure capital adequacy throughout the mortgage finance chain, enforce strict underwriting standards, and protect borrowers from unfair, abusive or deceptive practices. more…

Largest Mortgage Lenders & Investors
Who were, and probably still are, the largest mortgage lenders/investors in 2009? There were no real surprises.

Private Mortgage Insurance Making A Comeback?
PMI gave its clients some good news by reducing the minimum FICO score from 720 to 700 for CA, AZ, NV, DE, HA, NJ, and FL and other “sand” states. PMI is also offering 90% LTV on high balance loan amounts (with 740 score), so PMI believes that conditions have improved in certain areas of the country to the degree that it can now adopt a simpler Distressed Markets Policy with a single set of criteria and remove 19 MSA/MSADs from the PMI Distressed Markets List. So, for PMI, properties subject to its Distressed Markets Policy will now be subject to one set of eligibility criteria.

There is also a rumor (I don’t have anything in print) that Radian is rolling out a new 1.25% upfront MI program – up to 95% LTV’s for borrowers with a FICO score above 720 – April. more…