Marc's Mortgage Matter's

British Intelligence is warning that terrorist groups could fit women terrorists with exploding breast implants. They knew it was only a matter of time before al Qaeda started setting booby traps...

How much wood can a woodchuck chuck if a woodchuck could chuck wood? They'd better do more now, since timber is booming. Some in the industry follow U.S. lumber production. Through November this totaled 21.2 billion board feet, down 23.0% from the January-November 2008 figure, according to the Western Wood Products Association. Nationwide, November 2009 production totaled 1.620 billion feet, down 16.6% from the November 2008 total and off 18.9% from October 2009. Recently, however, lumber futures hit 29 month highs last week ahead of an anticipated strong Spring building season. Mills are cranking up again, demanding wood they haven't been buying in a year, lumber distributors have been forced to restock supplies, and visitors to Home Depot are coming away scratching their heads.

Why wouldn't investors want to gobble up securities made up of jumbo loans? Well, how about delinquencies? In a story out of Business Week, "US prime jumbo mortgages at least 60 days late backing securities reached 9.6% in January from 9.2% in December, the 32nd straight increase for "serious delinquencies," according to Fitch Ratings." This is almost 3x the rate in 2008. Folks in the business know that non-agency securities don't have the guarantees/insurance of Freddie, Fannie or Ginnie Mae. So where do these beasts trade? According to the article, last March they hit a low of .63 (so a loss of almost 40 cents on the dollar versus the original principal balance) but are now up into the low 80's.


This raises the question "Why would an investor buy a pool of mortgages?" In the past, banks, who were, and still are, making fees on originating the loans, didn't have to hold on to them, but instead could pool them and make them attractive to buyers. The buyers did not hold the individual mortgages, but parts of huge packages of them. Kind of like thinking about how delicious the Orange Chicken is at Panda Express and not having to think about how it got there. On top of that, the rating agencies told investors that the pools were safe, especially so in light of recent appreciation trends. Unfortunately now the rating agencies can't quite say that, and are having difficulty trying to figure out how to rate any pool of mortgages.

Weather issues and overseas financial troubles got much of the market's focus this week, while mortgage rates remained quite stable. In fact, the last four weeks of averages for 30-year conforming rates all were within just a few basis points of each other, a remarkable bit of stability in a market which still faces many challenges. The overall average for 30-year fixed-rate mortgages tracked declined by six basis points (.06%), ending a snowy northeast week at 5.36%.

Looking forward to next week, there is the President's Day market holiday on Monday, so we've a short week to contend with. Treasury yields moved up some this week, amidst another sizable auction of Treasury Debt, and enough to suggest that rates will be moving somewhat higher as we roll into next week. That's where we'll start on Tuesday, and that leaves out the effects of new reports on housing starts, producer and consumer price indices, industrial production and the minutes of the last Fed meeting. Based on where we are ending this week relative to last week, we think there will probably be perhaps an increase in the overall 30-year FRM (Fixed Rate Mortgage) average by week's end.


One winter morning a husband and wife in northern Michigan were listening to the radio during breakfast. They heard the announcer say, "We are going to have 8 to 10 inches of snow today. You must park your car on the even-numbered side of the street, so the snow plows can get through."
So the good wife went out and moved her car.
A week later while they are eating breakfast again, the radio announcer said, "We are expecting 10 to 12 inches of snow today. You must park your car on the odd-numbered side of the street, so the snow plows can get through."
The good wife went out and moved her car again.
The next week they are again having breakfast, when the radio announcer says, "We are expecting 12 to 14 inches of snow today. You must park...." Then the electric power went out.
The good wife was very upset, and with a worried look on her face she said, "Honey, I don't know what to do. Which side of the street do I need to park on so the snow plows can get through?"
With the love and understanding in his voice that all men who are married to blondes exhibit, the husband replied, "Why don't you just leave it in the garage this time?"

In totally unrelated news to mortgage banking, GFE's, and investor changes, Canada's last known First World War veteran, John Babcock, has died at age 109. Babcock was born on an Ontario farm in 1900 and enlisted to join the war at the age of 16 after lying about his age. (The United States has one known surviving WW I veteran, Frank Woodruff Buckles of West Virginia, who recently turned 109.)

A real estate agent wrote to me and said, "I was explaining to a listing agent as to why we needed an appraisal review on her property last night. What that entailed, why they are done, etc. etc. She responded with, 'Why does the lender care about the appraisal when the buyer is putting a lot of money down?' She went on to say, or ask, 'Why didn't I take this loan to a big bank?' I responded with, 'Do you mean like World Savings or Washington Mutual or Bear Stearns or Thornburg?' She said, 'Yes, there must be lenders who don't care about such things.' I guess she hasn't seen or heard the news in 2-3 years. I was shocked." Many of you now know how many odd and weird manifestations can sneak into a typical loan application of late.

Will the $1.5 billion plan rolled out last Friday by President Obama help the average home buyer? Nope. First, it is a proverbial drop in the bucket - remember that the Fed is buying over $2 billion a day currently. Second, it is directed toward California, Nevada, Arizona, Michigan, and Florida. It is targeted at preventing more foreclosures (Nevada has been able to chant "We're #1, we're #1" in foreclosures for over three straight years.) and the money, re-directed from the TARP bank bailout, will go toward homeowners who have lost their jobs, owe more than their houses are worth, or cannot afford to make monthly payments. State and local agencies will be given the leeway to tailor programs for the money, Obama said. The U.S. Treasury will approve the program proposals. Funds will be allocated through a formula based on home price declines and unemployment, so no, it doesn't help us folks.

Its gotten really tough to do mortgages. Lenders and banks are being overly nit-picky and unrealistic in making the loan application a nightmare for many. Even folks with 780 scores and 4 Bentley's are required to confirm their brief size. That's exactly what happens now, and as a 15 year mortgage loan originator I find nothing sadder than this. It's a total shame. The truth is this hurts the lending clients the most and the long time originators who have spent their entire career doing it right are right behind them! The problem is, I don't see a good fix in sight. A friend in the industry mentioned to me about fellow loan officers; "This is a sign that our industry is cleaning up. This non-professional needs to go back to selling cars. He is crying because he has to do his job. How absurd that a loan officer should have to actually key in correct information into a loan application! I say good riddance to these folks who dimensioned the value of the great loan officers out there."

While the inventory-led "technical" economic recovery pushed the latest revision of the nation's Gross Domestic Product to a robust 5.9% increase in the fourth quarter of 2009, more than a few signs this week pointed to a much more muted pace of growth. Although it would be hard to find any group who might cheer on stumbling economic growth, would-be homebuyers and refinancers do benefit to some degree as a weak trajectory means continued low -- and possibly falling -- interest rates in the days ahead.

Although interest rates were only mildly higher of late, there was a falloff in mortgage applications, according to the MBAA. The Fed's surprise move to the discount rate may have spooked some borrowers into thinking that all interest rates were kicked higher. Regular readers know that not only is that not the case, but also that the Fed doesn't control mortgage rates directly (some present conditions excluded). This week, the overall average for 30-year fixed-rate mortgages tracked shed a lone basis point (.01%), ending at 5.40%.


Bob, an older extremely wealthy widower, shows up at the country club with a breathtakingly beautiful and very sexy 25 year-old blonde.
She hangs onto Bob's arm and listens intently to his every word. His buddies at the club are all aghast.
At the first chance, they corner him and ask, "Bob, how did you get the trophy girlfriend?"

Bob replies, "Girlfriend? She's my new wife!"
They're amazed, but still ask, "So, how did you persuade her to marry you?"
"I lied about my age", Bob replies.
"What?! You are 70... did you tell her you were only 50?"
Bob smiles and says, "No... I told her I was 90."

A woman customer (rumor has it she's blonde) called the Canon help desk with a problem with her printer:
Tech support: Are you running it under Windows?
Customer: "No, my desk is next to the door, but that is a good point. The man sitting in the cubicle next to me is under a window, and his printer is working fine."

Questions have come about expiring homebuyer tax credits, which will conclude at the end of April. The program was last slated to expire in November 2009, but was not only rescued but substantially expanded at the last minute. However, the "damage" had been done; in anticipation of the expiry, sales flared higher in October and November, only to come crashing back to earth in December (and possibly January).

Will they expire? We think that there is a good likelihood that they will be extended, at least through the "spring homebuying season," if not longer. In addition to the enormous political pressure sure to be brought by Realtors, builders, and other interest groups as we near the deadline, the spike in sales at the last expiry approached provides demonstrable evidence that the program works and has value. As such, "success" can be claimed, providing the necessary political cover to advocate extending the program... especially since the simple fact is that it if doesn't work -- that is, if it's not being utilized -- that it costs nothing. Deficit issues and the concept of whether we're rewarding those who might have bought anyway will take a back seat. Keeping home sales going promotes home price stability, and that makes for less-grumpy voters as election time rolls around.

Home buyers heading into real estate’s busy spring season face a tricky question: should they buy soon, before mortgage rates increase, or wait a few months, when housing prices are finally expected to hit rock bottom?

Of course, the assumptions at the core of that question could easily fall through. But rarely in recent years have economists from the mortgage and housing industries been so closely aligned in their short-term nationwide forecasts as they seem to be now.

Economists are generally predicting that mortgage rates will begin to edge up in late March, settling at about 5.5 percent, possibly as high as 6 percent, for a 30-year fixed-rate loan. They also expect that the inventory of foreclosed homes will grow through the summer, saturating the market with cheap properties and keeping overall prices low.

“I wouldn’t rush,” said Mark Zandi, the chief economist at Moody’s Economy.com, “but if I found a house I was excited about, I wouldn’t wait. You might not be buying at the very bottom, but you’ll still get a great rate, and if you stay for more than a few years, you’ll be rewarded.”

By that time, he added, home values will have appreciated.

Two factors could push rates higher, economists say. First, the Federal Reserve is set to stop subsidizing the mortgage market sometime next month, when it exhausts the roughly $1.25 trillion earmarked for mortgage-backed securities sold by Fannie Mae and Freddie Mac. The government stepped in as a buyer during the mortgage market crisis, when most investors had rejected these securities. Economists expect investors to re-enter the market, but only if rates on the securities become more attractive.

Mortgage rates also typically move in lockstep with the long-term economic outlook. Economists generally believe that the nation is in the early stages of a slow recovery, and that as the recovery proceeds, interest rates will go up.

Why should anyone build a lot of new homes when there seem to be so many foreclosures looming, and how are foreclosures doing out there? Although percentage-wise filings dropped in January from December by 10%, Realty Trac reported that foreclosure filings were above 300,000 for 11th straight month. And versus a year ago they are up 15%. And home ownership here in the US is back down to 2000 levels: in the fourth quarter the percentage stood at about 67.2%.

While we're on foreclosures, for those who like bleak news recent studies conclude that most efforts to modify loans with easier terms will delay, not prevent, the loss of homes to foreclosure. The studies, reported the WSJ, suggest that more waves of foreclosures will keep downward pressure on home prices in parts of the U.S. over the next several years. "...estimates that five million houses and condominiums on which mortgages are now delinquent will go through foreclosure or related procedures that put them on the market over the next few years. That would represent the bulk of the estimated 7.7 million households behind on their mortgage payments." Of course the problem is largely concentrated in Arizona, California, Florida and Nevada. This does NOT seem to be the case in the Tri-State area especially not in the five boros!

After the close of markets on Thursday, the Federal Reserve raised the Discount Rate by a quarter percentage point. This is the interest rate that a bank would be required to pay to borrow funds directly from the Fed itself, a move usually done only as a last resort when no funding can be obtained from other lenders in the market. The interest rate on such a loan is usually well above other market rates for similar funds; it's often described as a 'penalty' rate.

The overall average for 30-year fixed-rate mortgages tracked FRMI rose by five basis points (.05%), ending the week at 5.41%. The FRMI includes conforming, jumbo and the GSE's "high-limit" conforming products in its calculation. As we expected, mortgage rates put in a little increase this week. Next week, it's all about housing, as we'll get a look at Home Prices, New and Existing Home Sales, durable goods orders and a few other interesting bit of market data. Given the drift higher in Treasury yields last week and again this week, we think it's a fair bet that we'll see a little bit more of an increase in mortgage rates again next week, probably another few basis points or so. 

A woman and a man are involved in a car accident on a snowy, cold Wednesday night: it's a bad one. Both of their cars are totally demolished, but amazingly neither of them is hurt. God works in mysterious ways.

After they crawl out of their cars, the man is yelling about women drivers.

The woman says, "So, you're a man. That's interesting. I'm a woman. Wow, just look at our cars! There's nothing left, but we're unhurt. This must be a sign from God that we should be friends and live in peace for the rest of our days."

Flattered, the man replies, "Oh yes, I agree completely, this must be a sign from God! But you're still at fault... women shouldn't be allowed to drive."

The woman continues, "And look at this, here's another miracle. My car is completely demolished but this bottle of wine didn't break. Surely God wants us to drink this wine and celebrate our good fortune."

She hands the bottle to the man.

The man nods his head in agreement, opens it and drinks half the bottle and then hands it back to the woman.

The woman takes the bottle, puts the cap back on and hands it back to the man.

The man asks, "Aren't you having any?"

The woman replies, "No. I think I'll just wait for the police..."

As a way to conserve fresh drinking water, a number of conservation groups are now calling for an end to toilets that flush. To which gas station owners say, "We are so ahead of you. We've been doing that for years."

Last Friday, while the heart rate of every small banker ratcheted higher, the FDIC regulators were busy as they shuttered six more banks. Georgia, Florida, Minnesota, California, and Washington all have fewer banks, but the FDIC was able to find buyers for them. (Remember in the old days, buyers would often have names like Chase, Bank of America, and Wells Fargo? No more...) First Regional Bank of Los Angeles, CA, Community Bank and Trust & First National Bank both of GA, Florida Community Bank, Marshall Bank of MN, and American Marine Bank (WA) will set the FDIC's Deposit Insurance Fund back $1.86 billion. They went to First-Citizens Bank & Trust (NC), SCBT (SC), Community & Southern Bank (GA), Premier American Bank (FL), United Valley Bank (ND), and Columbia State Bank (WA), respectively.

Deutsche Bank (Germany's biggest bank, and having a presence here in the US) posted a fourth straight quarterly profit versus a loss in 2008. The company earned $1.8 billion in the fourth quarter. Hmmm!

Behavioral economics is very interesting. Merrill Lynch just released an analysis of a credit-related study (from Equifax) discussing the contrast between auto and home loan delinquencies. Their report shows that 73% of prime borrowers have never been delinquent on their mortgage or auto loan, compared with 23% of subprime borrowers, although some types of borrowers are more likely to have been delinquent on their mortgage than on their auto loan. Many distressed borrowers who go delinquent on both types of debt do so around the same time, but the bulk of the population (almost two-to-one for prime borrowers) has gone delinquent on their mortgage before their auto loan. And the cure rate out of delinquency for auto loans tends to rise after the borrower mortgage delinquency, indicating that going delinquent on the mortgage acts as a form of relief for some borrowers, enabling them to cure on other delinquent debts. 

So why has the stock markets been down for three straight weeks? Despite some decent earnings reports, including those from large mortgage investors (i.e., banks), stocks appear to have run ahead of themselves toward the end of 2009. "Overdone on the upside." In addition, we are still seeing strength from cost cutting and not from real growth, although it seems that the public "wants" to be bullish on stocks.

How about the $1 Trillion in reserves banks are supposedly sitting on? If you ask someone off the street, "Who would YOU lend it to?" you might receive a shrug and a blank stare. Any mortgage banker might reply, "How about self employed or jumbo borrowers?" There is almost nothing available for those two - many borrowers are self-employed and need no income verified loans or the many whom need true jumbo financing.

Does volatility in bonds or stocks help or hurt the markets? Although volatility has little lasting impact on markets, in the long run volatility makes ordinary investors less inclined to trust markets. And aversion to risk makes capital more expensive, as we are seeing now, and in turn the economy can become less dynamic. On the flip side, traders love volatility, although they tend to overestimate their knowledge of finance and the accuracy of their predictions. And overconfidence can encourage excess trading, and in a down market this can lead to "chasing losses" - if you've lost some, it is tempting to make big bets in an attempt to get your money back.

New York Attorney General Andrew Cuomo, who encouraged the agencies to reach down the credit curve several years ago to help precipitate the credit crisis, charged Bank of America Corp, former Chief Executive Kenneth Lewis and former Chief Financial Officer Joe Price with fraud for allegedly misleading shareholders about the acquisition of Merrill Lynch. On the other hand, BofA just settled with the SEC by agreeing to pay a $150 million civil fine and bolster disclosure and governance practices. Cuomo is using a New York law used to combat securities fraud to accuse Bank of America, Lewis and Price of intentionally failing to disclose massive losses at Merrill prior to a December 5, 2008 shareholder vote on the merger. Wait until they start investigating their purchase of Countrywide! :/

This week, the overall average for 30-year fixed-rate mortgages tracked was unchanged from last week at 5.42%. Mortgage rates appear to be holding at what seems to be their new bottoms. Even difficult stock markets at times this week failed to produce lower rates, and with a sort of "floor" in place, there seems to be little room for improvement. That being the case, rates have more likelihood of rising slightly than falling next week.


The wife and I were sitting around the breakfast table yesterday morning.
I said to her, "If I were to die suddenly, I want you to sell all my stuff immediately."
"Now why would you want me to do something like that?" she asked.
"I figure that you would eventually remarry, and I don't want some jerk using my stuff."
She looked at me and said, "What makes you think I'd marry another jerk?"