Yesterday was the big kick off meeting at the house to talk about goals for 2013. I told the animals that it would be a lean year, that the MBA and others were expecting volumes to drop 10-20% versus 2012, and that kibble rations would be carefully watched. This caught the interest of Myrtle the cat, and she said that no single company or branch out there is predicting their volumes will drop, and that everyone thinks they'll have more market share. Along those lines, Myrtle continued, she would be taking a larger market share of the other animal's kibble. I replied, "That's all well and good, but we need to watch our costs, and our spending." Speaking of which, do I spend the same amount of money now on certain things that I did when I was 20 years old? Heck no. For example, I've moved from Mickey's Big Mouth to Miller Lite! Here are 35 graphs that students of humans, and their spending, will find very interesting.

Why do they call them buildings, when they are already done building them?  Why not call them "crumblings" or "builts"? "I live in that Crumbling over there..." But there are plenty of people who are trying to reverse that, and actually fix up properties. Here is a good recent article on loans for fixer-uppers and 203k loans on the New York Times website.

Here is some good news: San Bernardino dropped its eminent domain plans.  "The plan to use eminent domain to seize troubled mortgages and write down debt for homeowners failed to garner public support."

Harvard produced a paper: "Getting on the Right Track: Improving Low-Income and Minority Access to Mortgage Credit after the Housing Bust" - worth a gander for those folks interested in that market.

Do you use the internet? Me neither. But plenty of folks shopping for houses use it. Earlier this month Mortgage News Daily reported, "Home-shopping consumers are not only exponentially increasing their reliance on the Internet but are also developing distinct patterns for using it in their housing searches.  Google and the National Association of Realtors recently completed a joint study on how and how much prospective buyers use the various digital options, publishing the results in "The Digital House Hunt:  Consumer and Market Trends in Real Estate.' There is a generation that does its homework ahead of time - they shop in traditional ways (watching or reading ads, walk into stores to look at products, talks to friends, check styles and prices) but alternate these with digital sources.  They watch "how-to" videos on You Tube, read product and service reviews, look up specific brands on search engines, and even research on the go with smart phones and tablets. Here is the report.

Let's turn to some investor news...

Flagstar stockholders didn't like their stock's price dropping 12% yesterday. The news wasn't really that bad, was it? Fourth quarter 2012 non-interest income increased to $285.8 million, as compared to $273.7 million for the third quarter 2012. But there was lower net gain on loan sales: fourth quarter 2012 net gain on loan sales decreased to $239.0 million, as compared to $334.4 million for the third quarter 2012, but increased as compared to $106.9 million for the fourth quarter 2011. "The decrease from the prior quarter was reflective of both a decrease in mortgage rate lock commitments and a decrease in margin on rate lock commitments. Mortgage rate lock commitments decreased to $16.2 billion for the fourth quarter 2012, as compared to $18.1 billion for the third quarter 2012, driven by seasonal and competitive mortgage patterns, as well as actions to manage volume levels. As compared to the fourth quarter 2011, net gain on loan sales increased by $132.1 million, primarily driven by increases in mortgage rate lock commitments and increased margin on rate lock commitments."

The report goes on. "Gain on loan sale margin is calculated based on residential first mortgage rate lock commitments and actual sales of residential first mortgage loans, and is net of sales expenses, hedging costs and provisions related to the representation and warranty reserve (i.e., the portion of the reserve established at the time of sale). Gain on loan sale margin decreased to 1.53 percent for the fourth quarter 2012, as compared to 2.42 percent for the third quarter 2012, but increased from 1.02 percent for the fourth quarter 2011. The decrease from the prior quarter was largely attributable to a decrease in gross gain on sale margin, as well as a 12.5 percent increase in mortgage loan sales (which serves as the denominator in computing the reported margin) as compared to the prior quarter...Loan fees and charges increased to $40.8 million for the fourth quarter 2012, as compared to $37.4 million for the third quarter 2012. Loan fees are driven by mortgage loan originations, which increased to $15.4 billion for the fourth quarter 2012, as compared to $14.5 billion for the third quarter 2012.

"Net servicing revenue increased to $25.0 million for the fourth quarter 2012, as compared to $11.3 million for the third quarter 2012. This increase from the prior quarter was primarily attributable to effective hedge positioning, despite significant rate volatility intra-quarter, and the absence of uncertainty from the central banks with respect to quantitative easing. Flag also recorded a net loss on sales of mortgage servicing rights of $7.7 million during the fourth quarter 2012, due to bulk sales of mortgage servicing rights related to $13.8 billion in underlying mortgage loans. The Company intends to continue to look for opportunistic ways to reduce its concentration of mortgage servicing rights." Last year's home-loan originations at Flagstar more than doubled. It originated 6 percent more in residential first and second mortgages during the final three months of 2012 than it did in the third quarter, but residential loan production increased by 51 percent when compared to the same three-month period during 2011. Total repurchase pipeline decreased by $201.4 million from the prior quarter to $224.2 million, as the Company continued to work through the existing population of repurchase requests.

But Flagstar being sued over underwriting decisions on $1 billion in loans doesn't help matters. More

The Federal Reserve Board announced its approval of the application filed by Trustmark Corporation, Jackson, Mississippi, to merge with BancTrust Financial Group, Inc., Mobile, Alabama, and to acquire BancTrust's subsidiary bank, BankTrust, also in Mobile.

In order to align its policies with that of Fannie Mae, Citi will be requiring documentation for any funds that come from an account opened within 90 days of the initial application or any single deposit amounting to more than 25% of the total monthly qualifying income.  Documentation will also be required for Verifications of Deposit that reflect a current balance that is significantly higher than the average balance.  The previous documentation requirements for subordinate financing (security instrument, final TIL, and GFE) and the requirement that the sales price of Gift of Equity transactions be at market rate have also been removed as part of the alignment.  For cash-out refinances, the delayed financing guidelines have been revised to state that properties acquired with an unsecured loan or HELOC on another property will require the HUD-1 to reflect that the source being paid off with the new refinance must be used to pay down the loan.  The policy changes will affect all loans registered and in the pipeline as of January 26^th.

Citi has also aligned its policy on FHA loan limits so as to align its guidelines with recent FHA announcements; as such, the maximum loan limits have been extended to December 31, 2013.  For Streamline refinances with appraisals, the maximum loan account will be calculated as the lower of the outstanding principal balance, closing costs, prepaid items to establish the escrow account, and the new UFMIP minus the applicable refund of the old UFMIP or 97.75% of the appraised value plus the new UFMIP.  This change also goes into effect on January 26^th.

Pinnacle has rolled out its new Mammoth Jumbo loans, which is now available to the wholesale channel.  The Mammoth Jumbo product is available for 30- and 15-year fixed and 5/1, 7/1, and 10/1 ARM purchases and rate/term refinances on primary residences and second homes for up to $2 million.  Borrowers are subject to an LTV maximum of 80 and a minimum 720 FICO.

Effective for conforming refinances, Pinnacle has updated guidance on conforming loans in cases where real estate tax payments are included in the loan amount.  For all conforming transactions, model home/builder leasebacks and properties with condition ratings of C5 and C6 have been added as unacceptable.  FHA guidance has been updated to require manual underwriting for borrowers with handwritten paystubs, and VA guidance has been revised to require three years' preforeclosure seasoning, regardless of underwriting method.

As per VA guidance, MSI has revised the protocol for ordering case numbers and appraisals for non-LAPP originators. See Circular 26-31-1 on the VA site for full details.  For VA IRRRL loans currently being serviced by Wells Fargo, MSI has implemented additional overlays, including a minimum FICO of 660, a history of no late payments over the last 12 months, and a maximum loan amount equal to the current pay-off amount from Wells plus 3%.  MSI has also added VA guidance stating that it won't consider properties with "point of entry" water purification systems eligible for purchase; the same applies to FHA and USDA loans.

MSI has begun accepting 2-unit primary residences for its Jumbo product provided they meet the 1-unit primary residence LTV/TLTV/HTLTV parameters and the loan amount is $1.5 million or less.

PennyMac has announced that Texas Section 50(a)(6) loans are now eligible for sale for specifically approved clients.  Loans must be fixed-rate owner-occupied 1-units and are subject to a 3% fee restriction on closing costs, a maximum LTV/CLTV of 80%, and a full appraisal.  New secondary financing is not eligible, and all transactions must comply with Fannie Mae and Texas Constitution guidelines.

Yesterday interest rates more-or-less behaved themselves, but not so today. Still, yesterday MBS prices were slightly lower/worse by about .125, and MBS selling was heavier than recent averages. Selling emerged from hedge funds and money managers as the market sold off following better than expected economic news (Initial Claims, Leading Indicators). Per Thomson Reuters roughly 70% of the supply was in 30-year 3% coupons (containing 3.25%-3.75% mortgages - the bulk of where rate sheets are) and 25% in 3.5s. Risk-free 10-year notes were also slightly worse, and closed at 1.84%. The latest report from the New York Fed on Agency MBS purchases indicated net buying of $14.1 billion in the week ending Jan. 23. This equated to $3.5 billion per day and more than covered the $2.5 billion per day pace from originators over this same period. Of particular interest in this week's report was the jump in GNMAs as a percent of total purchases -- to 31.6% from 24% for the past four weeks. The increase in Ginnies came at the expense of Fannies which fell to 41.1% from the 50% area.

But this morning the 10-yr is up to 1.91%, worse by over .5 in price. It seems that suddenly folks are optimistic about world economies, and openly admitting moving money from bonds into stocks. This could change by Monday morning, of course, but when folks like George Soros say that they are "bulled up" about stock prices due to signs of things picking up, it makes fixed-income holders nervous. MBS prices are worse between .250-.375.

A famous Viking explorer returned home from a voyage and found his name missing from the town register.
His wife insisted on complaining to the local civic official, who apologized profusely saying, "I must have taken Leif off my census."

There were three Indian squaws. One slept on a deer skin, one slept on an elk skin, and the third slept on a hippopotamus skin. All three became pregnant.
The first two each had a baby boy.
The one who slept on the hippopotamus skin had twin boys.
This just goes to prove that... the squaw of the hippopotamus is equal to the sons of the squaws of the other two hides.

A skeptical anthropologist was cataloguing South American folk remedies with the assistance of a tribal elder who indicated that the leaves of a particular fern were a sure cure for any case of constipation.
When the anthropologist expressed his doubts, the elder looked him in the eye and said, "Let me tell you, with fronds like these, you don't need enemas."