Yesterday was a special day. In the late afternoon I visited Costco, which some people feel simultaneously represents everything that is both bad and good about the retail channel. The change in time over the weekend had made it so the setting sun showed through the front entrance, illuminating the Samsung 46 inch plasma, the flannel shirts, AND the pre-lit Christmas tree boxes all at once. It was a tender moment.

What are Fed Funds? These are cash balances held by banks with their local Federal Reserve Bank, typically involved in an "inter-bank sale" of a Fed fund deposit for one business day - overnight. And the Fed Funds Rate is the overnight interest rate charged by those banks with excess reserves on hand. Why would this impact the mortgage rate that James & Jen Borrower pay on their mortgage? They don't, directly, since the credit profile of a borrower, or house, is more complicated and riskier than a bank with excess funds, and an overnight rate is obviously different than a 30 year rate.

As was expected, the FOMC kept its central message and the Fed Funds rate unchanged, noting that "economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period." Of course the current economic conditions are low rates of resource utilization, subdued inflation trends, questionable housing situation, a weak labor market, and stable inflation expectations. The FOMC (Federal Open Market Committee) reduced the size of their Agency debt (bonds issued by the agencies, not directly backed by mortgages) purchase program to "about" $175 billion from $200 billion, but is still set on purchasing $1.25 trillion of agency mortgage-backed securities. Even with this adjustment the Fed balance sheet should peak above $2.6 trillion at the end of March 2010. Yesterday Wall Street dealers reported that mortgages have maintained their bid all session as sellers have been few and far between.

The Fed sees some signs of life, just like all of us do, in certain parts of the economy, and inflation not being an issue. Conditions in financial markets were roughly unchanged, but activity in the housing sector has increased over recent months. "Household spending appears to be expanding but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit."

Fannie Mae will never be accused of not giving clients enough notice on changes. Instead of starting March 1, and now starting July 1, 2010, Fannie will "require the submission of electronic appraisal reports and their addenda in an acceptable XML format for all loans requiring an appraisal report. In support of electronic appraisal delivery, Fannie Mae is updating the 2000-Character Loan Delivery File Format." Fannie letter goes on to list the fields and identifiers in question.

GMAC, to whom some lenders sell loans and warehouse with, reported a third-quarter loss tied to mortgage defaults. The net loss from continuing operations was $671 million, compared with $2.5 billion a year earlier, and was the eighth loss in nine quarters. Their Residential Capital LLC unit was specifically mentioned. GMAC received $13.5 billion in two rounds of taxpayer bailout funds and was negotiating a third infusion last month with federal regulators - expected to be announced on Monday. Res Cap's loss narrowed to $747 million from $1.95 billion a year earlier. GMAC is boosting deposits at its Ally Bank unit to help fund new loans.

Radian Group, one of the top MI companies, reported a net loss for the quarter ended September 30 of about $70 million versus net income of about $37 million a year ago. Their chairman said, "We are encouraged by Radian's lower-than-expected claims activity again this quarter, and the consistently high-quality, lower-risk mortgage insurance business we added to our book." The mortgage insurance provision for losses of $376.5 million reflects higher delinquency counts and the continued aging of delinquencies. (Radian expects delinquencies to continue to rise during the fourth quarter.) MI paid claims were $243.2 million, which again were lower than the company's forecast, and consisted of $210.1 million of first liens and $33.1 million of second liens and Radian has reduced its claims-paid expectations from the $1.1 billion range, to a current estimate of $940 million, which includes $87 million of second-lien termination payments. And their current book of business ($3.4 billion in the last quarter) for new mortgage insurance written includes 99.9% prime credit quality and 74.6% with FICO scores of 740 or above.

Union Bank of California, owned by the Bank of Tokyo-Mitsubishi, adjusted their broker guidelines. More specifically, "two-unit condominium projects, where the HOA is inactive or "dormant", are generally acceptable as long as the master documents allow for unit owners to obtain their own insurance, and there are no common elements other than common walls." And for their "Portfolio Express Refinance" product, the maximum loan amount is $4,000,000 for one Portfolio Express loan but when the borrower has multiple Portfolio Express, Low Doc, Hassle Free or Fast Track loans, the $3,000,000 maximum applies. In addition, following other investors, the IRS Form 4506-T must be completed for the applicable tax years and executed by the borrower at time of application and again at closing.

Although it is rumored to be delayed, some time this month the FHA is to release the findings of its annual audit, which is expected to show that the projected value of the agency's reserves has fallen below a federally mandated level of 2%, raising concerns that the FHA may need taxpayer money for the first time in its 75-year history. The price to pay for being a rescue agency? FHA officials say the agency has enough capital to withstand expected losses. Cynics say that the FHA (which doesn't make loans but insures lenders against losses if a borrower defaults) is guaranteeing half of all home-purchase loans in some pretty badly hit areas, and delinquencies on refinance loans have risen faster than those on new loans in the past three years. Granted, practically all investors have overlays in place that improve the credit quality of the loans, but still many view an FHA loan as a substitute for the now-extinct popular subprime loan (although hard money lenders have also stepped in).  

Speaking of them, the FHA has made substantial changes to their guidelines pertaining to Streamline Refinance Transactions. U.S. Bank Home Mortgage Wholesale Division is the latest to outline the most crucial changes in regards to FHA Streamline Refinances. After November 18, FHA loans will require the borrower to have made at least 6 payments on the FHA-insured mortgage at the time of application. And at the date of loan application, the borrower must have an acceptable payment history which for mortgages with less than a 12 months payment history, the borrower must have made all mortgage payments within the month due, or for mortgages with a 12 months payment history or greater, the borrower must have experienced no more than one 30 day late payment in the preceding 12 months and made all mortgage payments within the month due for the three months prior to the date of loan application. In addition, there are other standard criteria regarding net tangible benefit, moving from a fixed rate loan into an ARM loan, and reducing the term.

For economic news we had Jobless Claims. Yesterday, however, in addition to the Fed announcement, Treasury officials announced a record $81 billion refunding package for next week. Sales include $40 billion in 3-year notes, $25 billion 10-year notes, and a $16 billion 30- year bonds to be held on Monday, Tuesday and Thursday. (Wednesday is a holiday.) Claims for jobless insurance hit a 10-month low. Are things improving or are the unemployed, or under-employed, just going off the radar screen? Initial claims for state unemployment benefits dropped 20,000 to a seasonally adjusted 512,000 in the week ended Oct. 31, the lowest since early January. The four-week moving average for new claims dropped for the ninth week in a row. Tomorrow, of course, the Labor Department is expected to report that the decline in employment is slowing and that payrolls fell 175,000 in October, compared with a decline of 263,000 in September. Currently the yield on the 10-yr stands at 3.54% and mortgage prices are a shade better than yesterday afternoon.

A guy was sitting quietly reading his paper when his wife walked up behind him and whacked him on the head with a magazine.
"What was that for?" he asked.
"That was for the piece of paper in your pants pocket with the name Laura Lou written on it," she replied.
"Two weeks ago when I went to the races, Laura Lou was the name of one of the horses I bet on," he explained.
"Oh honey, I'm sorry," she said. "I should have known there was a good explanation."
Three days later he was watching a ball game on TV when she walked up and hit him in the head again, this time with the iron skillet, which knocked him out cold.
When he came to, he asked, "What the heck was that for?"
She replied..."Your horse called."