The Federal Reserve does other things besides keep overnight Fed Funds at 0% for years at a stretch. It releases some interesting stats on mortgages that, if you need a filler for a presentation you're doing, might come in handy - you'll notice mortgage debt dropping.

"Rob, I don't think that many in the business have an awareness of how Basel III will impact banks, and therefore mortgages and servicing, and therefore mortgage pricing for consumers." I tend to agree, although I am trying to alert folks about the possible ramifications.

Basel III is expected to be the norm for banks around the world, which brings up the question, "How do borrowers finance their homes in other countries?" There is an in-depth look at this - click on the link near the top right of this page.

Yesterday Citigroup missed estimates, reporting disappointing earnings although net credit losses fell 40% as full-year net income grew 6%. Citi Holdings (the bank's operation set up to handle its toxic debt remnants) saw its revenue fall $6.4 billion, but Citi released $1.5 billion in loan loss reserves, a 35% decrease from 2010 - nice to see.

Wells Fargo beat estimates with a 2011 net income up 28% from 2010, helped by a release of $600 million from loan loss reserves during the 4th quarter. Wells has tended to focus on the consumer (as we've all noticed, given its 30%+ mortgage market share) and not on investment banking as other banks have done. Wells Fargo said its bucket of nonperforming loans in the fourth quarter declined roughly 20% from the period a year earlier. Its loan total grew to $770 billion in 2011 from $757 billion at the end of 2010, and profit in the community banking division, which includes Wells Fargo's retail branches and mortgage business, soared 30 percent. New mortgages rose 35% to $120 billion from the prior quarter, and net interest margin, the difference between what the bank pays for funds and what it earns on loans and securities, climbed to 3.89% from 3.84%.

Mortgage banking non-interest income stood at $2.4 billion for Q4, up $531 million from third quarter 2011, on $120 billion in originations, compared to $89 billion in originations in Q3. Mortgage banking non-interest income in Q4 included a $404 million provision for mortgage loan repurchase losses, compared with $390 million in the third quarter (included in net gains from mortgage loan origination/sales activities). Net mortgage servicing rights (MSRs) results were a $201 million gain, compared to a $607 million gain in Q3 of 2011. The ratio of MSRs to related loans serviced for others was 76 basis points and the average note rate on the servicing portfolio was at 5.14 percent. Wells Fargo's unclosed pipeline as of Dec. 31 was $72 billion, compared to $84 billion at Sept. 30, 2011.

Wells is seeing what many mortgage banks are seeing in the FHA/VA sector. Yes, government loan production has increased, but so have delinquencies. By the end of the fourth quarter, $19.2 billion of these loans were more than 90 days past due, up from $16.4 billion the previous quarter and $14.7 billion at Dec. 31, 2010. (Wells became the top FHA and VA mortgage originator in the country after 2010 and originated more than $112 billion worth of these guaranteed mortgages.)

Here is an interesting note related to Wells' FHA update. "Rob, I have a quandary that maybe you or one of the readers can help with. We are a small mortgage broker shop incorporated in 1991. Up until recently we were a mini-eagle when HUD/FHA eliminated that particular category. This is the first part of the problem. We are no longer able to track the loans we originated. We can see the general numbers up to last year when we were no longer able to order case numbers with our ID. The previous loans' performance, however, is still being tracked within the two year time frame. And here is the issue: our compare ratio is way out of whack. As you know the compare ration is the percentage of loans that are delinquent compared to the total number of loans originated. The problem has two parts. First the lenders want explanations for the loans that are being shown as in default but we can no longer find out who they are. So there is no way to do an explanation. Second, the compare ration is only comparing the loans upon which we ordered the case number, so the list for the last two years is becoming smaller and smaller every month as the loans form this year are not being added, but of the three loans one was late last year. So my compare ratio has gone from under 100 to 100 to 150 to 200 and is now 250! Eventually, just before they are all over 2 years old it will be over 1,000. I can't be the only broker that this is happening to! Multiple calls to the FHA resource center have only ended in frustration as all they can tell me is how to get the number. What should I do?"

One list that neither Wells or Citi find themselves on is the list of four Wall Street banks who will be bidding on the $7 billion mortgage-related securities previously owned by AIG and are due to be auctioned tomorrow by the Federal Reserve Bank of New York. Goldman Sachs, Barclays Capital, Bank of America and Credit Suisse will bid on the debt, which was acquired by the New York Fed as part of the bail-out of AIG in 2008. The auction is being managed by BlackRock Solutions. The $7 billion is part of a $20 billion portfolio housed in a special purpose vehicle called Maiden Lane II. If the Fed obtains a good price, subprime debt could rally because the sale will remove a significant amount of supply that has been hanging over the market, investors said - prices of subprime debt fell last week as rumors of the Maiden Lane II sale circulated among traders and investors. Stay tuned...

All these loans began their lives as applications, and the MBA's study, representing 75% of retail originations, showed that apps were up 23% last week. Purchases were up over 10% and refi's were up over 26% - accounting for over 82% of all applications (the highest refinance share since October 2010).


If you want to complain about HUD loan limits, you'd better hurry. HUD has proposed eliminating maximum loan limit appeals. Late last week HUD published a proposed rule to eliminate the process by which interested parties may appeal the maximum allowable loan limit for a geographic area. Noting the modern availability of sales-transaction data at the county level, HUD states that there is no longer a need to allow requests for alternative limits. Further, the appeals disrupt HUD's overall loan limit determination process, and, by eliminating appeals, HUD will be able to release annual loan limits earlier, thereby providing more certainty to the market. HUD also noted that, because of the availability of transaction data, it received zero requests for appeal of the 2011 loan limits. Copy of the proposal

Have you ever wanted to see how a rating agency looks at a residential MBS? Kroll recently rated one of Redwood Trust's deals, and here is all the nitty-gritty. The mortgage loans were originated by First Republic Bank (55%), PrimeLending (19%), PHH (11%), Wintrust (3%), Flagstar (8%), Sterling Savings Bank (2%), Cole Taylor Savings Bank (1%) and Guardhill Financial Corporation (1%).  The mortgage loans will be serviced by First Republic Bank (55%), Cenlar (19%), PHH (11%) and Select Portfolio Servicing (15%).

In CFPB news, its "Rule" appears to "have eliminated the commentary language included in the Fed's version which allowed appraisal management companies (AMCs) to include the fees they have been paying appraisers to comply with Dodd-Frank's "customary and reasonable" appraiser fee requirement. ASA has repeatedly stated its belief that the Fed's interpretation and the massive loophole it created ran contrary to the plain language and clear intent of Dodd-Frank." Maybe it is a deliberate decision by the Bureau to reject the Fed's dubious and troubling interpretation, maybe not.
 
Fortunately with all this, rates are doing very little. The 10-yr T-Note seems content around 1.85%, mortgage prices did very little yesterday while Thomson-Reuters reported that mortgage banker selling appears to have been between $1.5 and $2.0 billion, which was partially offset by the usual Fed support. Perhaps mortgages may struggle a bit more than they have so far this year as some investors believe that much of the tightening in the event of QE3 has been priced in.

This morning we've already seen the Producer Price Index for December -.1%, ex-food & energy +.3%; the -.1% is better than expected. At 9:15AM EST are Industrial Production and Capacity Utilization, expected +0.5% and 78.1% respectively, and finally at 10AM EST homebuilder sentiment is gauged with the NAHB Index (Jan) called unchanged at 21.0. After the PPI interest rates are basically unchanged from Tuesday's close.


(Parental discretion advised.)
A woman and her 10 year old son were riding in a taxi in downtown USA. It was raining and all the prostitutes were standing under the awnings.
"Mom," said the boy, "what are all these women doing? "
"They're waiting for their husbands to get off work," she replies.
The taxi driver turns around and says, "Geez lady, why don't you tell him the truth? They're hookers, boy! They have sex with men for money."
The little boy's eyes get wide and he says, "Is that true mom?"
His mother, glaring hard at the driver, answers in the affirmative.
After a few minutes, the kid asks, "Mom, what happens to the babies those women have?"
"Most of them become taxi drivers," she said.


If you're interested, visit my twice-a-month blog at the STRATMOR Group web site located at www.stratmorgroup.com. The current blog discusses residential lending and mortgage programs around the world. If you have both the time and inclination, make a comment on what I have written, or on other comments so that folks can learn what's going on out there from the other readers.