What is the MBA applications number going to tell us tomorrow? My bet, given stories from lock desks around the nation, is that we'll see an improvement last week. Zelman & Associates, in its Mortgage Originator Survey, notes, "Despite weather and limited inventory constraining greater purchase acceleration, according to contacts, robust inquiry and pre-approval volume bodes positively for future origination business for well-positioned lenders. Despite the relative improvement in purchases, depressed refinance activity and greater competition for purchase business has eroded lender profitability as reflected in the 15 basis point compression in the primary-secondary spread since the near-term peak in April 2013 and decline in our profitability index. In addition to sacrificing margins, the intense competition in the market has incentivized lenders to expand product offerings and ease credit standards by removing overlays. Although the easing is likely to improve the underwriting process for borrowers, overall stringency remains historically tight and the Qualified Mortgage and Ability to Repay standards are likely to govern the extent of easing this cycle. That said, lenders expect the limited availability of non-QM mortgages to improve going forward, albeit slowly, as the industry gains greater comfort with the new framework established by the CFPB."

As noted in the commentary a few weeks back, the CFPB is becoming more involved in assisting borrowers with managing their credit scores more effectively. LOs seem not well informed as to the negative impact of the LLPA (loan level pricing adjustment) grid on pricing their client's loans, since price is usually converted to rate using the pricing engines. The cost difference in fee between a 679 vs a 720 FICO on a $400k loan is $9,000. And companies are popping up that focus on helping manage credit. For example, Scorewell Inc. has evolved into a full service credit advisory company. It conducts an initial free session with the client (typically referred by a loan officer or real estate agent) to ensure that the LO "has a trusted place to send their clients to receive education, strategy and error resolution services as needed." During the initial session Scorewell determines whether or not they believe the client's objectives are reasonable and attainable, and if all information on their credit report is accurate, current, and verifiable. "We work with the client for six months (longer if required) to help them achieve the highest credit score to which they are legitimately entitled. We also develop strategies for the client and shared with the loan officer, that ensure they maintain control of their credit going forward."

Sens. Tim Johnson, D-S.D., and Mike Crapo, R-Idaho, fleshed out the proposed legislation that outlines the elimination of Fannie Mae and Freddie Mac. Under the proposal, the government would continue to have a significant role in insuring mortgages. A platform would be developed in which private sector entities would take on the roles currently held by Fannie Mae and Freddie Mac. 

(Read More: Summary of Newly-Released Housing Reform Bill)

It has such a long, long way to go, although it certainly gives reporters something to talk about. Bloomberg, for example, noted how the wind down of the agencies was deemed a threat to the housing recovery, reminding us that the legislation "would replace the two financiers with a government-backed mortgage-bond insurer. It would cover losses only after private capital bears the first 10 percent, leading to higher mortgage rates, according to Credit Suisse AG analysts. The plan also would eliminate a mandate that a percentage of mortgages go to lower- and middle-income families, threatening to decrease America's homeownership rate."

The MBA released a statement. "Here are links to the draft legislative language, a section by section analysis, and a detailed summary. Obviously, the MBA has been tracking this process very closely and has been actively engaged with the committee and other policymakers since the text was released to review the concepts, provide feedback, and discuss the path forward." President Dave Stevens wanted to make three key points. "First, this is just another step in the process, albeit an important one.  It is crucial that we not overreact, particularly publicly, to what we see in the initial draft.  Rest assured, MBA is at the table, and will be providing technical feedback to the discussion draft authors as the process unfolds to ensure our members' concerns are addressed and their businesses are protected.

"Second, there is a lot of good in this discussion draft.  On its whole, the draft seems to strike the appropriate note on the role of both the government and private capital and the need to preserve liquidity for residential and multifamily housing finance.  And more importantly, it keeps the process moving forward.  The one thing we can all agree on is that the current state of the GSEs is unsustainable over the long term.

"Third, we do have a preliminary list of questions we want to talk with the authors about.  These include, the size and scope of the FMIC's regulatory authority; the role of private capital, capital levels and the private market; the envisioned role of the guarantors and the need for a clear firewalls to insure equal access and the best incentives for all lenders; and the role of the mutual and whether it will provide the best execution for all users." If you have questions or concerns, contact Pete Mills (pmills@mba.org) who is overseeing the MBA's analysis from the residential side or Tom Kim (tkim@mba.org) who is fully engaged on behalf of the commercial/multifamily members.

Of particular interest on the capital markets side of things was the verbiage, "Beginning six months after enactment, FMIC may, upon application and in exchange for a fee, provide insurance on outstanding mortgage-backed securities issued by the enterprises. FMIC may also facilitate the exchange of mortgage-backed securities issued by either enterprise for covered securities, the exchange of mortgage-backed securities issued by one enterprise for those of the other enterprise, issuance of mortgage-backed securities by both enterprises through a single issuer, or issuance of real estate mortgage investment conduit securities consisting of mortgage-backed securities issued by the enterprises. Within six months of enactment, the FHFA Director is required to submit a study considering the feasibility of these actions to FMIC, the Senate Committee on Banking, Housing, and Urban Affairs, and the House Committee on Financial Services."

What does this mean to the current holders of Fannie & Freddie securities? The proposal apparently gives them the option of exchanging them for FMIC insured securities for a fee as early as six months after the enactment of the law which could be an important development for domestic banks. So it seems that additional explicitly government insured MBS could be available sooner than what the market thought before. But once again, other proposals like this have gone nowhere, and this has a long way to go.

Taking a quick look at lender & investor news...

Mark Reeve, Reverse Mortgage Manager for Plaza Home Mortgage, will be presenting at "Lending Outside the QM Box/NAMB Conference Update" presented by Greater Houston Association of Mortgage Professionals on Tuesday, March 25^th.   Registration information is available at www.ghamp.com.

Impac has added manufactured housing as an eligible property type under its FHA Streamline refinance program and has added guidance on seasoning requiring that, on the date of the case number assignment, the borrower must have made at least six payments, at least six full months must have passed since the first payment due date, and at least 210 days must have passed from the closing date.  The maximum CLTV for FHA Streamline refis has also been changed to 125% of the original appraisal value.

Impac has formally changed its name to Impac Mortgage Corp and is requesting as such that the new name be used for endorsing collateral packages, effective immediately.  The change does not affect any MLPA terms.

As I have mentioned in the past, the US Treasury Department's Treasury International Capital, or TIC, is an economic indicator which tracks the flow of U.S. backed debt flowing into and out of the United States. Along with US Treasuries, TIC data also shows demand for U.S. corporate, as well as U.S. agency bonds. The data from the Treasuries annual TIC survey released at the end of February showed that the market value of agency MBS holdings of overseas investors had declined by $60B from June 2012 to June 2013. After adjusting for changes in the dollar prices of agency MBS from June'12 to June'13, analysts estimate that the face value of agency MBS held by overseas investors had declined by about $30-$35bn over the one year period ending June 2013. As of June 2013 the biggest holders of US Agency Debt are: China, Mainland ($153.4B), Japan ($151.9B), and Taiwan ($126.4B): Treasury International Capital (TIC) System.

Looking at the path of the 10-yr. yield as a proxy for mortgage rates, Friday we closed at 2.64%, yesterday we opened at 2.68%, and then closed Monday at 2.70%. In Monday's economic news, the Empire Manufacturing Index was in line with expectations, while the National Association of Home Builders Housing Market Index report fell short of estimates. They didn't make much difference as the market was more focused on the lack of military action in Russia - leading to a "reverse" flight to quality. Basically the lack of major violence led to higher rates in the United States.

Once again weather put a damper on things in the Northeast. Volume was light on Monday, and we can expect another low volume session today as the FOMC enters day one of their two day policy meeting.  Today we'll have Housing Starts & Building Permits reports, along with the U.S. Treasury sale of $35 billion of 4-week bills. In the early going the 10-yr is sitting around 2.69% and agency MBS prices are roughly unchanged.

I don't mind giving up the appearance of privacy to live with the " illusion of safety." These, and many other issues including collusion, will be brought up in the FDIC lawsuit against the world's largest banks over fixing LIBOR, a popular ARM index. This is especially of interest given the upswing in borrower's interest in adjustable rate mortgages.

If you have a subscription (or would like to set one up) to Fitch Rating, you can read reports issued yesterday on Citi's servicing group, or Nationstar.