"The evening news is where they begin with 'Good Evening,' and then proceed to tell you why it isn't." So I won't say "Good morning."

As Wells Fargo Security's newsletter noted at the end of last week, "Now that the era of stimulus is coming to an end, decision makers must come to grips with the economy that we have-not, the one some commentators dream up. First, the housing sector continues to work through its issues, which means sustained subpar housing starts for several years in several metropolitan areas. Second, the pattern of fiscal deficits remains higher than in earlier economic recoveries. Forty years of promises for entitlements now face the reality of limited revenue growth at the federal and state level. The time of smoke and mirrors has passed."

At this point, a sizable portion of loan officers would willingly trade these low rates for an uptick in property values, some heat in the economy, and slightly less stringent underwriting guidelines. And brokers would like some market share back: a report shows that brokers' market share fell to an all-time low of 6.9% in the first quarter, the lowest reading ever per National Mortgage News.

And an industry observer wrote to me, "The nation's banks did 29,000 HAMP loans, while we have over 4.2 million in foreclosure. That's about 1/2 of 1 percent or 6% annualized. Since the Fed seems to finally admit it going to be a long drawn-out recovery, as opposed to prior Bernanke statements that it was contained. If servicers keep taking 800 days to foreclose, plus the several-year Freddie or Fannie restriction on new loans or buying, we are going to lose over 4 million buyers for 6-7 more years alone.

Lots of notes lately, on a variety of topics:

"I have friends in different parts of the world and nobody has had a mortgage crisis due to debt ratio requirements. In some countries 20% down and a 28% front-end debt will get you a home regardless of credit. I don't agree with anything less than 5% down. Like anyone else, I would like as many resources as possible to earn money in the mortgage business - but with that, we will find ourselves in a fake economy once again. The value of homes should increase according to income  - not debt ratio increases. Everyone should have at least 5% in the game. If you work hard and you make sacrifices to save at least 5%, then you are ready to purchase a home."

"Every day we hear how the banks are so conservative now: UW rules are extremely tight, FICO risk based pricing.  The reason the banks allowed 'anything goes' a few years ago, is Wall St. sold the trash. There never would have been a huge subprime market to go bust if Wall St. had not provided the outlet to take the subprime stuff off the banks' books. I doubt if banks would have provided the subprime programs that were in market if they had to keep the stuff."

"I run production for my company, and I tell my sales staff that they need to figure out a way around borrowers looking for appreciation. It doesn't look like housing prices will be bouncing back anytime soon, given unemployment, household formation, shadow inventory, underwater mortgages, more stringent underwriting requirements, and the possibility of higher rates. Rates are great, and my staff needs to continue dialing the phone."

We discussed Fannie versus Freddie prepayment speeds, along with a clarification on the Freddie Relief program. I received this note from a broker in the Northwest; "In spite of programs being offered by agencies, many are not really 'do-able' in the real world. With Freddie's Relief loan, sure they'll do all kinds of things - but find an investor that will do it. Most have severe overlay guidelines on the Relief program that make most of the loans impossible to close. Transfer MI? Right. B/A or Wells would just 'love' to take on all of CHASE's 125% LTV or higher CLTV files, especially if subject property is investment occupancy now (CHASE would probably provide the leads if they would), just like Chase would 'love" to take on BofA's and Wells'. Also, if my memory serves me correctly, Freddie did a bunch of pool insurance, in which case you can't get a Relief at all. Bottom line from my experience: Relief loans are available from Freddie but tough to close with a high failure rate from the start."

Here is a NMLS "heads-up" for folks: on June 16 a license deficiency will be placed on companies who have not submitted their Q1 Mortgage Call Report. Over 11,000 companies have successfully completed their Q1 MCR in NMLS. If you haven't yet, get started: NMLSQ1CallReport.  

Last week the commentary discussed REIT's impact on the residential mortgage market. The total market capitalization, or the aggregate value, of real estate investment trusts could be as high as $42 billion and growing, according to an estimate from investment bank Keefe, Bruyette & Woods (versus $500 million in 1971 and $30 billion by the end of 2010). Real Estate Investment Trusts have special tax exemptions and an ability to hold more capital under upcoming risk-retention rules. So why are REIT's buying? This is a key reason that spreads remain range-bound despite the news of the Treasury unwinding its MBS portfolio, and the leverage opportunities are very attractive.

Analysts believe that more growth could come as the mortgage market becomes dependent on more capital. Currently, $1.5 trillion in mortgages and MBS sit on Fannie Mae and Freddie Mac balance sheets with another $1 trillion in MBS at the Federal Reserve. Assuming a run-off rate of 10% per year replaced by private capital, the mortgage market could need roughly $110 billion in private capital in the next decade which could double the current $42 billion that REIT's control. For more information visit REITPrimerAnalysis. And David Akre with Whole Loan Capital has written a presentation for lenders considering a REIT structure. If you're interested in seeing it, contact him at dakre@wholeloans.com.

CitiMortgage (#4 in the 1st quarter with a 4% market share) issued an update focused on "Low-to-Moderate Income Census Tract" (LMICT) pricing incentives. Loans can be sold either best efforts or mandatory to Citi, but Illinois markets are no longer eligible; selected markets in Florida, New York and Texas still eligible." There are certain requirements, such as the loans must be locked after 5/16 and be purchased by 8/31, the property to be located in the specified state, county, and MSA as identified per the Eligible Counties table. To start with, enter the property address into the FFIEC website at FFIECGeoCode and click on the "Get Census Demographic" button at the bottom of the page.

Citi also offered up to its clients "the top pre-purchase suspense items and post-purchase defects for conventional and government loans." First on the list is evidence that the property is owned "Free and Clear": "There must be documentation in the loan file to demonstrate the property (other than the subject property) is owned free and clear as stated by Final 1003. A hazard insurance policy or binding hazard policy commitment (inclusive of all pages) is required as part of the loan file submission if the Final 1003 states a property is free and clear of any mortgage. (An acceptable alternative would be to provide a Core Logic / Real Quest Property and Ownership search against public records, reflecting that there is no mortgage or encumbrance against the property.) And some properties are located on private roads, which often have maintenance agreements. "When the subject property is on a private road (street type shows as "Private" per appraisal report / appraisal form 2075), ensure one of the following is included in the loan file submission: A Private Road Agreement (states who is responsible for maintenance of private road & the cost of maintaining the road), comments/statement from the appraiser regarding maintenance expense of the private road (e.g., included in the HOA fee).  For more details on best practice documents Citi's clients can visit www.agentsite.com/solutions under the 'Quality Tools' header.

Bank of America (#2 in the 1st quarter with a 17% market share) issued a disaster declaration for Illinois. It also issued a product update to state specific guidelines and an update to the Open 30-Day Charge Accounts Policy.

GMAC (#7 in the 1st quarter with a 3% market share) released an announcement that in Illinois a civil union shall be recognized by the law in regard to spouses.

The 1st quarter's #1 lender (with a 24% market share) Wells Fargo Funding sent out a "Risk Advisory Bulletin" to its correspondent clients. Topics included GFE/HUD-1 Comparison Chart Discrepancies under RESPA, the use of correct model form TILs, "Incomplete Copies of Notice of Special Flood Hazards," and dating corrected documents to cure a material finding. And in wholesale, brokers received a Newsflash addressing the use of the pricing calculator to determine compensation, a reminder of "Benefit to Borrower" policy changes (that took effect 5/21), and discussed Ohio "Zero Interest/Low-Rate Mortgage Loan Requirements."

SunTrust (#9 in the 1st quarter with less than a 2% share) issued an additional guidance for DU loans for borrowers employed by a family member, announced the Virginia Automatic Subordination Amount is increasing July 1, issued a statement saying borrower-paid temporary buydowns are no longer offered, and offered up clarification on eligibility requirements for Florida condominiums.

As the commentary has noted, it is hard to complain about rates. Yes, there is some inter-day volatility, but with the 10-yr sitting around 3% and 30-yr fixed rates around 4.375%, rates are not the issue. Last week rates closed lower, with the 10-yr at 2.97% and MBS prices slightly better than the previous Friday's. We have zilch for scheduled economic news today, but tomorrow the pace increases with Retail Sales, the Producer Price Index, and Business Inventories. Wednesday is the Consumer Price Index, Empire Manufacturing, and Industrial Production & Capacity Utilization. Thursday is Jobless Claims, Housing Starts & Building Permits, and the Philly Fed. Friday is a University of Michigan number, and Leading Economic Indicators. Quite a bit! Rates are slightly higher with the 10-yr at 3.01% and MBS prices worse about .125-.250. ECON CALENDAR: THE WEEK AHEAD 

(Warning: Parental discretion advised)
A video collection of "Dirty Jobs"'s Mike Rowe's double entendre comments: FUNNY