At this point, no one expects too much fundamental change to the agencies before 2015. (This year will continue to see groundwork being laid; next year is yet another election year so Congress will be frozen.) But that doesn't stop the agencies taking things into their own hands. Fannie Mae is set to offer about $1 billion in non-agency home-loan bonds from its portfolio in an auction. The sale is part of an effort to meet a goal set for Fannie Mae and Freddie Mac by the Federal Housing Finance Agency to sell 5% of their illiquid assets by year's end. "We are working with FHFA to meet the goals of the conservatorship scorecard for 2013," Fannie Mae spokesman Andrew Wilson said. Read more HERE.

The talk about month-end crunch times continues: "On the subject of closing your loan earlier in the month.  Your commenter stated that you could accomplish the same result of skipping 2 payments even if you close later in the month.  I have always been told to make sure you pay off the old loan before the 15^th of the month or you run the risk of having a late payment reported to the credit bureaus.  Also, as a warehouse lender we appreciate customers spreading funding's across the month.  We hate missing a funding and the tidal wave at the end of the month can cause delays and mistakes."

And would the CFPB encourage consumers to close earlier in the month? "Do you really think anyone on the CFPB staff knows how to calculate daily interest factor?  I think 'delayed' is a better word than skip, regarding future interest payments on new loan.  Out of pocket is the game.  There are NO savings. Pay now or pay later, you are going to pay.  What the CFPB should fix, but I doubt it understands the situation, is FHA collecting interest through the end of the month with no regard to when the loan pays off. Collecting interest on a loan that does not exist would be illegal for any other kind of loan."

The writer continued, "Back in the day, 30 years ago, Beneficial Finance and HFC, just to name two for example, made subprime loans. Those loans were outside main stream lending. Those loans were nowhere near what became 'subprime' once the big guys got involved, but still outside the box loans. The loans were not sold: those entities held the mortgages in portfolio.  Where did the idea come from that we have to be able to sell everything and have an outside investor take all the risk?  FNMA/FHLMC/FHA/VA all had/have standardized UW rules.
The UW criteria for an acceptable loan was good credit, stable income in amount sufficient to repay the debt, cash available to close and some left over to make the first payment, and reasonable LTV. FHA had/has default insurance paid for by the borrower.  VA you must be a veteran, and still have the ability to repay.  VA even required residual income every month.  CFPB probably does not know what that means.  That is when you subtract all the bills from the monthly income, what is left over is called residual income.  That is what is available to buy food etc."

(And this one: "When are the CFPB and everyone else going to realize that brokers do NOT receive YSP? We have an origination charge.  If there is YSP it goes to the borrower to use toward closing costs.")

Here at the conference in San Francisco folks are talking ARM loans. The industry seems concerned that we are dealing with a generation of loan officers that have never done and ARM loan, and are intent on heading off operational issues. One veteran broker from Nevada wrote, "ARM loans, like all loans, are not for everyone.  I have heard many LOs don't complete the 30 year fixed GFE and TIL correctly. I cannot imagine what is done with ARM disclosures. I am concerned that five years down the road many of the 5/1 ARMS being written now will jump 5% on the initial change. Then it will be 'here we go again.'"

For example, let's take a look at the various indices that are used. (And yes, the words indices and indexes are both acceptable.) One common index is the auction average of the (One-, Three-) or Six- Month US Treasury Bill. It comes from the Bureau of Public Debt (formerly reported by the Federal Reserve in Publication H.15) and is used for three and six-month ARMs and comes from reporting a new 3- and 6-month Treasury Constant Maturity value.

Another index is the yield on Treasury Security Adjusted to a Constant Maturity of ___ Year(s), also known as the CMT (Constant Maturity of the Treasury), TCM (Treasury Constant Maturity), or T-Sec (Treasury Security). It is commonly used for one-year ARMs and non-fixed portion of Hybrid ARMs.

We have the OTS 11th District COF, also called COFI (pronounced "Coffee"). It is the monthly weighted average cost of funds for 11th District SAIF-Insured Institutions and comes from the Office of Thrift Supervision, San Francisco. It is commonly used for one-month ARMs. This index is calculated by the Federal Home Loan Bank of San Francisco, one of twelve Federal Home Loan Banks. The 11th district represents the SAIF-insured savings institutions (savings & loans and savings banks) in Arizona, California and Nevada. The cost of funds reflects the interest which these institutions pay on their sources of mortgage money, including savings accounts, FHLB advances, money borrowed from commercial banks, and other sources.

Since the largest part of a cost of funds index is interest paid on savings accounts, this index may lag behind the economy; many accounts are time deposits with medium- to long-term maturities at fixed interest rates. Most COFI ARMs have no per-adjustment interest rate caps (they would rarely need one) but they can feature an annual payment cap, typically 7.5% (a borrower's payment would rise no more than 7.5% from year to year, regardless of what happens to interest rates). Historically, however, some COFI-based ARMs allowed for negative amortization, so caution might be needed when selecting one in the face of a rising interest rate environment.

Lenders generally add a margin, between 2% and 3%, to any index to arrive at a newly-adjusted interest rate.

Other indexes include the "National Average Mortgage Contract Interest Rate for Major Lenders on the Purchase of Previously-Occupied (Single-Family) Homes (National Mortgage Contract Rate, or NMCR), the 12-month moving average of monthly values of the one-year TCM (also known as 12-MAT; 12-MTA; Moving Treasury Average), Certificates of Deposit Index (CODI: the average of the 12 most recent monthly yields on 3-month Certificates of Deposit as published by the Federal Reserve), the Federal Cost of Funds, the Cost of Savings Index (COSI), the Prime Rate, and LIBOR.

LIBOR, which you'll also see written as Libor, is the London Interbank Offered Rate. It is commonly used for one-Month ARMs (monthly values), one-year ARMs, and non-fixed portion of Hybrid ARMs. The index has been in the press lately. According to the British Bankers Association (BBA), the BBA LIBOR is the rate of interest at which banks borrow funds from other banks, in marketable size, in the London interbank market. In this way, LIBOR is akin to our own Federal Funds rate, also a sort of interbank lending rate. Supposedly it is an open market rate, free of regulatory influence. But tales of fixing LIBOR abound, and now we may have "a new sheriff in town" creating and monitoring LIBOR.

How about this note? "Here's an issue that really sticks in my craw: internet ads with completely false and deceptive rates. I saw one on a bit site's "sponsored link" for 30 year fixed VA loans at 2.65%.  It's from the folks at 'Veteran Loan Administration', so borrowers 'know' they're reputable.  Here's what I got when I clicked on the ad. Have you heard of any concerns from the FTC or CFPB on this blatantly false advertising? It seems to me this is exactly the type of situation they should be cracking down on if they're really interested in protecting borrowers and punishing lenders/lead generators who deceive potential borrowers with obvious bait and switch tactics."

Let's move on to some recent agency and investor updates.

Loan Quality Advisor, Freddie Mac's answer to EarlyCheck, is available to use-two of the three capabilities, anyway.  Seller/servicers can now use LP Data Compare to view current loan data submitted to LQA against loan data used in the last LP submission, while the Risk Assessment tool provides a summary of Freddie's assessment of the credit risk of any given loan and associated loan quality for loans not using LP to indicate the chances of an LP Accept or LP Caution.  The Purchase Eligibility application, which will run data quality and purchase eligibility rules consistent the ones run at loan delivery and identify potential pre- and post-closing errors, is scheduled to be rolled out later this year.  For more details on how to sign up for LQA, see THIS.

Citi is no longer requiring the signed estimated HUD-1 settlement statement or equivalent estimated closing statement for any mortgages in escrow; the signed Final HUD-1 or final escrow statement will suffice.

Fifth Third will be updating its DU-underwritten products to reflect the most recent policy changes, which include requirements for the age of documents, business tax returns, and income eligibility and documentation.  This includes the final year to date paystub in place of the most recent W-2, capital losses identified on schedule D of IRS Form 1040, and proof in the separation agreement that specifies child support payments.

Per the Texas Supreme Court's recent ruling on finance commissions in Texas vs. Norwood, PennyMac is no longer allowing discount points to be excluded from the 3% fees cap for Conforming loans locked under the Fannie Mae and Freddie Mac standard loan balance Texas 50(a)(6) Home Equity program.  In addition, Power of Attorney may no longer be used for any such transactions in these programs.  This affects all loans closed on or after June 21^st.

Yes, markets fluctuate. Yesterday we saw residential agency mortgage-backed securities "widen" (they did not match Treasury movements on a 1:1 basis) despite the FOMC Minutes being less hawkish than expected. It seems the MBS market chose to interpret it in terms of the glass being half empty versus half full. In other words, despite that "many other participants felt it would appropriate to continue purchases into 2014", and that "many members indicated that further improvement in the outlook for the labor market would be required before it would be appropriate to slow the pace of asset purchases", participants focused on the part that about half would like to conclude the large scale asset purchases by the end of this year.

By the end of the day prices on FNMA 3s through 4.5s were down/worse between .75 and .5 while the 10-year Treasury note was off .375 and closed at a yield of 2.68%. That was then, this is now, and prior (and after) to the morning numbers the 10-yr was better by .5 and down to 2.59% and MBS prices are better by about .250. We've had June Import Prices (expected flat from -0.6 percent, they were actually -.2%) and Initial Claims (+340k versus +343k, but were actually +16k to 360k, larger than expected) at 7:30AM CST. Later we'll have a Treasury auction of $13 billion 30-year bonds.