"There's no time to stop for gas, we're already late." One has to think about the warped logic that is behind that statement, just as one has to think about how a downgrade by S&P of US debt caused a drop in rates. Yesterday the 10-year UST note yield fell to 2.41%, the lowest level since October, and the 2-yr UST yield hit a fresh record low of 0.232%.  The price move underlines the dilemma confronting investors:  there are few alternative safe-haven assets out there that can match the depth and liquidity of the Treasury market, with over $9.3 trillion in debt outstanding. The US debt downgrade from triple-A to double A-plus was not a big surprise to investors, but the fears about the U.S. economy faltering further and the euro-zone debt crisis have spooked investors' sentiment and increased worries that the downgrade could further undermine consumer confidence. Bill Gross, the manager of the world's largest bond mutual fund, praised S&P's 'Spine' on the move. PIMCO, as we remember, was the fund that sold all its US Treasury securities several months ago, only to see prices rally dramatically - it has been buying US Treasury securities back again.

How does an appraiser find comps for a 100 square foot house? Something tells me that there would be no comps: LicensePlate? Something to give the person who has everything...

A while back the commentary mentioned that HVCC had been phased out. "It is now A.I.R. - Appraisal Independence Requirement.  They are "technically" correct.  HVCC no longer exists but it is only in name.  The AIR is essentially the exact requirement." Another vet wrote, "The actual HVCC was put to bed last October. However, two events occurred. First; The GSE's internally adopted permanent rules to continue HVCC. You have to remember Cuomo wanted HVCC after conducting the investigation of WAMU and an AMC. He only got HVCC after he backed off of the affiliated arrangement restriction to 20% ownership by a banking entity. Second; the Dodd Frank Bill incorporated the HVCC into the Bill that is now in effect in Section 1472, Title XIV, subtitle F.  There are also some provisions in the Interagency Banking Guidelines. Have you noticed the FHA Streamlines are almost non-existent since they changed the MIP? They do not work."

For those interested in some training, and who isn't, "The Property Sciences Group presents a complimentary 90 minute Webinar: 'Clarity on the Upcoming Changes' tomorrow at 10AM PDT. Come September 1, 2011, the appraisal forms we have grown accustomed to will have a different "look and feel" in some specific areas. Join us as we provide clarity to Underwriters, Appraisers and Loan Agents on the upcoming changes brought on by the Uniform Appraisal Dataset (UAD)." Check it out at PropSci.

Cash held by US banks surged 8.4% to a record $981B during the week ending July 27, according to Fed data. That's more than 3x the amount held in July of 2008. What does that tell you about where banks, and individuals, are putting their money?

We know a company that could use some - Freddie reported a $2.1 billion loss for the second quarter and said it will seek $1.5 billion in U.S. Treasury aid in order to eliminate a net-worth deficit of $1.5 billion for the three- month period ending June 30. Like Fannie, the deficit was partly attributable to a $1.6 billion quarterly dividend payment to the Treasury Department, the company reported. It is better than the $4.7 billion loss in the same period last year, but this loss, along with Fannie's helps critics calling for the end of the agencies. In September it will have been three years since F&F were placed into conservatorship.

Speaking of Freddie & Fannie, S&P's downgrades did not stop at US Treasury securities - it downgraded the debt of these two also, along with 10 of the 12 Federal Home Loan Banks and five insurers from AAA to AA+: Knights of Columbus, New York Life Insurance, Northwestern Mutual, Teachers Insurance & Annuity Association of America and United Services Automobile Association. But wait - there's more! Investors are expecting downgrades of states or municipalities that rely on federal funding, along with hundreds and hundreds of securities whose ratings are dependent on U.S. sovereign ratings.

American International Group (see next paragraph), the bailed-out insurer, plans to sue Bank of America for $10 billion to recover losses on mortgage bond investments. AIG took U.S. government bailouts starting in 2008 to avert a collapse after losses tied to subprime home loans and insuring mortgage bonds. As you'd expect, BofA rejects the insurer's assertions, and through a spokesman said, "AIG recklessly chased high yields and profits throughout the mortgage and structured finance markets. It is the very definition of an informed, seasoned investor, with losses solely attributable to its own excesses and errors."

Last week we all saw the news on RMIC's cessation of writing new MI policies, which was followed by conjecture that PMI was next. But there are still other MI companies, and a news release AIG CEO Robert Benmosche said that subsidiary United Guaranty is thriving. The mortgage insurance unit earned $13 million in quarterly operating income. "They've done a wonderful job of reinventing how they underwrite mortgages," Benmosche explained. "So they have a model now that works very effectively on new business."

HUD has reached a settlement with BofA that releases the company from liability for failing to adequately provide alternatives to foreclosure on 57,000 delinquent government-insured mortgages. American Banker reported that, "It has been forged on a separate but parallel track from continuing settlement talks between Bank of America, state attorneys general and other regulators over alleged mortgage origination and servicing failures. B of A's pact with HUD requires it to waive a minimum of $10 million in unpaid mortgage payments and vet each of the 57,000 delinquent borrowers for a possible loan modification, short sale or other foreclosure alternative...After such outreach, the settlement paves the way for B of A to foreclose on homes that borrowers could not afford even after a mortgage modification and those that have been left vacant by owners. In forging the agreement, HUD decided to forgo steep monetary damages or admissions of error from the bank."

With the move down in rates, mortgage companies everywhere are grappling with renegotiations. Tina Reid-Freeman of MIAC wrote, "Everyone is complaining about renegotiations.  It is a loss mitigation situation and you lose money every time you have to renegotiate, period.  There are things we can do to mitigate the losses, however.  First, we structure our fallout tables to have "extra" fallout to account for the "partial fallout" of a renegotiation.  This helps you from being over-hedged as the market moves up.  However, since the position is adjusted after a certain degree of movement has occurred, even if it happens the same day, there are some losses. Historically, people purchased options to cover this risk, and a few companies still do.  But most take the risk, and use dynamic pullthrough adjustment to prevent significant over-hedging.  This avoids the certain cost of option premiums in favor of the potential cost of renegotiations, and actually works well.

"With respect to handling renegotiations internally, it is important that everyone involved understand that they are not free.  The loans are hedged from day one so there is a cost to the company.  They are a loss mitigation exercise...you lose by giving the borrower a better rate, but lose less than you would if you lose the deal entirely.  It helps to require everyone in the food chain to share part of the loss, including the loan officer and cost center manager, who should approve each one before it goes to Secondary.  This helps remind people that it is not free.  Second, the goal should be to give the borrower a small concession, so they feel they have "won", but not to give away the farm.  If you can keep the deal for a .125% in rate, don't offer .25% or .50%!

I am personally opposed to programs that make it super easy and formulaic to renegotiate, because this implies to all involved that it is no big deal. The exception would be an actual float-down lock program, where you plan from the beginning to automatically reduce the rate to market (or close to it) at closing, but this does require an allowance for hedge costs in the initial rate sheet quotes (which may result in complaints about competitiveness....your people have to be able to embrace the float-down concept and sell it)." Thank you Tina.

"Panic" is how a few reports summed up the markets yesterday. Despite the S&P downgrade on US debt, Treasuries remained the go to safe haven with 10-year notes surging almost 2 points and dropping the yield to 2.34%, its lowest level since January 2009. The Dow, on the other hand, plummeted over 600 points or 5.5%. Investors are becoming increasingly bearish about global growth and the prospects of another recession and the continuing uncertainty in the EU. MBS prices closed higher by roughly .75 and .5 on 30-year 3.5% and 4.0% coupons, although how much of this is passed through on rate sheets remains to be seen.

Today... who knows? We had some Non-Farm Productivity numbers of little consequence (-.2% for the 2^nd quarter). We have a one-day FOMC meeting with the statement released at 2:15PM EST and prior to that at 1PM EST the Treasury will auction $32 billion in 3-year notes. So far this morning we're seeing a slight rebound in headline-grabbing stocks, but rates have crept up: the 10-yr is at 2.39% and MBS prices are slightly worse.

An elderly woman decided to prepare her will and told her preacher she had two final requests.
First, she wanted to be cremated, and second, she wanted her ashes scattered over Wal-Mart.  
"Wal-Mart?" the preacher exclaimed. "Why Wal-Mart?"

"Then I'll be sure my daughters visit me twice a week."