"A clever person solves a problem. A wise person avoids it." But at this point, most believe that it is too late to avoid the problems in the mortgage industry. No one seems to believe that much will happen with Freddie and Fannie ahead of next year's election, which easily leads to a debate about the benefits of a government that seems more concerned about elections far in the future than in dealing with tough issues. That aside, here is the latest.

"Here's something that really helps the value of mortgage servicing," he said sarcastically. "Let's not pay our mortgage and save our money, let the house go into foreclosure, and then buy it back on the courthouse steps for pennies on the dollar." 

"A few months ago, real-estate companies that invest in mortgage securities were one of the hottest sectors among companies planning initial public offerings of stock. Now, however, they are among the least likely to go public anytime soon." So began a story in the Wall Street Journal about REIT's, which must pay out 90% of their taxable income as dividends. "If the remaining five pending mortgage REITs eventually go public, then the entire pool of publicly traded mortgage REITs will grow to 28 from the 23 that the National Association of Real Estate Investment Trusts had on record through August." The SEC recently launched a review that could determine whether mortgage REITs should continue to be unregulated companies or whether they should be subjected, like mutual funds, to the Investment Act of 1940.

"But now, the SEC appears to be making a distinction between REITs that manage and operate real estate versus REITs that invest in real-estate securities. If the SEC determines that mortgage REITs shouldn't qualify for exemption, the companies will lose the ability to use hefty amounts of leverage, or borrowed capital, to boost returns and provide high dividends." (There is more analysis at www.stratmorgroup.com.)

President Obama's proposed $447B job-creation plan would reduce the tax break for municipal bond interest to 28% from 35% (for couples earning more than $250k per year), potentially reducing demand for state and local government securities. I have seen nothing with regard to the mortgage interest deduction, but if muni bond interest is not sacred...

Tomorrow is a HUD deadline. A while back HUD has reopened the application intake for the Emergency Homeowners' Loan Program (EHLP), a program that provides mortgage payment assistance to eligible homeowners experiencing a drop in income of at least 15 percent, directly resulting from involuntary unemployment or underemployment due to the economy and/or a medical condition. The deadline to apply is tomorrow: http://findehlp.com/.

HUD has been busy, releasing a number of Mortgagee Letters. A recent one, for example, is to "identify circumstances under which mortgagors must successfully complete a trial payment plan prior to the mortgagee executing a loan modification or partial claim action under the FHA's Loss Mitigation Program."

And there is quite a bit of FHA training around the nation. Today in Portland, OR (FHA Loss Mitigation Program Training and HUD Housing Counseling), the 20th in Fort Worth ("A Day with the FHA & the FHA Appraisal"), the 21st in Birmingham (HUD Loss Mitigation Program Training) and so on. Page down through the sessions here.

AllRegs and The Prieston Group announced a "joint relationship to offer risk assessment resources to the mortgage industry. Together the two companies will build on existing tools, processes and resources to provide real-time corporate level risk assessment tools and benchmarks. Both organizations have agreed to a multi-year commitment. Research and development, technology infrastructure, product development and various other capital resources will be invested by both organizations to create a new suite of risk assessment resources and benchmarks." To learn more about AllRegs, visit allregsmortgage.com or for more information about The Prieston Group, visit www.priestongroup.com.

The Wall Street Journal had quite an opinion piece on the recent Bank of America job cuts. "What is the cost of overregulation? Bank of America appears to have provided part of the answer by announcing...it will cut 30,000 jobs between now and 2014. CEO Brian Moynihan said the bank's plan is to slash $5 billion in annual expenses from its consumer businesses. Mr. Moynihan didn't say this, but we will: These layoffs are part of the bill for the last two years of Washington's financial rule-writing. After loose monetary policy had combined with insane housing policy to create a financial crisis, the Democrats who ran Washington in 2009 and 2010 enacted myriad new rules that had nothing to do with easy money or housing. Take the amendment that Illinois Democrat and Senator Durbin (with the help of 17 Senate Republicans) attached to last year's Dodd-Frank financial law. Mr. Durbin's amendment instructed the Federal Reserve to limit the amount of "swipe fees" that banks can charge merchants when customers use debit cards. How exactly does forcing banks to charge Wal-Mart less money for operating an electronic payment system prevent the next financial crisis? Readers may wait a long time for a satisfactory answer, but the cost of this Dodd-Frank directive is straightforward."

The WSJ opinion piece goes on. "Restricting bank profits on a particular product may have obvious populist appeal, but politicians shouldn't be surprised if banks decide that such consumer credit operations aren't good businesses and can function with fewer employees. Add in the various federal programs aimed at extracting penalties for this or that mortgage-foreclosure error and it's understandable that a bank would have trouble forecasting growth to justify its current work force. To be sure, Bank of America is also suffering from its own mistake in deciding to buy Countrywide Financial in 2008. As for the financial industry generally, it had become distended and needed to shrink after the bubble years of easy money. But given the real-world results for bank employees, politicians should not be allowed to pretend that there are no consequences when they deliberately reduce the profitability of employers. Mr. Obama proposed last week to spend some $450 billion more in outlays or tax credits to create more jobs, but it would have cost a lot less to save these 30,000."

Even with the impending expiration of the temporary conventional maximum loan amounts (although many are convinced that an extension will be pulled out of the hat), some companies are rolling out marketing focused on it. Kinecta Credit Union, for example, in its Portfolio Lending program, "options and flexibility to meet the needs of your borrower with loan amounts up to $2,000,000! (and higher by exception), Max LTV/CLTV up to 80%, ARMs up to 40-year term (3/1, 5/1 only), Primary residence, 2nd Home, Cash-Out Refi available..." (Kinecta also rolled out an Asset Utilization program in late August that is available in conjunction with a Kinecta 5/1, 7/1 or 10/1 fully amortizing jumbo ARM loan. Asset Utilization allows applicants with significant liquid assets to use those assets as income for qualifying purposes. Kinecta has developed an income calculation worksheet that must be used to determine the qualifying income. It is best to contact the company for specifics.)

Provident Funding reminded brokers that "Super Conforming loans exceeding the 'permanent' loan limits for 2011 (up to $625,500) will not be allowed to lock with a lock period expiring after September 30, 2011, and thus the last day for a 12-day lock is 9/18/2011; impacted loans unable to fund before the lock expiration will need to be restructured as lock extensions beyond September 30, 2011 will not be granted."

Stearns Lending reminded brokers that, "To ensure your loans fund prior to the expiration date, please note the following cutoff dates: Lock cutoff date is September 16th, Docs must be drawn by September 20th, Notes must be dated on or before September 29th, Loans must fund by September 29th."

Bank of Internet has had an Asset Depletion program for quite some time "to offset ratio guidelines for borrowers with significant assets. With BofI's asset depletion program your borrowers may use their liquid assets as return for income to assist in meeting full doc DTI requirements." It also offers Jumbo ARM's up to $5,000,000.

Staying in the wholesale channel, ING reminded brokers that it has no hit for FICO, LTV, no escrow, and not hit for loan amounts up to $1.5 million.

Turning to the current markets, yesterday's 10-yr T-note auction was "a bit sloppy" with a below-average bid-to-cover; the yield was 2.00%. 10-yr Notes ended the day worse in price by over .5, and MBS prices were worse by roughly .250. (Today we will have a $13 billion 30-yr auction.)

We've already had last week's mortgage application data (view data and charts) from the MBA (+6.3%, refi's +6%, purchases +7%, refi's at about 77% of total applications), Retail Sales (unchanged, weaker than expected), and the Producer Price Index (also unchanged). More importantly Moody's downgraded two French banks, and although it was widely expected it is certainly a sign of the times. The finance community is waiting to hear Moody's verdict on Italy. In the early going stocks appeared to be heading higher, but interest rates are slightly higher with the 10-yr at 2.01% and MBS prices worse by about .125. (view prices)


At closing time, a drunken guy took a new girl home from the bar. In his bedroom she saw a huge brass gong and a mallet, and asked, "What's up with the gong?"
He replied, "It's not a gong - it's a talking clock."
She squinted at it and tipsily asked, "How's it work?"
The drunk took the mallet and whacked the gong. A voice from the other side of the wall screamed, "You jerk - it's two in the morning!"

If you're interested, visit my twice-a-month blog at the STRATMOR Group web site located at www.stratmorgroup.com. The current blog takes a look at the recent news concerning REIT's, and the possible tax implications. 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.