"Rob, how the heck are we supposed to know what any financial asset is worth? For many years the government has given farm subsidies, sugar cane subsidies, soybean or corn subsidies - and now the agency MBS subsidy. And now we have one 'arm' of the government increasing agency gfees by roughly .5 in price, hurting agency borrowers, and another 'arm' of the government saying it will buy a total of $60-70 billion a month of agency mortgage backed securities, helping agency borrowers. With last Thursday the government must have picked up billions on their mark-to-market on its existing MBS holdings. But how are we supposed to know where the market for mortgages should really be?"

Great question - wish I knew the precise answer. Doug Duncan, Fannie's chief economist, raised it recently. One could use the jumbo market as a proxy, since government intervention is nil. But then again, so is the securitization of those loans, aside from the periodic Redwood Trust deals. Many banks are happy to put them into their portfolios and earn the spread. And one must ask whether or not, in a purely private market, we'd have 30-yr fixed rate loans. That breed of cat is popular in the United States, but in most other countries shorter term, or adjustable rate, home loans play a much greater role. Obviously lending is linked to housing markets, tax codes, government intervention, and so on.

Along those lines, here is a note I received. "Here's an interesting observation about the newest Gfee hike by the FHFA. We call it, 'A Housing Tax: Unintended Consequences.' The FHFA directs F&F to increase their Gfees an average of 10 basis points, which translates into an approximate .125% increase in the note rate to consumers. The Treasury pockets the Gfee windfall on new loans. On the other hand each new borrower will have a larger tax deduction due to the higher interest rate on their loan. This may not be one for one, but what the Treasury pockets the IRS taketh away. The government's revenue gain (loss) may be close to neutral. The consumer, of course, may be the only one who loses!"

And this note on mortgage interest tax deductibility and it possibly going away. "Rob, seems to me the authors MID discussion, while making some valid points is very premature.  Anything that sends current housing prices south is ill-timed and threatens the fragile economic recovery.  This last thing we need is subjecting homeowners, both those who have purchased in the last few years and those currently underwater to a new round of price deterioration.  Would it not make significantly more sense to wait until we have a healthy economy and a restored securities market to phase this in over time?  For reasons too numerous to mention, no one can afford, (homeowners, GSEs, portfolio investors, securities holders, the American Taxpayer, or the unemployed) to face the dramatic consequences of such a decision at this time in our economy.  It could literally prove to be catastrophic!"

And this: "It seems to me that many of the folks who are obtaining home loans today are the same that have been getting them for the past 3 years. It is not churning, but it if no new blood comes into the market place we are going to have to keep pushing for mortgage rates to hit 0% - and what investor is going to want to own those? The regulation and the product guidelines creep that we've seen in recent years are mutually exclusive when it comes to loan approvals, but 'mutually inclusive' in regards to excessive delays and costs. Certainly one of the unintended consequences is the seemingly uneducated separation of risk from pricing. I get the feeling some in Washington DC think regulations and guidelines are always tied to each other."

And adding to things is an announcement that should surprise no one. Realtors believe that tight lending standards are preventing more home sales and holding back job creation. [READ NAR: Lending Standards Holding Down Home Sales, Job Growth] NAR did a survey of its real estate agent members. "Sensible lending standards would permit 500,000 to 700,000 additional home sales in the coming year," NAR chief economist Lawrence Yun said in a statement. "The economic activity created through these additional home sales would add 250,000 to 350,000 jobs in related trades and services almost immediately, and without a cost impact." Don't ask me how this was calculated...but attorneys and politicians love the term "sensible" - a term so subjective this commentary can't begin to address it.

NAR's release said that lenders take too long with applications, requiring excessive information and preferring only interested homebuyers with high credit scores. Survey respondents reported that 53 percent of loans went to borrowers with credit scores above 740 in August, a sharp contrast when compared with the fact that 41 percent of homeowners with the same credit held these mortgages from 2001 to 2004. According to NAR, about three-fourths of loans bought by Fannie Mae and Freddie Mac went to borrowers with credit scores of 740 or above, and that loans backed by the FHA showed an average FICO score of 669 in May. Of course, many originators call FHA "the new subprime."

For those playing along at home, per a report by law firm Davis Polk, a total of 237 Dodd-Frank rulemaking requirement deadlines have passed. "Of these 237 passed deadlines, 145 (61%) have been missed and 92 (39%) have been met with finalized rules. In addition, 131 (33%) of the 398 total required rulemakings have been finalized, while 132 (33%) rulemaking requirements have not yet been proposed. Major rulemaking activity this month included the Federal Reserve final rule on risk management standards for financial market utilities and the SEC final rules on conflict minerals and the disclosure of payments by resource extraction issuers. Additionally, the OCC, Federal Reserve, NCUA, FHFA and CFPB released a proposed rule on appraisals for higher-risk mortgage loans." For the complete report, visit http://www.davispolk.com/dodd-frank/.

Meanwhile, local organizations are offering education on the CFPB. For example, the Maryland Mortgage Bankers are offering a "Get a behind-the-scenes look at the Dodd-Frank Act and how it could change the way bankers work in the future." This webinar will cover: "Three little words with big impact: Dodd-Frank Act, what is the CFPB and what do they do? Now what? How do we go on with the show?" For more information on the webinar, the MGIC presenter Rebecca Chase, the nominal costs, and registration, go to: www.mdmba.org.

Investor, lender training, and agency news continue. As always, complete details can be found in the individual bulletins.

Guaranteed Home Mortgage Company (www.ghmc.com) announced it will be holding a webinar for mortgage professionals on ABAs (affiliated business arrangements) and MSAs (marketing service agreements). It will be held Thursday, September 20, at 2PM EST. David Wind, CEO of Guaranteed, will moderate the discussion which will include "Creating your value proposition; what to look for when choosing partners; negotiations: how to make it win/win; and how to ensure your MSA/ABA is compliant with RESPA, CPFB and other Federal and State regulations." To register.

Things haven't stopped entirely in the creation of mortgage banks. American Mortgage Network (AmNet), the wholesale channel of Bexil American Mortgage Inc., announced the appointment of two more senior production executives and has expanded to the Midwest and East Coast. "With major banks exiting the wholesale channel, this is the perfect time for us to expand and ramp up our national presence," noted John Robbins, CEO and President of Bexil American Mortgage.

GMAC has extended its options for DU Refi Plus products with LTVs of between 105-125% and 125% and over to include a 15-year term.  Note that this term is only available for GMAC-serviced loans.

FEMA announced that disaster aid is available for Lincoln and Sandoval counties in New Mexico, both of which experienced severe flooding from late June to mid-July.

There has been an addendum to the HUD rule published on April 20, 2010 concerning the FHA's lender approval process.  The 2010 final rule increased the net worth requirement for FHA-approved lenders and mortgagees, eliminated the need for HUD to approve loan correspondents, and revised the general mortgagee and lender approval standards.  These regulations have been updated with a number of minor clarifications as part of HUD's general effort to better monitor its risk management practices and to make compliance easier for all involved.  For more information on the updates, see here, which outlines the full details of the changes.

With regard to gift funds, the FHA reminds lenders that regulations state that the lender must determine that the funds were not provided by an unacceptable source, from the donor's own funds, and were not derived from a party to the sale transaction.  Lenders should verify this using a fully executed gift letter procured from the donor, which must confirm that the funds are not from either a person or entity with an interest in the property (i.e. the broker, estate agent, broker, or builder).

Fannie Mae rolled out two new DU Refi Plus and Refi Plus loans as part of its efforts to cater to HARP borrowers with higher LTVs.  Starting September 10th, 20-year fixed-rate Refi Plus loans will be available for borrowers with LTVs of 105.01-125% and more than 125% for mandatory and best effort commitments.  Both products allow lenders to deliver loans with terms greater than 180 months and up to 240 months against a 20-year rather than a 30-year whole loan commitment.

Turning to the markets, yesterday, amidst the stories about how residential lending dropped in 2011 (in the age of computers, isn't that news a little stale?), we learned from the National Association of Home Builders that builder confidence is gaining momentum. Heck, I hear stories all over the nation about the sudden lack of buildable lots in good areas - maybe time for some more urban sprawl? Anyway, builders became more confident for a fifth consecutive month in September to a level of 40, to its highest reading since June of 2006. Echoing NAR's comments above, NAHB Chairman Barry Rutenberg observed, "Unnecessarily tight credit conditions are preventing many builders from putting crews back to work, which would create needed jobs, and discouraging consumers from pursuing a new-home purchase."

Aside from that, some of the "bloom is off the rose" from the FOMC's announcement last Thursday. Mortgage bankers are a little timid about selling - who wants to buy back an unfilled MBS when you're bidding against the Fed? One dealer reported, "QE3 will likely force some short squeezes but it is unclear exactly what coupon or month at this point.  Bank flows have been modest as the new dollar price levels have not currently been accepted...Other themes include customer selling for QTR-End tidying up balance sheet but it is becoming obvious that bids are beginning to retreat."

Overnight we had the Bank of Japan...easing! The Bank of Japan announced additional monetary easing saying it was boosting an asset-purchasing fund by 10 trillion yen ($128 billion) to 80 trillion yen. It also kept interest rates at between zero and 0.1 percent in a unanimous decision. For other exciting news to start the day, the MBA application index, which covers 75% of retail residential lending, dropped .2% last week. The seasonally adjusted index of refinancing applications gained 0.8 percent but the loan requests for home purchases, a leading indicator of home sales, fell 3.8 percent. We have Housing Starts & Building Permits numbers, and then Existing Home Sales. The 10-yr closed Tuesday at 1.81%, and in the very early going is down to 1.79% and MBS prices are a shade better.


Two French boarded a flight out of London.
One took a window seat and the other sat next to him in the middle seat... Just before takeoff, a Brit sat down in the aisle seat.
After takeoff, the Brit kicked his shoes off, wiggled his toes and was settling in when the Frenchman in the window seat said, "I need to get up and get a coke."
"Don't get up," said the Brit, "I'm in the aisle seat, I'll get it for you."
As soon as he left, one of the Frenchman picked up the Brit's shoe and spat in it.
When the Brit returned with the coke, the other Frenchman said, "That looks good, I'd really like one, too."
Again, the Brit obligingly went to fetch it. While he was gone the other Frenchman picked up the Brit's other shoe and spat in it.
When the Brit returned, they all sat back and enjoyed the flight. As the plane was landing, the Brit slipped his feet into his shoes and knew immediately what had happened. He leaned over and asked his French neighbors, "Why does it have to be this way? How long must this go on? This fighting between our nations? This hatred? This animosity? This spitting in shoes and piddling in cokes?"