Occasionally I am asked about a graphic presentation on foreclosures in the United States, and how they've impacted different areas. Here you go.

Hey, those rumors about next week's MBA conference being "clothing optional" seem to be totally unfounded - or maybe someone is trying to play a joke on me. But here is something for real: a couple firms are advertising some free meeting room space at next week's convention. MERS always has a room, this time in the Columbus Hall G-H. And this time around DigitalRisk is offering up a place to hang out. It has free WiFi, refreshments, and a changing station. (Okay, "charging" station, I misread it, but at first I thought I could bring a baby.) "The Lounge" is also in the Columbus Hall near the registration desk. The meeting rooms beat scrambling for a seat in the bar, and then feeling bad about not ordering something from the waitress.

For something totally non-mortgage related on this autumn Friday, after 79 years chronicling American life, Newsweek magazine will publish its last print edition at the end of December and become digital-only. Darned digital media stuff!

Where is the CFPB hiring its staff? I am sure from multiple sources, but definitely some right out of school - kind of like the Big 8 Accounting firms do. So here I am, visiting my son at business school at UT in Austin, when I see on the bulletin board: "Interested in a career at the nexus of finance, government, and law? Discover the CFPB Director's Financial Analyst Program at our information session. At the session:  Learn the unique challenges and opportunities you'll encounter as an analyst at the CFPB.  Current analysts and CFPB staff will be on hand to answer all your questions. About the program:  The Director's Financial Analyst Program gives outstanding college graduates the opportunity to work on behalf of American consumers while gaining financial market experience, training, and developmental opportunities that rival those of Wall Street banks.  Analysts rotate through 2-3 different CFPB divisions over 2 years. About the CFPB:  The CFPB is a 21st century Bureau that is changing the way consumers are treated in the financial marketplace.  In the process, we're changing what it means to be a government agency. For more information visit www.consumerfinance.gov."

One thing I am often asked about is the status of FHA Streamline investors on the correspondent side. I received this note, "The interest in Streamlines that mirror FHA guidelines remains high as borrowers and correspondents alike seek alternatives to major investors, who require high FICO scores and full property appraisals.  For borrowers whose property values remain 'underwater' due to depreciation yet have made on time payments for the past year and would like to reduce their payments, there are options. First Mortgage is a California-based lender/investor with no overlays to FHA Streamline guidelines, and no same-servicer requirement. With no appraisal or AVM requirement and only a mortgage rating (no credit score) on subject property, FMC will now accept, in lieu of the occupancy inspection, two forms of occupancy identification such as two current utility bills reflecting subject address or current utility bill and current driver's license or bank statement reflecting subject address.  FMC buys closed loans in the following non-judicial states: AZ, CA, CO, ID, IN, NC, NM, NV, OR, TX, UT, and WA." (If you'd like to learn more or schedule an appointment in Chicago at the Annual MBA conference, the correspondent rep for FMC is Sharon Magnuson, and she can be reached by email at: smagnuson@firstmortgage .com.)

Who should care about the "Fiscal Cliff"? How about everyone! Whether Congress "kicks the can down the road" or whether it actually resolves the issues remains to be seen (there are rumors that some in Congress are taking breaths between campaign speeches and actually addressing the issue), but the issues created by the government bear some elaboration. In fact, unless measures are taken some believe that if the "worst case scenario" happens, Jan. 1 may see the biggest shock to the economy since the financial crisis four years ago. On that day, policy changes will cause federal spending to fall, and federal taxes to rise, by a combined $607 billion in 2013 alone. The magnitude and abruptness of the changes gave rise to the name "fiscal cliff." This isn't the result of new laws - it is the result of poorly thought out impending changes reflecting how existing laws, some passed more than a decade ago, were designed to play out.

First, we have the expiration of the Bush-era tax cuts. Congress and President Bush signed tax cuts into law in 2001 and 2003. The legislation was championed as tax reform but came with a distinct limitation: Rather than being made permanent, each round of cuts was designed to expire at the end of 2010 to conform to budget rules. In late 2010, Congress and President Obama extended the tax cuts for two years to avoid the looming expiration. Now both are set to expire again on Jan. 1. If they do, federal taxes will increase by $221 billion next year, according to the Congressional Budget Office.

Second, we have the expiration of the payroll tax cut. A one-year payroll tax cut was passed in Dec. 2010, reducing taxes on the majority of working Americans by 2%. The cut was extended for an additional year last December and expires again on Jan. 1. It will raise taxes by $95 billion next year. Third, we have budget-deal spending cuts. As part of last summer's deal to raise the debt ceiling, both parties agreed to form a bipartisan "super-committee" tasked with cutting $1.2 trillion in spending over a decade. If the committee failed that task, $1.2 trillion in automatic spending sequestration would take effect over nine years. The sequestration slashes indiscriminately across government programs in an attempt to prod legislators into action. Alas, it didn't work. The super-committee didn't reach a deal, so sequestration begins Jan. 1. The White House estimates it will reduce federal spending by $109 billion in 2013. And on top of all that there is an expiration of extended unemployment benefits, a big cut to Medicare providers, and a laundry list of expiring tax deductions are set to hit Jan. 1. Add it all up, and we're talking policy changes equal to about 4% of the economy.

What is the impact on mortgage rates and housing of this Fiscal Cliff stuff? Most analysts think that we would avoid most of the scheduled rise in payroll tax rates set for early next year. But as time has passed that assumption is now looking less tenable: leaders in both political parties have voiced a desire for the payroll tax holiday to expire as scheduled at year-end. If there is an increase in payroll taxes in the first quarter, it will lead to a decline in disposable personal income. That would be a negative for our economy - do we really think that the government is more efficient than individuals in spending? If there is a significant adverse effect on consumption growth in the first half of next year, watch for a slow-down in the economy. Typically this would lead to lower rates. But the disappointment in the marketplace, and in the U.S. Government, may cause monies to flow elsewhere, especially if Europe seems to be making headway with its problems, eventually pushing rates higher.

How about some vendor and investor news?

Capital Markets Cooperative formed a strategic alliance with New Jersey-based firm Secure Settlements, an independent evaluation and risk management firm. Under this new alliance, Secure Settlements will offer CMC members its third-party closing-agent risk management program at special terms.

In Kansas, American State Bancshares ($628 million in assets) will acquire First National Bank of Holcomb ($57 million) for an undisclosed sum.

In Wisconsin, Associated Banc-Corp announced that it will close 12 branches in WI and IL as it seeks to boost efficiency and reduce overhead costs.

Last month Wells Fargo announced has updated the reserve requirements for Non-Conforming loans such that the required liquid reserves will be based on combined loan amounts.  For combined loan amounts up to $1 million, borrowers will need 9 months' PITI; for loan amounts between $1 and 2 million, 12 months' PITI.  Combined loan amounts between $2 and 4 million will require 24 months' PITI, and anything over $4 million will require 36 months' PITI.  These policy changes went into effect on October 15th.

The bank earnings continue. BB&T reported earnings climbed 28%, as revenue surged. Improving credit conditions, strength in mortgage banking (up 63% YOY), a lower loan loss allowance, and loan growth (average loans climbed 8.4% YOY) helped although net interest margin declined from 4.09% to 3.94%. KeyCorp reported profit increased 0.9%, as higher revenues were offset by increased loan loss provisions ($109mm vs. $10mm prior year). Fifth Third Bancorp reported profit of $363 million (down 4.7% YOY), amid one-time charges and flat revenue. It did see a 13% increase in mortgage banking revenue, and NIM fell to 3.56% from 3.65%.

Turning to the markets, yesterday we saw the previous week's Jobless Claims rise 46k to 388k from a revised 342k the prior week. We also the Philadelphia Fed General business activity index rise to 5.7 from -1.9 in September, moving into expansion territory. And the Conference Board's Leading Economic Index increased 0.6% in September to 95.9, following a 0.4 % decline in August, and a 0.4% increase in July. What does all that mean? It means an economy that is fluctuating around a slow growth trend.

But why have mortgage rates headed higher? The simple answer is: more sellers than buyers. Yes, the Fed is buying $4 billion a day. But servicers are selling 3.5% securities, containing higher note rates, due to fears of prepayment risk. There is also chatter about loan officers "front loading" their lock submissions earlier in the month than usual and locking earlier. Lastly, and perhaps the reason most heard, is that the next gfee increase is looming. This reason makes sense since the 10 basis point (.5-1.0 in price, depending on the buy-up/buy-down schedule) will be effective for loans sold for cash as of Nov 1. and for loans exchanged for MBS as of Dec 1^st. (Here's the original FHFA release: http://www.fhfa.gov/webfiles/24259/Gfee083112.pdf.) So smart secondary marketing personnel are selling commitments early to not be hit with the price change and avoid as many loans going into the higher gfee pools as possible. Who eventually pays? The borrower, of course!

So the 10-yr closed at 1.83% Thursday, but is down to 1.79% this morning, and MBS prices are perhaps .125 better. The EU Leaders Summit on the whole wasn't very important although the final conclusions were a bit more constructive than anticipated as officials agreed to have the legal framework for a banking union in place by Jan '13 with implementation to occur next year. The Spanish question is still unclear although there may be some more clarity on that matter following the Sunday regional elections. In Greece, no formal decision was made at the Summit (this was expected) although increasingly it appears that a deal will be struck and Athens will get the next aid tranche sometime in November.

(How does business work?)

A Chinese guy goes into a Jewish-owned establishment to buy black bras, size 38. The Jewish store keeper, known for his skills as a businessman, says that black bras are rare and that he is finding it very difficult to buy them from his suppliers. Therefore he has to charge $50 for them.
The Chinese guy buys 25 pairs.
He returns a few days later and this time orders fifty.
The Jewish owner tells him that they have become even harder to get and charges him $60 each.
The Chinese guy returns a month later and buys the store's remaining stock of 50, and this time for $75 each.
The Jewish owner is somewhat puzzled by the large demand for black size 38 bras and asks the Chinese guy, "Please tell me - what do you do with all these black bras?"
The Chinese guy answers, "I cut them in half and sell them as skull caps to you guys for $200 each."