Yesterday I received this note from an industry veteran: "In reference to your statement 'The entire mortgage business is bruised and battered,' I have to take issue with that characterization.  Yes, the industry is certainly contending with a number of issues, several of which are complex and intimidating.  At the same time however, the mortgage origination business is also experiencing two consecutive years of strong production volume and net income margins that are close to the 2002-2003 boom market levels. Capacity and consumer demand continue to be in a near- equilibrium status.  Wells Fargo's 3rd Quarter above-forecast 3rd earnings were attributed to strong mortgage origination volumes.  It going to hard to generate much sympathy for lenders (large and small, bank-owned and independent mortgage banks) who are enjoying triple digit returns on equity for the second year.  It's important to keep the industry's on-going challenges in a proper economic perspective."

(I will agree with that to some extent. I have been out speaking to a number of groups in California and Oregon lately. For those still in the business, their operations are thriving. Yes, every loan is much more labor intensive, but with less competition loan officers are feeling much more valued, and feel that now they have clients rather than merely borrowers as had been the case.)

Another wrote: "The business is changing. Our biggest challenge is dealing with appraisal issues with the big banks.  Every file needs two more comps.  This is becoming more of an issue as sales are slow and there are fewer comps to select from.  I talked to a friend and he indicated that the business is much more labor intensive.  Loan volume is 75% of 2009 and we have increased staff to maintain file quality."

A mortgage trader wrote: "I called around today and got conforming quotes of 4.25% and zero points for a 30 year fixed rate mortgage. I even got a quote of 4.125%. Looking at the big picture, the $41 billion outstanding of Fannie 4.0%'s of 2010 made up of 4.25-4.625% notes have an average FICO of 770, a loan balance of $319k, an LTV of 69% and a 4.58% GWAC.  If you take their average rate to 4.0%, the borrower saves $109 per month, and obviously more if they refi to a 5/1 ARM at 3.5%. If these borrowers have the credit and LTV equity to refinance and roll in closing costs, it will produce significant monthly savings.  If predictions of a mortgage price war for 2011 come true, these borrowers will have attractive options."

In a story published by Reuters, Sheila Bair, chairwoman of the FDIC said major banks likely will be required to meet higher capital standards than those outlined in Basel III. "I have fairly high confidence there will be higher capitalization requirements for systemic institutions," Bair said. She also scrutinized the Basel III rules, saying they aren't as tough as she would like. Many in the mortgage banking world are nervous about what Elizabeth Warren will mean for independent mortgage banking operations. READ MORE ABOUT RISK RETENTION

How many billons do we have up our sleeve? According to the FHFA, Fannie Mae and Freddie Mac, whom taxpayers have owned for two years now, may need as much as $363 billion in additional capital from the Treasury through 2013 to offset losses and maintain a positive net worth. "The cumulative capital needs of the two housing finance giants, which were seized by the government in late 2008, will likely fall between $221 billion and $363 billion through 2013" depending on changes in home prices. F&F have drawn $148 billion in the form of preferred stock purchases by the Treasury through the second quarter of 2010, and dividend payments on the preferred stock are making up larger portions of the capital needs as time passes.

One Treasury official said that he believes nearly 90 percent of the companies' losses are behind them, with most attributable to loans made before the government took control. Currently, of course it is a "Fannie Freddie world" with more than 50% of production being F&F eligible.

Over at the other agency that constitutes most of the remainder of loan production, the commissioner of the FHA sent out a note summarizing its recent changes HERE

Wells Fargo's wholesale group adjusted its compensation caps and discount points (discount paid to the lender that does not reduce the rate) for FHA, VA and USDA RD loans. "Compensation caps are now 4 % - total broker compensation cap. 3% for Yield Spread Premium (YSP)/Secondary Market Credit (SMC) cap - component of Block 1/Line 801. Discount points paid to broker that do not reduce the rate are no longer allowed for FHA and USDA RD loans except in New Jersey. The following cap will not change: 1% Origination fee cap on government loans." (There is no change to conventional loans.) The memo went on to say that "The total broker compensation cap of 4% is a calculation of all broker compensation minus any credits or fees paid by the broker and minus any fees determined as "pass through fees," such as credit report or appraisal paid by the broker. YSP Over 3% Any YSP over 3%, or over the amount the claimed as part of Block 1 compensation, must be applied to the borrower's third party closing costs.  The price cap of 4% on government loans is now the sum of two specific fees: The "Origination fee" (component fee in Block 1)   and secondary market credit (amount retained in Block 1). The price cap does not include other broker fees and it does not exclude any credits provided by the broker.

US Bank Wholesale Mortgage made things pretty easy on its clients. "Effective immediately all required verifications can be submitted in the following formats: PDF, DOC, TIF, TIFF, TXT, JPEG, PNG, RTF, WPD, and WPS." (Who says you're not a computer nerd - you probably know what most of those formats are.)

Kinecta Credit Union is making a strategy change regarding the mortgage insurance providers currently offered. "Effective with loan applications beginning November 1, 2010, Kinecta will feature Radian as the primary mortgage insurance provider for all loans requiring mortgage insurance."

Flagstar Bank has reduced the number of restricted counties in New York. Flagstar also reduced its admin fee for loans in North & South Carolina, but increased the price hit, and told its clients that "USDA-Rural Development (RD) has announced that refinance transactions may again be processed, and they have set the new guarantee fee for refinances at one percent (1%). Funding for GRH transactions is still not available through RD. However, RD will issue conditional commitments for both purchase and refinance transactions with the "subject to availability of funds" language. Flagstar will fund all loans with such commitments subject to our $25 million cap during the funding suspension. Refinance transactions will continue to be fully manually underwritten until RD announces that the necessary modifications have been made to its GUS system to support such loans. RD expects to have the system modifications completed by October 22, 2010."

Leading Economic Indicators were reported yesterday and showed an increase of .3% in September. So what? LEI is comprised of 10 series: the factory workweek, new consumer goods orders, nondefense capital goods orders, stock prices, the Treasury yield curve, initial jobless claims, vendor deliveries, building permits, consumer expectations and M2 money supply. Some argue that the LEI is distorted by the interest rate spread subcomponent of the index (10yr Treasury less fed funds), which is very strong right now. Regardless, with or without it, the LEI is nowhere near signaling another recession.

Yesterday we had mixed economic data, higher than expected Treasury supply looming next week ($109bln versus expectation of $106bln on 2s, 5s, 7s and 5yr TIPS), and the uncertainty of QE2 looming on the horizon - and it pushed rates slightly higher. The Dow, which had been as much as 100 points higher, ended the day up over 20 points. Meanwhile, the 10-year note ended the day worse by about .5 in price (2.53%), and MBS market prices finished down/worse between .125-.250, depending on the rate, on about $2.5 billion of sales. There is no economic news scheduled today, and we find the 10-yr yield up to 2.57%, and 30-yr mortgage prices are worse by about .250.

Part II "For Northerners moving to the South, or going to MBA conferences in Atlanta":

The proper pronunciation you learned in school is no longer proper.

Be advised that 'He needed killin' is a valid defense here. If you hear a Southerner exclaim, 'Hey, y'all watch this,' you should stay out of the way.  These are likely to be the last words he'll ever say.

If there is the prediction of the slightest chance of even the smallest accumulation of snow, your presence is required at the local grocery store. It doesn't matter whether you need anything or not.  You just have to go there.

Do not be surprised to find that 10-year olds own their own shotguns, they are proficient marksmen, and their mammas taught them how to aim.

In the South, we have found that the best way to grow a lush green lawn is to pour gravel on it and call it a driveway.

AND REMEMBER: If you do settle in the Southland, bear children, don't think we will accept them as Southerners... After all, if the cat had kittens in the oven, we ain't gonna  call'em biscuits.