Mortgage Rates: Debt Ceiling Decision Time

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Jul 29, 2011 6:14PM

Mortgage Rates: Debt Ceiling Decision Time

I have some unexpected good news Amidst an atmosphere of major market uncertainty, consumer borrowing costs improved significantly today. Enough to push BestExecution quotes a notch lower. In the chart of Consumer Rate Quotes below, if the line is moving up, closing costs are on the rise. If the line is moving down, costs are on the decline. More recently consumer borrowing costs have crept higher, that is until today when costs dipped following a poor read on 2nd quarter GDP. Mortgage rates are…

Jul 29, 2011 10:06AM

“Qualified Residential Mortgage” on the Hot Seat

Check out my twice-a-month blog at the STRATMOR Group web site located at http://www.stratmorgroup.com. The current blog takes a look at QRM and shares doubts about its passage. Below is the text. 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. Early in June we discussed the provisions of QRM (“QRM” stands for “Qualified Residential Mortgage”). It is an…

Micro News

5:08 PM:

Fannie Mae Suspends RMIC Approval

4:34 PM:

Realtors Urge Action on Debt Ceiling

4:33 PM:

Dennis Lockhart: Two Views of the Economy

4:21 PM:

PHH Corp. Announces Results for Q2 2011

3:50 PM:

The Week Ahead: Directional Volatility Expected

3:28 PM:

FHA’s Mortgagee Review Board Takes Action Against 240 Lenders

10:17 AM:

ECON: Home Vacancy Rate Eased in Q2

8:54 AM:

ECON: Q2 Advance GDP Misses the Mark. Spending Flat

Around the Web

Video News

Bond Traders Meet at NY Fed

Q2 GDP Advance: Up 1.3%

What’s the Matter with Banks?

Today’s Comments

Adam Quinones

“I would hate to be hedging a pipeline in this environment”

ISMAEL MEDINA

“This activity may be a deceptive one, for example in NJ where most lenders have refrain from proceeding with Foreclosures due to their fear of what the…”

Frank Ceizyk

“”A sale is listed as pending when the contract has been signed”–just curious if this means that the contract is fully executed by all of the…”

Today’s Q&A

Anonymous

“Is real estate tax Paid “in advance” or for the past…”

Anonymous

“I have excellent credit rating/score/history but low income,…”

Anonymous

“I stopped paying my mortgage for 9 months but it has been a year…”

Today’s Forum Discussions

Jason Harris

“Wasn’t sure after the recent change if low LTV 15 year deals would still have monthly PMI.”

Tracey Taylor

“Hello all, I, like most other soon to be home buyers, am wondering if I should lock right now. For me it’s not just a question of shaving a 100th of…”

BRENT HARDMONEYMAN

“Floridas No 1 Hard Money Lender to 50% rates from 11% to 12.99% http://www.floridahardmoney411.com 8135165210 Owner Occupied Yes, Loans under 100K yes…”

[Mortgage Rate Watch] – Mortgage Rates: Debt Ceiling Decision Time

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Mortgage Rates: Debt Ceiling Decision Time

Posted to: Mortgage Rate Watch
Friday, July 29, 2011 5:29 PM

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I have some unexpected good news 

Amidst an atmosphere of major market uncertainty, consumer borrowing costs improved significantly today. Enough to push BestExecution quotes a notch lower.

In the chart of Consumer Rate Quotes below, if the line is moving up, closing costs are on the rise.  If the line is moving lower, costs are on the decline.  More recently consumer borrowing costs have crept higher. That is until today when pricing improved significantly following a poor advance read on 2nd quarter GDP. Mortgage rates are once again just above their best levels of the year….

The chart above compares the average origination costs (as a percentage of loan amount) for several available mortgage note rates as quoted by the five major lenders. Each line represents a different 30 year fixed mortgage note rate.  The numbers on the right vertical axis are the origination closing costs, as a percentage of your loan amount, that a borrower would be required to pay in order to close on that note rate. If the note rate graph line is below the 0.00% marker, the consumer may potentially receive closing cost help from their lender in the form of a lender credits. If the note rate line is above the 0.00% marker, the consumer should expect to pay additional points at the closing table to cover permanent buydown costs and origination fees. PLEASE SEE OUR MORTGAGE RATE DISCLAIMER BELOW

IMPROVED CURRENT MARKET*: The BestExecution conventional 30-yearfixed mortgage rate has improved to 4.50%. On FHA/VA 30 year fixed BestExecution isnow 4.375%.  15 year fixedconventional loans are best priced at 3.75%. Five year ARMs are bestpriced at 3.25% but the ARM market is more stratified and there is morevariation in what will be BestExecution depending on yourindividual scenario.

ONGOING GUIDANCE:   Floating in this environment is acrapshoot. Both stocks and bonds are maneuvering through major marketuncertainties. Investors are focused on news headlines regarding U.S. budgetissues, EU debt contagion concerns, economic data, and quarterly earnings. Thatputs the direction of mortgage rates at the mercy of factors that don’t exactlyadhere to schedules or expectations. While we still view underlying economicfundamentals as being supportive of lower mortgage rates in the future, theshort-term risks associated with a potential U.S. debt default leave us moreinclined to advise locking, especially deals that must be ready to close in thenext 10-15 days. This provides protection from rising rates and still givesyour lender a chance to negotiate if rates decline.

A little added perspective is necessary after the unexpected rally we experienced today…

The bond market and mortgage rates have yet to show fear over the potential for a U.S. credit rating downgrade or even worse, a default. Clearly this is surprising as politicians seem nowhere near a deal on the debt ceiling, which implies lawmakers are ready to play chicken with global financial markets. From that view, eventhough rates rallied pretty heavily today,  we’re still dealing with an “anything can happen” environment where volatility reigns supreme. If you’re nervous like we are about what might happen on August 2nd, it makes sense to lock right now, especially with loan pricing near the best levels of the year. If you’ve got time to float or have no problem gambling with your rate quote, there is a chance that rates continue to rally next week on a “flight to safety” (no default = no reason to sell Treasuries).  This is a highly-speculative decision though, a real crapshoot.

GUT FEELING: Default would be political suicide for all parties involved, making it a highly unlikely event. But if we were to default on a debt coupon payment, there would be a huge margin call followed by massive deleveraging in the short-end of the Treasury yield curve and a major repricing across the credit spectrum (which would be intensified by MBS duration shedding aka “snowball selling” <— bad news for mortgage rates). In our opinion the more probable scenario is Congress fails to come to an agreement by August 2nd, forcing Treasury into so called “prioritization payment mode” to avoid default, which would be followed soon thereafter by another band-aid bill to raise the debt ceiling by just enough to get us into 2012 where Republicans would proceed to relentlessly hammer Obama’s tardiness on fiscals issues, just in time for the next election. If that scenario were to play out we wouldn’t necessarily be looking at a credit downgrade though. It’s still 50/50 at that point, totally dependent on the credibility of whatever plan is being debated at the time and how quickly Congress acts to raise the debt ceiling (Congress would need to act quickly though because Treasury makes around 3 million payments per day and does not have the systems to “prioritize” payments). Even if our credit rating was downgraded we wouldn’t expect panic in the bond market. It would likely lead rates higher temporarily, especially once investors refocus on weak U.S. economic fundamentals.

—————————- 

*BestExecution is the most cost efficient combination of note rateoffered and points paid at closing. This note rate is determined based on thetime it takes to recover the points you paid at closing (discount) vs. themonthly savings of permanently buying down your mortgage rate by 0.125%. When deciding on whether or not to pay points, the borrower must have an idea ofhow long they intend to keep their mortgage. For more info, ask you originatorto explain the findings of their “breakeven analysis” on yourpermanent rate buy down costs.

*Important Mortgage Rate Disclaimer: The BestExecution loanpricing quotes shared above are generally seen as the more aggressive side ofthe primary mortgage market. Loan originators will only be able to offer theserates on conforming loan amounts to very well-qualified borrowers who have amiddle FICO score over 740 and enough equity in their home to qualify for arefinance or a large enough savings to cover their down payment and closingcosts. If the terms of your loan trigger any risk-based loan level pricingadjustments (LLPAs), your rate quote will be higher. If you do not fall intothe “perfect borrower” category, make sure you ask your loanoriginator for an explanation of the characteristics that make your loan moreexpensive. “No point” loan doesn’t mean “no cost” loan. Thebest 30 year fixed conventional/FHA/VA mortgage rates still include closingcosts such as: third party fees + title charges + transfer and recording. Don’tforget the fiscal frisking that comes along with the underwriting process.

CAUTION: MND guidance is speculative in nature. We don’t have acrystal ball, we can’t predict the future, we can only share our outlook.Making the following considerations extra important……………………

What MUST be considered BEFORE one thinks about capitalizing on a rates rally?

   1. WHAT DO YOU NEED? Rates might not rally as much as youwant/need.
   2. WHEN DO YOU NEED IT BY? Rates might not rally as fast as youwant/need.
   3. HOW DO YOU HANDLE STRESS? Are you ready to make toughdecisions?

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[MBS Commentary] – MBS RECAP: 7/29/2011

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MBS RECAP: 7/29/2011

Posted to: MBS Commentary
Friday, July 29, 2011 4:18 PM

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MBSonMND: MBS RECAP
Open MBSonMND Dashboard
FNMA 3.5
97-23 : +0-32
FNMA 4.0
101-17 : +0-24
FNMA 4.5
104-11 : +0-17
FNMA 5.0
106-23 : +0-12
GNMA 3.5
99-06 : +0-30
GNMA 4.0
103-11 : +0-26
GNMA 4.5
106-17 : +0-19
GNMA 5.0
108-31 : +0-14
FHLMC 3.5
97-19 : +0-32
FHLMC 4.0
101-18 : +0-25
FHLMC 4.5
104-07 : +0-17
FHLMC 5.0
106-18 : +0-12
Pricing as of 4:02 PM EST
Afternoon Market Updates
A recap of MBS Market Updates provided by MND Analysts and streamed live to the MBSonMND Dashboard.
3:50PM  :  The Week Ahead: Directional Volatility Expected

Even though the economic calendar is a bit lighter next week, things should get even more exciting. That wouldn’t take much considering this week has been largely sideways with the exception of today’s unexpected breakout. Today does indeed look like the “lead off” in a new directional trend following the previous sideways trend. Could it really be a trend that sees the bond market rally beyond current levels? Does the 10yr note below 2.85% hold? Do new year to date MBS price highs move even higher? Monday and Tuesday contain ISM Manufacturing, Construction Spending, and Personal Consumption/Expenditures Reports, but it would be fair to assume that the August 2nd debt-ceiling deadline will trump all. Even into Wednesday’s ADP Employment numbers, political headlines will be the constant wild-card. One thing to consider is that August 3rd will be the first day after “the deadline,” and is also a day in which the following week’s Treasury auctions will be announced. Not much by way of economic data on Thursday… Just Claims really, but there’s sure to be plenty of trading going on as markets prepare to synthesize the July Employment Situation Report on Friday in some sort of proportional balance with whatever happens to be the prevailing state of the debt-ceiling debate. There is a lot of potential for directional volatility next week.
3:44PM  :  REPOST: MND Outlook on Debt Ceiling Debate

Default would be political suicide for all parties involved, making it a highly unlikely event. But if we were to default on a coupon payment, there would be a huge margin call followed by massive deleveraging in the short-end of the yield curve and a major repricing across the credit spectrum, which would be intensified by MBS duration shedding (curve gets sucked into convexity vortex. Lower and wider we go. This is “snowball selling”). In our opinion the more probable scenario is Congress fails to come to an agreement by August 2nd , forcing Treasury into so called “prioritization mode” to avoid default, which would soon be followed by another band-aid bill to raise the debt ceiling by just enough to get us into 2012 where Republicans would proceed to relentlessly hammer Obama’s tardiness on the issue before elections. If that scenario were to play out we wouldn’t necessarily be looking at a credit downgrade. It’s still 50/50 at that point, totally dependent on the credibility of whatever plan is being debated at the time and how quickly Congress acts to raise the debt ceiling (Congress would need to act quickly though because Treasury makes around 3 million payments per day and does not have the systems to “prioritize” payments). This would likely lead rates higher but would not result in all out capitulation in the bond market. More simply put, a jump in rates would be temporary. It seems like all you can do is stay nimble and hope politicians are smarter than they act. Unless you’ve got more than 30 days to float, this uncertainty makes “locking on application” a favored strategy.
3:10PM  :  ALERT: Loan Pricing Lags Unexpected Bond Market Rally

Production MBS coupons rallied far and fast today. The Fannie Mae 4.0 MBS coupon just closed +26/32 at 101-19, a new 2011 price high. While one might say it’s been a real “facemelter”, loan pricing isn’t exactly keeping up with the bond market rally. Rate sheets improved by 44.4bps on average this morning but are still between 25 and 50bps below the best rebate offers of the year (seen on June 27th). This makes for a difficult decision heading into the weekend. Benchmark Treasuries have yet to show fear over the potential for a U.S. credit rating downgrade next Tuesday. Clearly this is surprising as politicians seem nowhere near a deal on the debt ceiling, which implies lawmakers are ready to play chicken with global markets. From that perspective we’re still dealing with an “anything can happen” environment where volatility reigns supreme. If your secondary desk has repriced for the better and you’re nervous like we are about what happens on August 2nd, it makes sense to lock. If you’ve got room to float, haven’t seen reprices for the better yet or have no problem gambling with your income and the borrowers rate quote, there is a chance that bonds continue to rally next week. Investors have no other safe asset to put money in besides U.S. Treasuries and Gold (not without initiating a major reallocation trade). Right now it seems like investors are assuming the U.S. will not default on it’s debt. So business as usual as long as coupon payments are made?
1:11PM  :  Sen Schumer Says Hopes for Debt Compromise by End of Day

(Reuters) – A top Senate Democrat said on Friday he hoped Democrats and Republicans would reach a deal by day’s end on a compromise bill to cut federal spending and raise U.S. borrowing authority."We hope a deal can be had by day’s end" with Senate Republican Leader Mitch McConnell, Senator Charles Schumer told reporters. Such a deal would clear the way for the Senate to begin debating legislation over the weekend and pass it by Tuesday, when the Treasury Department thinks it will exhaust its current borrowing authority. (Reporting by Andy Sullivan; editing by Todd Eastham)
12:30PM  :  Stock Rally Subsides, Benchmarks Match Previous Strong Levels

Even when today’s stock rally was at its best, bonds still didn’t seem too phased. 10yr notes rose to just barely touch 2.86–a much smaller correction than we’d normally expect given the circumstances and levels. Now they’re back down to match the low yields from earlier in the day in the mid 2.84’s. MBS have mimicked the move as well. After correcting a few ticks from their best levels of the day, they’re back within half a tick (1/64th) at 101-12. There’s no remaining economic data for the day, but plenty of opportunity for market moving headlines surrounding the debt ceiling debate. If you were to see a reprice right now, it would be for the better. Not commenting on the likelihood, just that we’re not at risk for reprices for the worse.
11:18AM  :  New MBS Commentary Post

Featured Market Discussion
A recap of the featured comments from the Live Discussion on the MBSonMND Dashboard.
Adam Quinones  :  “high in TBAs and TSYs ABM”
Aaron Buyside Meyer  :  “what was volume like compared to recent days?”
Edgar  :  “TQ-Agree 100%. While the debt issue spooked the market, I do not think there was any chance the US would default. What would or will happen is all the Seniors, Veterans would get IOU’s, non essential services shut down etc. Anyone live CA??? Seems like this happens all the time in CA….bond holders get paid, everyone else loses. GDP was puke, rates go lower from here.”
Andrew Horowitz  :  “Bonds seem to be acting like a deal has been made (sorry caps)”
Thomas Quann  :  “hence why it should stay”
Thomas Quann  :  “baked in alreadyu”
Adam Quinones  :  “counterintuitive behavior is the new norm”
Thomas Quann  :  “I would think it would stay no? If defaulting was bad for rates, why would not defaulting be also bad???”
Christopher Stevens  :  “now…if deal is reached over the weekend where does the 10YR go? I say back to 3.00 or over.”
Adam Quinones  :  “short covering added to it this AM.”
Adam Quinones  :  “decent Brent. Not massive but above average.”
Brent Borcherding  :  “What’s volume been like today, AQ?”
Adam Quinones  :  “101-18 was high of year for FN4.0..on June 8th”
Adam Quinones  :  “compare vs. June 27th rate sheet”
Adam Quinones  :  “you see wider spread?”
Adam Quinones  :  “looks like we’re about 25bps off those levels”
Brent Borcherding  :  “If they’d pass along what we’re owed it would.”
Bromi Krock  :  “my rate sheet does not reflect being just below best levels of the year.”
Adam Quinones  :  “even then, loan pricing still just below best levels of year.”
Steven Bote  :  “Clearpoint Funding reprice”
Bromi Krock  :  “I do like seeing the 10 under 2.85. Yes AQ lots of margin right now. looks like they want to see this rally get some firm footing before they start passing it on.”
Adam Quinones  :  “there is def some extra margin in rate sheets”
Adam Quinones  :  “MBS lagging TQ…gotta see FN4.0s hold a break thru 101-15 id say. More importantly id like to see it hold through Aug2”
Thomas Quann  :  “2.83 wow…. MG- AQ…. what are we looking at from breaking through somewhere? Where does the 10 year have to be to see rate sheets go nuts?”
Brent Borcherding  :  “Float if you don’t see any reprices for the better…things would have to get much worse to get back to even.”
Bert Swyers  :  “float or lock into monday? “
Adam Quinones  :  “THE BOTTOM LINE: Job creation is the most important factor in a sustained economic recovery. Unfortunately because consumer demand has yet to prove consistent, firms are only hiring when labor is needed. Making matters worse, businesses are investing heavily in technology to further improve already very high levels of productivity (automation), which reduces reliance on human brains and brawn. High levels of automated productivity and a large pool of unemployed Americans will only serve to rest”
Adam Quinones  :  “Harping on High Productivity & Margin Pressures: http://www.mortgagenewsdaily.com/mortgage_rates/blog/199321.aspx&#8221;
Adam Quinones  :  “Productivity Gains Darken Hiring Outlook: http://www.mortgagenewsdaily.com/mortgage_rates/blog/197273.aspx&#8221;
Adam Quinones  :  “The outlook for manufacturing is bright, but don’t look for the sector to help with employment much because computer-driven productivity factors are steadily reducing the role people play in increasing output. That’s the word from economic advisers to the Chicago and St. Louis Fed banks, speaking at a conference in Jackson Hole, Wyo.”
Steven Bote  :  “MSI improvement”
Victor Burek  :  “its a small one…only .05 better”
Victor Burek  :  “flagstar better”
Steve Chizmadia  :  “Wells Reprice”
Matthew Graham  :  “RTRS- U.S. TREASURY WILL NOT PROVIDE DETAILS ON FRIDAY ON HOW GOVERNMENT WILL OPERATE IF DEBT LIMIT NOT INCREASED–SOURCE “
Adam Quinones  :  ” RTRS – U.S. DEMOCRATIC SENATOR SCHUMER SAYS HOPES FOR DEBT LIMIT COMPROMISE WITH REPUBLICAN LEADER MCCONNELL BY END OF DAY FRIDAY “
Ken Crute  :  “a little late to the party, but am rate sheet was 1/2 to .375% better in price “
Adam Quinones  :  “loan pricing about as strong as it was on July 15 (youre owed some bps!)”
Victor Burek  :  “flagstar priced .5 better this mornign..but they didnt reprice yesterday”
Adam Quinones  :  “i show 44bps better on the day “
BVG  :  “already get your best pricing of day?”
Adam Quinones  :  “awww…Senate Republican just asked for more time and Dems gave it to him…that’s a start!”

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Your Wells Fargo Mortgage Rate Monitor(SM) Alert

Wells Fargo Mortgage Rate Monitor(SM) Alerts

Today's Rates: July 29, 2011

—————————————————————–
30 YEAR FIXED (CONFORMING(1) LOAN RATE)
INTEREST RATE: 4.5%
ANNUAL PERCENTAGE RATE (APR): 4.686%
MONTHLY PAYMENT: $886.70
PAYMENT TERM: 30 YEARS
LOAN AMOUNT: $175,000
EST. PREPAID FINANCE CHARGES: $3,750
DOWN PAYMENT: 25%
—————————————————————–
15 YEAR FIXED (CONFORMING(1) LOAN RATE)
INTEREST RATE: 3.625%
ANNUAL PERCENTAGE RATE (APR): 3.943%
MONTHLY PAYMENT: $1,261.82
PAYMENT TERM: 15 YEARS
LOAN AMOUNT: $175,000
EST. PREPAID FINANCE CHARGES: $3,750
DOWN PAYMENT: 25%
—————————————————————–
30 YEAR FIXED (FHA)
INTEREST RATE: 4.25%
ANNUAL PERCENTAGE RATE (APR): 5.251%
MONTHLY PAYMENT: $1,035.92
PAYMENT TERM: 30 YEARS
LOAN AMOUNT: $175,000
EST. PREPAID FINANCE CHARGES: $3,750
DOWN PAYMENT: 3.5%
—————————————————————–
Be aware that mortgage rates can change without notice and apply
only in certain conditions. The APR for the loan products shown
reflects the interest rates and estimated prepaid finance charges
which include 1% of your loan amount to be paid toward the loan
origination charge, but does not include all closing costs or
discount points. The displayed rates assume that you're
purchasing a single-family primary residence with a 60-day-lock.

These mortgage rates are based upon a variety of assumptions and conditions which include a consumer credit score which may be higher or lower than your individual credit score. Your loan's interest rate will depend upon the specific characteristics of your loan transaction and your credit profile up to the time of closing.

The monthly payment amount displayed includes principal and interest only. The payment amount does not include homeowner's insurance or property taxes which must be paid in addition to your loan payment.

Conventional loans with a down payment less than 20% require mortgage insurance which could increase the monthly payment and APR.

FHA loans require both an upfront and an annual mortgage insurance premium. The upfront fee is $1,750.00. The annual premium varies based on individual credit scores, your loan-to-value ratio and the loan term. For the FHA loan, a mortgage insurance payment has been added to the monthly principal and interest payment displayed above.

(1) Conforming loan amounts for certain loan products have increased in federally designated metropolitan areas. Larger limits available in the state of Hawaii. To find out if these new loan limits can help meet your needs, contact us.
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Our Wells Fargo Closing Guarantee reflects our commitment to excellence and to you. As one of the nation's leading residential mortgage lenders, we have on-time closing down to a science. On the rare occasion when our timing is off, we'll make up for small delays in a big way.

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[MBS Commentary] – MBS MID-DAY: 7/29/2011

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MBS MID-DAY: 7/29/2011

Posted to: MBS Commentary
Friday, July 29, 2011 11:18 AM

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MBSonMND: MBS MID-DAY
Open MBSonMND Dashboard
FNMA 3.5
97-18 : +0-27
FNMA 4.0
101-12 : +0-19
FNMA 4.5
104-06 : +0-12
FNMA 5.0
106-18 : +0-07
GNMA 3.5
98-32 : +0-24
GNMA 4.0
103-04 : +0-18
GNMA 4.5
106-10 : +0-11
GNMA 5.0
108-24 : +0-07
FHLMC 3.5
97-11 : +0-23
FHLMC 4.0
101-12 : +0-19
FHLMC 4.5
104-01 : +0-11
FHLMC 5.0
106-13 : +0-07
Pricing as of 11:02 AM EST
Morning Market Updates
A recap of MBS Market Updates provided by MND Analysts and streamed live to the MBSonMND Dashboard.
10:17AM  :  ECON: Home Vacancy Rate Eased in Q2

(Reuters) – The percentage of empty privately owned U.S. homes and rental units eased in the second quarter, a government report showed on Friday. The homeowner vacancy rate slipped to 2.5 percent from 2.6 percent in the April-June period, the Commerce Department said. Rental vacancies fell to 9.2 percent from 9.7 percent. (Reporting by Mark Felsenthal; Editing by James Dalgleish)
10:15AM  :  ALERT: Rally Gaining Steam Ahead of Obama Speech

In a few minutes, Obama will make a statement on the status of the debt ceiling negotiations. Ahead of that potentially market moving event, bond markets are about as strong as they’ve been in 2011 with 10yr yields at 2.856 (they’ve dipped slightly lower on a few brief occasions in the past, but lowest closing yield – 2.86+). MBS Still lag Treasuries into the rally, but each of them have ratcheted to better and better territory following each piece of economic data. Fannie 4.0 MBS are up half a point on the day at 101-09 currently. Rate sheets should be stronger this morning, obviously, but lenders are likely to remain conservative while volatility remains elevated.
9:58AM  :  ECON: Consumer Sentiment Falls in July

(Reuters) – U.S. consumer sentiment fell in July to its lowest point in more than two years, as anxieties over stagnant wages and rising unemployment deepened, a survey released on Friday showed. Concerns about the U.S. debt crisis also loomed large, as lawmakers in Washington continue to wrangle over plans to raise the debt ceiling before the U.S. government runs out of money to pay its bills on Tuesday. The Thomson Reuters/University of Michigan’s final reading on the overall index of consumer sentiment came in at 63.7, down from 71.5 in June, the lowest reading since March, 2009. That is just below the preliminary July figure of 63.8 and the median forecast of 64.0 among economists polled by Reuters. "While consumers may not fully understand the debate about the federal debt, they do understand the meaning of the oft repeated warnings of ‘dire economic consequences,’" Director Richard Curtin said in a statement. Confidence in government economic policies reached a new low under the Obama administration. The survey’s gauge of consumer expectations slipped to 56.0, on par with economists’ predictions but below June’s 64.8. Curtin added that the expectations index is at levels consistent with recession, but has not been down long enough to signal one definitively. The survey’s barometer of current economic conditions was 75.8 in July, down from 82.0 in June, and below a forecast of 76.3. Just one in ten consumers expected to earn more money in the year ahead and twice as many consumers reported hearing about new job losses compared with job gains in July. "The absence of positive long term financial expectations has turned consumer resilience into consumer fragility at the first sign of adversity," Curtin said. (Reporting by Alex Alper, Editing by Chizu Nomiyama)
9:52AM  :  SNAPSHOT – What is Happening in the US Debt Crisis

(Reuters) – Here is what is happening on Friday as lawmakers scramble to close in on a deal for Congress to raise the U.S. government’s $14.3 trillion borrowing limit by an Aug. 2 deadline and avoid a debt default:* President Barack Obama is to make a statement on the debt limit situation in Congress at 10:20 a.m. EDT. (1420 GMT)* After Republican House of Representatives leaders failed Thursday to muster sufficient support for Speaker John Boehner’s proposal to raise the ceiling, they labored through Thursday night to rework the bill in hopes of winning over a few Republican holdouts. So far Democrats stand united against the Boehner plan. A House vote on the new plan could be scheduled for later Friday, at the earliest.* House Republicans are set to meet behind closed doors at 10:00 a.m. EDT (1400 GMT) to discuss the reworked Boehner plan.* At least one House Republican holdout, Representative Trey Gowdy in a CNN television interview predicted the new Boehner plan will pass the House.* A White House official says Obama remains opposed to any short-term debt limit hike as sought by House Republicans.* The U.S. Treasury is preparing an emergency plan for how the government would function and pay its obligations if Congress fails to raise the government’s borrowing authority. The plan could be released as early as Friday, officials say.
9:49AM  :  ECON: Midwest Business Barometer Drops in July

Reuters) – Business activity in the U.S. Midwest grew less than expected this month as the labor market weakened, a report showed on Friday. The Institute for Supply Management-Chicago business barometer dropped to 58.8 in July. The reading was 61.1 in June, and economists had forecast a July reading of 60. The employment component of the index sank to 51.5, from 58.7 in June. New orders also fell, to 59.4, from 61.2. A reading above 50 indicates expansion in the regional economy. (Reporting by Ann Saphir; Editing by James Dalgleish)
8:54AM  :  ECON: Q2 Advance GDP Misses the Mark. Spending Flat

Reuters) – The economy grew less than expected in the second quarter as consumer spending barely rose amid higher gasoline prices, and growth braked sharply in the prior quarter, a government report showed on Friday.Growth in gross domestic product — a measure of all goods and services produced within U.S. borders – rose at a 1.3 percent annual rate, the Commerce Department said. First-quarter output was sharply revised down to a 0.4 percent pace from 1.9 percent.Economists had expected the economy to expand at a 1.8 percent rate in the second quarter.In addition, fourth-quarter growth was revised down to a 2.3 percent pace from 3.1 percent, indicating that the economy had already started slowing before the high gasoline prices and supply chain disruptions from Japan hit.Economists had expected the economy would show signs of perking up by now with Japan supply constraints easing and gasoline prices off their high, but data has disappointed. This and the sharp downward revisions to the prior quarters suggest a more troubling and fundamental slowdown might be underway.
8:47AM  :  ECON: Q2 Employment Cost Rise Biggest in Almost 3 Years

(Reuters) – U.S. civilian employment costs surged a steeper-than-expected 0.7 percent in the second quarter, the biggest gain since September 2008, on a jump in benefits costs, Labor Department data showed on Friday. Analysts polled by Reuters had expected the Employment Cost Index to increase 0.5 percent in the three months ending in June, after a 0.6 percent rise in the prior quarter. Benefits costs, which make up about 30 percent of compensation, grew 1.3 percent in the quarter, the biggest gain since June 2007. Wages and salaries expanded by 0.4 percent in the second quarter after increasing by the same amount in the first quarter. Over 12 months, compensation costs rose 2.2 percent, the sharpest annual increase since December 2008. (Reporting by Mark Felsenthal, Editing by Chizu Nomiyama)
8:45AM  :  US Treasury, Dealers to Discuss Market Conditions

(Reuters) – The U.S. Treasury Department said it will meet with primary-market dealers in New York on Friday as part of regularly scheduled meetings ahead of next week’s quarterly refunding announcement. "These meetings typically give us an opportunity to hear the latest from those who buy U.S. Treasuries, and we expect them to be particularly useful as we enter a period where Congress has not yet acted to raise the debt ceiling," a Treasury official said. (Reporting by Glenn Somerville)
8:43AM  :  ALERT: Treasuries Rally Overnight and on Data, MBS Reluctant, but Following

As we discussed yesterday, Treasuries continue to rally more and sell-off more than MBS depending on the flavor of the day. Today is a rally day, both due to overnight trading (Spain downgraded by Moody’s, Boehner cancelled vote for his debt plan), as well as the morning’s economic data. The data showed a much weaker than expected Advance GDP and employment costs rising at their fastest pace since 2008. While MBS (Fannie 4.0’s) are up 7 ticks on the day at 101-00, 10yr notes are up 18 ticks in price, dropping yields to 2.89. Yields have been flagging sideways in a narrow range around 2.885 since falling from 2.91+ before the release of the data.
Featured Market Discussion
A recap of the featured comments from the Live Discussion on the MBSonMND Dashboard.
Matthew Graham  :  “RTRS- BULLARD – FED CAN’T BUY DEBT DIRECTLY FROM TREASURY, IF THERE WERE A CRISIS, FED COULD PROVIDE LIQUIDITY – CNBC “
Matthew Graham  :  “RTRS – FAILURE TO RAISE DEBT CEILING WOULD HAVE UNPREDICTABLE CONSEQUENCES FOR U.S. ECONOMY, EXPECT DEAL AT END OF THE DAY – CNBC “
Matthew Graham  :  “RTRS- U.S. HOUSE REPUBLICANS AIM TO VOTE ON REVISED DEBT LIMIT BILL ON FRIDAY – HOUSE RULES COMMITTEE CHAIRMAN DREIER “
Adam Quinones  :  “Friday, July 29, 2011 10:46:49 AM RTRS – NEW REPUBLICAN DEBT LIMIT PLAN TO CALL FOR SHORT-TERM EXTENSION WITH 2ND DEBT LIMIT INCREASE LINKED TO CONGRESS PASSING BALANCED BUDGET CONSTITUTIONAL AMENDMENT – REPUBLICAN LAWMAKER”
Matthew Graham  :  “RTRS- OBAMA WILL PREPARED TO WORK ALL WEEKEND WITH DEMOCRATS AND REPUBLICANS TO GET A DEBT DEAL “
Matthew Graham  :  “RTRS- OBAMA SAYS A LOSS OF U.S. TRIPLE-A CREDIT RATING WOULD CAUSE INTEREST RATES TO RISE, BE LIKE A HIGHER TAX ON ALL AMERICANS “
Matthew Graham  :  “RTRS – OBAMA SAYS U.S. COULD LOSE ITS AAA CREDIT RATING BECAUSE OF POLITICS”
Matthew Graham  :  “RTRS – OBAMA SAYS WOULD BACK SOME KIND OF ENFORCEMENT MECHANISM TO CONTROL DEFICITS IF DONE IN SMART AND BALANCED WAY “
Matthew Graham  :  “”plenty of modifications we could make to these plans that would allow them both to pass and allow me to sign them into law””
Matthew Graham  :  “RTRS – OBAMA SAYS ANY SOLUTION TO AVOID U.S. DEFAULT MUST BE A COMPROMISE”
Matthew Graham  :  “RTRS – OBAMA SAYS BOEHNER DEBT PLAN FOR VOTE IN HOUSE DOES NOT SOLVE THE PROBLEM”
Matthew Graham  :  “RTRS – THOMSON REUTERS/U. OF MICH CURRENT CONDITIONS INDEX AT LOWEST SINCE NOVEMBER 2009 “
Matthew Graham  :  “RTRS – THOMSON REUTERS/U. OF MICH CONSUMER SENTIMENT INDEX AT LOWEST SINCE MARCH 2009 “
Matthew Graham  :  “RTRS- THOMSON REUTERS/U. OF MICH 5-YEAR INFLATION OUTLOOK FINAL JULY 2.9 PCT VS PRELIMINARY JULY 2.8 PCT “
Matthew Graham  :  “RTRS – THOMSON REUTERS/U. OF MICH 1-YEAR INFLATION OUTLOOK FINAL JULY 3.4 PCT VS PRELIMINARY JULY 3.4 PCT “
Matthew Graham  :  “RTRSPRELIM JULY 55.8 Today 06:55 – THOMSON REUTERS/U. OF MICH 12-MONTH ECONOMIC OUTLOOK INDEX FINAL JULY 55 VS PRELIMINARY JULY 52 “
Matthew Graham  :  “RTRS- THOMSON REUTERS/U. OF MICH CONSUMER EXPECTATIONS INDEX FINAL JULY 56.0 (CONSENSUS 56.0) VS PRELIM JULY 55.8 “
Matthew Graham  :  “RTRS- THOMSON REUTERS/U. OF MICH CURRENT CONDITIONS INDEX FINAL JULY 75.8 (CONSENSUS 76.3) VS PRELIMINARY JULY 76.3 “
Matthew Graham  :  “RTRS- THOMSON REUTERS/U. OF MICH US CONSUMER SENTIMENT FINAL JULY 63.7 (CONSENSUS 64.0) VS PRELIMINARY JULY 63.8 “
Matthew Graham  :  “RTRS- CHICAGO PURCHASING MANAGEMENT PRODUCTION INDEX 64.3 IN JULY VS 66.9 IN JUNE “
Matthew Graham  :  “RTRS – CHICAGO PMI EMPLOYMENT INDEX 51.5 IN JULY VS 58.7 IN JUNE “
Matthew Graham  :  “RTRS- CHICAGO PURCHASING MANAGEMENT PRICES PAID INDEX 71.7 IN JULY VS 70.5 IN JUNE”
Matthew Graham  :  “RTRS- CHICAGO PURCHASING MGMT NEW ORDERS INDEX 59.4 IN JULY VS 61.2 IN JUNE “
Matthew Graham  :  “RTRS – SEN. REID CALLS ON SENATE REPUBLICAN LEADER TO “SIT DOWN WITH ME” AND NEGOTIATE COMPROMISE DEBT LIMIT BILL “
Matthew Graham  :  “RTRS- US SEN REID SAYS “I MUST TAKE ACTION”; AIMS TO START ADVANCING SENATE COMPROMISE “
Matthew Graham  :  “RTRS – US SENATE DEMOCRATIC LEADER REID SAYS SENATE “CANNOT WAIT ANY LONGER” FOR REPUBLICAN HOUSE TO ACT ON DEBT LIMIT “
Matthew Graham  :  “RTRS- OBAMA TO DELIVER STATEMENT ON STATUS OF DEBT CEILING NEGOTIATIONS AT 10:20 A.M. EDT (1420 GMT)-WHITE HOUSE “
Matthew Graham  :  “(Reuters) STEVE BLITZ, DIRECTOR AND SENIOR ECONOMIST, ITG NEW YORK “The economy is weak, and it’s going to stay weak, and it’s going to stay weak for a while because we are in the process of deleveraging and this is what deleveraging looks like. To get the economy moving forward the way it should requires a reform of the tax code that will lower rates and broaden the base and favor investment over consumption. Efforts to try and put Humpty Dumpty back together again to have the economy we ha”
Matthew Graham  :  “(Reuters) SCOTT BROWN, CHIEF ECONOMIST, RAYMOND JAMES, ST. PETERSBURG, FL “The face value is certainly not great. The second quarter disappointed, but the first-quarter downward revision is more disturbing. It advances the pangs of concern. The debt ceiling nonsense is not going to help us. We’re already in an economy that is subpar.” “Glancing through it doesn’t look like anything is really out of line with what people were expecting for the second quarter… Gasoline price increasing f”
Matthew Graham  :  “(Reuters)TIM GHRISKEY, CHIEF INVESTMENT OFFICER OF SOLARIS ASSET MANAGEMENT IN BEDFORD HILLS, NEW YORK: “Everybody expected GDP to be weak for the second quarter, estimates had steadily come down, but this is a pretty shockingly low number. The revision to the first quarter is even more shocking.” “Clearly this is evidence of a mid-cycle slowdown. The only question now is do we see a pick up in the second half and so far the economic data to date doesn’t suggest that.” “You might hav”
Matthew Graham  :  “(Reuters) CHRIS LOWE, CHIEF ECONOMIST, FTN FINANCIAL, NEW YORK “What is worrisome is that each month in the quarter was weaker than the month before. We are looking at another slow quarter in the third quarter but still positive so no recession….At this point growth is so close to zero and confidence is more important than it normally is and the distraction of the debt ceiling fight could make a big difference. A government shutdown would have a big impact as well.””
Matthew Graham  :  “RTRS- US EMPLOYMENT COST INDEX +2.2 PCT OVER 12 MONTHS ENDED IN JUNE, LARGEST RISE SINCE +2.6 PCT IN DEC 2008 “
Matthew Graham  :  “RTRS- US Q2 BENEFIT COSTS LARGEST RISE SINCE +1.3 PCT IN JUNE 2007 “
Matthew Graham  :  “RTRS – US Q2 EMPLOYMENT COST INDEX LARGEST RISE SINCE +0.7 PCT IN SEPT 2008”
Matthew Graham  :  “RTRS- U.S. Q2 EMPLOYMENT COST INDEX +0.7 PCT (CONSENSUS +0.5 PCT) VS Q1 +0.6 PCT”
Matthew Graham  :  “RTRS – US 2010 PERSONAL SAVING RATE REVISED TO 5.3 PCT FROM 5.7 PCT “
Matthew Graham  :  “RTRS – US 2009 GDP REVISED TO -3.5 PCT FROM -2.6 PCT “
Matthew Graham  :  “RTRS- US 2010 GDP GROWTH REVISED TO +3.0 PCT FROM +2.9 PCT; CORE PCE PRICE INDEX REVISED TO +1.4 PCT (+1.3) “
Matthew Graham  :  “RTRS – US Q2 BUSINESS INVESTMENT +6.3 PCT (Q1 +2.1 PCT), EQUIPMENT/SOFTWARE +5.7 PCT (Q1 +8.7 PCT)”
Matthew Graham  :  “RTRS – US Q2 MARKET-BASED PCE PRICE INDEX +3.5 PCT (Q1 +4.0 PCT), CORE +2.4 PCT (Q1 +1.3 PCT) “
Matthew Graham  :  “RTRS- US Q2 PCE PRICE INDEX +3.1 PCT (CONS +3.4 PCT), Q1 +3.9 PCT; CORE PCE +2.1 PCT (CONS +2.3 PCT), Q1 +1.6 PCT “
Matthew Graham  :  “RTRS – US ADVANCE Q2 GDP DEFLATOR +2.4 PCT (CONS +2.0 PCT), Q1 +2.7 PCT “
MMNJ  :  “we should fly”
Matthew Graham  :  “RTRS – US ADVANCE Q2 GDP +1.3 PCT (CONSENSUS +1.8 PCT), Q1 +0.4 PCT; FINAL SALES +1.1 PCT (CONS +1.8 PCT), Q1 0.0 PCT “
Victor Burek  :  “1.3 wow”
Matthew Graham  :  “RTRS- US TREASURY OFFICIAL SAYS MEETINGS “PARTICULARLY USEFUL” AS U.S. ENTERS A PERIOD WHERE CONGRESS HAS NOT YET RAISED THE DEBT CEILING “
Matthew Graham  :  “RTRS- US TREASURY OFFICIAL SAYS HOLDING REGULARLY SCHEDULED MEETINGS IN NEW YORK WITH MARKET PARTICIPANTS ON FRIDAY TO DISCUSS MARKET DEVELOPMENTS AHEAD OF QUARTERLY REFUNDING NEXT WEEK “

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[MND NewsWire] – Skin in the Game: "Qualified Residential Mortgage" on the Hot Seat

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Skin in the Game: "Qualified Residential Mortgage" on the Hot Seat

Posted to: MND NewsWire
Friday, July 29, 2011 7:00 AM

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Check out my twice-a-month blog at the STRATMOR Group web site located at http://www.stratmorgroup.com. The current blog takes a look at QRM and shares doubts about its passage. Below is the text. 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.

Early in June we discussed the provisions of QRM (“QRM” stands for “Qualified Residential Mortgage”). It is an issue that just won’t go away, and it did not help matters when the regulators extended the end of the comment period to August 1 – about one week away. The intention of the proposal is good: to limit “risky” loans from being originated and sold to investors and to force companies that securitize loans to “keep skin in the game.”  QRM loans are expected to perform better, and therefore be subject to fewer risk requirements, with outliers being labeled as non-QRM.  The loans falling outside this definition require the securitizer to hold 5% of the loan as a reserve (more on this later) – this is the risk retention component.  And although it sounds relatively simple, it is very complex. And, as it turns out, a wide range of organizations have banded together to denounce it – more on that later also.

The core requirements for a loan to meet the definition of QRM are a maximum 80% LTV for purchases, less for refinances, 28/36 debt ratios, and 0x30 on all debts in last 24 months. Some studies have found that some 40% of recent originations wouldn’t qualify under these guidelines in spite of current production being the “cleanest” it has been for several years. Given the 40% number, politicians, mortgage originators, home builders, minority rights groups, and so on have rallied against the provisions.

So the “40% of loans wouldn’t qualify under QRM and therefore require the risk retention trigger” makes a great headline but that’s a bit misleading – it’s maybe a half-truth.  The rule allows for all government or agency backed loans (Fannie/Freddie and FHA) to be exempt from the risk retention.  So at a time where 90% of loans are agency eligible, this 40% figure is incorrect – in the short-term, the QRM restrictions mean little. But in the longer term, should Congress ever fully address the future of Freddie and Fannie, the QRM restrictions will be felt by the industry, and by the currently fragile housing market.  Many in the industry wonder exactly why Fannie & Freddie must be dissolved, but if we’re to believe that they will be taken out of conservatorship or restructured, FHA will become the de facto program as it’ll be the only option to qualify for the exemption (>70 or 80 LTV and 28/36 ratios).

But unfortunately, HUD is continuing to shy away from increasing its market share (by increasing mortgage insurance premiums and lowering its loan limits). So mortgage originators may be left with either succumbing to the restrictions and setting aside 5% for risk retention purposes, or defining themselves as “non-securitizers.” The first alternative is grim, so the focus has turned to the second alternative. In the QRM rules currently open for public comment, the “banker” is the one who pools and securitized the mortgage loan.  This means that correspondent lenders who sell to aggregators will NOT have to abide by the 5% rule, but the investor or aggregator will. But if the investors have to retain the 5% capital for risk retention, they’ll have to pull funds from other uses and put them toward the mortgage.  They’ll be looking for similar returns in this capital and therefore it’s expected these non-QRM loans will have significant price adjustments, perhaps a 1-2% higher mortgage rate. And analysts suggest that aggregators will not absorb this, and that the cost will be passed down to the correspondent seller and/or the borrower. And is this good for the housing market?

In addition, many believe that the QRM rules promotes further growth of the larger “too big to fail” banks.  They gain a competitive advantage as they have a larger asset base to be leveraged when compared to the community banker or credit union.  The smaller lenders who have acted responsibly to serve their local markets over the years are negatively impacted as the 5% retention rule is enough to possibly change their business model and force them to move away from securitizing and servicing platforms toward the correspondent channel.

Fortunately, for these reasons and others, an incredibly wide range of special interest groups have come out with a united front against the existing QRM restrictions. Groups ranging from the American Securitization Forum, credit unions across the nation, and a diverse coalition of 44 consumer organizations, civil rights groups, lenders, real estate professionals and insurers, along with 44 Senators and 282 members of the House of Representatives have voiced their concern that such a requirement would hurt, rather than help, a housing recovery (per the Santa Ana Business News). So at this point, look for the QRM question to drag on well into the foreseeable future, much to the temporary relief of the mortgage and housing industry.

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[Pipeline Press] – Revisiting Originator Compensation; Bank of America Faces New Lawsuit; Industry Earnings; Regulatory Conflict

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Revisiting Originator Compensation; Bank of America Faces New Lawsuit; Industry Earnings; Regulatory Conflict

Posted to: Pipeline Press
Friday, July 29, 2011 9:04 AM

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“Why do chicken coops have twodoors? Because if they had four doors they’d be sedans.”

And thus starts Friday, with verygood rates but a lot of news for folks in the mortgage banking and real estatebusiness to be watching. First, of course, the debt crisis continues inWashington – more on that below.

Second, Monday is August 1st, whichis the end of the public comment period for the nearly universally dreaded QRMprovisions. Those “in the know” believe that, as proposed, therestrictions are unlikely to fly. (There is more at QRMDoubts.)

Third, regulators say they’veidentified conflicts between Basel III and parts of the Dodd Frank Actrelating to credit rating agencies. (Yes, those rating agencies thatmistakenly rated billions of mortgage debt several years ago, and which areproviding information about downgrading government debt now.) Representativesfrom the SEC, the Federal Reserve Bank, and the OCC gave evidence to the HouseFinancial Services Subcommittee on credit rating agencies in Washington onWednesday. Federal Reserve Board associate director of banking supervision MarkVan Der Weide told the panel the Reserve Board plans to remove mentions ofcredit rating agencies from its rules “in the near future” but hesaid the process was being complicated by Basel III, which does mention creditratings agencies. Section 939 A of the Dodd Frank Act requires all federalauthorities to review and replace references to credit ratings agencies intheir regulations, with “alternative measures of credit worthiness”.Van Der Weide said the Fed had received feedback from the public andcommentators saying the act “could lead to distortion in the market”.Great.

Fourth, Bank of America isfacing a new securities-fraud lawsuit filed by former Countrywide investors(including BlackRock and the California Public Employee’s Retirement System)that opted out of a $624 million settlement last year. According to the suitCountrywide misled shareholders about its finances and lending practices. Formore go to: BankofAmerica.

Returning to the debt crisis, and the apparent inability for our electedofficials to send a budget to the president, the bond market seems focused onthree developments: “(1) A downgrade of Treasuries by at least oneratings agency.  (2) A more prolonged downdraft in economic activity,caused in no small part by the uncertainty raised by the debt issues.  (3)Clinging to the notion that a full-scale Treasury default will be avoided,mostly because it’s too painful to think otherwise.” Paul Jacob, withBanc of Manhattan, points out that although these issues would normallycause the yield curve to steepen (leading to higher mortgage rates), but thereare a few reasons why rates have not done much of anything. “For onething, markets are supposed to look past labels and truly assess risks – hasthe U.S. long-term deficit outlook really changed over the past 6 or 12months?  Then there’s the state of the economy – things are slow, whichwould keep rates low. And lastly, China, a major world economic influence,continues to hold US dollars and securities, helping prices. Very good points.

Corporate earnings formortgage-related companies took a turn for the worse in the last day or two. OldRepublic International (RMIC) swung to a $66 million loss in the secondquarter on worsening claims costs in its troubled mortgage guaranty business.The insurer said Thursday it would likely place the mortgage guaranty unit intorun-off mode if it does not manage to transfer the unit to a separatelycapitalized subsidiary before the end of August. CEO Aldo Zucaro in Januarypredicted the mortgage guaranty industry won’t be profitable until 2013.

PHH lost $41million, in part due “fair value charges on mortgage servicing rights(MSR)” of $117 million. During the 2nd quarter the investor sawinterest rate lock commitments (IRLCs) of $7.5 billion, compared to $8.4billion in the second quarter of 2010. Its mortgage loan servicing portfolioincreased to $174 billion as of June 30, 2011, up from $156 billion at June 30,2010. “While our servicing portfolio delinquencies rose slightly to 3.22%at quarter-end from 3.15% at the end of the first quarter, they are stillapproximately half those of most other large servicers. Foreclosure costs remainelevated at $24 million, compared to $20 million in the second quarter of 2010,driven by increased repurchase requests. As we expected, our mortgageorigination market share declined from 4.3% in the first quarter of 2011 to3.7% in the second quarter.”

Genworth Financial lost $96million in the 2nd quarter. The company said its U.S. mortgageinsurance unit’s operating loss worsened to $253 million in the quarter,compared with a loss of $40 million in the same period last year. The widerloss came after the company set aside $300 million in reserves to cover badloans. Genworth noted that the total flow of delinquencies declined 2 percentfrom the previous quarter, however.

One bright spot, if there is one,is that D.R. Horton, the largest U.S. homebuilder, reported abigger-than-expected quarterly profit, helped by cost cuts. The company managedto cut its selling, general and administrative expenses to less than 12% ofrevenue.

One issue that seems to havequieted down is LO compensation. But it is in no way a dead issue as companiescontinue to adjust and fine tune the rules and regulations. National MortgageNews came out with a list of “Ongoing Reminders About CompensationUnder the Dodd-Frank Wall Street Reform and Consumer Protection Act”worth noting. Lenders are encouraged to remember that payments made bycreditors to loan originators are not payments made directly by the consumer,regardless of how they might be disclosed under HUD’s Regulation X, whichimplements the Real Estate Settlement Procedures Act. Because the long-termperformance of the loans is not a term or condition of a loan it is permissibleto go back and “ding,” or take back part or all of the commission ona particular loan from a loan originator, if the loan has an early defaultbecause that’s not a term or condition. “However, you should be certainyou are not violating wage and hour laws of the Fair Labor Standards Act andnot violating state wage and hour laws as set forth by the Division of LaborStandards Enforcement in California or for that matter, any other state.”

The third item on this list is a reminder that compensation to originators canvary based on how the loan application was produced, for example, commissionsmay be higher for leads generated by the originator versus the company. FederalReserve Board staff states that as long as compensation is not based on loanterms or conditions, or a proxy, it is acceptable. If pricing of two loansdiffers, there may be a concern that channel is being used as a proxy for loanterms or conditions but other factors may justify differences. Be certain youcan prove it in the event of an audit. Fourth, a mortgage loan originator is aperson who arranges, negotiates or obtains a loan for a consumer and whosecompensation is based on whether any particular loan is originated. Thus thereare two sets of requirements to be a loan originator: (1) arranging,negotiating or obtaining a loan for a consumer and also (2) having compensationbased on any particular loan. Both sets of requirements must be met for aperson to be a loan originator, and this person may not pay some or all of thethird party fees of a consumer or otherwise credit the consumer out of his ownpocket. Lastly, it appears that for purposes of the Dodd-Frank rule affiliatesare treated as a single person, so that when a lender acts as a mortgage brokerand is thus, a loan originator for purposes of the rule where there is a partythat is an affiliated settlement service provider, such as a title company, thebona fide and reasonable charges received by the affiliated settlement serviceprovider are also considered part of the loan originator compensation.

At least rates are behaving.Thursday rate-sheet MBS prices (Fannie 4’s, which contain 4.25-4.625%mortgages) rallied nicely, resulting in some intra-day price improvements.Treasuries opened higher following a mixed session overnight on poor earningsand weak economic news, as well as, on the uncertainty regarding the U.S. debtceiling. The 10-year note closed with a yield of 2.95%.

We opened this morning with the10-yr at 2.92%: Spain’s credit rating (remember Europe? It isn’t going away.)was put on downgrade watch by Moody’s, and the PM announced they would dissolvethe parliament and hold early elections in November. (Maybe the US should trythat.) China may lend money to Greece. Over here, the Tea Party resistance sunkBoehner’s bill before it ever made it to a vote. Republican officials will tryto push something through again this morning, but all I see in the press ismore jawboning.

 

WIFE’S DIARY:
Tonight, I thought my husband was acting weird. We had made plans to meet at anice restaurant for dinner. I was shopping with my friends all day long, so Ithought he was upset at the fact that I was a bit late, but he made no commenton it. Conversation wasn’t flowing, so I suggested that we go somewhere quietso we could talk. He agreed, but he didn’t say much. I asked him what was wrong;He said, ‘Nothing.’ I asked him if it was my fault that he was upset. He saidhe wasn’t upset, that it had nothing to do with me, and not to worry about it.On the way home, I told him that I loved him. He smiled slightly, and keptdriving. I can’t explain his behavior I don’t know why he didn’t say, ‘I loveyou, too.’ When we got home, I felt as if I had lost him completely, as if hewanted nothing to do with me anymore. He just sat there quietly, and watchedTV. He continued to seem distant and absent. Finally, with silence all aroundus, I decided to go to bed. About 15 minutes later, he came to bed. But I stillfelt that he was distracted, and his thoughts were somewhere else. He fellasleep – I cried. I don’t know what to do. I’m almost sure that his thoughtsare with someone else. My life is a disaster.

HUSBAND’S DIARY:
Boat wouldn’t start, can’t figure it out.

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