Want to be the first on the block to own stock in a cool-named financial institution? http://finance.google.com/finance?q=OTC:CRZY (And no, I don’t, although the dividend isn’t bad.)

McDonald's Corp. has completed its changeover to cooking oil with no trans fat at its restaurants in the US and Canada. At last, guilt-free Big Macs for breakfast every day!

If you look like your passport picture, you probably need the trip. (That has nothing to do with mortgage legislation, but I thought it was funny.) Senators reached agreement on housing legislation earlier this week, passing their bill in committee – it is expected on the Senate floor in a few weeks. As we all learned several months ago in our mortgage civics lesson, the differences that exist between the House and Senate versions of the bill will need to be ironed out before being sent to President Bush, but this appears likely.  Both versions include a proposal to refinance underwater mortgages through the FHA and both include legislation to increase regulatory oversight of the housing-related government sponsored enterprises (GSEs): Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. The House version makes the higher loan limits permanent, whereas the Senate version would lower this limit to $550k and only allow these loans to be securitized rather than purchased for the GSEs’ loan portfolios. This might worsen their rates slightly. The FHA refinancing program would be funded by the GSEs rather than the taxpayers.  The FHA refinancing program is estimated to cost less.

The Congressional Budget Office estimates the House bill would result in the refinancing of 500,000 loans, of which 175,000 would still likely default! The likelihood that servicers will agree to write down principal on loans in order to participate in this program depends on the perceived likelihood that a borrower defaults, the expectation that a given home’s value declines substantially further from current levels, and the presence/absence of second liens on the home.  The House and Senate bills attempt to provide servicers with legal protection from bondholders when they make such modifications. On the question of second mortgages, both bills allow the FHA to facilitate agreement between senior and subordinate lien holders, but neither forces second lien holders to accept any particular terms nor do they make any specific arrangements to pay the holder of the second lien holder to induce them to accept the terms of the refinancing. This could potentially block the participation of nearly half of subprime loans originated in the last two years since they have second liens attached. According to one Goldman Sachs report that I saw, implementation of the FHA program does not appear likely before September or October of 2008. However, the loan limit changes and some other regulatory provisions in the Senate version would take effect immediately.

If you have a client ask, “Why are rates going up?”, you can say, “Oil prices are at a record high, and economists believe that the Federal Reserve will have to raise overnight interest rates to keep inflation low.” Remind them that the Fed, however, does not set mortgage rates, and there are many that believe the economy will slow further, due to high food and energy prices, and prompt the Fed to resume cutting rates. The Fed has cut interest rates as far as they can and mortgage rates are not expected to fall much further than its current level near 6%, although Treasury rates may creep down. Unfortunately high energy prices, the weak economy, and tighter credit guidelines are causing consumers to cut spending and avoid buying new homes and big ticket items.

This morning there is little news, aside from oil going up again. The 10-yr, after spending most of yesterday above 3.90%, has slunk back down into the high 3.80 range, and mortgage prices are roughly unchanged to slightly better. The bond market is closing early today due to the holiday, so many investors may be conservative and worsen prices later in the afternoon since they cannot hedge new locks. Later we have April Existing Home Sales, expected to show a -1.6% decline to 4.85 million units.  Home sales have now fallen 32.6% from the peak in September 2005.  In April there was a 9-month supply of existing homes on the market, down from the 20-yr high of 10.2 months last autumn, the laws of supply and demand suggest higher supply is forcing homeowners to cut their prices.

Franklin American will begin purchasing 30 year fixed rate FHA loan limits to a maximum base loan amount of the lesser of the local Statutory Mortgage Loan Limit published by HUD, or: $729,750 1-unit, $934,200 2-unit. For their program, a second appraisal is required for certain transaction types as referenced in FHA ML 2008-09. FAMC Sponsored lenders must order the second appraisal from a third party vendor under the process referenced in the product description, FAMC will not purchase any FHA Jumbo loan without evidence of MIC issuance by HUD, pricing for FHA Jumbo loans will be reflected under a separate product table, and it is available only under FAMC’s Best-Efforts delivery program; mandatory delivery is not available for this product.

One day a father gets out of work and on his way home he suddenly remembers that it's his daughter's birthday. He pulls over to a toy shop and asks the sales person, “How much for one of those Barbie's in the display window?”
The salesperson answers, “Which one do you mean, sir? We have Work Out Barbie for $19.95, Shopping Barbie for $19.95, Beach Barbie for $19.95, Disco Barbie for $19.95, Ballerina Barbie for $19.95, Astronaut Barbie for $19.95, Skater Barbie for $19.95, and Divorced Barbie for $265.95.”
The amazed father asks: “It's what! Why is the Divorced Barbie $265.95 and the others only $19.95?”
The annoyed salesperson rolls her eyes, sighs, and answers: “Sir..., Divorced Barbie comes with: Ken's Car, Ken's House, Ken's Boat, Ken's Furniture, Ken's Computer, one of Ken's Friends, and a keychain made with Ken's ‘privates’.”

Rob