How did it get to be the last business day of May already? If you’re sitting at your desk, and the receptionist, with wide eyes, stammers, “Line 2 is the FBI – they want to talk to you!” should you be nervous? Perhaps, or perhaps not, especially if they are looking for help on a case. Regardless, check out http://www.fbi.gov/hq/mortgage_fraud.htm

You might remember the Steve Martin movie, “The Jerk”, and how excited he is when the new phone book arrives, and he runs through the street yelling, “The new phone book’s here, the new phone book’s here!” Fannie Mae will be releasing DU version 7.0 this weekend with a number of updates to DU’s credit risk assessment and eligibility requirements.  This will be an industry-wide change that affects ALL investors and all business channels. Most originators are requesting that all loans currently approved via DU Version 5.7 must be locked today, or are subject to the new DU 7.0 guidelines, no tears. According to Fannie, 7.0 will have improved credit quality across all DU recommendation levels, especially Expanded Approval (EA) recommendations, the maximum allowable expense ratio (DTI) will be more conservative, loans with a mortgage delinquency of 60 days or more in the last 12 months will be ineligible, as will a foreclosure reported or filed within the last 5 years. Version 7.0 also requires loans to have a minimum credit score of 580 (although many use a 600 overlay). And there are other changes as well.

Flagstar Bank, in accordance with Fannie Mae enhancements, will be removing the declining market policy from their Fannie Mae Jumbo Program.  All reference to declining market policy has been removed from the product description and posted to the website. Remember that many mortgage insurance companies still have their own declining market policies in effect, and for loans with an LTV exceeding 80%, LTV restrictions may still apply.  In addition to this change, early next week Flagstar will be changing their Fannie Mae Jumbo Program by adding a new product: 30-year fixed with10-year interest-only term, increasing their ARM LTV/CLTV ratio to 90%, and increasing LTV ratios for rate/term refinances to 90%.

Wells Fargo Wholesale Lending will implement a 2% rate adjuster on loans (conventional conforming and non-conforming) with certain categories, including high LTV condo’s, second homes, etc., that require lender-paid or borrower-paid mortgage insurance due to changes in MI availability.

Speaking of Wells, want to do self insurance with them? Be forewarned: effective with registrations and/or locks next Thursday, for Well’s Self Insurance program they are eliminating condos with LTVs > 90%, all second homes, all cooperative properties, all investment properties, and loans with secondary financing.

HSBC announced that there will be changes to Fannie Mae’s Stated Income Verified Assets (SIVA) program effective June 9th. (It does not apply to Freddie.) Changes include lowering to 75% LTV Owner Occ 1-2 unit, purchase and no cash-out refinances, Owner Occ 1unit cash-out refi - LTV will be reduced to max 75% (70% in declining Market), the minimum credit score will be increased to 700 for 1-2 unit owner occ cash-out refis, and the maximum DTI will be 45% regardless of DU response.

Whew! On to the market. This morning we had April's Personal Income and Outlays data at 5:30AM PST. This report gives us an indication of consumer ability to spend and current spending habits – important since consumer spending makes up two-thirds of the U.S. economy. Forecast at +.4% for both consumption and spending, U.S. Personal Income rose by 0.2 percent in April, and Personal spending, under scrutiny as a barometer of how consumers are faring as the U.S. economy cools, had risen by 0.4 percent the previous month.  And for those who don’t drive or eat, the core PCE price index, which is the Federal Reserve's preferred measure of inflation, rose by 0.1 percent as expected, slowing from a 0.2 percent increase in March. Later we have the Chicago Purchasing Manager’s survey, and the last report of the week from the University of Michigan - they will update their Index of Consumer Sentiment for May.

Rates? This week the 10-year yield rose to the highest level since December after the GDP report. But then the Treasury's $19 billion auction of five-year notes went well, and we improved. Futures on the Chicago Board of Trade show a 42% chance that the FOMC will raise the target rate for overnight lending by .250% in September, although the market is giving 100% odds of them leaving it alone at their next meeting on June 25th. The 10-yr is “back down” to 4.03%, and mortgage prices look to improve about .250 in price versus yesterday afternoon.

A lady goes to her priest one day and tells him, “Father, I have a problem. I have two female parrots, but they only know how to say one thing.”
“What do they say?” the priest inquired.
“They say, 'Hi, we're ‘tramps’! Do you want to have some fun?'”
“That's obscene!” the priest exclaimed, then he thought for a moment. “You know,” he said, “I may have a solution to your problem. I have two male talking parrots, which I have taught to pray and read the Bible. Bring your two parrots over to my house, and we'll put them in the cage with Francis and Peter. My parrots can teach your parrots to praise and worship, and your parrots are sure to stop saying that phrase in no time.”
“Thank you,” the woman responded, “'this may very well be the solution.”
The next day, she brought her female parrots to the priest's house. As he ushered her in, she saw that his two male parrots were inside their cage holding rosary beads and praying. Impressed, she walked over and placed her parrots in with them. After a few minutes, the female parrots cried out in unison:
“Hi, we're ‘tramps’! Do you want to have some fun?”
There was stunned silence.

Shocked, one male parrot looked over at the other male parrot and exclaimed, “Put the beads away, Frank. Our prayers have been answered!”

Rob