Election Day at last! It seems that this “election” has been going on for years, and I, for one, am at a loss wondering what the press is going to write and talk about, now that it is almost over. Maybe they’ll focus on FHA loans (the new subprime, with the taxpayer absorbing defaults in the future?) and HUD. If you’re still employed, how many employees does your company have? Ginnie Mae has 68. (As in “sixty-eight”.) Questions are arising about how they are going to monitor issuance of FHA-backed mortgage-backed securities. These have nearly tripled in the last year, and the bonds now account for 30% of new offerings. The renewed prominence has been accompanied by a return of old problems. But Ginnie has to make sure that when a borrower falls behind on payments, the servicer (typically the same company that issued the security) advances payments to bondholders until the loan is resolved. The liquidity crisis has increased the risk that servicers will fail to do so, making the job of monitoring them a lot tougher for Ginnie, which has limited resources. Sound familiar?

How are your applications? As one agent cleverly surmised, “Apps are only down 25%, but the problem is only 20% of those qualify. So 600 apps has declined to 450 apps, which are really 90 “do-able” apps.  And in the past, 600 apps would probably result in 450 do-able loans, given underwriting, so to go from 450 to 90 is pretty bad. My company is at 20% probably of real deals if we’re lucky…..now we have new people in the business who are taking apps but know nothing, which is good for me.”

Hopefully rates eventually help. But don’t look for much help from overnight Fed Funds. First, the correlation is poor. Second, now that the FOMC has cut its funds rate target to just 1%, there is little room for further cuts. Is 0% in the cards? Many do not believe that 0% on overnight funds would help clear up the logjam of credit issues. Do short-term investors want to earn 0% on their money market fund? Of course not, and funds might become unable to cover their expenses, which leads to a different set of problems. So analysts believe that the way out of this is to continue to free up cash in order to provide additional economic stimulus through fiscal policy and continued aggressive Fed policies.

Not that I am any great prognosticator (procrastinator is more like it!), but you may recall last week I asked if IO product would be the next domino to fall. Wells Fargo wholesale & correspondent announced that “Due to changing market conditions, effective with locks or relocks on Monday, Nov. 3, 2008, Wells Fargo will no longer accept the Interest-Only payment feature for fixed-rate 30-year conventional conforming and non-conforming loans, and fixed-rate 30-year High Balance Conforming Loan Program loans.”

Chase weighed in with cost adjustments for non-owner (+.25), units (+.5), and 40-yr loans (+1.875), and higher LTV product based on FICO. They did, however, lower their fees on the burgeoning 10-yr and 20-yr mortgage product.

The San Jose Mercury News reported that “A Stockton man has been sentenced to 15 months in federal prison for his part in a mortgage fraud scheme during the height of the housing boom. Prosecutors say 45-year-old Jose Serrano recruited fake buyers for homes in the Stockton area between 2003 and 2005. He pleaded guilty to helping 37-year-old Iftikhar Ahmad of Stockton sell 10 homes to fraudulently obtain more than $1.5 million in loans. Two mortgage brokers and two former employees of Long Beach Mortgage, a subsidiary of Washington Mutual Bank, were among others charged in the case. All but one have pleaded guilty and are awaiting sentencing. Serrano was ordered to pay more than $219,000 in restitution to the bank as part of his sentence Monday.”

Yesterday we saw the ISM Manufacturing Index drop to a 26-year low. The purchasing managers' gauge of new orders for factories decreased to 32.2, the lowest level since 1980, from 38.8 the prior month, although the index of “prices paid” dropped to 37 from 53.5.What did that do to mortgage rates? Not much. And mortgage rates today are roughly unchanged, but the 10-yr is back up to 3.93%. What’s ahead of the remainder of the week, news-wise? Today we’ll have Factory Orders (expected -.8%), and of course the election. Tomorrow we have some dubious ADP employment numbers, along with the ISM Services number. Thursday brings the usual Jobless Claims number, along with Non-farm Productivity. Friday we’ll see the Unemployment Rate (expected to go from 6.1% up to 6.3%) and Payrolls (expected to drop 200k), and also Pending Home Sales, Wholesale Inventories, and Consumer Credit.

A couple in their nineties is having problems remembering things, so they decide to the go the doctor for a checkup. The doctor tells them that they are physically okay, but they might want to start writing things down to help them remember.
Later that night, while watching TV, the old man gets up from his chair. His wife asks, "Where are you going?"

"To the kitchen," he replies.

She asks, “Will you get me a bowl of ice cream?"
The husband says, "Sure." She gently reminds him, "Don't you think you should write it down so you can remember it?" He says, "No, I can remember that!"
She then says, "Well, I'd like some strawberries on top. You'd better write it down 'cause I know you'll forget it."
He says, "I can remember that! You want a bowl of ice cream with strawberries."
She adds, "I'd also like whipped cream. Now I'm certain you'll forget that, so you'd better write it down."
Irritated, he says, "I don't need to write it down! I can remember that! Ice cream with strawberries! And whipped cream!" He then grumbles into the kitchen.
After about 20 minutes the old man returns from the kitchen and hands his wife a plate of bacon and eggs.
She stares at the plate for a moment and says, "Where's my toast?"