“Well, I got a job and tried to put my money away
But I got debts that no honest man can pay
So I drew what I had from the Central Trust
And I bought us two tickets on that Coast City bus.”

Perhaps the move yesterday by the Federal Reserve will keep stories like that to a minimum, although analysts believe that any upturn is months away, at best.

As every agent and their borrower clients know, the Fed reduced its target for the federal funds rate to between zero and 0.25%, down from 1%, along with pledging to use "all available tools" to fight the current downturn. (Having a negative Fed Funds rate is highly unlikely, so they are left with flooding the market with liquidity as their tool going forward.) It said it was likely that rates would be kept at "exceptionally low levels" for some time to come. Bonds rallied, rates dropped, equities rallied on the news. The dollar worsened, but look for our currency to rally as other countries lower their rates. And every rate lock out there immediately became suspect. And originators can look for price compression, with little pricing above par for higher rates – which servicer thinks that they will have 5.5% mortgages on their books for very long?

Although the rate cut will help, remember that we still have an auto industry with problems, expected continued lay-offs (although not in mortgage banking!), and home builders are hurting. But the central bank's move to cut interest rates and pledge other efforts to unfreeze frozen credit markets should translate into significantly lower interest rates for consumers. Commercial banks responded immediately to the Fed announcement by cutting their prime rates. Originators were asking where Fannie 3.5% securities (which would include 30-yr mortgages from 3.75 to 4.125% in rate) should trade.

In news from today, Morgan Stanley reported a $2.3 billion loss, and mortgage applications last week were up about 3%. Aside from that, there is little in the way of news, so we are left to digest the market activity from yesterday. The rate improvement has continued this morning, with the yield on the 10-yr down to 2.08%, and 30-yr mortgages better by nearly a point. As I mentioned above, every lock is suspect, and agents and brokers will be fielding calls like, “I do not care if you locked my loan, I want a better rate – and if you can’t find me one, someone else will!” Lock desks across the country will be fielding renegotiation calls.

Practically USDA lender knows that “GUS” is the Guaranteed Underwriting System (GUS) developed by Rural Development. GUS is available, at no cost, to all approved lenders. Check out http://www.rurdev.usda.gov/regs/an/an4330.pdf “GUS considers mortgage loan application data entered by the originator, credit repository data, and property information to evaluate a potential borrower’s ability to meet a proposed mortgage obligation. GUS evaluates select components in a mortgage loan application and provides a credit evaluation and underwriting recommendation within seconds.” Sounds pretty simple to me, but then again, I am not an underwriter. Some agents are using wholesale channels for this product, through lenders such as Wells and SunTrust.

US Bank Correspondent Division came out with their “Super Conforming” guidelines. They have the standard verbiage about “The maximum loan amounts have been reduced to 115% of AMI (down from 125%) and the absolute maximum loan amount reduced to $625,500 for primary one unit. New property types are now eligible and the LTV/TLTV limits for Second Homes, Investment and Cashout Refinances have been expanded.” USB goes on to say that “Maximum cash to borrower increased to $200,000 on 1 Unit. Maximum is $100,000 on 2-4 Unit. 2-4 Unit properties are now eligible, there are new loan limits for those as well (limited by

the 115% AMI rule): 1 Unit $625,500, 2 Unit $800,775, 3 Unit $967,950, 4 Unit $1,202,925. All loan amounts up to and including $1,000,000 must be submitted to LP and receive an LP response of Accept or Caution-A Minus Eligible. Loan amounts > $1,000,000 or loans that receive a response of invalid, ineligible or incomplete must be manually underwritten.

Yesterday, I answered a knock on the door to be confronted by a well-dressed young man carrying a vacuum cleaner.
“Good morning,” said the young man. “If I could take a couple of minutes of your time, I would like to demonstrate the very latest in high-powered vacuum cleaners.”
“Go away!” I said. “I haven’t got any money! I’m broke!” and proceeded to close the door.
Quick as a flash, the young man wedged his foot in the door and pushed wide open.

“Don’t be too hasty!” he said. “Not until you have at least seen my demonstration.” And with that, he emptied a bucket of horse manure onto my hallway carpet. “If this vacuum cleaner does not remove all traces of this horse manure from your carpet, I will personally eat the remainder.”
I stepped back and said, “Well I hope you've got a good appetite, because they cut off my electricity this morning. What part of broke do you not understand?”