I called my stock broker yesterday after the market closed to find out how my portfolio of various industries had done. He replied, “Helium was up, balloon prices were inflated, but paper was stationary. Knives were up sharply but pencils lost a few points. Hiking equipment was trailing. Elevators rose, while escalators continued a slow decline. Mining equipment hit rock bottom but shipping lines stayed at an even keel. Diapers remained unchanged.” I guess that’s why he makes the big bucks.

OK, you’re a decently-sized mortgage bank, and you decide to subservice through a company like Countrywide, Arvest, or GMAC. A closer examination of the cash required to set up a servicing portfolio, however, causes you some concern. Many mid-sized lenders would rather not use cash to continue to advance the interest to the investors while the borrower isn't paying if the loan goes into foreclosure. Other companies don’t like the impact on their financials of booking the capitalized value of servicing rights on the balance sheet – and the value of servicing is always changing. Writing down the value of the asset if prepayment speeds accelerate the value of the servicing (“impairment”) must also be considered, as well as twists that the political environment has in store: holding off on foreclosures due to a political decision, but possibly continuing to advance payments to the investors. It is obviously not an easy decision, and best to consult with experts.

It has been two months since the enactment (or re-enactment, given that loan amounts were raised last year) of the high balance conforming loans. It is almost May and since that time, aside from an announcement last week by Chase that said, basically, that they had nothing to announce, there has been little in the way of investor news on actually raising the limits. Investors were waiting for Fannie and Freddie (are they still two companies?) to provide direction and guidelines for the product. Apparently they have done so.

Wells Wholesale broke from the pack yesterday. “Wells Fargo Wholesale Lending will accept 2009 temporary conventional conforming loan limits, effective with registrations and/or locks on and after April 27, 2009. The High Balance Conforming Loan Program is available for both the 2009 permanent and the 2009 temporary conventional conforming loan limit transactions…Please note: Fannie Mae has not yet updated Desktop Underwriter® (DUSM) with the new loan limits. Therefore, DU Approve/Ineligible findings are acceptable when the ineligible is due to the loan amount exceeding the max allowable. Clients are reminded to refer to the HUD Web Site to determine 2009 loan limits for the subject property county.” Wells then goes on to list the criteria that must be met by high balance conforming loans, which are relatively stringent and based on LTV, FICO, units, etc. Nonetheless, even if the loan does not meet their requirements, the marketplace was pleased to see a crack in the ice.

Many brokers and agents new to the business, and now doing FHA loans, know little about 203(k) loans. (HUD, of course, does not buy loans but instead insures them.) The 203(k) program addresses single family properties that require rehabilitation and repair. It can be combined with state and local programs. But don’t take my word for it – check out http://www.hud.gov/offices/hsg/sfh/203k/203kabou.cfm

There has been little news this week, and the bond market has kind of drifted along, albeit with gradual move toward higher rates. We did have, however, some good news for mortgage bankers in that the weekly survey by the MBAA showed that applications were up last week 5.3%. Refinancing was up almost 8%, and purchases were up a little over 4%. (Overall, the refinance share of mortgage activity increased to 79.7 percent of total applications from 77.8 percent, and ARM loans accounted for less than 2% of total applications.)

This morning we’ve already had our weekly Jobless Claims. The number moved up to 640,000 last week, slightly higher than expected, and continued claims posted a record high again as the recession bit.

Later on this morning we’ll see Existing Home Sales (expected to be around 465,000, down about 1.5%). But more importantly, we have the Treasury auction announcement for next week’s 2, 5, and 7-yr sales next week. The market is looking for a total of almost $100 billion in sales, and that supply is keeping Treasury prices down and rates higher than they might otherwise be. Currently both the 5-yr Treasury and mortgage prices are better by about .125, and the 10-yr yield is in the mid-2.90’s.

A woman meets a man in a bar. They talk; they connect; they end up leaving together.
They get back to his place, and as he shows her around his apartment. She notices that one wall of his bedroom is completely filled with soft, sweet, cuddly teddy bears. It was obvious that he had taken quite some time to lovingly arrange them and she was immediately touched by the amount of thought he had put into organizing the display. There were small bears all along the bottom shelf, medium-sized bears covering the length of the middle shelf, and huge, enormous bears running all the way along the top shelf.
They share a bottle of wine and continue talking and, after awhile, she finds herself thinking, “Maybe, this guy could be the one!  Maybe he could be the future father of my children?”
They kiss, the passion builds, and he romantically lifts her in his arms and carries her into his bedroom where proceed from there. She is so overwhelmed that she responds with more passion, more creativity, and more heat than she has ever known.
After an intense, explosive night of raw passion with this sensitive guy, they are lying there together in the afterglow. The woman rolls over, gently strokes his chest and asks coyly, “Well, how was it?”
The guy gently smiles at her, looks deeply into her eyes, and says, “Help yourself to any prize ... from the middle shelf.”

Rob

(For archived commentaries, check www.robchrisman.com, or to subscribe write to rchrisman@robchrisman.com)