The “two steps forward, one step back” economic news continued last week. On Friday rates went up, and nervous brokers locked in early. We had Ben Bernanke saying that there are signs that the economy is improving, or at least leveling out. And if to prove it, Existing Home Sales were up over 7% to a 2-yr high. But heck, at some price point, wouldn’t the Home Sales number look great? In this number, the median price fell 15%, aided by foreclosure numbers, government credits for first-time buyers, and relatively low rates. There is still over a 9 month supply of inventory.

But then we had the MBAA come out with a survey showing that the percentage of residential mortgages either in foreclosure or with at least one payment past due hit 13.16% in the second quarter, the highest percentage ever recorded. What’s a mother to do? And this number doesn't even include mortgages in the foreclosure process! According to the MBAA, in Florida (home of humidity and palmetto bugs), 22.8% of mortgages outstanding were delinquent at least one payment or in foreclosure. “Other poor performing states include Nevada, where 21.3% of mortgages were delinquent or in foreclosure, Arizona, where 16.3% were delinquent or in foreclosure, and Michigan, where 15.3% were delinquent or in foreclosure.”

We also had our usual Friday afternoon seizing of banks, this time the FDIC garnered the third largest this year: Guaranty Bank. Guaranty is estimated to cost the FDIC, and taxpayers, $3 billion. Option ARM’s made up almost a third of Guaranty's single family mortgage portfolio, along with $1.2 billion of loans to homebuilders in California. In an interesting note, BBVA Compass, a U.S. subsidiary of Spanish bank Banco Bilbao Vizcaya Argentaria, agreed to assume all of Guaranty's deposits and will buy $12 billion of its assets, the first time an overseas-based bank has bought a failed U.S. bank this year. Three other banks failed: CapitalSouth Bank (AL), First Coweta (GA…and I doubt if this bank was named by an Italian dairyman in the winter), and ebank (GA).

Unfortunately for rates, the Home Sales number, combined with a little rally in equities, pushed rates higher. Mortgages were worse by .5 in price, and the 10-yr Treasury worsened by over a point. This morning the 10-yr is up to 3.59% and mortgages are worse by another.250. This week the U.S. will sell $42B of two-year notes, $39B 5-yr notes and $28B of 7yr notes starting tomorrow. On top of the auction, today we have some numbers from the Chicago Fed, tomorrow the usually grim S&P/Case-Shiller Home Price Index, along with Consumer Confidence, Wednesday Durable goods, Thursday Jobless Claims and GDP, and then on Friday Personal Income.

Fannie Mae “retired” their “HomeStyle Construction-to-Permanent (HomeStyle CtoP)” product. They’re giving lenders lots of advance notice: the final purchase date of HomeStyle CtoP loans is November 30. Fannie tells us that “after this date, construction phase servicing of HomeStyle CtoP loans will continue as prescribed in Section B5-2.3 of the Selling Guide until all construction is completed and all loans have converted to the permanent, fully amortizing phase.”

Does your borrower want a 125% LTV loan from Flagstar? It’ll cost ‘em 1.75 points. From 105% to 125%, pricing will be worse by .250.

GMAC Bank correspondents should know that GMACB will no longer accept transferred or ported appraisals on conforming conventional loans. “Approved Correspondent Clients as well as Delegated Clients who have received TPO approval authority from GMACB Credit Risk must order the appraisal and their name must be reflected on the appraisal report.” GMAC also tells their clients “for manufactured homes that have been permanently erected on a site for less than one year prior to the date of the application for mortgage insurance, it is no longer permitted for the borrower to receive cash back at closing - even if the loan-to-value (LTV) is less than 85 percent. The borrower is required to have a minimum cash investment in the transaction of 3.5%.” GMAC also reduced the maximum age of credit documents for Jumbo loans, including income, employment, asset and credit documents, is being reduced from 120 days to 90 days from the date of the Note for existing properties and 180 days to 120 days from the date of the Note for new construction. Not only that, but they will require an appraisal update (Fannie Mae Form 1004D or 2055 Exterior Only) or a new appraisal for all conventional conforming loans supporting the original appraised value for loans purchased greater than 75 days after the closing (note date to purchase date). “The new appraisal or the appraisal update must be dated within 60 days of the date that GMACB purchases the loan.” And while they were at it, GMAC Bank raised their Tax Service Fee for loans locked after September 1 to 85 smackers.

CitiMortgage will allow the tax credit for qualified first-time homebuyers who close on a principal residence before December 1, 2009. “CitiMortgage will allow the use of this tax credit toward down payment or closing costs as long as the assistance is in the form of secondary financing. Housing Finance Authorities (HFA) and/or eligible agencies/organizations may provide secondary financing by sponsoring the upfront funding of anticipated tax credits. This tax credit will be processed as a community second according to the normal CitiMortgage Community/DPA approval process and Credit Policy guidelines for FHA and Conventional loans in conjunction with Community Lending programs and with a few Non-CRA programs such as Fannie Mae Flexible Mortgage and Freddie Mac Alt Program.”

Citi also addressed their policy on the number of properties a borrower can own: when the subject property is a primary residence, there is no restriction on the number of properties a borrower can own. But if the subject property is a second home or investment property, typically the borrower may not have more than four (4) residential properties financed. “However, under limited conditions (Citi) may consider transactions in which the borrower has 5-10 financed residential properties.” But when the borrower has more than four financed residential properties, including the subject, Citi has new lending parameters have been introduced for second homes and investment properties: if the subject property is a second home or investment property, there are both additional underwriting, LTV and reserve requirements; only permitted with agency conforming loans originated via Modified/Standard, CitiQuik, Agency Jumbo Full Doc, Streamlined Refinance, DU for Conforming Loans, and DU for Agency Jumbo Loans. And this option is not available with any other process or program, including DU Refi Plus. If the subject property is a primary residence, there are no additional reserve requirements for the other financed investment properties.

One should read the entire Citi announcement, in which they go on to address purchase money transactions (“…in the state of California, property taxes should be calculated at 1.25% of the purchase price for debt ratio calculations…”), VA loan size (“…loan amounts over the standard Fannie Mae loan amounts must be registered using a new sub-program in spite of the VA not having a prescribed maximum loan…”), and 4506-T requirements.

A Brit, a Scot and an Irishman were discussing the best pub they’ve visited.

The Brit said “the best pub is the Pig and Whistle back in London.  After you’ve had 5 pints, they give you 6^th one free.”

The Scot said “We are accused of being cheap, but the best pub is McTavishes in Edinburgh.  After having 4 pints, they pour the 5^th one on the house”.

The Irishman quickly replied “I’ve got you beat by a mile.  O’Tooles in Dublin is by far the best pub.  First of all, the beer is free.  And to top that off, if you would enjoy a hot time in bed, you can go upstairs and the evening there is also free.”

To which the Scot and Brit replied “That happened to you Paddy?”

“No, but it happened to my sister”.

Rob

(For archived commentaries, check www.robchrisman.com, or to subscribe/unsubscibe write to rchrisman@robchrisman.com. The commentary is produced every business day, but there always seem to be vague e-mail “issues”, so if you don’t receive it, let me know.)