My Dad, who grew up during the Depression, often wonders, "When will people stop blaming others for their own problems?" http://www.courthousenews.com/2011/12/22/42466.htm

House Republicans “caved” to demands by President Barack Obama, congressional Democrats and fellow Republicans for a short-term renewal of payroll tax cuts for all workers. The breakthrough almost certainly spares workers an average $20 a week tax increase January. Not only do we have to watch Congress go through this thing all over again in two months (by 2/29 – maybe we should put the Super Committee on it!), but in a clear problem for the mortgage industry, its $33 billion cost will be covered by an increased fee on mortgages backed by Fannie Mae, and Freddie Mac. (No, I don’t know by how much.) I have news for Congress – new borrowers shouldn’t bear the brunt of paying for this, and if you jack up agency mortgage costs high enough, there won’t be enough guarantee fee income because borrowers won’t borrow – and let Washington see how that helps our housing sector. I’ll get off my editorial soap box now…

Many in the industry believe that Fannie and Freddie start a new program to shed the credit risk of the mortgages they guarantee in the private sector. Folks say it should be simple to understand, not affect the existing agency MBS market, use existing financial technology, and not need legislative approval. It should also factor in that regulators will want to control loss mitigation and mortgage modification. Security dealers have suggested issuing GSE unsecured debt whose cash flows mimic a first loss piece, with some caveats. The coupon of this tranche comes from the guarantee fee of the referenced collateral, severities are fixed to remove uncertainty about liquidation timelines, prepayments are passed on to keep the structure simple, and the tranche is sold for cash to remove counterparty risk. The cash flows to existing agency MBS are not affected; the investor is taking on unsecured GSE credit risk “pari passu” with existing agency debt. The ultimate goal will be to use this program to shed credit risk of newly issued agency mortgages. In the dealer’s mind, the economics work for the GSEs to place the credit risk of current well-underwritten collateral in the private markets – but not the older stuff.

The American Banker, in a story written by Jeff Horwitz and Kate Berry, noted that Fannie “has acquired the rights to service hundreds of billions of dollars of loans and transferred responsibility for managing them to a select group of large subservicers” including the August deal with BofA for $73 billion of servicing. “Why the secrecy? Fannie is ‘under a lot of political pressure, and wants to keep everything’ quiet, says Paul Miller, managing director of FBR Capital Markets. To Fannie, yanking servicing rights from big banks has other appeal, Miller says. Fannie executives ‘don't like how Bank of America, or any other major servicer, is servicing the loans,’ he says. ‘The biggest servicers are totally dysfunctional and putting no resources into the process.’” The recent servicing transfers are simply the best way to protect itself from losses resulting from botched loan management, says Amy Bonitatibus, a spokeswoman for the company.

While bills in Congress aim to wind down Fannie Mae and Freddie Mac, they at the same time look to the FHFA to draft industry standards for private mortgage securitization. For example, one proposal would have the FHFA establish a U.S. database for title transfers and create a standard pooling and servicing agreement, and another would have it develop standards for mortgage servicers, various classes of loans based on default risk and qualification standards for firms that securitize mortgage bonds. (Yet another related bill in the Senate would offer foreign investors a 3 year "homeowners visa" if they invest $500k in cash into a home and stay in it for at least 6 months.)

There seems to be a huge number of investor updates this week – I can’t list them all. But here is a smattering of them in no particular order:

PHH told clients that, “Cash Out Refinance transactions involving installment land contracts are not eligible. When a land contract is being paid off, the transaction must be considered either a purchase or a rate and term refinance.” In addition, “for Interest Rate Reduction Loans (IRRRLs), an appraisal is not required if (various) requirements are met such as if the existing loan being refinanced is a PHH-serviced loan, and the new interest rate is lower than the previous interest rate.”

Home Savings of America posted the revised VA loan limits on its wholesale website, http://www.hsoawholesale.com >>Resources>>Miscellaneous, and reminded brokers that the loan limit revisions do not apply to VA IRRRLs (‘Loan Limits’ means the maximum allowed base mortgage for a veteran with full VA eligibility benefits and no down payment. For all VA loans, the sum of the property equity/down payment plus VA eligibility must be at least 25% of the base loan amount payment.)

U.S. Bank told clients that starting 1/1, “for lenders that close FHA loans in U.S. Banks name, certain FHA Streamlined Refinance loan transactions submitted to U.S. Bank Home Mortgage Wholesale Division for underwriting will be subject to special underwriting guidelines.  This change does not impact Correspondent Lenders utilizing their own DE authority to approve the transaction. The special underwriting guidelines that will apply are: FHA Streamline Refinance Applications with borrower FICO scores < 660 will require full underwriting of income, employment, assets and credit with supporting documentation.  LP or DU (TOTAL Scorecard) must be utilized to score the loan and to indicate the Accept or Refer documentation level.  Appraisals will not be required.   TOTAL should be processed as a rate and term refinance. Enter the Original Property Value when running TOTAL.  This value is obtained from the Refinance Authorization Results on the FHA Connection.  Refer findings will be manually underwritten utilizing FHA manual underwriting documentation requirements. Borrowers with FICO scores > 660 remain eligible for FHA Streamline Refinance reduced documentation. Existing minimum FICO score requirements are still applicable.”

Fifth Third Wholesale Lending will “accept a credit report in lieu of a payoff statement for all FHA loan transactions on loan submissions. The updated checklist is attached and will be available on www.53.com/wholesale-mortgage. And for all Conforming and Portfolio Products: Combined Fifth Third Liens > $1MM, two appraisals are required when the combined amount of Fifth Third liens originated through any Fifth Third entity is > $1million. Subordinate financing held with a lender other than Fifth Third is excluded from the total amount of combined liens
Note: For transactions involving a HELOC, the high credit limit must be used to calculate the combined loan amount.” Lastly, the maximum loan to value limit is 95% for the LTV/CLTV on all attached housing including PUDs, Condos, and HARP Programs.” Please refer to the product guidelines for additional restrictions.

On the correspondent side, Fifth Third Mortgage “does not require a cushion for mortgage insurance escrows. After purchase of the loan, Fifth Third Mortgage Company's Servicing Division will perform an analysis of the borrower’s escrow account using the aggregate accounting method, and will provide an Escrow Disclosure Statement as required by the regulation. The Initial Escrow Account Disclosure is a required attachment to the HUD-1 on escrowed loans. A two-month cushion is required by Fifth Third Mortgage Company on escrowed tax and homeowners insurance unless otherwise mandated by state law.”

Flagstar reminded its brokers  that, "Effective for VA loans registered on or after January 1, 2012, if two or more veterans are using entitlement to obtain VA financing and the veterans' funding fee factors are not identical, the loan is ineligible for approval, closing and/or purchase by Flagstar. At this time, Flagstar's systems are capable of calculating only one funding fee factor for the entire loan, so exceptions cannot be made."

Aurora rolled out a jumbo product this week. Aurora Bank FSB’s program highlights include, “15 and 30 year fixed rates, 5/1, 7/1, 10/1 Hybrid ARMS, maximum $2,000,000 loan amount, O/O 1-2 units, O/O , 80 % LTV available at 700 Fico Score for a maximum of $1,000,000 loan amount, cash out allowed up to 60% LTV. In order to participate, all appraisals must be ordered by the Correspondent through an Aurora Bank FSB approved Appraisal Management Company (AMC).  The AMC completed appraisal will be subject to a full underwrite as a part of the non-delegated Jumbo process - if you have any questions, please contact Client Support at corr.clientsupport@auorabankfsb.com. 

Yesterday we saw that the University of Michigan Consumer Sentiment index for the end of December rose to 69.9 from the 67.7 reading earlier this month, up from 64.1 in November, and higher than the 68.0 expected by economists. The Conference Board Leading Economic Indicator Index increased 0.5% in November to 118.0, following a 0.9% increase in October. Lastly, the FHFA House Price Index fell .2% in October, and September was revised downward to reflect a 0.4% increase, rather than the 0.9% increase originally reported. Mortgage-backed securities (MBS-agencies) had a decent day.

This morning Durable Goods, always a volatile number, were up 3.8% in November, but ex-transportation it was only +.3%. November Personal Income was +.1%, Personal Consumption was +.1%, both a little less than expected. After that, 9AM CST offers up October New home sales that are expected to also exceed prior reads. After the news we find the 10-yr at 1.98% and MBS prices worse by about .125-.250 – but who would lock today?

Three men died on Christmas Eve and were met by Saint Peter at the pearly gates.