Nov. 9, 2007: Lots of company news, and FNMA & FHLMC may not raise their limits, but…

Nov. 9, 2007: Lots of company news, and FNMA & FHLMC may not raise their limits, but… Rob Chrisman

Fed Chairman Bernanke suggested a new idea to fix the troubled market for mortgages too large for Fannie Mae and Freddie Mac to buy: allow the companies to securitize jumbos but have the federal government guarantee them. Fannie and Freddie currently can buy mortgages only up to $417,000, and so far Congress hasn’t acted to lift that. As an alternative, Bernanke suggested that Congress could consider allowing the companies to buy mortgages of as much as $1 million from lenders, pay the government a fee for guaranteeing them and then turn them into securities to be sold to investors. But is the Federal government willing to take on additional credit risk in addition to FHA, VA, etc?

The House Committee on Financial Services approved the mortgage reform legislation and anti-predatory lending practices by a vote of 45 to 19.  H.R. 3915, the “The Mortgage Reform and Anti-Predatory Lending Act of 2007” will create a licensing system for residential mortgage loan originators, establish a minimum standard requiring that borrowers have a reasonable ability to repay a loan, and will attach a limited liability to secondary market securitizers.  The legislation will also expand and enhance consumer protections for “high-cost loans,” will include protections for renters of foreclosed homes, and will establish an Office of Housing Counseling through the Department of Housing and Urban Development. From here it moves on to the full House.

• E-LOAN, begun in 1997, laid off 500 employees (out of 950) worldwide. The lay-offs impacted their auto-lending group, programmers overseas, and a few other business lines.
• HSBC withdrew from the mortgage-backed security trading business in the United States. That is not a good thing.
• Astoria announced a price hit to any property in California of .250. In the late 1980’s and early and mid 1990’s, all investors and conduits had CA adjusters to manage their pool concentration.  They disappeared in the early 1990’s, but after the real estate crash of 1992-4, they re-emerged for awhile. Then Wall Street started buying everything, regardless of risk, and state adjusters went away. Until now.
• Trading in Barclays shares, Britain’s third-biggest lender, was temporarily suspended from trading after the stock fell 6% in London.
• Flagstar announced that “For borrowers who currently own a principal residence and are using a lease agreement to qualify for the purchase of another principal residence, 12 months’ PITI (principal, interest, taxes and insurance) reserves are required. If evidence of 12 months’ reserves cannot be provided, the PITI of the current home must be used for qualification. A lease agreement cannot be used.”
• Edgewater Lending of Clackamas, Oregon announced the closure of their wholesale department but continued their two retail centers. The layoff involves 8 to 10 people.

Good news? Treasury yields continue to decline, and the 10-yr is down to 4.26% ahead of the three day weekend. (Mortgages, however, are unchanged, primarily because of continued nervousness about that sector, prepayment risk, and money manager’s books being set heading into year-end.) We had the September US trade deficit, as expected, and the Import Price Index which rose 9.0% year-over-year! Later we’ll see the preliminary University of Michigan Consumer Confidence number. What is the current thinking on another Fed cut in a month? Interest rate futures show a 90% chance that the Fed will lower the Fed Fund rate to 4.25 at the Dec. 11 meeting.

Does this count as humor? One person from a large bank writes, of the mortgage business, “Here’s the way it went down……in the Big Rally of the last ten years, anyone close to the borrower lost their senses. The resulting atrophy spread slowly, but surely, first up to the Wholesale Reps, then Correspondent reps, and eventually settled with the Capital Markets guys at the big conduits. Why, you ask, did it stop with the CM guys at the big investors? Because the cause of the Rally in the first place was a direct result of Wall Street having already stopped thinking, so as you can tell, it had no where else to spread…as the market has re-discovered its brains, the “last in, first out” rule (that’s so well known to all travelers at baggage pick up as we watch first class airline passengers take their bags away before the rest of us) is alive and well. Capital Markets guys all regained their senses back in early August, Correspondent Reps, shortly thereafter, and so on…back through originators and perhaps to the borrowers.”