May 27, 2008: WF loosens up, FAMC & HSBC restrict, and are MI companies now the villains?

May 27, 2008: WF loosens up, FAMC & HSBC restrict, and are MI companies now the villains? Rob Chrisman

Two antennas met on a roof, fell in love and got married. The ceremony wasn’t much, but the reception was excellent. 

Many agents seem to think that declining markets policies, embraced by investors, will soon go away, and point to Freddie & Fannie’s recent announcements 95 and 97% LTV’s. But in my narrow field of view, we have yet to receive any updates from investors or MI companies that they will be supporting these changes/products and/or insuring them. Mortgage insurance companies, of course, are on the front-line when it comes to taking a hit on a mortgage, and it is rumored that odds makers in Las Vegas are making bets on which MI companies will survive. As best I can tell, most MI companies still have their own 90% overlays for declining markets, but Radian and MGIC apparently will insure a loan in a declining market to 95%, per our Deal Desk. LPMI may be a solution, but the overlays may apply to that as well. And everyone’s new friend, FHA, is another solution through RPM Mortgage, as 97% is possible depending on the county.

Franklin American weighed in with some significant changes on Friday. For FHA Jumbo Fixed Rate, they will use FHA guidelines for loan amounts above the FHA Standard Loan Limits and in HUD designated high cost areas, a 2nd appraisal may be required, the FAMC Adverse Market Conditions policy applies to loans underwritten by Direct Endorsement Lenders and loans underwritten under the FAMC FHA Sponsorship program, and the MIC must be included in all loan files at the time they are submitted for purchase. (FAMC will not purchase any loan under this program without the MIC.) They dropped TRIAD as an MI provider, for conforming loans, and added “Properties Sold at Auction” and “Properties Within the Right of Redemption” as ineligible properties. They also made several underwriting changes to their non-conforming products concerning LTV’s and other criteria.

Next week Wells Fargo will accept conforming conventional, including Conforming Agency High Balance loans that meet agency guidelines for maximum financing in declining markets. Sellers are no longer required to apply the Wells Fargo “At Risk Markets” policy to these loans. For transactions in declining markets where mortgage insurance is required, the Seller is responsible for placing mortgage insurance prior to delivery to Wells Fargo. Wells Fargo’s Self Insurance is not allowed.

HSBC announced that all conventional loans requiring mortgage insurance must adhere to the following mortgage insurance guidelines, in addition to HSBC product guidelines: FannieMae Flex 100 and My Community 100 no longer available; , Maximum LTV of 97% for Primary Residence in stable market, full doc; Maximum LTV of 95% for 2-unit Properties in stable market, full doc; Maximum LTV of 95% for Second Home in stable market, full doc; Maximum LTV of 90% for Investment in stable market, full doc; Minimum Fico of 680 for LTV >95% in stable market, full doc; Minimum Fico of 620 for LTV <=95% in stable market, full doc; Minimum Fico of 680 for all investment property, full doc; Minimum Fico of 680 for all cash out refinance, full doc; All DU Expanded Approval I, II & III recommendations are not permitted; All LP Caution recommendations, including LP Caution A-Minus, are not permitted; Cash out refinance for Second Home and Investment Properties not permitted; All Stated Income loans are not permitted; 3-4 Unit Properties are not permitted; Condominiums as Investment are not permitted.

Ah, back to the market after three days off. You may recall that toward the end of last week rates shot up, and then drifted back down slightly at the end of the week. Existing Home Sales fell 1.0% in April, better than expected but still negative for the housing market as activity continues to fall. The supply of houses on the market shot up, with 11.2 months’ worth, indicating further price declines are ahead of us to clear this inventory. Treasuries and mortgages rallied (improved) after this news, but we are worse this morning with the 10-yr back up to 3.89% and mortgages worse by .250 in price.

Today we have New Home Sales and Consumer Confidence (expected -3k to 523k and -2.3 points to 60.0, respectively). The Conference Board’s Consumer Confidence Index measures consumer willingness to spend, or lack thereof. And April’s New Home Sales data gives us a measurement of housing sector strength and future mortgage credit demand. Tomorrow we will see April’s Durable Goods Orders data. This report gives us an indication of manufacturing sector strength by tracking orders at U.S. factories for big-ticket products. It is currently expected to show a decline in new orders of approximately 0.7%. The first of two revisions to 1st quarter Gross Domestic Product (GDP) will be released at 8:30 AM EST Thursday, along with the usual Jobless Claims, and then on Friday we have April’s Personal Income and Consumption, along with the University of Michigan’s Consumer Sentiment Index for May.

Morris and his wife Esther went to the state fair every year, and every year Morris would say, “Esther, I’d like to ride in that helicopter.” Esther always replied, “I know Morris, but that helicopter ride is fifty dollars, and fifty dollars is fifty dollars.” One year Esther and Morris went to the fair, and Morris said, “Esther, I’m 85 years old. If I don’t ride that helicopter, I might never get another chance.” To this, Esther replied, “Morris that helicopter ride is fifty dollars, and fifty dollars is fifty dollars.” The pilot overheard the couple and said, “Folks I’ll make you a deal. I’ll take the both of you for a ride. If you can stay quiet for the entire ride and not say a word, I won’t charge you! But if you say one word, it’s fifty dollars.” Morris and Esther agreed and up they went. The pilot put the craft through all kinds of maneuvers, but not a word was heard.  Up, down, back and forth, even sideways, he did his daredevil tricks over and over again, but still not a word. When they landed, the pilot turned to Morris and said, “By golly, I did everything I could to get you to yell out, but you didn’t. I’m impressed!” Morris replied, “Well, to tell you the truth, I almost said something when Esther fell out, but you know, fifty dollars is fifty dollars!”  

Rob