Nov. 15, 2007: Lesson 4 of 5 on MI, mortgage applications picking up

Nov. 15, 2007: Lesson 4 of 5 on MI, mortgage applications picking up Rob Chrisman

The other day I heard a manager (not at NL Inc.) say, “Team work is a lot of people doing what I say!”

Many loan agents feel that the coverage amount of MI is a mystery. Remember that it is set by the investor, so if a given lender is working with 15 different investors, there might be 15 different coverage levels multiplied by the various LTV scenarios. The good news is that FHLMC and FNMA, who are the largest investors in conventional mortgages, usually set coverage levels which are in turn used by other investors. But agents should be cautious in quoting payments, as telling a borrower the incorrect payment is almost as bad as an incorrect interest rate or term – and borrowers don’t like that! Several MI companies publish tables that provide various coverage options for each LTV. For example, RMIC has an on-line rate calculator. As far as rates and MI scenarios, agents can input the data at http://rateestimator.rmic.com/ if you need a quick quote for a borrower. Others have “best-ex” MI tools that are available, and all will gladly work in training your underwriters and staff in the nuances of the product.

I have lost track of the billions of write downs. There are rumors about UBS having huge losses. Bear Stearns, the second largest underwriter of mortgage-backed bonds in the U.S., will write down the value of its subprime-related assets by $1.2 billion in the fourth quarter, cut 900 jobs, and seen its shares drop 38% this year. Barclays, the U.K.’s third largest bank, wrote down $2.7 billion due to credit-related securities tied to the U.S. subprime-mortgage market collapse. Morgan Stanley, Goldman Sachs, Merrill Lynch, the list rolls on and on. What seems to be safe? The short end of the curve is where the safe haven buying is strongest. The long end of the curve, while doing better, is not doing well due to inflation worries. And therefore mortgage prices are not really benefitting from the strength in bonds.

What is the good news? Besides oil prices sliding back to $93 per barrel, the MBA mortgage loan application volume was up 5.5% on the week. The refinance numbers were +6.4% and purchases increased 4.8%. The news out this morning is certainly good for bonds. The 10-yr Treasury yield is at 4.24% and mortgage prices are better in some cases by almost .125 so far. The Consumer Price Index was as expected (+.3%, core rate +.2%, year-over-year up 3.5%, core up 2.2%), and Jobless Claims moved up 20k to 339k. In addition to that we have Fed speakers Hoenig, Evans, and Paulson.

A duck walks into a drugstore and ask for some chapstick. “Will that be cash or charge” inquires the clerk, to which the duck replies “just put it on my bill”.