Nov. 28, 2007: if you don’t want bad news about major investors, please don’t read this commentary

Nov. 28, 2007: if you don’t want bad news about major investors, please don’t read this commentary Rob Chrisman

I guess that I could have written that any time in the last 4 months! But here goes… First, some “humor”? When you type in the URL www.statedfico.com, it takes you right to MortgageIT’s website!  That should give the investment community security when investing in Deutsche Bank MBS’s.

Besides announcing $1.4 billion in HELOC-related write-downs (and agents wonder why no one does them anymore!), Wells Fargo engaged in further product changes. Effective today, for all of their nonconforming VOA loans, the maximum debt-to-income ratio requirement will decrease from 45% to 38%, and non-self-employed borrowers now have reduced eligibility for Limited Doc/VOA.  At least one of the borrowers on the loan application must have their income derive from self-employment to be eligible for Limited Doc/VOA documentation option.

Speaking of WF, they are absorbing $1.4 billion in losses on home equity loans that borrowers have stopped repaying. Well Fargo’s troubled home equity loans, totaling $11.9 billion, represent about 14 percent of the bank’s total home equity portfolio of $83.4 billion. The bank has said most of the delinquent loans originated from mortgage brokers or other lenders on the wholesale market. Wells Fargo is now steering clear of virtually all home equity loans made outside its own offices.

FNMA announced changes to their Alt-A program, effective March 1, 2008. (Remember that most, if not all, investors will probably follow suit.) “In light of the continuing deterioration of market conditions”, FNMA will no longer purchase No Income/No Assets (NINA) documentation loans, or No Ratio (No Income/Verified Assets [NIVA]) documentation-type loans. And beginning then FNMA will only purchase Stated Income/Verified Assets (SIVA) and Stated Income/Stated Asset (SISA) loans, with the following eligibility adjustments: for cash-out refinance loans, the maximum LTV/CLTV is reduced to 75% for all except 1-unit primary residence, the minimum FICO score is increased to 660 regardless of LTV/CLTV, and for 3- to 4-unit properties, the minimum FICO score is increased to 700.

Chase, effective Friday, is changing their risk-based price adjustments for Agency fixed rate products. Needless to say, they are not for the better. This is in reaction to FNMA and FHLMC’s loan level pricing adjustments based on LTV and FICO scores. In addition, JP Morgan Chase will be cutting 91 jobs at a Southern California Mortgage Operations Center.

Freddie Mac is offering $6 billion of preferred stock, saying that the capital will be used for their base requirements. Freddie also cut their dividend by 50%.

How far will this reach into credit cards? One fellow I know received a letter from American Express, dramatically lowering his available credit limit. “Our analysis of the credit risk associated with customers who have residential loans from the creditor(s) indicated in your credit report.” He has two loans: one from ING Mortgage and a HELOC from JPMorgan Chase. He called Amex and they said: “We were told by Experian that your mortgages are with “risky lenders””. They also said that “information received from a consumer credit reporting agency” was factored into the decision. (He has no delinquencies. They listed standard reasons, inquiries, balances, etc.) He wrote, “I have never seen credit being denied or reduced for something 100% out of the borrower’s control.”

Today’s market is steady, but not helping us. Durable Goods orders, expected at -0.2% and ex-transportation +0.3%, came out -.4% ex-transportation -.7%. This should have helped rates, being weaker than expected, but instead the 10-yr sits at 3.98% with mortgages roughly unchanged. Later we’ll see October’s Existing Home Sales, expected down 0.8%, adding to the steep 8.0% decline seen in September.

Every time one looks at an internet home page (at home, of course), up pop dozens of stories. A week or so ago one popped up about “Dirty Jobs and What They Pay”. Being a consummate mortgage professional, I wanted to see what other jobs laid off mortgage bankers could consider. One could be a steam cleaner, $26k a year. What about a butcher, whose work involves cutting and washing the innards of slaughtered animals to create sides of beef, steaks, sausage and ribs in slaughterhouses and meat-packing establishments? $26k/year. Farriers inspect horse hooves for defects, trim and shape them and remove worn or defective shoes.  Aside from the strain of shaping shoes with hammers and bending or squatting for long periods of time, farriers must also deal with unpleasant odors emanating from the horses and risk stepping in any number of “surprises” the horses leave behind: $31k/year. How about cleaning fish for packaging, selling, cooking and serving? $9.87/hour. Coroner? $45k/year. Building inspectors are coming in around $55k/year for squeezing into small, dark, hot crawl spaces and encountering such unpleasant things as vermin and pests, dirt, dust, dry rot and mold. Have a nice day.