"Commercial paper" is used by businesses to finance their own working capital, meet payroll and pay suppliers, etc. From the third quarter of 2007 to that of 2008, GDP grew by 3.4%. Did commercial paper keep up? Heck no: outstanding paper fell by 25%, losing about $600 billion. Asset-backed commercial paper fell by 40%. If this borrowing falls by such a large percentage, but GDP remains constant, that is pretty good proof of a credit crunch. This week the amount of corporate debt being sold is unusually high. In a very basic sense, each dollar of corporate debt sold competes for investment dollars with mortgages, Treasuries, municipal bonds, etc. It appears that some companies are using the money to expand, or feel that the financing costs are better than issuing stock. But mainly companies like IBM, Dell, PepsiCo, Ethan Allen, Korea Hydro Nuclear, Burlington Northern, etc., are issuing debt to take advantage of lower rates - just like mortgage borrowers refinancing.

 

Wall Street analysts are in an absolute tizzy about the prepayment speeds released over the last few days. As most any lender can tell you, refinancing is alive and strong (although not as vibrant as 2003), and early pay-offs were much stronger than expected and then investors had hoped they'd be. I am not going to delve into the coupon, type of security, or age breakdowns, but basically 2008 loans are refinancing most quickly, as are conventional (Fannie & Freddie) 5% securities. On the Ginnie side (primarily FHA and VA loans) it appears that a growing share of new issuance actually is modified loans. Among servicers, Wells Fargo remains the most aggressive in refinancing borrowers (low and high LTV) through the HARP program. However, other servicers are apparently ramping up on this front because their gap with Wells speeds has narrowed according to reports from Barclays, BofA, and others.

 

Tah dah! After almost 6 months of lenders and borrowers having their "chains yanked", the USDA's Rural Development program is set to move ahead. RD will begin funding the backlog of Conditional Commitments issued from 5/26 through yesterday with the "subject to the availability of funds" language, and anticipate sufficient funds for all requests during the remainder of the fiscal year (ending September 30, 2010). The first priority is to fund the backlog of approximately $1.6 billion in Conditional Commitments that were issued after May 26, but starting yesterday lenders such as Guild, Flagstar, etc, were able to submit their final closing packages and guarantee fees. After those commitments have been processed, Rural Development will begin processing new Conditional Commitment requests. Sufficient funds will be available for all requests during the remainder of the fiscal year (FY). Requests for refinance will remain at the present fee structure for the remainder of September but the system will accommodate the increased refinance fee starting 10/1. Lender's systems are gearing up, or have geared up, for the changes.

 

For the most part, funding for purchase transactions is available at a 3.5% guarantee fee. In certain disaster areas, funding remains available at the prior g-fee for purchases of 2.0%. Lenders should check with the local RD office regarding the availability of disaster area funding. Funding for refinance transactions is available through September 30 at the prior guarantee fee for refinances of 0.5% but starting 10/1 all refinance transactions will be subject to the new 2.25% guarantee fee.

 

A few weeks ago Southwest Securities basically removed itself from the warehouse lending business due to capital concerns in other business channels. Last week Flagstar Bank excluded Franklin American from its approved warehousing investors, ostensibly due to FAMC not being FDIC insured. Yesterday, effective September 20, "Flagstar Bank will no longer be able to warehouse loans being sold to GMAC which includes Ally Bank and Residential Funding Corp." (GMAC took Flagstar off its eligible investor list a few months ago.) I guess on a business-to-business level, there's no law that says you have to do business with an investor or warehouse client if you don't want to.

 

Speaking of Flagstar, yesterday I mentioned a change to its calculation for the maximum mortgage amount. The update on Flagstar's Freddie program only applies to the Mortgage Relief & Open Access programs, not others (like the regular Freddie program, or anything to do with Fannie). I apologize for any confusion.

 

Chase notified correspondent clients about its new "FHA Overlay Matrix". Chase included overlays for 203k loans (Chase will not purchase 203(K) loans until all rehabilitation work is completed and additional documentation is submitted), 4506-T requirements (a 4506-T must be signed at application and at closing on all loans although Chase does not require a copy of the initial 4506-T signed at application to be included in the file delivered to Chase for Funding. However, the Correspondent must obtain the signed initial 4506T and must use that document to obtain tax transcript/documentation from the IRS), appraisal age (valid for 120 days), and reminded clients that for FHA loans each borrower must have a valid credit score and a traditional 3-file merged credit report for all borrowers. Lastly, all down payment assistance programs must be approved by Chase, including Non-seller funded down payment assistance programs.

 

GMAC Bank Correspondent clients were advised of a change to GMAC's Upfront Mortgage Insurance Single Premium Payments. Namely, "Lenders are required to remit all collected or financed initial upfront MI payments to the mortgage insurance company directly from the closing table. Receipt of payment by the mortgage insurance company is due within seven (7) days after settlement date. All files submitted for purchase must contain a copy of the Mortgage Insurance certificate and have the certificate be activated by ensuring the payment is posted timely by the insurance company." In addition, GMACB adjusted its CLTV limits so where the CLTV exceeds 96.5%, it must be approved by GMACB. "Any financing other than an FHA-insured first mortgage, which creates a lien against the property, is considered secondary financing. Such financing is not considered a gift, even if it is not a "soft" or "silent" (no monthly repayment provisions) second or has other features forgiving the debt. The borrower may receive secondary financing to cover the entire cash investment requirement from the following sources." Etc.

 

Wholesale lender Mountain West Financial raised the maximum net price paid to brokers from 103 to 104 on some programs with certain restrictions (any net rebate above 103 must be credited to the borrower, total loan officer compensation is still limited to 3 points plus a $900 processing fee).

 

I barely know, precisely, how a light switch or a rotary telephone work, much less how "Cloud Computing" works. But bank and mortgage bank IT folks know exactly what it is, and it is causing security concerns that can't be ignored. http://www.banktech.com/architecture-infrastructure/showArticle.jhtml?articleID=226100005

 

A while back I discussed how I felt that the credit pendulum had swung too far, and that self-employed borrowers are bearing the brunt of it. One originator correctly wrote, "I disagree strongly. Many self-employed people have no problem getting a mortgage. The self-employed people who now have a hard time getting a mortgage are the tax cheats: if a person wants to not report all the cash earnings or fictitiously create expenses/deductions that don't exist for the sole purpose of not paying Uncle Sam, then I revel in the fact that they can't get a mortgage.  Until they pay the same percentage of their gross income into the tax man's coffers as I do - let 'em rent!"

 

A beige book is a book that is beige. THE Beige Book is a book that is produced by the Fed which details economic activity in the various Fed Districts around the US. It came out yesterday in advance of the 9/21 FOMC meeting. There were no surprises, and things are, as you'd guess, somewhat slow in the economy and slow after the expiration of the first time home buyer tax credit. But not terribly slow - just not picking up as many had hoped. Besides, remember that economic activity that is too robust could lead to higher rates as companies fight for capital, so be careful what you wish for. Of course, if things are slow in the economy, job and housing markets are most likely to be slow also. By the end of Wednesday mortgage prices were worse by about .250, and the 10-yr was worse by .375 with a yield of 2.65%. The $21 billion 10-yr auction went well, but no matter.

 

This morning we had the trade numbers. So what? The trade deficit has widened over the past year or so to some wide levels as import growth continues to outpace export growth. Some economists believe that the deficit will widen somewhat in the coming months through the end of the year as (and if) the economy continues to recover. We also had the weekly Initial Jobless Claims already. This morning's trade deficit decreased for July, and Jobless Claims dropped 27k to 451k - better than expected. We still have a $13 billion 30-yr auction ahead of us, but for now the 10-yr yield is up to 2.69% and mortgage prices are worse roughly .250.