Details on FHA’s MIP Increase; HSOA update; Upcoming Events


excuse any grammar errors this morning – I am still recovering after fainting
during my visit to the gas station last night – $4.20/gallon for regular
unleaded near San Francisco. Say what you want about the consumer being
resilient, but money spent on gasoline is
money not spent somewhere else
– like in helping our economy. Most of this
is due to issues surrounding Iran’s naval maneuvers and then moving to Iran’s
nuclear program. Experts think all this will be resolved, but analysts are
already seeing this recent spike put a damper on global growth. As a rule of
thumb, a $10/barrel rise in oil is a 0.2% drag on global GDP and a 0.3% drag on
US GDP, and combined with the recession possibilities in Europe this is not
good for economies – but fine for rates.
But as we all know, oil prices have gone up and down for over a hundred years.

institution which has been around nearly a hundred years (originally chartered
in 1922 as Heritage Bank), is Dallas’ NexBank. NexBank is hiring wholesale AE’s in Houston, San Antonio, Oklahoma,
Louisiana, Arkansas and New Mexico. NexBank Wholesale was established
in August 2008 but as a State Savings Bank is licensed to purchase loans nationwide.
The company has Freddie Mac seller/servicer status, and offers wholesale and
mini-correspondent and even warehouse lines to clients. For more information
on the firm visit
or; resumes should be sent
to Jed Meaux at

Any time
an e-mail begins with, “The Federal Reserve Board on Monday released
action plans for supervised financial institutions to correct deficiencies in
residential mortgage loan servicing and foreclosure processing,” it makes
one sit up and take notice.

correction for the Sunday commentary: for Freddie
, it mistakenly said that “non-assumable Sec. 502 RHS loans with
settlement dates after June 1 must be sold back to Freddie.” This is not the
case – the loans can be sold to Freddie Mac but must be sold with recourse.  Here’s the relevant sentence from
the bulletin: “With this Single Family Seller/Servicer Guide Bulletin, we
are revising our requirements for non-assumable Rural Housing Service (RHS)
Section 502 GRH Mortgages to require that these mortgages be sold with

anticipated, HUD announced that mortgages
backed by the FHA will become more expensive.
Once again, future borrowers
are paying for the problems of previous borrowers – the money will be used to
bolster the sagging reserves in the FHA mortgage insurance premium fund.
Hopefully any more claims that FHA is “fine” and doesn’t need more capital will
stop in the near future – it does need more capital. The increase in insurance
premiums would bring in about $1.25 billion during the rest of 2012 and through
September 2013 which will be added to about $1 billion FHA is receiving from
the servicer settlement. Every little billion helps…

First, remember that the agency does not make
loans, or buy loans, but instead insures mortgages that meet its guidelines
Mortgage insurance, similar to a guaranty fee, protects one party from the
risks of the borrower becoming delinquent of going into foreclosure. With all
this talk about FHA and compare ratios,
and the removal of the streamline product from the calculations, it might be
helpful to know where to find it. Anyone wishing to check it out for themselves
can do so here.
Click on the “Early Warnings” menu, Single Lender or general, and go
from there. (And no, I don’t know specific lender ID’s.) If you want to see
compare ratios excluding streamline refinances, they can be found through the
“Analysis Menu.”

FHA’s guidelines
are very lenient, although most lenders have overlays in order to bolster the
product, and claim that borrowers with credit scores of 580 or more can put
down as little as 3.5 percent. The FHA will increase its annual mortgage
insurance premium by 0.10 of a percentage point for loans under $625,500, which
would now cost 1.25 percent of the loan amount, up from 1.15 percent, on 4/1. And
starting on 6/1 the premium for larger loans would rise more, or by 0.35 of a
percentage point, bringing the total premium to 1.5 percent. This annual
premium is broken down in monthly payments. The upfront mortgage premium is
also increasing by 0.75 of a percentage point, bringing the premium to 1.75
percent of the loan amount, which can be financed/added into the mortgage.

I have not
heard any details yet on the FHA’s possible plans on some softening of the
streamlined refi rules or charges for borrowers refinancing pre-Oct 2010 loans
that were made under much lower annual MIPs. The expectation is that the FHA
will grandfather all or a portion of the old, lower MIP. Certainly investors in
Ginnie Mae MBS’s are concerned about how much easing that HUD will do on
streamlined refis.

As noted
recently, Fannie Freddie’s big book of problem loans came from 2005-2008,
but the FHA wasn’t insuring many loans in the bubble years. The FHA’s big exposure has come with its
gain in market share after the demise of the subprime lending industry

(remember LO’s saying FHA loans are “the new subprime”?) And though recent production
is “better” quality, they’re still FHA loans, which means cum default
rates well above 5%, which means that the FHA fund will continue to face
financial pressures for the next several years.

another way, what the does the change
mean to borrowers?
In the future, the two tiers of FHA MI change. Starting
April 1 the up-front MI for loans up $729,750 will be 1.75% of loan amount (up
from 1%). The annual MI for loans up to $729,750 will be 1.2% of loan amount if
the down payment is 5% or more, or 1.25% of loan amount if the down payment is
less than 5% starting 4/1. And the annual MI for loans $625,501 to 729,750 will
be 1.45% of loan amount if the down payment is 5% or more, or 1.5% of loan
amount if the down payment is less than 5% starting June 1. Borrowers had
better pay attention to when they’re in contract!

The HSOA news continues. David Basaleli,
the SVP Director of Operations for Guaranteed
Home Mortgage Company
, writes, “A number of days ago our firm was
approached with an opportunity to take over all mortgage operations of the
ailing Home Savings of America. After a number of meetings with the president
and CEO of HSOA, a NYC investment banking firm, and a prolific specialty
financial services firm, it was decided that this acquisition would take place
over the course of the next 45 days. After 2 days of marathon meetings with
executives of both companies and various advisers and financiers, most of the
details of the transition had been worked out, and branch introductions were
planned for Saturday, February 25th. Unfortunately at the last moment on
Friday, it became known that the FDIC had chosen that day to cease the
operations of HSOA. Since the bank no longer had the authority to sell its
assets, including the mortgage company, the plans for the formal acquisition of
the HSOA Mortgage by Guaranteed Home Mortgage was scrapped. Fortunately for
Guaranteed and the mortgage production staff of HSOA, most details of a branch
transition and soft landing had already been ironed out. I’m proud to say that
most of the HSOA mortgage branches have found an opportunity to apply to, and
become branches of Guaranteed Home Mortgage Company, in the coming days and

How about a sample of some upcoming events? The Colorado
Mortgage Lenders Association is hosting “The Future of the Residential Real
Estate Market and How to Capitalize On It!” on Thursday, 11:30 MST in Greenwood
Village. For more information go to
Down in New Mexico, on March 8th, the NMMLA is having a lunch at the
Albuquerque Country Club to discuss the local real estate market – for more information. And in
Massachusetts, the MMBA is presenting its “1st Annual Secondary Market and Loan
Servicing Conference” on May 8th.

On Tuesday,
March 6th, at 2PM EST, AllRegs
is hosting a free webinar on “Investor Overlay Comparisons” and focused on its
new product Market Clarity. (“It’s the only tool in the industry allowing for
product level overlay comparisons across any combination of agencies, MI
companies or lenders.”) Contact Linda Bomar at for details. If you
want to preview Market Clarity prior to the webinar, check it out.

Turning to
the markets, the decent news in housing continued yesterday with NAR’s release
of Pending Home Sales. In January it reached its highest level in almost two
years. The Index is a forward looking indicator (basically two months) based on
contracts for home purchases that have been signed but where the transaction
has not closed. By the end of a relatively quiet Monday the 10-yr T-note closed
around a 1.93 yield.

This morning
we’re asking, “Does a change in rating from a rating agency cause the market to
move, or is it merely reflecting what the market already knows?” Probably the
latter – Standard Poor’s, as expected, downgraded the long-term credit
rating of Greece to “selective default,” making it the first country in the
euro zone to officially be rated in default. The move came after Greece retroactively
included collective-action clauses to its bond contracts. In the U.S. Durable
Goods were -4%, much worse than expected, and even ex-transportation were down
3.2%. There were some back-month revisions higher, however. Ahead of us we have
the SP/Case-Shiller 20-city index (expected down) and at 10AM is the Consumer
Confidence number. In the early going the
10-yr is at 1.91% and MBS prices are about .125 better.

A burglar breaks into a house late one evening and starts to roam around the
living room looking for valuables to steal.

he hears a voice say “Jesus is watching you”.

he shines his flashlight over in the corner where the voice came from and saw a
parrot sitting in a cage. The burglar then says to the parrot, “Was that

The parrot
replies “Yes”.

burglar asks the parrot, “What is your name”, to which the parrot replies,

burglar then asks the parrot, “What idiot named you Clarence?”

The parrot
replied, “The same idiot that name the Rottweiler ‘Jesus'”.

If you’re
interested, visit my twice-a-month blog at the STRATMOR Group web site located
at The current blog discusses the role
of rating agencies in the current environment. If you have both the time and
inclination, make a comment on what I have written, or on other comments
so that folks can learn what’s going on out there from the other readers.

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