Feedback on VA Interest Rate Reduction Loans; HUD Career Opportunities; Fewer Free Checking Accounts


The idea of Father’s Day was conceived
slightly more than a century ago, not by Hallmark Card or Weber Grills, but by
Sonora Dodd of Spokane, Wash., while she listened to a Mother’s Day sermon in
1909. Dodd wanted a special day to honor her father, William Smart, a widowed
Civil War veteran born in June who was left to raise his six children on a
farm. The first Father’s Day celebration was June 19, 1910, but the
presidential proclamation didn’t come until 1966 when President Lyndon Johnson
designated the third Sunday in June as Father’s Day. The US Census Bureau says
that there are over 70 million fathers across the nation (and about 25 million
fathers who were part of married-couple families with children younger than 18
in 2010).

Yesterday the commentary had two items
(financial education and VA IRRL’s) which brought a good-sized number of
replies of varying perspectives. I will have the financial education letters
tomorrow, and look at the VA IRRL program’s today.

On the VA IRRL program, I am not going
to replace the Scotsman Guide for programs, but it appears that Plaza, Guild
wholesale, WestStar, and a few others offer a program with no appraisals, and
Icon will do it if the loan is serviced by Wells Fargo. (Icon runs an AVM on VA
IRRLS that are not serviced by Wells through an AVM system.  However, if
they are serviced by Wells, Icon does not run an AVM.) I received this
note: “Explain to this person that if VA really does want originators to
produce more VA IRRL’s – then it would get rid of the no-bid option and Ginnie
would exempt IRRLs from their servicer Tier rankings.  If they did that –
every originator/conduit in the nation would immediately open the program up
full throttle. Until then – an issuer/servicer would be insane to write/buy
IRRL’s without appraisals because the losses they will bear will be huge.”

“You need to explain Delinquency Compare Ratios. If a lender has a
compare ratio of 150%, it means their VA delinquencies are 150% of national VA
delinquency average.  This is what VA monitors and is one of the ways VA
can pull your entire VA ticket. There is no way to know what is driving it, but
not requiring appraisals when most lenders do leads to adverse selection, which
in turn leads to higher delinquency ratios.  When selling loans into GNMA
pools, the result is you have to buy the loans back out of the pools or GNMA
gets mad because the delinquency in your pools is too high, and/or they can
stop supporting the issuance of the pools.  Furthermore, if too high, you
can lose your entire VA ticket. This is why lenders have overlays, otherwise
everyone would be doing VA streamlines with no appraisals and FHA loans with no
minimum credit scores.”

Another wrote, “The overlay issues with the VA IRRL guidelines that
require no appraisal aren’t new. The VA guaranty is only 25% of the
loan value.  Many of our real estate markets have fallen more than that
over the last three years
, so who would fault a new investor for their
concerns about taking on a new borrower who has been current (one of the
conditions of a VA IRRL), but whose actual LTV could be 150% or more? 
That’s a risk that the investor didn’t have last year (or month).  If that
borrower goes delinquent, walks away, whatever, the lender can now stand to
lose the amount of the loss above and beyond the 25% VA guaranty.  So if
they bought a VA IRRL from a correspondent lender, for $150,000, and the value
of the property is actually $100,000, and the borrower walks, the investor gets
probably $75,000 from the sale of the home after going through foreclosure and
dealing with the discounted price of a foreclosure sale, plus the 25% VA
Guaranty amount of $37,500, for a total of $112,500.  Their loss is
$37,500 on a loan that they just bought, and didn’t formerly have the risk. 
Most correspondent investors who have been around a long time first learned the
brutal truth of these numbers the hard way with the real estate value downturn
in Southern California in the early 1990’s. With loss mitigation numbers
like that, if your writer was investing their own funds in VA IRRLs, I dare say
that he would probably want to know that the house they are lending on is
actually worth $150,000, before he lends $150,000, and then loses
$37,500.  This is also the reason that you will usually find the VA IRRL
programs with no appraisals captive to the existing investor’s borrowers. 
The investor already has the risk, so at that point it becomes smart for them
to better the borrower with a lower rate.”

If you’re looking for
a job, most often for underwriters and program support positions around the
nation, HUD-FHA has new career opportunities for qualified individuals.
The vacancy announcements are posted at

(By the way, anyone looking for a secondary marketing position take note. USAA
is hiring a pipeline hedge trader
, so if you know of people who would be
interested send them this note. The position requires location in San Antonio,
Texas, of Alamo, River Walk, and Spurs fame. The contact at USAA is Kevin
Skinner at

ClearPoint Funding is offering a Broker
Training Session today
. The topic is “Fundamentals of FHA.”
“This web based training will be hosted by Jayne Schumann, VP of Credit
for ClearPoint Funding. The completion of this training session is accepted for
CPF’s education requirement for FHA Sponsorship.” It is today, starting at
12PM EST/11AM CST/9AM PST Location: WebEx. To register, please email Jayne
Schumann;  Training Sessions have a
restricted number of attendees as space is limited.

If you want good news, skip the next few
but they do say something about the state we’re in. US Bank quietly
announced it will do away with free checking
. That makes the top 6 of the
largest banks that will no longer offer the product. PNC and Capital One are
the notable holdouts in the remaining top 10 largest banks. A National
Federation of Independent Business poll shows that more small businesses are
planning to shrink their payrolls than expand them
. As of the end of May,
the NAR reported the inventory of unsold homes would take 9.2 months to sell
– about 50% higher than what is normally considered healthy. Summer Travel
: Compared to last year, the cost of hotel rooms is up 2%, airfare
is up 14% and gas is up 40%.

The National Association of Homebuilders
(NAHB) reported that its Housing Market Index, a measure of builder
confidence done by survey, fell to “13” after standing at
“16” for six out of the last 7 months seven months. (A score over 50
indicates that more builders view sales conditions as good rather than as poor
– it has not had a score over 50 since late in 2006.) It is not news that
builders are being squeezed by the continuing weakness in existing-home prices
and rising material costs. It also doesn’t help that potential new-home buyers
are being constrained by difficulty selling their existing homes, stringent
lending requirements, and general uncertainty about the economy. CHART

The Chinese curse “May you live in
interesting times” seems to be true – even my 88-yr old Dad called me
yesterday to tell me that Greece is “on the ropes.” The markets
reacted to an escalation in Greece’s debt woes with no deal yet, riots, talk of
the prime minister offering to resign and then announcing he would form a new
government, and warnings of potential downgrades to some euro zone banks with
exposure to Greece. This was on top of weaker than expected U.S. economic data.
MBS volumes shot up, as did other US fixed-income volumes, and prices moved
higher/rates dropped on a flight to safety largely related to events in Greece
US 10-year notes rallied more than 1 point with the yield moving down to 2.97%,
and much to the regret of anyone who locked earlier in the week, MBS prices
improved by more than .5.

Overnight the markets continued to focus on
Greece, and the implications for the rest of Europe.
The Euro aid package
may need to be doubled, while Germany is reportedly looking to push any rescue
package for Greece to September. Meanwhile, the Greek PM said he would retool
his cabinet and look for a vote of confidence to come early next week. That’s
important as any aid package is dependent on Greece’s willingness to play
along. Ireland, Portugal, Spain, the list goes on…are a weekly jobless claims
number, monthly housing starts, or “Philly Fed” survey here in the US
really important compared to entire countries’ financial futures?

So this morning Jobless Claims came in at 414k,
down 16k, with the 4-week moving average unchanged, and Housing Starts for May
actually were up 3.5%. Building Permits were +8.7%. Later we’ll have the Philly
Fed number, but the focus continues to be on Europe and the resulting
“flight to quality” for our markets. Stocks are pointing to
another down day, the 10-yr is down to 2.92%, and MBS prices are all over the
place but better by .125-.250

A mechanic who worked out of his home had a
dog named Mace. Mace had a bad habit of eating all the grass on the mechanic’s
lawn, so the mechanic had to keep Mace inside. The grass eventually became
One day the mechanic was working on a car in the backyard and dropped his
wrench, losing it in the tall grass. He couldn’t find it for the life of him,
so he decided to call it a day.

That night, Mace escaped from the house and ate all the grass in the backyard.
The next morning the mechanic went outside and saw his wrench glinting in the
sunlight. Realizing what had happened he looked toward the heavens and
proclaimed, “A grazing Mace, how sweet the hound, that saved a wrench for


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