PMI Following RMIC Down the Tubes? Saxon for Sale? REIT Prices Sliding? Too Many Questions for a Friday


If you
want a job, should you go to The Great State of Texas? (Unofficial motto:
“So what if it’s a little hot?”) Maybe: ButItsADryHeat

Think about it. The yield on the
US 10-yr is 2.50%. Sometimes I have to be reminded that this means only earning
2.50% for the next ten years. So if a 70-yr old retiree saved up $1 million in
her nest egg, and bought a 10-yr risk-free T-note, she’d earn $25,000 per year
in income until she was 80 years old – a little over 2 grand a month – after
saving $1 million during her life.

Will PMI follow RMIC? PMI
warned clients that it may be unable to continue selling new policies and could
shut down.
The stock is already a penny stock – the company has posted more
than $3.5 billion in losses since 2007 as it paid out claims on foreclosed
homes. Now, the company’s main subsidiary, PMI Mortgage Insurance Co., or MIC,
doesn’t have enough money on hand to meet the requirements of regulations in
Arizona, where it is based. “The company said the state’s insurance
department may as a result move to stop it from selling new policies in all
states and move to rehabilitate or liquidate the unit. PMI has known such
action was a possibility for some time, and as a backup plan it set up another
subsidiary, called PMI Mortgage Assurance Co., that could sell mortgage insurance
in certain states. However, the company warned Thursday that the approval to
sell policies on mortgages backed by Fannie Mae and Freddie Mac depends upon
MIC continuing operations. For details go to WSJPMI

What do mortgage investors think
about these low rates?
Many believe that 30-year mortgage rates
will need to drop below 4% and establish new record lows to really pump up the
refi market for some of the lower coupon mortgages that were originated in
2010/2011. There are still underwriting and equity issues, and the economic
hurdles that were introduced due to higher MI for FHA loans and higher LLPA for
agency loans have to be crossed. It is also important to note that some of the
higher balance loans will not have the economic incentive to refinance as
GSE loan limits are scheduled to be lower effective Oct 1, 2011. Lastly, at
this point higher LTV loans originated under HARP will not be eligible to
participate in this potential refinancing mini-wave.

And as the commentary mentioned
yesterday, a move in Treasury or MBS prices may not directly translate into
rate-sheet pricing for loan reps borrowers
– it depends on profit
margins and hedging costs at the company level. But compared to previous big
moves down, lower 10-year rates are translating into lower mortgage rates in
this rally faster – perhaps companies are going after market share. As one
trader put it, “the market feels very despondent right now, realizing that
fiscal policy is now more restrictive, Fed QE policies have not flowed through
to the consumer, confidence is dropping over European situation, and so

Pssst – wanna buy Saxon? Morgan
Stanley has reportedly contacted potential buyers of Saxon Capital
which it
bought in 2006 for $706 million. Later, in the fourth quarter of 2008, Morgan
Stanley took a $700 million write down in large part due to Saxon-related
charges. Maybe MS is following Goldman Sach’s lead when it sold Litton to Ocwen
in June.

Recently the commentary noted
that Fannie is scaling back origination and home price appreciation estimates
for 2011 and 2012, and received this note: “As you pointed out, Fannie
expects that home prices are expected to decline further this year and
next.  Why would this be a surprise to anyone when the crushing regulatory
environment and unforgiving underwriting standards make it difficult or
impossible for many deserving folks to obtain financing?  Every
constriction of DTI and LTV will cause home prices to fall.  And while
nobody disputes that the standards were too loose during the housing bubble,
many people who could afford the homes they purchased will be hurt if this
inanity (or insanity, if you prefer) continues.”

“In Congress, there is a room where legislators are meeting to try to come
up with ways to get the housing market moving again.  Down the hall, in
another room, other legislators are meeting to try to find ways to make it even
more difficult to get mortgage financing.  Our government doesn’t
understand that, every time it meddles or manipulates one area of the economy,
there are unintended consequences in another area.”

The residential mortgage REIT
sector of companies has made a renewed name for itself by being an active buyer
of mortgages and paying good dividends (and, according to Bloomberg, raising
more than $14 billion in secondary equity sales and IPO’s). But lately REIT
stock prices have been very volatile – mostly on the down side
. The
potential US default pushed values down dramatically, sometimes as much as 10%
in one trading day. Another reason was when the cost of overnight repurchase
agreement, or repo, financing for government-backed mortgage securities jumped.
REIT’s such as Invesco Mortgage, Hatteras Financial, and American Capital
Agency got hit since repo rates were climbing, the gain was modest and
so-called haircuts, or the down payments required for the loans, weren’t
changing. (In repo financing, securities such as Treasuries and mortgage bonds
are sold to a lender with an agreement by the borrower to buy them back later.
Haircuts protect lenders against price declines in the collateral, in the event
the borrower defaults.)

Flagstar alerted its brokers that, “The American Reinvestment and
Recovery Act (ARRA) was signed into law in February of 2009, temporarily increasing
the maximum conforming loan limits. Mortgages with note dates on or after
October 1, 2011, will no longer be eligible for these higher loan limits. Loans
with a mortgage note date on or after October 1, 2011, will be subject to the
permanent high-cost area loan limits determined according to the Housing and
Economic Recovery Act of 2008 (HERA).  Regardless of the area median home
price, the loan limit cannot, in general, exceed $625,500 for a 1-unit
property. All loans using the ARRA loan limits but be locked on or before
Thursday, September 15, 2011.  These loans must be closed and funded no
later than Friday, September 23, 2011. There are no further delivery
requirements. Loans not meeting the above requirements must use the HERA loan

Starting today “Flag”
will be changing the price adjustments on all investment properties for Agency
products excluding the Fannie Mae DU Refi Plus, Freddie Mac Relief Refi and
Freddie Mac Open Access products – making NOO prices worse by 0.5. Lastly, its delegated
underwriting customers learned that it updated the requirements for
transactions that require an appraisal from an AMC. “An appraisal from a
Flagstar-approved AMC is no longer required for new construction purchase and
construction to permanent transactions (including construction products) in the
following states with an LTV of 70% or greater: Arizona, California, Florida,
Georgia, Ohio, Michigan, and Nevada.”

Bank of America notified correspondent clients that it issued a disaster
declaration for Montana due to the flooding.

When I was a kid, I would take care of neighbor’s yards when they went on
vacation. If you’re doing that while servicing a Fannie Mae loan, you’d
better make sure you follow the rules and allowable maintenance costs: CuttingLawnsPays

Obviously we can’t see huge drops
in rates every day, and besides, most in the mortgage industry would rather see
gradual trends than large spikes. MBS volumes have picked up as rates have
dropped, and yesterday we saw another: 10-year Treasury prices were better by
another 1.25 (2.46%). Since last Friday, 10’s have gained 3 points and the
yield has plunged roughly .375! As the DOW lost over 500 points (more than 4%),
MBS prices were better by .750 – not all of that being reflected on rate

(Next week we have another FOMC
meeting. In their last FOMC statement in June, the Committee said
“Information received since the Federal Open Market Committee met in April
indicates that the economic recovery is continuing at a moderate pace, though
somewhat more slowly than the Committee had expected. Also, recent labor market
indicators have been weaker than anticipated.” In light of the recent
events, it will be interesting to hear what is released Tuesday.)

This morning we learned that the
employment numbers were slightly better than expected. Non-farm Payrolls were
up 117k vs, calls for +85k. The Unemployment Rate came in at 9.1%
(versus June’s 9.2%). May June’s numbers were revised by 56k. That does
it for economic news of consequence for the week – and what a week it’s been.

(Parental discretion very
much advised!)

Ben Bernanke gets drunk and tells
all? This was too good to not share: Jobs?WhatJobs?

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