SunTrust Jilted; California’s Law and Basel III will NOT Help Mortgage Pricing

Tomorrow, on your day off, here is 3 ½ minutes of a few very clever
creative bets that you can win.

Speaking of clever, a veteran male trader at Chase noted, “Michigan
deployed talking urinal cakes to fight Driving Under the Influence. If one of
them sounds like my Mother-In-Law I will start wearing Depends.” That’s
darned funny.

The Census Bureau tells us that thirty-one places have “liberty” in their
names. The most populous one is Liberty, Mo. (29,149). Iowa, with four, has
more of these places than any other state: Libertyville, New Liberty, North
Liberty and West Liberty. Thirty-five places have “eagle” in their names;
eleven places have “independence” in their names. The most populous one is
Independence, Mo., with a population of 116,830. Nine places have “freedom” in
their names, one place has “patriot” in its name (Patriot, Indiana), and five
places have “America” in their names. The most populous is American Fork, Utah,
with a population of 26,263. And you wonder what those folks at the Census do
all day…

Occasionally this commentary posts job searches. Today, SunTrust is looking
for a seasoned industry veteran after being left at the altar. Must be present
to win!
Seriously, the MBA announced that instead of assuming the presidency
of SunTrust Mortgage, Dave Stevens has agreed to stay on as President and
CEO.  “The past few weeks have been extremely difficult for me
personally and professionally. After serious thought and consideration, I simply
cannot leave the MBA at such a critical time for the industry and the
association.” Stevens said.  “Frankly, at the end of the day,
stepping away now when so much progress is being made and so much still left to
be done, did not feel right.”

A statement from SunTrust noted, “We have a strong leadership team in
place, and continue to execute our business plan and serve the needs of the
clients of SunTrust Mortgage.” American Banker observed, “SunTrust’s
mortgage operations are still struggling with credit quality issues and
repurchase requests, and the Atlanta bank has been trying to reshape the
. Last month, it appointed Peter E. Mahoney as executive vice
president of mortgage strategy and Jack Wixted as executive vice president and
chief risk officer.”

On the other side of the Atlantic, Barclays CEO Bob Diamond stepped
amid increasing pressures related to investigations of possible Libor
manipulation. “The external pressure placed on Barclays has reached a
level that risks damaging the franchise — I cannot let that happen,”
Diamond said. “I am deeply disappointed that the impression created by the
events announced last week about what Barclays and its people stand for could
not be further from the truth.” Marcus Agius, who resigned as chairman
Monday, will take Diamond’s spot until a permanent successor is found.

Well, out in “the land of fruits and nuts” they did it: California
would become the first state to write into law much of the national mortgage
negotiated this year with the nation’s top five banks, and
expand it to all lenders, under wide-ranging legislation state lawmakers
approved Monday. “Majority Democrats sent the homeowner protection package to
Gov. Jerry Brown despite opposition from business and lending organizations and
most Republican legislators.” Once again, we see an illustration of the public’s
perception, and that of the popular press’s, of an issue being different than
that of the lending industry’s. On the surface it sounds great. The legislation
would require large lenders to provide a single point of contact for homeowners
who want to discuss loan modifications. It would prohibit lenders from
foreclosing while the lenders consider homeowners’ request for alternatives to
foreclosure. And it would let California homeowners sue lenders to stop
foreclosures or seek monetary damages if the lender violates state law. “The
protections would benefit all California homeowners, not just those whose
mortgages are with the five banks that signed the national settlement in
February. And many of the restrictions would become permanent, while those in
the nationwide agreement will end after five years. It applies to all
owner-occupied residences, but not commercial or rental properties.”

The new
law could easily and directly impact the price of mortgages to California
borrowers as servicers say, “If these are the new rules, we don’t want the
servicing as much, and so let’s pay less for it.”
Is the
attorney general going to persecute investors who back their prices off due to
it? The law lets homeowners sue mortgage providers if they violate state law,
but only if there is a significant violation. (What is “significant”?) Homeowners
could ask judges to halt pending foreclosures but could collect monetary
damages only if the foreclosure took place. It requires lenders to provide a
single point of contact for borrowers who want to discuss foreclosures or
refinancing, with an exemption for lenders that process fewer than 175
foreclosures per year. It bans what are known as “dual-track foreclosures” by
barring lenders from filing notices of default, notices of sale, or conducting
trustees’ sales while they are also considering alternatives to foreclosures
like loan modifications or short sales. It increases penalties for banks that
sign off on foreclosures without properly reviewing the documentation, a
process known as robo-signing.

under the “things that may increase the price of residential mortgages to
borrowers,” banks that are concerned about potential fair lending claims if
they refuse to make residential mortgage loans that are not “qualified
mortgages” or “qualified residential mortgage loans” should be equally
concerned about the new proposed bank capital rules.
On June 7,
2012, the Federal Reserve approved for publication three sets of proposed
regulations to revise the risk based capital rules for banks to make them
consistent with the new international capital standard, generally known as
Basel III, and certain requirements of the Dodd-Frank Act. The Office of the
Comptroller of the Currency and the Federal Deposit Insurance Corporation
followed suit on June 12, 2012. Conventional residential mortgage loans with
loan-to-value ratios in excess of 80%, regardless of the presence of private
mortgage insurance, could trigger material adverse capital requirements if the
loans are held for investment and do not comply with certain regulatory
underwriting criteria. Such loans could present the legal risk of loss under
the “ability to repay” rules, the credit risk of loss under the “risk
retention” rules and now increased capital charges under the implementation of
Basel III:

Here are some somewhat recent investor/agency updates,
providing a flavor for the environment. They just don’t stop. As always, it is
best to read the actual bulletin.

With the Colorado fires, and the hurricane season, it is a good idea for
underwriters and secondary marketing staffs to re-familiarize themselves with agency
rules for lending in disaster areas
. Rather than go into all the ins &
outs, Fannie’s is
and Freddie’s is

As part of its One Touch initiative, Wells Fargo Funding’s has set
a goal of minimum 50% funding for all first time clients, meaning that no more
than 50% of such borrowers’ loans could be suspended.

Wells Fargo Wholesale has issued a correction to an earlier announcement about
changes to FHA Streamline Refinance mortgage insurance premiums stating that,
for base loan amounts exceeding $625,000, the annual MIP paid monthly would
increase to 0.25%.  The annual MIP paid monthly for such loans will
increase 0.25% (25 bps), not to 0.25%. FHA Non-Credit Qualify Streamline and
Purchase Close calendars for the third quarter of 2012 are available via the
Broker’s First® website.  The calendars provide the dates by which credit
packages, conditions, and documents must be submitted.

The Wells inspection requirement for private sewage disposal systems may not
apply to some properties in Iowa as per state requirements.  In cases
where a customer states that a transaction is exempt from the inspection, Iowa
Senate File 261
should be consulted.

Under new rules that will come into effect on June 18th, Wells will be using
different credit scores to assess risk.  For loans not submitted via
Direct Express, the credit report generated by Wells and ordered from Equifax
and/or Credco will be used, while loans submitted via Direct Express will
continue to use the information from the credit report generated by Direct

As per agency requirements, construction-to-permanent transactions will not be
permitted as Purchase transactions as of June 18th.  Wells will continue
to allow construction-to-permanent transactions as Rate/Term or Cash-out
refinances.  The LTV/CLTV/TLTV calculation for construction-to-permanent
transactions has also been revised such that the value will be calculated using
the current appraised value of the property and must comply with the product’s
Rate/Term or Cash-out refinance guidelines.  Super Conforming Mortgage
Program loans, as they require construction to be complete, are not affected.

The Wells non-branded Consumer Handbook on Adjustable Rate Mortgages disclosure
has been updated and should be used for all loans registered after June
25th.  The old CHARM/ARM disclosure should be discarded.

Citibank has updated its Ineligible Originator List, which is posted on
the Citi Correspondent website in the elfno section.  The list, which
shows brokers, correspondents, and other originators and parties that are not
permitted to be involved in the origination of any loan submitted to Citi for
purchase, is revised regularly, as is the Appraiser Monitor/Ineligible List
(also in the elfno section of the site).

Loans on condos in Georgia that are registered after June 23rd will be subject
to Citi’s upcoming LTV/CLTV/HCLTV restrictions.  For borrowers with FICO
scores over 740, all of these values will be capped at 70%, while for those
with FICO scores less than 740, they will be capped at 60%.

Due to Freddie’s decision to retire the program in August, Citi will no longer
accept Freddie Mac Alt 97 Mortgage registrations on or after June 23rd.

All this continues to make the markets, and interest rates, be an afterthought –
there just isn’t much going on. Good news of stability, or hoped-for
stability, could nudge rates higher, while evidence that our economy is slow
tends to nudge rates lower.
Yesterday we learned that, for the first time
since July 2009, US manufacturing has decreased.  However, the economy has
grown for the 37th consecutive month according to the nations’ supply
executives in the latest Manufacturing ISM Report on Business. And Construction
Spending beat expectations, rising to its highest level in almost 2.5 years in
May as investment in residential and federal government projects surged.

By the end of the day, the third quarter started off with new record high
closing prices set on 30-year FNMA 3.5% through 4.5% coupons as 10-year notes
rallied nearly 3/4s of a point to 101-17+ (1.58%) per Thomson Reuters. “The
supply/demand dynamics were very strong today with the sell/buy ratio reported
at 1:3. Indeed, mortgage banker selling was light at around $1.5 billion, while
the weak data contributed to active buying from real money despite the price
levels with the Fed, of course, a steady player.” Agency MBS prices were marked
higher (better) by over 1/4 point on 30-year FNMA 4.0s to nearly 1/2 point on
3.0% coupons. But will the price improvements make it onto rate sheets?

Today we’ll have May’s Factory Orders (expected higher) and an early
close for the bond market – look for liquidity to dry up. Many companies are
closing early – do LO’s really expect to lock loans in, and lock desks to be
open, at 5PM on the day before a holiday? In the early going our 10-yr is at
1.60% and MBS prices are down.

Very punny, part 1 of 2:
52 cards = 1 decacards
1 kilogram of falling figs = 1 FigNewton
1000 milliliters of wet socks = 1 literhosen
1 millionth of a fish = 1 microfiche
1 trillion pins = 1 terrapin
10 rations = 1 decoration
100 rations = 1 C-ration
2 monograms = 1 diagram
4 nickels = 2 paradigms
2.4 statute miles of intravenous surgical tubing at Yale University Hospital =
1 IV League
100 Senators = Not 1 decision


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