Sept 8th: RESPA update, and just another average day in the mortgage biz, except...

One of life's mysteries is how a 2-pound box of chocolates can make me gain 5 pounds! Or what investor's fallout & relocks are going to be like this month!

Washington Mutual removed 20+ year veteran CEO Kerry Killinger, and replaced him with former Independence Bancorp and Sovereign Bancorp exec Alan Fishman. WaMu lost $3.3 billion in the second quarter as it set aside large reserves for future losses on risky mortgage loans, and the third quarter is not expected to be much better. Killinger will join Fannie's ex-chief Dan Mudd and Freddie's ex-CEO Richard Syron on the golf course.

So far this morning Locks Desks across the nation are tearing their hair out: Ginnie Mae securities (backed by FHA & VA loans) are better by .75 in price, Fannie Mae securities are better by over 1 point in price, and Treasury prices are worse by .75 in price. Everyone, and their brother, has heard the news that Fannie & Freddie have been placed "conservatorship". Like it or not, the government agreed to pump billions of dollars into Fannie Mae and Freddie Mac and assume responsibility for trillions of dollars of their debt, while handing control of the companies to federal regulators and eliminating stockholder equity. Everyone is hoping that it restores confidence in the mortgage markets. The seizure of F&F will cost taxpayers billions of dollars, but what option was there? What has it done, especially in terms of a loan agent's day-to-day job, besides make them wonder about the loans they locked in last week?

• The spread between conforming mortgage-backed securities and Treasury securities has dropped dramatically! For example, the 5-yr Treasury Note is worse in price by almost a point, but a 6% mortgage is better by .75 in price.
• Fannie's trading desk suspended operations, temporarily, but is now back in business.
• The US Government announced that they will make a market in trading MBS securities.
• The stock markets around the world are rallying on the news.
• F&F must cease lobbying efforts.
• Debt interest is expected to be paid.
• Shareholder dividends are expected to cease.
• Future F&F losses would be covered by the US Government, and in turn, the taxpayer.
• The Treasury will both lend to F&F.
• FHFA will gain management control of the two companies and the Treasury will acquire $1 billion in preferred shares in each company.
• Many small banks had capital tied up in the preferred shares of Fannie and Freddie, depending on the dividends for reliable income, and the value of those shares to meet the capital levels required by regulators. Apparently either gone or under consideration.

HUD wrote the following in a Q&A to a state Mortgage Bankers Association. "RESPA provides that the Good Faith Estimate (GFE) should list those charges that the borrower is likely to incur at settlement, based upon the lender's experience in the locality of the mortgage property. It is therefore not a violation of RESPA to add fees to the HUD-I or HUD IA that were not disclosed on the GFE  if such fees were, in good faith, unanticipated and unforeseeable at the time that the GFE was prepared.  Where there is a pattern or practice of not disclosing fees on the GFE that are collected at settlement, particularly fees imposed by lenders, it may serve as evidence that the exclusion of such fees from the GFE was not in good faith. It is imperative to avoid a pattern or practice of not providing fees in good faith. That is a RESPA violation and an accusation something no lender can afford. It is therefore company policy not to change fees unless absolutely necessary. For purposes of FHA loans, keep in mind that the dollar amount of closing costs are very much a part of the underwriting decision. Changing the documented fee structure of the loan at the last minute creates the risk that the loan will not be insured. Uninsured loans are not saleable and create losses to the company."

Wells Fargo wholesale announced that because of higher costs associated with mortgage insurance, borrower-paid mortgage insurance (BPMI) rates will increase today.

BPMI rates will increase for rate/term refinances, cash-out refinances, and loan amounts higher than $417,000. BPMI rates will increase between five to 30 basis points (bps) depending on the loan type.

In terms of scheduled economic news this week, it's very light until Friday. Nothing today, tomorrow we have July's Wholesale Trade number and Pending Home Sales, nada on Wednesday, Thursday the usual Jobless Claims but with also the Trade figures, and then on Friday we have Retail Sales, the Producer Price Index, and the University of Michigan Sentiment Index.