Approved Advisor

(AmericanBanker) Some lenders are beginning to charge rate-lock fees to both consumers and loan brokers, according to industry participants.

One mortgage executive, requesting anonymity, said his current servicer, JPMorgan Chase & Co. wanted to charge him 50 basis points to lock in a low rate for his refinancings. He passed on the offer.

A call to JPMorgan Chase’s 800 number by National Mortgage News got a representative, after a 10-minute wait, who would not quote any loan information unless the caller filled out a credit report.

Bank of America Corp. and Wells Fargo & Co. said they do not currently charge lock-in fees to retail applicants.

Marc Savitt the president of the National Association of Mortgage Brokers, said he has heard stories about wholesalers charging brokers a fee to lock in rates but has seen nothing in print.

Brokers, in turn, would pass on that fee to consumers. Mr. Savitt added that lock-in fees would drive up closing costs, making it “more difficult, if not impossible, for some consumers to become homeowners.”

A mortgage adviser said that in years past some brokers would lock in rates with multiple lenders, then pick the lender with the lowest rate. Wholesalers are getting tired of the practice because “it hurts their pull-through rate,” this adviser said.

(Wall Street Journal) A recently discovered data breach at a New Jersey credit-card processor could rank among the biggest ever reported.

Heartland Payment Systems Inc. disclosed Tuesday that cyber criminals compromised its internal computer network, gaining access to customer information associated with the 100 million card transactions it handles each month.

The company said it couldn’t estimate how many customer records may have been improperly accessed but that the compromised data includes credit card numbers, card expiration dates and some internal bank codes. Heartland, which is based in Princeton, N.J., processes transactions for more than 250,000 businesses nationwide.

Avivah Litan, an analyst at research company Gartner, estimated that as many as 100 million consumers could have had their credit-card data stolen, based on her conversations with industry executives. Previously, the largest known breach occurred when around 45 million credit- and debit-card numbers were stolen from retail company TJX Companies Inc.

“I would call this the largest breach ever,” Ms. Litan said.

But Robert Baldwin, Heartland’s president and chief financial officer, called her estimate a “totally fictional number.” The company added that, since it’s too early to say how many records were accessed, calling it the largest-ever breach would be “speculative.”

Software ‘Light-Years More Sophisticated’

Representatives from Visa Inc. and MasterCard Inc. alerted Heartland to a pattern of fraudulent transactions on accounts that the processor handled some time in the fall, Mr. Baldwin said. But an internal investigation and subsequent audits failed to detect a security breach.

Last week, however, a forensic investigator discovered evidence of the breach. Mr. Baldwin said that the criminal targeted Heartland with a piece of malicious software that was “light-years more sophisticated” than the viruses commonly downloaded off the Internet. He declined to say if the software was on the company’s network before the fall or how many records were accessed, adding “in all likelihood we will never know.”

The retail and payment-card industries have spent around $2 billion in recent years to improve data security, Ms. Litan said. In December, another payment processor, RBS WorldPay, a division of Royal Bank of Scotland Group, announced that its systems were breached. That criminals could break into a payment processor shows that “much more radical steps are needed” to protect payment information, she said.

Unauthorized Data Access on the Rise

More than forty states now have laws that require businesses to disclose when sensitive information may have been accessed by an unauthorized party. In 2008, 656 such incidents were publicly reported, according to the Identity Theft Resource Center, a non-profit organization dedicated to helping victims of identity theft. That’s up from 446 in 2007.

Heartland said it has isolated the affected computers and removed the malware. It hasn’t made any new investments in security technology yet, but “everything is on the table” Mr. Baldwin said.

The company is working with the U.S. Secret Service to investigate the incident, Mr. Baldwin said. It has been “working feverishly to assemble all the evidence we could” about the extent of the breach and who caused it, he said.

Washington, DC – Federal Housing Finance Agency (FHFA) Director James B. Lockhart announced that Fannie Mae and Freddie Mac will implement a revised Home Valuation Code of Conduct (Code) effective May 1, 2009. The Code is based on an agreement between the Enterprises, the New York State Attorney General Andrew Cuomo and FHFA to improve the reliability of home appraisals. Following a comment period on the original Code, modifications were made by the Enterprises to reflect comments received. The revisions will facilitate implementation in the marketplace.

The revised Code builds on existing Fannie Mae and Freddie Mac seller-servicer guidelines to increase the reliability of appraisals for loans sold to the Enterprises for their portfolios or for securitization. The Code applies to lenders that sell single-family mortgage loans to the Enterprises beginning May 1, 2009 and will help assure that borrowers, homebuyers and secondary mortgage market investors receive fair and independent property valuations.

“The Enterprises have a strong interest in ensuring the soundness of the appraisal practices that lead to appraisal reports supporting the mortgage loans they purchase from lenders,” said Director Lockhart. “FHFA supports this effort by the Enterprises to strengthen the appraisal process against the possibility of improper influence and coercion. The Code strikes a balance of assuring enhanced protections for appraisers while maintaining lender ability to address unprofessional appraisal practices and to perform quality controls on appraisals received. I appreciate the work of Fannie Mae and Freddie Mac on the Code and of the Attorney General’s Office throughout the process.”

Fannie Mae and Freddie Mac will be providing information on the Code to market participants in early January to address implementation questions in advance of the May 1, 2009 effective date.

Link to HVCC Code

Beginning next year, Fannie Mae and Freddie Mac will have to obtain identification numbers for the loan officer, originating lender, and appraisers involved in each loan they buy or guarantee, their regulator said.

The requirement will help the government-sponsored enterprises monitor the performance of loans originated or appraised by specific companies or individuals, the Federal Housing Finance Agency said last week. “If originators or appraisers have contributed to the incidences of mortgage fraud, these identifiers allow the enterprises to get to the root of the problem and address the issues,” James Lockhart, the agency’s director, said in a press release.

Fannie and Freddie will issue in the next 30 days guidance to lenders on satisfying the requirement, the FHFA said. The GSEs are to use the numbers assigned to lenders and loan officers in a national registry set up by the Conference of State Bank Supervisors.

It has yet to be determined if in fact banks are lending, and for those that are, is it truly “business as usual”?? One thing is for certain, and that is rates are dropping fast and potential mortgage applicants are flooding the phone lines searching for the best loan in history.

As congress continues its quest for the second half of the $300+ Billion dollar “TARP” money, and as mortgage rates continue to shatter historic low levels, the question remains:

“WHO IS GETTING THESE RECORD LOW INTEREST RATES AND HOW”??

“The bottom line is, unless you are in the top tier of loan-quality, you are not seeing the best rates in the marketplace”, says Shmuel Shayowitz, President of Approved Funding. Approved Funding is a quarter of a century old mortgage bank headquartered in Bergen County, New Jersey.

Today, the top tier “loan quality” is no longer just described as someone with full income verification or someone with merely an exceptional credit rating. In order to get THE ABSOLUTE BEST mortgage rates in the market, each and every applicant must meet several key factors including credit score, property equity, debt-to-income ratios, and cash reserves.

In March 2008, Fannie Mae and Freddie Mac released a “risked based pricing” tiered system which would add on penalties (“pricing adjustments”) depending on the specifics of a loan profile. According to Shayowitz, “The best rate available in the marketplace today would represent a borrower who has at least 40% equity in their home, and has a FICO credit score of greater than 740.” In addition, the transaction must be for a Single Family primary residence, and must be a purchase mortgage or non cash-out refinance.

Candidates meeting all of those criteria, and qualifying with full income verification, can truly benefit from these historically low rates. That’s not to say that others who fall just shy on some of these items will get a much higher rate, but it will certainly cost “someone” more money to originate that loan.

So as you speak with your family, friends and colleagues and swap stories about what rate their broker or banker was able to obtain for them, be certain that all of these factors of consideration are taken into account in order to truly make an apples-to-apples comparison.

To recap – a “AAA Borrower” must meet the following criteria, in order to get the absolute best rate on a mortgage:

• >=740 FICO credit score
  
• Single Family home
  
• Primary Residence (Owner Occupied)
  
• Loan-to-value of <=60% (ie: 40% equity in your home)
  
• Purchase or Non Cash-out transaction
  

BREAKING NEWS: Fannie Mae has released yet another adjustment schedule with signifigantly higher price add-ons for lower tiered FICO and Loan-to-Value borrowers… Although the official effective date is not until April 1, 2009, many banks and lenders have already changed their rate sheets to reflect these increased pricing adjustments. So inspite of lower rate in the marketplace because of Fed mortgage backed security purchasing, some banks may in fact reflect higher rates starting Monday morning!

The benchmark FNMA 4.5% bond ended a lackluster session down 15bps after trading within a volatile 47bp range. The day’s news continued to show a weak economy, but stocks managed to rebound from steep losses, to help prevent bonds from staging a rally. It seems like the bond market is gradually becoming more immune to weak, ‘bond-friendly’ economic news. As the yields are still hovering on/above the “support level”, rates aren’t moving in any one direction.

We are still waiting for that one piece of market news to thrust it past the “resistance level” (see chart below)”

• Freddie Mac came out with its weekly report about mortgage rates: Freddie Mac (NYSE:FRE) today released the results of its Primary Mortgage Market Survey in which the 30-year fixed-rate mortgage averaged 4.96 percent with an average 0.7 point for the week ending January 15, 2009, down from last week when it averaged 5.01 percent. Last year at this time, the 30-year FRM averaged 5.69 percent. (The 30-year FRM has not been lower since Freddie Mac started the Primary Mortgage Market Survey in 1971).
  
• Initial Jobless Claims increased by 54,000 to reach 524,000 vs. a consensus of 501,000 claims.
  
• The PPI, measuring overall wholesale inflation, fell 1.9% in December aided by a 9.3% plunge in energy costs and a 1.5% drop in food prices.
  
• The Core PPI, which excludes volatile energy and food prices, showed inflation rising by 0.2%, double the rate forecast by economists but still rather tame.
  
• The Empire State Manufacturing Survey showed activity remains slow in the New York Region with a reading of -22.2 vs. the consensus of -25.0.
  
• The Philadelphia Fed Manufacturing Survey had a reading of -24.3 vs. a consensus forecast of -35.0. Readings below zero indicate economic contraction.
  
• The European Central Bank (ECB) announced a 50bp rate cut to bring their benchmark lending rate down to 2.0%. The move was widely expected and brought the ECB’s rate to its lowest level since December 2005.
  
• Stocks were significantly lower from the Open on fears of further financial crisis (Bank of America and Citigroup). In the end, the Dow gained 12 points to close at 8,212 while the broader S&P 500 Index rose by a point to end at 843. The NASDAQ Composite Index added 22 points to finish at 1,511.
  
• Speculation on a pending Senate vote to authorize spending of the remaining $350 billion in TARP funds to continue the bailout of the banks turned the stock market around.
  

NEW YORK (Reuters) – Massive efforts by the Federal Reserve to bring down mortgage rates have so far been a success, but homeowners had better act fast because analysts say record low rates could be gone as soon as this summer.

Thirty-year mortgage rates dropped to a low of 5.01 percent this week — their lowest since 1971 — after the Federal Reserve unveiled a plan in late November to buy as much as $500 billion of securities backed by Fannie Mae, Freddie Mac and Ginnie Mae.

They could touch as low as 4.50 percent, but the cheap loans will not last long, mortgage experts warned.

“The downward trend we have seen in mortgage rates will not last beyond the first half of this year,” said Celia Chen, senior director of housing economics at Moody’s Economy.com in West Chester, Pennsylvania.

“By then, the Federal Reserve’s program will have run its course and other issues will move to the forefront that could push mortgage rates higher,” she said.

The Fed has also embarked on a program to buy up to $100 billion in unsecured debt of Fannie Mae, Freddie Mac and the Federal Home Loan Banks in a move also aimed at lowering interest rates on mortgages.

The prospect of affordable home financing has provided a glimmer of hope for the U.S. economy with the housing market in the worst downturn since the Great Depression.

But if mortgage rates rise, they will further paralyze a housing market already beset by plunging home prices, an unwieldy supply of homes for sale, tighter lending standards by risk-shy banks and surging foreclosures.

Even if the Fed extends its mortgage bond buying program past the summer, its other efforts to flood financial markets with cash will work against low rates.

They include the inflationary impact of both the Federal Reserve’s near-zero interest rate policy and the massive looming fiscal stimulus from the government which must be paid for by more government debt, pushing up interest rates.

A 30-year fixed-rate mortgage at 4.50 percent is a level apparently targeted by policy makers.

Moody’s Economy.com forecasts interest rates hitting 4.50 percent by the middle of 2009 after dropping to a low of 4.37 percent in the second quarter. But, by the third quarter and fourth quarter interest rates will be climbing to 4.57 percent and 5.18 percent, respectively.

By the first quarter of 2010, rates should be at 5.87 percent, Chen said.

“Low mortgage rates are important, but there is no evidence that lenders are lending and that is crucial,” she said.

Treasury yields, which move inversely to price, are linked to mortgage rates. The Treasury is seeking to fund an estimated deficit of $1 trillion or more over the coming year.

TOO LOFTY A GOAL

Cameron Findlay, chief economist at online loan broker LendingTree.com in Charlotte, North Carolina, said mortgage rates at 4.50 percent remained possible, but not probable.

“For now the Fed has implemented change to entice rates to decline and are in a holding pattern to see the impact,” he said.

“Up until a few weeks ago, people thought 4.50 percent was a realistic target for rates within 60-90 days, but that idea has dissolved,” he said.

What has changed since November is the Fed’s decision to ax interest rates to almost zero to help revive the economy, leaving the central bank with fewer options to cut rates.

Findlay said mortgage rates should stay in a range between 5.00 percent and 5.50 percent for the next eight weeks or so barring any additional Federal Reserve action.

Expectations of a 30-year fixed-rate mortgage at 4.50 percent are too ambitious, said Greg McBride, senior financial analyst at Bankrate, Inc, in North Palm Beach, Florida.

“Inflation worries may begin to spook investors and that could send Treasury yields higher, which would cause a corresponding move higher in mortgage rates,” he said.

With no significant economic news today, bonds ended the day flat, down about 3bps from the open. In spite of the lackluster performance, there was almost a 40 basis point swing from the day’s highs and lows, once again reminding us how volatile this market is.

Fortunately, we do have some support for current rates, and barring any economic news that pulls rates past our first support level (see “S1″ line below), we should have a comfortable trading range. It is our hope that rates pull upwards past the “R1″ and/or “R2″ levels which would pull down interest rates.

What I also like about mortgage bond trading over the past few days is the lower chart (see “Fast STO” chart below) which shows “investor appetite” for mortgage securities. As the black line crosses below the red line, and inches downward below the 80.00 number, this indicates that bonds are not as “over-bought” as they were last week. This could be a good sign, as there won’t be a fire sale to dump bonds which would cause rates to increase quickly.

Still, my guess would be that we will soon experience the self-fulfilling prophecy of rates at 4.500% for “AAA borrowers”. If you have the stomach, and time, to wait, you may reap the rewards, although, as with all other market fundamentals these days… you never know!

With rates dropping to historical lows, Home buyers who are starting to get the buyers “itch”, are quickly getting the loan officer “ditch”!!

Simply put, as the number of loan applications sky rocket to levels not seen in almost a decade, loan officers are starting to prioritize the quick “low hanging” refinance loans, versus that of a long drawn out purchase transaction.

If that weren’t enough, it is reported that even the level of mortgage refinancing is struggling as brokers, lenders, and mortgage banks are ill equipped to handle the volume due to past layoffs and company consolidations.

In a recent conference call with our company mortgage consultants, I reminded them about “biting off more than we can chew” and about the importance of customer service.  It’s OK to not to work with EVERY single borrower that calls.  Our first and foremost priority should be with past clients and referral sources who have always been the cornerstone of our business. 

When I speak to fellow mortgage originators in the industry, I get a feeling that they are tripping over loan applications, very similar to Lucy and Ethel are handling their volume in this classic I LOVE LUCY skit below. (comments continue after video) 

I love Lucy Chocolate Candy Assembly Line 

I am confident that the manner in which a pending loan application is being handled, or mishandled, is a direct result of the current refinance “boom”.  It is critical to sense these inefficiencies early, and work with consultants and companies that are committed to handling YOUR business in the manner and professionalism that it deserves.  

It’s important to not to settle for quick talking, penny pinching salesman, versus qualified and experienced loan consultants that will give you the BEST ADVICE AND THE BEST PRICE.      

According to financial news: A deal to combine the brokerages of Citigroup and Morgan Stanley — which would give Citi more cash, and Morgan Stanley more manpower — appears just days away.

In light of the new venture with Morgan Stanley, the new entity name will be…

“CITIMORG”