An email from John McCully, AE, Flagstar

Used with permission: an email from John McCully

As a valued customer, who I want to protect and educate, I need to discuss the most recent changes with rates, locks and future turn times.

I am sure you are aware, the Federal Reserve put a tremendous amount of money into the market yesterday, to buy mortgage backed securities. This is going to have a noticeable positive impact on interest rates over the next week.

See Below Mortgage Market Commentary, provided by RateAlert “Mortgage backed securities (MBS) prices have held nearly all of the gains from yesterday afternoon's dramatic rally following the Fed's announcement; FNMA 4.5% coupon 102.44bps, -6bps. MBS and Treasury yields plunged yesterday as the Fed surprised investors with additional plans to lower consumer borrowering costs and lift the economy from recession. 10yr note yields tumbled 47bps yesterday, most since 1962, while yields on FNMA 4.5% coupon fell 27bps; widening the spread from 210bps to 230bps, up from an average of 175bps the past decade.

The central bank is trying to lower rates by reducing the supply of outstanding mortgage bonds, boosting the prices and thus lowering the yields. Lower mortgage rates by themselves may not be enough to spark demand for home purchases. Slumping stock prices, record foreclosures, falling home prices and job losses are reducing demand for new & existing homes.

Consumers are also having difficulty obtaining mortgages as banks tighten lending standards. Jobless claims fell 12k to 646k and the number collecting benefits swelled to a record 5.47 million. The index of leading economic indicators fell in February reflecting worsening conditions and the Philadelphia Fed index at minus 35 showed manufacturing shrank as orders and employment weakened.”

I am sure your customers are pushing you to get them locked at the “perceived” 4% interest rate! I have already heard this rate being quoted on several news stations and consumers have little knowledge of what this really means. You are in the position to educate your customers and I strongly suggest you do so! So given that statement, here is what I want you to pay close attention to.

Rates have come down or better, YSP has increased in relationship to rates. In my last pricing, 40 day lock, on an Agency Fixed indicated 4.625 <.104> but 5% was paying <1.134>. This is usually an indicator that yields/margins are higher but the market still has some adjusting to do in the next few days. Now, we hope that means rates will continue to lower, but only time will tell. Make sure you do not get swept up in your borrowers panic based on what they heard on TV.

You still need to manage your lock policies to protect your relationships with your lenders and to mitigate your financial risk of having to pay a Pair Off fee. Loans that are locked with a lender presently need to stay with that lender and close! I do not want to loans moved to Flagstar that have locked somewhere else and conversely I do not want to see you bust a lock with Flagstar and be charged a Pair Off Fee because it closed somewhere else.

If you are not sure what our Pair Off Fee Policy is then go review memo # 09044 dated 03/04/09. It is located under the Sellers Guide Tab along with our lock & extension policies, Doc #’s 4101, 4104, 4121 & 4122. If you have not read these documents then I suggest you do so. When you are looking at rates and making quotes, please quote the 40 day lock period! This will give you and your customer enough time to close.

We are going to see Underwriting Turn Times increase as the new flood of loans come into the system. Look at our posted Underwriting Turn Times on the bottom left-hand corner of our website. They are updated every morning and are monitored estimates that are available to you 24 hrs a day.

Also, make sure your borrower will qualify by running AUS and give a written quote (GFE) to your borrowers prior to locking. Your borrowers need to share in the responsibility of locking their loan. Get a verbal or written commitment that they understand what it means to lock. Consider charging a lock fee if you are not comfortable with their commitment!

Bottom line, keep your lock fall-out at <25%.

So, let’s watch the market and make good sound decisions! I encourage you to use this logic with all your lending relationships. We, remaining lenders, are watching these issues closely and we are less tolerant of abuses within underwriting and with lock fall-out.

Flagstar will be issuing internal communications on our offering to renegotiation rates with loans that are presently locked. When we do, I will make sure you know what that looks like. Keep breathing and stay smart!

Thanks!

John.McCully@flagstar.com