"My wife has been missing a week now. Police said to prepare for the worst. So I have been to the thrift shop to get all her clothes back." In preparing for the worst, what is worse for mortgage banking, indecision or a bad decision? Anytime something crosses the airwaves from the Board of Governors of the Federal Reserve System, HUD, FDIC, FHFA, OCC and the SEC, one should take notice. In this instance these six federal agencies "have approved and will submit a Federal Register notice that extends the comment period on the proposed rules to implement the credit risk retention requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The comment period was extended to August 1, 2011, to allow interested persons more time to analyze the issues and prepare their comments. Originally, comments were due by June 10, 2011. The proposed rule generally would require sponsors of asset-backed securities to retain at least 5 percent of the credit risk of the assets underlying the securities and would not permit sponsors to transfer or hedge that credit risk."

Another headline from yesterday noted that for $264 million Goldman Sachs is selling its Litton Loan Servicing Group to Ocwen (New Company - New Co. - spelled backward). The sale price does not reflect certain assets that Goldman Sachs will retain, and Goldman does not expect the sale to have any material impact on earnings in the second quarter. Ocwen also agreed to pay off $337.4 million in Litton Loan Servicing LP debt to Goldman, with the assistance of a new $575 million loan from Barclays, which advised Ocwen on the deal. The deal gives Ocwen Financial Corporation a mortgage servicing portfolio of approximately $41.2 billion, mostly in sub-prime mortgages.

By most accounts, it appears to be a good fit. The overall stop-advance rates have been similar for Ocwen and Litton in the past, and the CLTV, loan balance, and liquidation timelines for delinquent loans have been similar for both servicers. But modification rates for Ocwen have been about double that of Litton recently and analysts expect modification rates to increase for Litton-serviced loans transferred to Ocwen. Ocwen tends to re-modify loans at a higher rate compared with other servicers, and thus some loans previously modified by Litton may be re-modified by Ocwen with a higher payment cut or principal reduction.

Over in the agency side of the world, Fannie and Freddie have both been busy in recent weeks. Fannie Mae announced it has approved Genworth Residential Mortgage Assurance Corporation (GRMAC) as an insurer of conventional mortgage loans in a limited number of states. The insurer is responsible for compliance with its state limitations and which entity is used: Genworth. Fannie has spread the word regarding policy changes regarding deferred student loans, documentation requirements for retirement accounts, prohibition of certain mortgage insurance agreements, DU resubmission policies, MERS updates, and two other miscellaneous items. Fannie Mae is "requiring servicers, in determining whether a borrower faces imminent default, to apply the evaluation methods now used only for HAMP modifications to non-HAMP modifications secured by owner-occupied properties. In addition, Fannie Mae is requiring servicers to use Fannie Mae Network Providers to obtain broker price opinions or appraisals to complete the evaluation of preforeclosure sales and deeds-in-lieu of foreclosure." In addition, Fannie will be conducting a reapplication process for the Retained Attorney Network in 16 states, is updating the maximum number of allowable days in which routine foreclosure proceedings are to be completed in each jurisdiction, announcing new servicer requirements to streamline and simplify servicing processes related to delinquency management, updating the Servicing Guide to simplify the existing servicing fee structure for mortgage loan modifications while making the servicing fee comparable to that of other secondary market investors, and reminded clients that if a mortgage loan is registered with the MERS and "is originated naming MERS as the original mortgagee of record, MERS must not be named as the loss payee on property insurance policies." All of these can be viewed at Fannie.

Across the agency aisle and down the road a ways, Freddie Mac has made changes to its selling requirements to improve the quality of appraisal data and introduce additional borrower qualification sources. FreddieQualification. Freddie has also revised its credit requirements to "Provide an avenue for borrowers with unrestricted access to eligible assets to utilize those assets to qualify for a mortgage" for manually underwritten loans as long as the borrower "must not currently be using the eligible assets as a source of income." Freddie also announced that an increase in the limit for "credit card charges, or the use of a cash advance or an unsecured line of credit to pay mortgage application fees. We are increasing the maximum amount a borrower may charge to a credit card, or receive from a cash advance or unsecured line of credit to pay fees associated with the mortgage application process from 1 percent of the mortgage amount to the greater of 2 percent of the mortgage amount or $1,500. Additionally, we are removing the provision regarding the maximum allowable amount of $500 for appraisals and credit reports."

In September Freddie is amending property eligibility and appraisal requirements related to property underwriting and review of appraisals and taking another step in the implementation of UAD (Uniform Appraisal Dataset). Freddie also announced revised eligibility requirements for manufactured homes, incomplete improvements including energy conservation improvements (effective September 1), appraisal photographs (effective March 19, 2012), transmitting appraisal reports (effective March 19, 2012), and seller warranties for Established Condominium Projects and New Condominium Projects. As always, for these and everything Freddie, go to the source at FreddieBulletins.

Yesterday the commentary noted how rates declining have impacted the number of refi's, potential, and otherwise. It also noted the hurdles to anyone refinancing, and how it is more difficult now. As usual, I received a number of good comments.

"I question the rational of refinancing with .5% gain. A $100K loan at 5%, the P&I is $537, but at 4.5% it is $506. That is only a $31/month difference. The cost involved is $2,300 (lender admin fee, appraisal, credit, title and escrow and recording). This rate has enough YSP to cover broker fee 1.5%. There is no way I can justify a refi that takes 74 months to recover closing costs; even a $200K loan would take 40 months to recover. In those scenarios the borrower would be better off making a principal payment of $2,300 and saving interest that way. The old rule of thumb was to recover the cost in 24 months or less. But in my market, all this really is inconsequential, since no one has any equity to refi. Back in the day, when FNMA had no seasoning, you could do refi's for a lot of good reasons. Now, the rules have changed. What I would like to see is the FNMA DU REFI PLUS program allowed for everyone that has 760+ FICO, income, and cash reserves. Up to 105% of value. That would have kept a lot of good borrowers in their homes. Now, many of those good borrowers have made a business decision to walk away."

Another wrote, "I don't want to state the obvious but with banks controlling the appraisal process and insisting on market comps (i.e., heavily impacted by REOs and Short sales) as the yardstick of value, rates of even 2% wouldn't realistically make any more refi's eligible. Until jobs create employment and housing is lifted out of the stranglehold lenders have it in, then this terrible economy will continue."

In a related issue, Barclays released a research piece focused on the recent speed, or lack thereof, of prepayments. "Given the recent rally in rates, the big question is: where will speeds settle? The no-point mortgage rate, which briefly touched 5.2% in February, has retreated all the way to 4.7% as of last week. (But the MBA refinance index is languishing) and is barely responding to the increased incentive. We attribute the diminished refinancing responsiveness to four factors: many higher-WAC loans had already been refinanced into lower rates during the most recent refinancing boom, burnout and diminished media effect, tighter underwriting and increased friction (documentation and costs), and phasing out of the HARP program. "Since HARP is the only channel left for streamlined refinance, fewer borrowers qualifying for this program has reduced the refinancing responsiveness." "As a result, we expect speeds to be much slower than last year, when rates were at similar levels," which is good news for investors but not-so-good news for originators.

On the FHA/VA side, GNMA speeds will likely remain depressed as originators brace for increased put-back risks by the FHA. Late last year, HUD proposed new rules to streamline the process of indemnifications related to underwriting defects and more recently "the proposed Biggert FHA bill seeks to expand HUD's authority to pursue indemnification to more lenders (currently, HUD's right is limited to 29% of all FHA lenders, or 70% of total FHA origination)."

M&A activity in the mortgage biz is alive and well. In Southern California, the parent of Pacific Trust Bank has agreed to buy Gateway Bancorp for about $17 million in cash. "The move aims to expand Pacific Trust's reach in mortgage lending. While Gateway Business Bank only has two bank branches, it does operate 22 mortgage loan offices in California, Arizona and Oregon under the name Mission Hills Mortgage." Pacific Trust has been more of a wholesale shop so this is a move into retail, while Gateway, with $187 million in assets, was not profitable and lost nearly $1 million last quarter: PacificTrust.

Yesterday was pretty quiet, market-wise, and don't look for much more today. Tradeweb's MBS volume registered at 52% of the 30-day average with all sectors below normal. On no news the 10-year Treasury note closed at a yield of 3.00%, nearly unchanged, and MBS prices were also flat to Friday's close. Today we do, however, have yet another auction starting up - this time $66 billion for the week with $32 billion in 3-yr notes. And we have a speech by Chairman Bernanke on "The U.S. Economic Outlook" at the International Monetary Conference in Atlanta, GA at 3:45 EST. Rob Chrisman