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Rates Benefit on Stock Weakness
The drop in the equity markets yesterday, and possibly again today, certainly helped the flow of funds into “safer” investments – such as Treasuries and MBS’s. But we also had some economic news of note, the first being Pending Home Sales. The index was up 5.3% in March, with sales in the South up 13%, up 2% in the West, up 1% in the Midwest, but fell 3.3% in the Northeast. Second, Factory Orders here in the US were up 1.3% in March. And the Federal Reserve released its “Senior Loan Officer Survey” which showed that banks kept their lending standards tight during the first quarter – no surprise there, huh? There may have been a little movement in commercial and industrial loans to large and medium-size firms.

Greece Bailout Is Like US Needing 10x TARP Funds
Returning to the Greek issue for a moment, some believe that this will be the end of the Euro currency, at least in Greece. Let them print their own currency! The odds of sharp recession have increased, obviously, and naysayers are skeptical about any bailout plan based on the recession-stricken Portuguese and Spanish contributing billions of Euros to the cause. We have the ECB adopting a pure bailout strategy by accepting all Greek collateral and have seen almost $150 billion in potential economic aid offered to the Greeks. This figure is almost 50% of Greek GDP, and is the equivalent of the United States needing 10x the TARP funds! Greece’s GDP is only about 2% of US GDP and slightly less than that of Eurozone GDP, and one analyst likened it to Ohio going bankrupt and taking the entire US economic system with it. more…

Why does someone believe you when you say there are four billion stars, but have to check when you say the paint is still wet? That kind of person had better read the next paragraph.

For anyone who originates loans for a living, or knows someone who does, or who didn’t comment during the HVCC comment period and wish they had, you should know that broker compensation is in the hot seat. The Board of Governors of the Federal Reserve is accepting comments until Christmas Eve regarding the TILA changes—documents here and here. Highlights include page 178 (43408) which contains the new proposed broker compensation (little or no rebate will be paid; the broker will not be paid upon any of the loan characteristics and will have to charge a flat fee or an hourly fee, etc.) Also worth viewing are pages 43279 – 43285 (page 49 – 55) (beginning with “Background” on the bottom of page 43279).

Should one desire to comment, try an e-mail to regs.comments@federalreserve.gov, and be sure to include “Regulation Z; Docket No. R–1366,” in the subject line. more…

GM filed for bankruptcy a few days ago. A buddy told me, “This would be bad news if anyone had actually bought a GM car in the last five years. They say that the company will emerge from bankruptcy in three years or 36,000 miles, whichever comes first.” There are some witty folks out there.

Bernanke vs Greenspan
I guess when people become tired of Ben Bernanke, they look back at Alan Greenspan. The former Federal Reserve chief’s favorite economic indicator is men’s underwear sales. Supposedly, Greenspan often said one of the first things men stop buying when the economy is doing poorly is underwear, because it’s something no one really sees. You can reason that when men start buying new boxers and briefs, it means the economy is turning around. Interestingly, after a 12-month, 12% decline through the end of January, men’s underpants sales leveled off during February and March, according to NPD (a group which tracks clothing trends). That suggests the economy is stabilizing, right? Usually it goes up 2% to 3% annually – don’t ask me why, as I would think it would hover around population growth – so a return to that would be a good sign. more…

Factory Orders Up 1.8%, Stocks Rally
How ‘bout this market? Yesterday rates moved higher, and prices lower, after Factory Orders increased 1.8% in February, following a downwardly revised 3.5% drop in January, and six consecutive monthly decreases. So why wouldn’t rates come down? US stock markets continued their rally, and in fact most overseas stock markets improved. (Japan’s was helped by Toyota’s stock rallying after a bank agreed to help finance US car sales.) And it would appear that there is a change in mood about the economy: in spite of the continued bad news, investors appear to feel that the worst is behind us. Just tell that to some Detroit or Sacramento home owner! Maybe investors are just tired of sitting on piles of cash…

Jobs Report: -663k
This morning the unemployment data came out pretty close to expected: U.S. employers cut 663,000 jobs in March, and the unemployment rate hit 8.5%, the highest since 1983 when Reagan was in office. And although February’s numbers were unrevised, January’s were changed to a loss of 741,000, the biggest decline since October 1949. Since December 2007, the U.S. economy has dropped 5.1 million jobs, with about two thirds of the losses occurring in the last five months. After the news, bond prices are down slightly, with the 10-yr yield currently sitting around 2.69% and mortgage prices a shade worse than yesterday afternoon. (Interestingly, with the high profit margins now built into mortgage pricing, in spite of the MBS market worsening yesterday, many originators decided to absorb the price hit instead of passing it along on their rate sheets in order to potentially help locks.) more…

Watching rates go up for no sustainable apparent reason is about as much fun as putting away Christmas ornaments and taking the tree to the curb. As they say, “A rising tide raises all boats”, and low rates have helped every lender still in the ring, big or small, regardless of geographic concentration. U.S. Bank’s refi applications more than doubled last month. Fifth Third, the Ohio area’s largest lender, reported that refinance activity accounted for almost two-thirds of loan applications in December compared with one-third a month earlier. Even the Bank of Kentucky’s applications doubled from November to December.

GMAC Gets Help
GMAC Bank’s parent company, GMAC Financial Services, announced that the Federal Reserve Bank has approved its application to become a bank holding company. On top of that, the U.S. Treasury announced that it will purchase $5 billion in senior preferred equity from GMAC, and agreed to lend up to an additional $1 Billion in support of their reorganization as a bank holding company. more…

GMAC will cut 5,000 jobs (60% of its employees) at Residential Capital, and shut its 200 GMAC Mortgage retail offices. Announcements went out saying that, in spite of eliminating their retail and wholesale channels:

GMAC is committed to maintaining and growing the Correspondent Channel, supported by the Warehouse Division. The Conduit is actively buying loans at $3B a month and the Warehouse Division continues to add new business. GMAC Bank remains a strong, well capitalized bank under regulatory and market standards.” “Today, GMAC Residential Capital, LLC (ResCap) announced its decision to exit the Homecomings Financial, LLC wholesale and GMAC Mortgage retail branch mortgage lending businesses. I’d like to reassure all of our correspondent and warehouse clients that your business relationship with GMAC Bank will not be impacted by these changes. GMAC Bank will continue to fund loans from correspondent lenders and offer financing through its warehouse lending business. These business lines have made and will continue to make significant contributions toward achieving performance expectations for our enterprise. In addition to remaining committed to our business-to-business relationships through GMAC Bank, ResCap will continue its direct-to-consumer channel and mortgage servicing businesses. more…

STATE OF MORTGAGE BANKING
Parent’s like to think that their son or daughter might go into the same profession in which they work. I got my son’s report card in the mail on Saturday, and three teachers had written comments about him. They were, “Since my last report, your child has reached rock bottom and has started to dig.” “Your son sets low personal standards and then consistently fails to achieve them.” And, “If your son were any slower, he’d have to be watered twice a week.” Yep – destined for mortgage banking!

For any mortgage agent, or anyone in the mortgage business for that matter, who would like to know where the Fed thinks mortgage origination is heading, along with a brief history, see this Fed mortgage report. The gist of it is as follows: more…

Former NBA star Latrell Sprewell joined Michael Vick and Jose Canseco by giving up/losing his home according to the Milwaukee Journal Sentinel. Royal Bank of Scotland Group Plc unit RBS Citizens NA foreclosed on the property May 12, when Sprewell failed to show up in court to contest the proceedings. Sprewell once turned down a $21 million contract saying, “I’ve got a family to feed.”

MORTGAGE INDUSTRY NEWS ROUND-UP
Wachovia Corp. chief executive officer Ken Thompson will step down at the request of the bank’s board. Thompson has been with Wachovia for 32 years, and will be replaced by Landy Smith, the current chairman. In mid-April, Wachovia reported a first-quarter loss of $350 million – hurt, in part, by its ill-timed 2006 acquisition of California mortgage lender Golden West Financial Corp. (World). According to the press release, Wachovia said it was not a single incident that prompted Thompson’s exit but a “series of previously disclosed disappointments and setbacks” that have weighed on the company’s performance. more…

This market is tougher than a $3 steak! When the heck are mortgage prices going to improve? Why is the 10-yr Treasury down into the 3.5% range, yet conforming/conventional 30-yr loans, eligible for FNMA and FHLMC, back up into the 6% range? The widening that is occurring out to these levels, which statistically speaking happens once every 4,000 years, is a combination of several factors. First, investors and money managers feel safer putting their money into Treasury securities rather than mortgage-related securities. Subjecting their money to the potential of borrowers defaulting and property depreciation is something that many prefer not to do. These two factors have led to losses for FNMA and FHLMC, along with others, and some investors have been selling mortgage securities in order to meet capital requirements. And selling has led to lower prices, and thus higher rates.

This morning things are a little better, with the 10-yr at 3.59% but mortgage prices slightly better. We did have some minor news out (the ADP employment report – just for private employers, and a revision to 4th quarter productivity) that didn’t move the market. Later on we have the ISM non-manufacturing index, Factory Orders, and the Beige Book. more…

Fixed and ARM rates are up slightly this week on mortgage bond weakness. Factory orders came in stronger than expected today, and bonds took this as a subtle sign that the Fed may only cut 25 basis points instead of 50. They’ve already cut 175 basis points in the past 4 months, and it typically takes at least six months for Fed rate adjustments to reflect in economic data. My bet is that they still cut 50 basis points, since the Fed’s mission right now is to “reduce tensions in bank lending,” as Fed chairman Ben Bernanke very explicitly told the House Budget Committee 10 days ago. To me, this clear short- to medium-term Fed mission proves all the noise about the Fed being a slave to daily market movement is misguided. This week we also have GDP, the Fed’s favorite inflation measure (personal consumption expenditures), and the jobs and wage growth report Friday. The week has been somewhat quiet but the volatility is about to come back with a force.

For locks I have this week, I am locking ahead of all the data because rates are very good right now and will swing wildly in the coming days. Also, for all purchase clients up to $1m purchase price, I have been talking about loan strategies that enable them to capture the forthcoming conforming loan limit hikes – which will re-set for one year to somewhere between $625k and $729k. If this is the case it changes things for people buying right now. There are ways for buyers in this purchase price range to capture conforming 30yr rates (instead of jumbo 30fixed or settling for an ARM to get a lower rate). Even if they’re buying now, I am talking to people about free or deeply discounted refis when the conforming loan limits change. more…