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Treasury Auctions Weigh on Markets
Yesterday’s $42 billion 5-yr auction did not go well. It goes back to the “What if we held an auction and nobody bid?” Indirect bids, which in the past indicated a level of interest from foreign entities but in the last year became a little convoluted, have been on a roller coaster: Tuesday’s 2-yr hit over 53% of the auction while yesterday’s was the lowest since July at 40%. Not good. The Bernanke testimony (rates need to remain low), along with the much worse-than-expected New Homes Sales data, muddled the picture somewhat for investors yesterday. The good news for mortgage folks is that dealers are reporting heavy selling, and selling is often powered by locks, so current locks must be picking up.

New Home Sales Down 11%
The New Home Sales data was particularly bad. In January sales dropped 11%, the worst on record and erasing all the gains from last year. Nationwide, inventory represents over a 9 month supply – the highest in almost a year. And year-over-year the median price for a new home fell in January by 2.4%, to $203,500 from $208,600 a year ago. Regionally, January new-home sales dropped 35.1% in the Northeast, 11.9% in the West, and 9.5% in the South. Sales rose 2.1% in the Midwest. more…

I thought about taking today off from the commentary to celebrate, since yesterday I won all 4 quarters of my office’s Super Bowl pool! And then I remembered that I was the only one in the pool, don’t really have an office, and that the net effect of my $50 a square winnings was about the same as the US Government buying back their own securities. Oh well.

Bernanke’s Bailout Exit Strategy
On Wednesday at 10AM EST, Federal Reserve Chairman Bernanke plans to testify before the House Financial Services on that day about the central bank’s plans to withdraw emergency stimulus from the U.S. economy. No one believes that the goal of the Fed is to mess up the markets, or the recover, but the Fed has options in unwinding emergency aid “while not causing inflationary fears, hurting job growth or stunting the fragile economy recovery underway.” We already know that they will keep overnight rates near 0% for quite some time. And in fact late last week a Fed official (the president of the Federal Reserve Bank of New York) said the Fed might reconsider ending the mortgage buying program if rates rose sharply. more…

Comeback For Jumbo Loans
What is the American Securitization Forum? Darned if I know, exactly, but they were meeting in Washington DC and came out with a statement conjecturing that non-agency product (a $1.2 trillion market 4-5 years ago, $25 billion in ‘08 and $44 billion in ‘09) may start to be securitized again later this year. The reason? There’s more talk about it this year than last! Right now, however, jumbo loan production is pretty small, and profit margins are pretty slim since jumbo rates aren’t all that much higher than agency rates. (I have an idea! Let’s split the pools into tranches, and then have Wall Street work with the rating agencies… oh, never mind, I guess we tried that.) As I mentioned yesterday, banks are holding onto this product, but if other buyers materialize and the loans can be sold at profits, things could loosen up. Whole loan packages and syndications of interests in pools of loans may be steps in the right direction.

More on the return of Jumbo mortgages and mortgage securitization overall from this Bloomberg report. more…

Denver Pot Club Fun Fact
According to news sources in Denver, where the City Council voted to regulate medical marijuana dispensaries, more applications have been received for licenses for selling pot than there are Starbucks coffee shops in the entire state, 390 versus 208. Fun with numbers…

Mortgage Volume Projections for 2010
There seems to be a disconnect between many smaller mortgage companies’ projections for their own volumes and profit margins for 2010, and the industry-wide projections. Every large investor has production projections that range from $1 trillion to about $1.5 trillion for 2010. The MBAA came out yesterday with a projection that residential mortgage originations will drop 40% this year to the lowest level in a decade: $1.28 trillion down from $2.11 trillion in 2009. They expect purchases to rise slightly to $776 billion from $742 billion in 2009 but expect refinances dropping to $502 billion this year from $1.372 trillion last year. Yet many smaller companies are expecting to increase their production. more…

What Do Foo Fighters Know Mortgage Rates?
Why can’t automated answering services at mortgage companies be more like the one at Nestle Crunch’s Hotline at 800-295-0051? When asked if you want to continue in English or Spanish, just wait for about 10 seconds, listen to the options and press “4”. Listen to the options again, and then press “7”. (It is worth trying a few times if the line is busy.)

“I know what you’re thinkin’
We were goin’ down.
I can feel the sinkin’
But then I came around.” more…

Some days the best thing about my job is that my chair spins! (Sad but true.) But then along comes items like this. Who would have ever thought FHA compliance and underwriting issues would have made it to mainstream videos-–- Youtube bliss not to be missed.

MBAA Selling DC Headquarters Building
The MBAA has been busy. First, the MBAA announced that they have formed a panel to make recommendations to HUD regarding the Federal Housing Administration (FHA) – but probably not in response to that video above. Sensing that the mortgage banking industry needs more abbreviations, the Council on the Future of FHA (CFF) will be chaired by Daniel Crockett, President, CEO, and Chairman of Franklin American Mortgage Company. “The council will be comprised of a small group of leaders in the mortgage banking industry, with representatives from large and small companies.” One can look at their website for a list of 25 or so “who’s who” on the panel. more…

Everyone makes mistakes, and estimates are only that: estimates. The MBAA, who is pretty good at estimates, believes that mortgage originations will hit $1.5 trillion in 2010. This follows Wells Fargo and JPMorgan’s estimates (or at least the last one that I had heard) of volumes of about $1 trillion. Either way, it seems that mortgage origination volume estimates indicate that 2010 will be about half of 2009’s volumes. They expect purchase originations for 2009 to be $718 billion, about two percent below the 2008 level of $731 billion. “Purchase originations should rise about 12 percent in 2010, as existing home sales recover and home prices stabilize. Refinance originations will end 2009 at $1.245 trillion, up about 60 percent from $777 billion in 2008. Refinance activity will likely decrease in 2010 to about $745 billion as mortgage rates increase.”

The MBAA believes that our economy will grow through the rest of this year, and then slow in the first half of 2010. (How did it get to be almost “2010” already?) “While the lack of inflation, high unemployment and excess capacity in the economy should hold interest rates down, there is a lot of uncertainty regarding rates immediately following the termination of the Federal Reserve’s purchase of mortgage-backed securities. No doubt the Fed will do its best to minimize adverse effects, but the elimination of these purchases will put upward pressure on all long-term rates as well as the spread between mortgage rates and Treasuries.” more…

Greetings from San Diego, where, coincidentally, there is a national mortgage banking conference. Although I didn’t see any chains of mortgage banker types forming conga lines in any hotel lobbies, the mood here has improved since the last few conferences, and most are cautiously optimistic. There is still the “Hey, congratulations, we’re still in the business” mood, but no one seems to believe that it will be smooth sailing from here on out. If I had to sum things up, I would say that a) there are a number of “displaced” mortgage bankers starting up some new ventures with good potential, b) “new” loan programs are practically nonexistent, c) vendors are introducing a few new products and new twists on dealing with the current “agency-only” environment, and d) regulatory and compliance changes have become constant.

Regardless, the mood is definitely better than one would probably find in the Chicago Cub’s front office, given that they have declared bankruptcy. At those ticket prices! more…

With no economic news of note, and the 2-yr auction having gone well, rates are not moving much. Although today’s release of the Fed meeting’s rate decision may change that, depending on the language, no one is looking for an increase in overnight rates. The $40 billion of 5-yr notes is auctioned off about an hour ahead of the announcement, which may muddy the waters somewhat. Some economists feel that the Fed will post some language today as to how and when they will begin to wind down the $1.25 trillion mortgage security buying program – but they certainly don’t want to stifle the recovery.

The other news out this morning is that last week’s mortgage applications here in the U.S. shot up to their highest levels since May. Apps were up 13%, with refinancing up 17% and purchases up almost 6%. In fact, refinancing has gone to 64% of all applications. Rates are helping, although it seems that many lenders are hovering around 5.25%. Borrowers, if they’d like to pay a point, can go down into the high 4% range for a 30-yr fixed rate loan. Of course, some agents are saying that only the borrowers with the best FICO’s and some equity in their homes are able to refinance (if they didn’t already do it this year). Anyway, the 10-yr yield is up to 3.49% and mortgage prices are worse by about .125. more…

If your stock portfolio is going up in value, do you save less? Probably. People generally feel wealthier when their stocks are rising, or their house is appreciating: they will spend more and save less. When the reverse happens, they spend less and save more, which is exactly what is happening now, or at least has been until recently. And it happens to companies: when the stock market drops in value, companies decrease their spending on plants and equipment. When the value of homes declines, builders slow down or stop building new homes. In general, people become less confident, and the economy slows. We’re all so…predictable.

3yr Treasury Auctions Went Well
While we’re talking about the economy, yesterday’s $38 billion 3-yr note auction by the Treasury went very well. For giving them your money for 3 years, the government will pay you a yield of about 1.49%. The “bid-to-cover” ratio, a measure of (in very basic terms) how many people wanted to buy the notes versus how many actually did, was 3.02 – the highest level in almost a year. more…