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Rates dropped last Tuesday when S&P downgraded Greece and Portugal debt, which caused bond investors to reallocate to safer mortgage (and Treasury) bonds—when bond prices rise on buying, rates drop. This positive mortgage sentiment generally held throughout the week, and zero-point rates on loans up to $729k ended the week at record lows.

GOOD JUMBO MORTGAGE NEWS
Jumbo rates also improved slightly, and the latest sign of life in the Jumbo marketplace was news Thursday from Wells Fargo: they’ll be expanding their mortgage securities trading team from five to 30 on expectations that the market for mortgage bonds based on pools of Jumbo loans (above $729k) will improve by the end of 2010. This team will build and sell Jumbo mortgage bond products for all eligible lenders and also for Wells. more…

Today’s historic signing of health reform into law by President Obama has overshadowed something else that happened today: Treasury Secretary Tim Geithner testified before the House Financial Services Committee about the future of housing finance, and the fate of Fannie Mae and Freddie Mac—the two government entities that guarantee $5t and 50% of our residential mortgage market. Here’s the link to the full testimony, and below are the excerpts that are most critical, starting with how Fannie and Freddie were taken over by the government in September 2008, and what Geithner proposes as a structure for the future of housing finance.

This is the basic framework for less reliance on Fannie and Freddie in the future, and Geithner points out next steps as follows: Treasury and HUD will submit a list of questions by April 15, 2010 for public comment and will seek responses from a wide variety of constituents, market participants, academic experts, and consumer and community organizations. Then the administration would use that feedback to provide a proposal for housing finance reform to Congress. So it appears this will happen closer to summer but well before the 2010 election. more…

Despite volatility last week that caused rates to move up and down about .2%, we ended the week even. Business and consumer inflation reports both showed that inflation is under control. The Fed reiterated this after their FOMC meeting Tuesday, and left overnight bank-to-bank and Fed-to-bank rates at .25% and .75% respectively.

Rates were especially volatile Friday as mortgage bond traders contented with the threat from Moody’s and Fitch that U.S. debt may lose its AAA rating, and the volatility will continue next week. We’ve got 2, 5 and 7 year Treasury auctions, and while these shorter durations don’t directly compete with mortgage bonds, it’s still more bond supply—too much supply can cause mortgage bonds to sell off which pushes rates up. more…

Extreme rate volatility discussed in this WeeklyBasis report two weeks ago still holds. Rates traded up and down about .375% this week on fears about business inflation and Fed rate hikes. Today’s tame consumer inflation contributed to rates dropping again, and rates end the week roughly .25% above all time record lows. But this record low rate window looks to be closing. Rates could rise by about 0.5% by summer for three reasons:

(1) The Fed will end it’s $1.25t mortgage bond buying program March 31 (they’re 95.8% into their MBS buying budget as of today), and then we’ll likely see profit taking on mortgage bonds as private investors sell, which pushes prices down and yields—or rates—up. The San Francisco Chronicle published a very good consumer-friendly story on this topic Monday, and my quote in that story explains other factors affecting rates after March 31. more…

The folks at Dictionary.com aren’t always topical on their word of the day choices, and I’m not even sure that’s their goal, but they certainly nailed it today with the word panjandrum. It means an important personage or pretentious official, and today was jam packed with panjandrums. In fact, I didn’t even get a chance to read my word of the day email (yes, I’m old school, I still receive email) until tonight because I was immediately sucked into Tim Geithner defending AIG’s bailout to a congressional mob. His Treasury predecessor Hank Paulson was next, then the Fed’s FOMC rate decision was announced, then Steve Jobs unveiled the iPad, then global bigwigs started pontificating to reporters from the World Economic Forum in Davos, and now Obama’s state of the union speech.

It was quite the day of panjandrums that meet both definitions of the word, and my hat is off to the (good version of) panjandrums from Dictionary.com for offering today’s word with perfect context.

Treasury Secretary Tim Geithner is testifying before congress this morning about the AIG bailout in Fall 2008. At issue is whether AIG counterparties should have been paid in full for AIG’s obligations to them using government aid. As the testimony points out, Treasury and the Fed were mostly concerned about broad economic meltdown and had some extremely tough choices to make without the luxury of time, and as Geithner said: “It is very hard to judge a decision through the prism of hindsight and on the basis of the events that followed.” (see this quote in bold below for Geithner’s points that follow it).

The testimony is clear, just like Henry Paulson’s many appearances before congress were during the heat of the crisis. But this rationale gets lost in the chatter. The most obvious example of chatter this morning was when a senator compared the bad decision of the AIG bailout in the heat of crisis to the bad decision of Minnesota Viking quarterback Bret Favre losing a super bowl bid to the New Orleans Saints last weekend by throwing an interception in the heat of the NFC championship game. more…

In a roundabout way, this is may be a sign of further good news about the economy or real estate markets: Flagstar added only four areas to their declining markets list: Honolulu, Kalamazoo, Manchester, and Niles-Benton Harbor. In turn, they removed over a dozen areas from their declining market list, including Akron, Atlanta, Chicago, Cincinnati, Cleveland, Dayton, Minneapolis, Tacoma, etc.

Loan Modification Stats
How is HAMP doing? Approximately 85% of eligible mortgages are covered by HAMP participating servicers, which include the 47 servicers that have signed servicer participation agreements to modify loans. (These participants service loans owned or guaranteed by Fannie Mae or Freddie Mac, loans held in portfolio, or loans serviced on behalf of other investors.) Approximately 2,300 participants service loans owned or guaranteed by Fannie Mae or Freddie Mac. These servicers automatically participate in HAMP. Out of all that, roughly 360,000 modifications were started out of 571,000 offers that were extended, which came from the 1.9 million requests for information. Servicing really is a numbers game! more…

Congratulations to David Stevens. On Friday the U.S. Senate confirmed Dave to head the Federal Housing Administration (FHA). Stevens will take over the agency in the middle of their huge surge in business, and many feel that with the non-HVCC appraisals and the fact that the FHA insures mortgages with a small down payment for borrowers who meet its standards are creating the next possible “cause for concern” in the mortgage business.

FDIC Seizes 53rd Bank of 2009
They don’t seem to be garnering headlines, but on Friday the FDIC closed their 53rd bank this year: the Bank of Wyoming. The BoW had $70 million in assets and $67 million in deposits, and is expected to cost the FDIC deposit insurance fund $27 million by the time it is taken over by Central Bank & Trust (based in Wyoming). more…

Spencer D writes, “One of the little known effects of the economic slowdown is a dramatic drop off in the portable john business as the home building industry was one of their biggest customers. You might say their business is in the toilet! I don’t know whether or not they have applied for a bailout or a stimulus but right now they are just sitting on their assets waiting on people to start buying again.”

Home For Bad Home Loans
Where do bad loans go? Kondaur Capital, a “scratch & dent” owner & servicer, plans to jump its portfolio of distressed assets from 2,000 loans to nearly 30,000 by the end of 2009 according to its CEO. Given those plans, they are projected to increase their workforce from 300 to 1,000 to handle the increased workload in the very “high touch” business. more…

There are some clever folks out there. One of them created this lamentation of the new appraisal rules (known as HVCC, the Home Valuation Code of Conduct), sung to Joe Cocker’s “All Night Laundry Mat Blues”:

We got the all day HVCC blues
Brokers can’t use appraisers that they choose
The AMC we’re using they don’t give a spit
They take half the money
And their appraisers work is s—.
The Government hasn’t got a clue
So we sing the all day HVCC blues
Yes we do
We sing the all day HVCC blues.

46% of Foreclosures in CA, FL, NV, AZ
Speaking of clever, cats never fly away. Huh? If you have trouble remembering which 4 states currently account for almost half the foreclosures, memorize that sentence. The states of California, Nevada, Florida and Arizona have accounted for 46% of foreclosures. The Mortgage Bankers Association reported that one in every eight homeowners is either late or in foreclosure. Shouldn’t someone tell that to the stock market? According to the Mortgage Bankers Association, “The foreclosure rate on prime fixed-rate loans has doubled in the last year, and, for the first time since the rapid growth of subprime lending, prime fixed-rate loans now represent the largest share of new foreclosures. In addition, almost half of the overall increase in foreclosure starts we saw in the first quarter was due to the increase in prime fixed-rate loans.” more…