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A guy bets all football season with a bookie. In January he’s lost a total of $50,000. He decides he’s going to make it all back and proceeds to bet every bowl game all of the Sunday NFL games. He makes bets on 20 games… lo and behold he loses every game! That Monday his bookie calls and tells him the bad news. The bookie says, “Maybe you should bet on hockey!”

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The guy responds, “Hockey? What the heck do I know about hockey?”

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Speaking of losing lots of money and not knowing the subject matter, UBS will write down subprime mortgage investments by $10 billion, the biggest such loss by a European bank, and replenish $11.5 billion of capital by selling stakes to investors in Singapore and the Middle East . Not only did UBS eliminate their fourth-quarter profit, but said that it may post a full-year loss. For anyone keeping track, we’ve had about $76 billion of losses and markdowns at securities firms and banks this year.

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Company news:

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Because certain local real estate markets continue to fluctuate, in mid-December Wells Fargo is implementing an “At Risk Markets LTV / CLTV” overlay on all Non-conforming and Conforming product. Using Enhanced Appraisal Services, one overlay applies to Conforming loans, regardless of DU/LP approvals, and it uses a LTV/ CLTV adjustment approach, and the other applies to Non-conforming loans, regardless of Direct Express approvals, and it uses a LTV/CLTV cap approach. Determining if the market is “Distressed”, “Severely Distressed”, or “Soft”, for Non-conforming loans the borrower/market selected stated transactions are either curtailed or no longer allowed in some markets.  Note that this does not apply to risk based documentation reduction waivers (Minimum Documentation) provided by Direct Express. For example, Wells named both Contra Costa and Alameda counties here in Northern California as ”Distressed” (not just “Soft”) markets, so they will no longer purchase stated loans and the maximum will be  80% LTV/CLTV.

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Chase is updating Home Equity credit policies in mid-December that will impact several programs for all transactions. Policy changes will include the following: Loan amounts will be capped at $350,000 when CLTV is greater than 80% or FICO is less than 700, and loan amounts will be capped at $500,000 when CLTV is 80% or less and FICO is 700 or greater.

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SBMC (Secured Bankers Mortgage Corp, founded in 1992) was anything but secure. Their employees got the “I regret to inform you of the Company’s decision to terminate our mortgage origination activities. Effective today, December 7, 2007, the branch offices in Bothell (WA), Fresno , Tustin , Van Nuys and San Diego will be closed. There will be no further fundings.

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Empire Bancorp Mortgage in Southern California closed effective Friday. A letter distributed from the owner said, “At this time I must inform everyone that it has become necessary to close Empire Bancorp immediately. The reason for this is the heavy losses taken as the result of non-performing loans, current loan production, the fact that we could not obtain all necessary approvals for Direct Mortgage, low pull thru ratio, questionable continued ability to fund loans and the rising cost of operating the business. At this time Countrywide Warehouse Lending has made the decision to not release any money until all loans are off the line and they are sure no monies are due for loans in default.”

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The biggest news of the week will be the Federal Open Market Committee (FOMC) meeting tomorrow. (There is no economic news today or tomorrow, and mortgages are roughly unchanged from Friday afternoon and the 10-yr is at 4.10%.) The debate isn’t whether they will cut, but by how much: 25 or 50 basis points. Friday’s stronger than expected November jobs report not only caused rates to shoot up but also analysts to favor a 25 basis point cut. The post meeting statement usually has a significant influence on the markets and mortgage rates, but the results of the actual meeting are usually not much of a surprise. Accordingly, this particular meeting may bring more volatility than usual. Remember, the Fed has many tools at its disposal, and the direct correlation between these and 30-yr mortgage rates is spotty.  The press tends to focus on Fed Funds and less so on the Discount Rate, and both are important long-term tools.  In the short term, the Fed can inject massive amounts of liquidity into the system in addition to rate changes.

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Looking past the meeting, October’s Goods and Services Trade Balance report will be posted early Wednesday morning giving us the size of the U.S. trade deficit. Thursday we have November’s Retail Sales report, expected to show a 0.6% increase in sales from October’s levels, and November’s Producer Price Index (PPI), showing us inflationary pressures at the producer level of the economy. Current forecasts are showing a 1.5% rise in the overall index and a 0.2% rise in the core data. And on Friday we have November’s Consumer Price Index (CPI), Industrial Production, and Capacity Utilization.

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Rob Chrisman rchrisman@rpm-mortgage.com 925-295-9380