This morning, we have Fed Chairman Bernanke saying that credit spreads are too wide. But there was certainly good news yesterday, with Fannie’s Capital Markets Sales Desk executing their first MBS Jumbo Conforming trades. Their Desk purchased pools “flat to TBA”, which means at the same price as “To Be Announced” (generic) bonds!

Unfortunately this morning the news was not “rate friendly”. Retail Sales, expected down .2%, were down .2%, but when automobiles are factored out, Retail Sales were actually +.5%, much stronger than expected. We also had Import Prices, +1.8%, and year-over-year +15.4%. So not only is the consumer apparently doing ok, but they’re buying goods impacted by inflation! In fact, Fed Funds futures are pointing to an increasing chance that the Fed will raise rates later this year! We have the Cleveland , San Francisco , Kansas City, and Dallas Fed presidents speaking, in addition to Fed Chairman Ben Bernanke speaking at the Atlanta Fed’s Financial Market Conference. Currently 30-yr mortgage prices are worse by about .375, and the 10-yr yield is up to 3.86%.

Many believe that a credit crunch will prevent the economy from growing in the coming quarters, but given some of the economic numbers recently it would indicate that the main impact has been on the residential and commercial real estate markets and not some of others. Excess supply in the housing market is still growing, vacancy rates are climbing, and home prices are falling, increasing existing LTV’s. (Remember that an investor may have purchased a pool of loans with a 80% LTV a year ago, only to price it now realizing that the LTV may be 90% or higher. An interesting contrast to studies that show 33% of homes are owned free and clear.) Therefore, some analysts believe that write downs will continue. But doe the housing downturn simply represent a shock to housing & credit? Or will it continue to ripple down into other segments of the economy? The stock market’s performance has been relatively stable, all things considered…

MGIC weighed in with more changes, effective with MI applications received June 1, 2008. The following will no longer be eligible for MGIC mortgage insurance:

Expanded Criteria / A-minus loans, Reduced Documentation / Alt-A loans, Investment properties, Cash-out refinances, 3- to 4-unit properties, loans with potential negative amortization, Nonwarrantable condominiums (per GSE definitions) & Condotels.

John was a salesman’s delight when it came to any kind of unusual gimmick. One day he came home with another one of his unusual purchases: a robot that John claimed was actually a lie detector.

It was about 5:30 that afternoon when Tommy, their 11 year old son, returned home from school. Tommy was over 2 hours late.

“Where have you been?  Why are you over 2 hours late getting home?” asked John.

“Several of us went to the library to work on an extra credit project,” said Tommy.

The robot then walked around the table and slapped Tommy, knocking him completely out of his chair.

“Son,” said John, “this robot is a lie detector, now tell us where you really were after school.”

“We went to Bobby’s house and watched a movie,” said Tommy.

“What did you watch?” asked Marsha.

“The Ten Commandments.” answered Tommy. The robot went around to Tommy and once again slapped him, knocking him off his chair once more.

With his lip quivering, Tommy got up, sat down and said, “I am sorry I lied.  We really watched a tape called S– Queen.’’

“I am ashamed of you son,” said John. “When I was your age, I never lied to my parents.”

The robot then walked around to John and delivered a whack that nearly knocked him out of his chair.

Marsha doubled over in laughter, almost in tears and said, “Boy, did you ever ask for that one!  You can’t be too mad with Tommy.  After all, he is your son!”

With that the robot immediately walked around to Marsha and knocked her out of her chair.

Rob Chrisman