Charts: 2-30 Yr Spread, California, Florida, Google Chart Tool

2-30 update: Some More Treasury Charts – Posted by Tyler Durden – The 2s30s UST chart is back to November steep levels. Somewhere Kudlow is cackling giddily. – Zero Hedge

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mark-perry

California Statewide Median Home Price in March Shows First Monthly Increase Since August 2007 – Mark Perry – Carpe Diem Blog

Florida Home Sales Increase for 7th Straight Month – Mark Perry – Carpe Diem Blog

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New Google Chart Tool: Google Now Charts Unemployment And Other Public Data In Search Results – Erick Schonfeld – TechCrunch

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Traders: Goldman vs. Morgan Stanley; Eric Rosenfeld (LTCM) Video on Black Swans

MORGAN VERSUS GOLDMAN: A HARE & TORTOISE RACE – MARK DeCAMBRE – … And in this case it’s not just bragging rights on the line, as two banking powerhouses, Goldman Sachs’ Lloyd Blankfein and Morgan Stanley’s head honcho John Mack run a legendary race that will determine who comes out on top in Wall Street’s new world order. … Morgan Stanley’s CFO Colm Kelleher … believes that for Morgan it’s more important to trim risk and “miss opportunities” than to chance getting burned by wrongheaded decisions. … (Morgan) That lack of risk appetite is on display in the banks’ comparative balance sheets. Morgan boasts a conservative Value-at-Risk — a measure of how much capital the firm has at risk — at 115 compared to 240 at Goldman. – NY Post

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Video: Lecture By Eric Rosenfeld Of LTCM – Posted by Tyler Durden – great way to … understand just how black swans can annihilate seemingly riskless portfolios, especially those with a preponderance of Ph.D.’s as portfolio managers who claim to understand “risk”. If nothing else fast forward to the 1 hour mark to listen to Eric’s discussion of endogenous risk and LTCM’s trading of liquidity in a crisis, and how it can all go horribly wrong when you have too many people on the same side of the trade…. – Zero Hedge

Cleaning up the mess: Default History, CRA, B of A, PPIP Applications

How Toxic are the Worst of the Mortgages? – by: Chris Palmeri – … Here are some more of his results: Of the 3.7 million home loans made in 2004, less than 1 percent have since resulted in a lender filing a default notice. Of the 3.7 million loans originated in 2005, 4.9 percent have triggered a default notice so far. Of the 3 million in 2006, 8.5 percent have so far resulted in default. The most toxic period was August through November 2006 which had more than a 9 percent default rate. Of the 2.1 million loans made in 2007, it’s 4.6 percent. … - BusinessWeek

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The true causes of the housing crisis – By REP. JEB HENSARLING – For example, the CRA compelled banks to relax their traditional underwriting practices in favor of more “flexible” criteria. … Where Miller and I do agree is that the CRA did not cause this crisis by itself. Instead, blame should be accurately directed at Fannie and Freddie and their thirst for weaker underwriting to help meet their federally mandated “affordable housing” goals. … These subjective standards were … – Politico
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FBR: Bank Of America Needs $70 Billion – by Tyler Durden – Paul Miller has released a report that none of the programs trading the market currently have obviously read. Regardless, in keeping with hopes that at some point cheerleading and rationality prevail, it is prudent to at least know what will happen as you are purchasing BAC stock Wednesday. Miller’s conclusion is for a cool $60-$70 billion capital deficiency at BofA if the bank wishes to maintain the 3% TCE ratio it needs to be “viable” and recommends that the company convert $27 billion of private preferreds into common, in line with what Citigroup has done – Zero Hedge

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Treasury Announces Receipt of Applications to Become Fund Managers – under Public Private Investment Program – The Treasury Department today announced the receipt of more than 100 unique applications from potential fund managers interested in participating in the Legacy Securities portion of the Public Private Investment Program (PPIP). A variety of institutions applied, including traditional fixed income, real estate, and alternative asset managers. – thanks Marty Rosenblatt – US Treasury Press Release

Economics & Markets: Yields, Murdoch on Inflation, Carbon Emissions, No Hyperinflation, Money Multipler & Velocity, Bonds & Gold

Rising Yields Fight the Fed – Ashraf Laidi - … With the US Treasury estimated to borrow about $3 for each $1 purchased by the Federal Reserve this year in long term paper and agency mortgage securities, supply will continue overwhelming demand, and so will the upward impact on bond yields …

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Rupert Murdoch Says Economy “Weak; Danger Of Great Inflation” – Tyler Durden – Rupert Murdoch has joined the choir of somewhat rational voices trying to get heard over the Treasury’s printing presses. In an interview before Fox Business Network, the media tycoon claims the stimulus package is sensible, however the danger comes from the government’s set up of “long-term, big permanent programs”, that will raise deficit – Zero Hedge

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read this – On Energy Production and US Intelligence Failures – Peter W. Huber – John Mauldin’s Outside the Box E-Letter – great article about the implications of regulating carbon emissions - InvestorsInsight.com

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thoughtful – has 3 reasons – HYPERINFLATION IS NOT COMING SOON…HERE’S WHY - James Bibbings – Commodities News Center

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On Velocity and the Money Multiplier – Waiting for Inflation – Covestor.com

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Unlike Waterloo the Rothschilds should sell bonds and buy gold - Peter Cooper – After the Battle of Waterloo in 1815 when Britain, Austria and Germany beat Napoleon, the House of Rothschild made the equivalent of more than a billion dollars today by selling their gold and buying up bonds, precisely the reverse of the strategy they are probably employing now. – Arabianmoney.net

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Bonds: The next crisis? – Larry McDonald – CanadianBusiness.com

FOMC announcement; Stocks continue to improve in spite of poor earnings; Rates slide higher

I’d like to die in my sleep, like my grandfather, not screaming in terror like the passengers in his car.

Wells Fargo’s hiring. Or maybe the correct verb tense is “hired”. According to their CFO Wells recently hired about 5,000 people to handle the increased workload in their mortgage operation. The bank added people across the country in the past couple of months to process record mortgage applications.

StoneWater Mortgage came out with their DU Refi Plus program. “Mortgage insurance requirement waived if previous loan scenario LTV was less than or equal to 80%, but due to declining property values, new loan scenario LTV now exceeds 80%…Provide up to 105% LTV for loan scenarios that previously did not require mortgage insurance. Loan scenarios with existing mortgage insurance policies are not eligible for the DU Refi Plus through StoneWater Mortgage…a minimum 620 credit score for all DU Refi Plus loan scenarios.”

The FOMC’s announcement yesterday was not overly surprising. “The economy has continued to contract, though the pace of contraction appears to be somewhat slower. Household spending has shown signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit. Weak sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories, fixed investment, and staffing. Although the economic outlook has improved modestly since the March meeting, partly reflecting some easing of financial market conditions, economic activity is likely to remain weak for a time…expects that inflation will remain subdued…some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.” They left the overnight rate unchanged, and to provide support to mortgage lending and housing markets they will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve will buy up to $300 billion of Treasury securities by autumn.

One trader said that, “It feels like we are in the middle of a 6-12 month window where it will be unclear if the economy & stocks have bottomed. The economy needs to digest all the stimulus, financials need time to heal their balance sheet, earn their way out of this mess. I’m much less negative than I was even 3 mo’s ago, but I strongly believe there are many more interesting chapters to write.” Nicely summed up – stocks certainly continue to do well, in spite of some very poor earnings releases. That’s not what they taught us in business school!

We also have supply issues continuing to weigh down on bond prices, raising yields. Next week the Treasury will sell $35 billion of 3-yr, $22 billion of 10-yr, and $14 billion of 30-yr bonds. Today’s Jobless Claims number showed that the number of U.S. workers filing new claims for jobless aid unexpectedly declined by 14,000 last week, to 631,000, although “continued claims” hit a record high. In addition, more news today showed that Personal Consumption (consumer spending) fell in March after two months of straight increases. It was down 0.2% after a revised 0.4 percent increase in February. Personal Income slipped 0.3 percent after declining by an unrevised 0.2 percent in February – it has declined in five of the last six months. But here is some good news: the savings rate climbed to 4.2 percent in March from 4 percent the previous month. After this, the 10-yr has shot up to 3.12%, and mortgage prices and the 5-yr note are worse by about .125.

My first job was working in an Orange Juice factory, but I got canned. I couldn’t concentrate.

Then I worked in the woods as a Lumberjack, but I just couldn’t hack it, so they gave me the axe.

After that, I tried to be a Tailor, but I just wasn’t suited for it – mainly because it was a sew-sew job.

Next, I tried working in a Muffler Factory, but that was too exhausting.

Then, I tried to be a Chef — figured it would add a little spice to my life, but I just didn’t have the thyme.

I attempted to be a Deli Worker, but any way I sliced it I couldn’t cut the mustard.

My best job was a Musician, but eventually I found I wasn’t noteworthy.

I studied a long time to become a Doctor, but I didn’t have any patients.

Next, was a job in a Shoe Factory. I tried but I just didn’t fit in.

I became a Professional Fisherman, but discovered that I couldn’t live on my net income.

I managed to get a good job working for a Pool Maintenance Company, but the work was just too draining.

So then I got a job in a Workout Center , but they said I wasn’t fit for the job.

After many years of trying to find steady work, I finally got a job as a Historian — until I realized there was no future in it.

My last job was working in Starbucks, but I had to quit because it was always the same old grind.

SO, I TRIED RETIREMENT AND FOUND THAT I’M PERFECT FOR THE JOB!

Rob

(For archived commentaries, check www.robchrisman.com,

or to subscribe write to rchrisman@robchrisman.com)

FANNIE, FREDDIE, AND THE HISTORY OF HOME FINANCE

By Mercy Jiménez

Once upon a time, I used to work for Fannie Mae. For a number of years, I was proud to be there. I believed in our corporate mission to help make homeownership possible for more Americans. The majority of my coworkers sincerely shared those ideals. I count many of them among the most talented and dedicated people I ever had the honor of working with.

Nowadays, after Fannie’s fall from grace (and from the Fortune 500 and almost from the NYSE), some people believe the company was (is?) the Devil incarnate. Personally, despite Fannie’s faults, I think it was more like a canary in the coal mine.

Either way, as smoke still rises from the ashes of Fannie’s (and Freddie Mac’s) de facto nationalization, I am obliged to consider whether the U.S. would have been better off taking a path that did not lead to such deep dependence on securitization.

Certainly Jerry Marlatt thinks so. As I noted here last week, he is a lawyer who helped engineer America’s first issuance of covered bonds (by Washington Mutual) as a funding alternative to securitizing home mortgages.

In his latest commentary for Covered Bond Investor™ (the second in a series), Jerry goes back in time to look at how our secondary mortgage market came to be dominated by Fannie Mae and the other GSEs (government-sponsored enterprises). His purpose is to explain how it happened that covered bonds remained almost unknown in the U.S. even as they became a major source of home mortgage funding in Europe.

If you work in the mortgage industry, you probably know many or all pieces of the story Jerry presents. But you may find it interesting to see everything set out in a straight chronology, which shows how one thing led to another since the 1930s. If you know anyone new to the business, this would provide a quick education on the topic.

To read Jerry’s commentary, titled “Why a Covered Bond Market Did Not Develop Sooner in U.S. History,” click on the link below:

http://www.coveredbondinvestor.com/news/why-covered-bond-market-did-not-develop-sooner-us-history

The Garrett, Watts Report (April 29, 2009)

To Our Clients, Colleagues and Friends,

An interesting change that we’ve noticed is that more and more mortgage bankers have chosen not to sell on a mandatory delivery basis but are sticking with best efforts. It used to be that once your volume get to a certain level, somewhere around $15-20 million, you almost always moved to mandatory. Now, we see companies doing well over $100 million staying with best efforts.

Our questions and comments on self-flushing toilets sure got a response. Most people wrote that it had to do with water conservation, but someone also wrote that it’s because people are susceptible to STDs if they touch toilet handles. He sounded like he knew what he was talking about, but it still sounds like a myth from our high school days.
An interesting thing about this newsletter is that we can write the most interesting thing about banking or mortgage lending and get no response. But when we get Pamela Anderson’s age wrong, or write about bed pillows or self-flushing toilets, we get tons of responses. And we love it when we write about baseball. We always get responses, all of them very informative and thoughtful.
A rookie on the Washington Nationals – we forget his name – struck out his first seventeen at bats this year! Everyone was excited on his 18^th at bat when he grounded out, at least making contact with the ball. And on his 19^th at bat, he walked and had a huge grin on his face. No one gets excited about a walk, but after all the futility, we suppose he deserved it.
In 1985, not quite 25 years ago, Wells Fargo Bank had $29 billion in assets and was really just a Northern California regional bank., You’ve come a long way, baby.
Despite the spike in volume, we notice that mortgage banking salaries haven’t spiked as well. In general, we see salaries for Operations Managers still almost half of what they were a few years back.
First Bank of Beverly Hills was shut down by the government last week. They exemplified the excessive use of brokered CDs and had almost no retail, core deposits. We always thought that this was a great name, Beverly Hills having such cachet and prestige. But the owners stupidly moved to Calabasas and despite the name, had no branches in Beverly Hills . First Bank of Calabasas just doesn’t sound the same.
We’re always nagging people to get serious about a Disaster Recovery Program. Well, this week’s headlines show that disasters can be more than floods and fire. What if Swine Flu hit your community and your entire underwriting department was out sick for two weeks? What if it devastated your top producing branches, or all three of the people in your secondary marketing department? Best to plan now and not when it’ too late.
Corky is back from Argentina , and while he’ll be in Texas and North Carolina the next few weeks, he’ll be available by e-mail and phone.
With the big profits you’re enjoying, how about finally setting up a loan loss reserve? Maybe start with a good lump sum and then pick some set amount to set aside every month. Even if it’s only 2-3 bps a loan ($20-30 on a $100,000 loan) it will add up over time. And some day, you’ll be glad you have it.
Three years ago $906 billion in assets was securitized in the U.S. (student loans, credit cards, car loans, etc.) In 2008 it was only $150 billion, and so far this year, the number is under $20 billion. In bit of irony, it just may be that that securitization, which helped bring down the economy last year, may actually be needed to get it going again. The flow of credit depends greatly on the ability of lenders to securitize receivables.

We just added a section on Succession Planning to our F.O.C.I.S. Risk Audit. Well-run companies have a plan in advance should any key employees leave for whatever reason. It should cover heads of Underwriting, Production, Secondary, I.T., and any other key positions. It should be in writing and should be updated regularly. You don’t want to wait till one of these people suddenly leaves to start thinking about their replacement!
At least once a year we like to re-tell the story of Pittsburgh Pirates first baseman Dick Stuart. He hit lots of home runs, but he was an absolutely horrible fielder. His teammates called him Dr. Strange Glove, or Clank, the sound of a baseball hitting metal, as in a metal glove. We think he even set a record for the worst fielding average ever. In any case, Pittsburgh fans knew this and loved him still. One day, the wind picked up a loose hot dog wrapper and blew it onto the field near first base. Stuart reached up and caught it with his glove, causing the fans to jump to their feet and give him a standing ovation. You gotta love it.
A large percentage of the companies we do FOFIS Risk Audits on get ratings of 2.0-3.0. The meaning of this score is very similar to what a bank gets when it gets a CAMELS 2. We quote from bank regs: Financial institutions in this group are fundamentally sound. For a financial institution to receive this rating, generally no component rating should be more severe than 3. Only moderate weaknesses are present and are well within the board of directors’ and management’s capabilities and willingness to correct. These financial institutions are stable and are capable of withstanding business fluctuations. These financial institutions are in substantial compliance with laws and regulations. Overall risk management practices are satisfactory relative to the institution’s size, complexity, and risk profile. A good way to want your mortgage bank to look.
We’ve always been intrigued the concept that you don’t know what you don’t know. How about having all your senior people address whatever they think fits in that category, and then trying to come up with some contingency plans for events that you can’t really predict, A big part of Game Theory is studying how organizations and people make decisions with incomplete information, and that’s what this is all about. It might be a good topic for your annual retreat or next senior management meeting:

As summer approaches, we officially launch a poll for your all-time great date movies. All responses must be in by May 10^th, and you can nominate up to three. We’re going to participate ourselves, and we’re not going to nominate Love Story, the Umbrellas of Cherbourg or Casablanca . Woody Allen’s Play it Again, Sam spoofs Casablanca and is much better than the original. Send in those titles today!

Joe Garrett and Corky Watts - Garrett, Watts & Co. - 510-469-8633

“Helping mortgage lenders increase revenues, control costs, and better manage risk.”

White Paper, Risk Management, Wilbur Ross & PPIP

Fed’s White Paper Leaves Questions Unanswered, Analysts Say – By Ari Levy – Bloomberg

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Stress Tests? No Big Deal After All – By ANDREW ROSS SORKIN – When the government first announced its plan to “stress test” the nation’s top 19 banks, it described the financial exam as an important part … But now, less than a week before it makes the results of its all-important test public, the government appears to be backing away from how seriously investors and the public should take them. In the Federal Reserve’s 21-page white paper released on Friday, it described the tests as simply “what if” exercises. - NY Times

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A 4 Question Pass/Fail Test on Risk Management for CEOs and Members of the Board of Directors - Donald R. van Deventer – riskcenter.com
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PPIP New Investor: By Deborah Brewster – Wilbur Ross, the billionaire investor, and Invesco, his firm’s parent company, are leading a consortium bidding to manage some of the US government’s $1,000bn in Public-Private Investment Programme assets. “This is a huge opportunity,” Marty Flanagan, chief executive of Invesco, said yesterday. “We will manage assets for both institutional and retail investors, and set up several different structures for them to invest.” – FT.com

Second Mortgage Modifications: 5 Articles

New loan mod program aimed at seconds – Changes also proposed for FHA refi program – BY INMAN NEWS

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Second Mortgages: Treasury has new mortgage incentives: official - The U.S. Treasury Department will on Tuesday tap a $50 billion housing rescue fund to pay off mortgage investors and reduce monthly payments for millions of borrowers, said a senior administration official. – Reuters

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WSJ: SECOND-LIEN, H4H INCENTIVES ON THE WAY – BY MORTGAGEORB.COM

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Feds Offer More help For Troubled Homeowners – By BARBARA KIVIAT – More housing help is on the way. The Obama Administration rolled out a new batch of plans on Tuesday, including one designed to make it easier for struggling homeowners to catch a break on second mortgages such as home-equity loans. – TIME.com

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