Yesterday I had a showering discussion with my 17-yr old son. Specifically, I asked him why, as it seemed to me, he hadn’t showered since around Easter. He explained that in Biology class they had learned that every animal has a certain set of resident flora and fauna on their bodies, and bathing was actually bad for people since it changed this delicate system. What’s a parent to do?

Is the MI business a “delicate system”? The news yesterday out of Radian could start off another round of system changes in the MI business – and no MI company wants to be the last one insuring loans in certain states. Yesterday I mentioned news from MGIC and Radian, but I forgot to mention that United Guaranty (part of AIG) is laying off 160 employees, mostly from its Greensboro headquarters operation. The company, which had $2.5 billion in operating losses last year, said the 160 affected jobs are less than 15 percent of United Guaranty’s total worldwide workforce. Radian is indeed cutting their business in the fabled “Sand States”: Arizona, California, Florida, and Nevada. (I know for a fact that many other states have sand!)

Their announcement read, “Prudent geographic diversity, and the avoidance of geographic concentration, is a cornerstone of sound risk management, as it provides protection against regional changes in home price appreciation trends and economic cycles. Currently, Radian is receiving a disproportionate share of volume from the states of Arizona, California, Florida and Nevada. Therefore, to maintain a balanced portfolio and keep our geographic concentration in line with reasonable industry standards, Radian is restricting the business it insures for loans secured by properties in these states. Effective June 29, 2009, Radian will suspend the eligibility of loans submitted by your organization, which are secured by properties in the states of Arizona, California, Florida and Nevada for mortgage insurance until further notice.”

Wells Fargo’s wholesale channel sent out a lengthy announcement to their clients going through changes in their documentation requirements, California MI having a maximum LTV 80% for High Balance Condo and Attached PUD loans, MI changes for Alaska and Hawaii on loan amounts greater than $417,000, Non-Wells Fargo Serviced VA Interest Rate Reduction Refinance Loan (IRRRL) Transactions May Require A Conventional Appraisal starting in July, along with some other documentation-related news. Of note, however, is their statement, “First-Time Homebuyer Tax Credit Not Available”. Not that I spend my days combing investor websites, which I kind of actually do, but I have yet to see any investors allowing this credit in spite of HUD allowing it.

Ah, back to the economy. New Home Sales fell .6% in May, which was somewhat unexpected. Year-over-year sales are down almost 33%. And the Treasury auction went well. But the spotlight was on the Fed announcement, which, as expected left the overnight rates unchanged. Their statement indicated that the sensitive economy is in better shape than several months ago – that the “pace of economic contraction is slowing,” What does that mean for mortgage rates, which we all know have shot up in the last month and threaten any kind of housing-based revival? Mortgage rates have followed Treasury rates, which have gone up given the supply in the market and also the psychology that the recession is near a bottom. More recently, rates have come down slightly but are still higher than where much of the public thinks they are (“What do you mean I can’t get a 30-yr mortgage at 4.75% with one point? My realtor said…”) Rates went higher yesterday afternoon, and traders remind us that it usually takes a day or two for the market to sort this out. Most expect choppy trading until next week.

This morning we’ve had Jobless Claims (unexpectedly up 15,000 to 627,000, the highest level since mid-May) and GDP (the U.S. economy contracted at a 5.5% pace in the first quarter, capping the worst six-month stretch in more than 60 years). Both pieces of news are not good for the equity markets, but fine for rates: the 10-yr is at 3.69 and mortgage prices are about .25 better than Wednesday afternoon.

For today’s joke, go to http://www.robchrisman.com/

Rob

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