“You can sleep in your car, but you can’t drive your house.” Ford lost many billion for 2008, and with the recent run-up in mortgage rates, maybe you can get a car loan at less than 6%. Because it seems that 30-yr conventional fixed-rates are up at the 6% level again, at the mortgage-banker level, if you want a one point rebate. (If the borrower wants to pony up a point, rates in the low 5’s are attainable, using the unusual buy-down of 1:1.)

Are mortgage rates getting you down? Don’t blame the NY Fed – they’re going as fast as they can, to the tune of almost $17 billion last week of MBS purchases.

OK boys and girls, here is your word of the day: “monopsony”. A monopsony exists where there is only one buyer of a product, as opposed to a “monopoly” where one seller controls the market. Although there is a minor amount of interest by investors in owning securities backed by mortgages, most would agree that at this point the Fed is the primary buyer, and that we are approaching a monopsony, which, like a monopoly, is rarely good. Use that word tonight during Happy Hour.

Why should your company be any different from Wells’ wholesale? After January 23, Wells’ brokers have to submit their complete credit package, including income and asset documentation for all borrowers, within 10 calendar days of their lock date. In a story published by Market Watch, Wells Fargo said their applications were up 158% during its fourth quarter versus a year earlier, with their pipeline hitting $71 billion by the end of 2008. Wells also claims that its mortgage market share rose to 12%, based on third quarter 2008 data, from 10% a year earlier.

Fair Isaac has something new to talk about. They will start offering the revamped score, “FICO 08,” to lenders. Fair Isaac believes that the new score will do a better job of predicting borrower defaults, be more forgiving of one-time slipups, take a harder line on repeat offenders, and in general will do a deeper analysis of borrowers with poor or thin credit histories. The score will still range from 300 to 850.

Yesterday was not a good day for Treasury or mortgage rates, or the housing industry. New-Home Sales fell 14.7% in December, and are down 45% from December 2007! This represents the 5^th straight month of declines. Durable Goods, as I mentioned yesterday, were also down for the 5^th month in a row. Regardless, the Treasury auctioned off $30 billion of 5-yr notes, and it did not go as well as hoped. At this point the last thing on the Fed’s mind is inflation, and in fact deflation is on the minds of many.

How about today – do we need more news that the economy is doing poorly? Will the 10-yr Treasury make up some of the nearly 2 points in price that it lost yesterday? We have already seen Gross Domestic Product, which showed that the U.S. economy shrank at its fastest pace in nearly 27 years in the fourth quarter. It dropped at a 3.8% annual rate, the lowest pace since the first quarter of 1982, when output contracted 6.4 percent. For 2008, GDP rose 1.3 percent, the slowest pace of growth since 2001, when the economy expanded 0.8 percent. U.S. employment costs rose last year at the slowest pace on record, with the Employment Cost Index increasing 2.6% in the 12 months to December, down from a 3.3 percent rise in 2007. The numbers indicate that companies have been cutting overtime and reducing workers’ benefits like pension contributions. We still have the Chicago Purchasing Manager’s survey and the University of Michigan Consumer Confidence survey later, but for now the 10-yr stands at 2.80% and mortgages are about .250 better in price than yesterday late afternoon.

(Warning – PG rated.)

A Greek and a Scotsman were sitting in a Starbuck’s cafe one day discussing who had the superior culture.   Over triple lattes the Greek guy says, “Well, we Greeks built the Parthenon,” arching his eyebrows.
The Scotsman then replies, “Well… it was the Scots that discovered the Summer and Winter Solstices.”
The Greek retorts, “We Greeks gave birth to advanced mathematics.”
The Scotsman, nodding in agreement, says, “Scots were the ones who built the first timepieces and calendars.”
And so on until the Greek comes up with what he thinks will end the discussion. With a flourish of finality he says, “The Greeks were the ones who invented sex!”
The Scotsman replies, “Aye, that is true, but it was we Scots who introduced it to women.”

Rob

The US Post office is requesting that they no longer delivery mail on Saturday’s as a way to save money. Makes sense to me. With all of these lay-offs (Kodak is shedding 3,000 jobs), closings (Starbucks is shutting down another 300 outlets, leaving ex-mortgage bankers with no choice but to drive farther for a latte), showing that the economy is bad, why aren’t mortgage and Treasury rates lower? Simple – the government needs to issue more debt to pay for a rescue. And in order for all of this supply to attract investors, yields have moved higher. Remember Econ 101.

Citing data from LPS Applied Analytics, a mortgage-data research firm, the Wall Street Journal reports that about 6.9% of prime, jumbo loans were at least 90 days delinquent in December, up from 2.6% in the year earlier period. Delinquencies of non-jumbo prime loans that qualify for government backing increased to 2.1% from 0.8%. Defaults on jumbo mortgages tend to result in outsized losses for lenders given that expensive homes are much more difficult to sell when the real-estate market sours. According to the article, three lenders accounted for nearly half of all jumbo loans made in the first nine months of 2008. The top two originators, Chase and WaMu, made more than 25% of all jumbo loans. In addition, BofA and Wells Fargo each accounted for 11% of the jumbo market.

Speaking of Wells Fargo , their Wholesale Lending group will require two new requirements for FHA and VA transactions: a minimum loan score of 620 is required, regardless of any automated underwriting system (AUS) decision, and a payment history for FHA streamline refinances and VA interest rate reduction refi loans. (No 30-day or greater mortgage lates in the most recent 12 months will be allowed for FHA Streamline Refinances and VA IRRRLs.)

Rates moved higher yesterday, in spite of the House passing the Stimulus Bill (with no Republican support, for those of you playing along at home, as they believe the bill includes too much spending and not enough tax cuts). Things were relatively stable, even with the stock market rallying on financial stocks’ improvement, until the Fed’s announcement. As expected, they are leaving overnight rates alone. But bond market investors were disappointed that the policy statement did not include an immediate intent to begin purchasing government bonds – they have an “inclination” to do so.

Today does not look rosy either. We have a $30 billion 5-year note auction by the Treasury, with the market still swallowing $40 billion of 2-yr notes. We already saw Jobless Claims rise 3,000 last week, up to 588,000, with the moving average increasing to 542,500 from 518,250 the week before. Durable Good orders fell for the 5th month in a row, and dropped 2.6% in December following a November revised decline of 3.7%. Later we can look forward to New Home Sales, expected down slightly. In spite of being “over sold”, prices have moved down more, and rates higher, mostly due to the auction ahead of us. As I type this the 10-yr is at 2.70% and 30-yr mortgage prices are about .250 worse in price.

A filthy rich Florida man decided that he wanted to throw a party and invited all of his buddies and neighbors. He also invited Frank, the only mortgage broker in the neighborhood. He held the party around the pool in the backyard of his mansion. Frank was having a good time drinking, dancing, eating shrimp, oysters and BBQ and flirting with all the women.

At the height of the party, the host said, “I have a 10 foot man-eating gator in my pool and I’ll give a million dollars to anyone who has the nerve to jump in.”

The words were barely out of his mouth when there was a loud splash. Everyone turned around and saw Frank in the pool! Frank was fighting the gator “tooth and nail”, jabbing it in the eyes with his thumbs, throwing punches, doing head butts and choke holds, biting the gator on the tail and flipping it through the air like some kind of Judo Instructor. The water was churning and splashing everywhere.

Finally Frank strangled the gator and let it float to the top like a dime store goldfish, and then he slowly climbed out of the pool. Everybody was just staring at Frank in disbelief. Finally the host says, “Well, I reckon I owe you a million dollars.”

“No, that’s okay. I don’t want it,” said Frank.

The rich man said, “Man, I have to give you something. You won the bet. How about half a million bucks then?”

“No thanks, I don’t want it,” answered Frank.

The host said, “Come on, I insist on giving you something. That was amazing. How about a new Porsche and a Rolex and some stock options?”

Again Frank said no.

Confused, the rich man asked, “Well, Frank, then what do you want?”

“I want the name of the guy who pushed me in the pool!” 

Rob

The big news of the day, besides more bank earnings, is that a coach of a Texas high school got fired after beating another team in basketball 100-0. The coach would not apologize, since his girls played with honor and integrity (his words) in beating Dallas Academy , which has 8 girls on the team and only 20 in the entire school. The defeated school, by the way, specializes in teaching students with short attention spans. If you’ve already moved on to another paragraph, maybe you fall into this category…

One of my goals in life is to have an index named after me that can impact the market. Trilly Lundberg does surveys of gasoline station prices. The University of Michigan has some kind of consumer sentiment survey. The S&P/Case-Shiller House Price Index came out yesterday, -18.2% year over year. This was about as expected, but certainly shows us that housing continues to be “in the tank”, and until that begins to turn around, no broker should look for looser guidelines or much investor interest in securities backed by mortgages.

Did your locks drop off a cliff last week? You’re not alone, as they fell back to November levels. The Mortgage Bankers Association said its mortgage application activity dropped almost 39% in the week ended Jan. 23. Although lock desks everywhere are breathing a sigh of relief, mortgage company owners are left wondering if they should have outsourced underwriting and other operations work instead of staffing up.

Today the big news for mortgage companies might be in the release of Wells Fargo ’s earnings. Their earnings were obviously impacted by Wachovia’s acquisition at $11.8 billion with no government support, and follow disappointing earnings from BofA, Chase, and Citi. But it gave Wells operations in 39 states, and created one heck of a large bank, and is expected to make money in the years to come. Since then, Wells has estimated the credit loss due to Wachovia’s loans at $60 billion! Wells made $2.8 billion for 2008, but lost $2.55 billion in the 4th quarter due to the merger. Interestingly, the market seems pleased with the steps that Wells took in meeting the Wachovia issues, is not planning on asking the government for additional money, and the stock is up this morning almost 20% in pre-market trading.

Moving on, China remains on holiday through end of week, the House votes on the $816 billion stimulus package today, and the Fed meeting adjourns at 2:15 EST. Yesterday’s record $40 billion Treasury debt auction saw decent demand which boosted treasury and mortgage prices on the day, helping lead to some intra-day price changes. So far this morning the 10-yr is at 2.53% and mortgages are roughly unchanged from their improved price yesterday afternoon.

After an exhaustive review of the research literature here is the final word on nutrition and health:

1.   Those in Japan eat very little fat and suffer fewer heart attacks than us. 

2.   Those in Mexico eat a lot of fat and suffer fewer heart attacks than us. 

3.   Those in China drink very little red wine and suffer fewer heart attacks than us. 

4.   Those in Italy drink excessive amounts of red wine and suffer fewer heart attacks than us. 

5.   Those in Germany drink beer and eat lots of sausages and fats and suffer fewer heart attacks than us.
CONCLUSION:
Eat and drink whatever the heck you like. Speaking English is apparently what kills you.  

Rob