Citi and SunTrust news; Underwear? Economic news pushes rates higher

June 4th, 2009 · No Comments




GM filed for bankruptcy a few days ago. A buddy told me, “This would be bad news if anyone had actually bought a GM car in the last five years. They say that the company will emerge from bankruptcy in three years or 36,000 miles, whichever comes first.” There are some witty folks out there.

I guess when people become tired of Ben Bernanke, they look back at Alan Greenspan. The former Federal Reserve chief’s favorite economic indicator is men’s underwear sales. Supposedly, Greenspan often said one of the first things men stop buying when the economy is doing poorly is underwear, because it’s something no one really sees. You can reason that when men start buying new boxers and briefs, it means the economy is turning around.  Interestingly, after a 12-month, 12% decline through the end of January, men’s underpants sales leveled off during February and March, according to NPD (a group which tracks clothing trends). That suggests the economy is stabilizing, right? Usually it goes up 2% to 3% annually – don’t ask me why, as I would think it would hover around population growth – so a return to that would be a good sign.

Orders at factories, some of which make underwear, were up .7% in April, and therefore up two of the last three months, after a revised 1.9 percent drop in March that was more than twice the previous estimate. Yesterday we also had the ISM Non-Manufacturing Index increased to 44 in May, the highest level in seven months yet lower than forecast, from 43.7 the prior month. Since the service sector makes up almost 90%, regardless of the headline-grabbing factories, so this is an important number. The market, however, was unconvinced that these were exciting numbers: stocks sold off, and Treasury prices rose (leading to lower rates).

Traders also saw some profit-taking in the steepening yield curve trade, so investors were unwinding the sale of long-dated maturities and purchase of short-dated notes, which widened the yield spreads to historic widths last week. So the yield curve is becoming a little less steep: the difference between 2- and 10-year yields narrowed yesterday to 2.66 percentage points, from a record 2.76 percentage points on May 27. Fannie 4% securities, into which would be placed 4.25-4.625% mortgages, are down (worse) almost 3 points in the last few weeks, yet Fannie 6.5% & 7% securities have actually improved in price! Traders believe that the bottom has dropped out of refinances, so the prepayment speeds on these loans is will slow down at current MBS prices.

The news overnight and this morning was friendlier toward stocks than bonds, although those two markets improving or worsening at the same time is not unheard of. Are you being productive? U.S. Non-farm Productivity came out this morning, +1.6%, and it was much stronger than initially estimated (+.8%) in the first quarter. The number of hours in manufacturing fell at a record pace, plunging at a 9% annual rate in the first quarter, the largest decline since the first quarter of 1975. Hours worked in manufacturing tumbled at an annual rate of 19.5%, the biggest quarterly drop on records dating back to 1987!

Workers filing new claims for jobless benefits fell for a third straight week last week, indicating a drop in the rate of the labor market’s deterioration. Claims were down 4k to a seasonally adjusted 621,000 in the week ended May 30th, about as expected. Continuing claims (the number of people staying on the benefit rolls after collecting an initial week of aid) declined for the first time since early January, and was also the first time in 17 weeks that they did not set a record. However, the four-week moving average for new claims, considered to be a better gauge of underlying trends as it smoothes out week-to-week volatility, rose 4,000 to 631,250 in the week ending May 30. After the news we find the 10-yr back up to 3.66% and mortgage prices worse by .375.

SunTrust, beginning this week, said that non-permanent resident aliens will no longer be eligible borrowers for their Portfolio Affordable Housing Mortgage Program. “Loans locked prior to Monday, June 1, 2009 will be honored; however, loans must be closed and delivered to SunTrust by the original lock-in expiration date. Lock extensions and relocks will not be granted. No exceptions.” No tears.

CitiMortgage, who last week came out with their “High Balance Loan Limits for Agency Jumbo loans” – which increased, had some caveats. Nothing onerous, but namely “Loans above the Permanent High Cost limits must be registered using newly created Sub-Program codes…In addition, due to the loan amount changes, LTV and FICO requirements have also been changed by Fannie Mae (and thus Citi). CitiMortgage also announced that DU Expanded Approvals recommendations will no longer be permitted on Agency Jumbo programs, all borrowers must have a FICO score, subordinate financing is not permitted on co-op loans, and for properties in attached condominium projects, the appraisal must contain two comparable sales from projects outside of the subject’s project in addition to the current comparable sale requirements. In addition to required appraisal, a Field Review (One-Unit Residential Appraisal Field Review Report) is required if the loan amount is > $625,500 and the LTV, CLTV, or HCLTV is greater than 80%; or the property is valued at $1,000,000 or more and the LTV, CLTV, or HCLTV is greater than 75%.”

Citi also followed other lenders with their “New lending parameters have been introduced for second homes and investment properties when the borrower has up to four (4) financed residential properties, including the subject property. If the subject property is a primary residence, there are no additional reserve requirements for the other financed properties. If the subject property is a second home or investment property, there are reserve requirements for both the subject property and the other financed properties. Second home – 2 months PITI plus an additional 2 months’ reserves on every other financed second home and investment property are required. Investment – 6 months PITI plus an additional 2 months’ reserves on every other financed second home and investment property are required.” This applies to all Citi’s conventional loans underwritten manually or with DU – but do not apply to DU Refi Plus or loans processed via LP. Citi also reminded sellers that borrowers having more than four financed residential properties are not permitted under their current guidelines.

A man riding his Harley was riding along a California beach when suddenly the sky clouded above his head and, in a booming voice, the Lord said, “Because you have tried to be faithful to me in all ways, I will grant you one wish.”
The biker pulled over and said, “Build a bridge to Hawaii so I can ride over anytime I want.”
The Lord said, “Your request is materialistic, think of the enormous challenges for that kind of undertaking; the supports required reaching the bottom of the Pacific and the concrete and steel it would take! It will nearly exhaust several natural resources. I can do it, but it is hard for me to justify your desire for worldly things. Take a little more time and think of something that could possibly help mankind.”
The biker thought about it for a long time. Finally, he said, “Lord, I wish that I and all men could understand women; I want to know how she feels inside, what she’s thinking when she gives me the silent treatment, why she cries, what she means when she says nothing’s wrong, and how I can make a Woman truly happy.”
The Lord replied, “Would you like two lanes or four on that bridge?”
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Tags: Commentary · Mortgage Market · Rob Chrisman

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