In case you missed it, mortgages sold off 0.75% yesterday.  Super-premium Freddie Mac mortgages did, anyway.  The 6.0%-6.5% coupons declined sharply, while the par coupon (4.5%) was mostly unchanged.  The premium price decline was triggered by Freddie’s buy-back announcement.  Freddie, rather than wait until loans default and then buy them back, will buy back all loans that are 120 days down.  Freddie will buy those loans at a price of 100, which isn’t so good if you own a Freddie PC trading at a price of 106. Accordingly, the pressure for originators to repurchase loans will grow.  The more loans that the agencies buy back, the more loans will get pushed back. “Because taxpayers are involved, we are being very vigilant,” said Maria Brewster who oversees Fannie’s repurchase team (famously quoted in the Wall Street Journal).  “No taxpayer should have to pay for a business decision that caused a bad loan to be sold to Fannie Mae.”  Unfortunately, there are plenty of loans to buy back:  “4.8 million people have not paid their mortgages in at least three months,” reports Ted Jadlos, senior managing director at LPS Applied Analytics.  “And the pool of problems is growing far faster than any of the solutions.  Modifications are not providing enough relief.” Granted, price action in the 6.0%-6.5% coupons doesn’t affect new originations all that much, but Freddie’s announcement begs the larger question of private investor confidence in mortgage-backed securities.  One argument is that more regulatory uncertainty is bad for investor confidence.  Another is that the sooner bad loans are bought out of pools, the better for investors.  Let’s hope the latter argument brings confidence and private bidders in to the market. We’re going to need all the confidence we can get.  Chairman Bernanke made clear, in notes from his snow-postponed testimony this week, that the Fed will stop purchasing MBS at the end of March.  He even mentioned the possibility of – gasp! – selling mortgage securities.  Evidently, the Fed will begin with reverse repos, followed by raising rates in a “smooth and timely way.” I have been at this game for a while, and can’t remember markets ever reacting in a “smooth and timely way.”  Wells Fargo may have the same opinion:  They recently increased (dramatically) the fees they charge for long-term interest rate locks. Fortunately, origination volume has crept up from the anemic December-January pace.  The volume comeback has been inconsistent – better in Midwestern geography, better from retail purchase shops, worse where price matters more.  Originations margins are down and servicing bids are up in this slow volume market.  At least interest rates are low (TED spreads and the VIX seem too low).  Problems with the PIGS in Europe are keeping global rates down.  Germany is grumbling about the other “G” (Greece); the Germans are not having the best luck.  They just lost their most cherished title, that of the world’s leading exporter, to China, and their population is shrinking.  Germany’s population recently shrank below 82 million for the first time since 1995.  To slow credit expansion (we can’t relate) China raised their bank reserve requirements, a strategy that our own Fed might employ someday.  China requires about 5% more bank capital than we do. I don't think Washington has seen a snow job like this since that last stimulus package. – Jay Leno Thanks for your business, and have a good week.  -- Tom Millon About Capital Markets Cooperative Capital Markets Cooperative (CMC) provides mortgage bankers with the economies of scale and the expertise to reduce risk and maximize profit in the secondary market. Regarded as the premiere secondary marketing specialist in the industry, CMC has worked with financial institutions nationwide to break traditional barriers in capital markets and take performance and profits to the next level. To date, CMC executives have managed more than $500 billion of mortgage volume.   For more information about Capital Markets Cooperative, visit www.capmkts.org or call 904.543.0052 or e-mail [email protected].

Market	Close	Wk Chg
30-Yr Agency Note Rate	5.05%	0.04%
30-Yr Mortgage Yield	4.35%	0.04%
Note Rate vs. MBS Yield	0.70%	0.00%
Mortgage-Treasury Spread	2.01%	-0.06%
10-Yr Treasury	3.69%	0.12%
2-Yr Treasury	0.83%	0.06%
10yr- to-2yr Spread	2.86%	0.06%
Fed Funds	0.13%	-0.01%
Fed (May ‘10)	0.18%	0.00%
Fed (Sept ’10)	0.32%	0.03%
Dow Industrials	10,100	88