The world’s longest serving president, Fidel Castro, resigned as president and commander-in-chief of Cuba after almost 50 years. Is he another casualty of the mortgage market? Probably not, but speaking of resignations, the chief executive of the nation's largest bond insurer, MBIA, also resigned his post. Bond insurers have come under intense pressure because of the threat of large losses on mortgage-linked securities that they have insured.

The Securities Industry and Financial Markets Association (SIFMA), publishes “Good Delivery Guidelines” for To-Be-Announced (TBA) trading of Mortgage-backed Securities (MBS) pools issued by Government Sponsored Enterprises (GSEs) and Ginnie Mae. The TBA market facilitates the forward trading of MBS issued by GSEs and Ginnie Mae by creating parameters under which mortgage pools can be considered fungible and thus do not need to be explicitly known at the time a trade is initiated – hence the name “To Be Announced.”  The TBA market is the most liquid, and consequently the most important secondary market for mortgage loans. SIFMA will keep the maximum TBA eligible original loan balance at current levels and clarify several long standing market practices for good delivery.  The current maximum original balance allowable for a loan on a one family property in a TBA eligible Fannie Mae or Freddie Mac pool is $417,000 in most states.  However, in Alaska, Hawaii, Guam and the U.S. Virgin Islands the limit rises to $625,500. Higher balance loans which are now temporarily eligible for Federal Housing Authority (FHA) and GSE guarantee programs under H.R. 5140, the Stimulus Package, will not be eligible for inclusion in TBA-eligible pools. They are instead expected to be securitized under unique pool codes for trading on a “specified pool” basis or inclusion in Real Estate Mortgage Investment Conduit (REMIC) transactions.

Yesterday Flagstar instituted several updates to their FHA credit and appraisal standards. These included, “All FHA loans will now require a minimum credit score of 550. Cash-out refinances loans over 85% LTV will now require a minimum 580 credit score, regardless of the Total Scorecard response. Cash-out refinances for manufactured home loans over 85% LTV will now require an Accept or Approve response from Total Scorecard in addition to the minimum 580 credit score introduced above. Borrowers currently in Chapter 13 bankruptcy will be limited to a maximum loan-to-value for cash-out refinance transactions of 85%, and borrowers with a previous foreclosure will not be eligible for FHA financing if the foreclosure occurred within the past three years, unless an Accept or Approve response is received from Flagstar’s system. In addition, Flagstar implemented pricing adjustments based on credit scores: 550-579 1.0, 580-600 .5, 601-659 No adjustment, 660-679 (.125), and 680+ (.250).

Where is the economy going? UBS announced that they have $26.6 billion in exposure to US mortgages distinct from subprime loans. Their stock is back to 2004 levels, and has lost half its value since last June. And even now it is thought that they have up to $70 billion worth of exposure to troubled areas. MGIC reported a loss of $1.47 billion ($18.17 per share) for the fourth quarter. Triad Guaranty reported a net loss of $75.0 million ($5.05 per share) for the fourth quarter. Radian Group reported a net loss of $618 million ($7.74 per share) for the fourth quarter. The New York Fed's manufacturing survey (“Empire State Manufacturing) collapsed into negative territory this month, dropping to its lowest level in almost four years - it fell nearly 21 points to -11.72 from 9.03 in January. That was the lowest level for the index since it hit -16.47 in April 2003, though there was also a one-month negative reading in May 2005. (The New York area is technology-heavy and the Empire State Index has been doing unusually well, until now.) 6,000 subprime bonds have been downgraded. This is all very dismal news, and would certainly suggest lower rates are ahead of us.

Rates are not lower today, however. The yield on the 10-yr is up to 3.86%, and mortgage prices are worse by .250-.375. The only news due out today is the February NAHB housing market index, expected to be unchanged at 19. It measures the general state of the single family home market, and a reading above 50 signals a "good" outlook while a reading below 50 signals a "poor" outlook – it has been below 50 for almost two years. Tomorrow we have the release of the FOMC minutes from the Jan 29/30 meeting, along with the January Consumer Price Index report and Housing Starts. The CPI is expected +0.3% in the overall index and +0.2% in the more important core data. Lastly on Thursday we’ll see the Leading Economic Indicators (LEI) report for January. It is an attempt to predict economic activity over the next 3-6 months, and is expected to show a 0.1% decline, meaning that economic activity may slow slightly in the near future.

Rob