This market is tougher than a $3 steak! When the heck are
mortgage prices going to improve? Why is the 10-yr Treasury down into the 3.5%
range, yet conforming/conventional 30-yr loans, eligible for FNMA & FHLMC,
back up into the 6% range? The widening that is occurring out to these levels,
which statistically speaking happens once every 4,000 years, is a combination
of several factors. First, investors and money managers feel safer putting
their money into Treasury securities rather than mortgage-related securities.
Subjecting their money to the potential of borrowers defaulting and property
depreciation is something that many prefer not to do. These two factors have
led to losses for FNMA & FHLMC, along with others, and some investors have
been selling mortgage securities in order to meet capital requirements. And
selling has led to lower prices, and thus higher rates.
This morning things are a little better, with the
10-yr at 3.59% but mortgage prices slightly better. We did have some minor news
out (the ADP employment report – just for private employers, and a
revision to 4th quarter productivity) that didn’t move the market.
Later on we have the ISM non-manufacturing index, Factory Orders, and the Beige
Book.
Speaking of selling loans, the jumbo secondary market was
hit by Thornburg’s capital issues and sale of their product. Since
the Thornburg announcement jumbo pricing increased (worsened) over a point in
the last 24 hours, and all major investors participated Thornburg disclosed in
the filing there’s no guarantee they’ll be able to sell enough
assets or raise enough cash to meet its margin calls, but most are keeping
their fingers crossed.
Will being a federally insured institution help? Let’s
hope so, as Citigroup shares sank about 6% to their lowest level in more
than nine years. Forecasts of more losses at Citi and comments from a Middle East fund executive that Citi must raise more cash
to stay in business were the reason. The fund executive said that it will take
more than the combined efforts of the Gulf's wealthiest investors (the Abu
Dhabi Investment Authority, the Kuwait Investment Authority and Saudi Prince
Alwaleed bin Talal) to save Citigroup.
Should the tax payer help borrowers who can’t make
their payments on time? President George Bush and the two
highest economic officials in the US government don’t think so:
they object to plans in Congress for changing bankruptcy laws to protect
homeowners and restructure mortgages. It “wouldn't be fair to millions
who pay their mortgages each month on time and it would be unfair to future
homeowners,” Bush said, who was then followed by Chairman Bernanke who
mentioned the potential unfairness, telling Congress that allowing judges to
ease the terms of some mortgages would 'probably' add to the cost of all
mortgages.
Speaking of planning, have you heard about the
“Short Refi”? We all know how a short sale works, the short
refinance is similar in that it starts with a borrower that is upside down on
their property. The borrower arranges to deliver a payoff demand in to title
that is short the amount owed, allowing the borrower to obtain new financing
with more affordable terms. What happens to the “short” portion of
the current lien? Sometimes banks agree to take an unsecured note for the
remaining balance. The existing lender must deliver the “short
payoff” to title and provide the new lender with the new terms of the
unsecured debt and must guarantee borrower in writing that this arrangement
will not result in any degradation of credit to the borrower. Also, the
borrower must be able to qualify for the new financing, including the repayment
terms of the new unsecured lien. This is a strategy that works best when only
one lien currently exists. Good luck with this one… although the borrower
gets a more affordable mortgage, the investor avoids too large of a write-down,
the lender has a saleable loan – but the end investor loses money.
A biker is riding by the zoo, when he sees a little girl
leaning into the lion's cage. Suddenly, the lion grabs her by the cuff of her
jacket and tries to pull her inside to slaughter her, under the eyes of her
screaming parents. The biker jumps off his bike, runs to the cage and hits the
lion square on the nose with a powerful punch. Whimpering from the pain the
lion jumps back letting go of the girl, and the biker brings her to her
terrified parents, who thank him endlessly.
A reporter has seen the whole scene, and addressing the biker, says
- Sir, this was the most gallant and brave thing I saw a man do in my whole
life.
- Why, it was nothing, really, the lion was behind bars. I just saw this little
kid in danger, and acted as I felt right.
- Well, I'll make sure this won't go unnoticed. I'm a journalist, you know, and
tomorrow's papers will have this on the first page. What motorcycle do you
ride?
- A Harley Davidson.
The journalist leaves.
The following morning the biker buys the paper to see if it indeed brings news
of his actions, and reads, on first page:
BIKER GANG MEMBER ASSAULTS AFRICAN IMMIGRANT AND STEALS HIS LUNCH.
Rob
