Many prognosticators (who are different than procrastinators) feel that money managers created the current turmoil by failing to take risk seriously, allowing borrowers with lower credit to borrow money nearly as cheaply as A-paper borrowers. And they feel that it is not the taxpayer’s duty to bail them out. If your 16-yr old recklessly loses $20 playing poker during recess at school, do you give him his $20 back? Will insulating fund managers from the consequences of their mistakes encourage them to take similar risks in the future? One can debate this for a long time, but regardless of the conclusion, no economy can run without a steady supply of credit. And it is the Fed’s responsibility to help stabilize the US economy.

Do you know that feeling in your stomach when the roller coaster falls? Are folks in Las Vegas or Phoenix feeling that? The Case-Shiller House price index, which came out yesterday, indicated that prices in Phoenix and Las Vegas are falling at annualized rates of 35%-40%. Prices in all cities fell in the most recent month: in January, they fell by over 10% year-over-year.

Were your locks up last week? Congratulations – but so was everyone else’s. The Mortgage Bankers Association reported that the volume of mortgage applications rose a seasonally adjusted 48.1% in the week ended March 21 from the prior week. Applications to refinance existing mortgages increased 82.2% on a week-to-week basis, according to the MBA's weekly survey, and purchase applications were up 10.6%. Overall application filings were up an unadjusted 41.1% from the same week a year ago, the Washington-based MBA said. The seasonally adjusted four-week moving average for all home loans was up 11.3%.

Treasury prices improved slightly overnight (the 10-yr is back down into the high 3.40’s, and mortgage prices are about .125 better). Durable Goods Orders unexpectedly fell 1.7 percent during February and a key gauge of companies' appetite for investment also shrank. Economists predicted the report would show overall Durable Goods (manufactured items lasting 3 or more years) +0.8 percent in February, rebounding from January's revised fall of 4.7 percent. This was previously reported as a 5.1 percent drop. We still have February New Home Sales due out today.  For originators watching prices, they have noticed that intermediate ARM’s have been gradually improving this week. FNMA’s trading desk reports that they are beginning to see investor demand for ARMs return!

Want to act and talk like a mortgage trader? Using this blurb from Goldman Sachs, repeat after me, “Mortgages opened marginally wider versus swaps this morning, but robust overseas demand for FN and Gold 6s, as well as better fast money buying early on, helped drive mortgages tighter this morning.  We traded as well as 2 better versus swaps, before heavy origination mid-afternoon in FN 5s caused the basis to trade as much as 3+ wider versus swaps.  We recovered this afternoon as fast money and money managers looked to buy the basis on widening, and risky assets generally traded firmly into and post-close.  Within the coupon stack, we continue to see heavy buying of 6s outright and buying of the 6/5.5 swap, as 6s outperformed 5.5s by roughly a + today.   Mortgages ended the day 4 ticks tighter versus swaps, and 4bps tighter on an OAS basis.”

An Irishman who had a little too much to drink is driving home from the city one night and, of course, her car is weaving violently all over the road.  
A cop pulls her over. "So," says the cop to the driver, where have ya been?"  
"Why, I've been to the pub of course," slurs the drunken gal.  
"Well," says the cop, "it looks like you've had quite a few to drink this evening."  
"I did all right," she says with a smile.
"Did you know," says the cop, standing straight and folding his arms across his chest, "that a few intersections back, your husband fell out of your car?"
"Oh, thank heavens," she sighs. "For a minute there, I thought I'd gone deaf."  

Rob