“People need good lies. There are too many bad
ones.” So chimed in Kurt Vonnegut. Many foreign investors feel cheated by
the rating agencies, who gave their triple-A stamp to various mortgage
securities that turned out to be anything but triple-A. Are “covered
bonds” the answer? Touted as a new way for banks to come up with cash for
home mortgages, covered bonds are backed by mortgages but they are
considered safer investments than other derivatives. The bonds stay on a bank's
balance sheet and are backed by a "cover pool" of high-quality
mortgages that must meet certain criteria, such as being up to date in their
payments. Investors are also protected because if the mortgages go bad, the
bank must step in to ensure that bond holders get their interest. Put another
way, investors would buy into a pool of mortgages that would be kept on the
balance sheet of the bank that made the loans. At the first sign of trouble in
the underlying mortgages, those mortgages would be replaced in the mortgage
pool. Thus, investors would be assured of repayment unless the underlying
mortgages suffered major losses and the issuing bank failed. Four major banks
— Bank of America, Citigroup, JPMorgan Chase and Wells Fargo said they
hoped to issue such bonds and a larger group of investment banks and brokerage
firms pledged to establish desks to trade the securities.
Yesterday it was announced that the MBA Mortgage Application
Index dropped -14.1% last week with the Purchase Index -7.8% and the Refi
Index -22.9%. This is the second week of being down – are your locks
ok? It is hard to say what matters more: higher rates, summer vacations,
continued underwriting tightening, or nervousness about further depreciation.
Financial Title Co. has shut its doors across California as part of
a closure of multiple offices and title companies by its parent, Mercury Cos.
of Colorado. Mercury's lenders pulled their line of credit after Mercury failed
to meet loan requirements, according to one official "Mercury is closing
all of its companies outside of Colorado,
which includes Arizona, California,
Oregon and Nevada," employees were told. Examiners
representing the California Department of Insurance, which regulates and
polices title-policy underwriters and agents, were on hand at all 57 Financial
Title offices in the state yesterday to ensure that escrow funds were properly
handled and not stolen or lost.
Morgan Stanley, who cut almost 5,000 jobs, is
supposedly recruiting to strengthen its positions in derivatives, commodities
and restructuring. They have hired current and ex-executives from Merrill
Lynch, Lazard, Bear Stearns, and Societe Generale to beef up their equity
derivatives, distressed sales, trading and research, restructuring, and
“global commodities risk” groups
Yesterday President Bush signed into law a sweeping housing
bill that “aims to boost the struggling housing market and bolster
mortgage finance giants Fannie Mae and Freddie Mac.” The cost of the
program – which would begin on Oct. 1 and be in place for just a few
years – will be funded by fees from Fannie and Freddie, along with fees
paid by both lenders and borrowers. We all know the components of the bill,
including buyers using FHA loans can no longer accept down-payment
"gifts" that are ultimately funded by the home seller, often a
builder, in October, but did you know it creates another set of initials to
remember? The Act creates an empowered regulator, the Federal Housing
Finance Agency (FHFA), with the authority to oversee our secondary mortgage
markets (Fannie Mae, Freddie Mac and the Federal Home Loan Banks) and will work
with the combined Federal Housing Finance Board (FHFB), Office of Federal
Housing Enterprise Oversight (OFHEO) and Housing and Urban Development (HUD)
GSE Mission teams to ensure the safety and soundness of the 14 housing-related
GSEs!
Before investors spring into action on the new loan amounts
and borrowers get “ancy”, several steps must occur, just as they
did 4 months ago when loan amounts were raised in many markets. First the
GSEs and FHA must assess their internal impacts to determine the delivery
approach they will require of mortgage lenders and investors, then they will
communicate their requirements to mortgage lenders and investors, and then the
investors will go to work identifying the impact on their own business channels
and implement the changes as quickly as possible. In other words, don’t
look for anything too quickly.
SunTrust notified brokers that beginning
tomorrow, faxing a lock will cost them an additional .125 in price in an effort
to promote on-line locking.
In terms of economic news, today we’ll have Jobless
Claims (expected -8,000), GDP for the 2nd quarter (expected +2.3%),
the Employment Cost Index, and the Chicago
Purchasing Manager’s Survey. Tomorrow we’ll see July’s
Nonfarm Payrolls, expected: -60,000, and the Unemployment Rate, expected
unchanged at 5.5%. After that, tomorrow, we’ll see July’s ISM
Manufacturing Business Index and Construction Spending. Fortunately rates
and mortgage prices are behaving themselves, with the 10-yr at 4.03% and
mortgages roughly unchanged (so far) from yesterday afternoon’s
improvement.
A blonde woman was speeding down the road in her little red
sports car and was pulled over by a woman police officer who was also a
blonde. The blonde cop asked to see the blonde driver's license.
She dug through her purse and was getting progressively more
agitated.
"What does it look like?" she finally asked.
The policewoman replied, "It's square and it has your
picture on it."
The driver finally found a square mirror in her purse, looked at it and handed
it to the policewoman. "Here it is," she said.
The blonde officer looked at the mirror, then handed it back
saying, "OK, you can go. I didn't realize you were a cop."
Rob
