Does it matter who else is buying securities backed by mortgages? Last week four money managers were chosen to represent and manage the purchase of up to $500 billion Agency MBS’s for the Fed. As the laws of supply and demand would dictate, these securities received a big price boost from the event, and during much of December MBS’s outperformed Treasury securities. The first actual Fed purchases of Agency MBS happened yesterday morning. So even though the 10-yr yield, for example, has increased by almost .5%, mortgage pricing barely budged, aside from some lenders increasing profit margins to slow locks.

Remember that this $500 billion is in addition to the TARP money given the banks. But banks have not been lending this money out as much as the US Government would like but until the lending environment improves, banks are putting this cash to work to earn additional interest rate spread. In its most recent quarterly Senior Loan Officer Opinion Survey in October, the Fed reported that 85% of U.S. banks said they had tightened standards on commercial and industrial loans to companies with more than $50 million in annual sales, up from 60% in July. 95% said they increased the cost of those loans, and 70% said they made it more difficult to obtain prime mortgages while almost 65% said they did the same for consumer loans.

Speaking of rates, the historical link between Treasury rates and mortgage rates is practically non-existent. Yesterday, for example, Treasury rates moved up since Construction Spending fell only .6%, less than half as what was forecast, and before the $54 billion in government securities to be sold this week ($8 billion in 10-yr TIPS today). The government’s sale of notes this week is causing impacting the supply side of the equation, moving Treasury rates higher. So this morning we find the yield on the 10-yr up to 2.56%, but mortgage prices are better than yesterday afternoon by .250.

The Wall Street Journal published some interesting information from the US Census Bureau and the Federal Financial Institutions Examination Council. Between 2000 and 2007, as the Hispanic population increased, Hispanic homeownership increased by 47%. Over that same period, homeownership nationally grew by 8%. It wasn't simply the mortgage market at work, but was fueled by a campaign by low-income housing groups, Hispanic lawmakers, a congressional Hispanic housing initiative, mortgage lenders and brokers, who all were pushing to increase homeownership among Latinos.

Realizing that extensions – and pricing margins – can be a good way to make some money, most investors have increased their extension fees. For example, next Monday CitiMortgage is increasing their fees “from 0.075 points per 5-day bucket to 0.150 points per 5-day bucket”.

Wells’ wholesale group announced that, “Due to low market demand and higher risks, we have decided to temporarily suspend non-conforming product offerings.

Effective with new locks on and after Monday, Jan. 5, 2009, Wells Fargo Wholesale Lending will no longer offer nonconforming loans, until further notice. Non-conforming pipeline loans locked prior to 8 p.m. Central Time, on Friday, Jan. 2, 2009, will be honored. We will continue to offer financing to borrowers through a full menu of conforming conventional, FHA and VA loan products, including the various High Balance Loan Programs. These products and programs provide solid financing alternatives for borrowers nationwide.”

I'd been having a lot of minor dental pain and, since I am afraid of the dentist, had avoided going.  The pain increased over time and finally I HAD to go to the dentist.  It took her no time to see that I needed a root canal.  Mindful of my fears she suggested nitrous oxide.

"Nitrous oxide!" I said.  "What will it be like?"

"Well," said my dentist, "you'll be awake, and you'll be aware that something awful is happening, but you won't feel any pain, so you won't care."

"Oh!" I exclaimed, "I'll be a Republican!"