A grasshopper walks into a bar. The bartender says, “Hey we have drink named after you.”

The grasshopper says, “You have a drink named Steve?”

I imagine that Chase has many employees named “Steve”, some of whom are probably caught up in Chase’s decision to exit the wholesale/broker channel entirely, stop buying TPO loans from brokers, exit the bulk co-issue business, and cut an estimated 40-50% of their sales staff. Their focus will turn to production channels involving retail originators and smallish national banks, limiting their liabilities, and increasing the utility of the WAMU branch locations.

The reason? “Moving forward, we have decided to focus on loan originations through the Chase bank branches, our Consumer Direct business, and retail-originated loans acquired from Correspondent lenders. Our new strategic direction is supported through the recent merger with Washington Mutual, which increased our bank branch inventory nationwide and enables us to serve nearly 70 percent of the American population. As a result of our strategic decision, we will no longer accept any new locks and registrations from or purchase any loans originated by brokers effective Friday, January 16, 2009. As a result of these decisions, we are closing our Wholesale business. We continue to purchase retail-originated loans through our Correspondent business, which includes our Warehouse Lending unit. Our Rural Housing program remains unaffected by this change.” Off the record, the credit default issues from broker business were so large last year that they deemed TPO business unworthy of the potential downside.

For Chase, Third Party Originated (TPO) Lending is defined as “when a party, not the Correspondent Seller, performs a significant portion of the origination process for a fee. A Third Party Originator is any person or entity, not employed by the Correspondent, who is duly authorized to perform all or part of the origination process; including but not limited to processing a loan application; ordering appraisals and/or credit reports; and verifying income and/or employment.” And “Bulk Servicing” is defined as “one of the Chase Correspondent programs for purchasing servicing rights including co-issue, Chase Co-issue Express, Forward Bulk, and Seasoned Bulk.”

Back in October, 30-yr mortgage rates were in the mid/high 6’s. Now they have fallen by almost 1.5%, and agents are scrambling to close easy-to-do deals. And borrowers with good credit and equity are taking advantage of the situation. Overall, mortgage applications are now at their highest levels in more than five years, and last week refinance applications jumped 26% while purchase applications fell -14%. This news would seem to confirm that the Fed's purchasing program is indeed impacting the market.

But what happens to the mortgage market when “the music stops” and the Fed stops buying mortgages? That fear is creeping into mortgage pricing already, 6 months in advance of it happening. But prices are better this morning after a disastrous Retail Sales number – remember that the consumer accounts for 2/3 of the economic growth in the United States. The Commerce Department Retail Sales fell 2.7% last month following a revised 2.1% drop in November. December's drop was the biggest since October last year when sales fell 3.4%. For the whole of 2008, sales eased 0.1 percent, the department said. Total sales, excluding autos, were +3.0% in 2008. Tomorrow we will see the Producer Price Index, expected -1.9% for December, and the Philadelphia Fed Survey. Friday we have the Consumer Price Index, expected -1.0%, along with Industrial Production and Capacity Utilization, and the University of Michigan Consumer Sentiment Survey. With all of this, the 10-yr is at 2.22%, better by .75 in price, and mortgage prices are slightly better than yesterday afternoon.

Mike and Sid, two elderly friends, met in the park every day to feed the pigeons, watch the squirrels and discuss world problems.
One day Sid didn't show up. Mike didn't think much about it and figured maybe he had a cold or something. But after Sid hadn't shown up for a week or so, Mike really got worried. However, since the only time they ever got together was at the park, Mike didn't know where Sid lived, so he was unable to find out what had happened to him.
A month had passed, and Mike figured he had seen the last of Sid, but one day, Mike approached the park and -- lo and behold! --there sat Sid!  Mike was very excited and happy to see him and told him so. Then he said, “For crying out loud Sid, what in the world happened to you?”
Sid replied, “'I've been in jail.”
“Jail?” cried Mike. “What in the world for?”

“Well,” Sid said, “You know Sue, that cute little blonde waitress at the coffee shop where I go sometimes?”
“Yeah,” said Mike, “I remember her. What about her?”

“Well, one day she filed assault charges against me; and, at 79 years old, I was so proud that when I got into court, I pled 'guilty'!  The darned judge gave me 30 days for perjury.”