The FBI now says that 80% of the crime in the U.S. is being carried out by ruthless gangs... But enough about Citigroup, Bank of America and Goldman Sachs.

I was never very good with numbers. (I was speaking with an underwriter the other day who told me, "I once dated a guy who was so dumb, he couldn't count to 21 unless he was naked!") But I love loan pricing. Well, actually I don’t like it at all, but it is something that should be addressed. Besides the base securities market, it is important for agents to remember that other factors need to be considered. SRP values, guaranty fees charged by Freddie & Fannie, and the spread between best efforts and mandatory execution contribute toward an all-in price. For example, the servicing released premiums that the servicers are willing to pay are a key difference between Wells, Citi, Chase, GMAC, CW, etc. The agencies control the guarantee/guarantor fees, and “in the old days” there were large differences in g-fees for lenders of different sizes. These differences, measured in basis points, have been reduced, but still the risk associated with a smaller lender is greater than that of a large lender, and the fees will be different. Lastly, the difference between best efforts and mandatory pricing has moved out past 1 point, or 100 basis points, versus the historical average of around .250. This is due to the volatility of the market, along with increased fall out of best efforts locks.

When a community builds a concrete pier into the ocean, eventually the tides prove stronger, and unless it is maintained, the pier is eventually taken under by the tides. Is this happening with the Fed trying to artificially spot mortgage rates, in the face of market forces? Ever since the magical 4.5% mortgage was “targeted”, rates have moved up, and we now find ourselves above 6% with one point back to the broker. It would appear that successful agents are “re-educating” their borrowers to move files off their desks, and telling them, “You’re going to be in the house a while, so pay 1-2 points in order to get back down near 5% for a 30-yr fixed rate mortgage.”

Rates have not been good lately for anyone waiting to lock. (Have the borrower pony up a point and get it over with!) We did have Jobless Claims, which jumped to a 26-year high last week, +35k to 626k. (Tomorrow we have the unemployment numbers, and nonfarm payrolls are expected to drop 525,000.) The four-week moving average for new claims, considered to be a better gauge of underlying trends as it irons out week-to-week volatility, rose to 582,250, the highest reading since late 1982. In its quarterly refunding statement yesterday, the Treasury said it will sell seven-year notes for the first time since 1993 (to be sold with 2-yr and 5-yr notes at the end of the month), and also will increase the frequency of 30-year bonds. The Treasury plans to auction $32 billion in three-year notes on Tuesday, $21 billion in 10-year notes Wednesday, and $14 billion in 30-year bonds a week from today. In addition, the frequency of 30-year bond sales will be increased from four 30-year bond auctions a year to eight. The Treasury said it would sell a new bond every quarter with a reopening a month later. Hey, why shouldn’t the government lock in selling debt at low rates? (The yield on 10yr notes is up over 80 bps from the record low of 2.04% reached in mid-December.)

No one is arguing that the economy is weak, so what is holding rates up? Increased borrowing by the federal government (see paragraph above) to fund stimulus packages has helped drive underlying Treasury yields, and to some extent mortgage rates, higher. And no one knows what will happen when the music stops, i.e., when the Fed stops buying MBS’s after June, will investors be interested? With this on its collective mind, the market has the 10-yr currently at 2.90% and mortgage prices are a shade better from yesterday afternoon.

FNMA released DU 7.1, hoped to streamline the underwriting process for existing Fannie Mae loans. The primary interest has been in Fannie’s move to waive the reappraisal requirement for some borrowers seeking to refinance loans that are already with Fannie. It is not viewed as looser underwriting guidelines, but instead as a way for brokers to use a more automated appraisal system in DU. For existing Fannie loans, DU will use HPA data to estimate home values, and if the borrower fits current underwriting guidelines then the appraisal will likely be waived. But why rely on someone else’s interpretation – see for yourself: https://www.efanniemae.com/sf/guides/duguides/pdf/current/rndodu71aprupd.pdf

It's late fall and the Indians on a remote reservation in South Dakota asked their new chief if the coming winter was going to be cold or mild. Since he was a chief in a modern society, he had never been taught the old secrets. When he looked at the sky, he couldn't tell what the winter was going to be like. Nevertheless, to be on the safe side, he told his tribe that the winter was indeed going to be cold and that the members of the village should collect firewood to be prepared.
But, being a practical leader, after several days, he got an idea. He went to the phone booth, called the National Weather Service and asked, “Is the coming winter going to be cold?”
“It looks like this winter is going to be quite cold,” the meteorologist at the weather service responded.
So the chief went back to his people and told them to collect even more firewood in order to be prepared.
A week later, he called the National Weather Service again. “Does it still look like it is going to be a very cold winter?"
“Yes,” the man at National Weather Service again replied, “it's going to be a very cold winter.”
The chief again went back to his people and ordered them to collect every scrap of firewood they could find.
Two weeks later, the chief called the National Weather Service again. “Are you absolutely sure that the winter is going to be very cold?”
“Absolutely,” the man replied. “It's looking more and more like it is going to be one of the coldest winters we've ever seen.”
“How can you be so sure?” the chief asked.
The weatherman replied, “The Indians are collecting firewood like crazy.”

Rob

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