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Jun. 4, 2009: Citi and SunTrust news; Underwear? Economic news pushes rates higher
Rob Chrisman
GM filed for bankruptcy a few days ago. A buddy told
me, “This would be bad news if anyone had actually bought a GM car in
the last five years. They say that the company will emerge from
bankruptcy in three years or 36,000 miles, whichever comes first.”
There are some witty folks out there.
I guess when people become tired of Ben Bernanke, they look back at
Alan Greenspan. The former Federal Reserve chief’s favorite
economic indicator is men's underwear sales. Supposedly, Greenspan
often said one of the first things men stop buying when the economy is
doing poorly is underwear, because it's something no one really sees.
You can reason that when men start buying new boxers and briefs, it
means the economy is turning around. Interestingly, after a 12-month,
12% decline through the end of January, men's underpants sales leveled
off during February and March, according to NPD (a group which tracks
clothing trends). That suggests the economy is stabilizing, right?
Usually it goes up 2% to 3% annually – don’t ask me why, as I would
think it would hover around population growth – so a return to that
would be a good sign.
Orders at factories, some of which make underwear, were up .7% in
April, and therefore up two of the last three months, after a
revised 1.9 percent drop in March that was more than twice the previous
estimate. Yesterday we also had the ISM Non-Manufacturing Index
increased to 44 in May, the highest level in seven months yet lower
than forecast, from 43.7 the prior month. Since the service sector
makes up almost 90%, regardless of the headline-grabbing factories, so
this is an important number. The market, however, was unconvinced that
these were exciting numbers: stocks sold off, and Treasury prices rose
(leading to lower rates).
Traders also saw some profit-taking in the steepening yield curve
trade, so investors were unwinding the sale of long-dated
maturities and purchase of short-dated notes, which widened the yield
spreads to historic widths last week. So the yield curve is becoming a
little less steep: the difference between 2- and 10-year yields
narrowed yesterday to 2.66 percentage points, from a record 2.76
percentage points on May 27. Fannie 4% securities, into which would be
placed 4.25-4.625% mortgages, are down (worse) almost 3 points in the
last few weeks, yet Fannie 6.5% & 7% securities have actually
improved in price! Traders believe that the bottom has dropped out of
refinances, so the prepayment speeds on these loans is will slow down
at current MBS prices.
The news overnight and this morning was friendlier toward stocks than
bonds, although those two markets improving or worsening at the same
time is not unheard of. Are you being productive? U.S. Non-farm
Productivity came out this morning, +1.6%, and it was much stronger
than initially estimated (+.8%) in the first quarter. The number of
hours in manufacturing fell at a record pace, plunging at a 9% annual
rate in the first quarter, the largest decline since the first quarter
of 1975. Hours worked in manufacturing tumbled at an annual rate of
19.5%, the biggest quarterly drop on records dating back to 1987!
Workers filing new claims for jobless benefits fell for a third
straight week last week, indicating a drop in the rate of the labor
market's deterioration. Claims were down 4k to a seasonally adjusted
621,000 in the week ended May 30th, about as expected. Continuing
claims (the number of people staying on the benefit rolls after
collecting an initial week of aid) declined for the first time since
early January, and was also the first time in 17 weeks that they did
not set a record. However, the four-week moving average for new claims,
considered to be a better gauge of underlying trends as it smoothes out
week-to-week volatility, rose 4,000 to 631,250 in the week ending May
30. After the news we find the 10-yr back up to 3.66% and mortgage
prices worse by .375.
SunTrust, beginning this week, said that non-permanent resident
aliens will no longer be eligible borrowers for their Portfolio
Affordable Housing Mortgage Program. “Loans locked prior to Monday,
June 1, 2009 will be honored; however, loans must be closed and
delivered to SunTrust by the original lock-in expiration date. Lock
extensions and relocks will not be granted. No exceptions.” No tears.
CitiMortgage, who last week came out with their “High Balance
Loan Limits for Agency Jumbo loans” – which increased, had some
caveats. Nothing onerous, but namely “Loans above the Permanent High
Cost limits must be registered using newly created Sub-Program codes…In
addition, due to the loan amount changes, LTV and FICO requirements
have also been changed by Fannie Mae (and thus Citi). CitiMortgage also
announced that DU Expanded Approvals recommendations will no longer be
permitted on Agency Jumbo programs, all borrowers must have a FICO
score, subordinate financing is not permitted on co-op loans, and for
properties in attached condominium projects, the appraisal must contain
two comparable sales from projects outside of the subject’s project in
addition to the current comparable sale requirements. In addition to
required appraisal, a Field Review (One-Unit Residential Appraisal
Field Review Report) is required if the loan amount is > $625,500
and the LTV, CLTV, or HCLTV is greater than 80%; or the property is
valued at $1,000,000 or more and the LTV, CLTV, or HCLTV is greater
than 75%.”
Citi also followed other lenders with their “New lending
parameters have been introduced for second homes and investment
properties when the borrower has up to four (4) financed residential
properties, including the subject property. If the subject property is
a primary residence, there are no additional reserve requirements for
the other financed properties. If the subject property is a second home
or investment property, there are reserve requirements for both the
subject property and the other financed properties. Second home – 2
months PITI plus an additional 2 months’ reserves on every other
financed second home and investment property are required. Investment –
6 months PITI plus an additional 2 months’ reserves on every other
financed second home and investment property are required.” This
applies to all Citi’s conventional loans underwritten manually or with
DU – but do not apply to DU Refi Plus or loans processed via LP. Citi
also reminded sellers that borrowers having more than four financed
residential properties are not permitted under their current guidelines.
A man riding his Harley was riding along a California beach when
suddenly the sky clouded above his head and, in a booming voice, the
Lord said, “Because you have tried to be faithful to me in all ways, I
will grant you one wish.”
The biker pulled over and said, “Build a bridge to Hawaii so I can ride
over anytime I want.”
The Lord said, “Your request is materialistic, think of the enormous
challenges for that kind of undertaking; the supports required reaching
the bottom of the Pacific and the concrete and steel it would take! It
will nearly exhaust several natural resources. I can do it, but it is
hard for me to justify your desire for worldly things. Take a little
more time and think of something that could possibly help mankind.”
The biker thought about it for a long time. Finally, he said, “Lord, I
wish that I and all men could understand women; I want to know how she
feels inside, what she's thinking when she gives me the silent
treatment, why she cries, what she means when she says nothing's wrong,
and how I can make a Woman truly happy.”
The Lord replied, “Would you like two lanes or four on that bridge?”
Rob
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