Record Foreign Treasury Investment, Inflation Watch, Rates Still Holding To Lows

Mortgage News vs. Industry Advocacy
The other day a reader wrote to me and said, “I keep wondering why you continually defend mortgage brokers and bankers. Hopefully the changes that are coming from Congress should go a long way to reducing the fraud, abuse and overcharging that brokers and some bankers have been doing for years. What we’ll be left with will be a smaller but more honest mortgage banking industry.” This is a valid question, valid points, and I appreciate the input. I try to not let my opinions enter into the commentary too much, and keep it “newsy.”

That being said, however, I think that brokers and bankers entered this business because they wanted to help others, and to make good money. The order of those two varies, but wherever one places the blame many decent brokers and bankers have either left the business or are barely hanging on. Just like the credit pendulum 3 years ago had swung too far to one side, many feel that it has swung too far the other, and will eventually come back to the middle. And honest people in the business are in favor of measures that eliminate fraud and overcharging, and any measures mortgage lenders can take to protect themselves from both of those should be encouraged.

Loan Modification Update
Mortgage rate levels are historically attractive, but these rate levels have been seen many times already and refinancing activity drops each time. Just like some people believe that most everyone who can refinance has refinanced, others are starting to say that most everyone who can have their loans modified has had their loan modified. The monthly HAMP modification report reveals that “HAMP trials started” continue to shrink, especially in the last few months. April’s 37,000 trials started were down 75% from the peak run rate of Aug-Oct 2009. Completions are up, but that’s simply a reflection of loans already in the pipeline. The reality is that just 299,000 HAMP mods have been completed so far, with only 29% receiving principal forbearance.

QuickenLoans Loan Servicing
Quicken Loans, headquartered in Michigan and the nation’s fourth largest retail lender, has created “Quicken Loans Mortgage Services”. QLMS is a new division servicing the home financing needs of community banks and credit unions across the country. Kind of sounds like Taylor Bean. Smaller banks and credit unions don’t want to incur the cost of originating home loans, and can use this service. Quicken is hoping to use its position as the largest on-line lender to leverage this relationship.

Failed Lender Fallout
And while we’re talking about Taylor Bean, in a story out of the Wall Street Journal, former Taylor Bean & Whitaker Chairman Lee Farkas allegedly ‘”siphoned more than $50 million from the Florida mortgage lender for his own ‘personal financial gain,’ according to a bankruptcy court filing. Taylor Bean said Mr. Farkas, the Florida businessman who built Taylor Bean from a small mortgage company into the nation’s largest mortgage lender not owned by a bank, ‘withdrew substantial sums of money from TBW for his own personal benefit or for the benefit of business ventures that he owns or controls.’”

Record Foreign Treasury Investment
Data released by the US Treasury Department yesterday showed that foreign investors set a record for purchases of long-term U.S. securities in March. The United States’ debt market certainly has benefited from its safe-haven status (the long-run picture is much more cloudy, however), and China remained the largest holder of Treasury debt and added to its holdings for the first time in seven months. Net Treasury purchases by all foreign investors jumped by $108.47 billion in March from $48.1 billion in February, with net purchases being $140 billion.

Inflation Watch (continued in PPI section below)
Tomorrow we will have the minutes from the late April FOMC meeting. So what? Analysts will be looking for any change in the opinion of the Board with regard to the direction of the economy, and any potential change in overnight rates. It is unlikely: inflation is not currently a big problem (down the road is whole ‘nother issue). But this week we have the PPI and CPI, and economists are not forecasting much of a jump in either number, confirming the Fed’s view. In fact recently look at how the price of oil has gone from $80 a barrel down to $70 a barrel based on European issues. Considering that the US economy is now likely entering the third consecutive quarter of above-trend growth, inflation could start to pick up a little.

Rates Down The Up Monday
Monday rates started off well, and in fact Treasuries tried to make new highs in price. But the late recovery in the Euro translated into a rebound in stocks and an abrupt halt to the bond market’s improvement. Stocks rallied back, bond prices fell, and investors sent out rate changes for the worse. The current thinking is that weakness in the Euro reflects expectations of slower Euro-area growth and a less competitive US dollar, both of which are bad for our growth prospects and good for keeping inflation low. Anyone looking to invest here in the US appears to have been putting sums of money into short term US debt, much of it in the 2-5 year maturity area.

Producer Prices Show Tame Inflation
This country has some economic news to chew on this morning in the form of Housing Starts, Building Permits, and the Producer Price Index. Homebuilder confidence has been strengthening, perhaps in part because psychologically they were tired of being unconfident but also perhaps because the home buyer tax credit boosted sales. Housing Starts were projected to increase 3.8% to 650k, while permits are seen 7.3% lower to 680k. And Producer Prices were expected to increase just 0.1% following a 0.7% jump in March; core is also anticipated at 0.1%, unchanged from previous. PPI declined .1%, with the core rate +.2%. Housing Starts were up 5.8%, but Building Permits were down 11.5%. The 10-yr is hovering around 3.48% and mortgage prices are slightly worse than yesterday afternoon.

Daily Humor
An unmarried 25-year old Jewish girl tells her Mom that she knows she is pregnant by accident. Shouting and crying, the mother asks, “Who was the pig that did this to you? I want to know!”

Without answering, the girl picks up the phone and makes a call.

Half an hour later, a Mercedes stops in front of their house. A mature and distinguished man with gray hair and wearing a yarmulke steps out of the car and enters the house.

He sits in the living room with the father, mother, and the girl and says, “Good morning. Your daughter has informed me of the problem. I can’t marry her because of my personal family situation but I’ll take care of everything. I will pay all costs and provide for your daughter for the rest of her life. Additionally, if a girl is born, I will bequeath two retail furniture stores, a deli, a condo in Miami, and a $1,000,000 bank account.”

“If a boy is born, my legacy will be a chain of jewelry stores and a $25,000,000 bank account.

“However, if there is a miscarriage, I’m not sure what to do. What do you suggest?”

Overcome with emotion this point, the mother, who had remained silent until now, places a hand firmly on the man’s shoulder and gently says, “So, you’ll try again.”