PPI Up, Housing Starts Down, Fed’s Primary Dealers, Citi/Wells Changes

PRODUCER INFLATION HIGHER
This morning we had the Producer Price Index showing a .3% gain in February, as expected. But the core rate, with the volatile food & energy numbers not included, climbed at the fastest pace in well over a year. Core producer prices, were +.5% due to higher prices for cars, light trucks, pharmaceutical products and alcohol (ouch). On a year-on-year basis, producer prices were up 6.4% while core 12-month PPI increased by 2.4%.

LOWEST SFR HOUSING STARTS SINCE 1991
We also had Housing Starts -.6% to a higher-than-expected annual rate while Building Permits declined 7.8%. Compared to a year ago, housing starts were down 28.4%. But for single-family homes, starts were off 40.5 percent from a year ago – the largest year-over-year drop since January 1991!

WILL FNMA/FHLMC CAPITAL REQUIREMENTS BE REDUCED?
After yesterday’s big mortgage improvements (due to the news of the sale of Bear Stearns, and continued illiquidity in the market countered by the Fed’s willingness to step in), we also heard a rumor about the government stepping in and reducing Fannie and Freddie’s capital surplus requirements in an effort to expand the agencies abilities in this unstable environment. Here this morning the 2-yr is at 1.43%, the 10-yr at 3.38%, and 30-yr A-paper loans roughly unchanged from yesterday afternoon.

FED’S EMERGENCY MEASURES
Over the weekend, the Fed made very significant changes to the discount window program. The discount window, which provides direct loans to commercial banks, will now be extended to include primary dealers (see below), and be called the Primary Dealer Credit Facility. There is no limit on the amount of money that can be borrowed from the Federal Reserve, but will be limited by the amount of unencumbered investment grade collateral that the dealer (or bank) has available to pledge. The Fed will accept a wide range of investment grade collateral in this program – good news for mortgages. The maximum term on loans to banks was increased from 30 to 90 days.

FED’s PRIMARY DEALERS
The new program created for primary dealers is for overnight funding – but the latter is assumed to be renewable daily using the same collateral. Who are the current Primary Dealers? BNP Paribas Securities, Banc of America, Barclays Capital, Bear Stearns, Cantor Fitzgerald, Citigroup, Countrywide, Credit Suisse, Daiwa Securities, Deutsche Bank, Dresdner Kleinwort Wasserstein, Goldman Sachs, Greenwich Capital Markets, HSBC Securities, J. P. Morgan, Lehman Brothers, Merrill Lynch, Mizuho, Morgan Stanley, and UBS.

CITI/WELLS CHANGES
On March 10 Wells Fargo Wholesale accepted the higher temporary loan limits, but then made the decision to not offer the higher FHA loan limits at this time, saying, “We will begin offering this program when we feel confident that we can offer our clients a consistent, quality product at a competitive price.” On March 28th Wells Fargo Wholesale Lending will no longer accept new locks for Wells Fargo Mortgage Express loans. Citi wholesale will no longer offer home equity stand alone or combo products, effective March 18, with the last day to register and lock either a stand alone second or combo is Tuesday, March 18. On Wednesday, March 19 these products will no longer be available on their broker website.

WHAT THE F*CK DO YOU MEAN WE CUSS TOO MUCH?
What happened to decorum in the place of employment? Do mortgage people swear? I didn’t think so until I read this lawsuit involving a broker named Aaron Wider in New York. In the deposition, Wider “used the ‘f’ word 73 times. By contrast…the word ‘contract’ was used only 14 times.”