THE BASIS POINT

10yr Note Doesn’t Even Beat Inflation Rate, What Happens to Appraisals 1/1/09?

For anyone who has a hankering to keep up on the mortgage news that is out there, one free service they should consider is MortgageNewsClips.

One has to be careful about what is out there in the web. I received this urgent notice yesterday:

Email Warning! If you get an e-mail with “Nude Photos of Sarah Palin” in the subject line, do not open it. It might contain a virus. If you get an e-mail with “Nude Photos of Hillary Clinton,” do not open it. It might contain nude photos of Hillary Clinton.

Market Update
Is this nation $1.2 trillion poorer than it was Friday afternoon? Not including the increased value in the bond market, that amount is the loss represented by the fall in the stock market yesterday. But speaking of the bond market, mortgage-related markets lagged the improvement in the Treasury market yesterday after the Congress shot down the $700 billion Emergency Economic Stabilization Act to free the market of bad debt. Interestingly, mortgage markets had already cooled (relative to the Treasury market) on the bailout package before the vote. According to analysts, there are $8 trillion of mortgage securities outstanding, including those backed by Fannie Mae, Freddie Mac, and the government.

Investor flight into U.S. Treasuries pushed the 10-year Treasury yield down to 3.58%, while one-month bill rates plunged to 0.06% from 0.12% on Friday. Investors are buying 10 and 30-year bonds even though their yields are the furthest below inflation since 1980, if not earlier. Generally speaking, owning a bond means receiving a fixed payment, and if the Consumer Price Index is increasing at 5.4%, owning a Treasury security at 3.58% means losing money – but less than money invested in property or the stock market? Yields on 2-yr Treasury notes are below the overnight Fed Funds rate, whereas for the last 10 years they’ve traded an average of 25 basis points above them! This morning everyone is very nervous, to say the least.

Fed Rate/Liquidity Measures
The odds of a cut in the Fed Funds rate have increased, but remember one thing that some economists point out. Why cut the overnight Fed Funds rate when the Fed can increase the TAF (term auction facility) for depository institutions? They doubled the size of the auctions from $150 billion to $300 billion. What difference does this make for a loan agent? The auctions should provide a guarantee of liquidity over year-end. Along with these actions, the Fed also increased swap lines by $330bn with a variety of other central banks – more than doubling the existing swap lines. It is a continuation of the Fed’s attempts to deal with the ongoing liquidity problems by targeted measures rather than cuts in the fed funds rate. The stated purpose is: “By committing to provide a very large quantity of term funding, the Federal Reserve actions should reassure financial market participants that financing will be available against good collateral, lessening concerns about funding and rollover risk. “ Financial firms now have a very large amount of short-term funding at the Fed they can draw on.

Will Lenders Permanently Lose Ability to Select Appraisers?
Remember that whole appraisal change that is supposed to take place on January 1st? In response to questions posed during a congressional hearing regarding oversight of Fannie Mae and Freddie Mac, James Lockhart (director of the new Federal Housing Finance Agency FHFA) told the House Financial Service Committee that implementing the HVCC agreement has “taken us longer than we expected”. Lockhart told the committees that the January 1 implementation deadline may be delayed 1-3 months and that potential changes to the agreement are still being worked out. There was no word as to what those changes may be. It’s likely that little of substance will be changed affecting independent fee appraisers, as the influential banking lobby has been more concerned with the provisions regarding AMC ownership and in-house appraisal staff. Some loosening of the mortgage broker “death sentence” has been intimated in recent weeks, as well. So basically, with all the troubles that Fannie and Freddie have had in recent weeks, the code of conduct has taken a back seat. Some lenders are developing an internal process that would eliminate any involvement by Loan Officers in the selection of appraisers or the ordering of appraisals.

Daily Humor
Thank you Jeff G.:
I took my dad to the mall the other day to buy some new shoes. We decided to grab a bite at the food court. I noticed he was watching a teenager sitting next to him. The teenager had spiked hair in all different colors: green, red, orange, and blue. My dad kept staring at him. The teenager would look and find him staring every time.

When the teenager had enough, he sarcastically asked, “What’s the matter old man, never done anything wild in your life?”

Knowing my dad, I quickly swallowed my food so that I would not choke on his response; knowing he would have a good one.

And in classic style he did not bat an eye in his response, “Got drunk once and had sex with a peacock. I was just wondering if you were my son.”