THE BASIS POINT

30yr vs ARM Rates, Spitzer Resigns, Stocks Gain Most In 6yrs

Anyone who has worked for a mortgage company in the last 8 months knows that any phone call that starts with the person asking, “Do you have a second?” or “Do you have a moment?” knows that the call will last significantly longer. In fact, studies of mortgage banks telephone call volume for the first two months of 2008 was 36% higher, and calls lasted 18% longer, than the same period of 2007. OK, I just made that up, but sometimes it seems that way. Everyone is spending more time talking to their customers, working on harder problems, etc., but it appears that fortunately the loan limit questions are tapering off, for better or worse.

Speaking of harder problems, no wonder they could never figure out how to get off of Gilligan’s Island.

There is no news today, aside from CNBC report of Elliot Spitzer’s resignation, so eyes will be on the stock markets coming off of yesterday’s big gains – the largest percentage in 6 years. The 10-yr is back down to the high 3.50’s, but 30-yr mortgage prices are better by roughly .375 in price. Yesterday’s announcement by the Fed that they will accept agency and AAA-rated non-agency securities as collateral and will lend Treasuries for 28 days instead of the usual overnight period should help mortgages, and even jumbo mortgage-backed securities. In addition, the market is still giving a 60% chance that the Fed will reduce interest rates by 75 bps at next Tuesday’s meeting.

Intermediate ARM prices got you down? This came from Fannie’s trading desk:

In the last week, we’ve seen (prices) on ARMs collapse relative to their fixed-rate counterparts…. the rate on a 5/1 Hybrid had been running at 1% or more below the 30yr fixed rate, but over the past week, that spread has collapsed to 0.125% or even flat to 30yr fixed…Large supply and overall deleveraging by accounts appear to be the culprits of this underperformance of ARMs.

CitiMortgage, due to Fannie Mae’s changes to the DU Agency SISA program, made changes to their Portfolio products effective March 15th. Their DU/LP Agency SISA program will be subject to parameters such as, “Investment Properties no longer permitted,” “3/1, 5/1, 7/1 and 10/1 Libor Arm products will be available with a 10 year I/O period only,” “DTI has been reduced to a maximum of 45%,”, and several changes to their FICO and LTV bands. The minimum FICO for all loans originated for Citi’s Portfolio, except Community Lending products, will be 590. This includes Expanded Lending and any underwriting exceptions that remove loans from eligibility for sale.