THE BASIS POINT

ADP Says -697k Jobs Lost, Depression Definition, Bank News, Rate Locks Down

Q: What’d the 0 (zero) say to the 8?
A: “Nice Belt.”

Depression Definition
Speaking of belts, and their tightening, a survey says that “48% of all millionaires say the outlook for the economy is gloomy. The other 52% are no longer millionaires.” Will Rogers defined a recession as “when your neighbor is out of work, and a depression is when you’re out of work”. Jokes aside, Economists define a recession as two quarters of negative GDP growth, whereas a depression is 3 years of it and/or a decline in real GDP of 10% or more. We’ve had a 6.7% decline so far in the 2nd half of 2008, so great interest will be placed on this quarter’s numbers. Tell that to builder Toll Brothers, the largest U.S. builder of luxury homes, who just reported their 6th consecutive quarterly loss. The NAR is predicting that sales of newly built properties probably will fall to their lowest level in 46 years of data.

Bank News Roundup
Guarantee Bank has left many small and mid-size mortgage banks with one less warehouse option. In a phone call to clients, they are exiting the business, although many companies that use Guarantee have several months to find new lines from warehouse firms like First Tennessee or Comerica.

Following other banks like BofA, Chase, Citi, and PNC, U.S. Bancorp (the 8th largest bank in the US) cut its dividend 88 percent. Prior to 2008, U.S. Bancorp had announced dividend increases in 36 straight years.

Mortgage Rate Locks Down Last Week
Last week lock desks around the nation noticed that locks fell. The MBAA reported that mortgage applications for the week ending Feb 27th fell for the second week in a row by 12.6%, with refinancing applications down over 15% and purchases down almost 6%. This follows the previous week’s number showing a drop of over 15%. Are homeowners and potential homeowners waiting for lower rates? Perhaps, but the slowdown is giving Ops staffs a chance to catch up on processing, underwriting, drawing docs, funding, and warehouse lines, although management teams are hoping that lower applications are not here to stay. If so, it will not bode well for April numbers. The industry is already seeing mortgage companies reduce their profit margins slightly, or in some cases reducing margins but raising fees. Talk of upfront lock fees is increasing, and many brokers are charging borrowers for appraisals at the start of processing.

FDIC Investigates Mortgage Fraud
According to Sheila Blair, chairman, the FDIC is investigating more than four-thousand cases of alleged mortgage fraud worth more than $7 billion. Unfortunately the FDIC only has 56 employees*. Blair also expects an increasing number of civil suits against mortgage brokers and others who allegedly defrauded lenders. *OK, I made that up. In fact, the FDIC is actively hiring new staff.

Citi’s Mortgage Bank Division Adjusts Guidelines
CitiMortgage Correspondent announced new MI FICO and LTV criteria, effective 3/9. Many investors are already at these levels already, and some may be considering raising the bar further. “To obtain Mortgage Insurance for Loans with LTV > 80%, regardless of documentation process, the following criteria is generally now required by the MI companies: A credit score of 660 or greater for Full Amortization Loans for a primary residence &second home under a purchase or rate/term refinance, a credit score of 680 or greater for Interest-Only Loans, a credit score of 720 or greater for Cash-out Refinance Loans, a credit score of 700 or greater for Agency Jumbo Loans, and, in Florida, if the property is located in a declining market as designated by the MI companies, the property must be a detached 1-unit property.

ADP Says -697k Jobs Lost
Ok, so what is going on today in the market? Rates are higher, prices lower, primarily attributed to stable stock markets rather than anything else. This could balance out yesterday’s rate improvements. It appears that most lenders are locking 30-yr loans between 4.75% and 5.25%, with the Fed continuing to buy securities that hold those rates. The ADP Employer Services said U.S. private employers cut 697,000 jobs in February, and although the correlation is always questionable, it has caused the market to wonder about Friday’s unemployment data. That does it for the day on scheduled news, although we will see the Fed’s Beige Book out in several hours along with the expectation that the Treasury will announce $60 billion in new issue debt tomorrow. The yield on the 10-yr Treasury, also of questionable correlation to mortgage rates recently, is currently 3.02% and mortgages are a shade worse than yesterday afternoon.

Daily Humor
My wife sat down on the couch next to me as I was flipping channels.

She asked, “What’s on TV?”

I said, “Dust.”

And then the fight started…