Bank Earnings Mixed, CPI Flat Before Fed Speeches, Guidlines Tighter

Wells Fargo posted a $2 billion profit in the first quarter on record revenue of $10.6 billion, whereas Washington Mutual, the nation’s sixth-largest originator, lost $1.14 billion. And JPMorgan Chase did better than both, reporting net income of $2.4 billion for the first quarter 2008. And poor Merrill Lynch posted its third straight quarterly loss: $6.5 billion.

Yesterday’s CPI more or less met forecasts (.3% increase in the overall reading and the 0.2% rise in the core data), March’s Housing Starts report was a surprise, however, and showed a much larger than expected decline in starts of new homes: the nearly 12% drop in starts of new homes is their lowest level in 17 years. (Mostly blamed on multi-family starts.) March’s Industrial Production report showed a 0.3% rise in output at U.S. factories, mines and utilities, stronger than the 0.1% decline that was expected, pushing rates higher. All in all, in spite of longer-term rates heading up, most economists still believe that the Fed will cut overnight rates again at the end of the month.

The only news today is the usual Jobless Claims and the Conference Board’s Leading Economic Indicators (LEI) for March. This data attempts to measure economic activity over the next three to six months and is expected to show an increase of 0.1%. Jobless Claims rose by 17,000 to 372k, about as expected, and the four-week average of new claims, a more reliable guide to underlying labor market trends because it smooths out weekly data fluctuations, dropped slightly to 376,000 from a revised 376,750 in the previous week. We also have a spate of Fed governors speaking: Kohn, Fisher, Prescott, and Lacker. Lastly the April Philadelphia Fed manufacturing index is expected to rise following March’s increase and the March leading indicators report is expected to reverse a porting of February’s decline. Unfortunately the 10-yr has moved up in the high 3.60’s, but mortgage prices are roughly unchanged.

  • On March 31, Fannie Mae sent out new guidelines to lenders intended for walkaways and other foreclosure situations. Fannie will now prohibit foreclosed borrowers from funding another mortgage for five years unless there are “documented extenuating circumstances.” Even in those cases, the mortgage prohibition is for three years, and after five years, borrowers with foreclosures in their files will have a maximum LTV of 90% and will need minimum FICO credit scores of 680. Freddie Mac, counts a foreclosure as a major credit hit for 7 years, should announce a similar policy. A number of web sites have begun claiming to cut the hassles of bailing out of a mortgage and letting the borrower walkaway, which most agents don’t approve of.
  • PMI announced that Limited Documentation loans will no longer be eligible for mortgage insurance, effective June 1. This includes any loan with stated income or stated assets such as Stated Income/Verified Assets (SIVA), Verified Income/Stated Assets (VISA) or Stated Income/Stated Assets (SISA). This change does not include Full Documentation loans that receive DU or LP approvals, and alternate documentation is still acceptable.
  • Chase is eliminating certain mortgage features for conventional loans with an LTV greater than 80% when the property is located in a Declining Market. (These changes do not impact FHA and VA loans.) For example, cash out and non-owner loans are eliminated.
  • Taylor Bean cut their LP SISA program. All loans, regardless of lock or underwriting date, must be received in purchasable condition by May 2nd. Any loan not meeting these deadlines must be converted to Full Doc loans and meet all applicable guidelines.