THE BASIS POINT

Bill vs Note vs Bond, GMAC Pulls Tax Credit Option, Freddie Mac Closing Cost Allowances

USA Today says that Chrysler is trying to make its cars more appealing by painting them in bright colors like orange and lime green. They’re also trying to make them more appealing by painting the name “Toyota” on them.

Bill vs Note vs Bond
Knowing the right name is important. What is the difference, in government securities, between a “bill”, a “note”, and a “bond”? Usually “bills” are anything with a maturity of 1 year or less, a “note” matures between 1 year and 10 years, and a bond is longer than 10 years. Yesterday we had the Treasury auction off $35 billion of 3-yr notes. Simply put, it went well. On top of that, the government was in buying their usual amount of $4-5 billion a day of mortgage origination. And today we have $19 billion of 5-yr notes to buy.

Prepayment “speeds” were announced, and interestingly enough the higher mortgage rates are prepaying at a slower rate than was expected. As an investor this is good news (since no one wants to have their higher-rate mortgages prepaying too fast, and then have to invest the money at a lower rate). And if it is perceived that mortgages, in general, are going to prepay at slower rates (even if it is due to many folks already having a low rate, and those with higher rates don’t have the FICO, the value, or can’t qualify), and borrowers are making their payments, look of investor interest to pick up a little, helping mortgage prices relative to Treasury prices. See how simple this is?

Mortgage Apps Up
Mortgage applications filed last week were up almost 11% from the week before, according to the MBAA. Refinancing was up over 15% prior to the 4th of July weekend, and purchases were up 6.7%. And, in a statistic similar to that of Jobless Claims, the “four-week moving average” for all mortgages as tracked by the MBAA was down a seasonally adjusted 5.6%. Other than that, there is little in the way of news, and careful observers will note that the 10-yr has broken out of the 3.50% range and is now yielding 3.44%. Mortgage prices are also slightly better than yesterday afternoon.

GMAC Pulls Tax Credit Option
GMAC Bank Correspondents found out that “after further consideration, GMAC Bank has decided not to offer the purchase of a first-time homebuyer tax credit as an acceptable source of assets. GMAC Bank will still offer the tax credit in the form of a second lien.” FHA introduced the measure as a way of promoting home ownership. GMAC stated that “The tax credit available for use with an FHA loan may be provided in the form of a second lien.”

CitiMortgage Back Online
After their lock hiatus, Citi continues to roll along. CitiMortgage has cut off some marginal sellers, giving them a deadline to fund locks, and from what I have heard warehouse banks are welcoming them back as a key investor.

Freddie Mac Closing Cost Allowances
A helpful person from Freddie Mac wrote to me to remind me that Freddie’s closing cost allowances have been increased to the lesser of 4% or $5,000 – definitely a positive. Freddie had come out with a statement revising their requirements for Relief Refinance Mortgages giving guidance on eligibility and delivery requirements, and permit refinancing of an existing junior lien serviced by the seller of the Relief Refinance Mortgage simultaneously with the refinancing of the first lien Mortgage, subject to certain conditions.

StoneWater Mortgage re-launched their government lending program for FHA and VA loans. Apparently their service levels are back up to snuff.

Daily Humor
Is this really how men think?

I received a phone call from a gorgeous ex-girlfriend the other day. We lost track of time, chatting about the wild, romantic nights we used to enjoy together.

I couldn’t believe it when she asked if I’d be interested in meeting up and rekindling a little of that “magic”.

“Wow!” I said. “I don’t know if I could keep pace with you now. I’m a bit older and a bit balder than when you last saw me.”

She just giggled and said she was sure I’d “rise” to the challenge.

“Yeah.” I said. “Just so long as you don’t mind a man with a waistline that’s a few inches wider these days!”

She laughed and told me to stop being so silly.

She teased me saying that tubby bald men were cute, and she was sure I would still be a great lover.

Anyway, she giggled and said, “I’ve put on a few pounds myself!”

So I hung up on her.

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