Commercial Paper As Credit Crunch Indicator
“Commercial paper” is used by businesses to finance their own working capital, meet payroll and pay suppliers, etc. From the third quarter of 2007 to that of 2008, GDP grew by 3.4% while outstanding commercial paper fell by 25%, losing about $600 billion. Asset-backed commercial paper fell by 40%. If this borrowing falls by such a large percentage, but GDP remains constant, that is pretty good proof of a credit crunch. This week the amount of corporate debt being sold is unusually high. In a very basic sense, each dollar of corporate debt sold competes for investment dollars with mortgages, Treasuries, municipal bonds, etc. It appears that some companies are using the money to expand, or feel that the financing costs are better than issuing stock. But mainly companies like IBM, Dell, PepsiCo, Ethan Allen, Korea Hydro Nuclear, Burlington Northern, etc., are issuing debt to take advantage of lower rates – just like mortgage borrowers refinancing.
Harsh View On Self-Employed Mortgage Seekers
A while back I discussed how I felt that the credit pendulum had swung too far, and that self-employed borrowers are bearing the brunt of it. One originator correctly wrote, “I disagree strongly. Many self-employed people have no problem getting a mortgage. The self-employed people who now have a hard time getting a mortgage are the tax cheats: if a person wants to not report all the cash earnings or fictitiously create expenses/deductions that don’t exist for the sole purpose of not paying Uncle Sam, then I revel in the fact that they can’t get a mortgage. Until they pay the same percentage of their gross income into the tax man’s coffers as I do – let ’em rent!”
Prepayment Issues From Refi Boom
Wall Street analysts are in an absolute tizzy about the prepayment speeds released over the last few days. As most any lender can tell you, refinancing is alive and strong (although not as vibrant as 2003), and early pay-offs were much stronger than expected and then investors had hoped they’d be. I am not going to delve into the coupon, type of security, or age breakdowns, but basically 2008 loans are refinancing most quickly, as are conventional (Fannie & Freddie) 5% securities. On the Ginnie side (primarily FHA and VA loans) it appears that a growing share of new issuance actually is modified loans. Among servicers, Wells Fargo remains the most aggressive in refinancing borrowers (low and high LTV) through the HARP program. However, other servicers are apparently ramping up on this front because their gap with Wells speeds has narrowed according to reports from Barclays, BofA, and others.
No Surprises From Fed Beige Book Data
A beige book is a book that is beige. THE Beige Book is a book that is produced by the Fed which details economic activity in the various Fed Districts around the US. It came out yesterday in advance of the 9/21 FOMC meeting. There were no surprises, and things are, as you’d guess, somewhat slow in the economy and slow after the expiration of the first time home buyer tax credit. But not terribly slow – just not picking up as many had hoped. Besides, remember that economic activity that is too robust could lead to higher rates as companies fight for capital, so be careful what you wish for. Of course, if things are slow in the economy, job and housing markets are most likely to be slow also. By the end of Wednesday mortgage prices were worse by about .250, and the 10-yr was worse by .375 with a yield of 2.65%. The $21 billion 10-yr auction went well, but no matter.