CPI May +0.1% and -1.3% Last 12 Months, Inflation Not An Issue. Rates Down This and Other Economic News

When I was in high school I was dating a deaf girl. One night I went to pick her up and found her in the arms of my best friend who was also deaf. I should have seen the signs.

Rates Better on Weak Economic News
What “signs” are the economy showing which may help us figure out where rates are going? Yesterday was a good day for rates for the 4th day in a row, a nice comeback from being worse early in the day. The economic data was better (weaker) than expected. After decent Producer Price and Housing Starts numbers, we learned that Industrial Production fell 1.1% in May, the 16th decrease in the last 17 months, and Capacity Utilization dropped to a record-low of 68.3%. The weak numbers caused stocks to sell off, and the bond market improved, with low-coupon mortgage prices doing better by .5 or better.

Remember when food prices were soaring, causing riots in many areas as the price of grains and rice shot up? So far this year agricultural prices have been falling — along with those of other edible commodities — as the economic downturn has moderated demand and as more land has been put into crop production. World cereal inventories, which reached lows in recent years, have started to rebuild. But traders see a 50% chance policy makers will raise overnight interest rates from 0-.25% by the end of the year (they meet again next week) although expectations were over 60 percent a week ago. The Fed’s target rate is at a record low range of zero to 0.25 percent.

Debt Supply A Concern For Rates
But what about the supply of US debt hitting the market? The central bank has purchased $162.978 billion in U.S. debt since its operations began on March 25. Early this morning Treasury prices were falling after President Barack Obama said a recovery in the U.S. economy may drive yields higher as appetite for risk returns. The Treasury resumes debt sales next week with auctions of two-, five- and seven-year securities, and if indeed recession concerns ease one can expect money flowing out of Treasuries and into investments with a higher potential yield.

Monthly & Annual Consumer Price Index Down
This morning we have seen the Consumer Price Index come out. The CPI was +.1% after being unchanged in April, better than the +.3% that was expected. And in the last 12 months, the CPI is actually down 1.3%, the largest decline since 1950. (Even before I was around!) After the news we find the 10-yr yielding 3.65% and the 5-yr Treasury, and mortgages, better by about .125.

Tidbits From LendingTree Quarterly Report
Not that I read company 10Q’s for enjoyment, but one is interesting since it applies to so many non-depository mortgage banks. According to their SEC report, as of March 31st LendingTree Loans had “two $50 million committed lines of credit (“warehouse lines”)…One of these lines expired on April 30, 2009 and has been replaced by a new $50 million committed line of credit (“the first line”). The first line is scheduled to expire on April 30, 2010, but can be canceled at the option of the lender without default upon sixty days notice. The second line is scheduled to expire on December 30, 2009, however, that lender has indicated it is exiting the warehouse lending business and will honor the existing contract only through the stated term. The first line includes an additional uncommitted credit facility of $75 million…The interest rate under the first line is plus 225 basis points plus the greater of (a) the 30-day LIBOR or (b) 200 basis points. The interest rate under the $75 million uncommitted line is 30-day LIBOR plus 150 basis points. The interest rate under the second line is 30-day LIBOR plus 125 basis points. Under the terms of these warehouse lines, LendingTree Loans is required to maintain various financial and other covenants…. Under the new first line, LendingTree Loans is required to…sell at least 50% of the loans it originates to an affiliate of the lender under the first line or pay a “pair-off fee” of 37.5 basis points on the difference between the required and actual volume of loans sold.” Most mortgage bankers would have little trouble figuring out who supplied the line!

More on Foreclosure Moratorium In CA
The California Mortgage Bankers Association reports that many companies may be exempt from the new 90-day foreclosure moratorium if they have an approved loan mod program in place. Many companies, whether they are Wells or Selene Finance, Chase or Vericrest, are DOC licensees that have applied so far. Once a company applies, they get a 30-day stay while the state reviews the application, then they decide whether the company gets a permanent exemption or is subject to the 90-day moratorium. Two have been given a permanent exemption already, rest are under review. It is best to check with the company servicing a particular loan, but some servicers are saying that it is business as usual since there are so many similarities between California’s law and regulations at the federal level, and many programs already in existence.

Daily Humor
A gentleman woke one morning and proceeded out to retrieve the morning paper. Much to his chagrin he discovered there was a rather large gorilla in the tree in his front yard. He slowly backed into the house and dialed 911; the operator transferred the call to the local fire department; the respondent indicated that they had no experience with gorillas and then dialed the local zoo for a three way conference call. The zoo keeper indicated that their gorilla was in fact in its cage and that he would be unable to assist in capturing; he retained only. He did know of a local trapper, however, that had been used to capture a tiger that escaped from the circus a few years ago. The homeowner then called the trapper and the trapper said that he could be over in an hour.

Upon his arrival he jumped out of his van and stood at the base of the tree with a Doberman; a baseball bat and a 12 gauge shotgun. The homeowner inquired as to what the trapper planned to do.

The trapper responded by saying, “I am going to have you hold this shotgun cocked and ready to fire; I am then going to climb up and hit the gorilla with the baseball bat; once he falls to the ground this Doberman is specially trained to do one thing and that is to bite him in the “Frank and Beans” which will render him helpless and he will pass out.”

The homeowner then asked, “What is the shotgun for?”

The trapper replied, “By chance if the gorilla knocks me out of the tree first; SHOOT THE DOG!”