THE BASIS POINT

Dollar Primer, FHA Reserves Hurting, Mortgages Down 30% in 2010?, More on Google Loan Quotes, Lots of Economic Stats

My 86-year old Dad caught me taking a nap over the weekend. Not one to miss an opportunity, he said, “You practically invented lazy. People should have to call you and ask for the rights to the word “lazy” before they use it.” That’s my Dad…

Lock Desk personnel are seldom lazy, and in fact are often the unsung heroes of mortgage banking since they are in the frontline on pricing and program issues. Last week they had a little more time on their hands, since the volume of mortgage applications filed last week fell a seasonally adjusted 2.5% from the week before. Refinancing was down 1.4%, and purchases were down 4.7%. The MBAA survey, which covers about half of all US retail residential production, supports the Wall Street belief that origination, and loan sales, have decreased lately.

Mortgage Volume Down 30% in 2010?
The Fed and mortgage servicers continue to buy mortgages, and the originators, Asia, hedge funds and money managers are doing the selling. Among all applications, refi’s currently account for almost 73%! This leads to a question: What is the difference between $1.4 trillion and $1.3 trillion? Well, besides $100 billion, it is the difference between what Fannie thinks the residential mortgage market is going to be in 2010 versus Wells Fargo’s estimate. Either number is down significantly from this year’s $2 trillion+ year. Are mortgage companies, vendors, etc. planning for this? Or ignoring it and being ever hopeful?

New Good Faith Estimates
With all of the talk/conjecture/rumors about HUD delaying the mandatory use of the new GFE for 120 days, it is a good opportunity to recall what a Good Faith Estimate actually covers.

Google Powered By OptimalBlue
Yesterday I had a paragraph dealing with Google’s Comparison Ads. (“Would you like to give your client free access to a pricing engine, similar to what agents use with Optimal Blue? Even if the answer is “no”, that’s too bad. In Google, a user can type in “mortgage” and up pops a comparison device…It is rumored to be powered by Mortech.”) As it turns out, actually the comparison is powered by Optimal Blue. Other vendors may be involved in the future.

Move To Paperless
Remember when our parents used to talk about, around the campfire, how one day we would have a “paperless society”? And we scoffed? Wells Fargo Wholesale is encouraging their clients to use their image upload process through their broker website, thus eliminating the need to send paper documents. “The image upload process is available for all delivery locations for both Government and Conventional loans and is the best way to deliver loan documentation.”

IndyMac Fallout Continues
I imagine that whatever paper is saved by Wells Fargo will be partially used up by the trustee for Indy Mac Bank’s former parent company. The trustee is suing Indy’s ex-chairman and board of directors, claiming they recklessly mismanaged the company and contributed to its collapse last year. The trustee claims that former chairman and CEO Mike Perry and his board wasted corporate assets, rebuffed investment offers that could have saved the thrift and ignored numerous red flags about its financial problems.

FHA Reserves Hurting
How are the FHA’s reserves doing? Not very well, and in fact they’ve fallen below the 2% level mandated by Congress. The reserves have been depleted much faster than the agency and analysts had expected, and are down 72% from a year earlier, leaving reserves at just 0.53% of the $685 billion in total loans insured by the FHA. Definitely time to take a look at the premiums!

Fed On Loan Servicing
Many borrowers receive a letter when their servicing is transferred. You know, instead of sending their payment to Ace Home Loans, they’ll be sending it to Bank of America. The Federal Reserve Board has stepped in and said,

“The purchaser or assignee that acquires the loan must provide the required disclosures in writing no later than 30 days after the date on which the loan is sold or otherwise transferred or assigned. The Board is issuing this interim rule, effective immediately upon publication, so that parties subject to the statutory requirement have guidance on how to comply. However, to allow time for any necessary operational changes, compliance with the interim final rule is optional for 60 days from the date of publication; during this period, covered persons would continue to be subject to the statute’s requirements.”

Primer On The Dollar
It is a good time to remember some numbers, since where US rates go is, in part, determined by factors outside of the US. Today, about half of all US Treasury debt outstanding is held by foreigners, with China dominating that contingent with nearly $800 billion of US Treasury debt (10%). Non-US interests also hold corporate bonds (25% of outstanding issues), and Agency and MBS (17%). And one quick way to move the dollar, which has been doing poorly lately, is for foreign central banks to buy or sell dollar-denominated securities. Currently most investors and economists feel that rates will be higher in a year than where they are now, so…

Few want to see the continued plunge in the value of the dollar. But is the government allowing the dollar to free fall in an attempt to make US exports more competitive? Or is the decline due to the natural ebb and flow given our imbalances in global trade? On the trade desk everyone found it somewhat amusing, in the old days, if a country stepped in and tried to support one currency or another: the foreign exchange market is far larger than any central bank or combined resources of any central banks to control the dollar’s slide. If any investor out there in the world can borrow funds in the US at rates between zero and 0.25% and then reinvest in countries with higher rates and faster growing economies, this puts more downward pressure on the dollar. But the inexpensive dollar is the prime support for the US stock and bond markets right now, and this includes mortgage rates.

Industrial Production and Capacity Utilization
Yesterday, after the PPI number, the market grappled with the Industrial Production and Capacity Utilization numbers. IP was up .1%, less than forecast, but CP was up .2% – nice to see since economists use these rates to gauge factories’ ability to produce goods with existing resources. The numbers have lost a little of their significance, given how our economy has been transitioning to services, but nonetheless are watched. So we had another day of a decent bond market and a decent stock market – you were happy if you had money in either.

Housing Starts Fall, CPI Reported
Today may be a different story, maybe not. Housing Starts in October unexpectedly fell to their lowest level in six months. The Commerce Department said housing starts dropped 10.6%, whereas “experts” had predicted an increase. Single-family home starts were down almost 7%. Multifamily starts were down almost 35%! On the flip side, unfortunately, U.S. consumer prices rose more than expected in October due to energy and motor vehicle costs. The CPI jumped 0.3%, more than the 0.2 percent increase analysts expected and at a slightly faster pace than the +.2% in September. Core CPI was +.2%. After this news the 10-yr yield is at 3.33% and mortgage prices are worse between .125-.250.

Daily Humor
Moishe, a Jewish actor is so down and out, he’s ready to take any acting gig that he can find.
Finally, he gets a lead, a classified ad that says, “Actor needed to play an ape.”
“I could do that,” says Moishe.
To his surprise, the employer turns out to be the Central Park Zoo in New York .
Owing to the mismanagement, the zoo has spent so much money renovating the grounds and improving the habitat, they can no longer afford to import an ape to replace their recently deceased one. Until they can, they plan to put an actor in an ape suit.
Out of desperation, Moishe takes the offer.
At first, his conscience keeps nagging him, that he is being dishonest by fooling the zoo-goers. Moishe also feels undignified in the ape suit, stared at by the crowds who watch his every move.
But after a few days on the job, he begins to enjoy all the attention and starts to put on a show for all the zoo-goers. Moishe hangs upside down from the branches by his legs, swinging about on the vines, climbing up the cage walls and roaring with all his might, while beating on his chest. Soon, he’s drawing a sizable crowd.
One day, when Moishe is swinging on the vines to show off to a group of school kids, his hand slips and he goes flying over the fence into the neighboring cage, the lion’s den.
Terrified, Moishe backs up as far from the approaching lion as he can, covers his eyes with his paws and prays at the top of his lungs, “Shama Yisroel Adonoi Elaheinu, Adonoi Echud!”
The lion opens his powerful jaws and roars the response, “Baruch Shem K’vod Malchuso L’olam Va’ed”
>From a nearby cage, a panda yells, “Shut up you schmucks, or you’ll get us all fired!!!”