Europe Cuts Rates 75bps, Thornburg Delisted from NYSE, FHA Insurance Fund Drops, Good Luck With Rate Locks

Good Luck on Rate Locks
As I was getting ready to water down my kid’s milk yesterday (hey, things are tough, and no one is immune!) an agent called and wondered, “What is with all the late afternoon re-pricing for the worse?” Investors will change prices for any number of reasons. No one denies that the market has been volatile as of late, both overnight and during the day, due to events which impact rates. But besides market reasons, investors and mortgage companies will also make intra-day price changes to either slow down or increase the number of locks that they are receiving. So if rates drop, and suddenly there is a rush to lock, investors may back off pricing to slow things down, thereby also increasing their margins. Conversely, if locks are slow, even if rates have not moved, companies may change prices reflecting a reduction in their margins in order to spur locks.

Europe Cuts Rates 75bps to 2.5%
While we are talking about pricing, last night the European Central Bank delivered the biggest interest-rate cut in its 10-year history by cutting their benchmark lending rate by 75 basis points to 2.5%. And here in the United States, lobbyists are pushing the Treasury Department to consider a plan to purchase mortgage-backed securities in the hopes of driving mortgage rates to as low as 4.5%. How? As we saw last week, an increased demand for mortgage-backed securities would prompt mortgage rates to drop, which enables homeowners to refinance into lower-cost loans and make it cheaper for potential homebuyers to get into the market. Of course, the plan is not without its critics, especially since the markets have naturally pushed rates higher since last week. They say that only a narrow slice of credit-worthy borrowers would benefit, and the proposal would do little to help troubled borrowers who have fallen behind on their payments, have no equity in their homes or have lost their jobs. And remember those tight guidelines! Mandated low rates could keep private investors out of the mortgage-backed securities market, forcing the government to remain the primary buyer of such investments.

Fannie/Freddie Qualifying Changes
Under the “It is a rumor that won’t go away”, I mentioned a few weeks ago that Fannie was rumored to be following Freddie’s DTI changes. Namely, there is a rumor out there that Fannie may, at some point, match Freddie’s policy regarding DTI’s for manually underwritten loans to 45%. Stay tuned…

Thornburg Delisted fro NYSE
Thornburg Mortgage announced that on December 1, 2008, the company was notified by the NYSE Regulation company that they have determined the company’s common stock should be suspended from trading prior to market opening on Friday, December 5, 2008. The company’s common stock price had fallen below the NYSE’s continued listing standard by having an average closing price of less than $1.00 over a consecutive 30-trading day period in May, 2008 and the company failed to cure this non-compliance within the required six-month period. In addition, the company’s common stock price was under $1.00 at the end of the six-month period.

FHA Insurance Fund Dropping
Is the FHA insurance fund dropping by 39% a “storm cloud on the horizon”? The Federal Housing Administration’s fund to cover losses on the mortgages it insures is shrinking. Remember that since its creation in 1934, the FHA has been self-sustaining using borrower premiums, meaning no public money has been used to cover its mortgage losses. As of Sept. 30, that fund had about $13 billion, a 39% drop from $21.2 billion a year ago. http://www.washingtonpost.com/wp-dyn/content/article/2008/12/02/AR2008120203155.html

Chase Rate Adjustments Changed
Chase, after announcing a few days ago that their pricing hits for “Agency High Balance” loans was going to be 1.75 points,

“is pleased to advise that the Agency High Balance price adjustments announced on December 2, 2008 are being reduced on Fixed Rate Agency High Balance loans effective on December 4, 2008.”

They lowered the hits to 1 point for the various LTV’s.

Market/Economic News
Getting back to the market, the economy continues to be slow. Yesterday’s “Beige Book” (the report showing the economic conditions around the US) shows widespread deterioration in economic activity. Consumer spending is weak on all items, especially autos and discretionary items, the service industry (like us) is suffering, manufacturing is weak, real estate is weak, etc. The only good news appears to be that prices are down for many items! Today we had the usual Jobless Claims (unexpectedly falling by 21,000 last week to 509k, with the four-week moving average rising to 524,500 from 518,250 the week before, the highest since late 1982), and later we have Factory Orders (expected -2.7%). Tomorrow we have the usually-marketing-moving unemployment data, with the Average Workweek expected unchanged, Hourly Earnings expecting an increase of .2%, Nonfarm Payrolls anywhere from -300 to -400 thousand, and the Unemployment Rate to go from 6.5% to 6.8%. With all of this in mind, overnight the 10-yr yield got into the 2.50’s, but it is currently hovering in the mid-2.60’s. Mortgage prices are roughly unchanged from yesterday afternoon.

Daily Humor
Thank you Kevin D.:
A man is in bed with his wife when there is a rat-a-tat-tat on the door.
He rolls over and looks at his clock, and it’s half past three in the morning. “I’m not getting out of bed at this time,” he thinks, and rolls over. Then, a louder knock follows.
“Aren’t you going to answer that?” says his wife.
So he drags himself out of bed and goes downstairs. He opens the door and there is man standing at the door. It didn’t take the homeowner long to realize the man was drunk.
“Hi there,” slurs the stranger. “Can you give me a push??”
“No, get lost. It’s half past three. I was in bed,” says the man and slams the door.

He goes back up to bed and tells his wife what happened and she says, “Dave, that wasn’t very nice of you. Remember that night we broke down in the pouring rain on the way to pick the kids up from the baby sitter and you had to knock on that man’s house to get us started again? What would have happened if he’d told us to get lost??”
“But the guy was drunk,” says the husband.
“It doesn’t matter,” says the wife. “He needs our help and it would be the right thing to help him.” So the husband gets out of bed again, gets dressed and goes downstairs.
He opens the door, and not being able to see the stranger anywhere he shouts, “Hey, do you still want a push??”
And he hears a voice cry out, “Yeah, please.”
So, still being unable to see the stranger he shouts, “Where are you?”
And the stranger replies, “I’m over here, on your swing.”