THE BASIS POINT

FDIC and Big Banks Selling Bad Loans, Auctions & Jobs Weighing On Bonds, Banks Fill Fed’s MBS Buying

Banks Filling Fed MBS Buying Void
So now we are done with the Fed’s program. It purchased $6 billion net in agency MBS over the past week, bringing its total net purchase to $1.250 trillion. On the first day post-Fed, current coupon mortgage securities only widened 3 basis points (invisible to any originator) to Treasury securities, although they widened 8 basis points over the last two days. Traders estimate that origination yesterday was about $2.5 billion, and believe that banks, flush with cash, appear to be in the best position to fill in the Fed’s void but are dealing with “quarter-end issues”. But rates in general have become somewhat more volatile.

New Treasury Auctions Next Week
Today is not a Federal Holiday, the stock markets are closed, and the bond market has a short day. If you don’t think that the economy is doing better, look at the price of oil. Oil hit a 2010 high yesterday, and is up over $4 per barrel just this week. Next week we have a new round of 3, 10, and 30-yr Treasury auctions to compete with institutions buying mortgage-backed securities. This morning Non-farm payrolls showed a gain of 162,000 jobs, the unemployment rates came in at 9.7%, but average hourly earnings declined .1%. January & February had revisions of +40k jobs. After the news the 10-yr is up to 3.92%, as you would expect with an expanding economy, the dollar is rallying, and mortgage prices are following Treasuries lower with prices worse by .250-.50 depending on coupon.

FDIC and Big Banks Selling Bad Loans
The FDIC announced that it has sold about $491 million in troubled residential mortgage loans from 19 failed banks. The winning bidder was Roundpoint Mortgage Servicing (NC) which paid $34.4 million for a 50% stake in a new company set up to hold the home mortgage loans. The FDIC has the other 50%. About half the loans are 30 or more days delinquent, the FDIC said, and 80% of the loans are in AZ, FL (so flat that you could stand on a can of tuna an watch your dog run away for 3 days), and GA. Freddie Mac announced that it will be selling off hundreds of foreclosed homes in Las Vegas and Southern California this month through foreclosed property marketing firm New Vista. Freddie Mac said buyers may qualify for the assistance under the U.S.’s Neighborhood Stabilization Program (with NSP homebuyers are eligible for closing costs and down payment assistance when they buy distressed homes in designated areas) and the first-time homebuyer $8,000 tax credit deadline of April 30.

Several major banks, including Citigroup Inc., GMAC Inc. and Wells Fargo & Co. have sold portfolios of nonperforming residential loans in the past three months, and apparently there are buyers. (Of course, economics dictate that at some price, buyers and sellers will transact, and the price of these pools will be based on origination year, location, borrower, payment history, expected home appreciation, etc.) In these recent cases, prices are more realistic and the huge, “10 cents on the dollar”, discount prices seem to be going away. Banks that have been recapitalized through the government’s TARP are selling off legacy loans with the intent of rebuilding their mortgage businesses with a cleaner slate. Most banks had a very good 2009, and have more of a cash cushion to absorb some hits by selling these loans.

Daily Humor
A man owned a small ranch in Montana. The Montana Work Force Department claimed he was not paying proper wages to his help and sent an agent out to interview the rancher.

“I need a list of your employees and how much you pay them,” demanded the agent.

“Well,” replied the farmer, “there’s my farm hand who’s been with me for 3 years. I pay him $200 a week plus free room and board.

“The cook has been here for 18 months, and I pay her $150 per week plus free room and board.

“Then there’s the half-wit. He works about 18 hours every day and does about 90% of all the work around here. He makes about $10 per week, pays his own room and board, and I buy him a bottle of bourbon every Saturday night. He also sleeps with my wife occasionally.”

“That’s the guy I want to talk to … the half-wit,” says the agent.

“That would be me,” replied the rancher.

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