THE BASIS POINT

Half of Nation’s 7800 Credit Unions Reported 2009 Losses, Fed Analysis of How Banks Pay Employees

Half of Nation’s 7800 Credit Unions Reported 2009 Losses
The National Credit Union Administration (NCUA) approved a $1 billion charge to pay for the corporate credit union bailout. This follows last year’s charge of $1.1 billion, $337 million of which went to the corporate bailout and the remainder to replenish reserves for the National Credit Union Share Insurance Fund. These monies must be accrued by credit unions for the second quarter, and paid by August 30th. Unfortunately the corporate assessment is expected to push over a thousand credit unions into the red for the second quarter, over five hundred into the red for the year, and 60 credit unions into undercapitalized territory. According to NCUA almost half of the nation’s 7,800 credit unions reported losses for fiscal 2009.

Fed Analysis of How Banks Pay Employees
If you’d like to see cutting edge news on compensation in large banks, you’re in luck. The Federal Reserve completed its first round of in-depth analysis of bank compensation practices, especially at large, complex banking organizations. Apparently many large banks have already put these changes in place, especially to ensure that incentive compensation plans do not encourage excessive risk-taking. The next step, of course, is for our government to study compensation in specific business lines and financial firms – like mortgage companies. I can hardly wait.

What Low Rates Mean For Mortgage Bond Managers
Right now, in the MBS market, every 30-yr security is trading above par. (Put another way, there are no 30-yr Fannie 3.5%’s out there, comprised of 3.75-4.125% mortgages…) What’s an investor to do?! Fortunately for investors, not so fortunate for originators, early pay-offs of higher coupon product has been relatively low – fewer refinances. This has led recent production of 30-yr mortgages in the high 5% range, or even low 6% range, to trade very well, perhaps instilling a little more confidence in the MBS market. As one analyst said, “The refi wave is more of an illusion than reality” for reasons we all know. (If we had no income, no documentation, and no appraisal loans, things would certainly change!)

Market Is Quiet Ahead of Existing Home Sales
Turning to the market, there is really not much going on. Stocks were close to flat yesterday after rallying early in the day on some news from China. 30-yr A-paper mortgages, which started off the day worse by about .250, improved, and some investors sent out some price improvements. But overall, it was pretty quiet. This morning we will have some news on Existing Home Sales, FHFA Home Purchase Index, and the Richmond Fed Index, and then a $40 billion 2-yr auction. Ahead of that we find the 10-yr yield at 3.22% and 30-yr mortgage prices better by .125-.250.

What Low Rates Mean For Mortgage Bond Managers
Right now, in the MBS market, every 30-yr security is trading above par. (Put another way, there are no 30-yr Fannie 3.5%’s out there, comprised of 3.75-4.125% mortgages…) What’s an investor to do?! Fortunately for investors, not so fortunate for originators, early pay-offs of higher coupon product has been relatively low – fewer refinances. This has led recent production of 30-yr mortgages in the high 5% range, or even low 6% range, to trade very well, perhaps instilling a little more confidence in the MBS market. As one analyst said, “The refi wave is more of an illusion than reality” for reasons we all know. (If we had no income, no documentation, and no appraisal loans, things would certainly change!)

Daily Humor
A young lawyer and a senior citizen are sitting next to each other on a long flight. The lawyer is thinking that seniors are so dumb that he could get one over on them easy.

So the lawyer asks if the senior would like to play a fun game. The senior is tired and just wants to take a nap, so he politely declines and tries to catch a few winks.

The lawyer persists, saying that the game is a lot of fun. “I ask you a question, and if you don’t know the answer, you pay me only $5. Then you ask me one, and if I don’t know the answer, I will pay you $500,” he says.

This catches the senior’s attention and to keep the lawyer quiet, he agrees to play the game.

The lawyer asks the first question. “What’s the distance from the Earth to the Moon?”

The senior doesn’t say a word, but reaches into his pocket, pulls out a five-dollar bill, and hands it to the lawyer.

Now it’s the senior’s turn. He asks the lawyer, “What goes up a hill with three legs, and comes down with four?”
The lawyer uses his laptop and searches all references he could find on the Net. He sends e-mails to all the smart friends he knows; all to no avail.

After an hour of searching, he finally gives up. He wakes the senior and hands him $500. The senior pockets the $500 and goes right back to sleep.

The lawyer is going nuts not knowing the answer. He wakes the senior up and asks, “Well, so what goes up a hill with three legs and comes down with four?”

The senior reaches into his pocket, hands the lawyer $5 and goes back to sleep.

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