THE BASIS POINT

Housing Bill Verbiage, Provident Cuts Fallout Brokers, WaMu Losing Deposits

“Do not corner something that you know is meaner than you.” And is there anything meaner than me when I feel I was on the bad side of a trade? Last week I bought some Krispy Kreme stock for my daughter. This week it was lower! So I called Charles Schwab to complain, and ask that they use this week’s price instead of last week’s. I couldn’t believe that they wouldn’t do it! The clerk told me that I needed to explain to my daughter, “That wasn’t how it worked”. So I told the clerk that loan agents want to do that all the time when they lock a loan and then rates go down: they tell us that the borrower wants the lower rate. He didn’t buy it.

Along the lines of fallout, to control costs Provident Funding stated that, “When we commit a fixed price to you for a specific time period, we must honor that price. We take interest rate risk to guarantee to you a price we may not be able to secure in the market when we sell your loan. Managing that risk can be costly if an account fails to keep their commitment to close the loan with us. Logically then, Provident Funding places a great deal of importance on closing every locked loan within the agreed upon time period so we monitor our accounts locked fallout. Fallout = loans that an account locks and subsequently does not fund with us.” Provident proceeded to notify brokers who had poor pull through that they were terminating their relationship. Makes sense!

MORTGAGE INDUSTRY ROUNDUP
Anyone interested in the fundamentals of the housing bill should read it.

Downey Financial saw their fourth straight quarterly loss, and the stock fell 34% yesterday, meaning that it is down 94% this year. Chief Executive Officer Daniel Rosenthal stepped down, as did founder, chairman, and largest shareholder Maurice McAlister, 83. Chief Operating Officer Thomas Prince, 61, is the interim CEO. As every originator knows, Downey was one of the biggest players in option-ARMs.

Washington Mutual’s stock took a hit on Thursday (-13% to $4/share) on concerns that the nation’s largest thrift is losing access to important sources of funding. Many of WaMu’s unsecured creditors are “quietly” reducing their exposure to the troubled bank, according to a report by an analyst, citing information in the company’s second-quarter earnings report. That means the thrift has to rely more on insured deposits and borrowing from the Federal Home Loan Banks for funding. In the company’s earnings report released earlier this week, it said that total deposits fell by $6.13 billion during the second quarter.

Wachovia’s Chief Financial Officer (Thomas J. Wurtz) resigned yesterday, following the bank’s larger-than-expected $8.86 billion second-quarter loss. Wachovia has already slashed its dividend and cut 10,750 jobs, also recently lost their CEO.

MARKET ROUNDUP
After a few days of improvement, mortgage prices got whacked today after Durable Goods shot up in June on demand for metals, machinery, electrical equipment, and military needs. Durable goods orders, expected -.3%, were up 0.8 percent, after a revised 0.1 percent gain in May, and ex-transportation orders were climbed 2% last month, the sharpest rise since December. This certainly is counter to yesterday’s Existing Home Sales falling 2.6% in June, 15.5% lower than June 2007. Total housing inventory represents a 11.1.-month supply at the current sales pace, up from a 10.8-month supply in May. Not surprisingly there is a downward distortion in the price data with the short sales and foreclosures accounting for 33% of transactions. In addition, the supply of homes may be even greater because not all foreclosed properties are counted by the Realtors group – they only include foreclosures that have been listed on the multiple listings service. Later today we’ll have New Home Sales, expected -2.0%, but for now the 10-yr is up to 4.05% and 30-yr mortgages are worse by roughly .375 in price.

JOKE OF THE DAY
An old Baptist man prays to God and says “God, I’ve been a good person my whole life, always gave charity, prayed, never did a bad deed. But I’m broke and I want to leave my kids with an inheritance. I’ve never asked for anything from you in my life – please let me win the lottery tomorrow night”.

Of course he doesn’t win and drops dead on the spot.

When he gets “upstairs” he asks God to explain himself – how could he not give an old man who always did his bidding – his one wish?

So God turns to him and says “You fool – you could’ve at least bought a ticket.”