THE BASIS POINT

LIBOR Drops Five Days In A Row!, Oil At 13mo Low, Housing Starts At 17yr Low

Why couldn’t I have been born a Saudi prince? Then I could influence the supply and demand of a commodity. Crude oil prices hit a 13-month low, and so now OPEC will probably announce production cuts at a meeting next week. Under the heading, “nothing goes up, or down, forever”, oil has tumbled more than 50% since reaching a record $147.27 in July due to falling demand. Frankly, many had hoped that high oil prices would continue to help conservation efforts and improved alternative fuel and energy solutions. Today oil is up $3/barrel to $73/barrel. Where are my Escalade keys?

Ginnie Mae Background
It is good to keep in mind that the reserve requirement for Ginnie Mae securities is 0. 0 with a “z”. Ginnie Mae is a government-owned corporation that guarantees bonds backed by home mortgages that have been guaranteed by a government agency, mainly the Federal Housing Administration and the Veterans Administration. Their insured bonds have always had the explicit backing of the federal government, as opposed to Fannie and Freddie, who guarantee bonds backed by mortgages that have no government guarantee up until recently. As many originators know, the FHA was created in the 1930’s to help borrowers who couldn’t get conventional home loans because they had low credit scores or limited resources. A bank or other institution bundles a group of FHA mortgages and sells a bond backed by mortgages in the pool to investors, and Ginnie Mae insures the bond, for a fee. (It doesn’t own any bonds itself.) Borrowers make their payments to the servicer, who in turn remits the payment to Ginnie Mae, which passes them through to investors.

Mortgage Wholesalers Exit, Make Changes
And now for the latest lender to exit wholesale lending through brokerage channels, we turn to Downey Savings. Downey Savings and Loan Association, a subsidiary of Downey Financial, will close its wholesale loan department and loan processing centers supporting the unit immediately. Downey Savings will also downsize its retail loan department. The moves will affect about 200 employees.

HSBC wholesale announced, “The following changes are being implemented for the Fannie Mae and Freddie Mac Conforming-Jumbo Fixed Rate and Fixed Term LIBOR ARMs: Monday, October 20 will be the last day HSBC will accept registrations in any of these programs. Friday, October 24 will be the last day to lock loans in any of these programs. For Broker and Table Funded transactions, the maximum lock period will be 30 days. Lock periods greater than 30 days will not be permitted. For Correspondent transactions, the maximum lock period will be 40 days. Lock periods greater than 40 days will not be permitted. All loan packages must be received no less than 10 business days prior to the lock expiration date. No lock extensions will be permitted.

Market/Economic Stats
The yield on the 10-yr Treasury is back down to 3.89%, and mortgage prices are better by roughly .250 in price this morning. We had Housing Starts which hit a 17-year low in September – supposedly home builders are trying to reduce their unsold inventories. Housing starts fell 6.3%, the lowest level since January 1991, and starts of single-family homes tumbled 12% to 544,000, the lowest since February 1982, much worse than expected. Later we have the University of Michigan survey. One would expect to see rates drop, as technically we are “oversold”. LIBOR is continuing to improve – the fifth day in a row today. Perhaps this cash infusion thing is working! Hopefully some of this spills into mortgage-backed securities, especially with things seeming to slow down lock-wise.

DAILY HUMOR
A distinguished young woman on a flight from Ireland asked the Priest beside her, “Father, may I ask a favor?”

“Of course, child, what may I do for you?”

“Well, I bought an expensive woman’s electronic hair dryer for my mother’s birthday that is unopened and well over the Customs limits, and I’m afraid they’ll confiscate it. Is there any way you could carry it through customs for me? Under your robes perhaps?”

“I would love to help you, dear, but I must warn you: I will not lie.”

“With your honest face, Father, no one will question you.”

When they got to Customs, she let the priest go ahead of her.

The official asked, “Father, do you have anything to declare?”

“From the top of my head down to my waist, I have nothing to declare.”

The official thought this answer strange, so asked, “And what do you have to declare from your waist to the floor?”

“I have a marvelous instrument designed to be used on a woman, but which is, to date, unused.”

Roaring with laughter, the official said, “Go ahead, Father. Next!”