THE BASIS POINT

Long Live Monopolies, Bank & Credit Union Closures, Mortgage Insurance Easing, Double Dip For Mortgage Industry?

Bank & Credit Union Closures
The FDIC shut down Beach First National Bank, and the branches have re-opened this morning as Bank of North Carolina. Per the press release, Beach First was heavily invested in coastal real estate development. But banks are not the only savings institutions that are shut down. Connecticut’s South End Mutual Benefit Association, which has been around since 1945, has passed a resolution to cease operation and terminate its business, and has petitioned the National Credit Union Administration (NCUA) as receiver. With a credit union, accounts are insured up to at least $250,000 by the National Credit Union Share Insurance Fund (NCUSIF) – a federal fund managed by NCUA and backed by the full faith and credit of the U.S. government.

Mortgage Insurance Requirements Easing
Starting today, Genworth has removed FL, CA, AZ, NV & MI from its declining market list, aside from saying that cash-out refi’s are not allowed in Florida, and still not allowing condos or attached housing in that state. In a related statement, Genworth also introduced “new definitions” for retail and non-retail originations which in effect removes its existing Third Party Origination definition. “For a loan to qualify as a Retail Origination, the entity that orders the mortgage insurance coverage (the Insured) must have performed all of the following loan tasks: taking the loan application, processing the loan application, underwriting the loan application for MI eligibility, and funding & closing of the loan. Check with Genworth for other requirements, such as “loans must be funded from a warehouse line in the lender’s name or from the lender’s own funds – table-funded loans are considered Non-Retail.”

Long Live Monopolies
Monopolies are not dead. Once a week our garbage is picked up, usually early in the morning. (Sometimes, if I go outside, the garbage man will ask me what I am doing up at 4:30AM. Rather than embarrass myself by telling him that I write a commentary about the mortgage industry, I tell him I’m still liquored up.) In San Francisco, the cost for this service is $37 per can per week. That seemed pretty steep to one contractor, who canceled his service, had his neighbor do the same, and then took their garbage to the dump and paid $40. Word spread, and soon many neighbors were paying the guy $10 per household for him to take their garbage, saving everyone over a thousand a year. Unfortunately for free enterprise, the local garbage company and the union found out what was happening, and convinced the city to pass a law banning this type of activity.

Double Dip For Mortgage Industry?
Overall, few economists disagree that here in the US we’ve come off the bottom. It is odd, however, that the recovery is not being led by a rebound in housing and consumer durable spending, or by much job growth. And don’t we need job growth to create more borrowers to either refinance or to buy houses? If the economy really takes off and jobs don’t, the mortgage industry could be hit by the famous “double whammy” of higher interest rates and fewer qualified borrowers. Uh oh.

Economic Recap of Last Week, Looking Forward This Week
Last week we had a very limited amount of economic news, so bonds were pushed around by the auction results. When the yield on the 10-yr hit 4%, it seems to have attracted investors, so we “bounced”. Overall the auctions were okay; although there is continued nervousness about whether or not the US will see others support our deficit. Regardless, mortgage rates actually ended the week on a decent note – certainly no disaster has occurred since the Fed stopped buying MBS’s – and are following Treasury rates. Money managers, insurance companies, and pension funds are buyers of mortgages, and although there are weekly volume fluctuations, most indicators still point to a slower year in 2010 than 2009. And if production (supply) is down, and demand steady…

This week we have a little more substantive economic news, including Wednesday’s Consumer Price Index (CPI), Retail Sales report, and Beige Book. Tomorrow we’ll see some trade balance figures. Industrial Production & Capacity Utilization and the Philly Fed survey are announced on Thursday (after Initial Jobless Claims come out). Housing Starts (“New Residential Construction”) are on for Friday. Inflation certainly appears under control and the March CPI is expected to be +.3% with the core rate only up .1% (which the Fed likes). And March’s Retail Sales figure is expected to be +1.8%, probably due to strong auto sales. Ahead of all that, the 10-yr is at 3.88% and mortgage prices are better by about .125.

Daily Humor
A distinguished young woman on a flight from Ireland asked the priest sitting beside her, “Father, may I ask a favor?”

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

“Well, I bought an expensive electronic hair dryer for my mother’s birthday. It is 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 robe, 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, the woman 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!

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