THE BASIS POINT

Metrocities Exits Mortgage Broker Channel, Bank Earnings, LIBOR Down More, CPI/Jobs Data

ANOTHER BLOW TO MORTGAGE BROKERAGE BUSINESS
Prospect Mortgage/Metrocities is exiting the wholesale business. Their e-mail stated, “Based on current market conditions, Prospect Mortgage / Metrocities Mortgage, LLC, has elected to exit the Wholesale lending space.” Yesterday they published their last rate sheet, and took their last locks in this business channel. It is debatable whether this is a good thing or a bad thing for the remaining companies offering wholesale business. First, they must be comfortable with originations through that business channel and their costs, given all of the companies who have gotten out of it, and they must also be comfortable with the idea that more broker business will be directed their way as firms exit. Few investors would probably admit to wanting to be “the last one standing” in terms of offering wholesale locks, nor do brokers enjoy seeing their investor options dwindle.

RATE MARKETS
How about that mortgage market yesterday? MBS’s roared back, and rates dropped, as buyers (one thought to be a “large bank”) emerged and the stock market fell. Volatility is very high right now, which usually makes for expensive hedge costs and conservative pricing by investors. In spite of good yields (shouldn’t money market managers like a two-year note yielding 2% and ten-year yields of 4.10%?), the US government cannot force anyone to buy them. Yesterday 10-year note yields hit their highest level in more than two months, partially due to the thinking that the Treasury will issue more longer-dated debt to pay for the rescue of the financial system. On the shorter end of the curve, there is a 100% chance of a .25% cut in the overnight rate from 1.5%. In addition, three-month U.S. dollar Libor dropped to 4.55% from Tuesday’s fixing of 4.64%, while the one-month rate fell to 4.36% from 4.47%. The overnight rate slid to 2.14375% from Tuesday’s 2.18125%, moving closer to the Federal Reserve’s Fed funds target rate of 1.5%.

BANK EARNINGS
Merrill Lynch, set to be swallowed by Bank of America in February, reported a $5.2 billion loss due to write downs for the 3rd quarter. (This compares to a $2.2 billion net loss a year ago.) On the plus side, Merrill booked some gains in the quarter, including a pretax gain of $4.3 billion on the sale of its 20% stake in Bloomberg.

In similar fashion, Citigroup reported a $2.8 billion loss due to write downs compared to a profit of $2.21 billion a year ago. The loss is the fourth consecutive one for Citigroup, although it was smaller than expected.

Lastly, Bank of New York Mellon Corp., the world’s largest custodian of financial assets, said third- quarter earnings fell 53% because of “costs to prop up 10 money funds hurt by losses on Lehman Brothers Holdings Inc.” Their net income fell to $303 million from $640 million a year earlier. Interestingly, their revenue rose 8.1 percent to $3.9 billion on a record $385 million in fees from foreign exchange and trading.

CPI, JOBLESS CLAIMS, OTHER ECONOMIC NEWS
In economic news, we had/have another full slate today. The Consumer Price Index, and Core CPI, was expected to be up slightly for September. They were unchanged, however, and the core rate was only +.1%, better than expected for inflation. (Energy costs were -1.9%.) We also had Jobless Claims, which fell by a greater-than-expected 16,000 last week to 461,000 in the week ended Oct. 11 from a revised 477,000 the prior week. The 4-week moving average of claims, considered a better gauge of employment trends because it irons out weekly fluctuations, rose to 483,250 from 482,500 the prior week. It was the highest level since the week of Oct. 20, 2001. Later this morning we have Industrial Production and Capacity Utilization, along with the Philadelphia Fed Survey. And tomorrow we finish off the week with Housing Starts and Building Permits, along with the University of Michigan Consumer Sentiment Survey.

DAILY HUMOR
HOW TO TREAT A WOMAN:
Wine her. Dine her. Call her. Hold her. Surprise her. Compliment her. Smile at her. Listen to her. Laugh with her. Cry with her. Romance her. Encourage her. Believe in her. Pray with her. Pray for her. Cuddle with her. Shop with her. Give her jewelry. Buy her flowers. Hold her hand. Write love letters to her. Go to the ends of the earth and back again for her.

HOW TO TREAT A MAN:
Show up naked. Bring chicken wings. Don’t block the TV.