THE BASIS POINT

Post Fed Stimulus Economic Views. Loans Are Cleaner In Texas. Fed’s Trusted Banks: 18 Now vs. 31 Eleven Years Ago.

Fed Primary Dealers Drops from 31 to 18 in 11 Years
Earl and Bubba are quietly sitting in a boat fishing, chewing tobacco and drinking beer when suddenly Bubba says, “Think I’m gonna divorce the wife, she ain’t spoke to me in over two months.” Earl spits overboard, takes a long, slow sip of beer and says, “Better think it over Bubba, women like that are hard to find.” What seems to be harder to find these days are primary dealers who can trade directly with the Fed—there were thirty one dealers 11 years ago: ABN AMRO, Aubrey G. Lanston, Bear Stearns, BT Alex Brown, Barclays Capital, Chase Securities, CIBC Oppenheimer, Credit Suisse First Boston, Daiwa, Deutsche Bank, DLJ, Dresdner Kleinwort Benson, First Chicago Capital Markets, Fuji Securities, Goldman, Sachs, Greenwich Capital Markets, HSBC Securities, J. P. Morgan, Lehman Brothers, Merrill Lynch, Morgan Stanley, NationsBanc Montgomery Securities, Nesbitt Burns, Nomura Securities, Paine Webber, Paribas, Prudential Securities, Salomon Smith Barney, Warburg Dillon Read, and Zions First National Bank.

Today there are eighteen primary dealers: BNP Paribas, Banc of America, Barclays Capital, Cantor Fitzgerald, Citigroup Global Markets, Credit Suisse, Daiwa, Deutsche Bank, Goldman Sachs, HSBC, Jefferies, J.P. Morgan, Mizuho, Morgan Stanley, Nomura, RBC Capital Markets Corporation, RBS Securities, and UBS.

New FHA Mortgage Insurance Fees
All investors have also told clients that loans with FHA case numbers assigned today onward will have a “brand new” upfront MIP of 2.25%. This change will apply to purchase and refinance transactions, including FHA-to-FHA credit-qualifying and non-credit qualifying streamline refinance transactions. There is no change to annual premiums. If you are a client, for example, of Guild or others, you should know that applications that are disclosed with the lower UFMIP factors and do not have a case number assignment date prior to April 5, 2010 will be required to re-disclose to increase the UFMIP to the borrower within 3 days of the change circumstance event, or no later than April 8, 2010 to comply with Regulation X.

Loans Are Cleaner In Texas
Are borrowers in Texas better than in the rest of the United States? No, but perhaps the quality of loans is? Here is an interesting article on just why Texas delinquencies are lower than in other parts of the nation. Read about it here.

FDIC CRA List
The FDIC issued its list of state nonmember banks recently evaluated for compliance with the Community Reinvestment Act (CRA). Are insured banks and thrifts meeting local credit needs? The list, which comes out regularly, is indeed public and can be found here.

Post Fed Stimulus Economic Views
Now that the Fed has stopped buying old and new loan production, now what? Everyone in the business, including investors, knows that these loans are higher quality than those of a few years ago. These are fully documented loans with stricter underwriting guidelines and DTI’s. Not only that, but in many markets property values are stable or actually increasing, according to some measures. But investors in all fixed-income securities face the prospect of higher rates, which can drive down the value of a bond and its steady payment stream. Even if you think that the economy is stagnant, you can’t ignore the fact that the stock market has improved for five weeks in a row, is up 6% during that time and is up about 36% in the last 12 months!

The economy seems to be doing fine, commodities, including gas, are going up, there is little foreign news on debt problems, and the Fed believes that things are stable enough to end their purchase program. Is anyone really predicting lower rates? (Conversely, should people be paying various services to hear the seemingly obvious prediction of higher rates ahead?) Economic indicators last week suggested continued economic growth, including job growth, factory orders, and the Institute for Supply Management manufacturing index. But wait! Construction spending, including residential building, is disappointing. And who is going to solve the budget shortfalls in many states or at the national level? This week we have to digest yet another auction, this time with 3, 10, and 30-yr maturities from the Treasury. Friday we had an early close in the bond market, some companies were closed entirely, so when you combine some decent economic news and an illiquid market, watch out. The yield on the 10-yr seems to be moving toward 4.00%.

What economic news tidbits do we have to savor this week? Pickins are pretty slim. Today we have an ISM Services number (up in February for the 2nd month in a row, but expected to drop a little) and Pending Home Sales. Thursday we have Initial Unemployment Claims, and Friday a Wholesale Trade number. The only “important” 8:30AM EST number is on Thursday with Initial Claims! Ahead of this the 10-yr this morning is at 3.95%, and mortgage prices, depending on coupon, are roughly unchanged to maybe slightly worse.

Daily Humor
A man and his wife walked into a dentist’s office.

The man said to the dentist, “Doc, I’m in one heckuva hurry. I have two buddies sitting out in my car waiting for us to go play golf, so forget about the anesthetic and just pull the tooth and be done with it.

We have a 10:00 AM tee time at the best golf course in town and its 9:30 already. I don’t have time to wait for the anesthetic to work!”
The dentist thought to himself, “My goodness, this is surely a very brave man asking to have his tooth pulled without using anything to kill the pain.”

So the dentist asks him, “Which tooth is it sir?”

The man turned to his wife and said, “Open your mouth, Honey, and show him.”

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