THE BASIS POINT

PPIP, FDIC and Other Fancy Wordplay. Rates Looking Good, Lock Ahead of Fed Meeting.

PPIP, FDIC and Other Fancy Wordplay
Those folks at the FDIC are clever: they don’t call bad loans “troubled assets” or “toxic waste”. Instead, they are moving ahead with their “legacy loan” program, which is part of the Financial Stability Plan. The Treasury Department has released the details of its public-private investment plan to remove bad assets from banks’ balance sheets. It is hoped that $1 trillion can be sold using advantageous financing provided by the FDIC and the Federal Reserve, including acquisitions of mortgages and mortgage-backed securities. Sales of legacy loans will free up obstacles to lending, while sales of legacy securities will unclog the secondary markets, according to the Treasury.

Repeat Financial Crook
Ever heard of Metro Dream Homes? I hadn’t, until now – and it is rare when I pass up a chance to lose money. Federal authorities say the company, based in Washington DC, bilked $70 million from home owners by promising to pay off their mortgages. ”Metro Dream Homes was founded by Andrew Hamilton Williams Jr., who used some of the $50,000 minimum payments provided by home owners to cover the losses of an automated-teller-machine scheme he was ordered to shut down in 2001, according to the indictment unsealed Monday. Investors in Metro Dream Homes who forked over the $50,000 were told the company would pay off their mortgages…but the cash was used to pay off the mortgages of the original investors and cover other losses.” Some of the original investors, whose mortgages were actually being paid by later investors, would tout the program’s success during the seminars. Investors were encouraged to invest $150,000 or more through incentives offering cash rewards and positions on Metro Dream Homes’ board of directors. Read all about it.

Rates Looking Good, Lock Ahead of Fed Meeting
Mortgage rates improved a little yesterday and again so far this morning, although there is very little volatility. The market is working under the impression that the Fed will do whatever is required to keep 30-yr mortgages below 5%, which is very comforting for those of us who have not refinanced yet. Currently 4% securities, into which lenders would put 4.5% mortgages, are priced near 101, and when you add some servicing value onto that one can easily see a premium above 102.00 – but originators are still not passing much of the premium along to borrowers or brokers. What about Fannie 3.5’s, which would include 4% loans? They improved in price yesterday by 1.5 in price!

Economic Roundup
Today the focus is on the stock market (which is being hit by the swine flu), news that Citi and Bank of America will probably need to raise additional capital, and the $35 billion 5-yr auction. We also have Consumer Confidence, and the Case Shiller housing price index. The index of 20 metropolitan areas showed that prices of U.S. single-family homes fell almost 19% in February from a year earlier but the rapid pace of decline slowed – near the bottom? Currently the 10-yr is back down to 2.80% and mortgage prices are better by another .125 in the securities markets. Let’s hope some of that gets passed along to borrowers!

Daily Humor
One year, a husband decided to buy his mother-in-law a cemetery plot as a Christmas gift.

The next year, he didn’t buy her a gift.
When she asked him why, he replied, “Well, you still haven’t used the gift I bought you last year!”

And that’s when the fight started.