Producer Prices In May Show Inflation OK, ARM Originations Up As Rates Rise, Housing Starts Rebound

Would you like to feel your head spin? Check out the US Debt Clock.

ARM Originations Up As Rates Rise
Folks following rates will notice that with the steeper yield curve, interest in ARM loans has picked up. Bank-to-bank lending rates have plunged to near record lows in recent weeks, a positive indication for the credit markets. The three-month LIBOR (London Interbank Offered Rate) has hit a record low of 0.61%, down from 0.62%, and the overnight Libor rate, meanwhile, hit .21% late last week. (The London Interbank Offered Rate is a daily average of rates that 16 different banks charge each other to lend money and is used to calculate many types of ARM’s.)

Rules For Refis With Private Mortgage Insurance
PMI told its customers that they have expanded their HARP and refinance-to-modification programs, starting on the 18th. Previously PMI required that a refinance loan be originated by the existing lender/servicer. “Our new PMI-to-PMI Refinance-to-Modification Programs offer flexible refinance options for existing PMI-insured loans to allow: the same lender/servicer to refinance via HARP for GSE-owned loans as well as refinance-to-modification for loans owned by other investors and portfolio lenders, a new lender/servicer to refinance via HARP for GSE-owned loans as well as refinance-to-modification for loans owned by other investors.

Hawaii Needs Loans
What is going on in Hawaii? One agent wrote to say, “The biggest thing that has plagued us or I should say me has been the tightening up on the portfolio loans. Almost every local bank out here has tightened up or discontinued the portfolio product that caters to condotel financing. Any ideas on how I could reach out to any private equity firms or investors out there that may have an appetite for high quality borrowers dropping 40% to 50% down payments on collateral that is very sound, but has been deemed very risky? Finding a source out there that finances condotel in this market would be a blessing.”

Rates Improved, Housing Starts Rebound
We saw a nice improvement in rates Monday, at the expense of the stock market. It would seem that the thinking is now that the economy is going to need much more time to get back to “normal”, and some are even talking about mortgage rates heading back to their high 4% to low 5% level. That being said, credit reports and appraisals may expire, so borrowers should be content with the mid 5.25% to high 5.75% range. The run-up in rates has really hit new locks, and most believe that any recovery in the US will have to include a rebound in housing. This morning we learned that housing starts and permits rebounded in May from record lows (helped by multi-family units) Housing Starts were up 17.2%, with multifamily units +61.7%! (Remember that multifamily unit starts fell 49.4 percent in April.) New building permits rose 4.0 percent, the biggest advance since June last year, although compared to a year ago permits are down 47%.

Producer Prices Up 0.2% Last Month
Although consumer confidence is doing well, consumer spending, which makes up 70% of the GDP in the United States, is lagging mostly due to unemployment issues. It is hard to spend a lot of money when you don’t have a job, and your equity line is tapped out or non-existent. Related to spending, this morning’s reports showed that U.S. producer prices rose by less than expected (+.2% versus +.6% as expected) in May despite a jump in gasoline costs, and prices dropped 5% in past year, the steepest fall since 1949. Core PPI which excludes volatile food and gas prices has risen 3% over the past year. After all this news the 10-yr is at 3.75% and mortgage prices are worse by about .250.

Daily Humor
Eddie wanted desperately to have a relationship with this really cute, really hot girl in his office. But she was dating someone else. One day Eddie got so frustrated that he went to her and said, ‘I’ll give you $100 if you let me make love with you.”
The girl looked at him, and then said, “NO!”
Eddie said, “I’ll be real fast. I’ll throw the money on the floor, you bend down and I’ll finish by the time you’ve picked it up.”
She thought for a moment and said that she would consult with her boyfriend. So she called him and explained the situation. Her boyfriend says, “Ask him for $200, and pick up the money really fast. He won’t even be able to get his pants down.”
She agreed and accepts the proposal.
Over half an hour goes by and the boyfriend is still waiting for his girlfriend’s call.
Finally, after 45 minutes the boyfriend calls and asks “What happened…?”
Still breathing hard, she managed to reply, “He had all quarters!”
Management lesson: Always consider a business proposition in its entirety before agreeing to it and getting into trouble.