THE BASIS POINT

Some Refis Require Early Tax Payments, ISM Up, Moody’s Downgrades Wells Fargo

Refinancers Must Pay Taxes Early
In California, the first half of regular secured property tax bills are due November 1st, and delinquent after December 10th; the second half are due February 1st, and delinquent after April 10th each year. Property taxes are interesting beasts, and although there are comparisons done by state, it is standard to have property taxes collected by the county, township, etc. Here’s a state-by-state comparison from 2007.

Why talk about property taxes now? Depending on the states in which an originator operates, investors may have restrictions for paid property taxes. For example, here in California if a loan funds on or after February 1st, which will mean it was probably recently locked, investors require that the 2nd Installment taxes be paid. (As they become due and payable on 2/1/09.)

Russian Gas Politics
At least we have gasoline to put in our vehicles, right? European spot natural-gas prices rose after the transit of Russian gas across Ukraine halted. OAO Gazprom, Russia’s gas-export monopoly, halted all deliveries of gas to Europe via Ukraine due to a pricing dispute they blame on each other. Russia is Europe’s biggest gas supplier, and delivers about 25% of their gas. Some 80% of Russian gas passes through Ukrainian pipelines. Who says that they never learn anything from this commentary?

Bank Perspective on Rates
How ‘bout these rates? Fannie 4% securities, which would include mortgages from 4.25% up to 4.625%, are trading at 101.00. Throw the servicing released premium in, and the price is above 102.00, for a great 2 point rebate, IF it was only being passed on to brokers. Most “experts” believe that low rates will be with us for some time, despite ads exhorting borrowers to “lock in now before rates go up!” However, mortgage companies are finding themselves in a pickle, and many suddenly are having daily conference calls with their warehouse lenders. Many warehouse lenders ceased doing business, or scaled back business, in 2009, and woe to any mortgage company that was lax in their warehouse relationships. Mortgage bankers are also dealing with fallout, either from unqualified locks, or early pay-offs. (Thus the reason that many investors don’t want to pay much above 101.5 or 102.0 for loans – it doesn’t make any sense if the loan is only going to be serviced for a few months.) Many companies are requiring that an appraisal be included in any file submitted for processing in order to not only decrease fallout but increase the efficiency of their operations staffs.

Economic News
Yesterday was a pretty big day for news. The Institute for Supply Management’s index of non-manufacturing businesses rose more than expected, but Factory Orders fell 4.6% in November, twice as much as forecast. The Pending Sales of Existing Homes fell 4%. The sale of $8 billion of 10-year TIPS was “ok”, and we have $30 billion in 3-year notes today and $16 billion of 10-year notes tomorrow. That is a relatively large amount of debt to absorb, and it will only increase. Thankfully mortgage rates are holding in well, aside from mortgage company mark-ups, due to the government purchases. Given the holiday week, as one would expected, the MBA Mortgage Application index fell 8.2% last week with purchase applications rising 7.3% and refinance applications falling 12%. After all of that, we find the 10-yr this morning yielding 2.50% and mortgages roughly unchanged.

Wells Fargo Downgraded
Moody’s, who, along with Standard and Poor’s and Fitches apparently mis-rated billions of dollars worth of mortgage securities in past years, downgraded ratings on Wells Fargo due to concerns about that the bank’s acquisition of Wachovia. Moody’s cut Wells Fargo’s senior debt ratings by two notches to “Aa3,” or the fourth-highest investment grade, and said the outlook is negative, meaning it could lower the rating again within the next two years, and cut the bank’s financial strength rating by three notches to “B,” which changes the company’s baseline credit assessment to “Aa3” from “Aaa.” The stock did little.

Daily Humor
A minister decided that a visual demonstration would add emphasis to his Sunday sermon. Four worms were placed into four separate jars. The first worm was put into a container of alcohol. The second worm was put into a container of cigarette smoke. The third worm was put into a container of chocolate syrup. The fourth worm was put into a container of good clean soil.

At the conclusion of the sermon, the Minister reported the following results:

The first worm in alcohol – Dead.

The second worm in cigarette smoke – Dead.

Third worm in chocolate syrup – Dead.

Fourth worm in good clean soil – Alive.

So the Minister asked the congregation, “What can you learn from this demonstration?”

Maxine was sitting in the back, quickly raised her hand and said, “As long as you drink, smoke and eat chocolate, you won’t have worms!”