Who is Freddie Mac?, US Bank Guideline Changes, Rate Predictions

A recently seen bumper sticker: “At least the war on the environment is going well”.

MORTGAGE NEWS ROUNDUP
Who is FHLMC (Freddie Mac)? Freddie, along with rival Fannie Mae (aka FNMA, Fannie), owns or guarantees more than 70% of all U.S. home mortgages. The companies were set up by Congress to increase home ownership – Freddie in 1970. They both make mortgage securities appealing to investors by guaranteeing payments on home loans made by lenders, and make money from the fees they charge to insure mortgage payments and the interest they earn from the home loans they hold. The company recently reiterated plans to raise $5.5 billion in new core capital this quarter through in common and preferred stock. Freddie has lost about $4.6 billion since mid-2007 amid a surge in defaults and falling home prices, while Fannie has suffered losses of nearly $7.2 billion during the same time.

A clarification: Monday I mentioned that “US Bank, for loans in CA, AZ, FL, NV, and MI, announced a maximum LTV / CLTV for all products of 85%.” As it turns out, this is for their wholesale channel, not their correspondent channel. I apologize for any confusion.

Speaking of US Bank, on their wholesale side, It looks like the purchase 2nds will be gone and the refi 2nds will be limited to 75% CLTV. All other lending in California will be limited to 75% LTV/CLTV. On a positive note, USB wholesale is planning to have “some aggressive jumbo pricing tiers”, with cash out, 1 day off MLS, etc. On the correspondent side, US Bank’s 2nds are still “alive and well”, although in mid-May they lowered the CLTV to a maximum of 90%.

MARKET ROUNDUP
If someone asks you where rates are going, you can tell them that Goldman Sachs forecasts that 2-yr Treasury yields (sitting at 2.80%) will fall to 1.9% by year-end, while Lehman Brother expects 1.8%. The median estimate is 2.24%. But experts believe that inflation is now the biggest threat to the global economy as the credit crisis starts to recede, and futures on the Chicago Board of Trade show an 80% chance that the Fed will increase the 2% overnight rate to 2.25% by December, compared with 63 percent odds at the end of last week.

Lately rates have crept up after Federal Reserve Chairman Bernanke pledged to resist any waning of public confidence in stable prices and the Bank of Canada unexpectedly kept its benchmark interest rate unchanged on concerns energy costs may push inflation past the top of its target band later this year. In addition, Monday the European Central Bank acknowledged they would hike rates soon and as a result the U.S. market repriced for our Fed to raise rates. Like a spring bouncing back, we did have some good rate news this morning, however, with the 10-yr “back down to” 4.06% and mortgage prices better by .375. The only news out was mortgage applications for last week, which were +10.9%, up from the prior week, which was down -15.3%. This afternoon we’ll get the results of the Beige Book report from the Fed which will give an update on economic activity and regional inflation pressures.

JOKE OF THE DAY
Two elderly women were out driving in a large car, both could barely see over the dashboard. As they were cruising along, they came to an intersection. The stoplight was red, but they just went on through. The woman in the passenger seat thought to herself “I must be losing it. I could have sworn we just went through a red light.”

After a few more minutes, they came to another intersection and the light was red again.

Again, they went right through. The woman in the passenger seat was almost sure that the light had been red but was really concerned that she was losing it. She was getting nervous.

At the next intersection, sure enough, the light was red and they went on through. So, she turned to the other woman and said, “Mildred, do you know that we just ran through three red lights in a row? You could have killed us both!” Mildred turned to her and said, “Crap, am I driving?”