Market Update

TUESDAY NEW'S March 31st

The former Treasury secretary, Henry Paulson, is writing a book about his role in the Bush administration during the economic crisis. Oddly, the book starts on Chapter 11.
It is the last day of the month. Not only are Ops departments everywhere scrambling to fund loans while they keep an eye on warehouse constraints, but management teams are wondering what April and May will bring. Lock volumes continue to be strong everywhere, and successful companies have made it clear to their agents or brokers that limiting fall out is critical. Whether this involves charging a fee to lock, or only locking after the appraisal comes in, or the loan is approved, etc., pull through seems to be increasing – much to the relief of investors.

As Wells Fargo has made known, they will be continuing, for the most part, Wachovia’s warehouse business. Will BofA continue Countrywide’s? Stay tuned – there are many companies that are hoping so. Of course, if Freddie and Fannie enter the warehouse business, will they be viewed as direct competition for smaller warehouse banks? The regulator of Fannie Mae and Freddie Mac is examining that business channel, both as a way of further stabilizing the market but also as a potential profit center. Existing warehouse banks are strained given the amount of refinancing that is occurring in the market (look for originations in 2009 to be about $3 trillion), and are focused on helping existing clients rather than adding new business. Obviously big banks do not require warehouse funds (remember? They get them from your deposits). Last week the Mortgage Bankers Association asked banking regulators to cut the capital requirement on warehouse lines of credit by as much as 80% to alleviate the funding crisis facing non-depositories that we explained was causing delays and major back-ups in closing loans. That would certainly help.

As a sign of the times, Chicago is now the first city in the US to be served by two insolvent newspapers: the Sun-Times Media Group, parent of the Chicago Sun-Times newspaper, filed for bankruptcy protection. They hired Rothschild Inc to try to sell some of its assets, which include 59 newspapers and their websites. "Unfortunately, this deteriorating economic climate, coupled with a significant, pending IRS tax liability dating back to previous management, has led us to today's difficult action," said Sun-Times’ interim Chief Executive. Chicago’s Tribune Co, is in the midst of a bankruptcy restructuring due to declining revenue.
GMAC’s Correspondent group followed the FHA’s suggested, “reducing the LTV for cash-out refinance transactions to 85% loan-to-value (LTV). This reduction is being instituted on a temporary basis while FHA further analyzes the housing and mortgage industry as well as its own portfolio to determine whether permanent measures should be taken.”
Franklin American “under the Economic Stimulus Act of 2008 (ESA) or those previously established for 2009 under the Housing and Economic Recovery Act of 2008 (HERA) and Mortgagee Letter 2009-07 dated February 24, 2009, is pleased to announce we will accept the 2009 revised FHA loan limits effective with Registrations and Locks on and after April 1, 2009. The maximum base loan amount may not exceed the lesser of the Statutory Mortgage Loan Limit as published by HUD for the county in which the property is located OR $417,000 for a 1-unit property. Loan amounts > $417,000 are considered FHA Jumbo product which will now allow a maximum loan amount calculation of the Statutory Mortgage Loan Limit OR $729,750 for a 1-unit property (see the FHA Jumbo Addendum to the FHA Product
Description for 2-unit requirements); previously this limit was set at $625,500.”

On the Wall Street side, it appears that Cantor Fitzgerald is staffing up. On the origination side, AmeriCU Mortgage (who focuses on providing mortgage services to credit unions nationwide, but guilty of capitalizing letters in the middle of their name) has established an operations center in Milwaukee, WI. The story I read said that, “AmeriCU received approval from the Department of Financial Institutions on March 18, and immediately began operations. Within 72 hours, the company hired 45 staff members…”

Making things tough on any broker or agent out there, Lennar Corp, the nation’s largest builder by revenue, is offering a fixed rate of 3.625% "for life," which it says is its lowest ever. The special is "on select homes", closings must occur by April 30, and the loan amount can't exceed $417, 000, according to the terms listed on its Web site. The minimum credit score is 700. Still, just as newspaper headlines raving about 4.5% mortgages influence potential borrower behavior, so might this…

Although our stock market was hit hard yesterday, and stocks overnight were down, this morning they may see a little bounce. Bonds, including mortgage-backed securities, benefited yesterday with the yield on the 10-yr dipping into the 2.60’s although this morning we are back to the low 2.70’s on the 10-yr and mortgage prices are about unchanged. As anticipated, the Fed purchase of $2.5 billion of Treasury securities helped, with the purchases mainly in maturities 20-30 years out. (The Fed will conduct 2 more buybacks in the middle of this week.) For economic news we have the S&P/Case Shiller index, the Chicago Purchasing Manager’s Survey, and Consumer Confidence.

Yolanda Reason's commentary