Financial Insight

 All investors have narrowed their guidelines, and even Fannie Mae will now requires a minimum credit score of 580 on loans purchased for securitization regardless of DU. Many analysts feel that the worst of the credit squeeze is now over. Fortunately, and please check the graph below (thank you Lehman & Bloomberg), credit spreads have tightened in the last three weeks, with many spreads returning to their early February levels, and the tone in the mortgage market has improved as the Fed’s new liquidity initiatives & effectively buying securities backed by mortgages have removed the threat of forced selling from the market.

This week brings us the release of only two relevant economic reports in addition to the minutes from the last FOMC meeting and a Treasury auction. Tomorrow, 11:15PST, the FOMC minutes will be released, which may give us insight into their current thought process and individual Fed member opinions. Aside from that, and the weekly jobless claims Thursday morning, the first piece of monthly data is February’s Goods and Service Trade Balance report Thursday morning. There is a 10 year Treasury Inflation Protected Security (TIPS) sale Thursday. The second and final release of the week is the University of Michigan’s Index of Consumer Sentiment Friday morning. Their consumer sentiment index will give us an indication of consumer confidence, which hints at consumers' willingness to spend, so “good” news would be a decline from March’s 69.5 reading. Ahead of all of that, the 10-yr is back into the mid-3.50’s and mortgage prices are worse by .125.

They both need/needed at least $7 billion in additional capital to stay afloat. Wachovia, the fourth-largest U.S. bank, reported an unexpected loss because of subprime- infected mortgage holdings, cut its dividend, and said it will raise about $7 billion in a share sale to replenish capital. The company's market value has dropped 50% since its $25 billion takeover of Golden West Financial Corp. in 2006 at the peak of the housing market. (Talk about good timing on Golden West’s part!) Wachovia also announced that it will cut 500 investment banking jobs.

I was reading the fine print in my retirement benefits plan the other day, and ran across this:

If you had purchased $1,000.00 of Delta Air Lines stock one year ago you would have $49.00 left. With Enron, you would have had $16.50 left of the original $1,000.00. With WorldCom, you would have had less than $5.00 left. But, if you had purchased $1,000.00 worth of beer, one year ago, drank all of the beer, and then turned in the cans for the aluminum recycling REFUND, you would have had $214.00.Based on the above, the best current investment advice is to drink heavily and recycle. It's called the 401-Keg.

Are people in the US saving enough for their retirement? Or spending it on gas and food? Given the trade deficit number this morning, they are spending their money on goods from overseas (like oil). The Trade Deficit for February swelled to $62.3 billion, somewhat unexpected, although still below last August’s record $67 billion. We also had weekly Jobless Claims, which dropped 53k to 367k. So why is the 10-yr yield down to the mid-3.40’s and 30-yr A-paper mortgage prices slightly improved? Lehman has liquidated three investment funds due to "market disruptions". Lehman's news as well as expectations of further write-downs has renewed fears that the credit crisis is not over, and the economy is still in for more stormy weather.

Does $5 billion buy you the right to shutter Washington Mutual's broker business?

You bet it does. It buys you the right to tell Washington Mutual to eliminate the business channel by May 31st (loans must lock by tomorrow, and most loans must fund by June 13th). WaMu announced yesterday to their employees that they are closing down their wholesale loan division, with yet-to-be-determined cuts in retail. Rumors had swirled about their wholesale business channel for quite some time, but this announcement came as a surprise to many wholesale reps. Supposedly closing wholesale was a stipulation from a private equity firm that was giving them $5 billion (Too risky? The investor didn’t like the servicing performance? It doesn’t fit their business model?). A rumored $5-7 billion capital infusion for WaMu follows other investors injecting capital into banks and brokerages, including Countrywide, Citigroup, Merrill Lynch, Bear Stearns, and UBS. The new capital for WaMu would be provided by a group led by private-equity firm TPG Inc., based in Texas, the Wall Street Journal reported yesterday.

Mortgage prices are roughly unchanged this morning, and aside from the WaMu news there is little news. We will have the release of the minutes of the March 18^th FOMC meeting, along with February’s pending home sales (expected to have decreased -1% following January’s unchanged). Analysts will mostly be focusing on the FOMC minutes for a better sense of what motivated the Fed’s 75 basis point reduction a few weeks ago and what the near-term future might hold for cuts. FNMA’s trading desk reported that for the super-sized conventional jumbos, “the portfolio improved its whole loan pricing to 1.5 points behind conventional conforming for par/premium coupons and 1.875 points behind conventional conforming for discounts.”

If I were considering financing/refinancing a home, I would....
Lock if my closing were taking place within 7 days...
Lock if my closing were taking place between 8 and 20 days...
Float if my closing were taking place between 21 and 60 days...
Float if my closing were taking place over 60 days from now...
This is only my opinion of what I would do if I was financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.

The Unemployment Rate shot up to 5.1% and Non-farm Payrolls, expected -50k, actually dropped 80k. So the market rallied and rates dropped this morning, right? Well, kind of… the 10-yr is still sitting in the mid-3.50’s, and mortgages are roughly .250 better in price. One would think that with that weak of an unemployment number, along with some revisions to January and February (down a total of 67k versus what was originally reported), rates would have dropped more. March saw the biggest monthly job decline in five years, the Labor Department revised the first two months of the year's job losses to a total of 152,000 from a previous estimate of 85,000, and the unemployment rate is the highest it has been since September 2005. Hourly earnings were +.3%, but job losses were widespread and heaviest in the construction and manufacturing sectors. Independent labor reports indicate that small and mid-sized companies are continuing to hire, and some of the growth in jobs at small business is due to outsourcing from large business which can't get thing done as inexpensively.

 The Senate is expected to soon vote on more mortgage-related legislation. Given that, according to the story, 1.5 million subprime adjustable rate mortgages are due to reset in 2008, lawmakers are feeling the heat. http://money.cnn.com/2008/04/01/news/economy/senate_surpr_move_foreclosure/?postversion=2008040118

 Rates were slightly higher yesterday following an ADP jobs report and Bernanke’s testimony in front of Congress. Interestingly, Bernanke’s testimony caused the market to adjust expectations downward toward 0% for a 50 basis point rate cut. And overnight, the second largest German state bank reported $6.7B in write downs, bringing the total to $232 billion. The only news out this morning was the usual Thursday Jobless Claims, but with unusual results: the number of U.S. workers applying for unemployment benefits shot up by 38,000 last week to 407k. This is the highest level since late 2005 and reinforcing fears that the U.S. economy has stalled. So bonds and mortgages have improved this morning based on investors thinking that the ADP number from yesterday, which doesn’t include government jobs and whose history of predicting the actual employment picture has been spotty, may be misleading again.

 Later today the ISM non-manufacturing reading is expected to decline by 0.8 to 48.5 (anything below 50 signals “contraction”). Tomorrow we’ll see the unemployment data, with Nonfarm Payrolls for March expected -50k versus last month’s -63k and the Unemployment Rate expected to rise to 5.0%. With all of this going on, mortgage prices are better than yesterday afternoon by roughly .250, and the 10-yr is back into the mid-3.50’s.

If I were considering financing/refinancing a home, I would....
Float if my closing were taking place within 7 days...
Float if my closing were taking place between 8 and 20 days...
Float if my closing were taking place between 21 and 60 days...
Float if my closing were taking place over 60 days from now...
This is only my opinion of what I would do if I was financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.

Fed asks Wells to buy Wachovia; HUD (FHA) secretary resigns

Ok… April Fools – at least for two of them! There haven’t been any press releases that John Stumpf & Wells Fargo have been asked to participate in a Fed-assisted bail out of any particular large lender. But who knows? There have been rumors of Wachovia, WaMu, and SunTrust – but they are only that: rumors. Stumpf was recently quoted in a San Francisco newspaper as saying, “I would not be averse to a Fed-assisted transaction.”

And under the category of “I wish that these were April Fools’ stories, but aren’t”:

- Housing and Urban Development (HUD) Secretary Alphonso Jackson resigned Monday. He is under criminal investigation, fending off allegations of cronyism and favoritism involving HUD contractors for the past two years. The FBI has been examining the ties between Jackson and a friend who was paid $392,000 by Jackson's department as a construction manager in New Orleans after Hurricane Katrina. When the existence of the criminal probe was revealed in October, the White House said President Bush supports Jackson and that Jackson "expects that the investigation will clearly establish that he did nothing improper or unethical." Last week senators said that Jackson's problems represented a "worsening distraction" at HUD.

- UBS, the largest Swiss bank, said that it would write down another $19 billion and that its chairman would step down. UBS said the write-down would result in a first-quarter loss of about $12 billion, and that it would seek new capital of about $15 billion, in the second time it has announced plans to raise new funds since the credit crisis began.

- Deutsche Bank, the biggest German lender and owner of MortgageIT, said that it expected a first-quarter loss of about $3.9 billion on write-downs.

- Global banks have now written down more than $200 billion.

- Congress returns to work today and they are no doubt thinking about more forms of intervention in the mortgage market.

- For Wells Wholesale, effective April 7, a complete IRS Form 4506-T will be required for all loan submissions. In addition, Wells Wholesale and Correspondent announced a new price adjuster for conventional conforming for loans with LTV’s greater than 97%. They also rolled out new pricing for self-insured loans (are they and others down the path of doing away with them altogether?) and non-conforming adjusters based on FICO and LTV.

- Chase eliminated their Flex 100 Product – Market Type 668, Freddie 100 Product – Market Type 568, DU SISA Feature – Retired from all Agency Market Types. Chase also made changes to their DreaMaker Opportunity, MyCommunity Mortgage™, and Home Possible programs, effective tomorrow.