August 10: Lenders hiring & companies shutting down; BofA sells $73 billion; price engine's recent performance; investors prep for loan limit changes

This unrelated-to-mortgage banking short clip of a marriage proposal will

take your mind off the markets: GoodCatch!

[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1107042173868&s=8721&e=001Ei_eVd

hfJyXkmOwKH-XZwu5S99t53X0vU3O8wQsSrrQWHj_f5zFnZpL6lV465G8-VbA_UhJTN73P36_mMa

3mf60TLURVmPmP6iE08WSOkqH_ln5_Dcrr4TYehvz4XJZB]

Maybe it will take loan reps' minds off of the volatility that apparently is

wreaking havoc with pricing engines out there. Last week Optimal Blue

"hesitated", and this week reports from agents say that NLYX is suffering

the same fate. I am positive  that I will hear from every owner of every

pricing engine, but the perception out there is that some pricing engines

can't keep up with the volatility and constant investor re-prices. Engines,

whether they have functioned flawlessly for the last week or not, are having

capacity issues when the market starts to make changes, whether it is the

two listed above or others such as LoanSifter, Sollen, OpenClose, Avista,

etc. The issues range from slower decision times to a complete temporary

shutdown. Either way, loan agents may think that this is a conspiracy to

slow locks down, which it is not although not being able to take locks

during certain market conditions helps hedging. And no, I am not going to

print a list of every pricing engine, which ones shut down, which ones are

fine, and so forth.

To elaborate about pricing engines, vendors warn clients that pricing

engines all scrub their data prior to it hitting a client's account, and if,

after that, a particular lender has overlays it will take even longer to

produce a price. Most of us, especially me, have no idea how complex a

pricing and "decisioning" engine is. Pricing engines are dependent upon

investor information, so if the investor is slow in updating a price, this

impacts the turn time of the pricing engine from the loan rep's perspective.

(In "the old days," we'd just shut down our lock desk if the market went

wild.) With the volatility in the last few weeks, all the pricing engines

set volume records in both pricing searches and in rate sheets loaded,

basically doubling their average daily volume, and remember that searches

just don't come from loan agents - searches by consumers using Google,

Lending Tree, Zillow, etc. - only increase the traffic.

There are, no doubt, customers out there contemplating changing price

engines, moving from A to B, with probably an equal number thinking about

going from B to A. But  despite the delays it would be difficult to find an

old-fashioned lock desk that could produce a manual rate sheet in this

environment that is better than the engines.

Bay Equity is looking for wholesale Area Sales Managers. This is an

opportunity for a top level Sales Manager to develop and grow a territory.

Bay Equity, well capitalized and located in SF, is looking to make hires

west of the Rockies, and  in Texas. The ideal candidate has a strong network

of AE's in their area from which to recruit and hire. Bay Equity is

currently licensed in CA, WA, OR, NV, UT, CO,  NM, TX, MT, ID, and AZ. If

you are interested in this opportunity, please send your resume to

casey@bayeq.com [mailto:casey@bayeq.com].

Maybe some of the folks from Direct Mortgage (Utah) can give Bay Equity a

call.

Brokers received an e-mail, "Regrettably, I wish to inform you that Direct

Mortgage.

Corp. has made a decision to cease doing business in the wholesale lending

business channel, and will discontinue accepting new rate locks for files

that are not in  the pipeline...There is just too much uncertainty in the

industry. After all of  the changes recently made there is still so much

more change to come, and so much more uncertainty!"

But while some contract, the trend toward new business channels continues.

For example, First State Bank of St Charles, located in St. Charles,

Missouri, is targeting Community Banks and Credit Unions in the State of

Missouri and surrounding states. First State Bank has been around a few

years (144 to be exact) and now offers a "Secondary Market Channel, which

allows firms to close as a broker or a correspondent, and they offer the

optional benefit of in-house processing on these loans." For additional

information, contact Charlie Nager at cnager@fsbfinancial.com

[mailto:cnager@fsbfinancial.com].

In Florida Ocwen Financial is forming Correspondent One in order to

securitize mortgages originated by Lenders One. In March of this year Ocwen

and Altisource each acquired a 50% equity interest in Correspondent One,

which would securitize newly originated Lenders One loans. (Per Ocwen,

Lenders One clients originated 6% of all mortgages last year.) In an

interesting note, Ocwen, which uses many overseas employees, said it plans

"to deploy a full on-shore servicing alternative" for potential clients

that prohibit using off-shore workers.

On a larger scale, Bank of America (which services 14 million mortgages)

agreed to sell part of its troubled mortgage portfolio to Fannie Mae. The

deal, reported by the WSJ, will deliver the rights to process and collect

payments on a pool of

 400,000 loans with an unpaid principal balance of $73 billion for a

purchase price exceeding $500 million. It is viewed as the first big step to

unload seven million troubled mortgages through sales, loss mitigation and

foreclosure. BofA's stock price is down 43% this year. Remember that Fannie

Mae doesn't service any mortgages but can purchase the servicing rights in

order to transfer the day-to-day management of those loans to a different

company.

Yesterday I included a piece on handling renegotiations in this volatile

environment.

Several readers wrote about how the LO comp changes impact renegotiations in

today's environment. "Rob, unfortunately, the loan officer and a producing

branch manager can no longer participate in these losses due to the new

rules on compensation, unless of course they are employed by a company that

is not following the rules by using some form of a point bank, or a proxy

therefore. Capital market accounts, shared profits, etc., at the loan

officer / producing branch manager are all expressly prohibited." And

another: Things have changed - it would be nice if everyone in the food

chain needs to share in the cost of renegotiations.  But reducing the loan

officer's compensation when the borrower's rate or fees are reduced is not

permitted by the Fed Rule." And finally, "No, the loan officer compensation

cannot be affected by a renegotiation. They can contribute nothing towards

the change in price. The  same goes for brokers: LO Comp cannot change. If

you have anybody out there that has a way around this one on the wholesale

side, please let me know!  We are being asked to drop the rate by .125 to

.50 percent, taking huge losses, while the broker is still making their 1,

1.5 or 2 points +. They have no incentive to hold the rate as their

compensation cannot be affected. Am I missing something?"

The march toward lower loan limits in various parts of the nation continues.

US Bank (USBHM) reminded clients that, "The Super Conforming Loan Limits for

FHLMC/FNMA/FHA are due to expire on September 30, 2011. From all

indications, it is likely that  the current limits will not be extended and

the new limits will be reduced not only to the absolute limit (reduced from

$729,250 to $625,500) but individual county limits as well...the wholesale

division is telling brokers that all loans approved and expected to close

under the current loan limits must close, fund, and disburse no later than

September 16. For VA loans, "the maximum loan amounts available through

USBHM will not change however the Veterans maximum eligibility/entitlement

available in Super Conforming counties is subject to change."

Wells Fargo wholesale told its brokers, "8/15/11 is the last day to

lock/register any High Balance Loan above $625,500."

Bay Equity spread the word to its brokers of its schedule: the last day to

lock loans with the existing loan limits is 9/15, the last day to submit a

full package is 9/15, and the last day to draw docs is 9/23.

Franklin American Correspondent Lending announced that it will soon

introduce the USDA Rural Housing program. Clients interested in the program

should hustle up submit evidence of your USDA approval to FAMC.

ClearPoint Funding is offering up a broker training session on VA loans. The

1 hour class is tomorrow at 12PM EST via Webex - contact Jenda Pegoda at

jpegoda@clearpointfunding.com [mailto:jpegoda@clearpointfunding.com].

BofA announced to its correspondent clients that new risk-based pricing

disclosures (Dodd Frank Act Amendment to Fair Credit Reporting Act) have

undergone a few changes since the December announcement, given Final Rules

published in the Federal Register on July 15. "Effective August 15, clients

who use the general risk-based pricing  notice should now use the new

disclosures, available with consumer credit score  information, when a

consumer's credit score was used in setting the material terms of credit.

Clients should review the FCRA regulations for complete details."

GMAC (and other investors) are reminding clients Fannie Mae will implement

DU Version

8.3 on August 20!

Volatility is so much fun for everyone involved. The latest knee-jerk

reactions were set off by the Federal Open Market Committee's post-meeting

announcement yesterday.

There was no change in overnight rates (the FOMC only sets short term rates)

but  what was new was that the committee said it would keep short term rates

at these levels through mid-2013. Although there was some dissention, the

committee noted  that the labor market has deteriorated, spending has

flattened, housing is depressed, and the Fed expects a slower pace ahead

than in June.

The treasury market had an intense rally after the release of the FOMC

statement:

5-yr yields hit .819% and the 10-yr. touched as low as 2.04%. But then

fixed-income markets sold off, stocks rallied, MBS prices ended the day

better by about .625,  and the 10-yr closed around a yield of 2.25% - but as

one trader noted, "price action and liquidity has been very sloppy,"

post-FOMC.

Today will be spent digesting yesterday's news, although we have a $24

billion 10-yr note auction and we did have the weekly mortgage applications

number from the MBA.

The index of mortgage application activity rose nearly 22% last week - every

lock desk could tell you that! Refi apps were up over 30%, and now account

for over 75% of volume, but purchase apps dropped about 1%. 21.7 percent in

the week ended August 5. The 10-yr is at 2.17% this morning, and MBS prices

are better by roughly .250.

Aging:

The nice thing about being senile is you can hide your own Easter eggs and

have fun finding them.

Know how to prevent sagging? Just eat till the wrinkles fill out.

It's scary when you start making the same noises as your coffee maker.

These days about half the stuff in my shopping cart says, "For fast relief."

If you're interested, visit my twice-a-month blog at the STRATMOR Group web

site  located at www.stratmorgroup.com

[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1106435366068&s=4179&e=001SVt-lj

bp53436QjxD9vbwURtIPPjV05jEcEKyBN3SjS2forXe0C_foO8RjEV-Uye0N7Z_Sh1il0SRXPx6P

jQauayNXQjni-Hc9Sseu-hhZcR1ujeZyAEpw==]

. The current blog takes a look at the recent U.S. credit downgrade by S&P,

and whether it really matters. If you have both the time and inclination,

make a comment on what I have written, or on other comments so that folks

can learn what's going on out there from the other readers.

Rob   (Check out

http://www.mortgagenewsdaily.com/channels/pipelinepress/default.aspx

[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&t=m6awnahab.0.epg7qedab.zy6u9cdab.8

721&ts=S0660&p=http%3A%2F%2Fwww.mortgagenewsdaily.com%2Fchannels%2Fpipelinep

ress%2Fdefault.aspx]

or www.TheBasisPoint.com/category/daily-basis

[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&t=m6awnahab.0.v7uif6dab.zy6u9cdab.8

721&ts=S0660&p=http%3A%2F%2Fwww.thebasispoint.com%2Fcategory%2Fdaily-basis].

For archived commentaries, go to www.robchrisman.com

[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&t=m6awnahab.0.fpg7qedab.zy6u9cdab.8

721&ts=S0660&p=http%3A%2F%2Fwww.robchrisman.com%2F].

Copyright 2011 Rob Chrisman.  All rights reserved. Occasional paid notices

do appear.

This report or any portion hereof may not be reprinted, sold or

redistributed without the written consent of Rob Chrisman.)

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Market Snapshot August 9th

Very early this morning the bond and mortgage markets were trading lower in price with US stock indexes pointing to a better open at 9:30 after the serious beating taken yesterday. Nothing of substance changed over night, just a bounce in equity indexes after 634 points on the DJIA yesterday and 512 last Thursday, 1146 points. Yesterday the 10 yr note rate fell 25 basis points as money stampeded into the safety of US treasuries. Mortgages did better yesterday but were dragged higher in price primarily on treasury moves, 30 yr prices ended up .53 bp, not nearly the move seen in treasuries as it was driven by safety.

A perfect storm that hit its apex yesterday. The final straw was the S&P downgrade but there have been a few earlier straws that were breaking the backs of investors leading to the recent global panic. For a month we reported and commented on the continuing weaker economic data that in our judgment were suggesting the economy would slow in Q3 and Q4; it took a few weeks for the optimistic outlook to be blunted by reality. In Europe the EU economic outlook is also being revised lower. Emerging markets that depend on growth by exporting goods to the US and Europe also being hit. Take everything together and add in the fumbling out of Washington that fell way short of any significant spending cuts and throw in the increasing concerns that Europe may not have enough capital to fend off sovereign debt defaults and we have the perfect storm that is taking all global equity markets down. The outlook in the present hysterical atmosphere is for another decline into recession.

How bad is it for the economic outlook? It isn't looking good but is unlikely to be as terrible as what markets are currently believing. The economy cannot grow much with high unemployment and a depressed housing sector. As we noted yesterday afternoon, this is a time to take a breath and try to relax some; the outlook is not good, not nearly as was thought just a month ago. However, the outlook isn't quite as serious as the current panic would imply. Give this a week or two to settle, in the meantime interest rate markets and stock markets will be exceptionally volatile.

This isn't 2008 re-visited; in 2008 banks were broke, the financial system almost collapsed. This time banks are flush with cash, businesses are hoarding huge cash reserves and consumers have reduced debt substantially over the past four years. This is a lack of confidence in leadership in Washington and Europe. The recent demonstration in Washington of political ineptness and the continual inability of the EU and ECB to deal with their sovereign debt issues have finally shaken investors and consumers. Measures that gauge the level of European banks’ reluctance to lend to one another are approaching levels unseen since the aftermath of Lehman Brothers Holdings Inc.’s collapse. The result is, and will continue to be, fear; fear and greed drive markets---this is a period of fear. The prudent way to work through the next few months is to avoid risk, let the world settle----and it will in time-----always darkest before.....A few more sessions of hedge funds deleveraging should eventually calm things down. In the meantime expect volatility to remain at extreme levels.

This afternoon the FOMC will issue its policy statement; there is some speculation the Fed will act immediately to stem the current panic. Fed Chairman Ben S. Bernanke and fellow policy makers may extend a pledge following their meeting today to maintain record stimulus, according to economists at JPMorgan Chase & Co., BNP Paribas SA and Goldman Sachs Group Inc. What can the Fed do? There are many saying the Fed will act, but so far there isn't any suggestions of what the Fed could or would do. This isn't 2008 when financial markets were teetering on insolvency; the present situation is a lack of confidence, no jobs on the horizon and nothing that suggests the US has the will to cut spending. The Fed has little power to correct any of the issues facing markets and the economy.

At 9:30 the DJIA opened +137, the 10 yr note -18/32 at 2.38% +5 bp and mortgage prices -5/32 (.15 bp). By 9:45 the DJIA was up just 13, the 10 yr -11/32 at 2.35% and mortgage prices -2/32 (.06 bp). The equity markets still subject to selling. (see below for 10:00 levels for bonds and stocks)

This morning Q2 productivity was reported down 0.3%, a little better than -0.7% expected. Q2 until labor costs increased 2.2%.

At 1:00 Treasury will auction $32B of 3 yr notes.

Market Snapshot August 8th

You know by now S&P late Friday lowered the US credit rating to AA+ frm AAA; treasuries and mortgages markets opening better today on safety and panic moves while the stock market is being hit hard on the open. S&P has been warning for weeks it was preparing to lower the credit rating, the next thing in the ratings game is that Moody's and Fitch may follow in the next few weeks. What is the real impact? Initially equity markets will be pressured and interest rates will benefit, in the long run S&P has done us a great service in making the move. Congress and the Administration clearly demonstrated they are not willing to make any significant hard choices, maybe the cut in our rating (which is more symbolic than substantive) will shake up voters and politicians that the country is headed for a debt cliff at 100 miles and hour. Lets not get too worked up over S&P move, the US can pay our debts, the country is still the economic engine for the world, and compared to any other country the US is in every respect the strongest and safest place to invest. Don't fall into the camp that is spending the early part of the morning comparing our new credit rating to places like France and other so-called AAA countries.

Tim Geithner out this morning castigating S&P for their decision; Geithner and the Administration are wrong. The downgrade isn't going to matter much, markets understand exactly where the US stands and won't, in the long run, make much of this except that it may help drive home the point the country is on the wrong path and must get serious about the growing debt. S&P can be criticized for the move, the agency has little credibility in our view after being primarily responsible for the sub prime disaster that triggered the global financial meltdown. The agency rated CDOs made up of junk mortgages AAA, then after Wall Street couldn't sell the highest risk tranches of the CDOs, it rated the worst of the junk AAA again. If S&P couldn't understand junk mortgages why does anyone expect they know what they are into now? 

There are no economic reports today.

This week has little in the way of data to deal with but there is plenty for the bond and equity markets to think about. Tuesday the FOMC meets and has a lot to talk about, a weakening economic outlook and the rating cut. Treasury will auction $32B of 3 yr notes Tuesday, $24b of 10 yr notes Wednesday, and $16B of 30 yr bonds on Thursday. On Friday July retail sales are expected up 0.5%, ex autos +0.2%. Also on Friday the U. of Michigan consumer sentiment index is expected down to 62.5 frm 63.7, likely that will be revised lower now with the S&P move. 

Crude oil falling again, gold up over $1700.00. The stock market opening very weak as investors are totally over doing the situation. The stock market is of course reacting to the economic slowdown but also this morning investors just dumping everything they can. All of it in the early going is a reaction to S&P which as noted, in our judgment not as big a deal as it seems to be in markets.  

At 9:30 the DJIA opened -210, NASDAQ -85, S&P -22; 10 yr note +26/32 2.47% -11 bp and mortgage prices +7/32 (.22 bp)

The early going is volatile, lets keep our heads though. Mortgages are better but lagging the 10 yr and treasuries in general. Equity markets will drive treasuries through the day; with the FOMC meeting tomorrow and the weakened economic outlook stocks are struggling. Technically the stock market is very oversold in the near term, the bond market overbought. Fundamentally the outlook for the economy is weakening. Over-extended technicals but the fundamentals are presently over-riding what normally would be improving equities and lower prices on treasuries. As long as panic dominates technical indicators have to take a back seat.

August 8:Mortgage rates improve; Fannie, BofA, the US Post Office getting hit; Secondary marketing job; money out there for mortgage banks

What do Canada, Germany, France and the United Kingdom have in common? Their debt
(and a few other smaller countries) is rated AAA by Standard & Poor's - just like
the U.S's was prior to Friday afternoon. But not no mo' for the U.S. The S&P's downgrade
of the USA on Friday to AA+ was not entirely unexpected, although it was perhaps
a little sooner than "experts" thought. Over the weekend expectations included
a negative initial reaction in risk assets and in Treasuries, wider spreads in agency
MBS's (meaning higher mortgage rates), a weaker dollar, and higher bullion prices.

For banks, the Fed already came out right after the announcement with: "For risk-based
capital purposes, the risk weights for Treasury securities and other securities
issued or guaranteed by the U.S. government, government agencies and government-
sponsored enterprises will not change." So for banks this looks like a non-event
although with bilateral ISDA contracts and collateral agreements at clearing houses
(DTC, FICC, etc.) there could be problems when it comes to GSE debt - watch for
potential downgrades early this week. But, looking out the window, it appears that
the sun is coming up - and this week's FOMC meeting will definitely have something
to discuss. (More on this down several paragraphs.)

Fannie Mae reported a $2.9 billion second-quarter loss and said it would seek $5.1
billion in Treasury Department aid to balance its books since it has a net worth
deficit of $5.1 billion for the three-month period that ended June 30. The loss,
which compares with a $1.2 billion loss a year earlier, was mostly a result of credit-related
expenses on home loans made before the 2008 financial collapse. Fannie Mae also
made a $2.3 billion payment to the Treasury in the second quarter. As of the second
quarter, Fannie Mae has drawn $104.8 billion in Treasury aid and paid $14.7 billion
in dividends, the company reported. Fannie Mae and Freddie Mac together have drawn
about $170 billion in taxpayer aid.

(Fannie & Freddie are not the only Federal agencies/departments in the hot seat.
The U.S. Postal Service posted a net loss of $3.1 billion in its third quarter,
and a loss of $5.7billion in the nine month period, and warned again it would default
on payments to the federal government if Congress did not step in. Total mail volume
for the quarter that ended June 30 fell to 39.8 billion pieces, a 2.6 percent drop
from the same period a year earlier, as consumers turn to email and pay bills online.
The postal service does not receive taxpayer funds, and next month is facing a $5.5
billion mandated retiree health benefit prepayment - and with Congress in recess
until September...)
Bank of America's stock was hit late last week after telling investors that claims
from Fannie Mae and Freddie Mac may cost more than previously forecast. The buyback
claims have analysts saying that the $30 billion of expenses booked may not be enough
to clean up the faulty mortgages. F&F can request a buyback from a seller if a mortgage
insurer denies coverage for a loan, even when the lender disputes the insurer's
decision, and companies currently have three months after being denied coverage
to appeal the repurchase demand and will have just 30 days starting in July 2012.
For more details go to BloombergBofA [http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1107005531384&s=8721&e=001-zKwldoqmQZy0YAuo4VkFgzJ-6ZRaa4smTGWHD2aLY8wkzRS176hGUkddSccc7Zu9aipfk3A0KN6Alk3keLMzxNz-O_pN5mqRA6ATbBHETYnui9JO8iH-KQj26-Ps2gYBzwwD5zQ19jxe0ZY0piz--vDbnZIkEe5VRz4rHbwOvGAstRLc6IoWJyXaNRufc8awhXFg4RLjjb3-wuZAFW_5AgHKcl1rdUmrH96wWycb5MCq481VGfUYA==].

But there are still definitely jobs out there. For example, National Residential,
based in Phoenix, is searching for a Secondary Marketing Manager to assist the Director
of Capital Markets in hedging and managing the rate risk of the mortgage pipeline
as well as assisting in the product development efforts of the company. National
Residential is a retail lender owned by Heartland Financial, a bank holding company,
with operations primarily in the Midwest and the West, with recent mortgage banking
expansions into Southern California, Reno, and Austin, Texas. Previous experience
with the trading and forming of MBS and/or GNMA pools is required. Previous experience
with the use of QRM is preferred but not critical. The ideal candidate can review
reports to validate exposure and coverage reasonableness, communicate new MBS trades
to Finance, review trade confirmation received from counterparty, enter trade information,
reconcile and communicate hedge pair-off trades to counterparty and finance department,
maintain, run and distribute daily hedge position reports and monthly mark-to-market
reports, allocate loans, form pools, and so on. For more information contact Sandy
Roe at sroe@natresdirect.com [mailto:sroe@natresdirect.com].

It is an interesting time for mortgage banks. David Fleig from Financial Analysis
Partners writes, "Could the mortgage industry could be headed for a wave of deconsolidation
which would favor well capitalized and managed privately held mortgage companies?
The marginal players in the residential mortgage banking industry have been forced
out of the business, and the surviving companies have increased their market share
and improved their margins, posting excellent if not record profitability beginning
in 2009. During this period, minimum capital and liquidity standards have been increased
by the Agencies and the warehouse lending community, which is causing many of the
smaller survivors to consider a merger or being acquired by the larger players.
The best run privately held companies are poised to take advantage of future opportunities
but will require capital for such acquisitions and to fund other growth opportunities,
most notably retaining servicing rights (which some believe is tremendously compelling
now for the first time in decades)."

David continues, "Capital is generally not currently available through bank loans
or from Wall Street, providing private lenders with a unique opportunity to fill
this credit gap. Financial Analysis Partners is in the process of launching a private
equity fund to be known as Residential Mortgage Capital Partners I, LP. The Fund
intends to make mezzanine investments, primarily subordinated debt, in carefully
selected mortgage companies with high integrity management teams and solid operating
histories. Anticipated criteria for portfolio companies includes a consistent earnings
history and solid per loan profitability, a strong management team and minimum net
worth of about $5 million. The Fund's investment should represent a classic "win-win"
transaction because target portfolio companies will have the demonstrated ability
to generate an ROE in excess of the coupon on the Fund's securities, creating an
earnings arbitrage opportunity. The Manager intends to assist portfolio companies
with their strategic planning with the objective of maximizing future enterprise
value." If you'd like more information contact David at dfleig@financialanalysispartners.com
[mailto:dfleig@financialanalysispartners.com].

Over in Washington, Bank of Whitman was shut down by the Washington State Department
of Financial Institutions, and the FDIC tapped Columbia State Bank in Tacoma to
assume all of the deposits. The same happened up in Illinois, where Bank of Shorewood
was shuttered and Heartland Bank and Trust Company took over the deposits.

At some point it comes back to our economy, and continued worries about jobs and
housing. Feeble job growth and rising unemployment don't help the housing market,
and in turn construction or distributing distressed properties. For example, California
has significantly reduced its backlog of foreclosures, while Florida has not. This
will dictate the speed with
which these housing markets return to normal. The home price-to-rent ratio has slipped
just below one, which means rents are now slightly expensive to home prices on a
national basis.

Job-wise, recent labor market trends have raised concerns that the unemployment
rate is high not because employers are reluctant to hire but because they are unable
to hire. These concerns, if true, would cast doubt on using monetary policy to stimulate
the labor market, since it works by encouraging firms to hire more. ChicagoFed [http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1107005531384&s=8721&e=001-zKwldoqmQbDhJE6PnI0nEbWKPtBmo2mCn5ASKDwMdhjIJ6WHLRIU2xBU62Ry5_kwphp09KxyaxeQybzXKe7TPP_abXSYU0p3lZLWi83muX7rrh7srunwAKdWNWsBYbo2MIMmZ40AN3d6cnRupGHh_JRrhfWmVreseAWrhCxDmawBTyjp0uT9m3JwUDdxzHvLg_JggljVOOQsfIwUmPTTZcdZn7xF03GU6jaqZLPm9g=]

The press, Wall Street firms, and overseas investors have been jawboning over the
S&P downgrade. (Even I wrote about it, suggesting that it is more of a political
move than financial: S&PDowngrade [http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1107005531384&s=8721&e=001-zKwldoqmQZNap-jFM7CFfT_zqVKdL3SCT8ZKSLy_KgNBRTcXENH6CwHYP-Rfy-UqLnhVCxEiALJDukLJLBjY7CbNAj_8q6rbGPw_enJykrr-sYD8_q1hfEwm3ysecdhTBNpv5Qa-83uwkjv8R4qdXGj__eWcu52ksdMS3g9vBnRumS03Zz6F7hkbTdDjdHKrUcIT5etcCu9KI2hq3eXAra9tSeysCz1Qu9Byb_2loTcb3D3iI3ury99bMkBNvV5m4_IZ1JddJg=].)
So here we are - stocks are down again (but they were down before) and the bond
market is behaving itself. Markets set rates, not rating agencies, and it would
seem that money if flowing into bullion and into the bond market, as many expected
would happen. Perhaps the United States really is still viewed as a safe haven for
money - after all, few markets match the depth and liquidity of the Treasury market,
which has $9.3 trillion in debt outstanding. That being said, keep in mind other
debt tied to Treasury rates, and risk quality, may be downgraded soon, which may
lead to higher rates - a ripple effect.

Going back to Friday, the Nonfarm Payrolls report surprised to the upside with +117k
jobs created in July versus a call for +85k. In addition, May and June were revised
upward by a total 56k jobs. The thought of the economy picking up pushed rates higher,
and the 10-yr closed at 2.56%, and mortgage banker selling picked up to a daily
average of $1.9 billion - almost all in 4% coupons, compared to a daily average
last week of $1.3 billion. MBS volume was higher as well to a 155% average this
week from 131% previously, based on Tradeweb's experience.

For news this week, it is a very light week for scheduled news. There is nothing
today or tomorrow. Wednesday we have mortgage apps (which doesn't move rates, rates
move that number), on Thursday we have some trade numbers and Jobless Claims, and
on Friday we have Retail Sales, a Michigan Consumer Sentiment number, and Business
Inventories. But we also have Tuesday's FOMC meeting and a $32 billion 3-yr note
auction (Tues), $24 billion 10-yr auction (Wed), and a $16 billion 30-yr bond auction
Thursday. This morning we find the stock market taking it on the chin, but the 10-yr
back down to 2.48% and MBS prices are better by roughly .250.

(A quick note about Friday's Ben Bernanke story link: the story was a satire, and
not true - my apologies to anyone who may have thought otherwise.)
A married man was having an affair with his secretary.
One day they went to her place and made love all afternoon.
Exhausted, they fell asleep and woke up at 8 PM.
The man hurriedly dressed and told his lover to take his shoes outside and rub them
in the grass and dirt.
He put on his shoes and drove home.
"Where have you been?" his wife demanded.
"I can't lie to you," he replied, 'I'm having an affair with my secretary. We had
sex all afternoon."
She looked down at his shoes and said, "You liar! You've been playing golf!"

If you're interested, visit my twice-a-month blog at the STRATMOR Group web site
located at www.stratmorgroup.com [http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1106435366068&s=4179&e=001SVt-ljbp53436QjxD9vbwURtIPPjV05jEcEKyBN3SjS2forXe0C_foO8RjEV-Uye0N7Z_Sh1il0SRXPx6PjQauayNXQjni-Hc9Sseu-hhZcR1ujeZyAEpw==]
. The current blog takes a look at the recent U.S. credit downgrade by S&P, and
whether it really matters. If you have both the time and inclination, make a comment
on what I have written, or on other comments so that folks can learn what's going
on out there from the other readers.

Rob (Check out http://www.mortgagenewsdaily.com/channels/pipelinepress/default.aspx
[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&t=yhzxk4gab.0.epg7qedab.zy6u9cdab.8721&ts=S0660&p=http%3A%2F%2Fwww.mortgagenewsdaily.com%2Fchannels%2Fpipelinepress%2Fdefault.aspx]
or www.TheBasisPoint.com/category/daily-basis [http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&t=yhzxk4gab.0.v7uif6dab.zy6u9cdab.8721&ts=S0660&p=http%3A%2F%2Fwww.thebasispoint.com%2Fcategory%2Fdaily-basis].
For archived commentaries, go to www.robchrisman.com [http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&t=yhzxk4gab.0.fpg7qedab.zy6u9cdab.8721&ts=S0660&p=http%3A%2F%2Fwww.robchrisman.com%2F].
Copyright 2011 Rob Chrisman. All rights reserved. Occasional paid notices do appear.
This report or any portion hereof may not be reprinted, sold or redistributed without
the written consent of Rob Chrisman.)
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Chrisman Inc. | 24-G West Main Street #386 | Clinton | CT | 06413

August 5: PMI following RMIC? Saxon for sale? REIT prices continuing downward? So many questions for a Friday

If you want a job, should you go to The Great State of Texas? (Unofficial

motto:

 "So what if it's a little hot?") Maybe: ButItsADryHeat

[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1106951314728&s=8721&e=001IVrU5R

GiiwMnv4LsdHIQ9W6DnNvv54J3AqaGXyPooe86dkiiejkb8zrom_FbJODE9v3PNtPDbgEAj2P-6m

hK4N1KiFv9ACHW27QvFGy8qy-yIO50t8DVRqPUYxlGTHUWLYOtQyFzurvpNv6I-0l15Qfqf2nxaS

BXYEmH4ZWK_9Q=].

Think about it. The yield on the US 10-yr is 2.50%. Sometimes I have to be

reminded

that this means only earning 2.50% for the next ten years. So if a 70-yr old

retiree

saved up $1 million in her nest egg, and bought a 10-yr risk-free T-note,

she'd

earn $25,000 per year in income until she was 80 years old - a little over 2

grand

a month - after saving $1 million during her life.

Will PMI follow RMIC? PMI warned clients that it may be unable to continue

selling

new policies and could shut down. The stock is already a penny stock - the

company

has posted more than $3.5 billion in losses since 2007 as it paid out claims

on

foreclosed homes. Now, the company's main subsidiary, PMI Mortgage Insurance

Co.,

or MIC, doesn't have enough money on hand to meet the requirements of

regulations

in Arizona, where it is based. "The company said the state's insurance

department

may as a result move to stop it from selling new policies in all states and

move

 to rehabilitate or liquidate the unit. PMI has known such action was a

possibility

for some time, and as a backup plan it set up another subsidiary, called PMI

Mortgage

Assurance Co., that could sell mortgage insurance in certain states.

However, the

company warned Thursday that the approval to sell policies on mortgages

backed by

Fannie Mae and Freddie Mac depends upon MIC continuing operations. For

details go

to WSJPMI

[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1106951314728&s=8721&e=001IVrU5R

GiiwPlOwjWVwDqwJYjR-7t84UHCSm5mbrpYS69n9CrI65SW0_O0zbkA1sUdxdiKdQXiexx_A94cW

Ub7CaDku9fm4pljjE029GDCLBNGazVAtH2v2Rg34aQG27HMv03imPp3PXvk7X82g6FRu_b1qchV5

3a-uQQrv4vOxw0QQpP_6mj_UbAzr_5u1ZR].

What do mortgage investors think about these low rates? Many believe that

30-year

mortgage rates will need to drop below 4% and establish new record lows to

really

pump up the refi market for some of the lower coupon mortgages that were

originated

in 2010/2011. There are still underwriting and equity issues, and the

economic hurdles

that were introduced due to higher MI for FHA loans and higher LLPA for

agency loans

have to be crossed. It is also important to note that some of the higher

loan balance

loans will not have the economic incentive to refinance as GSE loan limits

are scheduled

to be lower effective Oct 1, 2011. Lastly, at this point higher LTV loans

originated

under HARP will not be eligible to participate in this potential refinancing

mini-wave.

And as the commentary mentioned yesterday, a move in Treasury or MBS prices

may

not directly translate into rate-sheet pricing for loan reps & borrowers -

it depends

on profit margins and hedging costs at the company level. But compared to

previous

big moves down, lower 10-year rates are translating into lower mortgage

rates in

 this rally faster - perhaps companies are going after market share. As one

trader

put it, "the market feels very despondent right now, realizing that fiscal

policy

is now more restrictive, Fed QE policies have not flowed through to the

consumer,

confidence is dropping over European situation, and so on."

Pssst - wanna buy Saxon? Morgan Stanley has reportedly contacted potential

buyers

of Saxon Capital which it bought in 2006 for $706 million. Later, in the

fourth

quarter of 2008, Morgan Stanley took a $700 million write down in large part

due

 to Saxon-related charges. Maybe MS is following Goldman Sach's lead when it

sold

Litton to Ocwen in June.

Recently the commentary noted that Fannie is scaling back origination and

home price

appreciation estimates for 2011 and 2012, and received this note: "As you

pointed

out, Fannie expects that home prices are expected to decline further this

year and

next.  Why would this be a surprise to anyone when the crushing regulatory

environment

and unforgiving underwriting standards make it difficult or impossible for

many

deserving folks to obtain financing?  Every constriction of DTI and LTV will

cause

home prices to fall.  And while nobody disputes that the standards were too

loose

during the housing bubble, many people who could afford the homes they

purchased

 will be hurt if this inanity (or insanity, if you prefer) continues."

"In Congress, there is a room where legislators are meeting to try to come

up with

ways to get the housing market moving again.  Down the hall, in another

room, other

legislators are meeting to try to find ways to make it even more difficult

to get

mortgage financing.  Our government doesn't understand that, every time it

meddles

or manipulates one area of the economy, there are unintended consequences in

another

area."

The residential mortgage REIT sector of companies has made a renewed name

for itself

by being an active buyer of mortgages and paying good dividends (and,

according

to Bloomberg, raising more than $14 billion in secondary equity sales and

IPO's).

But lately REIT stock prices have been very volatile - mostly on the down

side.

The potential US default pushed values down dramatically, sometimes as much

as 10%

in one trading day. Another reason was when the cost of overnight repurchase

agreement,

or repo, financing for government-backed mortgage securities jumped. REIT's

such

 as Invesco Mortgage, Hatteras Financial, and American Capital Agency got

hit since

repo rates were climbing, the gain was modest and so-called haircuts, or the

down

payments required for the loans, weren't changing. (In repo financing,

securities

such as Treasuries and mortgage bonds are sold to a lender with an agreement

by

the borrower to buy them back later. Haircuts protect lenders against price

declines

in the collateral, in the event the borrower defaults.)

Flagstar alerted its brokers that, "The American Reinvestment and Recovery

Act (ARRA)

was signed into law in February of 2009, temporarily increasing the maximum

conforming

loan limits. Mortgages with note dates on or after October 1, 2011, will no

longer

be eligible for these higher loan limits. Loans with a mortgage note date on

or

after October 1, 2011, will be subject to the permanent high-cost area loan

limits

determined according to the Housing and Economic Recovery Act of 2008

(HERA).  Regardless

of the area median home price, the loan limit cannot, in general, exceed

$625,500

for a 1-unit property. All loans using the ARRA loan limits but be locked on

or

before Thursday, September 15, 2011.  These loans must be closed and funded

no later

than Friday, September 23, 2011. There are no further delivery requirements.

Loans

not meeting the above requirements must use the HERA loan limits."

Starting today "Flag" will be changing the price adjustments on all

investment properties

for Agency products excluding the Fannie Mae DU Refi Plus, Freddie Mac

Relief Refi

and Freddie Mac Open Access products - making NOO prices worse by .5.

Lastly, its

delegated underwriting customers learned that it updated the requirements

for transactions

that require an appraisal from an AMC. "An appraisal from a

Flagstar-approved AMC

is no longer required for new construction purchase and construction to

permanent

transactions (including construction products) in the following states with

an LTV

of 70% or greater: Arizona, California, Florida, Georgia, Ohio, Michigan,

and Nevada."

Bank of America notified correspondent clients that it issued a disaster

declaration

for Montana due to the flooding.

When I was a kid, I would take care of neighbor's yards when they went on

vacation.

If you're doing that while servicing a Fannie Mae loan, you'd better make

sure you

follow the rules and allowable maintenance costs: CuttingLawnsPays

[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1106951314728&s=8721&e=001IVrU5R

GiiwNEC7xhls_aQK_HF1eUzRJrZ592wOd-NFbpnMMOBeJp13dvuztVvXhSdb1KhQDwLhXWU8piPH

NBTjT2ps3xVOHrKUzx09usdjyk8kJYEM6aZ8aFsEw68QyjK-jJuYz0PdzYFIF2o5y1yW7H7TPtk5

lMkAMflr-Ar-C8AYkTBzoBDhCa7PLhfqsu].

Obviously we can't see huge drops in rates every day, and besides, most in

the mortgage

industry would rather see gradual trends than large spikes. MBS volumes have

picked

up as rates have dropped, and yesterday we saw another: 10-year Treasury

prices

were better by another 1.25 (2.46%). Since last Friday, 10's have gained 3

points

and the yield has plunged roughly .375! As the DOW lost over 500 points

(more than

4%), MBS prices were better by .750 - not all of that being reflected on

rate sheets.

(Next week we have another FOMC meeting. In their last FOMC statement in

June, the

Committee said "Information received since the Federal Open Market Committee

met

 in April indicates that the economic recovery is continuing at a moderate

pace,

 though somewhat more slowly than the Committee had expected. Also, recent

labor

 market indicators have been weaker than anticipated." In light of the

recent events,

it will be interesting to hear what is released Tuesday.)

This morning we learned that the employment numbers were slightly better

than expected.

Non-farm Payrolls were up 117k, slightly higher than expected, the

Unemployment

Rate came in at 9.1% (versus June's 9.2%). May & June's numbers were revised

by

56k. That does it for economic news of consequence for the week - and what a

week

it's been. No market moves in any direction forever, and we're seeing that

in the

early going today: stocks are showing a rally, the 10-yr yield is around

2.48%,

and MBS prices are all over the map - but mostly down/worse about .250.

(Parental discretion very much advised!)

Ben Bernanke gets drunk and tells all? This was too good to not share:

Jobs?WhatJobs?

[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1106951314728&s=8721&e=001IVrU5R

GiiwPk0vlqqs0VQZbTCeNbXjd9F7E5mw5CwRolahRdVUG84FFsstF9SFkOl0vT5eqQ2NExLsGrOc

IF3ixmHqkSuaG21GLZMeHmGnPqc5PGguCdx9RkTMMpGKVzTOIRhq8fLL6fAa_7vV1U7xNfsjBjZl

w6FjhD90pQsE7OWZzJcU92m_87zo27mn0F51CmBryipeCD2kTLSJN2mQ==]

If you're interested, visit my twice-a-month blog at the STRATMOR Group web

site

 located at www.stratmorgroup.com

[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1106435366068&s=4179&e=001SVt-lj

bp53436QjxD9vbwURtIPPjV05jEcEKyBN3SjS2forXe0C_foO8RjEV-Uye0N7Z_Sh1il0SRXPx6P

jQauayNXQjni-Hc9Sseu-hhZcR1ujeZyAEpw==]

. The current blog takes a look at QRM, and doubts about its passage. If you

have

both the time and inclination, make a comment on what I have written, or on

other

comments so that folks can learn what's going on out there from the other

readers.

Rob   (Check out

http://www.mortgagenewsdaily.com/channels/pipelinepress/default.aspx

[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&t=ijhbx6gab.0.epg7qedab.zy6u9cdab.8

721&ts=S0660&p=http%3A%2F%2Fwww.mortgagenewsdaily.com%2Fchannels%2Fpipelinep

ress%2Fdefault.aspx]

or www.TheBasisPoint.com/category/daily-basis

[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&t=ijhbx6gab.0.v7uif6dab.zy6u9cdab.8

721&ts=S0660&p=http%3A%2F%2Fwww.thebasispoint.com%2Fcategory%2Fdaily-basis].

For archived commentaries, go to www.robchrisman.com

[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&t=ijhbx6gab.0.fpg7qedab.zy6u9cdab.8

721&ts=S0660&p=http%3A%2F%2Fwww.robchrisman.com%2F].

Copyright 2011 Rob Chrisman.  All rights reserved. Occasional paid notices

do appear.

This report or any portion hereof may not be reprinted, sold or

redistributed without

the written consent of Rob Chrisman.)

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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Chrisman Inc. | 24-G West Main Street #386 | Clinton | CT | 06413

Market Snapshot August 5th

At 8:30 the BLS employment report; always a surprise and today no different. The unemployment rate was expected at 9.2%, as reported 9.1%. Non-farm jobs expected up 86K increased 117K; private jobs expected +100K increased 154K. The average hourly earnings up 0.4%, much stronger than expected. Revisions to May and June non-farm jobs; increased to 53K frm 25K in May, June to +46K frm +18K. Factory jobs in July increased 24K, factory jobs in June revised to +11K frm +6K.

Markets were extremely volatile on the knee jerk reaction to the better jobs report. The 10 yr note jumped to 2.52% frm 2.42% at yesterday's close; mortgage prices fell 25/32 (.78 bp). The DJIA futures index jumped 150 points. It was however short-lived and markets settled somewhat by 9:00, by 9:30 however the 10  yr was back to 2.52% and mtgs -22/32 (.69 bp).

The DJIA opened +140, NASDAQ +30, S&P +14; 10 yr note 2.52% +10 bp and mortgage prices -23/32 (.72 bp). (see below for 10:00 levels)

Markets were on the edge of even more damage today had the employment report been soft, that it wasn't will help settle things down today. We don't however, believe the report will radically change the sentiment that the economy is slowing, but it should at least take us back from the cliff of more panic selling that we had yesterday. Yesterday hot money stampeded to US bond markets in search of liquidity and a hedge against the crashing stock market. The action yesterday in the equity markets did a lot of technical damage to the key stock indexes, even a little better market today will not likely be strong enough to overcome the damage. The bond market is very overbought technically and is overdue for some retracement, we can expect that the next few days the rate markets will settle and prices will decline. The bullish bias how ever will remain in tact; it would take the 10 yr to climb back above 2.85% to change our outlook to negative.

Part of the heavy selling yesterday was motivated by events out of Europe, that situation is still out there. The banking system in Europe continues to deteriorate, as it does the economy in Europe will slow just as it is doing here. The ECB yesterday announced it would provide loans to euro banks for six months with repurchase agreements , a needed move as the banks are running out of liquidity and eventually will have to take huge hits from Greece, Spain, Italy, Portugal and Ireland. Europe's economy is slowing more rapidly than in the US. Although the US employment report will slightly improve the economic outlook, the problems in Europe will continue to weigh on US markets.

Although the employment data wasn't as weak as thought, the US economy is still soft and our outlook hasn't changed. Growth will continue to slow with only fractional growth. The report this morning was better than thought but it is still confirming jobs are not increasing much and unemployment remains high. Small businesses still face uncertain health care costs  and inability to borrow; consumers will continue the deleveraging that has been occurring for two years, home prices still falling----nothing has changed from yesterday except momentary relief that employment wasn't as bad as thought in July, the data confirms a very slow improvement in jobs, almost meaningless.  The bond and mortgage markets will remain positive and rates are likely to continue lower but with less pace and and increase in two way trading. After a better open the stock market has already rolled over.

Market Snapshot August 3rd

At 8:15 the ADP July non-farm private jobs were reported up 114K a little better than 86K consensus; ADP revised June to +145K frm 157K originally reported. There was little reaction to the better report; the 10 yr note traded off 2/32 prior to the release, at 8:45 -3/32. Mortgage prices at 8:45 -1/32 (.03 bp). ADP didn't get the reaction it has in the past, possibly because of the huge miss last month compared to the BLS data; +157K in June compared to +57K frm the BLS.

The deal worked out yesterday to increase the debt ceiling is still being analyzed, most believe it was nothing special in terms of cutting spending, in 2012 actual spending cuts will amount to just $60B, an amount hardly worth thinking about. Neither side of the debate should be touting success. Rating agencies are still sounding like a possible credit down grade on US debt. Not sure the impact of a down grade; most pundits painting it as Titanic problem but we don't see it that way. A down grade of US debt won't hinder investors' appetite for our notes and bonds; US rates have fallen recently primarily on weaker economic forecasts but if a credit down grade were actually expected increase borrowing costs we doubt the recent decline in rates would be as great as it has been. 

At 7:00 this morning the weekly MBA mortgage applications report.  Mortgage applications increased 7.1% from one week earlier, according to data from the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending July 29, 2011. The Refinance Index increased 7.8% from the previous week. The seasonally adjusted Purchase Index increased 5.1% from one week earlier. Refinance application volume increased, but even though 30-year mortgage rates are back below 4.5%, the refinance index is still almost 30%  below last year’s level. The four week moving average for the seasonally adjusted Market Index is up 2.8%. The refinance share of mortgage activity increased to 70.1% of total applications from 69.6% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 6.6% from 6.1% of total applications from the previous week. The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.45% from 4.57%, with points decreasing to 0.78 from 1.14 (including the origination fee) for 80% loans.  Both the contract rate and effective rate for 30-year fixed rate mortgages are at their lowest levels since November 5, 2010. The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.52% from 3.67%, with points decreasing to 1.02 from 1.08 (including the origination fee) for 80% loans. Both the contract rate and the effective rate for 15-year fixed rate mortgages are the lowest since the survey began in 1990.

Just prior to the 10:00 key ISM services sector report the stock market was lower, the bond and mortgage markets held small price gains after opening generally unchanged.

At 10:00 the July ISM services sector index, expected at 53.0, came at 52.7. New orders component at 51.7 frm 53.6, prices at 56.6 frm 60.9 and employment at 52.5 frm 54.1. Another weak report but not by much, the reaction to the report has been muted with little change from levels just before the 10:00 release.

Also at 10:00 June factory orders, expected down 1.0%; were down 0.8%, ex transportation orders up 0.1%.