San Diego, California Mortgage Market Update

Market Happenings:

Next Cut : The market has been holding better after the initial rate-cut sell-off, while watching stock world crumble. The fact that the Fed has thrown its ammo out into the street, after getting the emergency rate cut rumor out & circulating heavily, leaves traders looking for the next cut while giving rumors added street cred. The funds futures market is pricing in another 50 bp ease next week : after the scheduled FOMC meeting. The implied policy rates fall to near 2% in September. Today's inter meeting 75 bp cut is the largest since November 1994 and with only a week left until the meeting caught the market by surprise. St. Louis Fed president Poole dissented against the move preferring to wait until the meeting rather than move today. The market should weather the Fed speed bump, but there is a lot of "too little, too late" chat out there. The bonds have been swinging back better as players wonder what's next? That these high placed officials are out, in concert, whacking at rates & talking up a sagging economy (out of Treasury, "the economy is resilient" is the new "strong dollar") while many read the rate move as "panic." The rather large stock sell off has come back some with the Fed announcement with the Big Board now down 280 pts. Mortgages responded on a relatively tame tone to the Fed news. FNMA 5.50%’s are up 12 ticks (+12/32) and moved little since the Fed move. Expect lender ratesheet pricing to be better by 30 – 40 bps today.

Industry News:

Fed Cuts Funds Rate 75bps

The Federal Reserve on Tuesday morning cut its key lending rate by 75 basis points to 3.50% in reaction to a rout in global stock markets as well as a "softening" jobs market in the United States and a "deepening" housing contraction. The cut in the target federal funds rate also came on the heels of dismal fourth-quarter earnings reports by Bank of America and Wachovia showing that credit losses and provisioning cut earnings by more than 90% compared with the levels of a year earlier. Collateralized debt obligation writedowns totaled $5.28 billion at BoA. "While strains in the short-term funding markets have eased somewhat, broader financial conditions have continued to deteriorate and credit has tightened further for some businesses and households," the Fed's monetary policy committee said in explaining the sudden rate cut. "Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in the labor markets." The Fed committee is scheduled to meet Jan. 30, and Fed watchers expected a 50-bps cut based on Fed Chairman Ben S. Bernanke's comments that he will act aggressively to keep the U.S. economy growing. However, fears that the U.S. economy is already in recession swept Asian and European markets on Monday and Tuesday and sent stock prices sharply lower. This prompted the Fed to take quicker and more decisive action before the U.S. stock markets opened.

BoA Deal: CFC Execs Get Grants, Except Mozilo

Four of Countrywide Financial Corp.'s top executives -- except company chairman and chief executive Angelo Mozilo -- are entitled to millions of dollars in retention grants as part of the lender's sale to Bank of America. According to a new filing with the Securities and Exchange Commission, Ranjit Kripalani, Countrywide's managing director of capital markets, is entitled to the most ($2.5 million), followed by president/chief operating officer David Sambol ($1.9 million), chief financial officer Eric Sieracki ($1.5 million), and banking chief Carlos Garcia ($1.45 million). Mr. Mozilo is expected to leave the company once BoA takes over, or even sooner. Mr. Sambol, who currently serves as president, is considered Mr. Mozilo's successor. The board, chaired by Mr. Mozilo, approved the retention grants.

ABA: Rate Cuts, Stimulus Needed as Insurance

Federal Reserve rate cuts and the passage of a stimulus package could provide insurance against a recession, particularly if falling house prices spark a major pullback in consumer spending, according to the American Bankers Association's economic advisory committee. "We may be looking at an unprecedented drop in home prices," said Peter Hooper, chief economist at Deutsche Bank Securities. The consensus of the nine economists on the advisory committee is that there will be a "double-digit decline" in house prices as measured by the Standard & Poor's/Case-Shiller housing price index, and prices will not stop falling until 2009. The consensus says there is a 45% chance of a recession this year. They expect that unemployment will rise to 5.3% and the Federal Reserve will cut the target federal funds rate by 100 basis points to 3.25% by midyear. All nine economists say they expect the performance of mortgage and other consumer loans to deteriorate further over the next six months.

First Horizon's Mortgage Ops Lose $263M

First Horizon National Corp., Memphis, has reported that its mortgage business lost $263 million (pretax) in the fourth quarter, reflecting reductions to its servicing assets and impairment charges. Overall, the bank lost $399 million in the quarter. Like many banks heavily involved in residential finance, First Horizon has been stung by the nation's mortgage crisis and housing downturn. It has moved to cut staff and close production channels. In the fall, First Horizon announced job cuts of 1,500 mortgage workers and the closure of 50 offices.

This Week’s Calendar:

Misc:

-- On Today’s date in 1973, the U.S. Supreme Court, in its Roe v. Wade decision, legalized abortions using a trimester approach.

-- On Today’s date in 1998, Theodore Kaczynski pleaded guilty in Sacramento, Calif., to being the Unabomber in return for a sentence of life in prison without parole.

-- Today Singer Steve Perry is 59. (For comic relief, click here: http://www.youtube.com/watch?v=bQbZRMLKozk)

-- Today Actress Linda Blair is 49

Today's market update brought to you by:

Todd Albrigo

Account Executive

CMG Mortgage, Inc.

Market Happenings:

Bond, Mortgage Bounce, Look for More Fed: The market has shifted a back to pump up expectations for a 50 basis point cut at the Mar meeting, up to 88% from 65% late yesterday. The bonds went running following the huge bump higher in jobless claims, against assorted, touch higher than expected, data. The market will consider this number against tomorrow's big-dog jobs report, while also balancing against yesterday's much improved faux-jobs predictor that was ADP. Trade will be buffeted by some clean-up ahead of the jobs report, but to some extent will also be dictated by the squirming in stocks. The market took little off the Chicago PMI report which showed a big jump in prices paid & further fall off in the employment component. A 51.5 reading was reported after consecutive months with readings into the 60’s. For context, a 50 reading is considered growth neutral. Trade is backing off the highs but will likely fall into that hypnotic daze that comes from watching stocks. With the stock market off over 100 points so far, Treasuries and Mortgages are the benefactors as FNMA 5.50% coupons have rallied 8 ticks (+8/32). Expect lender ratesheet pricing to improve 20 -30 bps from yesterdays quotes.

Industry News:

FBI: '08 Could Be Record Year for SARs

Financial institutions filed a record 15,000 suspicious activity reports (including instances of mortgage fraud) with the Federal Bureau of Investigation in the first fiscal quarter of this year. If the pace keeps up, more than 60,000 SARs will be filed, outstripping 2007, when 46,717 reports hit the system. In a briefing on Jan. 29, FBI officials said the agency has 14 major "corporate fraud" investigations under way involving mortgage or related companies. The focus, officials said, was on subprime firms, their accounting and lending practices, and insider trading. The agency did not specify any cases, but it is well known that the collapse of New Century Financial Corp. of Irvine, Calif., is the subject of a major probe. As previously reported, the Securities and Exchange Commission is investigating the failure of several subprime firms, focusing on -- among other things -- their investment bankers, including Bear Stearns, Merrill Lynch, and Morgan Stanley.

S&P Downgrades 3,787 Subprime Classes

Standard & Poor's Ratings Services has downgraded 3,787 classes from U.S. residential mortgage-backed securities that are collateralized by first-lien subprime mortgage loans rated between January 2006 and June 2007. S&P also announced that 2,602 classes of comparable subprime RMBS have been placed on CreditWatch with negative implications. The rating agency also placed 1,953 classes from 572 global collateralized debt obligations of asset-backed securities and CDO of CDO transactions on CreditWatch negative.

Servicers Picking Up Loan-Mod Pace?

Mortgage servicers have picked up the pace of modifying subprime loans to assist borrowers who are in trouble, according to the Hope Now Alliance. "Servicers were modifying loans during the fourth quarter at triple the rate of the third quarter," Hope Now executive director Faith Schwartz told a congressional panel. The first loan workout report compiled by the Mortgage Bankers Association showed that servicers modified only 12,740 subprime adjustable-rate mortgages in the third quarter by reducing the interest rate or principal amount of the mortgages. These results were disappointing, and regulators urged the subprime servicers to pick up the pace on loan modifications. The Hope Now alliance is collecting the workout data for future reports, which will measure trends in delinquencies and resolution outcomes, Ms. Schwartz testified. "We want to provide consistent and informative data reports based on common definitions and to provide information that provides insights into the nature and extent of the current subprime mortgage crisis and helps in the development of workable solutions that avoids foreclosures whenever possible."

Misc:

-- On Today’s date in 1958, the United States entered the Space Age with its first successful launch of a satellite into orbit, Explorer I.

-- On Today’s date in 2007, Nine blinking electronic devices planted around Boston threw a scare into the city in what turned out to be a marketing campaign for a late-night cable cartoon.

-- Today Baseball Hall-of-Famer Nolan Ryan is 61.

-- Today Actress Minnie Driver is 38.

-- Today Singer Justin Timberlake is 27.

Today's market update brought to you by: 

Todd Albrigo

Account Executive

CMG Mortgage, Inc.

Market Happenings:

ADP reports that its estimate for January private payroll growth is a large 130K :. Using the 3 month average as a stand in for government payroll growth to leave a 166K estimate for total payroll growth, 100K larger than the current consensus estimate. Be wary of this report, however, given the large overestimates over recent month which leave a 48K average miss over the last 3 months. Q4 GDP rose just 0.6% as final sales came in at 1.9% and the price index rose 2.6% : Personal spending came in weaker than expected at 2.0% as the -23.9% drop in residential spending is the largest decline in a quarter century. Business investment rose 7.5% off a 16% rise in structural investment. Exports rose 3.9% as imports edged just 0.3% higher to leave a boost from global trade. Government spending rose 2.6%. The decline in inventory growth left a large -1.3% drag on overall growth and is the difference between GDP and final sales. The weaker than expected growth will fan fears for the current quarter growth. This advance report is partly composed of forecasts (e.g. Dec trade, inventories) as actuals (revisions) will provide a more accurate read on economic growth. So conflicting numbers here, a larger than expected ADP payroll number and lower than expected GDP data has Agency MBS trading flat on the day as all eyes are now on the Fed. Expect major volatility if their announced cut is not at 50 bps and their statement release could also move the market dramatically later today. As for now, lender pricing should look like yesterday’s post re-price, with perhaps a slight improvement.

Industry News:

BoA Chair: Countrywide Deal on Track

Bank of America chairman and chief executive Kenneth Lewis said the bank's planned acquisition of Countrywide Financial Corp. "is a go" after Countrywide released earnings Tuesday morning. Speaking at a Citigroup investors conference, Mr. Lewis said Countrywide's fourth-quarter financial results, which revealed higher credit costs and a loss, were in line with Bank of America's due diligence and offering price. "At this point, everything is a go for completing this transaction," Mr. Lewis said. He also said Countrywide's year-end results showed improvement in its underlying mortgage business.

RealtyTrac: Foreclosure Filings Rose 75% in '07

More than 2.2 million foreclosure filings were reported nationwide in 2007, up 75% from the level recorded in 2006, according to RealtyTrac, an online foreclosure marketplace based in Irvine, Calif. In December, 215,749 foreclosure filings were reported, up 97% from the total of a year earlier, the company said in its 2007 U.S. Foreclosure Market Report. (Foreclosure filings include default notices, auction sale notices, and bank repossessions.) "The year ended with a monthly increase of 7% in December, making it the fifth straight month with more than 200,000 foreclosure filings reported and giving the fourth quarter the highest quarterly total we've seen since we began issuing our report in January 2005," said James J. Saccacio, chief executive officer of RealtyTrac. RealtyTrac said Nevada, Florida, and Michigan recorded the highest foreclosure rates in 2007.

HPI Shows 2.1% House Price Decline

House prices declined 2.1% in November, and prices were down 7.7% on a year-over-year basis, according to the Standard & Poor's/Case-Shiller housing price index, which covers 20 metropolitan statistical areas. "We reached another grim milestone in the housing market in November," said Robert Shiller, chief economist at MacroMarkets LLC. Fourteen of the 20 MSAs recorded their largest monthly decline on record in November. And every MSA has now posted three consecutive monthly declines, he said. The S&P/Case-Shiller HPI shows Miami is the "weakest market," with a 15% annual decline in house prices, followed by San Diego (down 13.4%), Las Vegas (down 13.2%), and Detroit (down 13.0%). Charlotte, N.C., Portland, Ore., and Seattle are the only MSAs still experiencing price appreciation, according to the index but these markets are expected to slip into negative territory as well within the next two quarters.

Misc:

-- On Today’s date in 1933, the first episode of the "Lone Ranger" radio program was broadcast on station WXYZ in Detroit.

-- On Today’s date in 1948, Indian political and spiritual leader Mohandas K. Gandhi was shot and killed by a Hindu extremist.

-- Today Actor Gene Hackman is 78.

-- Today Vice President and avid hunter Dick Cheney is 67.

-- Today Singer Phil Collins is 57.

-- Today Actor Wilmer Valderrama is 28.

Today's market update brought to you by:

Todd Albrigo

Account Executive

CMG Mortgage, Inc.

Market Happenings:

The Case-Shiller home price index for 20 cities fell 2.1% in November to leave a -7.7% decline from a year ago : The largest November declines were in California -- LA, San Diego and San Francisco -- with declines exceeding -3%. The largest annual declines came from Miami, San Diego and Las Vegas -- all more than -13%. Only three of the twenty show annual gains -- Charlotte, Seattle and Portland. December durable goods orders rose 5.2%: as ex-transportation orders showed a far stronger than expected 2.6% gain. Core capital goods orders (a proxy for business capital investment) rose a strong 4.4% as total capital goods orders surged over 11%. Ex-defense orders showed a 2.9% gain as the December rise was far more broad based than expected. Shipments fell -0.1% as inventories rose a strong 1.1% as unfilled orders rose 2.5%. A very strong report for volatile durable goods but the trends remain weak. Annual growth of 5% is the result of the December gain as is the 1.7% yoy gain in core capital goods. Durable goods orders are a leading indicator for business capital investment. Not Too Confident : Consumer confidence hit marginally above very low expectations with an upward revision to Dec. As to be expected sentiment remains weak with many headwinds facing the consumer. The present situation component was up 2.1% while expectations were -8.2%. The labor differential (jobs 'plentiful' less 'hard to get') recovered to 3.8 from a dismal 0.9 while the inflation survey continues to improve at 5.3% off Nov's 5.7%. All eyes now move to the FED and what will transpire tomorrow. Rumor could move the market between now and then with anything other than a 50 bp cut being a market shaker, either way. Currently FNMA 5.5% MBS are trading up 4 ticks (+4/32). Expect lender ratesheet pricing to improve 8 – 12 bps.

	THE CMG HOME OWNERSHIP ACCLERATOR LOAN, WITH A LOW MARGIN OF 0.750% AND THE 1 MONTH LIBOR AT 4.631% CAN GET YOU A FULLY INDEXED RATE OF 5.381% UP TO A $2.5M LINE AMOUNT!!!
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Industry News:

Countrywide Loses $422M; Production Dives

After predicting that it would earn money in the fourth quarter, Countrywide Financial Corp. posted a $422 million loss in the period. Over the past six months, the nation's largest lender/servicer has lost $1.6 billion. It also reported fourth-quarter loan production of just $61 billion, a 48% decline from the level recorded a year earlier. The company originated just $65 million in subprime loans, compared with $9.1 billion a year ago. It set aside $924 million for credit losses in the fourth quarter, compared with $937 million in the third quarter. It also took an impairment charge of $831 million tied to what it called "retained interests" in prime-quality, junior-lien home equity securitizations. Countrywide's servicing business lost $198 million (pretax) in the fourth quarter, and the firm wrote down the value of its $1.46 trillion mortgage servicing portfolio by $1.6 billion. The publicly traded lender is slated for sale to Bank of America. In a statement, Countrywide chairman and chief executive Angelo Mozilo blamed the company's performance on "further credit deterioration across the industry and continued illiquidity in the secondary mortgage markets." For the year, Countrywide lost $704 million, its first annual net loss in more than 30 years.

New-Home Sales Dropped 26.4% in '07

The sales of new homes plummeted 26.4% in 2007, including a 4.7% decline in the month of December, according to the latest government housing report. The U.S. Census Bureau reported that sales of new single-family homes fell from a seasonally adjusted annual rate of 634,000 in November to 604,000 in December. The November sales number was revised downward from 647,000. Fannie Mae economists say they expect new-home sales to drop another 10% in 2008. "We expect housing starts and sales to stabilize in the middle of the year, with sustained gains beginning in 2009," said Fannie's director of economics, Molly Boesel. New-home sales totaled 774,000 in 2007, down from 1.05 million the previous year.

CoreLogic: Mortgage Risk Rising

The Core Mortgage Risk Index increased 9.0% in the first quarter, reflecting the pressures of rising delinquency and foreclosure rates, flat or declining price appreciation, and slower job growth, according to First American CoreLogic, Sacramento, Calif. Among the largest 100 markets in the country, CoreLogic said the five with the highest risk are: Bakersfield, Calif.; Stockton, Calif.; Fresno, Calif.; Warren-Troy-Farmington Hills, Mich.; and Grand Rapids-Wyoming, Mich. "While Michigan markets overall are not as highly ranked as they were in the past, it is not because the risk has declined or even stabilized, but rather that California markets are deteriorating at a faster rate," the company reported.

Misc:

-- On Today’s date in 1861, Kansas became the 34th state of the Union.

-- On Today’s date in 1936, the first members of baseball's Hall of Fame, including Ty Cobb and Babe Ruth, were named in Cooperstown, N.Y.

-- On Today’s date in 2007, Kentucky Derby winner Barbaro was euthanized because of medical complications eight months after his gruesome breakdown at the Preakness.

-- Today Actor Tom Selleck is 63.

-- Today Rock musician Tommy Ramone (Ramones) is 56. According to Tommie, sometimes we all want to be sedated. This may hold up even more so for those in a mortgage related profession.

-- Today Talk show host and media tycoon Oprah Winfrey is 54.

-- Today Actress Heather Graham is 38.

Today's market update brought to you by: 

Todd Albrigo

Account Executive

CMG Mortgage, Inc.

Market Happenings:

New home sales fell -4.7% in December to 604K : the lowest level in 13 years. Inventories reached a new high of 9.6 months as median prices plunged -10.4% from a year ago. The price decline is ironically helpful as it may provide a spur to Spring time sales. To date there is no evidence of even building stability given the -17% plunge in sales over the last two months. Trade will be eyeing the upcoming heavy hitters with a first read on Q4 GDP, FOMC & payrolls. The market has managed to work off some of its overbought-ness so the technicians may be content with riding out ranges until a better signal on direction is given. And of course eyes will be on equities & headlines for near-term sentiment. Mortgages appear to be one of the beneficiaries of the stock market being off about 75 pts so far in morning trade. Capital moving from equities to stable fixed income instruments which include Agency MBS. So far this morning FNMA 5.5% coupon MBS are up 5 ticks (+5/32). Expect lender ratesheet pricing to improve by 10 – 15 bps today.

Industry News:

CS Mortgage Consolidation Brings Layoffs

Credit Suisse has moved to consolidate several of its mortgage-related businesses, resulting in an untold number of layoffs, most of which were in New York. A source close to the company said the following four businesses will be combined and report to managing director Michael Marriott: asset-backed securities, collateralized debt obligations, residential mortgage-backed securities, and commercial MBS. "We combined their operations and eliminated redundancies," said the source, adding that Credit Suisse is not exiting any mortgage business and will be staying in warehouse lending as well. (There had been unconfirmed rumors that CS might exit the warehouse arena.) Credit Suisse owns Lime Financial, a subprime lender based in Lake Oswego, Ore., and Select Portfolio Services of Salt Lake City, a subservicer. "The business is soft right now," said the source, "but we're positioning ourselves for when the non-agency securitization business comes back."

Dodd Pledges to Act on GSE Reform

Senate Banking Committee Chairman Christopher J. Dodd, D-Conn., has pledged to act on a GSE reform bill this year in an effort to get the White House to accept a temporary increase in the Fannie Mae and Freddie Mac loan limit that is going to be inserted in the economic stimulus package. Sen. Dodd met with Treasury Secretary Henry Paulson Friday morning to discuss strengthening the regulation of the two government-sponsored enterprises. "I wanted the secretary to know I am going to get a GSE bill done," Sen. Dodd told reporters. The Treasury secretary has let it be known that he is unhappy with the one-year increase in the loan limit that House Democratic and Republican leaders insisted on. He has always insisted that an increase should be tied to passage of a comprehensive GSE reform bill. Meanwhile, Republicans claim they agreed to increase the GSE loan limit from $417,000 to $625,000. But in marking up the stimulus bill, Democrats plan to raise the GSE loan limit to 125% of median area home prices in 12 high-cost metropolitan statistical areas, with a $729,750 cap.

This Week's Calendar:

Misc:

-- On Today’s date in 1915, the United States Coast Guard was created as President Woodrow Wilson signed into law a bill merging the Life-Saving Service and Revenue Cutter Service.

-- On Today’s date in 1973, a cease-fire officially went into effect in the Vietnam War.

-- On Today’s date in 1986, the space shuttle Challenger exploded 73 seconds after liftoff from the Kennedy Space Center, killing all seven of its crew members: flight commander Francis R. "Dick" Scobee; pilot Michael Smith; Ronald McNair; Ellison Onizuka; Judith Resnik; Gregory Jarvis; and schoolteacher Christa McAuliffe.

-- Singer Sarah McLachlan is 40.

-- Singer Joey Fatone Jr. ('N Sync) is 31.

-- Singer Nick Carter (Backstreet Boys) is 28.

Today's market update brought to you by:

Todd Albrigo

Account Executive

CMG Mortgage, Inc.

Market Happenings:
 
Here, There & Everywhere: The market has had a lopsided slide, the longer stuff leading the way back as the market gets drag from the upside in stocks.  Trade has very little to work with, while dealing in very light trade as well as with exhaustion from the past week , so things may get all stuck on stocks.  The past week has given the market extreme runs, with little aside from fear, then a complete lack thereof to support moves, so whipsaw trade has churned up many & spat them out.  There have certainly been some head scratching trading days on the Agency MBS market causing lenders to react to protect their positions my having to enact multiple mid day re-pricings.  Yesterdays saw the MBS market sell off right to the wire, again with an absence of economic data releases, speculation and equity flip flopping are ruling the week.  Today we clawed back some from yesterdays heavy sell, FNMA 5.5% MBS coupons are up 5 ticks (+5/32) so far this morning which should lead to about 10 15 bps better in agency fixed rate lender pricing.
 

 THE CMG HOME OWNERSHIP ACCLERATOR LOAN, WITH A LOW MARGIN OF 0.750% AND THE 1 MONTH LIBOR  AT 4.631% CAN AT GET YOU AND YOUR CLIENTS A FULLY AMMORTIZED RATE OF 5.381% UP TO A $2.5M LINE AMOUNT!!!
 

Industry News:
 
Pols Strike GSE Loan Limits Deal  
House leaders have struck a deal with the White House to increase Fannie Mae and Freddie Mac loan limits from $417,000 to a maximum of $730,000 during negotiations on a $150 billion economic stimulus package. The stimulus package, which Congress is expected to pass in a few weeks, also increases the Federal Housing Administration loan limit permanently. This increase reflects an agreement between the House and Senate banking committee chairmen to increase the FHA and GSE loan limits to 125% of median area home prices, with a $730,000 cap. The increase in the loan limit for the two government-sponsored enterprises would expire after 12 months. House Speaker Nancy Pelosi, D-Calif., negotiated the deal with Treasury Secretary Henry Paulson. But the GSE regulator said raising the loan limit is a "mistake" without passage of a comprehensive bill to strengthen regulation and oversight of Fannie and Freddie. "To restore confidence in the markets, we must ensure the GSEs' regulator has all the necessary safety-and-soundness tools," said James Lockhart, director of the Office of Federal Housing Enterprise Oversight.
Existing-Home Sales Plunge
Existing-home sales -- on a sequential basis -- slipped by 2.2% in December to 4.89 million units, but compared with the same month a year earlier plunged by 22%, according to new figures released by the National Association of Realtors. At the end of December the median national home price was $208,400, a 6% decline from a year earlier. Resales have skidded for a year but worsened over the summer when the secondary market for nonprime loans began to evaporate. "We look for the moderate declining trend to hold through the winter, but we continue to believe that a bottom will be found in the spring," says a research note issued by Greenwich Capital. The Wall Street firm said it does not anticipate a sharp rebound in sales "as is typical after housing cycle bottoms," adding that "we foresee resales dragging along the bottom for an extended period, as the sector continues to work out its pricing and inventory issues." There are 3.91 million existing homes for sale which represents a 9.6-month supply.
Société Générale Takes 2B-Euro Mortgage Hit 
The Paris-based Société Générale is taking a 2 billion euro ($2.9 billion) U.S. mortgage-related writedown and an even larger 4.9 billion euro ($7.2 billion) loss linked to fraud by a rogue trader. As a result, Standard & Poor's has placed the French bank's long-term counterparty ratings, as well as those of its core subsidiaries, on CreditWatch with negative implications. The New York-based rating agency said the CreditWatch placement was primarily due to the fraud, but it also indicated that it will be monitoring SocGen's mortgage-related exposures.
Downey: NPAs at $1 Bill Plus
Downey Financial, a top mortgage lender in California, said non-performing assets -- including delinquent loans and foreclosed real estate -- reached $1.04 billion at year end, or 7.77% of total assets. During the fourth quarter alone NPAs spiked by $618 million. The California thrift lost $56.5 million for the year versus a profit of $199.6 million in 2006. Company president Rick McGill said, "We are clearly disappointed with our results," blaming the company's problems on the weak housing market.
 
 
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Misc:
 
--  On Today’s date in 1947, American gangster Al Capone died in Miami Beach, Fla., at age 48.
--  On Today’s date in 1959, American Airlines began jet flights between New York and Los Angeles on the Boeing 707.
--  On Today’s date in 1961, President John F. Kennedy held the first presidential news conference carried live on radio and television.
--  On Today’s date in 1971, Charles Manson and three women followers were convicted in Los Angeles of murder and conspiracy in the 1969 slayings of seven people, including actress Sharon Tate.
--  Today Rhythm-and-blues singer Alicia Keys is 27
 
 
 
Thanks for your business!
 
Todd Albrigo
Account Executive
CMG Mortgage, Inc.

Existing home sales fell -2.2% in December to a ten year low : The decline was slightly larger for condos/coops than single family sales which fell -2%. Inventories fell off to 9.6 months from 10.1 months in November and October's high of 10.7 months (since inventories are not seasonally adjusted, a drop in December is customary). Prices showed larger declines as median prices fell -6.0% from a year ago. Average prices which better track the high end homes fell -4.9% yoy. In 2007 existing home sales were the weakest since 2002. The market was offered into the housing report, which even as it missed to the downside was of little consequence to bonds and mortgages. MBS markets appear to be hearing calls from all directions and aren’t quite sure where to go right now. After a decent rally to open, Agency MBS trading has settled down. We are up ticks (+2/32) on 5.50% coupons which should lead to lender ratesheet pricing looking flat to perhaps 5 bps better than yesterdays post re-pricing marks.

Industry News:

MGIC Projecting $1.3B in 4Q Incurred Losses

MGIC Investment Corp., Milwaukee, is projecting incurred losses for the fourth quarter of around $1.3 billion. This is more than double what Friedman, Billings, Ramsey analysts Steve Stelmach and Paul Miller Jr. had previously estimated, the pair say in a new report. MGIC blamed a continued deterioration in cure rates, leading to a higher percentage of loans that became claims. In addition, average claim size continues to increase. For 2008, MGIC is projecting paid losses in the area of $1.8 billion to $2.0 billion. The company said it decided during the fourth quarter to stop writing bulk business insuring loans in Wall Street securitizations. In their report, the FBR analysts forecast that MGIC will have a tangible book value of $2.6 billion by year-end 2008, down from $4.5 billion at the end of the first quarter of 2007. "This will bring MGIC uncomfortably close to breaching its minimum net worth requirement of $2.0 billion," the analysts said. "As a result, we view rating agency risk as growing, as well as the need for a potential capital raise. Also, we do not view other MIs as immune from the troubles seen at MGIC and would expect the group to trade lower in sympathy."

Dodd Seeks FHA/GSE Add-on to Stimulus

Arguing that Congress needs to do something about the "foreclosure crisis," Senate Banking Committee Chairman Christopher J. Dodd, D-Conn., says he wants to attach a Federal Housing Administration reform bill and an increase in the GSE loan limit to the economic stimulus package Congress and the White House are working on. Sen. Dodd said he will be meeting with House Financial Services Committee Chairman Barney Frank, D-Mass., to discuss how the House and Senate FHA bills can be reconciled quickly and attached to the stimulus package. "I want to send a bill to the president as soon as possible," Sen. Dodd told reporters. The Connecticut senator also said he supports a temporary increase in the loan limits for Fannie Mae and Freddie Mac so the two government-sponsored enterprises can bring liquidity to the jumbo market. But he did not sound optimistic that that would be possible. The chairman also served notice that he has "concerns" about the House-passed GSE regulatory reform bill and that some changes are needed to get the bill through his committee. "I want a strong regulator," he said. "But I am not going to gut the GSEs. It is not going to happen on my watch."

Governator: Limited Credit Strangling CA

The California economy is being strangled by limited access to mortgage credit, according to California Gov. Arnold Schwarzenegger, who wants Congress to raise the Fannie Mae and Freddie Mac lending limit from $417,000 to $625,000 as part of an economic stimulus package. "Raising these limits would do more than anything else to pump badly needed credit back into the housing market and revive our economy," Gov. Schwarzenegger says in a letter to House and Senate leaders. More than 50% of California's housing stock is priced above the current GSE loan limit of $417,000. "When combined with the withdrawal of the jumbo loan market, it's no surprise that current home sales activity in California is half the pace seen in 2006," the governor said. The former movie star also pointed out that raising the loan limit for the government-sponsored enterprises automatically raises the limit on loans insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs. "Nothing will more beneficially improve the United States economy than immediately raising these limits," he said. California Realtors, builders, mortgage bankers, and brokers are also urging Congress to raise the GSE loan limit to $625,000 as part of a stimulus package.

Misc:

-- On Today’s date in1848, James W. Marshall discovered a gold nugget at Sutter's Mill in northern California, a discovery that led to the gold rush of '49.

-- On Today’s date in1908, is considered the starting date of the Boy Scouts movement in England, under the aegis of Robert Baden-Powell.

-- On Today’s date in1922, Christian K. Nelson of Onawa, Iowa, patented the Eskimo Pie.

-- Today Singer-songwriter Neil Diamond is 67.

-- Today Olympic gold-medal gymnast Mary Lou Retton is 40.

Today's market update brought to you by:

Todd Albrigo

Account Executive

CMG Mortgage, Inc.

Market Happenings:

Trimming Gains : The market has sunk some as the long end has fallen out of bed, but the underlying drivers remain the same. Expectations for further, bigger, rate cuts at next week's FOMC remain high, while talk of cuts elsewhere has also heated up. The session is likely to see some steep corrective drop-offs, but, with little else to go on the buy side bias should hold. Traders say they are keeping a closer eye on the Davos Economic Summit in Switzerland than has been the case in the past, with the heated markets adding some weight to some of the comments from the more influential in attendance. With the market expecting further cuts by the Fed ahead for their Jan 29 – 30 meeting, a stock market selloff fueled by fears of a recession (are we already their?) and a general flight to quality have Treasuries and Agency Mortgage Backeds continuing their rally although these spreads have widened some with Treasuries outperforming Agency MBS. Since the opening bell FNMA 5.0% coupons are up 10 ticks (+10/32) with 5.5% coupons up 5 (+5/32). Expect investor ratesheet pricing to again be improved, by roughly 10 – 20 bps.

Industry News:

BoA CEO: Countrywide Deal Still On

Bank of America chief executive Kenneth Lewis said Tuesday morning that he expects the company's purchase of the troubled Countrywide Financial Corp. to close some time in the second half of this year. There has been speculation that BoA might back out of the deal, which sent Countrywide's share price reeling on Jan. 18. Meanwhile, on Tuesday the treasurer of the Service Employees International Union sent a letter to Federal Reserve Chairman Ben S. Bernanke and elected officials that oversee the mortgage industry, asking them to carefully review the transaction. "While the short-term appeal of this acquisition may be tempting, the long-term implications of bank industry consolidation on this scale raise serious policy and regulatory questions that need to be answered now," wrote SEIU treasurer Anna Burger. The union has 1.9 million members.

CS: GSEs Looking at $16B in 4Q Charges

Fannie Mae and Freddie Mac could write down the value of their subprime and alternative-A securities by as much as $16 billion, according to a new report issued by Credit Suisse. CS analyst Moshe Orenbuch estimates that Freddie's charge could be as high as $11 billion, Fannie's $5 billion. Mr. Orenbuch said the government-sponsored enterprises, through September, have recognized "minimal impairments" on their roughly $230 billion in subprime and alt-A holdings. Both GSEs declined to comment on the CS report. Fannie and Freddie are scheduled to release fourth-quarter earnings at the end of February, but have not yet specified an exact date.

Wachovia Takes Big Option ARM Loss

Wachovia Corp. is taking a 25% loss on the sale of California homes financed by payment-option ARMs, and the banking company has seen the performance of those negatively amortizing loans deteriorate over the past few quarters. The Charlotte, N.C.-based bank reported a $1 billion increase in nonperforming option adjustable-rate mortgages as the percentage of loans 90 days or more past due in its $120 billion portfolio rose from 1.47% in the third quarter to 2.31% in the fourth quarter. Wachovia took a $93 million chargeoff against the portfolio. But company executives say they expect the option ARM business to remain profitable, despite rising chargeoffs and real-estate-owned sales. The banking company reported a 98% drop in earnings to $51 million in the fourth quarter compared with the level of a year earlier, mainly due to chargeoffs and provisioning relating to its residential and commercial mortgage portfolios. "Lower earnings largely reflect the effect of continued disruption in the capital markets, which resulted in net valuation losses of $1.7 billion as well as a provision for credit losses of $1.5 billion, which exceeded net chargeoffs by $1.0 billion," the bank said.

NatCity Reports $333M 4Q Loss

National City Corp., Cleveland, has reported a fourth-quarter loss of $333 million ($0.53 per share), compared with net income of $842 million ($1.36 per share) a year earlier. NatCity reported a loss of $149 million for the quarter in its loans-held-for-sale portfolio due to problems in the secondary market, which resulted in additional fair-value writedowns on those loans. It has now stopped origination of all products other than agency-eligible products and shifted certain non-agency-eligible mortgage loans and home equity loans from its held-for-sale portfolio to its balance sheet portfolio. NatCity also took a charge of $181 million ($0.26 per share) for goodwill impairment related to the mortgage business. For the year, NatCity earned $314 million ($0.51 per share), down from income of $2.3 billion ($3.77 per share) in 2006.

Misc:

-- On Today’s date in 1845, Congress decided all national elections would be held on the first Tuesday after the first Monday in November. Why the following Wednesday after the completion of the lunar cycle in April didn’t work is beyond me.

-- On Today’s date in 1964, the 24th amendment to the Constitution, eliminating the poll tax in federal elections, was ratified.

-- On Today’s date in 1973, President Richard Nixon announced an accord had been reached to end the Vietnam War.

-- Today Actor Richard Dean Anderson is 58. For the uninitiated: http://www.wright.edu/~bevington.5/MacGyver.jpg

Today's market update brought to you by:

Todd Albrigo

Account Executive

CMG Mortgage, Inc.

Today’s Market Happenings

Although word leaked out Wednesday afternoon, partners with Aurora got the official letter yesterday. “Dear brokers and loan officers, it is with great regret to announce that Aurora Loan Services decided to close its doors effective immediately. The reasons behind this decision are more than evident considering the market situation.” Lehman Brothers, who own Aurora, decided to substantially reduce its resources and capacity in US residential mortgages. Aurora (Lehman) suspended Wholesale and Correspondent lending activities, but will continue to originate loans through its direct lending channel (near Kansas City) and maintain its servicing business. The action affects approximately 1,300 employees and will also result in the closure of Aurora's regional operations in Lake Forest, CA, Sunrise, FL and Florham Park, NJ. Aurora's Colorado operations will be consolidated at its Littleton, CO office.

As a result, originators suspended loan programs that were being sold only to Aurora. For example, Flagstar, who apparently were buying jumbo loans from originators and selling them to Aurora, told their lenders that they suspended their entire jumbo program, and “hopefully” would open up a different program sometime in the future.

President Bush is expected to unveil an economic stimulus package today. The exact details are not known, much of the proposals seem to focus on tax breaks. But hopefully lending limits are included in the package! Bush and Speaker Nancy Pelosi meet on Tuesday, after the MLK holiday, to discuss the plan. Working off the huge inventory of homes, and increasing affordability, hopefully will be the some of the results.

With all of the write-downs, weren’t the issuers and investment banks hedging their bets? Of course they were, although many are questioning whether or not investment banks have a clear idea as to their potential losses. Mortgage bond insurers (like MBI) have been back in the news lately, since they are where Wall Street bought protection. So if MBI, who has been seeking cash, along with others, is overwhelmed and don’t survive (i.e., default) the "hedges" the banks have in place are of little value. Interestingly, the rating agencies still maintain mostly AAA credit rating on the insurers. As one senior analyst noted, “It's all smoke and mirrors - we just better hope nobody breaks the glass.” Speaking of which, MBIA moved to preserve its crucial triple-A rating by selling $1 billion of new capital that paid investors a 14% interest rate, more than double what similarly rated bonds offer. Fitch Ratings gave MBIA until the end of January to raise enough capital to stave off a downgrade. MBIA said it would report losses of $737m in the fourth quarter.

The U.S. government negotiated with a series of mortgage-service companies (Citigroup, Countrywide Financial, Washington Mutual and Wells Fargo – nicknamed the “Hope Alliance”) to create a "Mortgage Rate Freeze" program to alleviate the financial strain of resetting interest rates for subprime borrowers in 2008. The program is designed to not only benefit a targeted group of homeowners but the economy as a whole by reducing foreclosures and, therefore, downward pressure on real estate prices. The Hope Alliance will basically ignore the terms of existing subprime-mortgage contracts and not reset interest rates for as many as 1.2 million loans for five years. This plan will only be available to owner-occupied properties, borrowers must be in relatively good standing on their existing loan, having never missed any payments, been late by more than 60 days during the life of the loan, or been more than 30 days overdue at the time they apply for the "rate freeze." Furthermore, this plan will only be available to those borrowers who are deemed incapable of making payments should their interest rates reset. Unfortunately, so far, little effort has been made to economically motivate investors to cooperate since mortgage-service companies have no legal power to arbitrarily renegotiate the terms of a mortgage contract. As a result, this plan could generate a series of investor lawsuits, and may impact capital markets and investors' perceptions of mortgage-backed securities. According to a report released Thursday by the Mortgage Bankers Association, the mortgage industry initiated more than 54,000 loan modifications in the third quarter of 2007, approximately 13,000 of which were on subprime loans.

125 basis points now separate 2-yr and 10-yr yields, which is regarded as steep with rates this low. ARM prices are doing well, relative to 30-yr product, but investor and borrower interest in ARM loans is questionable. Ahead of Monday’s holiday, the markets are closing early today, so look for some investors to perhaps change prices in the late morning/early afternoon. Speaking of the 10-yr, which is 3.66%, investor interest appears to be strong, and the only scheduled news is December’s Leading Economic Indicators and the University of Michigan Consumer Sentiment Index. LEI, attempts to measure economic activity over the next three to six months, and is expected -0.1%, and the University of Michigan Index is expected at 74.5. Have a good 3-day weekend!

Today's market update brought to you by:

Todd Albrigo

Account Executive

CMG Mortgage, Inc.

Today’s Market Update

Employees & business partners of ResCap (of San Rafael, CA, not the group in Minnesota!) got the, “I regret to inform you that effective today the mortgage banking division of Residential Mortgage Capital will no longer be accepting Wholesale loan submissions or loan locks…We will attempt, to the degree possible, to honor our locks and commitments for those loans currently in the pipeline. However, given the current position of our warehouse banks, it might be prudent to immediately place those loans elsewhere.” Rescap has lost significant retail production lately, and has also seen a drop in broker (wholesale) business.

Deutsche Bank, owner of MortgageIT, announced that, “the best course of action is to continue our commitment to a wholesale mortgage lending platform. We see significant opportunities, particularly in areas such as government loan origination. However, our cost structure and decentralized operating model are no longer sustainable…We expect to retain a handful of sales offices…we will be closing most of our production branch offices and migrating production fulfillment to our branch in Madison, Wisconsin.”

Some potentially good news? Possible loan limit changes are back in the news as the National Association of Home Builders (NAHB) and Housing Policy Council (HPC) of The Financial Services Roundtable joined forces today in asking FNMA & FHLMC to support H.R. 1427, “while H.R. 1427 includes a provision calling for a permanent adjustment for high-cost loan areas based on the area median home sales price up to 150 percent of the national limit, NAHB and HPC believe that the increase should be temporary for two years. At the end of two years, the increase would be terminated if the jumbo market returns to a normal spread between conforming and non-conforming mortgage rates.” Check out the story at http://www.nahb.org/news_details.aspx?sectionID=0&newsID=5959

In addition, the Treasury Department privately gave Fannie Mae and Freddie Mac a proposal Monday night that would establish new standards for how the government approves debt issued by both firms. The proposal would require semiannual (not quarterly) reporting of planned debt issues and wouldn't require Fannie's and Freddie's chief executives to sign off on the reports. The Office of Federal Housing Enterprise Oversight could lift its limits on the companies' combined $1.4 trillion mortgage portfolios by the end of next month if both companies file timely audited financial statements.

Prior to yesterday's economic releases, bond yields had fallen to their lowest level since 2004 on fears of an economic slowdown (read: recession). But then yesterday we had Industrial Production come in slightly stronger than expected. The Fed’s Beige Book survey showing economic activity increased at a slower pace in Nov and December, as expected. Lastly, homebuilder confidence remained weak. JP Morgan Chase and Wells Fargo reported better 4th quarter earnings than estimated as the companies were able to limit their losses from the mortgage market crisis. JP's subprime write-down of $1.3 billion was smaller than predicted and Wells profits exceeded estimates.

This morning we had our usual weekly Jobless Claims, which unexpectedly dropped by 21k to 301k. To counter that strong economic news, Housing Starts were -14.2% and Building Permits were -8.1%. Although this is not good for builders, it could help our current over-supply of housing units, which could, in the longer term, help support prices. After the news mortgage prices, unfortunately, are slightly worse and the 10-yr yield stands at 3.74%.

The MBAA announced that mortgage application volume skyrocketed for the second consecutive week, rising over 28% last week. Refinancing applications were up 43% and purchase volume jumped 11%. Originators reported that refinance volume accounted for 63% of total application volume, compared with 57.7 percent the previous week.

Today's market update brought to you by:

Todd Albrigo

Account Executive

CMG Mortgage, Inc.

Today’s Market Update

An estimated $1.3 trillion in subprime mortgages is outstanding. About one-tenth of those are now in foreclosure. Some are predicting that foreclosures will grow to a staggering $400 billion – a real stretch according to many. Financial institutions have already written off over $100 billion the value of their nonprime mortgage assets. A loss of $150 billion would be less than 12 percent of the approximately $1.3 trillion in subprime mortgages outstanding. Most subprime borrowers aren't going to default, and even if 25% do and lenders recover 50%, 25% of $1.3 trillion in subprime mortgages is $325 billion, and a 50% recovery would mean a loss of about $160 billion. Aren’t we almost there?

* Indymac laid off 2,403 employees, or 24% of their total workforce, yesterday. It included 470 sales staff in addition to closing operation centers in Tampa, Philadelphia, Boston, Columbia and Kansas City.

* Speaking of lay-offs, Citigroup posted a net loss of $9.83 billion, and recorded $18.1 billion in pre-tax write-downs and credit costs on subprime related direct exposures in fixed income markets & a $4.1 billion increase in credit costs in its U.S. consumer business, mainly because of higher current and estimated losses on consumer loans. Citi said it would eliminate 4,200 jobs and cut its quarterly cash dividend by 41% to 32 cents from 54 cents. Citi raised another $12.5 billion via the private placement of convertible preferred securities, including a $6.88 billion investment from Singapore.

* First American, the largest U.S. title insurer, will split into two publicly traded companies by separating its financial information and underwriting businesses, and their stock rose 7.1%. The unit with the title and specialty insurance operations will be spun off to shareholders, the Santa Ana-based firm said in a statement Tuesday. The existing holding company, to be renamed, will consist primarily of businesses that provide data on mortgages, properties and credit. The company cut 1,100 jobs in the fourth quarter, and remaining employees are rumored to have taken a 10% pay cut.

* Taylor Bean made changes to their Declining Market criteria (“Declining property value, as indicated on the appraisal, as determined through an Appraisal Review, or as listed on the Declining Market Worksheet, the max allowed LTV must be reduced by 5%, regardless of AUS.”) and made changes to their mortgage insurance and jumbo loan restrictions (“removed payment shock requirements; however, excessive payment shock should be reviewed cautiously, added Declining Market verbiage, etc.)

As most expected, rates continue to decline with the yield on the 10-yr Treasury Note down into the 3.60’s and mortgage prices somewhat improved. After our stock market fell, Asian stocks fell about 4% ahead of this morning’s Consumer Price Index numbers. CPI was +.3%, year-over-year +4.1%, with the core rate (ex-food & energy) +.2% and +2.4% year-over-year. This is somewhat more inflationary than analysts were expecting. The market is clearly pricing in a 50 basis point ease in two weeks, with a slight chance of a 75 basis point cut.

Private Jones was assigned to the induction center where he was to advise new recruits about their government benefits, especially their SGLI insurance.

It wasn't long before Captain Smith noticed that Private Jones had almost a 100% sign-up record for the insurance, which had never happened before. Rather than ask about this, the Captain stood in the back of the room and listened to Jones's sales pitch.

Jones explained the basics of the SGLI Insurance to the new recruits, and then said. "If you have SGLI and go into battle and are killed, the government has to pay $200,000 to your beneficiaries. If you don't have SGLI, and you go into battle and get killed, the government has to pay only a maximum of $6,000."

"Now," he concluded, "which bunch do you think they will send into battle first?"

Today's market update brought to you by:

Todd Albrigo

Account Executive

CMG Mortgage, Inc.

Today’s Market Update

Farmer Jones got out of his car and while heading for his friend's door, noticed a pig with a wooden leg. His curiosity aroused, he asks, "Fred, how'd that pig get him a wooden leg?"

"Well Michael, that's a mighty special pig! A while back a wild boar attacked me while I was walking in the woods. That pig there came a runnin', went after that boar and chased him away. Saved my life!"

"And the boar tore up his leg?"

"No he was fine after that. But a bit later we had that fire. Started in the shed up against the barn. Well, that ole pig started squealin' like he was stuck, woke us up, and 'fore we got out here, the darn thing had herded the other animals out of the barn and saved 'em all!"

"So that's when he hurt his leg, huh, Fred?"

"No, Michael. He was a might winded, though. When my tractor hit a rock and rolled down the hill into the pond I was knocked clean out. When I came to, that pig had dove into the pond and dragged me out 'fore I drownded. Sure did save my life."

"And that was when he hurt his leg?"

"Oh no, he was fine. Cleaned him up, too."

"OK, Fred. So just tell me. How did he get the wooden leg?"

"Well", the farmer tells him, "A pig like that, you don't want to eat all at once."

Some folks see a correlation between this story and the mortgage banking business. It’s been good to many folks, but it seems like programs and guidelines are either tightening up again or going away entirely, especially at the wholesale/broker level. The latest rumors focus on Washington Mutual having preliminary merger talks with JPMorgan Chase. JP Morgan also may be interested in two other regional banks, Suntrust and PNC Financial. Last week’s Bank of America/Countrywide news came just in time for some nervous warehouse lenders. At least two (GMAC and Southwest Securities) sent out notices saying, “Due to the recent market conditions and the industry wide news on Countrywide…Regarding loans committed to Countrywide, we will accept ‘agency eligible paper’ with a "DU" or "LP" cert, only, at this time. FHA also acceptable. No non-conforming or CW proprietary programs.”

Regarding the BofA/Countrywide deal, one analyst thought that “CW as entity is done…the first thing to go is the Wholesale channel, as BofA has made it clear they don't want to be in that business…then, they close down a majority of the retail shops taking the top producers under Bank of America’s roof….Correspondent will stay, but they will evaluate who they want to do business with, and only the cleanest paper will be allowed to go through.” Bank of America's $4 billion deal to rescue Countrywide Financial is getting mixed reviews from Wall Street: are they overpaying for a franchise to save face, following the $2 billion investment in Countrywide late last year? Ken Lewis has had a good history of buying undervalued assets (like Fleet BankBoston in 2004, or the $21 billion purchase of La Salle, a deal that gives B of A a huge footprint in the Chicago region), and it's probable that higher-than-anticipated cost savings will save the day. Countrywide may be able to turn things around on their own, but their name is tarnished, and the best way to extract value from buying Countrywide is to keep its powerful origination and servicing franchises, and re-brand its product. One good article to scan is http://money.cnn.com/2008/01/11/news/companies/tully_countrywide.fortune/index.htm?postversion=2008011112

Bank of America supposedly sent 60 analysts to Countrywide's headquarters, and after four weeks analyzing Countrywide's legal and financial predicament, and modeling how its loan portfolio was likely to perform, Bank of America offered an all-stock deal valued at $4 billion for Countrywide – with a book value of 3x that. There certainly appears to be ample cushion for potential damages, settlements and other litigation costs involving mortgages that went bad.

* Speaking of “big deals” Merrill Lynch is seeking $4 billion, to help cover and additional $10-20 billion of write-downs, and the Kuwait Investment Authority is expected to be a significant investor in the new deal. Citi is expected to announce a write-down of close to $20 billion and present plans to raise as much as $14bn in new capital from the Chinese, Kuwaiti, and public market investors. Under the proposal being discussed, the bulk of the money - roughly $9bn - would be most likely to come from China, people familiar with the negotiations say. I always wondered what they were doing with that oil money…

* The city of Baltimore has filed a fair-lending lawsuit against Wells Fargo Bank, contending that the San Francisco-based bank's subprime lending practices have led to high foreclosure rates in minority neighborhoods and cost the city millions of dollars in expenses and lost revenues.

* Capital One Financial has lowered its estimate of 2007 earnings, citing among other factors costs associated with GreenPoint Mortgage, which the company has shut down.

How about the market today, with the 10-yr at 3.82% and mortgages unchanged? There is no data today, aside from some pro-IBM news, the week’s most important releases are coming tomorrow morning with December’s Retail Sales (expected +.1%) and the Producer Price Index (PPI, expected +.2% and +.2% for the core rate). On Wednesday we’ll see the Consumer Price Index (CPI), one of the most important monthly reports that we see since it measures inflationary pressures at the consumer level of the economy. It is expected to rise 0.2% while the core data is also expected to increase 0.2%. December’s Industrial Production report is the second report to be posted Wednesday, expected -.1%, and then Wednesday afternoon the Fed Beige Book report will be posted, detailing economic activity regionally throughout the U.S. December's Housing Starts report will be released early Thursday morning, and then Friday we have December’s Leading Economic Indicators and January’s preliminary reading to the University of Michigan Index of Consumer Sentiment.

While on a road trip, an elderly couple stopped at a roadside restaurant for lunch. After finishing their meal, they left the restaurant, and resumed their trip. When leaving, the elderly woman unknowingly left her glasses on the table, and she didn't miss them until they had been driving about forty minutes. By then, to add to the aggravation, they had to travel quite a distance before they could find a place to turn around, in order to return to the restaurant to retrieve her glasses.

All the way back, the elderly husband became the classic grouchy old man. He fussed and complained, and scolded his wife relentlessly during the entire return drive. The more he chided her, the more agitated he became. He just wouldn't let up one minute. To her relief, they finally arrived at the restaurant. As the woman got out of the car, and hurried inside to retrieve her glasses, the old geezer yelled to her, “While you're in there, you might as well get my hat and the credit card.”

Today's market update brought to you by:

Todd Albrigo

Account Executive

CMG Mortgage, Inc.

Market Happenings:

November wholesale inventories rose a stronger than expected 0.6% as sales shot 2.2% higher : The annual pace of sales is more than triple the annual growth in inventories and left a new record low inventory/sales ratio of 1.07 months. The low ratio argues for wholesale inventory rebuilding and less drag on growth. Initial claims for unemployment benefits fell -15K to 322K : over the week of January 5 which spanned the New Years holiday. The level is the lowest since early November and provides some encouraging news on the labor front despite the typical year end volatility. The 4-week average fell to 341K -- a 4 week low. Continued claims fell -52K after the 116K gain over the prior two high. Good weekly data but the trends are more worrisome. Credit concerns continue to mount as Capital One finds itself in the news today on the loan loss front as well. Wrap it all up and you have Agency MBS paper trading down 7 ticks (-7/32) on the 5.50% coupon. Couple this with a steady drop yesterday afternoon and expect lender pricing to be off 20 – 35 bps today.

Industry News:

Countrywide Foreclosures Double in 12 Months

Countrywide Financial Corp. -- the nation's largest residential servicer, with $1.5 trillion in receivables -- saw its foreclosure rate spike to 1.44% at the end of December, a stunning 105% increase from the rate recorded a year earlier. Based on unpaid principal balances, that means $21 billion of loans that it owns the servicing rights to are pending foreclosure. (Based on number of loans serviced, the rate is 1.04%, or almost 94,000 loans.) Meanwhile, delinquencies in its gargantuan servicing portfolio increased to 7.20% at year's end, a 56% rise from the level at Dec. 31, 2006. The figures were disclosed in its monthly operational statement released Jan 9. It funded $24 billion worth of new loans in December, up slightly from the volume in November, but down 46% from that of the same month in 2006.

ACORN, Countrywide Reach Pact

Countrywide Financial Corp. and the Association of Community Organizations for Reform Now have reached an agreement on ways to help delinquent subprime borrowers get into workout plans and save their homes. "We have created a comprehensive approach that fills the gaps in the Hope Now plan," said ACORN president Maud Hurd, and provides relief for all homeowners with unaffordable subprime mortgages. Countrywide has agreed to freeze the interest rate for delinquent subprime borrowers who can no longer make their monthly payments due to a reset on their adjustable-rate mortgage. "It is automatic, it capitalizes arrears, and it ensures that borrowers are free from unaffordable rate increases for the life of their loans," ACORN said. The Hope Now plan engineered by Treasury Secretary Henry Paulson freezes the interest rate for borrowers who are current but are expected to run into trouble once their subprime loan resets to a higher interest rate. Countrywide and ACORN officials are slated to present more details about the agreement at a news conference on Jan. 10.

MBIA Fighting Rating Pressure

MBIA Inc., Armonk, N.Y., has sought to stave off negative rating pressure related to its mortgage-related asset-backed securities insurance exposure with a $1 billion surplus note offering and by cutting its dividend. Combined news reports also indicate that MBIA is facing inquiries by federal securities and state insurance regulators related to the company's reports to investors about its mortgage-related risks. The company reaffirmed previous estimates for the fourth quarter indicating that it will take a $737 million loss for the period that is "principally related" to "insured securitizations of prime home equity lines of credit and prime closed-end second-lien mortgages."

-- On Today’s date in 1861, Florida seceded from the Union.

-- On Today’s date in 1870, John D. Rockefeller incorporated Standard Oil.

-- Today Baseball Hall-of-Famer Willie McCovey is 70.

-- Today Singer Frank Sinatra Jr. is 64.

-- Today Singer Rod Stewart is 63.

-- Today Boxer George Foreman is 59.

-- Today Singer Pat Benatar is 55.

Today's market update brought to you by:

Todd Albrigo

Account Executive

CMG Mortgage, Inc.

Market Happenings:

The market will be vulnerable through the session as profits continue to be pocketed, prices are pressured by expected global supply & they continue to worry over stock action. EuroZone bonds continue to hold a bid while UK rate cut talk has seen an uptick, with the bias a move tomorrow inching higher & officials pay lip service to lower rates. The market expects little out of the day's Fed-speak, but there will be media questions, so anything's possible. The expectant funds futures market may again be setting the Fed up as another market spoiler : at month end and beyond. The February contract reflects an 80% probability that the Fed eases by 50 bp at the January 30 FOMC meeting and another 25 bp to a 3.5% target rate and the following FOMC meeting on March 18. Even the current January contract trades well below the current 4.25% funds rate target. The contract for January 2009 is down at 2.75%. Today Bloomberg released the estimates from 63 economists who see the funds policy rate falling to just 3.5%. In somewhat counter intuitive fashion we have seen a small Agency MBS rally so far this morning for no apparent reason as data and news are sparse today. FNMA 5.5% coupons are up 4 ticks (+4/32). Expect lender ratesheet pricing to be around 10 bps better today.

Industry News:

Mudd Suggests Single Regulatory Agency

It's not on the table today, but the chief executive of Fannie Mae says policymakers should consider creating a single national regulatory agency to oversee the entire housing finance system. "I think we need a more unified approach to housing finance policies," Fannie Mae CEO Daniel Mudd told an American Enterprise Institute forum. He also said policymakers should consider a "Mortgage Reinvestment Act" to reward banks for making loans that help keep troubled borrowers in their homes, similar to the way banks receive Community Reinvestment Act credit for making loans in their communities. However, he criticized proposed changes to bankruptcy laws that would allow courts to "cram down" the amount of a secured mortgage, saying that tampering with the home loan contract will inevitably shrink the pool of capital available for housing finance in the future.

Fannie to Reimburse Servicers for Referrals

Fannie Mae says it will reimburse its servicers for referring homeowners who are behind on their mortgage payments to the HOPE Hotline for foreclosure prevention counseling. "We believe in these difficult times, independent counseling agencies can play a unique role by helping servicers to help borrowers find more opportunities to avoid foreclosure and keep their homes," said Fannie vice president Jason Allnutt. Servicers should contact their Fannie account representative for more details, the giant secondary-market agency said. The toll-free HOPE Hotline, at 1-888-995-HOPE, is open 24 hours a day and allows troubled borrowers to talk with an independent housing counselor.

FBR: Nonprime Losses Total $94B

Since August, financial institutions across the globe have written down the value of their nonprime mortgage assets by about $94 billion, according to a new tally done by Friedman, Billings, Ramsey & Co. FBR noted that in addition to the writedowns, financial institutions -- including depositories -- have taken $14.7 billion in what it calls "elevated loss provisions." FBR estimated that banks could suffer $59 billion to $148 billion of losses on their portfolios over the next few years. It says banks that had high concentrations of subprime and alternative-A loans, payment-option adjustable-rate mortgages, home equity lines of credit, and other nontraditional loans will suffer the most.

Misc:

-- On Today’s date in 1788, Connecticut became the fifth state to ratify the U.S. Constitution.

-- On Today’s date in 1861, Mississippi seceded from the Union.

-- On Today’s date in 1913, Richard Milhous Nixon, the 37th president of the United States, was born in Yorba Linda, Calif.

-- On Today’s date in 2007, Apple Computer CEO Steve Jobs unveiled the iPhone, which went on sale the following June.

-- Today Sportscaster Dick Enberg is 73.

-- Today Folk singer Joan Baez is 67.

-- Today Rock musician Jimmy Page (Led Zeppelin) is 64.

-- Today Rock singer-musician Dave Matthews is 41.

Today's market update brought to you by:

Todd Albrigo

Account Executive

CMG Mortgage, Inc.

Market Happenings:

The pending sales index of existing homes fell -2.6% : in November after an upward revision to a 3.7% October gain. The index provides an early read on home resales which showed a small November rise after declines in each of the prior eight months. Any signs of stability will provide a significant lift to the market given the significant drag from housing over the last two years. We don't expect a return to stronger housing demand over the Winter as the wait for a lift may be as long as a year away. The National Assoc of Realtors have revised their optimistic outlook (again) : to show both new and existing home sales bottoming in the current quarter and rising for most of 2008. The housing starts outlook shows continued declines right through 2008 given the bloated supply of unsold inventory. Other than housing, it appears that our sustained Agency MBS rally has finally lost its legs, albeit only slightly. With economic data pointing to recession and as well as potential inflation, the dreaded stagflation word continues to be kicked around which really turns the Fed into a group of impotent and aging bankers. Investors have taken a slight amount off the table since the bell this morning with FNMA MBS 5.5% coupons off 3 ticks (-3/32). Expect lender ratesheet pricing to be flat to off 10 bps.

Industry News:

Paulson: Fast-Tracking Coming Soon

Servicers participating in the Hope Now alliance are working at an "intense pace" to implement streamlined processes for loan modifications and refinancings, according to Treasury Secretary Henry Paulson, who said he wants to see tangible results in a few weeks. "We expect most servicers to begin fast-tracking borrowers in the next few weeks," Mr. Paulson told the New York Society of Securities Analysts. Fast-tracking is supposed to move troubled borrowers into refinances and interest rate freezes quickly. The secretary said he wants servicers to "fully implement connections" to the Federal Housing Administration and other lenders to facilitate refinancings. The Treasury secretary also stressed that the alliance members need to develop a standard reporting process to monitor their progress. "We need to see all the servicers reporting results to Hope Now to measure effectiveness and then to make adjustments as needed," Mr. Paulson said. Outreach efforts by Hope Now have prompted 45,000 borrowers who are facing possible foreclosure to contact their servicers for assistance.

FBR: Subprime Defaults Jump

The default rate on subprime mortgages jumped 170 basis points to nearly 19.5% in October, according to Friedman Billings Ramsey Investment Management, which cited weaker job markets and declining house prices as the causes of rapid deterioration in credit performance -- not resets. The default rate on nonagency securitized subprime mortgages jumped from 17.7% in September to 19.4% in October. And the default rate on alternative-A loans jumped 75 bps to 5.4% in October. "These substantial changes in a single month suggest that labor market conditions are worsening broadly across the United States," FBRIM managing director Michael Youngblood says in the report. "Indeed, we continue to believe that these conditions are characteristic of a recession in economic activity." The managing director of fixed-income research noted that resets of adjustable-rate subprime mortgages were not responsible for the October jump in default rates. However, the upward adjustment of mortgage rates "may drive the default of hybrid ARMs higher in the year ahead," he said. The report also shows that 8% of subprime mortgages and 2.5% of alt-A mortgages are in foreclosure. (The default rate includes loans that are 90 days or more past due, in foreclosure, or real estate owned.)

Harris: '08 Bad Year for Cash-Out Refis

According to the findings of a Harris Poll survey, 2008 will be a bad year for those who rely on originations of cash-out refinancings or home equity lines of credit for business. Americans have become weary of using their home as equity to finance loans, Harris Interactive said. Only 4% said they plan to refinance their mortgage in 2008, while only 2% said they would take out a HELOC. If any group were more likely than others to refi this year, it would be the Generation Xers and the baby boomers, which gave a 6% positive response to the refinance question. When asked which issue will affect them personally, 70% said they were concerned about Americans who default on their mortgages and 61% said they were concerned about companies that lose money as a result of defaulting mortgages. The survey was conducted online between Dec. 4 and Dec. 12, with 2,335 adults participating.

Misc:

-- On Today’s date in 1798, the 11th Amendment to the U.S. Constitution was declared in effect by President John Adams nearly three years after its ratification by the states; it prohibited a citizen of one state from suing another state in federal court.

-- On Today’s date in 1815, U.S. forces led by Gen. Andrew Jackson defeated the British in the Battle of New Orleans - the closing engagement of the War of 1812.

-- On Today’s date in 1935, rock ‘n' roll legend Elvis Presley was born in Tupelo, Miss.

-- On Today’s date in 1987, for the first time, the Dow Jones industrial average closed above 2,000, ending the day at 2,002.25.

-- Today CBS newsman Charles Osgood is 75.

-- Today Game show host Bob Eubanks is 70.

-- Today Physicist Stephen Hawking is 66.

-- Today Rock singer David Bowie is 61.

Today's market update brought to you by:

Todd Albrigo

Account Executive

CMG Mortgage, Inc.