San Diego, California Mortgage Market Update

Market Happenings:

Claims: The jobless number hit harder than expected with the 478K coming in against consensus 465K with an upside revision to 463K from 461K. Trade has been slumping as the market looks to book some profits as equities revive a bid and outside of supply issues the calendar is empty. The market continues to trade in wafer thin conditions, so swings will tend wide. BNP's Patrick Jacq tells Bloomberg, "Market activity isn't recovering strongly, or even significantly, and it won't as long as banks can get all they want from the central bank... While it's a good sign that rates have been coming down, they are doing so because central banks are playing the role of the interbank market and allotting as much liquidity as is demanded." The Dow is up about 130 pts which is contributing to a modest Treasuries and Agency MBS pricing fall. Currently GNMA (FHA) MBS pricing is off 12 ticks (-12/32) and FNMA’s are down 10 ticks (-10/32) which nets an approximate 20 – 30 bp drop in investor ratesheet pricing from yesterday’s marks.

Industry News:

Eyeing Legislation's Unintended Consequences

If there was one point that a state legislator and an industry representative agreed on during a panel on state and federal regulation at the Mortgage Bankers Association, it was that any legislative solutions being crafted have to avoid unintended consequences. California State Sen. Michael Machado said there is a need to update statutes but the effort need not to be so capricious it would hurt the marketplace. Being able to meet the desires of those who live in their districts and take actions that do not exacerbate the problem is a balancing act, he said. Jack Konyk, senior vice president at National City Corp., said, "Everybody is trying to find a fair solution to a complex problem." The problem is finding out what exactly constitutes a fair approach. He then gave the example of an iceberg where it is easy to see and react to the 5% above the water, but it takes patience and perseverance to see the 95% below the water. It is easy, Mr. Konyk said, to call for a moratorium on foreclosures. But it is a difficult task for loan servicers, who are still responsible for advancing principal and interest payments to the investor whether they are made or not.

'Macroeconomic Issues to Affect Loan Performance'

Macroeconomic issues will have an effect on delinquencies and foreclosures, Mortgage Bankers Association chief economist Jay Brinkmann said during a press briefing at the group's annual convention in San Francisco. The recession may have started in the third quarter 2007 and it could last through the second quarter 2009. On a non-seasonally adjusted basis, it could take as long as 10 quarters before employment returns to pre-recession levels as the economy has shifted away from a manufacturing base, he said. The growing number of recently constructed properties going into foreclosure will affect 2009 housing starts, he said. MBA is projecting 2009 loan origination volume of $1.67 trillion, down from its estimate for 2008 of $1.86 trillion. Most of the decline will come in refinancings as that will drop from $949 billion in 2008 to $736 billion next year. Among the drivers of the market, Mr. Brinkmann said, could be sales of foreclosed properties in California and Florida to investors looking to rent them. Speaking of renters, there has been a buildup in rental households over the last two-and-one-half years, while there has been a decline in owner-occupied households. There could be a return of renters to the market that are able to qualify for loans at the lower prices, as long as they have good credit, he said.

Wachovia Takes $24 Billion, Partially Mortgage-Related Loss

Wachovia posted a $24 billion net loss for the third quarter with much of the decline consisting of one-time, partially mortgage-related items, but executives from Wells Fargo say their plans to acquire Wachovia are still a go. The net loss included $18.8 billion of goodwill impairment, a $4.8 billion credit reserve and $2.5 billion of "market disruption losses." The company's total third-quarter credit loss was $6.6 billion, including charge-offs in addition to the reserve build, and $3.4 billion of the credit loss total related to pay-option ARMs. Wachovia now anticipates that its cumulative loss rate on its $119 billion option-ARM portfolio will be 22%, or $26 billion, reflecting a more severe outlook for the depth and length of the housing downturn. Wells Fargo CEO John Stumpf said in a statement that Wachovia's results "were very much in line with our expectations." And Wells Fargo's CFO, Howard Atkins, said, "We believe it was prudent for Wachovia to put these losses behind them."

This Week's Calendar:

Date	ET	Release	For	Actual	Briefing.com	Consensus	Prior	Revised From
Oct 20	10:00	Leading Indicators	Sep	0.3%	-0.4%	-0.1%	-0.9%	-0.5%
Oct 22	10:35	Crude Inventories	10/18		NA	NA	NA
Oct 23	08:30	Initial Claims	10/18		455K	465K	461K
Oct 24	10:00	Existing Home Sales	Sep		4.97M	4.95M	4.91M

Todd Albrigo

Account Executive

CMG Mortgage, Inc.