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.

Market Happenings:

Now What : The market got clubbed even as, as noted by Merrill's Rosenberg yesterday, "once payrolls decline four months in a row, a string [added to today] the employment down-cycle does not typically bottom for at least another year...But the recession in the labor market, if not GDP, is here, and this is going to outlast the tax relief and very likely trigger sharp downward revisions to earnings expectations, precipitate further rounds of loan losses related to consumer credit, and impede the long awaited recovery in home sales and housing starts. The headwinds that a shrinking jobs market poses for aggregate demand will also probably shorten whatever vacation the Fed takes from the rate-cutting cycle." That is one train of thought however the data that came out today, while negative on an absolute scale, certainly beat trends with Non-Farm Payroll, The Unemployment Rate and Factory Orders much stronger than consensus estimates. The data will give investors pause on the implications for the Fed and the broader economy but, too be expected, bullish data sparks bond and MBS selling. Currently FNMA 5.00% MBS are off 10 ticks (-10/32). Expect lender ratesheet pricing to pull back up to 30 bps from yesterday’s closing marks.

Industry News:

House Panel Passes FHA 'Underwater' Bill

By a 46-21 vote, the House Financial Services Committee has approved a bill that provides the Federal Housing Administration with $300 billion in loan commitment authority to refinance "underwater" mortgages. The bill, crafted by the committee chairman, Rep. Barney Frank, D-Mass., provides mortgage investors/servicers with an option to refinance struggling borrowers into FHA-insured loans if they agree to write down the principal amount to 85% of the appraised value. The program is designed to be voluntary, and a new board composed of top government officials would oversee it. The Senate Banking Committee is slated to mark up a similar FHA refinancing bill on May 6.

Ross Closes on Option One Purchase

An affiliate of WL Ross & Co. has closed on its $1.3 billion purchase of Option One Mortgage Corp., Irvine, Calif., which services $55 billion in A-minus to D loans. With Option One under his belt, WL Ross chief executive Wilbur Ross said he is now in the hunt to buy savings and loan institutions. His financial backers include sovereign wealth funds. In a recent interview with National Mortgage News, Mr. Ross said he eventually wants to enter the loan production business. Last year, Mr. Ross's company bought the servicing platform of bankrupt American Home Mortgage, Melville, N.Y., a subprime and alternative-A servicer.

Lenders Urge Reversal on Appraisal Reforms

Mortgage lenders are urging the Office of Federal Housing Enterprise Oversight to withdraw its support for appraisal reforms that Fannie Mae and Freddie Mac agreed to implement as part of a settlement with New York Attorney General Andrew Cuomo. The agreement "permits the NYAG to unlawfully exercise authority that resides exclusively with the federal government," according to eight financial services trade groups. And they contend that OFHEO "violated its statutory directive" to be the sole regulator of the two government-sponsored enterprises when it entered into the agreement with the New York attorney general. "We urge OFHEO to withdraw its assent to the agreement, to not permit the GSEs to implement the agreement, and take steps to assure that this type of rulemaking by settlement does not occur in the future," the joint letter says. In comment letters on the appraisal reforms, the same groups strongly oppose the ban on the use of in-house appraisers and subsidiary appraisal firms.

Misc:

-- On Today’s date in 1908 the original version of the song "Take Me Out to the Ball Game," with music by Albert Von Tilzer and lyrics by Jack Norworth, was copyrighted by Von Tilzer's York Music Co.

-- On Today’s date in 1972, after serving 48 years as head of the FBI, J. Edgar Hoover died in Washington at age 77.

-- Wrestler-actor Dwayne Johnson (aka "The Rock") is 36.

Today's market update brought to you by:

Todd Albrigo

Account Executive

CMG Mortgage, Inc.

Market Happenings:

Mortgages and Bonds are stalled out at better levels, ticking around in tight ranges on slowed size. Traders see a slightly (tiny) higher chance of the Fed doing nothing on rates today (22% for a pause here at 2.25% with the balance holding on for the 25 basis point trim). Players note that the day's data was "old" (Q1 GDP +0.6% vs. expectations of +0.5% growth with Employment Costs and Chicago PMI coming in very near expectations) and subject to revisions, while the details (employment, spending) ran negative (bond positive) but not enough to get things cooking ahead of the Fed statement. The statement will be the major issue, with the dissention as well as the degree of emphasis on inflation being important components. Mortgages will likely be range bound until the Fed announcement at 11:15 AM PDT. Again the bias of their statement will likely move the market with more force than the actual cut (assuming it is within a 0 – 25 bps range). Currently FNMA 5.50% MBS are trading up 3 ticks (+3/32). Expect flat lender ratesheet pricing from late yesterday’s marks.

Industry News:

Countrywide Takes $3B in 1Q Charges

Countrywide Financial Corp., Calabasas, Calif., has reported a net loss of $893 million ($1.60 per share) in the first quarter, citing $3 billion of credit-related charges that weighed down results. The credit costs hit both Countrywide's mortgage banking unit, which lost $552 million in the quarter, and its bank, which lost $960 million. Countrywide posted small profits from its capital market and insurance units. The company produced $73 billion of loans in the first quarter, down from $117 billion in the first quarter of 2007. It serviced $1.484 trillion of home loans as of March 31, up from $1.352 trillion a year earlier. The $3 billion of credit-related charges included a $456 million provision for representation and warranty claims, a more than tenfold increase from the reps-and-warranties provision during the first quarter of 2007.

Frank Foresees Housing Package by July 4th

House Financial Services Committee Chairman Barney Frank, D-Mass., says it is "entirely possible" that Congress will send President Bush a legislative package by the Fourth of July that is responsive to the current housing crisis, reduces foreclosures, and increases confidence in the secondary-market agencies. The package would include two Federal Housing Administration bills and a GSE bill to strengthen regulation of Fannie Mae, Freddie Mac, and the Federal Home Loan Banks, the chairman told a Washington conference sponsored by the Independent Community Bankers of America. On Wednesday, Rep Frank expects to complete a committee mark-up of his FHA bill to refinance struggling homeowners with "underwater" mortgages. (The Senate Banking Committee is scheduled to mark up a government-sponsored enterprise bill on May 6.) The House has already passed a GSE regulatory reform bill. In addition, the House and Senate are close to an agreement on an FHA modernization bill that will make the FHA a safer alternative to subprime loans. "The crisis has generated some pressure" to act, Rep Frank told reporters. "We should have it done in June."

Index: Home Prices Down 12.7% Over Year

Prices of existing single-family homes continued their descent in February, falling to a level that was down 12.7% over the previous 12 months, according to a Standard & Poor's/Case-Shiller housing price index that tracks resales in 20 metropolitan statistical areas. Since its peak in July 2006, the 20-city HPI has fallen 14.8%. "There is no sign of a bottom in the numbers," said S&P economist David Blitzer. The Charlotte, N.C., market is the only MSA in the index still registering an annual increase (1.5%) in house prices. "The monthly data show that every one of the MSAs has now declined every month since September 2007, marking six consecutive months," Mr. Blitzer said. Separately, the Office of Federal Housing Enterprise Oversight reported that house prices are down 3.1% on a seasonally adjusted basis for the 12 months ended in February. However, prices rose 0.6% from January to February. OFHEO collects sales price data from Fannie Mae and Freddie Mac purchase mortgages.

Misc:

-- On Today’s date in 1789, George Washington took office in New York as the first president of the United States.

-- On Today’s date in 1803, the United States purchased the Louisiana Territory from France for 60 million francs, the equivalent of about $15 million. The deal took 6 months in underwriting before an approval was issued.

-- On Today’s date in 1812, Louisiana became the 18th state of the Union.

-- On Today’s date in 1945, as Russian troops approached his Berlin bunker, Adolf Hitler committed suicide along with his wife of one day, Eva Braun.

-- Today Singer Willie Nelson is 75.

Today's market update brought to you by:

Todd Albrigo

Account Executive

CMG Mortgage, Inc.

Market Happenings:

Bid on Low Confidence : The confidence number was low, 62.3, but not quite as bad as anticipated 61, while the components such as labor conditions worsened with jobs "hard to get" showing the 3rd straight increase along with lowered expectations for income growth. Survey participants showed plans for taking vacations over the next 6-mos dropped to a 30-yr low. Prices are pushing back, with action spotty, while falling stocks may help, trade will be hard pressed to get much more here with the calendar weighing. The Fed is discussing the possibility of paying interest on commercial bank reserves to alleviate credit problems, according to WSJ. The FOMC will consider the issue at the meeting, tweaking its tools to help banks lend with lessened concerns over counterparty risk, but any actual move in that direction would require congressional involvement. As equities are dropping this morning with the Dow down over 50 pts, so money is be put to work in Agency Mortgage Backed’s albeit cautiously leading up to Fed day. Currently FNMA 5.00% are trading up 8 ticks (+8/32) which should net lender pricing improvements of up to 25 bps over yesterday’s ratesheets.

Industry News:

RealtyTrac: Foreclosures Jump 23% in 1Q

Nearly 650,000 foreclosure filings were reported nationwide in the first quarter, up 23% from those of the previous quarter and 112% from a year earlier, according to RealtyTrac, an online foreclosure marketplace based in Irvine, Calif. The nation's quarterly foreclosure rate was one filing for every 194 households, the company said in its Q1 2008 U.S. Foreclosure Market Report. (Foreclosure filings include default notices, auction sale notices, and bank repossessions.) "Foreclosure activity in the first quarter increased on a year-over-year basis in 46 out of the 50 states and in 90% of the nation's 100 largest metro areas, demonstrating that most regions of the country are seeing more foreclosures," said James J. Saccacio, chief executive officer of RealtyTrac. "In some areas there are also some unusual, nonmarket factors impacting the foreclosure numbers. For example, the city of Philadelphia in late March issued a temporary moratorium on all foreclosure auctions for April, and the city has since adopted a program that will delay foreclosure proceedings on owner-occupied properties until the owners have met face-to-face with lenders to attempt a loan workout plan that would prevent foreclosure."

Census Reports 1Q Rise in Vacant Homes

The Census Bureau has reported that the inventory of vacant homes listed for sale rose to 2.3 million in first quarter, up 4.6% from that of the previous quarter, and that the homeownership rate was unchanged. Listings of vacant homes rose dramatically in 2006 to 2.1 million, and this overhang on the real estate market continues to exert downward pressure on house prices. Since 2006 it has remained above the 2 million mark, and over the past two quarters there has been an uptick in listings -- probably reflecting bank sales of more foreclosed properties. The Census Bureau report also indicates that the homeownership rate held steady at 67.8% in the first quarter. However, the rate is down from 68.4% in the first quarter of 2007. The homeownership rate for blacks fell from 47.7% in the fourth quarter to 47.1% in the first quarter, while the rate for Hispanics rose from 48.5% to 48.9%.

Alliance: FHA Loans Fastest-Growing Product

Federal Housing Administration loans have become the fastest-growing product for an alliance of 110 local and regional mortgage bankers, constituting 35% of their loan volume in March, according to Lenders One chief executive president Scott Stern. Back in January 2007, FHA lending represented only 1% of their loan production. "Due to the tremendous growth, we refer to FHA as the 'Loan Product of the Year'," Mr. Stern said. The Lenders One CEO said he believes that FHA production could hit 40% of originations if Congress makes the increase in loan limits permanent and does not raise the FHA down payment requirement. Alliance members originated $40.4 billion in residential mortgages in 2007, and they are currently originating $3.3 billion to $3.5 billion a month.

Misc:

-- On Today’s date in 1865, John Wilkes Booth, the assassin of President Lincoln, was surrounded by federal troops near Bowling Green, Va., and killed.

-- On Today’s date in 1986, the world's worst nuclear accident occurred at the Chernobyl plant in the Soviet Union.

-- On Today’s date in 1993, Conan O'Brien was named to succeed David Letterman as host of NBC's "Late Night" program. Pimpbot was born soon thereafter.

-- Today Actress-comedian Carol Burnett is 75.

-- Today Actor Jet Li is 45.

Today's market update brought to you by:

Todd Albrigo

Account Executive

CMG Mortgage, Inc.

Market Happenings:

Slow Start to Busy Week : The calendar is back-loaded with events and trade is taking a very tentative approach. With much froth being blown off prices in the last month, the market is better, but still not well, priced for bad data. It will likely take decent sized downside misses to turn the ship around while anything inline could still hurt. The FOMC is nearly a foregone conclusion at 25 basis points of easing and the statement provides the juice depending on biases. In the meantime, light trade today will be gyrated around by equities which are getting boosted into their open on M&A news and technicals which still have some room to run on the downside. The market is edging its way higher in light trade getting a bounce out of last week's 2-month price lows on the 10-yr (corresponding to a yield of near 3.92%) and Agency MBS. Trade is wary of getting too far out in front of the event risk later this week so gains may get checked into the afternoon, particularly if equities squeeze out a rally. trade looks ahead to the pivotal calendar events this week (FOMC, GDP & payrolls) but currently FNMA MBS are up 8 ticks (+8/32) which should translate to lender ratesheet pricing improving by up to 25 bps.

Industry News:

HUD Waives Action on GSE AH Goals

The Department of Housing and Urban Development has determined that market conditions prevented Fannie Mae and Freddie Mac from reaching two affordable housing subgoals in 2007, and it will not require the two government-sponsored enterprises to take corrective action. The two home-purchase subgoals are supposed to measure the GSEs' efforts in financing low-and moderate-income homebuyers. Fannie and Freddie submitted market data to HUD showing that rising home prices reduced the availability of affordable housing. In addition, the subprime meltdown and tighter credit conditions made the barriers to achieving the subgoals "insurmountable," Freddie Mac said. In letters to the chief executives of the two mortgage companies, HUD Assistant Secretary Brian Montgomery reported that information provided by the GSEs is "consistent" with HUD's market research. HUD has determined that the achievement of the two subgoals was "not feasible," Mr. Montgomery says in the April 24 letters. He also notes that HUD also considered the "financial stability" of Fannie and Freddie in evaluating their affordable housing performance. .

Big Builders Told to Pull Back or Fail

The nation's giant homebuilding firms must pull back if they are to survive the current downturn, an analyst with Wachovia Capital Markets in San Francisco warned at the National Association of Home Builders' Spring Construction Forecast Conference. "Geographic diversification didn't help anybody," Carl Reichardt, Wachovia's managing director and senior equity research analyst, told the conference in Washington. Whereas nine public builders were operating in just California and Florida in 1989, he pointed out, the same nine are now banging heads in a dozen states. Moreover, more than six of the 13 public builders Mr. Reichardt follows on a regular basis go at each other in more than half the 78 metropolitan areas where they build houses. The analyst said the options on the table are to "merge, die, or shrink," and since acquisitions "seem unlikely" given the current state of the financial markets, big builders must reorganize into super-regional operations. "Otherwise," he said, "they are going to continue to beat each other up." Mr. Reichardt also said the industry giants would do well to "focus more on manufacturing" and reducing construction cycle times while de-emphasizing such factors as maximum unit growth and land margins. "Wall Street recognizes that good margins can be made in the contractor business," he said.

Energy, Food Prices Could Trump Demographics

Homebuilders point to strong demographics in predicting a return to normal production levels once the current downturn ends, but the executive director of Harvard University's Joint Center for Housing Studies says fundamentals alone may not be enough to float housing's boat. "Market conditions can swamp favorable demographic projections," Eric Belsky said at the National Association of Home Builders' Spring Construction Forecast Conference in Washington. Mr. Belsky pointed out that potential homebuyers "keep getting hit with other things" that may keep them on the sidelines for longer than most analysts are predicting. Rising energy costs, higher gasoline prices, and larger food bills are just a few of the things that are putting a big dent in the pockets of not just low-income families but also those with more substantial earnings, he said, and they are not offset by lower mortgage costs resulting from lower interest rates. "When in a pothole," Mr. Belsky said of would-be buyers, "it's hard to look at the road ahead of you."

This Week's Calendar:

Misc:

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

-- On Today’s date in 1988, a flight attendant was killed and more than 60 persons injured when part of the roof of an Aloha Airlines Boeing 737 tore off during a flight from Hilo to Honolulu.

-- Today "Tonight Show" host Jay Leno is 58.

-- Today Rapper Too Short is 42.

-- Today Actress Jessica Alba is 27.

Today's market update brought to you by:

Todd Albrigo

Account Executive

CMG Mortgage, Inc.