San Diego, California Mortgage Market Update

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.