San Diego, California Mortgage Market Update

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.