San Diego, California Mortgage Market Update

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.