San Diego, California Mortgage Market Update

Market Happenings:

The early, much worse than expected release on ISM took many by surprise, including economists. Chatter on the street was "that a representative of ISM mentioned the result inadvertently yesterday in a speech. That's why the release was moved up," says a well connected dealer. The REAL number was the 41.9 print, with the 44.6 being the "new number," a composite, whereas the OLD number, the business activity index, is the headline the market was looking at. Either way it’s measured, both numbers were terrible, the "original" worst since Oct 01, the "newbie," which can only be measured back to Jan 04 (according to Bloomberg data) is the worst on record (of course, everything's relative). Since this ISM number is the only major one to be released on this Super Tuesday, along with its surprisingly weak post, Agency MBS investors certainly are hitting the buy button as this provides the Fed with yet another round of rate cut ammunition that it may use to justify further reductions to Fed Funds at their upcoming March meeting. Currently FNMA 5.50% are up 12 ticks (+12 /32). Expect lender ratesheet pricing to be better by about 30 – 40 bps today.

Industry News:

Citi to Sell or Close FCS

Citigroup, decimated by billions of dollars in write downs on subprime assets, has decided to sell or close its warehouse lending division, First Collateral Services of Concord, Calif. The company has contacted investment bankers about selling the operation, said a source, but so far no official offering book has been circulated. Citigroup did not make a public announcement on FCS but confirmed that it will close the unit unless it finds a buyer.

Few Banks See 'Hope Now' Impact as 'Very Significant'

Over 70% of commercial banks expect the performance of their single-family loan portfolios will deteriorate in 2008, but most don't expect the streamlined loan modification plan endorsed by the Hope Now Alliance will have a significant impact on their loan mitigation efforts. The vast majority of banks expect to take a "case-by-case" approach to loan modifications, according to a Federal Reserve Board survey of senior loan officers. Only six of the 45 banks surveyed in January said streamlined modifications endorsed by the Hope Now alliance would play a "very significant" role in their attempts to prevent foreclosures. A large number of respondents indicated they expect to refinance subprime borrowers into Federal Housing Administration or conventional loans. More than 65% of respondents also anticipate using short sales or deed-in-lieu of foreclosure as a significant loss mitigation strategy, the Fed said.

FHA Premiums May Rise

The Federal Housing Administration will have to increase its standard mortgage insurance premiums, according to the President's 2009 fiscal year budget, unless Congress passes FHA reforms that allow the agency to charge risk-based premiums. Budget documents show that FHA is in trouble and expects to pay $8.4 billion in claims due to defaulted loans in FY 2008, up from $5.1 billion in FY 2007. The Office of Management and Budget estimates that FHA will pay $9.8 billion in claims in FY 2009. "Because of deteriorating market conditions, as well as adverse loan performance," FHA will use its authority to increase the upfront premium by 45 basis points to 1.95% and the annual premium by 2 bp to 52 bps. The President's budget also suggests that FHA should stop insuring mortgages with seller-financed down payment assistance unless Congress wants to provide funding to cover the losses. FHA has tried to curtail the down payment assistance programs run by nonprofit groups for years. But the courts and Congress have blocked the agency's efforts despite the high default rates on those loans. "The Budget proposes no new loan guarantees under this program; and provides no funding for its credit subsidy costs," the budget says.

Misc:

-- On Today’s date in 1783, Sweden recognized the independence of the United States. Thanks again Sweeden.

-- On Today’s date in 1917, Mexico's constitution was adopted.

-- On Today’s date in 1973, services were held at Arlington National Cemetery for Army Lt. Col. William B. Nolde, the last official American combat casualty before the Vietnam cease-fire.

-- Today Baseball Hall-of-Famer Hank Aaron is 74.

-- Today Actor-comedian Tim Meadows is 47.

-- Today Singer Bobby Brown is 39.

Today's market update brought to you by:

Todd Albrigo