San Diego, California Mortgage Market Update

Market Happenings:

There is news out that Warren Buffett is willing to bail-out muni-bond paper from current insurers. Muni stuff is very unlikely to default, but, with the possibility of losing top ratings, are perhaps most in danger & most likely to spread the misery within communities, rather than within a given business. The lessened risk to municipalities is positive news, hitting bonds. Buffett is not in the business of doing "pro bono" work (CNBC), so he is offering to take on munis, not necessarily anything else. The treasuries got rocked on the news, slammed as the market read this as some light at the end of the tunnel. Dinged by Optimism : The market is getting hit with a loss of mortgage and bond positive catalysts which is likely fueling a little profit taking ahead of data & Bernanke Thurs. Fed-ster Poole talked up the prospects for the economy last night while big banks said they are working on a plan to stem foreclosures. The news flow is providing a little positive juice to equity futures while overnight global bonds saw weakness casting the early trade in a slightly dark light for treasuries. The stimulus package awaiting President Bush’s signature also has debt investors skittish about future returns which is why we have seen sell pressure on Agency MBS so far this morning. Currently FNMA 5.50% MBS are off 9 ticks (-9/32) so expect lender ratesheet pricing to be off 20 -30 bps.

Industry News:

FHA: 15 CA Counties Qualify for Max Loan

Only 15 counties in California will qualify for the maximum $729,750 loan limit under the economic stimulus bill that temporarily increases loan limits for Fannie Mae, Freddie Mac, and the Federal Housing Administration, according to an FHA official. This translates into six to nine metropolitan statistical areas in the lower 48 states where Fannie, Freddie, and FHA lenders will be able to make a $729,750 jumbo loan, one expert said. FHA Director Joanne Kuczma said HUD should be ready to issue guidance on the MSAs affected by the stimulus bill in a few weeks. The mortgagee letter has been crafted, and now it needs to be cleared by the Department of Housing and Urban Development, she told the finance committee of the National Association of Home Builders. The stimulus bill increases the Fannie and Freddie loan limit from a floor of $417,000 to 125% of median home prices in high-cost areas, with a cap of $729,750. The NAHB said it expects this to increase the GSE loan limit in 29 MSAs. Meanwhile, the floor for FHA loans rises from $200,160 to $271,050. Nearly 85% of counties will have a 125% median house price that falls between $271,050 and $729,750, the FHA director said. HUD generally sets the MSA loan limit based on the highest-priced county.

Fitch: MIs Face Continuing Problems

Mortgage insurance companies will be affected "negatively in the years ahead" by continued weakness in the mortgage markets, especially with the poor performance of loans to subprime and alternative-A borrowers, according to a commentary from Fitch Ratings. Specifically, Fitch cites concerns about the book of business for loans originated between 2005 and 2007. "[A] greater percentage of these delinquent borrowers will end up in foreclosure in the years ahead, which will translate into higher claims and losses over this time period," the rating agency said. "Negative net income will have a significant impact on the MIs' ability to internally build their capital bases over the next few years, which is of particular concern given the likely costs and/or challenges to raising external capital in this depressed market environment." While all the MIs Fitch rates have been affected by the poor mortgage market, Fitch noted that the extent of the trouble varies by company, "as each insurer has differing levels of exposure to product sectors (i.e., prime, subprime, reduced documentation, alt-A, or negative amortization), have participated in certain business segments to varying degrees, and have different organizational structures, with some benefiting from diversified parent companies or from MI operations based in international markets."

Fitch Eyes AIG Ratings

The issuer default rating, holding company ratings, and subsidiary debt ratings of American International Group Inc. have been placed on Rating Watch Negative by Fitch Ratings, partly as a result of what it calls AIG's "relatively large exposure" to turmoil in the U.S. mortgage market. Fitch said the actions followed an acknowledgement by AIG in a Feb. 11 filing with the Securities and Exchange Commission that its independent auditor believes the company had "a material weakness in internal controls" as of Dec. 31 related to the valuation of AIG Financial Products Corp.'s super-senior credit derivative portfolio. "Fitch believes the area of AIG most exposed to further deterioration in this market is the credit derivative portfolio within AIG FP, with its large net notional exposure of $505 billion at Sept. 30, 2007," the rating agency said. "Included in this total is $62.4 billion of collateralized debt obligations backed by structured finance collateral, mainly subprime U.S. residential mortgage-backed securities."

Misc:

-- On Today’s date in 1809, Abraham Lincoln, the 16th president of the United States, was born in present-day Larue County, Ky. Happy Birthday Abe.

-- On Today’s date in 1999, the Senate acquitted President Clinton of perjury and obstruction of justice. That was a close one he must of thought.

-- Today Basketball Hall-of-Famer Bill Russell is 74.

-- Today Actress Joanna Kerns (the Mom on the 80’s TV hit “Growing Pains”) is 55.

-- Today Actor-former talk show host Arsenio Hall is 53. Whoop it up!!!

Today's market update brought to you by: 

Todd Albrigo

Account Executive

CMG Mortgage, Inc.