San Diego, California Mortgage Market Update

Market Happenings:

The market is not taking too much from the lack of confidence number, which, while worse than expected, was released in an environment where the bar has been set pretty low. The day's event risk is all in and the market may fall into that catatonic "Mirror stocks...mirror stocks" mindset that may only be salvageable by month end stragglers buying late. Mortgages and bonds have managed to pull themselves out of a minor hole this morning with data helping out a bit. Spending was off as were UofM revisions while inflation was tame, providing a decent backdrop for bonds to at least plug some leaks. The afternoon looks mired in positions squaring and looking ahead to next week's event risks (namely payrolls). Agency MBS pricing is sitting at a positive so far with FNMA 5.50% coupons trading up 7 ticks (+7/32). For those lenders who did not re-price yesterday, as the market slowly faded, expect pricing to be near flat today from yesterday

Industry News:

Freddie: House Prices May Not Trough Till '10

Housing prices may not bottom out until 2010, if then, according to the deputy chief economist at Freddie Mac. Amy Crews Cutts says she expects prices to fall 11% on a national level, from peak to trough. So far, however, prices have dipped just 1% or so, meaning that "we've got a long way to go," the economist said at the National Association of Hispanic Real Estate Professionals' annual legislative conference in Washington. While some local markets may be doing better already, she stressed that prices nationally could be on a downward slope for 20-24 quarters from their peak in the third quarter of 2005 -- "or longer if the financial markets continue to falter," she told MortgageWire. "We're not even forecasting when prices go back to their '05 level," she added. "We're merely forecasting when the pain stops." However, LaVaughn Henry, director of economic analysis at PMI, Walnut Creek, Calif., said he is "starting to see some evidence" that house prices in some places aren't falling as fast as they have been. "It's not a reversal -- prices are still going down," Mr. Henry told the conference. "But things are not as bad as they were. It's not huge, but it's a change in the right direction."

'08 Mortgage Fraud Losses Forecast at $2.5B

Losses from mortgage fraud will reach $2.5 billion in 2008 and comparable losses will continue for several years thereafter, according to new research from TowerGroup, Needham, Mass. The report says the substantial rise in mortgage fraud over the past 10 years is an important factor in mortgage credit woes, though falling home prices and poor mortgage underwriting have been given most of the blame in recent months. TowerGroup anticipates that lenders will respond by deploying technology to assist in the detection and prevention of mortgage fraud and that their annual spending on such tools will reach several hundred million dollars in the next few years.

Probe Faults New Century Management

Senior management at New Century Financial Corp. "largely rejected or ignored" staff recommendations to tighten credit standards in 2004, which evidentially lead to a "tsunami of impaired and defaulted mortgages" and the subprime lender's bankruptcy, according to a court-appointed investigator. "The increasingly risky nature of New Century's loan originations created a ticking time bomb that detonated in 2007," according to 550-page report filed in a U.S. Bankruptcy Court by investigator Michael Missal. The Irvine, Calif.-based company was the second-largest subprime lender when it filed for bankruptcy in April 2007. The examiner found numerous accounting problems and faulted KPMG, New Century's independent auditor, for allowing the publicly traded company to reduce its repurchase reserve in 2006 when it was being "flooded with repurchase claims" from investors. "New Century understated its repurchase reserve by as much as 1000% in the third quarter of 2006, reported a profit of $63.5 million ...when it should have reported a loss," the Missal report says. A KPMG spokesman said the firm "strongly" disagrees with the report's conclusions. A New Century representative said the submission of the report will allow the bankruptcy process to continue, and "we can take the next steps of confirming the liquidation plan."

Misc:

-- On Today’s date in 1898, the Supreme Court ruled in United States v. Wong Kim Ark that a child born in the United States to Chinese immigrants was a U.S. citizen.

-- On Today’s date in 1930, the names of the Turkish cities of Constantinople and Angora were changed to Istanbul and Ankara.

-- Today Country singer Reba McEntire is 53.

-- Today Olympic gold-medal gymnast Bart Conner is 50.

-- Today Actor Vince Vaughn is 38.

Today's market update brought to you by:

Todd Albrigo

Account Executive

CMG Mortgage, Inc.