San Diego, California Mortgage Market Update

Market Happenings:

Trade had been sliding from the best levels into the Chicago PMI, which came in better at 48.2 versus an expected 46.7, improved over the Feb 44.5, the worst since early 02. The number remains under 50 which is the dividing line for expansion versus contraction. The market was working lower and will suffer as the employment component improved and the prices paid heated up. Trade is retaining some of the session's bid, while trade slows and Treasury's Paulson spoke at length on regulation. There was little new from the talk, while data is through and late Fed-speak is a way off, so trade may stall out. A collapse in stocks could help prices some, but there are too many larger issues, and important data, to occupy the markets' collective brain. On quarter-end, Credit Suisse today notes, "Refuting the typical "window dressing" cliché, it's hard to make a strong argument to own any equity sector (although the Transports and Real Estate have shown some life). If you really wanted to "dress up" your portfolio to impress shareholders, you'd buy bonds. Or perhaps you'd sell International indices... But if you're a U.S., long only manager, you probably don't have a lot to do....which is consistent with what a lot of those managers have done ytd." Agency MBS are holding tight with FNMA 5.50% coupons up 3 ticks (+3/32). Look for flat to slightly improved investor ratesheet pricing today.

Industry News:

Radian Won't Insure Stated-Income Loans

Radian Guaranty Inc., Philadelphia, the primary mortgage insurance subsidiary of Radian Group Inc., says it will no longer issue policies for stated-income and stated-asset loans. In a message to its customers, Radian said, "while certain forms of alternative documentation used to verify assets and income are appropriate with a disciplined underwriting process, the stated programs will no longer be insurable as a result of poor performance." This change takes effect on April 30. It is in addition to other changes affecting loan-to-value, documentation, and credit score requirements Radian is implementing on March 31. "These changes reflect the current market conditions and a commitment to our business partners and shareholders to write new business that will allow homebuyers appropriate and affordable alternatives," said Dave Applegate, president of Radian Guaranty. "The continued weakness in the housing market and overall economy has created unprecedented challenges for the industry and our clients. .... Accordingly, we have tightened guidelines and increased pricing in areas in which we continue to see deterioration in our risk-adjusted returns."

Subprime Defaults Exceed 25%, FBR Says

The default rate on securitized subprime loans hit 25.2% in December, up 185 bp from that of the previous month, but defaults on alternative-A loans are also surging, according to a report by Friedman Billings Ramsey Investment Management. Defaults on alt-A mortgages jumped to 8.26% in January, up 106 basis points from the level in December and 250 bps from that of November. Alt-A borrowers have high credit scores, but are generally self-employed and highly leveraged. There are 2.8 million securitized alt-A loans totaling $839 billion, and nearly 20% of the loans are secured by second homes and investment properties. The alt-A world is vulnerable in today's market with falling house prices and deteriorating labor market conditions. "It is really a double-whammy for alt-A," said FBRIM managing director Michael Youngblood. (The default rate includes loans 90 days or more past due, in foreclosure, and real estate owned.)

Fed Plans Countrywide Merger Hearings

The Federal Reserve Board is soliciting public input on Bank of America's acquisition of the nation's largest mortgage lender and servicer, Countrywide Financial Corp., and plans to hold two public hearings in April. The hearings are scheduled for April 22 in Chicago and April 28-29 in Los Angeles. In weighing the public benefits of a bank merger, the Fed normally considers competitive issues as well as the institutions' Community Reinvestment Act ratings. Based in Calabasas, Calif., Countrywide originated $408.3 billion in mortgages in 2007, and it serviced $1.48 trillion in mortgages as of Feb. 28.

This Week's Calendar:

Misc:

-- On Today’s date in 1880, Wabash, Ind., became the first town in the world to be illuminated by electrical lighting.

-- On Today’s date in 1917, the United States took possession of the Virgin Islands from Denmark.

-- On Today’s date in 1968, at the conclusion of a nationally broadcast address on efforts to bring a peaceful end to the Vietnam War, President Lyndon B. Johnson shocked listeners by announcing he would not seek another term of office.

-- Today Actor Christopher “More Cowbell” Walken is 65.

-- Today Former Vice President and Internet pioneer Al Gore is 60.

-- Today Rock musician Angus Young (AC/DC) is 53.

Today's market update brought to you by:

Todd Albrigo

Account Executive