San Diego, California Mortgage Market Update

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Market Happenings:

The market is letting a little more air out of its tires despite news of bank write downs and expected bad data due. UBS took a bathing in Q1 as did Deustche, but in a smaller way. Bonds got little steam off the losses as such outcomes had been well telegraphed and remedies (new capital and management) were seen as sufficient to make everything just go away. Equities rallied as a result and now bonds and mortgages are paying the price.ISM Still Weak : The ISM manufacturing index edged 0.3 of a point higher to 48.6 in March. The level is higher than expected but the contractionary level was expected given the low readings from regional indices and the slowing seen in actual factory orders and production. Production and employment were also below 50. The strong 56.5 level in new export orders offer some assurance of foreign manufacturing demand. The prices paid index reached a high of 83.5 but the lack of manufacturing pricing power leaves little effect on consumer prices. Construction spending fell 0.3% in March, much less than economist’s expectations of a 1.00% decline. Today’s better than expected data is boosting the stock market with the Dow up over 200 points. This leaves Agency MBS somewhat in the lurch as less bearish data and investor funds flowing to equities means there are more sellers than buyers for Agency MBS. Currently FNMA 5.50% coupons are off 17 ticks (-17/32) from close yesterday. Expect lender ratesheet pricing to be off up to 50 bps.

Industry News:

Treasury Proposes State-Rating Mortgage Panel

The Treasury Department is proposing a federal Mortgage Origination Commission that would rate the adequacy of state regulation and licensing of mortgage lenders and brokers as part of a larger plan to restructure the financial regulatory system. Treasury Secretary Henry Paulson said the MOC would provide "important information to the marketplace about the strength of each state's mortgage compliance standards." If a state is rated "weak," mortgages originated in that state "should be viewed cautiously before being securitized," he said. The secretary noted that a large percentage of "problematic" subprime loans were originated by state-licensed lenders. (The Office of Thrift Supervision, which oversees thrifts, would be incorporated into the Office of the Comptroller of the Currency under the Treasury plan.) The "powerful" new commission, coupled with the Federal Reserve's Home Ownership and Equity Protection Act rules to ban abusive lending practices, "should go a long way in preventing recent issues from recurring," he said. The Conference of State Banking Supervisors responded that the Treasury plan "disregards" recent improvements in state licensing standards and reporting systems. In addition, the CSBS supports legislation currently under consideration in Congress that would strengthen the states' initiatives.

UBS Takes $19B Mortgage Hit; Chair Resigns

UBS AG -- once a major warehouse lender to the subprime industry -- says it will take a $19 billion writedown on its mortgage-related investments in the first quarter, including charges against its structured finance positions. The Swiss bank also announced that its chairman, Marcel Ospel, is stepping down. (On Tuesday morning, the German bank Deutsche Bank announced $4 billion in mortgage-related writedowns.) UBS also said it is forming a new unit "to hold certain currently illiquid U.S. real estate assets." The bank/investment bank said it expects to lose $12 billion in the first quarter. UBS estimated that it has $15 billion in financial exposure to subprime-related assets, compared with $28 billion at the end of December. The bank plans to raise $15 billion in new capital.

HUD Secretary Resigns Under Fire

Housing Secretary Alphonso Jackson is "stepping down" on April 18 after being dogged by allegations of using his office to help friends and Bush supporters as well as recent calls for his resignation by two senators that oversee the Department of Housing and Urban Development. HUD officials said they didn't know whether the White House is ready to appoint Mr. Jackson's successor. Under normal circumstances, Deputy Secretary Roy Bernardi, a former mayor of Syracuse, N.Y, would be in line to become the acting secretary. At a HUD news conference, Mr. Jackson said he is stepping down to attend to "personal and family matters" and abruptly left the room without taking questions from the news media. In testifying before two Senate panels, the secretary refused to answer questions about a lawsuit by the Philadelphia housing authority, which alleges that HUD tried to punish the agency for refusing to sell land to one of Mr. Jackson's friends. Sens. Christopher J. Dodd, D-Conn., and Patty Murray, D-Wash., called for the secretary's resignation on March 21 after he declined to answer questions about his conduct. At a time when the country is facing a national housing crisis, the "allegations of cronyism and favoritism against Secretary Jackson are a worsening distraction at HUD," Sen. Murray said. "It is time for Secretary Jackson to go." Sen. Murray chairs a HUD appropriations subcommittee.

Misc:

-- On Today’s date in 1945, American forces launched the amphibious invasion of Okinawa during World War II.

-- On Today’s date in 1998, U.S. District Judge Susan Webber Wright dismissed Paula Jones' lawsuit against President Clinton, saying her claims of sexual harassment fell "far short" of being worthy of trial. (Clinton later settled with Jones without apology or admission of guilt.)

-- Today Reggae singer Jimmy Cliff is 60.

-- Today Supreme Court Justice Samuel Alito is 58

Today's market update brought to you by:

Todd Albrigo

Account Executive

CMG Mortgage, Inc.