San Diego, California Mortgage Market Update

Market Happenings:

U.S. payrolls contract by 80,000 in March, while the jobless rate jumps to 5.1%, highest since September 2005. In employment data that would seem worthy of the name recession, the government reported Friday the steepest monthly job losses in five years as well as a spike in the unemployment rate for March. The report confirms widespread pessimism about the near-term economic outlook. Nonfarm payrolls fell by an estimated 80,000 in March, the Labor Department said. It marked the largest decline seen since March 2003, underscoring how reluctant employers remain to committing to making new hires. Private-sector payrolls have now declined for four consecutive months, the data showed. The nation's unemployment rate surged to 5.1% last month, the highest since September 2005. The decline in payrolls was steeper than the 60,000 decrease that had been expected by Wall Street economists surveyed. Adding to the sense of weakness in employment, payrolls in January and February were revised lower by a cumulative 67,000. Job losses thus have totaled 232,000 so far this year, an average of 77,000 lost jobs per month. As the economy is clearly in slow down mode and growth likely receding now, debt buyers see less concern over the economy heating up and potentially eroding their future returns. This has sparked a rally in debt land and mortgages have been invited as the FNMA MBS 5.50% coupon is trading up 16 ticks (+16/32) since the opening bell. This should translate into mortgage investor ratesheet pricing improving by up to 50 bps.

Industry News:

Hanover Posts Big Loss, Needs Cap Infusion

Hanover Capital Mortgage Holdings, a mortgage investing REIT based in Edison, N.J., lost $37.7 million in the fourth quarter, signaling that it may not survive as a going concern unless it receives a capital infusion. "Additional sources of capital are required for the company to generate positive cash flow and continue operations beyond 2008," the real estate investment trust said in a statement. Hanover lost $80 million in all of 2007, compared to a slight loss in 2006. Hanover invests in prime mortgage securities and mortgage loans on a leveraged basis. Its portfolio of investments includes subordinated tranches of mortgage-backed securities whose value has slipped greatly over the past year. It noted that its net loss "is primarily due to an impairment expense of $73.6 million for other than temporary declines in fair value" of its MBS portfolio. Hanover said it is seeking additional capital and has engaged Keefe, Bruyette & Woods Inc. as an investment adviser.

Triad May Cease Writing New MI

Triad Guaranty Corp., Winston-Salem, N.C., has raised the possibility of going into run-off and ceasing the writing of new mortgage insurance policies. The disclosure came in the company's delayed 10-K filing, which had been on hold because Triad said it was in discussions with an unnamed potential investor. The filing says the company needs to "significantly augment our capital resources in the second quarter of 2008 in order to preserve our ability to continue to write new insurance." But it has not yet succeeded in finding an investor. Meanwhile, Fitch and Moody's have cut the company's ratings. Fitch reduced the insurer financial strength rating from AA-minus to BBB-minus, while Moody's cut its IFS rating from Aa3 to Baa3 and kept it on review for a further possible downgrade. The Fitch move caused Freddie Mac to require Triad to come up with a remediation plan. Under a new Freddie Mac policy, Triad was not automatically dropped from a Type I to a Type II insurer when the rating was cut. Freddie said Triad has 90 days to submit the plan for approval, after which Freddie will determine whether to drop Triad into the Type II category, which imposes additional capital requirements and operational restrictions. Fannie Mae said it is in touch with Triad's management and that the company remains an approved mortgage insurance provider.

FHA Requiring 2nd Appraisals on Jumbos

The Federal Housing Administration is requiring a second appraisal on jumbo mortgages above $417,000 in declining markets and limiting the maximum LTV on cash-out refinancings to 85%. The direct endorsement lender must select the appraiser for the second appraisal if the property is located in a market where house prices are declining, according to an FHA mortgagee letter. The letter also imposes a maximum loan-to-value ratio on cash-out refinancings. If the "loan balance exclusive of FHA's upfront mortgage insurance premium will exceed $417,000, the LTV may not exceed 85% of the appraiser's estimated value," the FHA says. The economic stimulus bill signed by President Bush in mid-February temporarily raises the FHA loan limit to 125% of median home prices in high-cost areas, with a cap of $729,725.

Misc:

-- On Today’s date in 1818, Congress decided the United States flag would consist of 13 red and white stripes and 20 stars, with a new star to be added for every new state.

-- On Today’s date in 1968, the Rev. Martin Luther King Jr., 39, was shot to death as he stood on a balcony of the Lorraine Motel in Memphis, Tenn.; the killing sparked a wave of riots across the U.S. (James Earl Ray later pleaded guilty to assassinating King, then spent the rest of his life claiming his innocence and attempting to withdraw his guilty plea; he died in prison in 1998.)

-- Today Author-poet Maya Angelou is 80.

-- Today Actor Robert Downey Jr. is 43.

-- Today Actor Barry Pepper is 38.

-- Today Magician David Blaine is 35.

-- Today Actress and Mother to be Jamie Lynn Spears is 17.

Today's market update brought to you by:

Todd Albrigo

Account Executive

CMG Mortgage, Inc.