San Diego, California Mortgage Market Update

Market Happenings:

The Producer Price Index came out smoking this morning, up 1.10% for March, far greater than economists expectations of a 0.60% rise. The Core reading came in as expected at 0.20% which begs the question, is the core measure relative in today’s market place where the primary drivers for inflationary pressures of late appear to be food and energy costs, which are excluded from the core reading. The debt markets appear to be in a bind as inflationary indicators are growing yet economic growth is receding. The market is stuck in a situation where it is "too expensive and too cheap" with prices sitting at multi-year highs, leading, of course, to yields at multi-year lows. Bit even with the hardest battle being to the upside, there is a fundamental floor under prices, especially as the economic picture hasn't brightened and the prognosis aint pretty. So far this morning Agency MBS pricing is off 14 ticks (-14/32) on FNMA 5.0% coupons. Expect lender ratesheet pricing to pull back from post re-price levels of yesterday by up to 50 bps.

Industry News:

OFHEO: GSEs 'Significant Supervisory Concern'

Even though Fannie Mae and Freddie Mac have made "good progress" in fixing the operational problems that led to their respective accounting scandals, the two remain a "significant supervisory concern," according to a new report issued by their regulator. In the Office of Federal Housing Enterprise Oversight's annual report to Congress, the agency notes that the two posted a combined loss of $5.2 billion last year after writing down the value of their mortgage portfolios and taking losses on derivatives. The agency says the GSEs are a concern "due to poor financial performance and the quantity of credit risk resulting from the continued market deterioration and its dominant, adverse impact on current and future earnings."

RealtyTrac: Foreclosures Rise Again

New foreclosure filings rose 5% in March and were 57% higher than the level recorded a year earlier, according to RealtyTrac, an online foreclosure marketplace based in Irvine, Calif. The company's U.S. Foreclosure Market Report indicates that 234,685 new foreclosure properties were added to the rolls in March. "The March numbers show that overall foreclosure activity so far this year continues to run nearly 60% above the levels we saw last year," said James J. Saccacio, RealtyTrac's chief executive officer. "On a year-over-year basis, default notices were up nearly 57% and bank repossessions were up nearly 129%, but auction notices were up only 32%, indicating that more defaulting homeowners are simply walking away and deeding their properties back to the foreclosing lender." The company said Nevada, California, and Florida again recorded the highest foreclosure rates in March.

Deutsche Bank: Capital Crisis Will Continue

Resolution may be near for the market's funding crisis, but capital concerns are likely to persist until the housing market recovers, according to a recent Deutsche Bank report. "It might be the end of the funding crisis, at least in the U.S.," said economics/strategy researchers Mustafa Chowdhury, Marcus Huie, and Anish Lohokar. But the researchers said they see "the capital crisis persisting for quite a while, at least to the end of the year."

Will Crisis Affect Pricing for a Decade?

The current financial crisis "will affect market structure and pricing for at least a decade," according to a new report from JPMorgan Securities Ltd., London. The report from JPMorgan's global asset allocation and alternative investments unit blames excessive credit risk taking in "housing, leverage, and maturity transformation" for the crisis. It predicts, among other things, that central banks' extension of liquidity to broker-dealers will be permanent and lead to regulation in that area.

Misc:

-- On Today’s date in 1912, the British luxury liner RMS Titanic sank in the North Atlantic off Newfoundland, less than three hours after striking an iceberg. Some 1,500 people died.

-- On Today’s date in 1865, President Lincoln died, several hours after being shot at Ford's Theater in Washington by John Wilkes Booth. Andrew Johnson became the nation's 17th president.

-- On Today’s date in 1947, Jackie Robinson, baseball's first black major league player, made his official debut with the Brooklyn Dodgers on opening day. (The Dodgers defeated the Boston Braves, 5-3.)

-- On Today’s date in 2008 your taxes are due.

Today's market update brought to you by:

Todd Albrigo

Account Executive

CMG Mortgage, Inc.