San Diego, California Mortgage Market Update

Market Happenings:

Slow Start to Busy Week : The calendar is back-loaded with events and trade is taking a very tentative approach. With much froth being blown off prices in the last month, the market is better, but still not well, priced for bad data. It will likely take decent sized downside misses to turn the ship around while anything inline could still hurt. The FOMC is nearly a foregone conclusion at 25 basis points of easing and the statement provides the juice depending on biases. In the meantime, light trade today will be gyrated around by equities which are getting boosted into their open on M&A news and technicals which still have some room to run on the downside. The market is edging its way higher in light trade getting a bounce out of last week's 2-month price lows on the 10-yr (corresponding to a yield of near 3.92%) and Agency MBS. Trade is wary of getting too far out in front of the event risk later this week so gains may get checked into the afternoon, particularly if equities squeeze out a rally. trade looks ahead to the pivotal calendar events this week (FOMC, GDP & payrolls) but currently FNMA MBS are up 8 ticks (+8/32) which should translate to lender ratesheet pricing improving by up to 25 bps.

Industry News:

HUD Waives Action on GSE AH Goals

The Department of Housing and Urban Development has determined that market conditions prevented Fannie Mae and Freddie Mac from reaching two affordable housing subgoals in 2007, and it will not require the two government-sponsored enterprises to take corrective action. The two home-purchase subgoals are supposed to measure the GSEs' efforts in financing low-and moderate-income homebuyers. Fannie and Freddie submitted market data to HUD showing that rising home prices reduced the availability of affordable housing. In addition, the subprime meltdown and tighter credit conditions made the barriers to achieving the subgoals "insurmountable," Freddie Mac said. In letters to the chief executives of the two mortgage companies, HUD Assistant Secretary Brian Montgomery reported that information provided by the GSEs is "consistent" with HUD's market research. HUD has determined that the achievement of the two subgoals was "not feasible," Mr. Montgomery says in the April 24 letters. He also notes that HUD also considered the "financial stability" of Fannie and Freddie in evaluating their affordable housing performance. .

Big Builders Told to Pull Back or Fail

The nation's giant homebuilding firms must pull back if they are to survive the current downturn, an analyst with Wachovia Capital Markets in San Francisco warned at the National Association of Home Builders' Spring Construction Forecast Conference. "Geographic diversification didn't help anybody," Carl Reichardt, Wachovia's managing director and senior equity research analyst, told the conference in Washington. Whereas nine public builders were operating in just California and Florida in 1989, he pointed out, the same nine are now banging heads in a dozen states. Moreover, more than six of the 13 public builders Mr. Reichardt follows on a regular basis go at each other in more than half the 78 metropolitan areas where they build houses. The analyst said the options on the table are to "merge, die, or shrink," and since acquisitions "seem unlikely" given the current state of the financial markets, big builders must reorganize into super-regional operations. "Otherwise," he said, "they are going to continue to beat each other up." Mr. Reichardt also said the industry giants would do well to "focus more on manufacturing" and reducing construction cycle times while de-emphasizing such factors as maximum unit growth and land margins. "Wall Street recognizes that good margins can be made in the contractor business," he said.

Energy, Food Prices Could Trump Demographics

Homebuilders point to strong demographics in predicting a return to normal production levels once the current downturn ends, but the executive director of Harvard University's Joint Center for Housing Studies says fundamentals alone may not be enough to float housing's boat. "Market conditions can swamp favorable demographic projections," Eric Belsky said at the National Association of Home Builders' Spring Construction Forecast Conference in Washington. Mr. Belsky pointed out that potential homebuyers "keep getting hit with other things" that may keep them on the sidelines for longer than most analysts are predicting. Rising energy costs, higher gasoline prices, and larger food bills are just a few of the things that are putting a big dent in the pockets of not just low-income families but also those with more substantial earnings, he said, and they are not offset by lower mortgage costs resulting from lower interest rates. "When in a pothole," Mr. Belsky said of would-be buyers, "it's hard to look at the road ahead of you."

This Week's Calendar:

Misc:

-- On Today’s date in 1788, Maryland became the seventh state to ratify the U.S. Constitution.

-- On Today’s date in 1988, a flight attendant was killed and more than 60 persons injured when part of the roof of an Aloha Airlines Boeing 737 tore off during a flight from Hilo to Honolulu.

-- Today "Tonight Show" host Jay Leno is 58.

-- Today Rapper Too Short is 42.

-- Today Actress Jessica Alba is 27.

Today's market update brought to you by:

Todd Albrigo

Account Executive

CMG Mortgage, Inc.