Rates off again this morning

Market Color:   The dreaded “I” word rose up and came into play as wholesale prices increased more than the experts expected.  The 1.8 percent increase in prices paid to factories, farmers and other producers was more than twice as large as anticipated and followed a 0.3 percent gain in October, according to Labor Department data released today in Washington. The industrial output number was posted as well and it was likewise positive. Industries in the U.S. boosted production in November by the most in three months, showing the world’s largest economy is gaining speed heading into 2010.  We have the Federal Reserve folks starting their meeting today and CPI will come out tomorrow.  So as we said on many occasions, inflation and a recovering economy means worse mortgage rates. Right now, the futures market is pricing in a 91.6% chance that the Fed keeps rates somewhere between 0% and .25% through March 16th, 2010.  Currently, the Ten Year yield is at 3.588% and our 30 year fixed rate mortgages are worse by .25 to .375% at the open.

 

Market News:  A key development is taking place today with an article from the Wall Street Journal concerning guidelines intended to set standards for when mortgage originators and packagers should buy back delinquent loans because of violations of so-called “representations and warranties” made at the time the mortgages were packaged into securities. Representations and warranties state the characteristics of the loans in the bond deal, such as whether the home was purchased by an owner to live in or as an investment.  These guidelines are not set in stone but are the beginning of what will shape our business in the future.  It is pretty far reaching to affect the company and the loan originator. The guidelines come amidst a brewing debate about how to make the firms that originate mortgage loans and package them into securities more accountable for the performance of the underlying mortgages. The Federal Deposit Insurance Corp. will release proposed rules today designed to boost confidence in the securitization markets by, among other things, requiring better disclosure of origination standards, loan performance and compensation and tying originators’ compensation to meeting representations and warranties. Financial services reform legislation that cleared the House of Representatives last week would generally require lenders and firms that securitize mortgages to retain a 5% stake in loans packaged into securities.  As soon as we have them will will send out a copy.

The residential loan broker share of the origination market hit yet another new low in the third quarter, 12.9%, according to exclusive survey figures compiled by National Mortgage News. “Right now it’s hard for me to see much support anywhere for loan brokers,” said researcher David Olson. NMN found that all originators funded $443 billion in the third quarter with retail lenders capturing 48.3% of the market and correspondent accounting for 38.8%. Since the second quarter of 2007, the broker share has steadily evaporated from a high of 28.2%. (Only loans that are table funded through a wholesaler are included in this category.) A year ago Mr. Olson changed the name of his Columbia, Md.-based firm to Access Research, removing the word “Wholesale.” The veteran researcher said all the new regulations being heaped on brokers are making it “impossible” for them to continue. He believes many may convert into correspondent retail shops (if they can) or join net branches.