Here is your word of the day: Monopsony

A Monopsony exists where there is only one buyer of a product, as opposed to a “monopoly” where one seller controls the market. Although there is a minor amount of interest by investors in owning securities backed by mortgages, most would agree that at this point the Fed is the primary buyer, and that we are approaching a monopsony, which, like a monopoly, is rarely good. Use that word tonight during Happy Hour.

Also, looks like they are finally revamping the credit scoring matrix. Maybe they figured out that credit scores are pretty much meaningless. The lenders sure did!

Ryan Ogata
Senior Mortgage Consultant

From: Rob Chrisman Subject: Jan 30: Don't be the last one on your block to own FICO 08

Are mortgage rates getting you down? Don’t blame the NY Fed – they’re going as fast as they can, to the tune of almost $17 billion last week of MBS purchases.

Fair Isaac has something new to talk about. They will start offering the revamped score, "FICO 08," to lenders. Fair Isaac believes that the new score will do a better job of predicting borrower defaults, be more forgiving of one-time slipups, take a harder line on repeat offenders, and in general will do a deeper analysis of borrowers with poor or thin credit histories. The score will still range from 300 to 850.

Yesterday was not a good day for Treasury or mortgage rates, or the housing industry. New-Home Sales fell 14.7% in December, and are down 45% from December 2007! This represents the 5th straight month of declines. Durable Goods, as I mentioned yesterday, were also down for the 5th month in a row. Regardless, the Treasury auctioned off $30 billion of 5-yr notes, and it did not go as well as hoped. At this point the last thing on the Fed’s mind is inflation, and in fact deflation is on the minds of many.

How about today – do we need more news that the economy is doing poorly? Will the 10-yr Treasury make up some of the nearly 2 points in price that it lost yesterday? We have already seen Gross Domestic Product, which showed that the U.S. economy shrank at its fastest pace in nearly 27 years in the fourth quarter. It dropped at a 3.8% annual rate, the lowest pace since the first quarter of 1982, when output contracted 6.4 percent. For 2008, GDP rose 1.3 percent, the slowest pace of growth since 2001, when the economy expanded 0.8 percent. U.S. employment costs rose last year at the slowest pace on record, with the Employment Cost Index increasing 2.6% in the 12 months to December, down from a 3.3 percent rise in 2007. The numbers indicate that companies have been cutting overtime and reducing workers' benefits like pension contributions. We still have the Chicago Purchasing Manager’s survey and the University of Michigan Consumer Confidence survey later, but for now the 10-yr stands at 2.80% and mortgages are about .250 better in price than yesterday late afternoon.

Rob Chrisman