I have been asked by many people why the pricing on “conforming jumbo” ($417k - $625k) has such large price swings. Keep in mind that only 10 percent of a mortgage backed security pool (MBS) comprised of Fannie/Freddie product can have conforming jumbo within the pool. Right now, there is more loan volume than the market can handle so based on supply/demand loans are being priced higher. When investors lower the price for conforming-jumbo, it is because they are looking to “fill up” a pool so you see them quickly go in and out of the market.

Also, keep in mind that loan applications are currently running at 2003 levels (Ahh the good old days…) and only 1/3 of the industry is still in the business!

So, aside from Obama taking office, Chrysler inking a deal with FIAT, and oil hitting $33 per barrel, let’s move on to something more relevant to mortgage banking. Enjoy the daily market update.

Ryan Ogata
Senior Mortgage Consultant

From: Rob Chrisman Subject: Jan 20 - industry news, and rates creep up while everyone is focused on the inauguration

Regions Financial lost over $6 billion in the 4th quarter as it took a $6 billion goodwill write-down and sharply raised loan-loss provisions, although non-performing assets fell slightly amid the continuing disposal of problem assets. Regions, located in the Southeast, received $3.5 billion in November from the U.S. Treasury under the Troubled Asset Relief Program.

GMAC will implement a 1.50% price adjustment to FHA High Balance loans.

Banks are racing to modify million of loans by reducing interest rates or lengthening terms. J.P. Morgan Chase is expanding its program to modify mortgages to include not only mortgages the bank owns but also more than $1 trillion of loans the bank sold to investors.

While Freddie and Fannie Mae have suspended sales of foreclosed properties and aren’t locking people out of their homes, they are continuing to initiate court cases against homeowners and pursue existing cases. Freddie is also still filing eviction proceedings against renters, while Fannie says it has suspended all action against tenants living in repossessed homes.

Why don’t the words “cram down” ever have a good connotation? Wednesday afternoon Barclays Capital hosted a conference call for investors to discuss the basics of current bankruptcy laws, developments around proposed bankruptcy cram down legislation and the implications (both intended and unintended) of this bankruptcy reform effort. The proposed changes would enable bankruptcy judges to place the principal value of mortgages down to the value of the underlying property (a power that they do not currently have), leaving all previously secured claims as an unsecured claim that may or may not be extinguished by the judge. Barclays expects that the change could “lead to a surge in bankruptcies that raises estimates for credit card charge-offs from 10% in 2009 to 12%-14%”.

Freddie Mac’s weekly survey showed that average mortgages rates fell below 5.0% for the first time – they came in at 4.96%. Whoever is complaining about mortgage rates should note that it was the 11th consecutive weekly decline and the lowest rate since Freddie started the survey in 1971. In a yield curve lesson, 5-yr hybrid ARM rates are 5.25%; 1-yr Treasury ARM’s averaged 4.89%, and 15-year fixed-rate mortgages edged up to 4.65% from 4.62% a week ago. Brokers know that the two fixed-rate loans required the payment of an average 0.7 point to achieve the interest rate.

How about the current economy? Late last week we saw Industrial Production fall 2.0% for December, but Consumer Sentiment improved slightly in the University of Michigan survey. Economic news releases for the week few and far between. In fact, there is little until Thursday, which at this point is already the day after tomorrow, when we have Housing Starts, Building Permits, and Jobless Claims. Probably more importantly, the Treasury announces three and six month bill, 2-yr and 5-yr note auctions. Interest rates have worsened ahead of this, with the 10-yr up to 2.46% and mortgages worse by .250-.375 in price.

Rob Chrisman