(Homer Simpson needs to fill out his full name on a job application)
Bart: Why not just make up a middle name?
Lisa: You might as well, you already made up a phone film credit.
Homer: No! Homer Simpson does not lie twice on the same form. He never has, and he never will.
Marge: You lied dozens of time on our mortgage application.
Homer: Yeah, but they were all part of a single ball of lies.
Remember “Fed Funds”, the rate (5.25%) that banks can borrow money from each other to keep their reserve amounts in line? Well, the “Discount Rate” is the interest rate at which an eligible financial institution may borrow funds directly from the Federal Reserve when their reserves dip below the reserve requirement. It’s considered the last resort for banks, which usually borrow from each other. The Federal Reserve Board approved temporary changes whereby they approved a 50 basis point reduction in the primary credit rate to 5.75% from 6.25%. This change, and a few others, will remain in place until the Federal Reserve determines that market liquidity has improved materially. These changes are designed to provide depositories with greater assurance about the cost and availability of funding. The Federal Reserve will continue to accept a broad range of collateral for discount window loans, including home mortgages and related assets.
Chevy Chase Bank announced that they are no longer accepting Correspondent locks and registrations until further notice. In addition, loans currently floating will not be locked. They are continuing to accept Chevy Chase Bank Wholesale business.
Both Chase and Indy Mac made further cuts to programs on their allowable LTV’s, CLTV’s, and credit scores. Chase focused on their HELOC margins and Indy on their NINA and low-doc programs.
How is Countrywide holding up? (Countrywide made 1 of every 6 home loans in the U.S. in the first half of this year, and is the largest customer for Fannie Mae: more than one-third of all mortgages sold to Fannie Mae come from Countrywide! They were the 4th largest online advertiser during July, spending $35 million on internet ads. Unfortunately for them, First Magnus was one of their larger clients.) Countrywide’s 30-day unsecured commercial paper is yielding 6% to 6.25%, about .75% above what other companies are paying. Last week the company said in a regulatory filing that the “unprecedented disruptions” in the credit markets could hurt its earnings and financial condition. The filing also cautioned that “the situation is rapidly evolving and the potential impact on the company is unknown.”
Countrywide said it borrowed the cash from a group of 40 banks so it could keep making home loans, and yesterday morning they announced that they were drawing on an $11.5 billion credit line. Many now believe that Countrywide now has enough liquidity to meet debt obligations through 2008. Countrywide said some 90% of the loans it originates from now on will be conforming loans, or will meet its’ internal bank criteria. By adjusting its product mix to originate Fannie and Freddie-approved loans almost exclusively, Countrywide will be cutting out most subprime, alt-A and jumbo loan products.
Yesterday Initial jobless claims increased for the third consecutive week, Housing Starts were -6.1% in July, and Building Permits were -2.8%. Although a volatile series, residential construction for July is below estimates. Importantly, single-unit housing starts declined in every region. Mortgage prices and Treasury rates improved, pushing two-year yields to the lowest in almost two years, as a slide in global stocks fed demand for the relative safety of government debt. This morning, with the Discount Rate cut, the 10-yr yield is back up well into the 4.70’s but mortgage prices are unchanged.
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