Jul. 20, 2007: Mortgage commentary with the 10-yr at 5.00%

Jul. 20, 2007: Mortgage commentary with the 10-yr at 5.00% Rob Chrisman

For the latest on the changes at Fannie and Freddie, especially as they may pertain to ARM underwriting changes which may be adopted by many other lenders, check out http://www.ofheo.gov/News.asp?FormModeReleases. We are watching this closely, as several investors who are predominantly FNMA shops, including Chase, American Home, and AmTrust, have recently changed their qualifying rates for underwriting to fully indexed, fully amortizing payments. Look for many more to follow.

Yesterday S&P downgraded over 400 classes of securities backed by home-equity loans originated in 2005, 2006 and early 2007, which equates to 6% of the bonds that had been rated. S&P said losses among securities backed by home equity loans “will significantly exceed historical precedent and our original assumptions.” 127 of them had already been downgraded at least once, and some had already been lowered multiple times. S&P is blaming the poor performance of these bonds, in part, on looser underwriting standards, pressure on home prices and financial pressure on borrowers resulting from payment increases on first mortgages.

There are no economic releases today. It would appear that our markets may take some direction from overseas, the stock market, and further worries of subprime loan losses. Even yesterday we improved slightly after yesterday’s economic releases, the last news being the release of the Fed minutes from the June 28th meeting.  The content from the minutes came out as expected with no real surprises, indicating that the FOMC “anticipated that core inflation would remain relatively subdued but concurred that a sustained moderation in inflation had not yet been convincingly demonstrated.” The yield on the 10-yr got as low as 4.98%, but has since bounced back to 5.0%, but mortgage prices are roughly unchanged due to subprime and Alt-A worries.

The Master Chief noticed a new Seaman one day and barked at him to come into his office. “What is your name?” was the first thing the Master Chief asked the new guy. “John,” the new guy replied. The Master Chief scowled, “Look, I don’t know what kind of bleeding-heart, liberal pansy stuff they’re teaching sailors in boot camp today, but I don’t call anyone by their first name. It breeds familiarity and that leads to a breakdown in authority. I refer to my sailors by their last name only; Smith,  Jones, Baker, that’s all.  I am to be referred to only as ‘Master Chief.’ Do I make myself clear?”

“Yes, Master Chief!”

“Good! Now that we got that straight, what is your last name?”

The new guy sighed and said, “Darling. My name is John Darling, Master Chief!” “Okay, John, the next thing I want to tell you is…….”