Dec. 7, 2007:

Dec. 7, 2007: Rob Chrisman

Is your money (like retirement money) being handled by a money manager? You might want to ask them if your money is invested in any asset-backed securities! NPR had a story on school districts in Florida and other states that had pooled their operating funds and invested in paper with a high return that was backed by subprime mortgages. Consequently, the funds have been frozen, and some municipalities are issuing IOUs to their creditors to keep running! Orange County, who declared bankruptcy in 1994 by bad interest rate bets, appears to be in the forefront of SIV losses: $460 million of the county’s $2.3 billion Extended Fund is invested in so-called SIVs that may face credit-rating cuts, said Treasurer Chriss Street. In all of its funds, the county holds a total of $837 million of SIV debt. Meanwhile, Blackrock was hired at the end of last week to help out the ailing Florida cash fund used by many of its local governments and school districts, as much of the debt held by a $14 billion Florida investment fund for schools and local governments is worth less than face value and the rest is so troubled that its value can’t be determined, according to an official at the Wall Street firm hired to turn around the fund.

• Astoria ratcheted up their hit for California properties – they now have a pricing adjustment of a .500% add on to the rate.
• WAMU is rumored to be closing WAMU Capital Corp., its brokerage unit, on December 10th. The bank dismissed 100 traders, sales and support staff in September and plans to fire 10 to 20 people at WaMu Capital, the NY Post reported, and as you recall they stopped providing repurchase agreements early in November.
• Countrywide continues its plan to trim workforce: yesterday was the 5th round of RIF (“Reduction in Force”), and all the DPA’s (Divisional Production Analysts), SRVPs, and other positions within CW were hit.
• FNMA announced their “Adverse Market Delivery Charge”, which no doubt will be echoed by investors. Their reason? “There has been an accelerated deterioration of market conditions: historically high home price declines (third quarter 2007 home prices decreased 4.5 percent year-over-year based on the S&P/Case-Shiller Home Price Indices), 20-year high levels of unsold existing single-family housing inventory and additional widening of mortgage spreads.” Their “Adverse Market Delivery Charge” of .25% will apply to all mortgages delivered to Fannie Mae under standard or negotiated terms after March 1st.

This morning rates are up (and prices worse) after the unemployment data. We saw the same thing yesterday after the government announced a plan to freeze so called “teaser” rates on Sub Prime ARM’s Investor demand for the safety of treasuries dropped, and rates rose – numerous investors had rate changes and mortgage prices headed back to where they were last week. Stocks rallied on the plan on investor hopes that government support will help bank profits and soften the blow of the current housing slump. The data this morning showed that employers added 94,000 jobs in November and the national unemployment rate held steady at 4.7%, according to a government report on Friday that likely adds to chances for a modest official interest-rate cut next week. There were revisions to the October data (+166 to +170) and September (+96k to only up 44k), for a net decline of 48k jobs. The average workweek was unchanged at 33.8 hours. Consumer confidence numbers are also due out today and are expected to show a -1.1 point decline from 76.1 to 75.0, which does bring the index closer to the 15-year low of 74.2 posted in October 2005.

Obviously the lower rates are a plus for mortgage lenders. Originators everywhere are reporting high lock volumes. Hopefully the loans are not just borrowers shuffling existing locks! This is a continuation of last week, when mortgage application volume increased 22.5%, and applications were up 24.2% compared with the same week in 2006, the MBA said. Applications to refinance an existing loan shot up 31.9% last week, compared with the previous week. The share of all mortgages that were for refinance was 56.0%, compared with 51.4% the week before. And Federal Reserve policy-makers are widely expected to cut interest rates by at least a quarter percentage point when they meet next Tuesday and some analysts speculate the U.S. central bank might trim rates a more aggressive half percentage point in order to ward off what many see as rising risks of recession in 2008.

Need a car loan? About $575 billion in loans for new and used cars are made annually, and according to Lehman Brothers 4.5% of them made in 2006 to top-rated borrowers were at least 30 days delinquent as of the end of September, up from 2.9% the previous month. Lehman says 12% of subprime borrowers, who have poorer credit records, were delinquent on their 2006 auto loans as of September.

A preacher was making his rounds to his parishioners on a bicycle when he came upon a little boy trying to sell a lawn mower.

“I’ve been needing a lawn mower.  How much do you want for it?” asked the preacher.

“I just want enough money to go out and buy me a bike,” said the little boy.

After a moment of consideration, the preacher asked, “Will you take my bike in trade for it?”

The little boy asked if he could try it out first, and after riding the bike around a little while, “Mister, you’ve got yourself a deal.”

The preacher took the mower and began to try to crank it. Pulling on the cord a few times with no response from the mower, the preacher called the little boy over, “I can’t get this mower to start.”

The little boy said, “That’s because you have to cuss at it to get it started.”

The preacher said to the little boy, “I am a minister, and I cannot cuss.  It has been so long since I have been saved that I do not even remember how to cuss.”

The little boy looked at him happily and said, as he rode off,

“Just keep pullin’ on that cord. It’ll come back to ya.”