Dec. 28, 2007: as mortgage companies scramble to take care of last-minute funding conditions

Dec. 28, 2007: as mortgage companies scramble to take care of last-minute funding conditions Rob Chrisman

Aside from Pakistan and the tiger-mauling story, there is not much happening in the news. Certainly not much in mortgage banking. We had a nice rally (improvement) in Treasury and mortgage prices yesterday, and fortunately it is continuing this morning. The Jobless Claims data provided more signs of possible labor-market weakness. The four-week moving average is moving up slightly. Bhutto’s death spooked the market, and we saw a flight to the dollar. On top of that, in spite of Consumer Confidence being stronger than expected, yesterday’s Durable Goods orders were weaker than expected, with many of its components declining. And many analysts feel that a weak Durable Good number indicates a weak GDP number for the 4th quarter. Today we’ll end the week with the Chicago Purchasing Manager’s Survey and New Home Sales. But ahead of these rates are down and prices have improved. Currently, the 2-yr stands at 3.19% & the 10-yr at 4.16%, and mortgage prices are better by roughly .250.

Where do we stand on the billions of dollars of bad-loan write-downs? A Goldman Sachs analyst believe that Citigroup, who warned everyone last month that it was likely to write down its portfolio by $8 billion to $11 billion in the fourth quarter, could write off as much as $18.7 billion in the fourth quarter! Citi has about $55 billion in exposure to subprime mortgages, about $43 billion of which are collateralized debt obligations, or CDOs, that have mortgages underlying them. Citi has already been helped up by a $7.5 billion investment from the Abu Dhabi Investment Authority, a sovereign wealth fund that in late November bought a 4.9 percent stake in the bank. But a write-down of this magnitude would require another cash infusion of $5 billion to $10 billion. Brother can you spare a dime?

One dark night in the small town of Totowa, New Jersey, a fire started inside the local sausage factory. In a blink the building was engulfed in flames. The alarm went out to all the fire departments for miles around. When the first volunteer fire fighters appeared on the scene, the sausage company president rushed to the fire chief and said, “All of our secret sausage recipes are in the vault in the center of the plant. They must be saved. I will donate $50,000 to the fire department that brings them out and delivers them to me.” But the roaring flames held the firefighters off. Soon more fire departments had to be called in because the situation became desperate….. As the firemen arrived, the president shouted out that the offer to rescue the secret recipes was now $100,000 to the fire department that could save them. Suddenly from up the road, a lone siren was heard as another fire truck came into sight. It was the fire engine of the nearby Paterson, New Jersey Volunteer Fire Department composed mainly of Italian firefighters over the age of 65. To everyone’s amazement, the little run-down fire engine, operated by these Italian firefighters, passed fire engines parked outside the plant, and drove straight into the middle of the inferno. Outside, the other firemen watched in amazement as the Italian old timers jumped off and began to fight the fire with a performance that was as if they were fighting to save their own lives. Within a short time, the Paterson old timers had extinguished the fire and saved the secret recipes. The grateful sausage company president joyfully announced that for such a superhuman accomplishment he was upping the reward to $200,000, and walked over to personally thank each of the brave elderly Italian firefighters. A TV news crew rushed in after capturing the event on film. The TV reporter asked the Italian fire chief, “What are you going to do with all that money?” “Wella.” said Chief Pasquale De Luccinellavanti, the 70-year-old fire chief, “De fursta tinga we gonnna do isza fixa uppa de brakes on dat darn truck!!”.

Rob