Aug. 14, 2008: Fannie pushes back adverse market charge, mortgage job opening in Florida, Union Bank up for sale?

Aug. 14, 2008: Fannie pushes back adverse market charge, mortgage job opening in Florida, Union Bank up for sale? Rob Chrisman

There’s a mortgage-related job opening in Florida! Florida’s top mortgage industry regulator (Financial Regulation Commissioner Don Saxon) resigned due to allegations his agency let thousands of convicted criminals, including bank robbers and racketeers, work in the home loan business. In what may become a great quote, Saxon said, "I recognize that things could have been done better." The governor and the state’s three cabinet members, who together oversee the Office of Financial Regulation, also approved emergency rules to stop the licensing of ex-convicts as mortgage brokers. (Applause.) Apparently a Miami Herald investigation found more than 10,000 people with criminal records were allowed to work in Florida’s mortgage industry from 2000 through 2007 and that convicted felons had bilked at least $85 million from lenders and consumers.

We had two important pieces of economic information this morning. The Labor Department said that Jobless Claims fell by 10,000 last week to 450k, but remained at levels that show strained labor markets. This is above the 432k that had been forecast although it was the first time that weekly claims fell since early July. The four-week moving average of new jobless claims climbed to 440,500 last week from 421,000 the week before – the highest reading in more than six years. We also had July’s Consumer Price Index, rising at twice the rate expected and showing the fastest rate of year-over-year growth in 17-1/2 years! The CPI was +.8% in July after being +1.1% in June. Prices were up 5.6 percent from a year ago, the sharpest year-over-year rise since 5.7 percent in January 1991. That was also well above the 5.1 percent increase that economists had forecast. The core CPI (ex-food & energy) still was +0.3% in July, above forecasts. Energy prices are coming down, and there is no meaningful probability of Fed rate hikes until things stabilize. After this news, the 10-yr continues to hover around 3.90% and mortgages are unchanged so far.

What are mortgage spreads doing? Nothing good. Yields on Fannie/Freddie mortgage security yields, compared to Treasuries, are the worst they’ve been since March. There is still a great deal of investor concern out there about defaults spreading to prime and Alt-A mortgages from subprime loans. (Mortgages are generally traded as a spread off of the 10-yr Treasury, since that security roughly matches the average duration of a 30-yr mortgage.) Fannie’s current-coupon 30-year fixed-rate bonds currently yield 6.04 percent, 212 basis points more than 10-year Treasuries. Fannie has said that it will stop buying and guaranteeing Alt-A loans after Dec. 31, since these mortgages, which make up 11% of the $3 trillion financed by Fannie, accounted for almost 50% of second-quarter credit losses!

Sorry about the “lateness” of this good news, but I just found out yesterday. Fannie sent out a notice saying, “Based on customer feedback, Fannie Mae is changing the effective date from October 1, 2008 to November 1, 2008. Pricing changes defined in Announcement 08-18R will become effective for whole loans purchased on or after November 1, 2008, and for mortgage loans delivered into MBS with issue dates on or after November 1, 2008.”

This prompted Wells Fargo and CitiMortgage to change the roll out of their increases back to October. Nice!

Here’s a link to a decent story on the latest housing bill, and its impact on FHA loans & tax credits: http://www.bloomberg.com/apps/news?pid=20601087&sid=aLOj1Jjg5wbc&refer=home

UnionBanCal (symbol UB) rejected Mitsubishi’s $3 billion takeover bid, saying the $63 per share offer for the 35% stake that the Japanese lender does not already own "substantially undervalues" the bank and was not in the best interests of minority shareholders. Mitsubishi, Japan’s largest bank in terms of market capitalization, already owns 65% of UnionBanCal, the parent of Union Bank of California. UnionBanCal has 334 branches in California, Oregon and Washington, and reported a 15% decline in net income last month due to provisions for bad loans.

A woman has twins, and gives them up for adoption. One of them goes to a family in Egypt, and is named "Ahmal." The other goes to a family in Spain; they name him "Juan." Years later, Juan sends a picture of himself to his birth mother. Upon receiving the picture, she tells her husband that she wishes she also had a picture of Ahmal.  Her husband responds, "They’re twins! If you’ve seen Juan, you’ve seen Ahmal."

Rob