Apr. 8, 2009: Pulte buying Centex; mandatory-best efforts spread coming in; overall quiet in the mortgage markets

Apr. 8, 2009: Pulte buying Centex; mandatory-best efforts spread coming in; overall quiet in the mortgage markets Rob Chrisman

Things are not going well with the auto bailout. President Obama called from England Monday to check on the status. You know, Joe Biden has not sold a single car (not one car!) since this whole thing started.

Secondary Marketing managers, those still with paying jobs, are preparing for the National Secondary conference in Chicago. What does “preparing” actually involve? Besides gearing up to stand in a hotel lobby, along with hundreds of other people aged 35-55 wearing blue and gray suits, squinting at name badges and trying to recall the name of some fellow you recognize but don’t know why. Trying to you’re your meeting schedule with 8 hours of “strategy” meetings, making loan level decisions from your blackberry on 15 minute breaks, followed by 3 rounds of premium vodka drinks at the end of the day – hopefully paid for by one of your few remaining investors. Then there is one very long and expensive dinner where you are “forced” to drink 3 bottles of fine wine and hold a conversation with a perfect stranger.  Then finally a late evening cocktail before stumbling back to your room and waking up the next morning to run 30 minutes on the hotel treadmill hoping you don’t see any of your business associates.

Pulte Homes Inc. (Michigan) agreed to buy Centex Corp. (Dallas) for $1.3 billion in an all-stock deal. Pulte agreed to pay 0.975 of a share for each Centex share, valuing Centex at $10.50, or 38 percent more than yesterday’s closing price. The transaction, already approved by both companies’ boards but yet to be voted on by stockholders, includes $1.8 billion in net debt but with $3.4 billion in cash and $4.1 billion in market value.

In other news, mortgage applications in the U.S. rose last week to the highest level in three months: +4.7%. The Mortgage Bankers Association’s index of applications to purchase a home was +11% and the refinance index was +3.2%.

Lock desks around the nation are seeing the spread in price between mandatory and best efforts execution narrowing. And companies that were thinking about moving to mandatory execution, strictly based on price rather than business model, are re-evaluating the merits of doing so. A month or so ago the price difference was well over a point, and although not all of this was being passed through to agents and brokers, originators who were hedging and doing mandatory sales definitely had the upper hand when it came to comparing rate sheets. Now that spread has narrowed, perhaps due to lower volatility or better pull through (leading to lower hedging costs). Overall the spread is now around 1 point in price and in some cases slightly less.

What else is going on? Not much. Today we have a $35 billion 3-yr T-Note auction to get through. We also have, at 11AM PST, 2PM EST, the FOMC minutes from their mid-March meeting. No one is expecting too many surprises. Aside from that, the “mortgage scene” is quiet, with mortgage prices slightly better than yesterday afternoon and the 10-yr at 2.87%.

Brenda O’Malley is home making dinner, as usual, when Tom Finnegan arrives at her door.

"Brenda, may I come in?" he asks. "I’ve somethin’ to tell ya".

"Of course you can come in, you’re always welcome, Tom. But where’s my husband?"

"That’s what I’m here to be telling ya, Brenda." There was an accident down at the Guinness brewery…"

"Oh, God no!" cries Brenda. "Please don’t tell me."

"I must, Brenda. Your husband Shamus is dead and gone. I’m sorry.”

Finally, she looked up at Tom. "How did it happen, Tom?"

"It was terrible, Brenda. He fell into a vat of Guinness Stout and drowned."

"Oh my dear Jesus! But you must tell me truth, Tom. Did he at least go quickly?"

"Well, Brenda… no. In fact, he got out three times to piddle."

Rob

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