Aug. 3, 2007: With interesting comments from Indymac and some much needed humor

Aug. 3, 2007: With interesting comments from Indymac and some much needed humor Rob Chrisman

Stocks shot up yesterday afternoon, which forced treasuries and mortgage prices to head into negative territory for the remainder of the day, and some investors changed prices. This morning we’ve already had the Unemployment data: Non-farm Payrolls were weaker than expected, +92k for July, the Unemployment Rate rose to 4.6%, and Hourly Earnings were +.3%. Although there was a little volatility, the 10-yr yield seems content around 4.75%, and mortgages are better by .125 in price. (Most originators are seeing a dramatic drop in locks.) The market is pricing in a 98% chance the Federal Reserve will cut borrowing costs to prevent a housing slump spreading to other parts of the economy.

What are we hearing from the big investors? “Lower expectations on volume”, “coming from a $4 trillion dollar market to a $2 trillion dollar market will force companies to ‘right size’, increase efficiencies, lower margins, be pro-active and make changes to accommodate work flow and efficiencies,” “remind QC and the underwriters that questionable underwriting decisions to make a couple of points aren’t worth the potential down side of a 75 price in a scratched and dented pool”.

Indymac is rumored to be stepping in and either buying part of American Home’s platform, or are buying AMH loans from originators. A press release stated that they “will still originate product that cannot be sold to the GSEs…just less of it and we will have to assume we retain it in portfolio (until the AAA private MBS market recovers). In spite of their Federal Thrift structure, “we cannot continue to fund $80 to $100 billion of loans through a $33 billion balance sheet….unless we know we can sell a significant portion of these loans into the secondary market…and right now, other than the GSEs and Ginnie Mae….the private secondary market is not functioning….As a result, Indymac like all major lenders, will continue to widen its pricing and tighten product and underwriting guidelines to ensure that a much great percentage of our production qualifies for sale to the GSEs…While this is an abrupt and uncomfortable change, it is a change that all of our competitors are making just as abruptly, if not more abruptly…so it should not result in one mortgage company having a competitive advantage over another.”

Among the 20 largest subprime lenders in 2006 ranked by Inside Mortgage Finance more than half have tried to sell themselves or left the business. The list includes companies that may have offered subprime, prime or Alternative-A loans. Some of the most recent developments: American Home Mortgage stopped making loans after investment banks cut off credit lines, GE plans to sell WMC Mortgage, CIT Group Inc., the largest independent commercial finance company in the U.S., said it’s getting out of home lending, MGIC Investment Corp. and Radian Group Inc. said their stakes in C-BASS, valued at more than $1 billion in June, may now be worthless, FBR agreed to sell its subprime mortgage business First NLC (who just laid off hundreds of employees) to Sun Capital Partners, and Alliance Mortgage and Premier Mortgage filed bankruptcy petitions. Accredited Home Lenders, San Diego, said Thursday that it may not continue to operate as a “going concern,” sending its stock price down 25% to just over $6 a share. According to the Quarterly Data Report, Accredited is the nation’s 18th-largest subprime funder. The company cited deteriorating conditions in the market, including rising delinquencies and early payment defaults. During the first five months of the year it repurchased $152 million in loans and paid out an additional $39 million in cash to investors to settle loan repurchase-related demands.

Have you ever been guilty of looking at others your own age and thinking, “Surely I can’t look that old”?

I was sitting in the waiting room for my first appointment with a new dentist. I noticed her DDS diploma, which bore her full name. Suddenly I remembered an athletic, cute, dark-haired girl with the same name had been in my high school class some 40-odd years ago. Could she be the same gal that I had a secret crush on, way back then?

Upon seeing her, however, I quickly discarded any such thought. This gray-haired woman with a deeply lined face was way too old to have been my classmate. After she examined my teeth I asked her if she had attended Morgan Park High School.

“Yes. Yes I did. I’m a Mustang,” she gleamed with pride.

“When did you graduate?” I asked.

She answered, “In 1959. Why do you ask?”

“You were in my class!” I exclaimed.

She looked at me closely. Then that ugly, old, wrinkled, gray woman asked, “What did you teach?”