Long Beach, CA.  We are very concerned about this development for future mortgage pricing.  In what appears to be a reversal in position for the banking industry, Citigroup Inc. is in talks with lenders regarding legislation to permit mortgage restructuring in bankruptcy court. The industry previously has warned that "cram downs" would boost borrowing costs, but such bankruptcy reform has the support of many Democrats as well as President-elect Barack Obama. Sen. Dick Durbin, D-Ill., introduced a bill on Jan. 6 to allow bankruptcy judges to restructure mortgages, and similar legislation was also raised in the House. Some estimates say this will increase the cost of a mortgage by 50 basis points in rate to one point.  The Mortgage Bankers Association is opposed to this, but given the democratic controlled Congress, this appears likely to become passed. 

As we all know by now, CalHFA has stopped lending and is working to de-leverage their balance sheet. Yet this is at a time when we expect a government agency to support the credit crisis, not curtail their lending. Why has this happened?  Apparently the agency faces a credit rating downgrade and must work through a half billion of bonds that have been put back to their banks which forced the agency to focus on their balance sheet rather than lend.  Meaning no money for prospective borrowers.

Finally we are seeing this morning comments about the need to address Fannie and Freddie.  President-elect Barack Obama has little time to decide the fate of Fannie Mae and Freddie Mac as bank regulators warn of the drag the government-seized mortgage- finance companies are having on the U.S. economy. Federal regulators are concerned that if the new Obama administration doesn't act quickly enough it may miss the opportunity to resolve the ambiguous government backing of Fannie and Freddie, an arrangement that has scared away many foreign investors the companies rely on to fund new loans. Throwing the full faith and credit of the U.S. behind Fannie and Freddie may almost double the $5.8 trillion in federal debt, pushing Treasury rates higher, raising the government's borrowing costs, and boosting inflation. Regulators may be ready to pay that price, with some pushing for an explicit guarantee for the companies and others seeing the need for nationalization. We need to watch this as it would clearly impact the drop in rates we have received.

U.S. stocks have slid for a second day after retailers from Wal-Mart Stores Inc. to Limited Brands Inc. said profit will trail forecasts as the recession limited holiday spending and sent jobless claims to a 26-year high. Equities have fell three of four days this week as the recession forced the biggest U.S. companies to acknowledge that forecasts made last year were too optimistic. The five-quarter slump in profits at S&P 500 companies is projected to last two full years before a rebound in the second half of 2009, according to most analyst estimates.

Based upon the high jobless claims, treasuries and mortgage backed have held and MBS are up 4/32nds from yesterday at the moment or about .125% in price.  But as you all know by now, our investors are not necessarily following this one for one for a  variety of reasons.  Such as taking in too many locks, limited staff or their capacity. Currently, the Ten Year yield is at 2.44% (2.48% yesterday).  On Tuesday, Chase wholesale went so far as to send this out from their wholesale channel, "Due to high registration volume, effective 3:00 PM Eastern Time, Chase is temporarily suspending all new registrations and locks until the next business day's rate sheets are delivered." Couldn't they just price themselves out just like other lenders? Yet the headlines like the link below continue to show borrowers that they can find 30-yr mortgages below 5%, especially at bank branches.  http://www.bloomberg.com/apps/news?pid=20601103&sid=abG3KpLnk0IE&refer=us

Kirk Mulhearn is a professional mortgage planner and real estate broker, he may be reached at 866-961-8042 ext. 110 or Kirkmulhearn@gmail.com