Monday, 3/8/10 4:10 PM

Some very minor improvement in mortgage prices from 9:30 this morning, but not enough for us to float overnight. We suggest continuing to lock overnight and not float; the risk is too high.

As expected, not much doing today in any financial market. No data, no news ,no nothing to move markets. The bond market waits the auctions that begin tomorrow with $40B of 3 yr notes. The bond market opened weaker this morning and didn't move much frm the levels we had at 8:30. 

The Fed is moving closer to defining how it will drain $1T in loans and money to the financial system that was added to support the financial system when it about caved on the Wall Street and big bank greed. Late last year the Fed announced that one of the ways it was considering was using reverse repo transactions and pay interest on excess bank reserves.  In a reverse repo, the Fed lends securities for a set period, draining cash from the banking system. At maturity, the securities are returned to the Fed, and the cash to the primary dealers. To make it more effective, the Fed will allow some money market mutual funds to participate in transactions that are normally available to banks. The Fed wants to expand the number of counterparties because the 18 primary dealers can't handle the amounts. The plan is “prudent planning” and doesn’t signal any change in monetary policy, the Fed said. Bernanke has stated the fed would likely use reverse repos, pay interest on excess bank reserves and sell securities directly to investors to drain the excess reserves. Nothing in the statement today changes anything; it does not increase interest rates, it doesn't increase the FF rate. The Fed in Dec tested the reverse repo transactions with a few large banks. Mutual funs must have assets exceeding $20B for six months and be at least one year old with experience in tri-party repos; minimum bid has to be at least $1B.

HUD soon will issue a final rule requiring FHA-approved lenders to select the brokers they want to buy loans from and assume liability for their production. Brokers will no longer be required to go through an FHA approval process which entails the submission of annual financial statements. For brokers that want FHA direct approval HUD has extended the date for financial statements to be submitted to the end of Apr instead of the end of this month. Financial statements submitted must me audited statements.

Now lenders are being asked to lower credit scores. Of course FHA doesn't want to add to their foreclosure problems, so what do they do, tell large banks to lower credit scores so more can qualify, mainly minorities. Many minorities have always needed some assistance in order to buy a home; they got it in the sub prime meltdown and foreclosures followed. Lenders set 620 credit scores as the lowest acceptable; Commissioner Stevens said at a conference on minority housing that there is a huge difference in the ability to qualify for an FHA loan if scores are dropped to 580. Stevens also reiterated he does not want to increase FHA down payment over 3.5% as Congress is pressuring. When did FHA lower downpayments to 3.5%? Never, it has always been 3.5% and no down for VA loans. Does Barney know about this? He wants 20% or more on all loans, that is until he starts his run for re-election. 

Nothing on the economic calendar again tomorrow; at 1:00 $40B of 3 yr note to be auctioned and it will likely go very well with strong demand. 

PRICES @ 4:00 PM

10 yr note:                        99.08 -8/32 3.71% +3 BP

5 yr note:                          100.02 -3/32 2.36% +2 BP

2 Yr note:                          99.30 unch 0.90% unch          

30 yr bond:                        99.04 -15/32 4.68% +3 BP

Libor Rates:                       1 mo 0.230%; 3 mo 0.254%; 6 mo 0.395%; 1 yr 0.867%

30 yr FNMA 4.5 Mar:          101.05 -2/32 (.06 bp) +2/32 (.06 bp) frm 9:30)

15 yr FNMA 4.0 Mar:          102.03 unch (+3/32 (.09 bp) frm 9:30)

30 yr GNMA 4.5 Mar:         101.22 -1/32 (.03 bp) (+3/32 (.09 bp) frm 9:30)

15 yr GNMA 4.0 Mar:         102.25 -2/32 (.06 bp) (+1/32 (.03 bp) frm 9:30)

Dollar/Yen:                        90.26 -0.15 yen

Dollar/Euro:                       $1.3630 unch

Gold Apr:                           $1121.50 -$13.70

Crude Oil Apr:                    $81.84 +$0.34

Goldman-Sachs

Commodity Index:               527.64 +1.30

DJIA:                                 10552.52 -13.68

NASDAQ:                           2332.21 +5.86

S&P 500:                           1138.50 -0.20