At first I thought that this website was a game. But it doesn’t appear to be one…check out http://decliningmarkets.gmacrescap.com/

Although word leaked out Wednesday afternoon, partners with Aurora got the official letter yesterday. “Dear brokers and loan officers, it is with great regret to announce that Aurora Loan Services decided to close its doors effective immediately. The reasons behind this decision are more than evident considering the market situation.” Lehman Brothers, who own Aurora, decided to substantially reduce its resources and capacity in US residential mortgages. Aurora (Lehman) suspended Wholesale and Correspondent lending activities, but will continue to originate loans through its direct lending channel (near Kansas City) and maintain its servicing business. The action affects approximately 1,300 employees and will also result in the closure of Aurora's regional operations in Lake Forest, CA, Sunrise, FL and Florham Park, NJ. Aurora's Colorado operations will be consolidated at its Littleton, CO office.

As a result, originators suspended loan programs that were being sold only to Aurora. For example, Flagstar, who apparently were buying jumbo loans from originators and selling them to Aurora, told their lenders that they suspended their entire jumbo program, and “hopefully” would open up a different program sometime in the future.

President Bush is expected to unveil an economic stimulus package today. The exact details are not known, much of the proposals seem to focus on tax breaks. But hopefully lending limits are included in the package! Bush and Speaker Nancy Pelosi meet on Tuesday, after the MLK holiday, to discuss the plan. Working off the huge inventory of homes, and increasing affordability, hopefully will be the some of the results.

With all of the write-downs, weren’t the issuers and investment banks hedging their bets? Of course they were, although many are questioning whether or not investment banks have a clear idea as to their potential losses. Mortgage bond insurers (like MBI) have been back in the news lately, since they are where Wall Street bought protection. So if MBI, who has been seeking cash, along with others, is overwhelmed and don’t survive (i.e., default) the "hedges" the banks have in place are of little value. Interestingly, the rating agencies still maintain mostly AAA credit rating on the insurers. As one senior analyst noted, “It's all smoke and mirrors - we just better hope nobody breaks the glass.” Speaking of which, MBIA moved to preserve its crucial triple-A rating by selling $1 billion of new capital that paid investors a 14% interest rate, more than double what similarly rated bonds offer. Fitch Ratings gave MBIA until the end of January to raise enough capital to stave off a downgrade. MBIA said it would report losses of $737m in the fourth quarter.

The U.S. government negotiated with a series of mortgage-service companies (Citigroup, Countrywide Financial, Washington Mutual and Wells Fargo – nicknamed the “Hope Alliance”) to create a "Mortgage Rate Freeze" program to alleviate the financial strain of resetting interest rates for subprime borrowers in 2008. The program is designed to not only benefit a targeted group of homeowners but the economy as a whole by reducing foreclosures and, therefore, downward pressure on real estate prices. The Hope Alliance will basically ignore the terms of existing subprime-mortgage contracts and not reset interest rates for as many as 1.2 million loans for five years. This plan will only be available to owner-occupied properties, borrowers must be in relatively good standing on their existing loan, having never missed any payments, been late by more than 60 days during the life of the loan, or been more than 30 days overdue at the time they apply for the "rate freeze." Furthermore, this plan will only be available to those borrowers who are deemed incapable of making payments should their interest rates reset. Unfortunately, so far, little effort has been made to economically motivate investors to cooperate since mortgage-service companies have no legal power to arbitrarily renegotiate the terms of a mortgage contract. As a result, this plan could generate a series of investor lawsuits, and may impact capital markets and investors' perceptions of mortgage-backed securities. According to a report released Thursday by the Mortgage Bankers Association, the mortgage industry initiated more than 54,000 loan modifications in the third quarter of 2007, approximately 13,000 of which were on subprime loans.

125 basis points now separate 2-yr and 10-yr yields, which is regarded as steep with rates this low. ARM prices are doing well, relative to 30-yr product, but investor and borrower interest in ARM loans is questionable. Ahead of Monday’s holiday, the markets are closing early today, so look for some investors to perhaps change prices in the late morning/early afternoon. Speaking of the 10-yr, which is 3.66%, investor interest appears to be strong, and the only scheduled news is December’s Leading Economic Indicators and the University of Michigan Consumer Sentiment Index. LEI, attempts to measure economic activity over the next three to six months, and is expected -0.1%, and the University of Michigan Index is expected at 74.5. Have a good 3-day weekend!

A Blonde's Year in Review

January: Took new scarf back to store because it was too tight.
February: Fired from pharmacy job  for failing to print labels..... Helllloooo!!!.......bottles won't fit in printer !!!  
March: Got really  excited.....finished jigsaw puzzle in 6 months..... box said "2-4  years!"
April: Trapped on escalator for hours .... power went out!!!
May: Tried to make Kool-Aid.....wrong instructions....8 cups of water won't fit into those little packets!!!     

June: Tried to go water  skiing.......couldn't find a lake with a slope.
July: Lost breast stroke swimming competition........  learned later, the other swimmers cheated, they used their arms..............

August: Got locked out of my car in rain storm..... car swamped because soft-top was open. 

September: The capital of California  is "C".....isn't it??? 

October: Hate M & M's.....they are so hard to peel . 

November: Baked turkey for 4 1/2 days ... instructions said 1 hour per pound and I weigh 108!! 

December: Couldn't call 911  "duh".....there's no "eleven" button on the stupid phone!!!  

Rob