Only on Valentine’s Day… At Saint Mary's Catholic Church they have a weekly husband's marriage seminar. At the session last week, the Priest asked Luigi, who was approaching his 50^th wedding anniversary, to take a few minutes and share some insight into how he had managed to stay married to the same woman all these years.

Luigi replied to the assembled husbands, “Well, I've a-tried to treat-a her nice, spend the money on her, but best of all is that I took-a her to Italy for the 20th anniversary!”

The Priest responded, “Luigi, you are an amazing inspiration to all the husbands here! Please tell us what you are planning for your wife for your 50th anniversary.”

Luigi proudly replied, “I'm a-gonna go and get her.”

Is the risk, to an investor, of a $700,000 loan the same as on a $200,000 loan? Most folks in Capital Markets would say “no”. Which then leads to a discussion about, “How will the market price these ‘new’ loans?” Don’t be surprised to see loan-amount rate or price adjustments, very similar to what many conduits have in place up for loans from $417-$650, and then from $650k upward.

The new FNMA/FHLMC limit will be $729,950, but unlike traditional limits, this new amount will not be a nationwide standard. Remember that the new limit will be based on median house prices in individual metropolitan areas. $729,950 will likely be the new limit in Los Angeles, San Francisco, and other higher cost areas, but more moderately priced housing markets will have differing limits somewhere between the current $417,000 and the $729,950 max, and some affordable markets may actually see the limit stay the same. The same with FHA: the minimum loan amount ceiling will increase from $200,160 to $271,050, and the maximum loan amount ceiling will increase from $362,750 to $729,950, again depending on housing prices in individual geographic regions. 

• Morgan Stanley will cut 1,000 jobs as the nation's second-largest investment bank trims its residential mortgage operations. Morgan will close its U.K. business that issues home loans and significantly scale back its mortgage business in the United States, thus joining hundreds of lenders in scaling back operations. Morgan Stanley said it will continue to service loans in the U.S. through Saxon Mortgage. It will also offer residential mortgages to brokerage clients through Morgan Stanley Credit Corp.
• The National Association of Home Builders has frozen all political contributions out of frustration with what it deems feeble efforts by the Bush administration and Congress to stabilize the housing market and stimulate home buying.
• Citi announced that effective February 16^th, the Non-Agency Alt-A SISA and the Non-Agency Alt-A SIVA programs will no longer be offered. Loans must be registered or presented for bulk bid no later than Friday, February 15^th. Existing pipeline will be honored however all loans must be approved for purchase no later than April 11^th.

Why are rates heading higher? Is the economy really doing better? Overnight in Tokyo, for example, US Treasury prices were lower, and rates higher, after a stronger-than-expected GDP number from Japan, which caused Asian stocks to rally. This followed a day in the US where the curve continued to steepen, which has continued this morning. Here, yesterday, we had a strong Retail Sales number yesterday, followed by this morning’s Trade Balance numbers ($58.8 billion deficit, slightly narrower than expected) and Jobless Claims (-9k from 357k to 348k, and continuing claims steady, but at their highest level in 2 ½ years). All eyes will be on Fed President Bernanke when he testifies before the Senate Committee later today. Oil prices are on the rise, back into the low $90/barrel range. The 10-yr has moved about 3.75%, and mortgage prices are worse by .375.

If one looks back on previous economic cycles, typically housing recessions have been followed by big booms in the industry which have usually persisted for at least two to three years. Is this the same? Many experts think not, since the forces driving the current downturn are much different from those in the past. Before the 1980s, pent-up demand moved housing. The Federal Reserve would tighten, to keep inflation in check, which increased the cost of mortgages. There was no “secondary market” for mortgages, and many homebuyers put off buying homes because they were unwilling to pay the higher mortgage rates or because they were unable to get loans.  During the economy-wide recession that usually ensued, interest rates fell, and this “pent-up demand” boosted home buying. What about now? Although higher rates helped the housing downturn, but many potential borrowers who would like to buy homes cannot obtain the credit. We are now faced with a huge potential supply of housing, as foreclosures mount and many move back to renting instead of owning.

Rob