“Please Lord – let there be one more refinance boom. I promise that I will honor my locks, and not spend all my commissions on fancy cars and non-owner occupied houses, and save for retirement!” How many times did I hear agents and brokers utter that prayer in late 2007 and 2008? For borrowers with hybrid arms ready to adjust, their new rates may actually be lower than their old rate. To refinance or not? Will lenders need to do net tangible benefit tests on those cases and deny the loan since it may not be in the best interest of the borrower? Interesting questions.

How low are mortgage rates? Well, even people in the mortgage business, who are notoriously slow in refinancing themselves, are talking about refinancing.

The 10-Year Treasury yield is currently around 2.08% - a record low, and most believe that the Federal Reserve will use its tools to keep long-term interest rates low for an extended period of time. As we know, since overnight Fed Funds are about as low as they can go, the Fed pledged to buy “large quantities” of agency and mortgage-backed securities and said it will consider purchasing government debt since at this point the Fed must rely on pure liquidity and lending strategies. Of course the pendulum could swing in the other direction, and eventually lead to higher inflation. But no one seems too concerned about inflation right now - especially Chrysler workers, who will be taking a one month vacation. Fed officials have plenty of time and ways to put their balance sheet back in order when things turn around, so expanding liquidity is paramount.

In a move to help their liquidity, Flagstar Bancorp announced that MP Thrift Investments L.P. (a subsidiary of MatlinPatterson) will make a $250 million investment in Flagstar. MatlinPatterson will purchase shares of a new series of convertible participating voting preferred stock (the "Convertible Preferred Stock") which will convert to common stock after shareholders approve an increase in the number of authorized shares of Flagstar common stock. When the dust settles, MatlinPatterson will own 70% of Flagstar's fully diluted outstanding equity and will have the right to designate more than a majority of Flagstar's Board of Directors. Normally this would require stockholder approval prior to the issuance of securities representing 20% of the outstanding shares of a listed company, but the NYSE's Shareholder Approval Policy provides an exception in cases where the delay involved in securing stockholder approval for the issuance would seriously jeopardize the financial viability of the listed company. In other words, they needed to hurry up and do this – and hopefully things turn around at Flagstar since we don’t need fewer investors!

Fannie Mae has issued Announcement 08-34: “Project Eligibility Review Service and Changes to Condominium and Cooperative Project Policies” to introduce the new Project Eligibility Review Service (PERS – beginning January 15^th). Previously, Fannie Mae delegated the project review process for condominiums, co-ops, and PUDs to their lenders. With this announcement, they are again offering a Fannie Mae review option. PERS (required in Florida) is a project review service option that allows originators to submit new and newly converted attached condo projects to Fannie Mae to determine eligibility. Lenders may continue to use Lender Full Review and Condo Project Manager Expedited Review for projects with the exception of new projects located in Florida. Speaking of Florida, Fannie’s announcement also address LTV requirements for the state, discusses fidelity and hazard insurance requirements, review of project legal documents, presale requirements, and other miscellaneous provisions. Their Condo Project Manager (CPM) will be updated in a future release in early 2009.

Today we’ve already seen the usual Jobless Claims numbers, and later we have Leading Economic Indicators and the Philly Fed Survey. Jobless Claims fell 21,000, to 554,000, last week from an upwardly revised 575,000 the previous week. The four-week moving average of new jobless claims, a better gauge of underlying labor trends because it irons out week-to-week volatility, rose to 543,750 from 541,000 the prior week, keeping the average at a 26-year high. The market has not reacted very much, with the 10-yr currently at 2.08% and mortgage prices unchanged from yesterday afternoon.

Arthur is 90 years old. He's played golf every day since his retirement 25 years ago. One day he arrives home looking downcast.

"That's it," he tells his wife. "I'm giving up golf. My eyesight has gotten so bad that once I've hit the ball, I can't see where it went." 

His wife sympathizes and makes him a cup of tea. As they sit down, she says, "Why don't you take my brother with you and give it one more try."

"That's no good," sighs Arthur. "Your brother's a hundred and three. He can't help."

"He may be a hundred and three," says the wife, "but his eyesight is perfect."

So the next day, Arthur heads off to the golf course with his brother-in-law. He tees up, takes an almighty swing, and squints down the fairway.

He turns to the brother-in-law. "Did you see the ball?"

"Of course I did!" replies the brother-in-law. "I have perfect eyesight."

"Where did it go?" asks Arthur.

"I don't remember."