It is apparent to me that there is a prevailing feeling in both the House and Senate, along with the Executive Branch, that our government should reduce its’ exposure in residential mortgage lending. Exposure is defined as its’ limited guarantees on FHA, VA, USDA, FNMAE and FHLMC loan programs. I kept hearing the supposition that private capital chould be encouraged to replace the current government participation that is so necessary to facilitate the securitization and capital acquisition. Government guarantees that keep mortgage interest rates low for the consumer.

I STRONGLY SUGGEST THAT NOW IS PRECISELY NOT THE TIME FOR OUR GOVERNMENT TO “REDUCE IT’S EXPOSURE IN THE RESIDENTIAL MORTGAGE INDUSTRY

1) History shows that FHA was begun in 1933 in the depths of the Great Depression. FDR realized that what stimulated the economy was jobs. The Government began the WPA program of building roads, bridges, dams, federal courthouses, post offices and other building projects to create jobs and leave capital improvements for future generations. FDR also realized that it was the housing industry that would have the greatest positive ripple effect on local and regional economies, which together would stimulate a national recovery. At the time one needed to make a 25, 50, or even 75% down payment in order to finance a home. The FHA program of 3% down was revolutionary. This program, along with the VA program of 100% financing, have, over the history of their existence, enjoyed exceptional financial success and have contributed greatly to the economy for over 70 years.
Today, we are nowhere near the point of economic crises that we were in 1933. If our leaders were courageous enough to begin these revolutionary and historic mortgage programs then, now is certainly not the time to curtail them.

I SHUDDER TO CONSIDER A RE-INJECTION OF SIGNIFICANT/REPLACEMENT PRIVATE CAPITAL BACK INTO OUR INDUSTRY. A RETURN TO “FAST & EASY” LENDING.

2) It was the private, Wall Street acquired, capital infusion that got the mortgage industry into this mess. Wall Street developed and securitized mortgage instruments with appealing, exotic and historically toxic terms that were primarily designed to create Wall Street investor profits that significantly exceeded those attainable via the industry standard mortgage products listed above. Acquiring these newly designed hybrid loan programs was Fast & Easy for the consumer, and seemingly very profitable for Wall Street investors. However, their design paid little or no regard for the potential economic hardship to the consumer, should property values stabilize to the point that refinancing was no longer an option to forestall adjusting the payment to what were draconian “fully indexed accrual rates”. Payment adjustments that could raise the consumers’ monthly payment 50% or more.
I am a 40+ year veteran of mortgage lending and have lived through the corrupting of an outstanding industry because, in great degree, the profiteering by the boys who raise the Private Capital that D.C. insiders are suggesting is a plausible replacement for government involvement. I shudder to ponder a return to that destructive time.

WHAT ACTIVITY OF A GOVERNMENT COULD BE MORE IMPORTANT THAN FACILITATING THE HOUSING OF IT’S CITIZENS?
Almost every American is now living in a home or apartment that was directly or indirectly facilitated by one or more of the existing government sponsored residential mortgage lending initiatives.

If there is a more relevant use of a governments authority, than contributing to sheltering it’s citizens, please point it out to me.

Construction spending dug a deeper hole in February, falling 1.1% — worse than the 0.8% decline in January.  It was also below expectations of a 0.5% gain.

After a slow start, the Dow Jones zoomed out of negative territory, posting good gains.  The 10-year note yield got a boost from from the 17 eurozone countries that reported that manufacturing activity fell in March.  The 10-year yield closed at 2.19%, down from 2.22% on Friday.

Tuesday was a bad day for everyone.  Stocks fell shortly after opening when factory orders in February rose only 1.3% instead of the predicted 1.4%.  They fell 1.1% in January.  The 10-year Treasury note was subjected to selling, sending the yield, which moves inversely to price, up.

At 2:00 p.m. EDT, the minutes of the FOMC meeting on March 13 were released, and no one was happy.  The minutes basically stated that there will be no additional stimulus unless the economy slows or inflation rises above the Fed’s watershed of 2.0%.  In addition, most Committee members agreed that the Fed should hold “an accommodative stance” and keep rates low through 2014.

Have you heard this before?  The opinions of the FOMC members were basically unchanged, as they have been during the past few months.  It is difficult to believe that the meeting’s minutes were news.  Yet, stock prices tumbled, and the 10-year note yield jumped nine basis points, closing at 2.28%.

Wednesday morning stocks were still reeling from the FOMC minutes, and there was no news to prop them up.  ADP, the payroll company, said 209,000 jobs were added to private sector payrolls in March.  That was somewhat lower than the 215,000 additions economists expect.  The ISM index on the service sector also disappointed, dropping to 56 from 57.3.  A reading of 56.4 was predicted.

Investors were also forced to revisit Europe’s sovereign debt problems due to weak response to a bond sale in Spain.  U.S. Treasuries appeared to be the investment of choice for Europeans and Asians as well as for domestic investors.  Two of the three major stock indices lost 1% each, while the 10-year note yield closed at 2.24%.

Yogi Berra summed it up: “It’s déjà vu all over again.”  On Thursday morning stocks were down huge in pre-market trading due to worries about the economic situation in Europe, and specifically about Spain’s economic stability.  This has some economists wondering if it will become the next Greece.  Investors also paused to consider what the economy would look like if the Fed pulled the plug on economic stimulus.

Fortunately, Wall Street responded to a positive report on first-time jobless claims for the week ended March 31.  A total of 357,000 filed for benefits — 6,000 less than in the previous week.  The more accurate four-week average, which smoothes weekly volatility, fell by 4,250 to 361,750.  Continued claims, those filing for a second week of benefits, fell to 3.3 million.  And outsource firm Challenger, Gray & Christmas announced that planned job cuts in March fell 8.8%.

When the dust settled, the bond market had a good day.  The 10-year yield closed at 2.18%, down six basis points from Wednesday.

The March employment report, released Friday morning, came in well below expectations.  Only 150,000 jobs were added to nonfarm payrolls when 215,000 were expected.  This was the smallest increase in the past five months, and it had investors running for the safe haven of Treasuries.  Buying was strong, even though volume was light due to Good Friday.  The unemployment rate dipped to 8.2%, but the decline was attributed to job seekers dropping out of the labor market.  The 10-year note yield dropped 13 basis points to close at 2.05%.

Mortgage applications for the week ended March 30 showed good growth, versus the previous week, according to the Mortgage Bankers Association.  Purchase apps were up 7.2%, while refis rose 4.0%.

Today should be interesting, as this will be the first chance for Wall Street to react to Friday’s employment report.  The NYSE was closed on Good Friday.  Stocks will likely post losses, but there are economists that believe Friday’s report will force the Fed to provide more stimulus.  Treasuries made their statement Friday, and unless there is a big event they are likely to stay on the sidelines.  

Tuesday offers results on wholesale inventories for February — generally a yawner for the markets.

Wednesday could see some action, as the Fed will release the Beige Book, an economic overview of the 12 federal districts in the U.S.  If the report shows economic slowing in most districts, stocks will fall and bonds will likely rally, lowering the yield.  Or the reverse could be true.  Mixed data would probably result in a status quo.  Earlier, import/export price indices for March will be released, but more often than not, they have little effect on the markets.

First-time unemployment claims for the week ended April 7 are due early Thursday as is the producer price index.  Last week claims dropped to 359,000 — their lowest level in four years, but they remained higher than the 350,000 expected.  Stocks sold.  Claims should continue dropping, but whether they meet, beat or come in below forecasts will determine how the markets react.  Another drop in claims should slow buying in Treasuries, but it’s not a sure thing.

The producer price index for March is also due.  This check on wholesale inflation has seen prices edge up, but the core rate, which the Fed watches, eliminates volatile food and energy prices.  In a perfect world, increases should hold at levels of 0.1% or 0.2%.

The trade balance for February will also be released.  Since October it has skyrocketed from $43.5 billion to an unrevised $52.6 billion in February.  Although the markets probably would like to see the deficit shrink, they have taken this news well over the past few months.

Friday offers two market movers that can affect trading; the consumer price index and the Thomson-Reuters/University of Michigan preliminary consumer sentiment survey for April.

Like the producer price index, the consumer price index has edged up, but the more important core index, which monitors inflation, rose only 0.1% in February.  As long as the core travels between 0% and 0.2%, the bond market can live with that.  Should it go higher and stay there, traders would fear that inflation could rob bonds of their value over time, and selling would likely result.

This was not new news.  Bernanke first mentioned rates would remain low well into 2014 more than two months ago.  But investors, hungry for reasons to buy, took the bait, pushing the Dow Jones to its highest close since January 3.  Of course, U.S. Treasuries were punished.  The 10-year note yield, which moves in the opposite direction of price, jumped early, hitting 2.29%.  It later trimmed its losses, closing at 2.25% — just one basis point higher than Friday’s close.  The only release Monday saw pending home sales in February fall 0.5% after climbing 2.0% the previous month.

Two disappointing economic reports released Tuesday morning had investors heading back to the safety of Treasuries.  The S&P Case-Shiller report on home prices in the 20 largest U.S. cities found prices at a 10-year low in January.  They were down 3.8%, following a 4.1% decline in December.

Consumer confidence in March dropped to70.2 from 71.6 in February.  These lower-than-expected results raised doubts about the speed of economic recovery.  The three major stock indices ended the session in the red, while the yield on the benchmark 10-year note closed at 2.19%, its lowest level in two weeks.

Durable goods orders for February, released Wednesday morning, were up from January’s poor showing, but they missed analysts’ expectations.  They rose 2.2% on orders for airplanes and defense-related items.  Excluding transportation, orders were up 1.6%.  Wall Street immediately began to worry about a slowing economy both here and abroad.  Trading was light as investors waited for 1^stquarter results from major corporations, which should start coming in this week.

The three major stock indices each lost in the neighborhood of 0.50%.  The yield on the 10-year note edged up to 2.20%.

On Thursday stocks opened down on the first-time claims report for the week ended March 24.  Claims dropped by 5,000 from the previous week, coming in at 359,000 — a four-year low.  But that was less than the 350,000 analysts predicted.  C’mon, man!

The 4^thquarter GDP final revision rose to 3.0%, as expected.  But quarter-to-quarter before-tax profits fell 4% — the biggest drop since 4th Q 2010.  When adding these concerns to the durable goods report, consumer confidence, a drop in home prices, and China’s questionable economic condition, it’s not surprising that stocks were down, although the Dow did move into positive territory after Treasuries closed.  Stocks also fell in Europe’s largest stock exchanges and in Shanghai, Hong Kong and Japan.

Bond traders took advantage of the situation and bought Treasuries.  The yield on the 10-year note fell to 2.16%.  A month ago it hit 1.98%.

Friday offered mostly upbeat economic news.  Personal income in February rose 0.2%, the same as in January, but personal spending jumped to 0.8% from the previous 0.4%, upping the chances that consumers will increase their spending.  The PCE, personal consumption expenditures, a major gauge of inflation, fell to 0.1%, which was a plus for the bond market.

The Chicago PMI index on manufacturing conditions in March fell to 62.2 from 64.0 the previous month.  One of the main drags on the index was a nearly 6% decline in employment from the previous month in the upper Midwest region included in the index.  The last report for March was the final Thomson Reuters/University of Michigan consumer sentiment survey.  It rose to 76.2, its highest level since February 2011.

U.S. Treasuries suffered their second straight month of losses in March, after flying high since August.  The debt crisis in Europe and a less-than-optimistic economic outlook for the U.S. had investors buying safe-haven Treasuries by the fistful, as mortgage rates dropped to record lows.  But the need for Treasuries cooled as the economies of Europe and the U.S. improved, a booming stock market and higher-paying options, such as corporate bonds, became available.

The 10-year note, which had held steady for most of Friday’s session, saw selling in the last hour, pushing the yield up to 2.22% at close.

The Mortgage Bankers Association reported that applications to refinance dropped for the sixth straight week, falling 4.6%.  It also noted that there was a 12% drop in the refinancing of government-backed mortgages.  Conventional refis dipped 3.4%.  Purchase apps, however, rose 3% during the week ended March 23.

This week focuses on the employment situation.  The ISM index on nationwide manufacturing conditions in March could edge up a point or so from the 52.4 in February.  Big moves in the ISM either way can affect the markets because manufacturing, like employment, has a long way to go before it hits it pre-recession stride.  But a major gain or loss is not expected.

Construction spending for February is not likely to climb, as new homes sales have been down.  Construction spending fell 0.1% in January.

Tuesday features the minutes from the March 13 meeting of the FOMC.  It’s difficult to believe that anything new will come out of the minutes, since there has been a lot of employment and rate talk released since then.  The markets, however, are always on the lookout for even a smidgeon of news, although it’s unlikely they will find one.

February factory orders will also be released but should have little impact.  January orders dropped 1.0%, but it would take a huge move to spur buying or selling in Treasuries.

ADP, the payroll company, issues its data regarding nonfarm payroll additions in March on Wednesday.  If high numbers are released, that could affect the markets, as would low numbers.  The correlation between ADP numbers and the actual report is seldom meaningful.  The other economic indicator is the March ISM index on the service sector.  Even though this sector employs far more than manufacturing, the index is fairly stable and seldom moves the market.

First-time unemployment claims for the week ended March31 are due Thursday.  Although they have been moving downward, they have a long way to go before economists will admit that job market recovery is here to stay.  An improvement over last week could hurt Treasuries, but it is more important to meet analysts’ expectations, which are not yet available.

The March employment report is due Friday, but it comes with a bit of a twist.  The NYSE exchange will be closed in observance of Good Friday, leaving only the bond markets to react.  On top of that, the report is expected to contain positive data.

Analysts believe that somewhere around 235,000 jobs will have been added to nonfarm payrolls.  That’s more than the unrevised 227,000 added in February and a lot closer to the 250,000 new jobs per month that economists want to see.  In addition, the unemployment rate could edge down to 8.2%.  This could ignite fierce selling in bonds.  Stocks could celebrate the following Monday, or not.

Last Monday was a no-news, low-volume day as investors waited for the Fed meeting on Tuesday.  Investors were eagerly awaiting the results of recent bank stress tests and the Fed’s assessment of the economy during the upcoming months.  The 10-year note yield, which moves inversely to price, closed at 2.03%.

Tuesday morning a positive report on February retail sales increased selling in Treasuries.  Sales rose 1.1% — a five-month high.  Excluding autos, sales rose 0.9%, and excluding autos and gas, sales were up 0.6%.  Many general merchandise retailers also reported solid gains.  Separately, business inventories rose 0.7% in January.  This news led to strong selling in Treasuries, which only heightened after the meeting of the Fed.

In the afternoon, the Fed concluded its meeting without stirring the pot — or so it seemed.  Chairman Bernanke noted that, while there is more positive news on jobs, unemployment remains elevated, the GDP is still weak and the housing market is operating below par.  For these reasons, the Fed still wants to hold the fed funds rate at the current rock-bottom level well into 2014 to encourage borrowing and lending.

Regarding inflation, Bernanke said he and the committee want to keep it at 2.00% or less, excluding food and energy prices.  He noted that, while the worldwide economic situation has improved, “significant downside risks remain.”  There was, however, no hint of extending its bond purchase programs or introducing new ones.  After these hopes were trashed, the yield on the 10-year note closed at 2.10% — its highest level since Dec. 1, 2011.

When the markets opened Wednesday — whoa!  The yield on the 10-year was climbing like a fireman up a ladder.  With more positive than negative economic reports released lately, a more upbeat economic outlook from the Fed and big gains on Wall Street the previous day, investors sold bonds en masse.  The yield on the 10-year rose 15 basis points to close at 2.28% — its highest level since October.  Stocks posted good gains early, but they lost their luster as the day wore on.

The only economic report showed the export price index rose 0.4% in February, but import prices (excluding oil) fell 0.1%.  This report had no influence on trading, as selling in Treasuries continued.

Thursday morning another battery of positive economic reports sent stock prices up, but not dramatically.  First-time unemployment claims for the week ended March 10 hit a 4-year low, which was also visited in February.  Claims fell by 81,000 from the previous week, coming in at 351,000.  Continuing claims, those filing for a second week of benefits, numbered 3.34 million, but were down 81,000 from the previous week.

February’s producer price index, which checks on inflation at the wholesale level, rose 0.4% — up from the previous gain of 0.1%.  The core rate, however, rose 0.2%, which was half the gain in January.  The core rate, which is the rate the Fed watches, eliminates food and energy costs.

The other two reports zeroed in on local manufacturing.  The NY Empire State index for March rose to 20.2 from 19.5 in February.  The Philly Fed index climbed to 12.5 — up from the previous 10.2 reading.  While both these indices came in below expectations, they have been rising for the past several months.  The pace of these gains might not be as fast as many hoped, but it does show slow but steady improvement in manufacturing, which has been a major problem area during this recession.

These indicators had only a small effect on stocks, which continued to climb step by step rather than by leaps and bounds.  The Dow is holding above 13,000, and the S&P 500 hit 1,400 for the first time since June 2008.  The yield on the 10-year note was unchanged until the last half-hour of trading when it edged up to 2.28% from 2.27%.

Friday capped what was the worst week for bonds since July.  Three bond-friendly reports slowed selling in bonds, but nothing could stop the juggernaut created when the Fed offered its upbeat assessment of the economy on Tuesday.

The consumer price index, which monitors inflation in retail prices, showed a 0.4% gain in February versus 0.2% the previous month.  Gas prices, however, accounted for a whopping 80% of the increase.  The core rate, which eliminates gas and food prices, was 0.0%.  Economists believe that, in the bigger picture, inflation is under control.

Industrial production in February was unchanged, after posting a 0.4% gain in January.  Separately, the Thomson-Reuters/University of Michigan preliminary consumer sentiment survey for March surprised everyone by edging down to 74.3 from 75.3.  It was the first decline since August.

When the market closed Friday, the yield on the 10-year note was unchanged at 2.28 %.  During the session, however, it recovered after opening at 2.34%.

After last week’s avalanche of reports, this week seems pretty sparse.  The good news is that almost every report involves the latest stats on the housing market, although some are definitely more influential than others.

Monday the National Association of Home Builders index for February will be released.  It is likely to show another gain — up to 30 from 29.  This report reflects how confident builders are about the future, and it is on a roll.  As recently as September 2011, the index read 14.  This report, however, has minimal bearing on the markets.

Data on housing starts and building permits are due Tuesday and also have little impact.  Starts are estimated to rise to an annual rate of 702,000 units, up from 699,000 in January.  There are no estimates on how many permits may have been issued.  This report, however, is subject to big revisions.

On Wednesday the report on existing home sales in February could influence trading.  Analysts expect the annual average of sales to rise to 4.60 million units, which would be a slight increase over the January total of 4.57 million.

Thursday is first-time unemployment claims day, as the number of claims filed for the week ended March 17 are due.  They hit a four-year low last week, and so far there is no reason to believe they will reverse course.

The Conference Board also releases its index of leading economic indicators for February.  It is expected to rise to 0.5% from 0.4% in March.  This indicator looks at 10 components and determines how the economy will fare over the next six to nine months.  Unfortunately, this report does not generate much activity in the markets.  Nor does the FHFA home price index for January, which is also on tap for Thursday.  December’s price index rose 0.7%, which was good news.  No predictions are available for January.

The final release of the week, new home sales for February, is expected to show a sizable increase.  Analysts believe annual sales will increase to 330,000 from 321,000 in January.  That would be in keeping with increased housing starts and the rising homebuilders’ index.  This report, however, does not impact trading like existing home sales.  The numbers just aren’t there.

Just because most of the indicators scheduled for this week are lackluster in their ability to move the markets, it doesn’t necessarily mean there won’t be any news.  There are still serious economic problems in Europe, and any situation that sours demand for stocks could boost buying in bonds.  Many economists, however, believe that in this new economic landscape, the 10-year yield will find a home somewhere between 2.10% and 2.50%.

Last week began with news that China, which boasts the world’s second largest economy, lowered its target for annual economic growth last Monday, sending stocks down in many countries around the globe, including the U.S.  Investors did not move to Treasuries; the 10-year note yield, which moves inversely to price, edged up by 1 basis point.

The economic reports were mixed and had little bearing on the market.  The February ISM index on the service sector rose more than expected, hitting 57.3% — up from 56.8% the previous month.  This caused only light selling of Treasuries.  Factory orders in January fell 1.0%, which was less than the predicted 1.5% decline.  But orders were down substantially from December’s 1.4% increase.

Later in the session Treasuries were hurt by talk of large amounts of corporate debt being sold that pay higher interest rates than the close-to-rock-bottom yields Treasuries offer.  At close the 10-year yield had risen to 2.00%.

Treasuries recovered Tuesday as global concerns about China’s flagging economy and Greece’s funding problems sent stocks plummeting.  Also on the list of worries is the declining state of economic growth in the European Union and the eurozone countries.  The 10-year Treasury closed at 1.94%.

Wednesday was another up-and-down day.  Stocks fell early, allowing Treasuries to maintain Tuesday’s yields.  But then ADP, the payroll giant, said that 216,000 jobs were added to private sector payrolls in February, sending stock prices and bond yields up.  Later the Wall Street Journal released an article stating that the Fed is considering a new bond program to ward off inflation.  Bonds liked the anti-inflation move, and yields slid.

The only economic report showed 4^thquarter manufacturing production and costs on the rise.  Production costs jumped 0.9%, while unit labor costs rose 2.8%.  These are unsettling numbers when compared to final 3^rdquarter data: production up 2.3% and labor costs -2.5%.  When labor costs rise faster than production costs, that’s a sign of inflation.  The 10-year closed at 1.96%.

A positive outlook for Greece overshadowed a disappointing report on first-time jobless claims for the week ended March 3.  Applications for benefits jumped by 8,000 to a higher-than-expected 362,000.  With investors finding no reason to buy Treasuries as stock prices climbed, the 10-year yield rose four basis points to close at 2.01%.

The February employment report took center stage Friday morning, as 213,000 jobs were added to nonfarm payrolls.  Although this was 30,000 fewer than in January, stocks posted decent gains, and Treasuries sold.  It was also noted that about 20% of the jobs added were temporary, but employers anticipate many will turn into full-time positions as the economy improves.  The unemployment rate held at 8.3%.

The U.S. trade deficit caught the attention of the markets.  The trade gap in January, which came in at -$52.6 billion, was $2 billion higher than in December.  It was the largest deficit since October 2008.  These numbers could negatively impact 1^stquarter GDP.  Wholesale inventories in January rose 0.4%, which was down substantially from the 1.1% increase the previous month.

The Mortgage Bankers Association released another mixed report on mortgage applications for the week ended March 3.  Applications to purchase rose 2.1% while refis dipped 2.0%.

This week could be a little tough on Treasuries, as analysts expect upbeat reports on several economic indicators.  But then, analysts have been known to be wrong.  There are no reports due Monday, but retail sales for February are out early Tuesday, and they usually influence the markets.  Sales are forecast to rise 1.1%, which would dwarf the 0.4% January increase.  Excluding autos, sales should rise 0.7% — the same as the previous month.  If on target, retail sales should boost Wall Street and encourage selling in Treasuries.

January business inventories are forecast to increase by 0.5%, just slightly higher than December’s 0.4% rise.  This report is generally ignored by the markets.

Wednesday is almost a non-day as far as reports go.  Import and export prices indices for February are due but generally don’t affect the markets.  Import prices, however, are expected to rise 0.5% from the previous 0.3% increase.  There are no export price forecasts.

Four reports are due Thursday, and any one (or all of them) could influence trading.  First-time jobless claims for the week ended March 10 are due.  Claims have been holding in the 350,000 range for the past several weeks, so any numbers substantially above or below that would likely affect Treasuries.

February’s producer price index, which looks for inflation at the wholesale level, follows.  It is expected to rise 0.5%, which is much higher than the 0.3% increase the previous month.  The core rate, which is the one the Fed looks at, is expected to decline 0.2% from 0.4%; that should calm worriers.

Two manufacturing indices from February are also on tap, and both are expected to rise, which could put selling pressure on Treasuries.  The Philly Fed index looks at manufacturing conditions in the mid-Atlantic area, and it is expected to climb to 14.5 from 10.2 — a considerable move.  The NY Empire State index should hit 22.0, up from 19.5.  Manufacturing has not snapped back as hoped; for the past few months, however, these indices have been moving up slowly, but steadily.

Friday there are three more reports before the markets close for the week.  First out and always important is the consumer price index, which keeps tabs on inflation at the retail level.  Analysts believe that it will have risen 0.5% in February, which is quite an increase from the previous 0.2% reading.  The core rate, which eliminates volatile food and energy prices, should show a 0.2% increase, which would be good news when compared to January’s 0.4% increase.  A rise in the CPI, however, could worry bond investors because inflation erodes the value of longer-term fixed-rate assts.

Industrial production in February is expected to move up 0.3%, which is a good number compared to the 0.0% reading in January.  But it also means that manufacturing may be recovering, which could lessen the need for safe-haven buying.  Capacity utilization should hold at 78.7.  The preliminary Thomson Reuters/University of Michigan consumer sentiment survey for March is predicted to increase to 76.0 from the February final of 75.3.  Although not a big jump, it is yet another indication that perhaps things are moving in a more positive direction.  That could send 10-year yields up.

Please note, on the attached graph, the default rates, during the 10 years preceding 2007, before the wheels came off the economy.  Note how well the Prime Fixed Rate and Prime Arm Mortgages (Fully Documented) performed during that entire decade compared to all other mortgage instruments.

So why doesn’t Washington recognize that it was very specific and easily identifiable loan types that were toxic; eliminate them; and stop trying to make us and our industry out to be outlaws?  Their own Federal Reserve Bank of Kansas City shows, in the attached report, that it is the loan program that was the culprit.

I can’t find any of my counterparts who designed those toxic loan programs.  We just originated them. So who are the culpable “outlaws”?

The government’s attack on our industry is unprecedented.  Why isn’t the government going after the car salesmen who sold all those Toyota’s that wouldn’t stop?   Why aren’t they attacking Standard & Poor’s, Moody’s and Fitch who rated the securities filled with those toxic loans AAA?  Why didn’t they attack the contractors who installed all the asbestos, or the painters who once used lead based paint?  Again, what they are doing to us is patently unfair and unprecedented in scope.

We sell mortgages, we don’t design them.  We sold what the mortgage industry, with congressional oversight, provided us to sell. Remember Barney Frank stumping for relaxed guidelines?

Admittedly, during that period of time, most mortgage brokers did not have access to FHA and VA loan products so they sold what they had, which in many cases was not the best product for their customers.  Therein lies the biggest problem.  The toxic loan programs were so “fast and easy” that mortgage brokers and mortgage bankers alike,  shied away from traditional full documentation products in order to facilitate faster approvals, minimize documentation requirements and increase throughput.

When the smart guys who were designing loan programs for, and within our industry, allowed a W-2 employee to use a ”stated income” loan program, they established a scenario for lying or fraud.  Remember, how we referred to those mortgage products as “liar loans”?

Why on earth were these loans designed and thrust upon our industry?

To facilitate the Executive Branch of our government’s goal of increasing home ownership, that’s why.  The Executive Branch, during the Clinton administration pressured HUD, FNMAE and Freddie Mac to come up with loan programs that would utilize the stated income feature of the Acorn loan, that was being originated by Commercial Bankers, to meet their CRA lending requirements. That Acorn loan program was the magic product that brought sub prime lending into the mortgage mainstream.

The attached Federal Reserve Bank of Kansas City chart is so important because it shows how things were, prior to the economic melt down.  It categorically shows that the full doc, 30 year mortgage (Prime ARM & Prime FRM) were loan programs that lenders, bankers, investors, along with domestic and international investors could count on to perform.

We were enticed, by our industry leaders and regulators, and enabled by the securitization efforts of Wall Street, to substitute the loan programs that we prime lenders had originated for our entire careers, with the “fast and easy” loan programs that were now considered to be “main stream”, and thus replace the exceptionally well performing industry standard loan programs that clients demanded and we originated in order to remain competitive in our markets.

We all participated.  We all were drawn into the mess in order to be competitive.  And now we’re all suffering, as our industry is targeted by our government and made the scapegoat for most all that went wrong with the national financial system and our economy.

If I, with my insignificant B.S. in Business from a mid major university can see what happened, why can’t those learned leaders of ours?  There is an old saying….”don’t throw the baby out with the bath water”.  I find, as I grow older, that those old sayings are around for a reason….they are forever relevant.

This baby is tired of the bath, the bath water and the mis-guided and unfair efforts of my government officials, many of whom I helped elect, all of whom I support with my tax dollars, who are trying to make me and my industry the fall guy for a political agenda  that was ill conceived, short sighted and mismanaged.

The toxic loan programs are gone.  The investors got rid of them, not the government.  The investors realized, after poor performance, that they were not good investments.  We don’t need the politicians to show us the folly of deviating from the previous industry accepted risk assessment standards.  We all did what we were encouraged to do, and we all have suffered, as a result.

I implore my government to get back to what we elected you to do.  Stop the wars and balance the budget. And for God’s sake, stop trying to tell me how I can or can’t pay one of my employees for the services he or she renders my company.  My company is not trillions of dollars in debt.  I know what I’m doing.

The NCRC alleges that the practice by large banks such as Wells Fargo, Bank of America, and J. P. Morgan Chase of imposing FICO overlays up to 640 on borrowers obtaining credit through their Correspondent and Wholesale lending sources is a form of “Red Lining” and effectively discriminates against those entry level borrowers who don’t have the means to pay larger down payments.

David Berenbaum, NCRC Chairman, notes that this potential “Red Lining” is being arbitrarily imposed only on loans originated by Mortgage Brokers and Mortgage Bankers, as all of the banks mentioned will accept lower FICO scores from borrowers who apply directly through the bank’s real estate lending offices.

Lawyers for several the largest Banks are on record saying that they have been expecting law suits on this matter and that it will be hard to defend these Bank practices because FHA loans are 100% insured.

FHA Commissioner Dave Stevens has gone on record stating that HUD’s move to a 580 FICO score minimum would effectively “open up” the credit box that has been constricted due to mortgage industry consolidation. In fact that has not been the case, as large numbers of potential customers have been denied credit due to these Bank FICO overlays.

Greg Frost, Sr., President of Frost Mortgage Banking Group, Albuquerque, New Mexico, the mortgage industry’s 1st billion dollar Originator, says “ FHA has been in existence for over 70 years. For 60 of those years there were no FICO scores or Automated Underwriting Systems. The FHA insurance fund was not in jeopardy, nor did it need refinancing until after the industry started relying on this new technology driven method of assessing risk. I long for a return to the days of manually underwritten credit evaluations, done by FHA certified Underwriters, who utilize the FHA underwriting guidelines to assess risk, approve loans, and allow credit to be extended to a larger community of qualified borrowers.”

The Frost Mortgage Senior Saver loan program uses the FHA Reverse Mortgage, which does not require a credit score.  If you and your co borrower are over 62 and you have at least 50% equity in your home, Frost Mortgage can help you save your home and eliminate mortgage payments for the rest of your lives, right up until the day before your current lender completes the foreclosure process.

“The government finally got something right when they designed this mortgage program.  It truly solves one of the ugly crises of our times….our senior population losing their homes in the wake of the economic crises” says Greg Frost, Sr., President of Frost Mortgage Banking Group.  “Seniors who stayed the course, didn’t speculate with their equity, and didn’t use their home as an ATM are being rewarded by this excellent government insured mortgage.”

(Greg Frost wrote an article on the advantages of reverse mortgages for New Mexico Business Weekly in 2007; you can click here to read it.)

If you or someone you know could be helped by the reverse mortgage program, please contact us today. We’ll be back in touch with you quickly.

Let me say that I don’t agree with Jason at all.  I am confident that the Mortgage Banking industry, is so vital to the ethical distribution of mortgage credit to the American public, that no set of industry circumstances, natural or legislated, will depose it from its position as the nations #1 mortgage resource.  We Mortgage Bankers are the entrepreneurs of the Mortgage industry.  We are licensed by our states and by the National Mortgage Licensing Agency. We take mandated continuing education, which by the way, the exemption of which, Jason’s bank lobbied congress to gain.  As a result our Loan Originators are eminently more educated and regulated than those working for the banks.   Every day, we put our cash, credit, and net worth where our mouths are, as we fund billions of dollars of loans and then sell them to bank investors, many to the Bank of America.

It’s funny to hear Jason’s perspective, because his opinions are not shared by the officers of his own bank.  Certainly not by the Bank of America officers who manage that banks correspondent lending division.  The Bank of America is either the largest or second largest purchasers of Mortgage Banker originated mortgages every year. These bank officers have told me, over and over again, that the bank relies on the production capacity of the Mortgage Banking industry to help the bank replace its mortgage pay downs every month.

These Bank of America officers have repeatedly told me, at various meetings throughout the US, that we Mortgage Bankers play an integral and important role in their banks budgeted growth. A point of view that is in total contrast with Jason’s claims.

I was called by another friend and fellow mortgage banking entrepreneur today, as some of his people were being recruited by Jason.  He was concerned that Jason had shared his….”you’re all going to be toast after April, 2011” perspective with his employees and successfully hired one of his team.  I shared with him what I now share with you……”Capitalism and the entrepreneurial spirit that made this country great will not be stifled by a few banks, who themselves needed a government bail out, an infusion of your tax dollars, in order to survive.  I think that we should just “consider the source” and focus on continuing to provide our fellow Americans with the best choices in mortgage credit, at the fairest prices, that are available in the marketplace today.”

Thank you and have a great day!