WEEKLY WRAPUP

brought to you by MGIC Mortgage Insurance

Monday, October 16

We begin again ... The new week begins with stocks on a roll, T-note yields diving, and financial sector firms notching nice profit reports one after another ... The Dow on Friday, October 13, gained 28.90 points to close at 4793.78, just nine points from its all-time high ... The yield on 30-year Treasuries fell during the week to 6.30 percent, its lowest point since February 4, 1994 ... Meanwhile, the yield on 10-year T-notes fell below 6 percent, piquing mortgage securities investors' concerns over increasing prepayment speeds ... This is where the new week begins ...

CPI inched ahead in September ... Consumer prices rose a nominal 0.1 percent in September, thanks to a decrease in energy costs which held inflation in check ... In August, we also saw a 0.1 percent increase ... Consumer prices are up only 2.5 percent in the 12 months ended September 30, and have been growing at an annualized rate of just 1.8 percent since the end of the second quarter ...

Down payment help for homebuyers ... Real Estate Finance Today reports that the Federal Housing Finance Board has issued a new rule that will help low-income households accumulate the down payment needed to buy a home ... The rule encourages prospective borrowers to save money by offering to match dollar-for-dollar any money they set aside in a dedicated account ... The matching funds will come through the 12 Federal Home Loan Banks from their Affordable Housing Program allocation ...

Government going into default? ... Treasury Secretary Robert Rubin says the federal government will reach its debt limit October 31 and may default unless Congress, squabbling over which budget cuts to make and federal programs to end, acts to increase the allowable U.S. debt ... To be sure, Rubin's comments are a shot over the bow of the Good Ship Congress, which is moving ever so slowly toward fulfilling the promise of a balanced budget ...

Housing tax credits future in balance ... The House and the Senate have both spoken on the issue of low-income housing tax credits ... And so far the score is one for and one against ... When the two bodies package their respective budget reconciliation bills sometime early next month, expect the House to call for elimination of the tax credit and the Senate to leave it alone ... The question is: Which budget package will prevail? ...

Top MBS conduits ... Inside Mortgage Finance reports that Residential Funding Corporation is so far the top private mortgage conduit in 1995, a position it has not held since 1991 ... RFC issued $5.53 billion in mortgage-backed securities in the first nine months of 1995, doubling the volume of the nation's second largest private conduit and grabbing a quarter of the market ... IMF reports that RFC in recent years has expanded into home equity and "B" and "C" securitization ...

Tuesday, October 17

The TQM debate ... "Is TQM Dead?" ... That's the headline of the feature story on the front page of USA Today's business section ... In the article, Peter Kolesar of the Deming Center for Quality Management at Columbia University suggests it has died, not because it is the wrong approach, but because it requires patience ... He says: "A majority of companies that have gotten deeply involved in Total Quality have not made it pay off. When they don't see results really quickly, they move on to something else" ...

TQM: Dead or embedded? ... Though the number of companies applying for the coveted Malcolm Baldridge National Quality Awards has dwindled from 106 in 1991 to just 47 in 1995, Joseph White of the University of Michigan business school insists that TQM is alive and well -- just invisible ... "Quality has become deeply embedded into the operations of many U.S. companies. That has reduced its visibility, but it has increased its effectiveness" ...

Business inventories ... The Commerce Department says business inventories rose a higher-than-expected 0.4 percent in August ... For investors, this is bad news and good news ... It's bad because it suggests that economic growth will remain stagnant for the remainder of the year and into early 1996 as companies try to deal with the oversupply of goods ... It's good, however, because it increases the likelihood of a Fed rate cut, and it suggests inflation will remain a nonfactor for awhile ... Sales are solid ... Though inventories grew, sales in August were solid, rising 1.5 percent ... This suggests that companies will be able to reduce those inventories without pushing the economy into recession ... Typically, large inventories lead to cuts in production ... But with sales clipping along nicely, the likelihood of production cutbacks is greatly reduced ...

Freddie like Fannie ... Last week, Fannie Mae reported strong earnings and loan portfolio growth ... On Monday, it was Freddie's turn ... Freddie Mac reported a 12 percent rise in third-quarter earnings ... The agency's portfolio of mortgages grew more than 42 percent in the third quarter to nearly $95 billion from $67 billion in the same period a year ago ...

Fannie Mae announces HouseHouston ... It's a new program through which Fannie Mae will provide $2 billion over five years to help 30,000 Houston residents buy or rent homes ... The program will provide $22.4 million in down payment assistance ... Under the program, Houston homebuyers will take advantage of Fannie97, the agency's year-old three-percent-down purchase program ... Fannie Mae will open a Houston office and work with local housing organizations ...

Monday's Wall Street Report ... The Dow on Monday fell 9.40 points to close at 4784 ... The 30-year T-bond remained unchanged at 6.30 percent, but the 10-year T-note yield shed two more basis points to close the day at 5.93 percent ...

Wednesday, October 18

"Like a weapon" ... That's how Freddie Mac is using credit scores, according to Ralph Mozilo, Countrywide's executive vice president ... Mr. Mozilo's made his candid remarks to American Banker reporter Snigdha Prakash, who covers agency news ... Ms. Prakash's article, titled "Freddie Mac's Use of Credit Scoring Beginning to Raise Lenders' Hackles," also suggests the debate over credit scoring will take center stage at the MBA annual convention in San Diego during the week of October 23 ...

The other side ... Credit scoring is gaining in popularity ... In addition to the agencies, MGIC and other major insurers use it as an underwriting tool ... Freddie Mac contends that credit scoring is fair because it is applied equally to all loans ... John Hemschoot, Freddie's director of mortgage standards, tells Ms. Prakash, "It is an objective, unbiased, consistent tool" ... He continues, saying that if lenders make low- and moderate-income loans "for convenience, they will have an adverse experience with us ... We don't have two separate credit standards, only one" ...

Mortgage lobbying group ... There's a new group in town, and it's called The Mortgage Capitol Group ... That's capitol, as in Capitol Hill ... GE Capital Mortgage, Norwest, PHH are members, and Bank of America, Chase and Chemical, Citicorp, Fleet, Home Savings, NationsBank and others are thinking about joining ... According to American Banker, the new lobbying group has filed to have a separate seat on HUD's negotiated rulemaking panel ...

MCG's agenda ... AB reports the new MCG views itself as representing the mortgage industry's big boys -- the national lenders, rather than the regional or local interests ... In 1996, the group will focus on streamlining the origination process, cross-marketing, affinity relationships, wholesale lending, third-party loan sources and litigation targeting the mortgage industry ...

Industrial output down ... For the first time in five months, industrial output notched a monthly decline, falling 0.2 percent in September ... The drop was largely attributable to a decrease in electricity consumption -- people finally turned their air conditioners off -- and it masked a slight gain in factory output ...

Pleased investors ... Investors are happy with the weaker-than-expected industrial output report because it means the use rate of industrial production capacity is falling ... In September, the capacity use rate fell to 83.8 percent, down from 84.2 percent ... Analysts feel that even the slightest increase in capacity use rates will scare the Fed away from lowering rates when its Open Markets Committee meets later this month ...

Microsoft and Windows 95 ... Windows 95 hasn't yet made significant inroads in the mortgage industry, but it has made a buck or two for Microsoft ... Microsoft reports that earnings increased 53 percent in its fiscal first quarter as it sold seven million copies of Windows 95, shattering all analysts sales predictions ... Sales jumped 62 percent ...

Perspective on stocks ... The latest Kiplinger Washington Letter offers some insight into the stock market ... It predicts the stock market will continue to experience turbulence over the next two months as Congress deals with spending and tax cuts while trudging toward a balanced budget ... After about two months, "things will calm down," Kiplinger reports ... Stocks will then resume their gradual ascent once Congress and President Clinton come to agreement on a balanced budget ... "They WILL finally come to terms, but not until shortly before Christmas," Kiplinger reports ...

Tuesday's Wall Street Report ... Stocks on Tuesday climbed within seven points of their all-time high ... The Dow gained 11.56 points to close at 4795.94 and come ever-so-close to the 4800 threshold once again ... Techs stocks were hot ... As for bonds, the yield on 30-year T-bonds slipped a "bip" to 6.29 percent, while the yield on the 10-year T-notes gained a basis point to 5.94 percent ...

Thursday, October 19

A positive contribution to GDP ... MBA Chief Economist David Lereah says housing will make a positive contribution to GDP growth over the next several quarters ... In a column that appeared this week in Real Estate Finance Today, Lereah notes that all three major housing measures -- housing starts, new home sales, and existing home sales -- are strengthening ... He largely attributes the improving conditions to favorable interest rates ...

Unsolicited bid for First Interstate ... Several news sources reported this week that Wells Fargo & Co. has made an unsolicited bid for First Interstate Bancorp ... Today, American Banker reports that several analysts and Wall Street types feel that Wells Fargo will likely be successful ...

Glass-Steagall bill still stuck ... First, Rep. Jim Leach agreed to move sought-after-but-controversial CRA provisions from his Glass-Steagall reform package into the budget bill ... Now, he's being pressured to drop the reform bill's five-year moratorium on the Office of the Comptroller of the Currency's granting of new insurance powers to national banks ...

Virtually a real bank ... Security First Network Bank, the nation's first Internet-based bank, opened Wednesday, according to American Banker ... The bank, a unit of Cardinal Bancshares in Lexington, Ky., starts with a screen that looks like a bank lobby ... Consumers use their mouse to "click on" various parts of the lobby, such as the door to the president's office, the information booth, teller windows, and the account setup, customer service, and personal finance desks ... Customers can use the site to pay bills, make deposi ts, view canceled checks, reconcile their books ... They'll still need the ATM when it come to getting money, but all transactions are free ...

More virtual banks? ... Key to the virtual bank is the software conceived of and designed by Security First's chairman and CEO, and the CEO at Atlanta-based Secureware ... There could be more banks like this on the Internet -- already, Security First says it has about 12 other banks who will buy the software ... The largest of these banks has about $110 million in assets ...

Home Builders index rises ... The National Association of Home Builders' housing market index rose 7 percent in October to a reading of 57 ... A reading over 50 suggests more survey participants see "good" rather than "poor" conditions for home sales in the coming months ... The index reading of 57 is the highest since early 1994 ...

MBS versus Treasuries ... The yield spread between Ginnie Mae 7 percent passthroughs and the 10-year T-note on Wednesday widened to 1.21 percentage points, the greatest margin since October 1993 ... The widening yield spread reflect investors' growing concern that a refi boomlet could materialize and increase mortgage prepayments ... All eyes are on the 10-year T-note yield, which at day's end Wednesday stood at 5.96 percent ...

Wednesday's Wall Street Report ... The Dow on Wednesday shed about 18 points to close at 4777.52 ... The yield on 30-year Treasuries held at 6.34 percent ...

Friday, October 20

Balanced budget on the way? ... President Clinton on Thursday said he now feels the federal budget can achieve balance in seven years, instead of 10 years ... His change in stance moves him closer to GOP leadership, which is hoping to deliver a balanced budget by the year 2000 ...

Talk of balance leads to optimism ... Talk of a balanced budget is creating optimism among bond traders ... The 30-year T-bond yield shed two basis points to 6.30 percent ... John Wambold, head trader at Citicorp Securities, told Bloomberg Business News, "If they come out with a meaningful budget-balancing agreement, there might be 25 basis points left in this rally" ...

Rates fall again ... Freddie Mac reports that the average rate on 30-year mortgages in the week ended October 13 fell to a 20-month low of 7.38 percent ... The decline comes amid a U.S. bond market rally, and it has taken the average rate to its lowest level since February 1994, when the refi boom was winding down ...

Starts down ... Starts of new housing dropped in September for the second consecutive month, the government reported ... The decline in the annual rate of housing starts is just one more piece of evidence supporting the theory that the economy isn't growing fast enough to spike inflation ... The annual rate of housing starts dipped 0.1 percent in September largely because of unexpected weakness in the South and Midwest ... Economists' consensus prediction was a 0.3 percent increase ...

South and Midwest turnabout ... Though the September housing starts decrease is only nominal, many observers were surprised by the decrease in starts reported in Southern and Midwestern states ... The South, a beacon of housing strength all year with such hot markets as Atlanta and Charlotte, saw a 2.2 percent decrease in annual rate of housing starts ... The Midwest, which is typically steady to strong, witnessed a 3.8 percent drop in it annual rate of starts ...

Jobless claims rise ...Here's more evidence of a spotty U.S. economic expansion ... The number of U.S. workers applying for state unemployment benefits unexpectedly rose in the week ended October 13 to the highest level since September 16 ... Still, despite the rise, the more telltale and less volatile four-week average of jobless claims fell slightly to its lowest point since September 2 ... To the extend bond traders don't like rapid growth, the jobless claims report was good news ...

Mortgage applications ... The MBA's seasonally adjusted index of applications to purchase homes fell 5 percent to 147.3 during the week ended October 13, while the index of refi applications was little changed at 167.6 ... The MBA's non-adjusted indices, which compare more favorably to the J.P. Morgan indices, were not available ...

What about J.P.? ... The J.P. Morgan refi and purchase applications indices also slid in the week ended October 13 ... J.P. Morgan's index of applications to purchase fell 8 percent to 103.5, while its index of refi applications lost 6 percent to 262.6 ...

Thursday's Wall Street Report ... The Dow gained 24.93 points and crossed the 4800 threshhold on Thursday ... The index closed just shy of its all-time high at 4802.45 ... The 30-year T-bond yielded 6.30 percent, and the yield of 10-year T-notes was at 5.97 percent ...

That is the news of the week ...

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