The new Congress takes over today, and as was mentioned yesterday, has a lot of fiscal clean up to do. Of course, this is the same with every year's Congress, but we keep hoping for something new.

One of the huge issues is the deficit, which in turn correlates to the size of the regular Treasury auctions. A "primary dealer" is a designation given by the Federal Reserve System to commercial banks or broker/dealers who meet specific criteria, including minimum capital requirements ($150 million) and participation in the Treasury auctions. Currently, there are 18 primary dealers in the U.S. government bond market, including Goldman Sachs, Jefferies, Barclays, HSBC, Morgan Stanley, and J.P. Morgan. It is a nice thing to have on your resume for a variety of reasons, and the lastest new addition to the primary dealer list was Nomura in mid-2009.

Several banks have applied to join the pool over the past year, including French bank Societe Generale SA, Canadian bank Scotia Capital, the investment-banking arm of the Bank of Nova Scotia, and MF Global, the world's largest broker of exchange-traded futures and options that is headquartered in New York. The thinking is that more primary dealers increase the bidding activity for Treasury auctions, helping to keep rates a little lower; lukewarm participation by primary dealers could force the government to pay higher interest rates to issue debt, which in turn would hurt the broader economy by raising rates for consumers and companies. Many economists forecast the Treasury Department will sell over $1 trillion in net government bond sales for fiscal year 2011 to fund a hefty budget deficit.

It's a new year and before the champagne bottles can even be picked up by the recycling companies, why not sell $4 billion in commercial securities? "Deutsche Bank AG, UBS AG and JPMorgan Chase & Co. are preparing the year's first bond sales tied to commercial property loans" - why not lock in those low rates before they go up? Deutsche Bank and UBS are teaming up to issue as much as $2.5 billion in commercial mortgage-backed securities linked to loans on office buildings, shopping malls and hotels in what would be the largest offering of its kind since the market froze in June 2008, according to a person familiar with the deal. JPMorgan plans to sell $1.5 billion in similar debt, a person familiar with that sale said. FULL STORY

That is on the commercial side, but how are we doing on the residential side? The MBA expects total loan originations will drop to $967 billion this year, down 36% from 2010 and less than half that of 2009.

Hovnanian Enterprises, the largest homebuilder in New Jersey, recently reported a fourth-quarter loss bigger than analysts expected as revenue fell 19 percent.

Maybe things are not so great, as Caroline Baum (Bloomberg) points out. "Homebuilder sentiment, new home sales and single-family housing starts, which, in that order, lead the complex of residential real estate indicators, are bumping along the bottom...There was a brief incentive-driven pick-up in sales in 2009 and the first half of 2010 that faded the minute the home purchase tax credit expired." Aside from that, she points out, the news has not been rosy, nor will it be given the mediocre demand versus the high inventory of unsold homes and potential increased supply. "The U.S. just experienced the biggest speculative boom/bust in housing in history, a massive outward shift in the supply curve. Anyone expecting home prices to rise in the face of a glut of unsold homes is counting on either an act of God to destroy huge swaths of the housing stock (a shift back in the supply curve) or an influx of new immigrants needing shelter (a shift out in the demand curve.) Neither is likely, although acts of God are notoriously hard to predict."

For mortgage applications, the numbers did not do much for the last couple weeks of the year. Per the MBA, whose survey covers about half of all U.S. retail residential mortgage originations, the seasonally adjusted index of mortgage application activity rose 2.3% for the week ended December 31 and dipped 3.9 percent in the prior week. Refinancing is hovering around 70% of all apps - and if/when rates head higher, that will, of course, drop.

The herd is still talking about BofA's settlement with Freddie and Fannie. Just because Bank of America settled for a portion of the possible bad loans, does that mean everything is peachy? Of course not, and many are poking holes in the agreement as this article points out

Fannie Mae said the agreement reached with Bank of America regarding repurchase requests on mortgages sold to the GSE by Countrywide addresses about 44% of the $7.7 billion in repurchase claims the company had outstanding with all of its seller servicers as of Sept. 30.  "39 cents on the dollar for the single family book of business, but FNMA still owns the loans - what about the additional income there from the servicing and/or selling of the good loans (if/when that happens)? From the sidelines it's hard to know whose ox has been gored: Fannie thinks they did very well, probably versus what could have happened, as does BofA."

HUD sent out another Mortgagee Letter, providing "loss mitigation guidance for the resolution of Home Equity Conversion Mortgages (HECM) that are delinquent due to unpaid property charges and mortgages wherein due and payable requests were previously deferred by HUD.1."  MORTGAGEE LETTER

CitiMortgage came out with an announcement to its correspondent clients saying that "The Pricing Adjuster Update dated December 31, 2010 has been revised to temporarily postpone the effective date for the new adjusters. Effective for Correspondent loans locked, or commitments established, on and after January 17, 2011, (the attached) adjusters will apply to Conforming Conventional Fixed and ARM loans.  (The adjusters do not apply to Government loans, DU Refi Plus or LP Relief Refi Open Access loans.) The updated adjusters announced on 12/31/10 and effective yesterday will be reversed and loans locked yesterday or today will be repriced to reflect adjusters in effect prior to that date. Current locked loans, and loans locked (or commitments established) between now and January 16, 2011, must be purchased by CitiMortgage no later than February 28, 2011 due to agency delivery requirements."

Flagstar reminded clients that the FHA Reform Final Rule revised its lender approval policy to eliminate "the approval of loan correspondents effective December 31, 2010. As a result loan correspondents will only be permitted to continue their participation in FHA programs by establishing a third-party relationship with an FHA-approved mortgagee. Existing loan correspondents who are sponsored by Flagstar will automatically be "grandfathered" into our FHA TPO program on January 1, 2011. Effective with loans disbursed on or after January 1, 2011, Flagstar FHA TPO customers (i.e., those without FHA Direct Endorsement or Authorized Agent approval as of January 1, 2011) must close all FHA loans in Flagstar's name and they must be table-funded...customers may continue to close non-FHA loans in their own name where applicable. FHA loans intended to close in your company's name (where applicable) as a Flagstar-sponsored loan correspondents must meet all of the below listed requirements and close by March 31, 2011."

PHH announced that it will be changing its loan level pricing adjustments on conventional loans in conjunction with recent announcements by Freddie and Fannie, based on lock period and when the loan was locked. Caliber Funding will be doing the same, following Fannie. Caliber went on to inform its clients of some additional changes regarding building permits and waiving the requirement for permits, loans on properties located in disaster areas, and no longer allowing the online locking of FHA 15-yr Fixed Streamline loans.

Fraud - in New Jersey? Say it ain't so. Taya Romano, a former New Jersey property developer, has admitted running a mortgage fraud scheme that generated $4.7 million in fraudulent loans. "Prosecutors say the scheme involved 13 distressed properties she acquired to resell in Paterson and East Orange. She recruited buyers and secured loans for them using falsified bank statements and other documents."

After a couple days of being unchanged, we were seeing a little improvement in rates this morning - until the ADP employment numbers came out showing a much stronger than expected private jobs number. Yesterday's Fed minutes did not move the market much. "Federal Reserve policy makers said that improvements in the economy did not meet the threshold for scaling back their plans to purchase $600 billion in bonds to help bring down the unemployment rate and stop inflation from falling too low" as one source put it - pretty much anticipated. In other words, the recovery is still weak, and needs stimulus.

As one would expect, heavy corporate bond issuance is affecting Treasury prices, which in turn impact mortgage rates: before bond deals are announced, issuers and underwriters often sell Treasuries to hedge their interest rate risks. But once a deal is priced, its participants often buy up Treasuries again. Factory orders for November were pretty strong. The 10-yr yield closed at 3.33%.

Me: "Hello, [Tech Support]. How can I help you?"

Caller: "I just got your wireless internet thingy, but I'm not sure I like it."

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Caller: "Oh, nothing's wrong with it. It's much faster than my old internet; but do I always have to open my windows? I hate opening up the windows."

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Caller: "I have a Mac."

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Caller: "Oh! No. Not that computer windows thing! I don't have that! I mean my actual windows around my house!"

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Caller: "Yes! And it's really chilly today!"

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Caller: "Well, its wireless! It comes through the air, right? How else am I going to get it if the windows are closed?"