March is National Women's History Month. Contrary to what some believe, it is not in honor of this "classic" 30 second clip. (Sometimes I crack myself up.) National Women's History Month's roots go back to March 8, 1857, when women from New York City factories staged a protest over working conditions. A day became a week, and then a week became a month in 1987 as decreed by Congress. (Someone needs to let me know when "Caucasian Middle-Aged Male Month" comes about.) Per the Census, there are 157 million females in the U.S, compared to 152 million males (including Chas Bono). (At 85 and older, there are more than twice as many women as men.) There are about 85 million mothers, although the average number of children has dropped from 3.4 in 1976 to 2.3 in 2008. Lastly, the median annual earnings of women 15 or older who worked year-round, full time is about $37k.

Yesterday, for the "umpteenth" time, I received an e-mail which included, "Due to Obamacare, did you know that if you sell your house after 2012 you will pay a 3.8% sales tax on it?  That's $3,800 on a $100,000 home, etc.  When did this happen?  It's in the health care bill and goes into effect in 2013.  Why 2013?  Could it be to come to light AFTER the 2012 elections? So, this is 'change you can believe in'?  Under the new health care bill all real estate transactions will be subject to a 3.8% Sales Tax." As a fiscally conservative, socially liberal Republican, I had to figure out if this was true. It is not true - in 2013 there will be no "sales tax" on real estate. Congress did approve, however, and the president did sign, a bill authorizing a 3.8% tax on the capital gains (unearned income) on real estate transactions over the existing $500,000 exemption for married couples ($250,000 for singles). Couples have to make more than $250,000 in adjusted gross income for the tax to apply to them (singles more than $200,000). And it isn't very common these days to find married couples making more than $250,000 a year, who then also made more than $500,000 in profits on their house sale. See for yourself on page 946:

Have you purchased your non-owner occupied house yet, and rented it out? The Census Bureau reports the rental vacancy rate fell to 9.4% in the 4Q of 2011 from 9.8% in the prior quarter. The rate hit a 9 year low of 9.2% in 2Q of 2011. Meanwhile, rental payments jumped 2.5% in 2011, the largest increase since 2008. Better yet, have you bought a non-owner on some farmland? The Fed Chicago has released a report that shows prices of farmland in the Midwest jumped 22% in 2011, the biggest annual gain in 35 years (1976)! I don't hear John Cougar Mellancamp singing about their plight now...

RealtyTrac is good with figures, and it notes that sales of distressed real estate made up 24% of all single-family residential sales both in the fourth quarter of 2011 and the entire year (up from 20% in Q3). These are homes that were in some stage of foreclosure or lender-owned (REO). For good news, if there is any, pre-foreclosure sales and sales of REO represented 23% of all sales during the year compared to 25% in 2010. "Sales of foreclosures in the fourth quarter continued to be slowed by questions surrounding proper foreclosure paperwork and procedures," said Brandon Moore, chief executive officer of RealtyTrac.  Distressed properties typically sold at a 29% discount compared to a sale of a non-foreclosure related property during the quarter. "We continued to see a shift toward pre-foreclosure sales, or short sales, and away from REO sales in the fourth quarter." Homes that sold pre-foreclosure in the fourth quarter had been in the foreclosure process for an average of 308 days compared to an average of 237 days in the fourth quarter of 2010.  REOs that sold in the fourth quarter took an average of 175 days to sell after completing the foreclosure process, compared to 171 days in the fourth quarter of 2010.

Across the "research & study street, Campbell Surveys and Inside Mortgage Finance jointly released the HousingPulse Tracking Survey that showed more homebuyers are scooping up properties with cash only, even in an environment for record-low mortgage rates. The survey used responses from 2,500 real estate agents. All cash buying remain important to the market, and is running in the 31-34% range of the homebuyer market for nine months last year. Not only are money-making alternatives few ("Why should I earn nearly 0% on my money and pay 4% for a mortgage?") but there are discounts in offering all cash for a house, and as noted above a certain percentage are distressed sales conducive to all-cash deals. Late appraisals and lengthy loan processing times were also reasons given.

As the commentary recently mentioned, "There is plenty of blame to go around for the mess we're in: borrowers, brokers, lenders, investors, appraisers, rating agencies, investment banks, and so on." Mike Winks with Lake Michigan Credit Union writes, "I suspect I won't be the first one to share another party not mentioned in the blame for the mess we are in comments.  One cause you do not hear much about in the popular media is Congress, and its approval of both the HUD goals imposed on the GSEs and CRA requirements for investment and loan portfolios for banks. Sure, in 1999 the Gramm-Leach-Bliley Act repealed certain provisions of the Glass-Steagall Act which took down the wall between investment banking and commercial banks; one might argue that this unsupervised greed created the footing.  The reality is this most likely is limited to a small few rather than let's say key top executives at Citigroup.  However, to allow for that environment, many of us remember that the guise of doing any volume in Alt-A and subprime loans was to promote affordable housing, put a nice family in a home, a/k/a good guy loans.  The true desire from all players was to have nice margin, make a nice profit, and offer a nice service... basically capitalism at work.  That can be healthy if in check.  By the way, the in-check counter-balance here in a small part is some type of watchdog regulatory oversight (although mostly ineffective) and the remainder is self-regulation via long-term survival... 'Sure you can make money now but what about over the next 10 years and will you be in business?' Yes, it would be stating the obvious that some Wall Street banks and rating agencies did not do this very well."

Mike continues, "My point, however, is from the GSE perspective... aside from a couple of opportunistic CEOs throughout their history, overall these companies were run fairly well and certainly understood credit risk. But Congress required them to purchase at least 50% of their loans in the affordable housing bucket.  Not an easy feat during high refinance years in which the vanilla credit borrower is getting a new loan.  That puts a great deal of pressure to do things like purchase Wells Fargo's entire subprime origination book (Wells thought it was too risky to keep) or to offer loans at 100% financing, etc.  It is interesting how some of the very Congressional supporters of HUD goals are the ones demanding an immediate termination of Fannie Mae and Freddie Mac to be rolled into a single government agency.  That logic believes this new mega housing agency would not offer expanded credit guidelines (Alt-A, sub-prime or good guy loans) that would risk loan performance.  Even though Ginnie Mae's market share is at record levels and they securitize a great deal more of stronger credit loans, FHA's delinquency rate is at 18% or nearly 1 in 5 loans.  Understanding accurate history helps us understand the proper decisions for the future."

The markets find themselves in a sustained period without Treasury supply/auctions, with Europe being relatively quiet and mixed signals from our economy. No one is complaining about mortgage rates, but remember in the old days, when the Fed wasn't buying $1.2 billion of MBS's every day? Two Federal Reserve officials (Bullard and Plosser) recently opposed additional mortgage-bond purchases by the Fed, saying the measure isn't needed and that the U.S. central bank shouldn't interfere in credit markets. But Fed officials are keeping open the option of a third round of bond purchases in case the economy weakens or inflation stays low.

So who is going to buy the agency stuff that LO's everywhere are originating? Overseas investor holdings of agency MBS have declined from $773 billion to $583 billion from June 2008 to December 2011, per TIC data. Estimates show that China's holdings of agency MBS alone have declined by $170-$180bn since hitting their peak in 2008 - in terms of face value - which explains almost all of the decline in overseas holdings of agency MBS since the middle of 2008. In fact, if one takes out China, overseas investors actually increased their agency MBS holdings in 2011.

Thursday was just another day in paradise. That is, as long as the Fed keeps buying its $1.2 billion per day of agency MBS's. Given the NY Fed's figures, the purchases covered just over 70% of the originator supply during this period. My daughter's high school economics class can tell you that if the Fed stops using pay-down money to buy new mortgages, and supply remains constant, agency prices will drop and rates will go up. By the time the sun went down Thursday, agency MBS prices were worse than Wednesday by about .250 and the 10-yr T-note was worse by .5 (2.04%). There is no news today of any substance, so although it is still early don't look for rates to do too much today, and may indeed follow yesterday's trend slightly higher.  See today's MBS prices.

A guy goes into the confessional box after years being away from the Church. He pulls aside the curtain, enters and sits himself down. There's a fully equipped bar with crystal glasses, the best vestry wine, Guinness on tap, cigars and liqueur chocolates nearby, and on the wall a fine photographic display of buxom ladies who appear to have mislaid their garments.
He hears a priest come in: "Father, forgive me for it's been a very long time since I've been to confession and I must admit that the confessional box is much more inviting than it used to be".
The priest replies,
 "Get out, you idiot. You're on my side".

If you're interested, visit my twice-a-month blog at the STRATMOR Group web site located at The current blog discusses the role of rating agencies in the current environment. If you have both the time and inclination, make a comment on what I have written, or on other comments so that folks can learn what's going on out there from the other readers.