Father Murphy waited in line to have his car filled with gas just before a long holiday weekend.

The attendant worked quickly, but there were many cars ahead of him.

Finally, the attendant motioned him toward a vacant pump.

"Father," said the young man, "I'm so sorry about the delay. It seems as if everyone waits until the last minute to get ready for a long trip."

The priest laughed, "I know what you mean. It's the same in my business."

Markets don't wait until the last minute, since they are usually driven by fear and greed. Yesterday's Fed announcement, although it was nothing new and left overnight rates unchanged, caused an immediate improvement in stocks and bonds. In mortgages, with originators selling and the Fed, hedge funds, Asian investors, and money managers buying, rates improved and caused several investors to improve rate sheets. One interesting thing to note is that Ginnie Mae securities, made mostly up of FHA and VA loans, are seeing continued interest from domestic and overseas banks for their reinvestment money (from buy backs) adding support to those prices.

The FOMC's statement didn't surprise anyone. Since markets don't like surprises, and there were none, things improved. "Economic activity has continued to strengthen and the labor market is stabilizing...Household spending is expanding at a moderate rate but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit...investment in nonresidential structures is declining, housing starts have been flat at a depressed level, and employers remain reluctant to add to payrolls. While bank lending continues to contract, financial market conditions remain supportive of economic growth. Although the pace of economic recovery is likely to be moderate for a time, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability...inflation is likely to be subdued for some time."

In the mortgage markets, as expected, "To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve has been purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt; those purchases are nearing completion, and the remaining transactions will be executed by the end of this month. The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability. In light of improved functioning of financial markets, the Federal Reserve has been closing the special liquidity facilities that it created to support markets during the crisis. The only remaining such program, the Term Asset-Backed Securities Loan Facility, is scheduled to close on June 30 for loans backed by new-issue commercial mortgage-backed securities and on March 31 for loans backed by all other types of collateral."

The Federal Home Loan Bank of San Francisco sued nine securities dealers alleging they misled it about the credit quality and risks of loans behind $19.1 billion in private-label residential mortgage-backed securities. Among several dealers, Credit Suisse, Deutsche Bank, JPMorgan Chase, and Bank of America were named as defendants. The FHLB is seeking to rescind its purchases of the securities, which were rated AAA "based on the information provided by the securities dealers... the dealers made untrue or misleading statements about the characteristics of the mortgage loans underlying the securities...failed to disclose that appraisals were biased upward on properties that secured mortgage loans, that underwriting guidelines were ignored by originators and that loan to property value ratios were exaggerated.

The Federal Home Loan Banks of Seattle and Pittsburgh last year sued banks including JPMorgan Chase, Morgan Stanley and Goldman Sachs Group. You can check it out for yourself: http://www.fhlbsf.com/

CitiMortgage, heavily rumored to be undergoing another downsizing on an undetermined scale, worked with nearly 128,000 borrowers last quarter to avoid foreclosure on almost $19 billion in mortgage loans. According to Citi, its loan modifications in the distressed asset portfolios outpaced both foreclosures and delinquencies. Modifications increased 17% in Q409 from the previous quarter. For the entire year of 2009, Citi loan modifications increased 47% from 2008. The US Treasury's HAMP (Home Affordable Modification Program) began a year ago, and Citi rolled it out a month later.

Risk and pricing engines out there continue to react to investor changes. Chase Correspondent updated its Conventional products product lines. Flagstar's correspondent channel updated its Fannie & Freddie fixed-rate product lines and Guaranteed Rural Housing product. US Bank National Correspondent updated its VA product line. ING revised several of their submission forms. Plaza Mortgage offering Home Path, Fannie's fixed-rate, fully amortizing loan that provides financing for properties owned by Fannie Mae through foreclosure or a deed-in-lieu. Caliber told clients originating loans in Texas that "If the property is the borrower's rural homestead," it must meet additional requirements.

Some mortgage security traders believe that we will all be better off with the Fed out of the MBS business, and that overseas investors and banks are expected to be key new buyers of Agency MBS, thus providing confidence to other investor groups to follow suit. A growing trade deficit and persistently steep yield curve may lead overseas investors and banks to increase MBS holdings. In a related issue, "foreclosure to REO transition rates" rose modestly this month across all sectors after falling for two years or more in most cases, as the foreclosure process has been stalled. REO pipelines have grown mildly lately after shrinking in 2009. As homes get pushed through loan modification evaluation, look for a change. Any increase in home prices would be positive, and as most folks in the business know lower priced homes have been performing better than higher ones, a partial cause for the slight improvement in subprime default rates.

In fact, many analysts believe that the entire yield curve, short term rates relative to long term rates, to do very little in the next three months. Of course, crystal balls don't work so well farther out, and in the 6-and 12-month horizons most believe that yields will begin to rise sharply. Not only because the economy is beginning to heat up, but we will have the Fed's balance sheet contracting quite a bit over the coming 12 month horizon on a combination of pay downs,
redemptions, and buyouts.

For this morning's market, ahead of the Producer Price Index, rates were down and stock market futures were pointing to yet another improvement. The February PPI was -.6%, mostly due to energy costs; ex-food and energy the core rate was +.1% (as expected). The year-over-year numbers were also satisfactory, and overall it does appear that inflation is not a big deal. After the numbers we find the yield on the 10-yr at 3.63% and both 5-yr Treasury and mortgage prices a shade worse.

Lastly, this morning's report from the Mortgage Bankers Association of America (MBAA) showed that its application index rose last week by .5%. It is nice to see that purchases outpaced refinances +5.7% versus -1.5%.

Paddy was driving down the street in a sweat because he had an important meeting and couldn't find a parking place. Looking up to heaven he said, "Lord take pity on me. If you find me a parking place I will go to Mass every Sunday for the rest of me life and give up me Irish whiskey!"

Miraculously, a parking place appeared.

Paddy looked up again and said, "Never mind, I found one."

Walking into the bar, Mike said to Charlie the bartender, "Pour me a stiff one - just had another fight with the little woman."

"Oh yeah?" said Charlie, "And how did this one end?"

"When it was over," Mike replied, "She came to me on her hands and knees."

"Really," said Charles, "Now that's a switch! What did she say?"

She said, "Come out from under the bed, you little chicken."