Scientists say they have developed a car that can run on water. The only catch: the water has to come from the Gulf of Mexico. That aside, it is interesting how the price of oil has gone from over $80 per barrel down below $70 per barrel, and, as best I can tell, the gas at the pump has perhaps come down a few cents. This is despite the Gulf of Mexico leak. As I seem to recall, in previous years any time there was the slightest bit of strife near the Nigerian oil fields, or an upcoming OPEC meeting, crude oil prices would rise $10 per barrel we would certainly see it the next morning at the local station. Apparently the potential slow down in the European economy and its impact around the world is overshadowing any lost supply concerns. Economics is an interesting topic when you see it every day in big numbers at the corner station.

How about this market?! The price of 5% MBS's, composed mostly of 5.25-5.625% 30-yr mortgages, is at or near all-time highs. What investor wants to pay 103 for a loan that is going to pay off in two months with another mini refi boom expected? Mortgage prices have been lagging for this very reason, as one would expect.

Any fears of the Federal Reserve rushing in soon and pushing for the sale of its $1 trillion+ MBS portfolio  appear unwarranted. At least this was pointed out in the release of the Fed minutes yesterday.

"Participants expressed a range of views on some of the details of a strategy for asset sales. Most participants favored deferring asset sales for some time. A majority preferred beginning asset sales some time after the first increase in the Federal Open Market Committee’s (FOMC) target for short-term interest rates. Such an approach would postpone any asset sales until the economic recovery was well established and would maintain short-term interest rates as the Committee’s key monetary policy tool. Other participants favored a strategy in which the Committee would soon announce a general schedule for future asset sales, with a date for the initiation of sales that would not necessarily be linked to the increase in the Committee’s interest rate target. A few preferred to begin sales relatively soon."

The Fed also helped the stock market out somewhat by including an updated economic outlook with upward revisions made to GDP for 2010 to a range of 3.2% to 3.7% from 2.8% to 3.5% in the January outlook. The unemployment rate was revised slightly lower to 9.1% to 9.5% from 9.5% to 9.7%.

Think about how far rates have come since early April, when the yield on the US 10-yr was sitting around 4%. We are now down well below 3.30%. Mortgage rates have certainly tagged along for the ride, and 30-yr rates are the lowest they've been in quite some time. From an investor's point of view, the agency MBS market now has a huge block of recent-issue lower coupons backed by very large low LTV loans to very good borrowers. Given underwriting guidelines are still tight, these loans, and the securities, are in position to exhibit traditional convexity behavior, and servicers and investors know this. 4.5% securities are at a price of 102 - a two point premium - which would normally spur refi's if it weren't for the fact that underwriting is tight and in many places equity is hard to come by.

During the last few days I received several e-mails about the general state of broker business, especially in terms of licensing. It continued yesterday. Here are more comments:

"The historical default rates on loans from brokers have been proven to be worse than loans originated through the retail channel. That is argument enough."

"The reason LO's for federally regulated banks aren't being required to get licensed is because the banks already mandate annual training on RESPA, Reg Z, Reg X, HPA, Reg V, Gramm-Leach Bliley, Fair Housing, Reg B, HMDA, HOEPA, Money Laundering, on, and on, and on, as part of their overall compliance with federal regulations. If you want to see regulation, come to a bank."

"I, too, will see my customer in the grocery store the next day, and, being a loan rep in a bank, my pay is not based on the interest rate I charge, and I still work just as hard to get the borrower in the right program at the best rate."

"Many are to blame, but in my belief HVCC did not get rid of the group that is mainly responsible: the same realtors are selling homes, the same appraisers are appraising homes, the same mortgage company employees are creating the verifications etc. and so it continues.  The good news is many lenders have stepped up their QC process and the bad guys are fading away.  They must be going back to the used car lot or the aluminum siding company from where they cometh!"

A few days ago I mentioned "WBE's" - businesses owned by women, and potential grants or funding programs for them. I heard this back: "Your comment on WBE seems a non-sequitor - a little like sour grapes - and I was surprised. You are usually well researched but this is woefully inaccurate as to the process/standards for vetting Women's Business Enterprises. The process of certification is RIDICULOUS - they include site visits, birth certificates, resumes, etc. and are not easy to obtain. My firm has been trying to gain this certification for over a year.  We've provided everything, with the exception of a physical, and we are still waiting.  It's not easy or simple."

Some good news came out of the MI sector. RMIC adjusted its market classifications under its "Declining Markets Policy", effective on May 20^th. Thirty-nine (39) markets improved from their previous classification and no markets became more restrictive. RMIC's listing can be found HERE

HUD sent out a Mortgagee Letter to companies servicing FHA loans, targeting "updated consolidated property and preservation (P&P) guidance for foreclosed properties that had been secured by FHA-insured mortgages, and provides cross-references to the compliance requirements within HUD handbooks, regulations and current P&P guidelines": http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/10-18ml.pdf

The investor changes just keep on coming. US Bank National Correspondent has posted an update to its guidelines for FHA & VA products. Nationwide Advantage tweaked its conforming 20, 25 & 30-yr fixed product lines, along with its conforming ARM products.  Mortgage Services III has temporarily discontinued its Rural Development product line, and Pinnacle Capital told broker clients that "USDA Rural Development has announced that they will not be issuing any new Conditional Commitments (RD Form 1980-18) until new funds have been authorized by Congress." It would appear that although the House passed an extension of funding for the USDA program, it is bogged down in the Senate for the time being.

American Banker's Kate Berry brought up an interesting point in an article recently. State supervision of nonbank mortgage lenders is becoming as tough as federal oversight of depositories.

"Under a little-known provision of the 2008 Safe and Fair Enforcement for Mortgage Licensing Act, they will soon have to file call reports like the ones banks and thrifts prepare quarterly."

"A lender must upload the files for every single mortgage it originated during the exam period to an automated system. The software reviews the loans for potential violations of federal and state laws and spits out a report in minutes."

Currently, 38 states require that nonbank mortgage lenders file annual reports, and 42 states require that lenders submit standardized financial information. Quarterly call reports are a provision of the Safe Act, and the information will be shared between states. According to the article, "the automated compliance system in the multistate exam screens for violations of the Home Mortgage Disclosure Act, Truth in Lending Act, Home Ownership and Equity Protection Act, and RESPA, as well as state laws and the government-sponsored enterprises' requirements."

Interestingly, 70% of residential loans are originated by BofA, Chase, Citi, and Wells - none of which are subject to state oversight, "just" Federal oversight.
Deutsche Bank, along with others, is pushing out any expectations for Fed rate hikes until at least the 4^th quarter of this year.  Core inflation, at both the producer and consumer level, has been running much less than what was projected. And sovereign risk concerns (Europe) are not abating, and are expected to cause the Fed to hold steady until those countries show signs of stabilization. Lastly, although our housing and labor markets have shown signs of improvement, things are still somber in both categories - and the Fed jacking up rates with those two major economic components still reeling is not the role of the Fed. And since the US consumer makes up about 70% of our economy (versus 12% for international trade), these two are critical.

Today we found out that last week's Initial Jobless Claims jumped by the most in 3 months. In a little while we'll have Leading Economic Indicators for April and the Philly Fed survey. LEI is expected to be +.2% from +1.4% in March, while Philly Fed is called at 22 from 20.2 previously. And the US Treasury will announce details of next week's auctions of 2s, 5s and 7s - estimated at $113bln. Events have pushed the 10-yr yield down to 3.23% and MBS prices are .25 to .50 better. READ MORE SEE CHARTS

The Pope went on vacation for a few days to visit the rugged mountains of Alaska. He was cruising along the campground in the Pope Mobile when he heard a frantic commotion just at the edge of the woods. He found a helpless Democrat wearing shorts, sandals, a Vote for Obama hat and a "Save the Trees" shirt. The man was screaming and struggling frantically, thrashing all about and trying to free himself from the grasp of a 10-foot grizzly bear.

As the Pope watched in horror, a group of Republican loggers wearing "Go Sarah" shirts raced up.

One quickly fired a shot right into the bear's chest. The two other men pulled the semiconscious Democrat from the bear's grasp. Then using baseball bats, the three loggers finished off the bear. Two of the men dragged the dead grizzly onto the bed of their pickup truck. The other tenderly placed the injured Democrat in the back seat.

As they began to leave, the Pope summoned all of them men over to him.

"I give you my blessing for your brave actions!" he proudly proclaimed. "I have heard there was bitter hatred between Republican loggers and Democratic environmental activists, but now I've seen with my own eyes that this is not true."

As the Pope drove off, one logger asked his buddies, "Who the heck was that guy?"

"Dude, that was the Pope," another replied. "He's in direct contact with Heaven and has access to all wisdom."

"Well," the logger said, "he may have access to all wisdom, but he doesn't know anything about bear hunting! By the way, is the bait still alive or do we need to go back to Massachusetts and get another one?"