I am smart enough to realize that I am not smart enough to know, "Why the focus is more on the debt ceiling than on actually reducing our deficit?" To me, it seems like an artificial waste of time & energy - raising the debt ceiling has happened 10 times since 2001, and our government spends a lot of time doing it. In the meantime, our deficit grows. Did the governments in Greece, Ireland, Spain, etc., spend their time raising debt limits rather than increasing revenue and decreasing spending? Okay, I'll get off my soap box.

The budget woes continue. Albert Einstein said, "The significant problems we face cannot be solved by the same level of thinking that created them." And a trader asked yesterday, "Which one gets done first: the NFL agreement of US budget deal?" The problems in Greece are still unresolved, in spite of some short term relief, and now it is becoming more accepted that there will be some sort of Greek default. Not only that, but fears over Italian solvency and political stability have now infected European markets and many are questioning the EU's ability to handle the damage.

In this country, and we've been through this drill before, the Treasury refuses to speculate on a contingency plan in the event of a default. A default would be (technically) a "default on legal obligations" but most believe that the Treasury would continue to make interest payments on Treasuries. We went through the same drill in February of 2010; the Treasury had to use "extraordinary measures" in June 2002, April/May 2003, and November 2004, and delayed auctions in May 2003 and November 2004.

What does the unlikely event of the US government freezing up mean for the mortgage biz? Banks do not sell significant services to the government so they do not have significant receivables that may be hurt. But banks own large amounts of Treasury debt and the value of those could plunge given the threat of default, and/or, if the US debt is downgraded, and banks must own AAA-rated securities, it could cause problems. The inter-bank lending market could be hit if banks become unwilling to extend each other overnight credit for fear about losses on Treasury securities. I didn't check the numbers, but one August projection from the Bipartisan Policy Center shows that the U.S. Treasury will take inflows of $172 billion from Aug 3-31 and have $307 billion in outflows for a $135 billion deficit.  Interest on Treasury securities is expected to be $29B.

At this point it is fairly accepted that the government had a key part in the housing crisis about ten years ago when it heavily promoted home ownership (at the expense of underwriting guidelines.) And recently the Obama administration is ramping up talks on how to revive the housing market, which is obviously weighing on the economic recovery. The article I saw noted, "Policy ideas include having Fannie Mae and Freddie Mac relax their rules for loans to investors, allowing those buyers to absorb excess housing inventory easier. In certain markets, Fannie and Freddie could hold some foreclosed homes off the market and rent them out to ease the property glut.  Other incentives may be for banks to reduce loan balances for borrowers who are underwater, or owe more than their homes are worth."

Yesterday officials held a conference call promoting the "Helping Responsible Homeowners Act of 2011." Originally introduced in January, the bill aims to remove the barriers that keep non-delinquent, existing borrowers from refinancing. Those in the mortgage business should be interested to know that they are proposing to eliminate LLPAs and adverse delivery charges for loans - the GSEs could not charge any additional upfront fee beyond the standard guarantee for a qualified mortgage. (In effect, this would lead to only one standard guarantee fee for all borrowers.) It would remove LTV limits for underwater borrowers so mortgage refinancing would not be limited by the LTV of the borrower. (Currently, borrowers in the HARP program can have a maximum LTV of 125%. Removing this constraint could allow up to 10-15% of borrowers in the 2005-07 vintages to be eligible for GSE refinancing.) It would remove the second-lien barrier to refinancing so that servicers and creditors that refuse to have their second liens "resubordinated" in the refinanced mortgage would be prevented from originating new GSE loans. And it would ensure that higher LTV borrowers receive a fair mortgage rate, suggested at no more than 40 basis points higher than the GSEs' 60 day commitment rates.

The Obama administration is tapping Carol Galante, a housing official and former affordable housing developer, as the acting commissioner of the FHA. She currently serves as deputy assistant secretary for multifamily housing in the Department of Housing and Urban Development, which oversees the FHA.

Anyone who has owned a rental knows the amount of monthly upkeep that it can cost. How about the monthly cost when one owns 153,000 of them? MowYourLawn?

At least the commercial market is alive and well. Citigroup, Deutsche Bank, Goldman Sachs, Wells Fargo and Royal Bank of Scotland are marketing about $3.7 billion in bonds backed by mortgages on retail, office, industrial and hotel properties. Banks hope to sell as much as $10 billion in CMBS this quarter, according to JPMorgan Chase: CommercialBiz.

There are a lot of settlements out there, but Flagstar is having some difficulty. Late last week a federal judge denied a motion by Flagstar Bank to dismiss a lawsuit seeking damages for what is alleged were $900 million in mortgage-backed securities sold by the bank in 2005 and 2006 that were riddled with fraud and misrepresentation. Assured Guaranty Municipal Corp. of New York, which insured the securities, is suing Flagstar, seeking at least $82.4 million in damages. For those interested, AGM is a subsidiary of Assured Guaranty Ltd., which lists Wilbur Ross Jr. as one of its biggest investors. Flagstar is Michigan's biggest bank, but Ross is the largest shareholder in Michigan's fastest-growing bank, Troy-based Talmer Bank and Trust. FlagstarSuit

Down in Cincinnati, Fifth Third Mortgage (#13 in the 1st quarter in originations) rolled out additional incentives for homebuyers through the end of August. Specifically, for fixed-rate purchase mortgages Fifth Third Mortgage is offering customers a choice of either a 1% interest rate reduction for the first year of the mortgage or take a 1/8th percent (.125%) interest rate reduction for the life of the loan. Fifth Third also is offering an additional 1/2 percent discount point savings if a customer has the monthly mortgage payment automatically deducted from a Fifth Third Bank account.

The PMI Group announced that its subsidiary Homeowner Reward Co. is launching a pilot program intended to support sustainable homeownership in certain hard-hit real estate markets. Homeowner Reward Co. is working with Loan Value Group LLC to offer the RH Reward to a group of homeowners whose mortgages are insured by PMI Mortgage Insurance Co. The program puts up an incentive-based program that offers eligible homeowners (including being underwater and insured by PMI) cash reward for staying current on their mortgages at no charge.

Ah rates... few loan agents are complaining about them as we continue to see the "flight to quality bid" from the trouble in Europe and the downgrade of Ireland's debt to "junk" by Moody's. Yesterday morning we had some trade numbers, but more press was garnered by the 3-year T-note auction that was aggressively bid. If you bought any of it, you'll be earning .67% for three years. So in spite of the end of QE2, there are still buyers out there. We also had the release of the minutes from the last Fed meeting - if you care to read the statement you can find it at FederalReserve. For the day, the 10-yr was nearly unchanged at 2.91% and MBS prices ended the day better by about .125 on average volume.

This morning the MBA reported that for the fourth week in a row mortgage apps fell. For last week the overall number was down about 5%, with refi's down about 6% and purchases down nearly 3%. Later we'll have Ben Bernanke's semiannual Monetary Policy Report to the House Financial Services Committee and the $21 billion 10-year note auction at 1PM EST. We have also already seen a report on Import Prices for June (-.5%). In the early going we find the 10-yr at 2.93% and MBS prices worse a shade.


An elderly couple was sitting on the porch.

The aging gent said, "During the last 50 years, whenever I get mad at you, you never seem to get upset. How have you managed to control your temper all these years?"

His wife replied, "I just go and clean the toilet."

"How does that help?"

"I use your toothbrush."

If you're interested, visit my twice-a-month blog at the STRATMOR Group web site located at www.stratmorgroup.com . The current blog takes a look at early actions taken by the new CFPB and the political situation affecting it. 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