"If I owned Texas and Hell, I would rent out Texas and live in Hell." So spoke Civil War General Philip Sheridan, who was the military governor of Texas and Louisiana afterwards. Interestingly, currently Texas is doing very well economically, has a robust jobs market, and its muni bonds carry an Aaa rating. Which reminds me...

Investors in fixed income securities have a wide range of instruments in which to invest. This commentary focuses on mortgages and MBS, but other securities include Treasury securities, corporate debt, foreign debt, and so forth - and they, in some way, compete with each other for fixed-income investment dollars. For example, although we don't have a Treasury auction this week, The Financial Times reports that the US municipal bond market "is braced for what could be its biggest week this year with nearly $10 billion of new issuance expected. Over the last few months, new bond sales have been rising...fears of widespread defaults in the aftermath of the US recession have begun to ease and buyers have returned to the market." For the whole of June, new muni issuance was $41bn, about double the level of May's issuance. Deals this week are expected from the states of Oregon and Maryland as well as the cities of Chicago and New York." In addition, The Council of Development Finance Agencies released a survey this week showing that 47 states and the District of Columbia issued $14.6 billion worth of private-activity bonds in 2010, 22.2% more than the previous year. It was the first increase in three years.

Analysts continue to analyze (isn't that what analysts do?) and compare the recent performance of Bank of America and Wells Fargo. It provides an interesting study, and is much more than an $8.8 billion loss compared to a $3.95 billion gain. The latest can be found at BofAWellsEarnings.

Speaking of losses, in an effort to stop its red ink at the US Post Office (with letters and other forms of standard mail going extinct) it is looking to downsize its real-estate portfolio. "The agency has tapped real-estate firm CB Richard Ellis Group Inc. to advise the agency on the 300 million square feet of property that it owns or leases. 'We're looking at the whole portfolio across the country and how much we need and where,' said Tom Samra, vice president for facilities at the postal service. 'We'll be putting buildings on the market and terminating leases, where possible.' Over the next six months, Mr. Samra said, the agency and CBRE are looking to craft a plan on how to curtail the portfolio in line with the lower mail volumes seen by the agency. The postal service owns about 8,600 properties and has about 24,500 leases. Already, the agency has said it is starting to close hundreds of post offices. With the rise of email, the postal service has been taking its lumps in recent years. The Post Office reported a loss of $8.5 billion for fiscal 2010."

Bank of America "trimmed roughly 151,000 loans from its portfolio of delinquent and discontinued mortgages in the second quarter through foreclosure or short sales. However, there are still millions of these loans to go" through its Legacy Asset Servicing unit. According to Housing Wire, at the end of the second quarter, BofA reported more than 4.3 million loans in this portfolio, down 3.3% from the previous quarter. The amount of mortgages in 60-day delinquency or worse declined 5% to 1.2 million."

More mortgage-related earnings came out with the release of U.S. Bancorp's 2nd quarter numbers: a net income of $1.2 billion, up 57% from one year ago. Total revenue at the bank remained flat at roughly $4.6 billion. But it cut the provision for credit losses more than half, totaling $572 million in the second quarter, down from $1.1 billion one year ago and $755 million in the previous quarter. Mortgage banking revenue at U.S. Bank was also flat at $239 million, down slightly from $243 million one year ago but up from $199 million in the previous quarter. The bank wrote $8 billion in new mortgages, down from more than $10.5 billion in the same quarter last year and $12.1 billion in the first three months of 2011.

Many small lenders around the nation sell to Chase. In fact, it was the #3 lender in the first quarter with an 11% market share. So last week's Bloomberg story caught many by surprise: "JPMorgan Chase & Co. (JPM) is winding down its $154 billion mortgage portfolio to "close to zero" as the bank works through mortgage losses and litigation over loan- servicing and foreclosure practices. JPMorgan, which has reduced mortgage holdings by $19.3 billion in the past year, will continue shedding assets by about as much as 15 percent a year "forever," Chief Executive Officer Jamie Dimon told analysts on a conference call after the New York-based company reported a 13 percent increase in net income for the second quarter." An educated guess suggests that this is Chase's home equity business, although it is vague. ChaseinBloomberg

Chase is one of the big correspondent lenders, but its 1st quarter business of purchasing loans through its correspondent channel dropped 24%, according to Quarterly Data Report. Bank of America's was down 18%. But as has been mentioned several times in this commentary, several smaller lenders/investors are starting up competing correspondent channels, mostly targeting small banks and credit unions. They view it as a less risky way to obtain residential loans since small banks and credit unions are viewed as a better credit risk than brokers when it comes to buybacks and reps & warrants. Companies include Guild, Stearns, Florida Capital Bank, American Home Mortgage Servicing, PennyMac, Total Mortgage Services, and Union Bank (in the planning stages). By most accounts wholesale/broker originations accounted less than 10% industry-wide production, retail was north of 50%, and correspondent made up the difference. (But remember that these numbers are confusing, especially since "correspondent" buys loans from retail and wholesale channels.)

Some people really enjoy compliance issues while for others ECOA makes their heads spin. Recently the Federal Reserve Board and the Federal Trade Commission jointly issued final rules to implement the credit score disclosure requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act. "The Rules amend certain model notices in Regulation B (Equal Credit Opportunity), which combine the adverse action notice requirements for Regulation B and the FCRA, to reflect the new credit score disclosure requirements. If a credit score is used in setting material terms of credit or in taking adverse action, the statute requires creditors to disclose credit scores and related information to consumers in notices under the Fair Credit Reporting Act (FCRA)." For more information go to ECOAUpdate.

The Housing Starts and Building Permits numbers sure turned some heads yesterday. Most economists don't see the start of a housing rebound until 2014, but there will be occasional blips in the data. 30-yr MBS prices ended the day better by .250-.375, resulting in a few lender rate improvements on the way up since we started down on the day, and the 10-yr closed around 2.89%. Mortgage banker selling totaled over $1 billion which was easily absorbed, or as one trader put it, "The longer view in MBS continues to be positive with demand - especially from REITs - expected to outweigh supply, while prepayments remain benign."

This morning we learned what lock desks already knew: applications for U.S. home mortgages surged last week, racking up the biggest increase in four months. The MBA reported that apps were up over 15%, with refi's up over 23%. (Apps for purchases were roughly unchanged.) Refi biz currently accounts for over 70% of new applications.

Family Tree of Vincent Van Gogh:

His dizzy aunt Verti Gogh

The brother who ate prunes Gotta Gogh

The brother who worked at a convenience store Stop N Gogh

The grandfather from Yugoslavia U Gogh

His magician uncle Where-diddy Gogh

His Mexican cousin A Mee Gogh

The Mexican cousin's American half-brother Gring Gogh

The nephew who drove a stage coach Wells-far Gogh

The constipated uncle Can't Gogh

The diarrhea cousin Got to Gogh!!

The ballroom dancing aunt Tang Gogh

The bird lover uncle Flamin Gogh

The fruit-loving cousin Man Gogh

An aunt who taught positive thinking Way-to-Gogh

The little bouncy nephew Poe Gogh

A sister who loved disco Go Gogh

And his niece who travels the country in an RV Winnie Bay Gogh