My New Blog

Although agency MBS greatly lagged benchmark Treasuries today, price levels rose enough for lenders to improve rebate (so they could work on filling those 4.0 commitment buckets). 

The October delivery FNCL 4.0 went out +0-10 at 102-19 and the October delivery FNCL 4.5 was bid +0-06 to 104-07 at 5pm.  New loan supply offers totaled about $2 billion (which is close to average).

These price appreciations leave the FNCL 4.0 just below historic highs....

The secondary market current coupon is under 3.50% when accounting for the phantom 3.5 coupon, but I do not use the phantom 3.5 MBS coupon in my current coupon calculation. Instead I focus on the production coupons instead, which are 4.0s and 4.5s right now. Using my model, the current coupon was -4.4bps to 3.616% today.  Yield spreads moved wider as volatility rose and swaps spreads widened vs. Treasuries.  My version of the secondary market CC is +112bps/10yr TSY and +110bps/10yrIRS. READ MORE ABOUT YIELD SPREADS

On average, rebate improved by 21bps at the five majors with the lion's share of pricing gains seen in the note rates used to fill 4.0 MBS trades. Buydowns were largely unchanged. Week over week, loan pricing is mixed. READ WHY & DON'T MISS THIS ADVICE FROM A PROFESSIONAL PIPELINE HEDGER

I don't want to get your hopes up but there was a bit more action in 3.5s today.  Unfortunately, while the street continues to trade production MBS to extremely short hedge ratios, 3.5s are still off-limits to pipeline hedgers. If that changes I will be the first to alert.

Weaker than expected economic data on the services sector of our economy lead to a brief rally in mortgage backed securities yesterday.  However, as the day progressed however, ever-resilient stocks rallied off their morning lows leading MBS to close at their lowest levels since early July.  A few lenders issued rate sheets while MBS were moving higher in the morning but once sentiment shifted, they quickly repriced for the worse.   To remind readers, mortgage rates are set primarily by the trading of mortgage backed securities.  As investor demand for MBS increases, the price of MBS moves higher which results in mortgage rates moving lower.   Generally, the demand for MBS is higher during weak economic times as market participants move their money into the safety of the fixed income sector which includes MBS and U.S. Treasuries. 

Tomorrow brings us the Employment Situation Report, one of the most important scheduled releases each month.  Less meaningful, but still important to market movements is the Jobless Claims report that comes out every Thursday, which totals the number of Americans that filed for first time unemployment benefits in the prior week.  It also provides continuing claims which measures repeat filings.  Recent reports show declining claims, which supports the current recovery mentality. The U.S. Department of Labor reported that first time claims fell 38,000 from a revised 588,000(was 584,000) to 550,000 providing more evidence of improving conditions on the jobs front and beating estimates of 575,000.  The continuing claims figure rose from a revised 6.241million to 6.31 million which was still better than expected by most economists. 

On a sad note, our nation’s 12th largest mortgage lender and 3rd largest FHA lender shut their doors yesterday READ STORY. If your loan is submitted to Taylor Bean or has recently closed but not funded, you need to resubmit it to a new lender.  In their announcement they stated that no loans, even loans that already closed but still in the rescission period will not be funded.   This is a huge blow to the mortgage industry, especially brokers, as it further decreases the choices and flexibilities. 

Another concern regarding the closing of Taylor Bean is with the appraisals that were performed.  Under the HVCC guidelines, you are supposed to be able to transfer appraisals from one lender to another, seems simple but most lenders have conditions.   The appraisal must have been ordered through an Appraisal Management Company that is recognized by the new lender.  If that lender does not utilize that particular AMC you cannot transfer the appraisal and will now have to pay for a new one.   Also, the appraisal must be transferred directly from Taylor Bean to the new lender.   With the closing of Taylor Bean it is unlikely that they will continue to employ someone to do this task.  In addition, even if they do have someone available for this task, there will be thousands of loans to go through which will make the process very difficult and time consuming.   One major lender has announced that they will not take a transferred appraisal  under any circumstance but they will lower their underwriting fee by the cost of the new appraisal.   This will require that the consumer pay for a new appraisal up front.  This illustrates one of the many bad aspects of the Home Valuation Code of Conduct.    According to Congress who passed this law, appraisals are supposed to be portable from one lender to the next but that is not the case and hopefully Taylor Beans demise will draw attention to this matter.

Early reports from fellow mortgage professionals are indicating that mortgage rates continue to rise with the par 30 year conventional rate mortgage being in the 5.25% to 5.50% range for the best qualified consumers.  In order to secure a par interest rate you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including one point loan origination/discount/broker fee.   If your credit score is lower than 740, you can still secure a par interest rate but you will be required to pay additional fees due to the Loan Level Price Adjustment fees that were added by Fannie Mae and Freddie Mac earlier this year.

The government-insured share compared to 25.7 percent a month earlier and 27.0 percent in June 2008. The last time the government-insured rate was this high was November 1990; the highest percentage on record was 43.8 percent in February 1990; the lowest recorded share was 5.8 percent in August 2005 (MBA began recording such rates in January 1990).

The government-insured share of purchase applications in June reached 38.6 percent, up from 27.8 percent one year ago. The government-insured share of purchase applications has averaged 36.6 percent to date in 2009, compared to an average of 21.8 percent during the same period in 2008.The low point was August 2005 (6.8 percent).

"A primary reason government-insured loans have retained a high share of the purchase market is that these loans typically require lower down payments than conventional loans," said MBA Associate Vice President of Economic Forecasting Orawin Velz. "In addition, lending standards tend to be tighter for conventional loans, especially for loans that require private mortgage insurance."

While the government-insured share of purchase applications has remained elevated, the government-insured share of refinance applications has been volatile, Velz noted. The share hit a record high 38.4 percent in October 2008.

"As mortgage rates fell sharply between mid-November through early May, refinance activity surged for conventional loans," Velz said. "This surge in conventional refinance applications dominated the market, causing the share of FHA refinance applications to fall below 20 percent for most of this year. Recent increases in mortgage rates have caused conventional refinance activity to drop much more sharply than government-insured refinance activity due to a combination of credit and LTV requirements. As a result, the government-insured share of refinance applications climbed to 33.6 percent in June."

OCAR Membership Meeting

2009 Economic Outlook

In September of 2007, I watched as Fed Chairman Bernanke, Treasury Secretary Paulson and the head of the FHA all testified before the Senate Banking Committee. They outlined the housing problems and what steps Congress should take to prevent further destruction. Barney Frank, Chairman of the Senate Banking Committee, ended the meeting by saying: “So what you are telling us is that we must act immediately. If we wait until March, it will be too late.” All three presenters said: “Yes”. Well, it is now 22 months later and not one single program has been designed to deal with the true problem of the housing market . . . Negative Equity!

Since that time, we have witnessed:

1. Economic Stimulus Act of 2008 ? Cost: $180 Billion

The government mails out 132 million checks to taxpayers, to keep the slowing

economy from getting worse. Result: 78% of the rebates went to pay bills – not to

purchase goods and services in the economy.

2. Housing and Economic Recovery Act of 2008 – Cost: $645 Billion

a. Designed to shore up Fannie Mae and Freddie Mac by injecting $100 billion

into each company. The government required a $5 billion dividend paid yearly

but Freddie Mac never made that much in the profitable years!

Result: Both companies went into receivership.

b. Inject $300 billion into FHA for refinancing troubled home loans.

Result: A failure, as financial institutions refused to address potential losses.

c. Raise conforming loan amounts to help refinancing in high-priced areas.

Result: Lenders split loans into conforming or jumbo conforming.

Most credit markets would not buy jumbo loans – even with the

higher rates.

d. Tax credit of $7,500 for 1^st time buyers.

Result: Failure because it was really a loan that needed to be paid back.

3. Emergency Economic Stabilization Act of 2008 – Cost: $850 Billion

Since Fannie, Freddie and FHA failed to function effectively, the Treasury decided

to take over by purchasing troubled mortgages/securities - thus hoping to free-up

the financial markets. Result: Treasury did not buy the troubled mortgages or

securities, but began buying shares in troubled banks and insurance companies - to

keep them from collapsing. The credit markets have pretty much remained frozen.

-1-

Orange County Real Estate in 2008:

1. Last year, 26,551 homes were sold. This was the lowest on record (by DataQuick)

since 1988, and it represented a decline of 42% below the 20 year average. Expect the

home sales numbers to remain under 30,000 for quite some time.

a. In the ‘70s, the U.S. averaged 3.9 million sales a year.

b. In the ‘80s, the U.S. averaged 4.0 million sales a year.

c. In the ‘90s, the U.S. averaged 4.4 million sales a year.

d. From 2002 to 2006, U.S. sales averaged 7.1 million yearly!

e. Since then, the U.S. is averaging 4.5 million sales a year – a realistic number.

2. The year ended with the median resale price of a single family home declining 29.2%,

while condos declined 30.8%.

3. The median price for all homes ended the year at $397,000, a decline of 24.1%.

4. There were 24,819 notices of default filed and lenders took back a total of 11,560

homes in 2008. Notices of Defaults filed in the 1^st Qtr. were up 19% from last year.

Epilogue to 2008:

As 2008 came to a close, the government had either loaned or guaranteed a total of $8.7 trillion dollars, which resulted in the money supply increasing by 71.8%! Our economy had shed 2.6 million jobs, (the worst since 1945) and the unemployment rate continues to rise in 2009. Lenders began the foreclosure process on 1.8 million mortgages and the banks took back 860,000 properties.

The mortgage relief for homeowners has yet to materialize in any significant way. One reason is that those securitized loans represent 68% of the total home mortgage market. These instruments are just too complex to unwind easily; they possess too many different owners in various “tranche” positions and, as housing prices fall, there is no simple way to fix this mess, which was originated by complex models.

The longer these problems persist, the deeper housing woes will go. The banks are turning down the TARP money, as it contains too many restrictions. The Fed is walking on a tightrope. One risk is that if too much money is printed, our economy evaporates in an inflationary spiral. This would mean higher loan rates and thus kill and recovery in our housing market. The other is that if you print too little, we will head towards a deflationary abyss, like the one that swallowed Japan in the 1990s and from which they have yet to recover.

-2-

Now for 2009

All branches of the government have been busy this year pumping out new programs, designed to stabilize the financial markets, get the economy going and help housing.

1. American Recovery and Reinvestment Act of 2009 – Cost: $1.3 Trillion

Better known as the: Something for Everybody Plan. It has lowered rates (for now)

and made the under $500,000 a hot market. However, above that price, the market

is barely alive. Result: It may be a little early to tell, but so far the lenders are not

really interested in modifying loans to help troubled homeowners. Banks are not

actively lending, foreclosures and short sales are continuing to rise, unemployment

is at record levels and the economy is still not moving forward.

2. Financial Stability Plan

Has the U.S. Treasury creating the Public-Private Investment Fund to acquire

troubled loans. Almost two months later, they create two more programs (Legacy

Loan Program and the Legacy Securities Program), providing 50% of equity

capital. The Federal Reserve expands the TARP (Troubled Asset Relief Program)

to provide as much as one trillion dollars.

3. The Homeowners Affordability and Stability Plan:

Promoted by President Obama, this is to help troubled homeowners with Freddie

Mac and Fannie Mae mortgages refinance to a lower rate. It also creates the

Homeowner Stability Initiative to modify eligible home loans. (Note: One month

later, the Treasury announces new guidelines for the program.)

4. Term Asset-Backed Securities Loan Facility (TALF)

The Fed makes $200 billion available to purchase recent AAA securities from

institutions that are in financial trouble.

5. Supervisory Capital Assessment Program (Bank Stress Test)

Created by the Federal Reserve to test the asset strength of banks in a “worse case

scenario.”

So How’s This Working For You?

Well, the government took conservatorship of both Fannie Mae and Freddie Mac earlier in the year, and last quarter the two companies lost $23.3 billion and $9.9 billion, respectively. These are on loans they thought would not go bad. Each company will need $100 billion, to stay afloat.

Hope For Homeowners, (launched last October) was to help save 400,000 families their home. To date, it has helped only one family. Thus all the new “stability” programs!

There have been 40 bank failures through June 1st, which has caused the FDIC funds to decline 24% to $13 billion. However, they have set aside $28 billion for future failures this year, as problem banks have grown from 171 to 305 – the highest in 15 years!

-3-

Orange County Real Estate Market – As of June 15^th

Listings Housing Supply May Sales <500,000 Demand <700,000 Demand

9,313 3.49 months 2,667 1,602 60% 2,261 84%

1. Attached homes under $500,000 make up 74% of the active listings.

2. Detached homes under $500,000 make up 21% of the active listings

3. Number of active listings that are vacant . . .27.3%.

4. Distressed properties total 3,062, representing 33% of our active listing inventory.

5. Short sales take 2.1 months to sell and receive 97% of their list price on average.

6. Foreclosures are 5% of our inventory; sell within 0.65 months; at above list price.

Through May . . .

1. Sales volume exceeded 2008 by 26.3%, yet prices declined 24.1%.

2. Monthly, OC is averaging 2,793 NOD’s and 644 foreclosures.

3. Average down payment was 18.5% with only 2.5% opting for adjustable loans.

The New World of Lending:

For The Buyer:

1. There are 71% fewer mortgages available than a year ago.

2. Tightening credit standards are now in place at 85% of our banks.

3. Buyers putting down less than 20% must have a FICO score of at least 720.

4. All assets and income must be verified and could be re-verified at closing.

5. New conforming residential loan amount for Orange County is $625,500.00

6. Only 2.9% of buyers are taking an adjustable rate mortgage vs. 85% in 2005.

FHA is the New Big Player.

1. Up-front insurance premium (MIP) is now 1.75%.

2. Over 95% financing, .55% monthly and .50% for less than 95% financing.

3. Down payment is 3.5% and the FICO score must be at least 580.

4. Down payment assistance programs have been abolished.

5. 45% front end and 55% back end debt ratios and 2 year employment history.

6. Must be greater disclosure to buyer on monthly payment changes.

7. Borrower must have a valid Social Security Number and be a legal resident of U.S.

8. Owner-occupied properties only, but “gift” is still available for down payment.

a. “Kiddy Condos” for kids in college.

9. Ch 7 BK – discharged 2 yrs. / 1 yr. Ch13 and foreclosure/short sale is 3 years.

10. FHA appraisers must be certified, which will cause a decrease in the number of

available appraisers. This will increase the appointment time for an appraisal.

11. New FHA Loan Limits for Orange County are:

One Unit Two Units Three Units Four Units

$625,500 $800,775 $967,950 $1,202,100

-4-

The New World of Lending: (continued)

For Lenders:

1. Most lenders may no longer use “in-house” appraisers.

2. Financial institutions will be held liable for any misleading advertising.

3. Adjustable sub-prime loans cannot have a pre-payment penalty for 4 years.

4. Fixed sub-prime loans cannot have a pre-payment penalty for 2 years.

5. Truth in Lending statement must be printed in the native language of the borrower.

The Investor:

1. No more than 4 to 10 investment properties can be financed, depending on a lender.

2. If investor puts down less than 20%, it introduces: PMI; higher rates; added approval by insurance companies.

3. Loan rates are usually 0.75% to 1.0% higher than owner-occupied financing.

4. Investor loans are more difficult to get, because 40% of foreclosures are investment properties.

5. Investors have to be prepared for rent reductions on their properties.

6. Investors slogan is: “Repent and Rent”

For The Seller:

1. Foreclosures and short-sales will continue to dominate the 2009 real estate market. Orange County filed 8,427 notices of default in the 1st quarter of 2009.

This is up 19% from the 1^st quarter of 2008.

2. Listing prices must be competitive with these properties for a successful sale.
3. Regardless of sellers’ expectations, their house will be appraised conservatively.
4. The buyers are still in control of pricing:

a. give careful consideration to a counter offer.

b. expect to pay for all termite and inspection report disclosures.

c. length of escrow will be the buyer’s/lender’s choice.

d. market conditions can push escrow periods much longer.

e. making repairs and improvements ahead of time will help the marketing.

And if all else fails, tell your unreasonable seller:

“I need a version of reality I can understand.”

Source: FHA, Mortgage Bankers Association, Federal Reserve

-5-

The New World of Lending: (continued)

Loan Modifications:

1. Must have authorization letter to communicate with lender.

2. New law allows borrower to have an intermediary to discuss situation.

3. Fannie Mae has a Streamline Modification Program (SMP), for its securitized

loans. It is a fast-track method for getting homeowners affordable mortgage

payments, extending the term of the loan, lowering the interest rate and even

deferring payments. Seller must be 3 months behind, live in the home and have no

bankruptcy filings.

4. Obtain required information and help seller complete the package properly.

Short Sales:

1. Must have authorization letter to communicate with lender.

2. Expect the entire process to take approximately 60 days to 6 months.

3. An investor may still have to sign off, even after asset manager gives the “OK”.

4. Make sure to “pad” estimated HUD-1 and cover non-paid items such as taxes,

association dues, transfer fees, county taxes, transaction coordinator, etc.

5. After lender approval, escrow closes within 20 to no more than 45 days.

Foreclosures:

1. New law requires lenders to contact borrowers 30 days prior to filing a notice of

default, but only on owner-occupied home loans.

2. New state law immediately allows tenants to have 90 days to vacate a foreclosed

property, if the new buyer is going to occupy the home. If the buyer is an investor,

then the tenant can remain to the end of the lease agreement.

3. Lender or investor acquiring the property must care for abandoned animals.

4. Law requires lenders to maintain the properties or face $1,000 a day fines.

5. Both Fannie Mae and Freddie Mac will now notify renters prior to property

entering the foreclosure process, and will execute a short-term rental agreement

with the tenant until the property is sold.

6. California has followed the Federal laws, extending tax relief from any debt

forgiveness. This is for purchase money loans only, no REFI’s or HELOC’s.

7. Effective June 15^th, California lenders must postpone all foreclosures for 90 days

on owner occupied homes.

IRS:

1. Will expedite release of tax liens on homes and paychecks.

2. In Offers-in-Compromise, equity in the property will no longer act as a deterrent.

3. Will postpone collections due to a loss of job, devastating illness or significant

medical bills.

4. Will be more flexible on missed payments due to loss of job or hardship.

Source: FHA, Mortgage Bankers Association, Federal Reserve, IRS

-6-

The Outlook for 2009:

The Current Economic Headwinds:

1. Wealth Effect – due to declining assets

? Americans lost $1.33 trillion in household net worth during the 1^st Qtr. 2009

? In the U.S., there are 40 million homeowners who have no equity.

? PMI Mortgage Insurance Co. has ranked OC #6, in the nation for continued

price declines.

? If housing declines another 5%, another 2.1 million more homes will be

upside down in the U.S.

? California home prices are down 32.2% from the previous year.

? Ca. foreclosures in 2008 totaled 236,231, versus 84,375 for 2007.

? Existing home sales, in the State, are dominated by foreclosures – 51.1%.

? In the 4^th quarter of 2008, banks reduced credit lines by $500 billion dollars!

? By the end of 2009, credit lines will be reduced by another $2 trillion dollars!

2. Income Effect – due to higher unemployment

? May’s U.S. unemployment rate was 9.4%, the highest rate in 26 years!

? California’s unemployment rate in May was 11.5%!

? In the past 12 months, California lost a total of 706,700 jobs!

? Orange County lost 71,100 jobs in the past year, wiping out gains for the

past 4 years. The unemployment rate is 8.6% - the highest in 14 years.

.? With less income and thus less paid taxes, more pressure will fall on federal,

state and personal budgets, as evident by the problems of California.

? The deficit for the 1^st quarter for the U.S. was $485.2 billion – highest on

record. This is due to the government’s $3.6 trillion budget.

3. Financial “Credit Crunch”

? We are now in the 28^th month since the financial crisis began.

? Four states account for 46% of all new foreclosures in the U.S., with

California leading the pack.

? A record 12% of U.S. homeowners with a mortgage are behind in their

payments or in foreclosure. Many with good credit!

? The foreclosure rate on fixed-rate loans has doubled in the past year.

? First came the sub-prime defaults. Now comes the next wave of defaults on

Alt-A, Option ARMS and Prime loans. Commercial loan defaults will follow

them.

-7-

The Outlook for 2009 (continued):

4. Option ARM Nightmare

? Option ARM mortgages total $1.5 trillion, with Californians holding half.

? 90% of Option ARMs borrowers are paying the minimum payment.

? This is causing the recast date to be reached earlier than had been projected.

? This year, 47% of all Option-ARMs will be recast.

? If borrower’s rate began at 1% to 2%, their payments will rise 80% to 100%.

? There is no doubt the borrowers are going to walk away!

To make things worse, lenders will have to restate their earnings, because they counted the unearned interest as income. After foreclosure, they will have to restate each quarter they claimed, which will add additional losses to their balance sheets. They will have to raise additional capital to cover losses – the double whammy!

Sources: Mortgage Bankers Association, U.S. Bureau of Labor, Ca. EDD, Federal Reserve, DataQuick

A Final Perspective

The recession has gone on so long and has been so crippling that any small piece of economic data that comes out favorably leads one to think that things are finally going to get better. Unfortunately, this is not so!

Housing has low prices and extremely low mortgage rates. This should have been enough to turn us around. However, when you balance this against shrinking access to credit, instability of American workers to receive higher wages and crippling unemployment, the outlook is not good.

The current increase in foreclosures is beginning to look very similar to what occurred in early 2007. The difference is that we were reaching a peak in housing prices. This time around, we have no price buffer for the next onslaught of foreclosures.

Although the low-end of the market is fairly strong, in the past they took their equity and “moved-up” to the next pricing tier. These sellers are leaving their homes with nothing and therefore the next pricing tier (over $500,000) has no support coming.

Pent-up demand will soon wane, investor purchases will begin to decline and inventory will grow. This will put a new round of pressure on an already price-declined market. To add to the housing woes, the Treasury is issuing a lot of money. The market is beginning to wonder who is going to buy all these notes and bonds. This will force interest rates upwards, putting more pressure on our already weak housing market.

Sen. Johnny Isakson, R-Ga., introduced S. 1230, the Homebuyer Tax Credit Act of 2009. The bill would increase the maximum amount of the credit from $8,000 to $15,000 and expand the current tax credit so that it applies to any buyer of any home, not just first-time buyers. It would also eliminate income caps of $75,000 for an individual and $150,000 for a couple under the current tax credit so that there is no income limit for eligibility. The bill would also extend the tax credit for one year from date of enactment and would still allow home buyers to claim the credit on their 2009 tax return for purchases made in 2010.

“The first-time home buyer tax credit has made a difference,” Isakson said in introducing the bill. “First-time home buyers used it and the market stabilized, but we don't have a recession in first-time home buyers. We have a recession in the move-up market. One of the biggest problems facing the American people today is an illiquid housing market, a decline in their equity, a decline in their net worth and a depression in the housing market that we are obligated to correct if we possibly can.”

MBA Chairman David Kittle, CMB, issued a statement yesterday in support of S. 1230.

"Stimulating the housing market is one of the best ways Congress can help accelerate the recovery of our national economy,” Kittle said. “Offering $15,000 to potential home buyers is a powerful incentive that I believe will jump-start the housing market.”

Kittle noted that the current $8,000 credit for first-time buyers has had a positive effect on the housing market this year. Increasing the amount and expanding the benefit to include all home buyers, he said, would have an even larger impact in spurring the housing market and stabilizing the economy.

"As this bipartisan proposal moves forward, we hope that policy makers will make the tax credit refundable as a tax refund if the person's tax liability is less than the amount of the credit, so borrowers can take full advantage of this benefit,” Kittle said. “In addition, we believe that the tax credit ought to be made available at the closing table. One of the greatest hurdles for many home buyers is saving money for their down payment. If this money could be made available at the closing table, as FHA has done with the existing tax credit for first-time home buyers, it will have the potential to help even more borrowers."

Good morning!

MBS prices are up +5/32 (FNMA 30-yr 4.0 at 100.08), which is about 8/32 higher than Friday at this time. The 30-yr fixed FNMA required net yield (60 day) is now at 4.46%, from 4.51% on Friday.

Treasury yields rose on Friday as stocks rose, brushing off the "news" of the bank stress tests. The information released by the Fed provided limited additional details of the methodology of the tests. While the individual banks were briefed on their results, those details will not be made public until at least May 4. Some banks are expected to require additional capital, either private or from the government. Most banks are expected to pass the stress tests. While the economic scenarios driving the tests seemed appropriately severe in February when first released, the deterioration in the economy since then has undermined them. Friday's focus also included the automakers with increasing expectations of bankruptcy by both GM and Chrysler. Since then, however, progress on Chrysler's union contracts has upped the odds that it will be able to restructure and sell to Fiat without going through bankruptcy. GM will scrap the Pontiac brand as part of its restructuring. Over the weekend and this morning, attention has focused on the swine flu spread which has rekindled SARS and pandemic concerns. While Mexico seems to be the center of attention, the assessment that the illness is spread human-to-human and the widespread reported cases, even though they are few in number, are raising governmental concerns and efforts. Markets are taking note with declines in world stocks being attributed to the scares. A flight-to-quality this morning is boosting Treasury bonds along with the dollar. Last week, the taxable muni market exploded with issuance of Build America bonds. Strong follow-through is expected this week. This week's economic calendar is fairly heavy and back-loaded.

There are no Economic Indicators are scheduled for release today.

Treasuries Rise as Federal Reserve Begins Purchase of Debt. Yields on 10-year notes rose the most in almost two weeks as the central bank listed 20 securities for possible purchase between 10:15 a.m. and 11 a.m. New York time. Investors speculated banks may need additional infusions of cash after the government completes its so-called stress tests of balance sheet strength. “The buybacks are the thing this week and there are no auctions this week”

Obama Sees `Glimmers of Hope' for Economy After Meeting Bernanke, Geithner President Barack Obama said he’s “starting to see progress” toward a recovering economy even as it is “still under severe stress.”

Bernanke Bet on Keynes Has Meltzer Siding With Friedman on Inflation Risks Federal Reserve Chairman Ben S. Bernanke is siding with John Maynard Keynes against Milton Friedman by flooding the financial system with money.

Fed Said to Order Banks to Stay Mum on ‘Stress Test’ Results Regulators are using the tests to determine whether the 19 biggest banks have enough capital to cover loan losses during the next two years if the economy shrinks, unemployment surges and housing prices keep declining. The tests are a linchpin of the plan announced in February to bolster confidence in the nation’s banks and restore financial-market stability. Geithner has likened the stress tests to those used by doctors to evaluate a patient’s health. They’re designed to mesh with the administration’s effort to remove distressed mortgage assets from banks’ balance sheets. The Fed is overseeing the administration of the tests, people briefed on the matter say.

Delinquency Rate Rises on FHA-Backed Loans. Nearly 10.2% of borrowers who took out FHA-backed loans in the first quarter of 2008 had missed at least two consecutive monthly payments within the first 10 months. That was up from 2007, when 9.4% of FHA-based borrowers missed payments within the first 10 months. Loans that are 60-days delinquent aren't necessarily headed to foreclosure, and the FHA has robust loss-mitigation programs. FHA officials say nearly 10% of those 60-day delinquencies end up in foreclosure, compared with a 27% rate for private-sector loans. But the rising default rate nonetheless illustrates the challenges that face the agency as it becomes one of the last backers of mortgages with low down payments.

Reverse Mortgage: Get Cash, But Use Caution  Reverse mortgages are booming as the number of federally insured reverse mortgages hit 112,015 in 2008, up from 43,082 in 2005. While it makes sense to suspend withdrawals from beaten-down retirement accounts, taking out a reverse mortgage is an expensive way to achieve this, warns an elder-law specialist.