Here’s a quick, internal mini-market update for y’all since I have been getting many requests to put something out and my last market update was almost a couple of weeks ago.  Busy times, guys, busy times.  Between playing solitaire in my office and surfing YouTube and Craig’s List, I haven’t had time for much else.

Not to steal their thunder, but according to how the markets traded today, the “smart money” put forth a vote of “no confidence” for Geithner and B.O. when lack of details stunk up market expectations that we would all hear something concrete today to make us all feel safe like they had the magic government playbook or something.  You know, kind of like when the government told school children back in the 1950’s and 1960’s to just get under their desks and not stare at the light if the A-bomb were to go off. Hey, even the cynic in me wishes we could all just walk away with a nice tan from this experience, but I’m afraid the leakage from this one is radioactive and quite toxic . . .

Market sentiment in reaction to Geithner’s much awaited plan unveiling was utter disappointment, and the adage, “You never get a second chance to make a first impression” seems to be the theme.  The market is catching the “subtle stuff,” like the fact that B.O. is now talking about “saving another 4 million jobs from being lost” as opposed to “creating 4 million new jobs,” for example – not exactly a minor difference.  The unemployment picture really is pretty scary when you consider the fact that the U.S. lost 4 million jobs last year, and that half of that was in the last 3 months – it’s accelerating wildly. 

Can you say, “Need to do verbal VOE’s to make sure we aren’t funding loans for the unemployed?”  Consider this to be foreshadowing of a policy change coming your way soon.  Honestly, we should probably be doing it at the time of closing and then again at the time of funding.  This was a topic I was discussing with one of our larger investors today.

Stock investors showed their disappointment to today’s announcements as the Dow Jones Industrial average plunged 381.99 points to close at 7888.88 – below the psychologically important 8000 level.  On the debt markets side of the ledger, we saw another flight to quality in treasuries, which helped to boost mortgage backed securities prices, driving mortgage yields lower.  I have to laugh whenever saying that a flight to treasuries is a flight to quality, because the U.S. Government ain’t triple-A anymore, baby.  With those printing presses glowing red-hot and Treasury auctioning off increasing billions in supply with each passing week to finance government spending, we’re heading for heartache no matter how you slice it.  Which would you prefer, Sir – deflation or inflation?  The upshot is that, in Secondary, we took in a heavy $20.5 million in locks today, as a result of the combined MBS price action and expiring old credit policies for loans that must close by Friday.  You just have to look for that silver lining in every cloud and lock ‘em if you’ve got ‘em (you knew I was going to work that in, didn’t you?).

For those of you that didn’t already know, Assurity Financial remains a member of the Mortgage Bankers Association and has been for several years.

Buon Appetito!

One of my favorite movies of all time is Oliver Stone's Wall Street - a movie that came out in 1987 about a corporate raider named Gordon Gekko (played by Michael Douglas) that corrupts an ambitious young stockbroker (Bud Fox - played by Charlie Sheen). Gekko enlists Fox into helping him to take over a paper company and a steel company and in making a run on an airline where Fox's father (played by Martin Sheen, ironically enough) is one of the union bosses. They both commit insider trading among other legal and moral hazards and . . . well, I don't want to ruin the movie for you if you've never seen it. It's an iconic movie about what so many have coined as "the era of greed" that was the 1980's. It will be interesting to see what movies are made about the first decade of this new millennium we are in.

Gekko's speech about how "greed is good" to the board members of Teldar Paper is timeless. I found this picture on the internet - if you have seen the movie, you'll get it - this is priceless. If you haven't seen the movie, pick it up and watch it this weekend!

Greed, in the form of those who blew a good thing the last few weeks by not locking down historically unprecedented rates for themselves and their borrowers because they were waiting for the price of money to get even cheaper just got burned - BADLY. We have continually been preaching, "LOCK 'EM IF YOU'VE GOT 'EM" and watched in disbelief as other market advisors continually advised to "float", "hold locks", or "float with caution". Doesn't seem to make much sense to us that someone would want to gamble with their home or that mortgage professionals would want to gamble with their careers and watch an entire unlocked pipeline vanish into thin air, which is exactly what has just happened to many floating refi applications in the last few trading days. What a shame.

But hopefully, you have been following our advice and are not among the many casualties that this market chews up and spits out daily! If so, you have hit a home run the last few weeks and continued to focus on what we mortgage bankers and brokers are supposed to focus on: Serving as trusted advisors to our clients and giving them conservative advice that is suitable for their situation and that will increase their financial security and expand the dream of homeownership in America. It's also how we make our money - by providing top-notch service and enjoying the benefits of repeat business.

THE LAW OF DIMINISHING MARGINAL UTILITY
Also known as "the law of diminishing returns," this economic concept is best explained by what Jerry Seinfeld would call "observational comedy." For illustration purposes, I will use my 5-year old son, Jack, as our victim here. My son has a particular zeal for candy and sweets of all sorts. The law of diminishing marginal utility came into sharp focus for young Jack on 10/31/08 after putting a dent into his Halloween candy stash in a single night that a boy twice his size would have had trouble choking down. The first few bites for him were pure ecstasy; the last few bites literally caused him to vomit. There came a point (known as the point of diminishing marginal returns), where the more he ate, the less he enjoyed it. Get the picture?

As Jack's father, I actually experienced the same thing personally at the pumpkin carving contest Jack and I participated in, where it was mostly other moms from the neighborhood that helped their children to craft their masterpiece. As Jack and I boldly carved away, laughing hysterically the entire time, our enjoyment became increasingly muted as the idle chit-chat from the other participants turned to a deafening silence when we revealed the literal fruit of our labor, pictured below.

To come full circle here, greed and the law of diminishing marginal utility have both converged in an unpleasant result on those poor souls who were waiting for rates with a low "4" handle. To see what I am talking about, consider the following example:

A borrower with a 30-year fixed rate loan of $200,000 at a note rate of 7% could have refinanced into a note rate of 5% and saved $256.96 per month on their mortgage payments, assuming the same loan amount. Of course there are the costs associated with refinancing that would make the A.P.R. higher in both cases, but you get the idea for illustration purposes here. By holding out for that elusive 4.5% that Bernanke and the talking heads in the financial media had everyone so excited about, this same borrower would only have stood to save an additional $60.27 per month by waiting and trying to time the market perfectly.

Reality is that, at the writing of this market update, rates are now back up closer to 6%, with A.P.R.s above that. Take a look at the 60-day chart of the GNMA 5.0% MBS below. Remember that yield moves the opposite direction as price. Are we headed right back to where we started? This looks even more like a story line from the movie Groundhog Day, starring Bill Murray. Okay, I'll stop with the movie references . . .

The below 30-day tick chart of the same security shows a more "zoomed-in" view of what has been happening in recent trading days. You can see that the selloff has accelerated the last two trading days, and that, since January 9th, those who have been holding out for even a simple uptick in MBS prices (drop in mortgage rates) have only had about 1.5 days of respite. Reminds me of when Clark Griswold (played by Chevy Chase) went up against that blackjack dealer named "Lucky" in Vegas Vacation. Okay, now I really will stop.

What a shame for those who missed it. Certainly, all of us hope that those lower rates come back - and they certainly could. Like I typically tell people when they ask me where interest rates are going, I tell them that there are three distinct possibilities: They can go up, they can go down, or they can stay the same. Who knows which one it will be? My grandfather used to tell me that you could hope in one hand and spit (paraphrased) in the other, and if you actually go through this exercise you will continue to achieve the same result and discover which one fills up first. So we don't like to leave a lot to hope and chance at Assurity Financial, especially in our secondary marketing department and capital markets trading and hedging operation, and we advise our customers to do the same.

IS THE GOVERNMENT GOING TO MAKE GOOD ON THEIR PROMISE OF 4.5% MORTGAGE RATES?
Maybe - but not unless they adjust their current strategy, because "talking the market down" and BUYING THE WRONG SECURITIES ISN'T GOING TO GET IT DONE!!! Let's look at what they are really doing in the open market to achieve their stated objective, clever fellows that they are. The strategy is actually brilliant, especially considering this is the government we are talking about. You can tell that some of the ex-Golden Slacks guys must have been in on putting this one together before they got shown the door by the new administration! No way does Joe The Plumber put a pencil to this one and figure it out.

You can actually watch what that trader with the bright green "FED" jacket I talked about a few market updates ago is doing, by clicking this link to the Assurity Link To Fed Mortgage Bond Buying. Actually, it's to a page on the Federal Reserve Bank of New York's website. You can see that, from January 22nd through January 28th, the vast majority of what they stepped into the crowd and bought were FNMA 5.5% bonds. Without getting into the explanation of g-fees, servicing values, excess servicing, buy-ups, buy-downs, etc., just trust me when I tell you that it is generally loans with NOTE RATES of 5.75% to 6.375% that get placed into 5.5% securities.

Still don't get it? Think about it: First, you tell the market that you are going to buy mortgage-backed securities to drive down mortgage rates. The capital markets being what they are (forward looking, pricing in future expectations), immediately react and you get huge moves overnight as traders price in these expectations almost immediately. That's what happened on both November 25th and December 16th when they made those market-moving announcements of intention and amount and timing of purchases, respectively. The market does the work for you. Then, you say that you are confident that you have the continued funds to sustain the efforts (and you hope no one wakes up to realize that continually printing money to do the deed will be inflationary and actually drive up rates in the long run, but whatever). Here's the brilliant part: You step in and you actually start buying - BUT YOU BUY THE SECURITIES THAT ARE GOING TO PAY OFF AS A RESULT OF THE LOWER RATES CAUSING THOSE LOANS BACKING THE UNDERLYING SECURITIES YOU HAVE PURCHASED TO REFINANCE, SO YOU ARE ABLE TO CYCLE THE SAME FUNDS BACK INTO FUTURE SECURITIES PURCHASES. When you have given the market a head-fake and talked the market down to where prevailing rates are in the low 5's and you're shooting for the low 4's, not many homeowners hang on to their 5.75's and 6.375's unless they are living under a rock or are ineligible to refinance - so you get your money back right away!

But just like what happened on Wall Street with investors in mortgage-backed securities that were backed by junk, transparency caused the merry-go-round to eventually stop in this case, too. Ironic, eh? Bet your local newscaster hasn't fed you that headline yet, and they aren't going to any time soon, either.

The famous line from Shakespeare's Hamlet goes, "This above all: To thine own self be true . . ." If Big Government would have just been true to its character and kept us all in the dark and not publicized the details of their exact purchases and actually shown us the trade tickets on the New York Fed's website, it probably would have worked - no kidding. As usual, however, it seems that Wall Street investors like our fictitious friend Gordon Gekko solved the equation in a nanosecond, incorporated it into their trading strategies, and the crowd of sellers overwhelmed the guy with that Fed jacket. Ever seen The Sting? One thing I learned in a previous life when I was a trader and money manager is that the market always wins, and that NO ONE and NO ENTITY is bigger than the market. Not Gordon Gekko, not Wall Street firms that were around for 185 years, not the biggest banks in this country, not Fannie Mae and Freddie Mac, not the 12 member banks in the Federal Home Loan Bank system, and not even the United States Government itself. Let me say that again: NO ONE.

SO WHERE DO WE GO FROM HERE?
One of my favorite quotes is from General H. Norman Schwarzkopf. During the Gulf War, he said something to the effect of, "There are no atheists in fox holes." I'd love to tell you all that praying is going to get us out of this mess, but it won't. And relying exclusively on hope as a business strategy or financial management plan is reckless at best. In my humble opinion, we have to get back to basic blocking and tackling in the mortgage business and in managing our pipelines and our clients expectations (and our own, for that matter). What does your refi versus purchase mix in your book of business look like? Are you putting all of your eggs in that refi basket? Are you holding onto rate locks, hoping rates will go down and that the government will solve the perceived problems of the free market system?

If so, just know the odds you are dealing with. And good luck, because you are going to need it.

"FEAR", FOR LACK OF A BETTER WORD, IS GOOD.
Are you SCARED yet? Afraid that even your rich Uncle Sam can't afford to pick up the tab this time around? If so, then GOOD!!! A Wall Street contrarian worth his or her salt would tell you that is EXACTLY what has to happen from a market psychology standpoint in order to actually hit bottom. And it's the market that will work itself out - not some external force that will inevitably only have a temporary impact, and only serve to ultimately anger the market gods that always wreak their own economic revenge on those who unwittingly toy with a force far greater than them.

LOCK 'EM IF YOU'VE GOT 'EM, and make sure you have a healthy mix of purchase business. With spring just around the corner, and housing inventory beginning to clear the market at lower prices, maybe just maybe the free market system itself has the bottom in sight and we can have that $2 trillion origination year after all - it just may not come from where we thought it would a couple of weeks ago!

Happy Hunting!

-Calvin Hamler, AMP - Managing Member, Assurity Financial Services, LLC

The stock market took a beating yesterday, and investors were sorely disappointed as the excitement surrounding the historic swearing in of Barrack Obama as the nation's 44th president was greeted on Wall Street by the worst inaugural stock market performance in the nation's history. Investors ran for the hills as the Dow Jones Industrial Average dropped 332 points, breaking the psychological barrier of 8000 on the Dow, and bank stocks in particular were hit MERCILESSLY.

Here are the 1-year stock charts of 6 of the largest banks in the United States, from Bloomberg, as of the market close yesterday. Some of these companies lost nearly a third or half of their market value YESTERDAY ALONE. These are truly unprecedented, and unsettling times to say the least. In our industry, since these are essentially most of the only major investors and warehouse credit providers of substantial "aggregator" size and capacity that are left, this is truly shock-and-awe in real time.

Remember watching the Gulf War on CNN? That was nothing compared to the carnage that is being wreaked on this economy.

The question on investors' minds now is whether or not the entire United States banking system may be on the verge of complete collapse and therefore nationalization (we always wanted to own a bank, but not like this!). Every single one of the major banks has seen its market capitalization decimated, and some argue that, if all banks were forced to mark-to-market the illiquid assets on their balance sheets or purge themselves of all toxic collateral like smaller companies many of the mega-banks have as customers have been forced to do, that virtually every major bank in America is currently insolvent.

Let's say that again: Every major bank in America may be currently insolvent. It just depends on how you perform the accounting and valuation of the assets on their balance sheets. This is a problem that even the United States government itself may not be big enough to tackle. Is the U.S. Government too big to fail, financially speaking?

Let's hope so.

But investors aren't sure about that one, either. The last few days have seen the crowd of sellers in mortgage-backed securities, for example, start to win the tug-of-war against the government's efforts to purchase them to prop up MBS prices and drive rates lower. The public isn't getting that 4.5% rate Bernanke talked about just a few weeks ago without having to pay some fairly hefty points and fees to get there. We all know that pretty much any rate can be "bought" - it's just a question of at what price. 4.5% isn't cheap, and it's been getting more expensive the last few trading days. Below is a chart of the February GNMA 5.0% MBS. You can see the recent selloff (increase in rates).

One reason for the recent MBS price action (and short-term run up in mortgage rates) may be that pressure from the treasury markets has spilled over into mortgages. In a very simplistic analysis of supply and demand for treasuries, the fact of the matter is that there is an ever-increasing supply as the U.S. Government has to sell treasuries to finance its massively increased government spending efforts that some have called various forms of "bail-out". So that massive supply is in a constant tug-of-war with demand for treasuries that has been driven largely by panic for the last several months as many investors have sold assets of all shapes and sizes and flocked to the perceived safe haven of treasuries.

Another reason for the recent run up in rates may be that investors are looking further into the future and are worried about the inflationary implications of continuing to literally print massive amounts of money to finance the U.S. government's activities and service its debt. Long term inflation spells an increase in interest rates at the long end of the yield curve (read: mortgages). If there is inflation in an economy, higher interest rates are virtually inevitable. One layman's definition of inflation is "too much money chasing too few goods," so increasing the money supply (literally via the printing press) faster than the rate of GDP growth (GDP is the yardstick by which we measure the output of an economy, or all of a country's goods and services produced annually) is, by definition, inflationary. The only question is WHEN does the actual inflation manifest itself? At present, we are actually experiencing asset price DEFLATION (just take a look at home prices, for example). But to focus exclusively on the here-and-now short term without thinking about the long term is tantamount to driving your car 120 miles per hourand only looking at the hood ornament - it's reckless at best, and believe it or not, investors try not to be reckless when it comes to their own money!

The discussion of what else could be done to increase GDP without causing inflation via trying to move one of the other variables of the economic C+I+G+X=GDP equation is only academic at this point, because the markets are dealing with the fact that our leaders have chosen to focus mostly on the "G" (government) as the answer to this economic crisis. For those of you without a working knowledge of economics, C=Consumer spending; I=Investment spending; G=Government spending; X=Net Exports (i.e. the net of what foreigners buy of ours less what they sell of theirs to us); and GDP=Gross Domestic Product, which again is the yardstick by which an economy is conventionally measured. If you want to boost an economy (i.e. increase GDP or growth in GDP), you increase one or more of the variables on the left hand side of the equation - it's as simple as that. The disputes among economists and politicians are over which of the variables to focus on at any given point in time, and how to get each one to increase without causing a whole bunch of other bad stuff (like hyper-inflation or world war) to occur as a negative side-effect.

There is so much more to write about, but at the risk of boring everyone to death, we will conclude this market update and save some of our ramblings for other market updates in the future.

Keep your chin up, America! It could very well be that the type of sell-off we are seeing in equities, and bank stocks in particular, are of a magnitude that could constitute "capitulatory selling," especially since the selloffs have come on large volume as indicated by the volume bar charts at the bottom of the price graphs above. However, that's just technical analysis. It's the fundamentals, in the form of junk on the banks' balance sheets, that have to be addressed to get us completely un-stuck and moving in the right direction.

LOCK 'EM IF YOU'VE GOT 'EM in these historically unprecedented times where none of us know what news headlines we are going to wake up to that could dramatically affect mortgage rates.

One last thing: Assurity Financial Services, LLC has *ZERO* illiquid loans on its balance sheet aged past their warehouse period. Our company purposefully took significant losses in 2008 to fire-sale all illiquid collateral and set itself up to enjoy the tax benefits of doing so. Last time we checked, that puts us in a fairly unusual group of mortgage bankers, certainly not in the company of the entities shown above, from an asset-quality standpoint. Of course we also don't have TARP funds at our disposal, but we're doing the best we can with what we have, and our people are some of the hardest working and most ethical and honest professional experts in the industry!

P.S. We truly value our customers, and we know you have a choice of lenders, so thank you for your business and for your vote of confidence in us during these turbulent times!

Assurity launches new wholesale site. The new site can be viewed at http://www.assuritywholesale.com.

What kind of world are we living in, anyway?  Some recent news headlines of interest:

• Somali pirates in the Gulf of Aden continue to interrupt international shipping. Arrrrrrgh!
• FBI arrests Illinois governor Rod Blagojevich after wire taps and surveillance reveal he was trying to auction off the open senate seat appointment created by president-elect Obama to the highest bidder, Cosa Nostra style. Fughettaboutit!
• Bernard Madoff allegedly orchestrated a $50 billion ponzi scheme, the largest in Wall Street's history, spanning multiple decades.
• Warren Buffet admits to shoplifting as a kid in a recently authorized biography.
• Denver, Colorado won't be having a white Christmas - weather forecasts call for it to be sunny with a high of 44 degrees on Christmas Day.
• Most lenders still aren't being proactive and creating a rate lock renegotiation policy (click this link to read ours) in light of the recent, extraordinary moves in mortgage interest rates like Assurity Financial has done for its customers!

Capital markets factoid of the day:  Mortgage backed securities prices move inversely with their yield (rate). So when prices go up, mortgage rates go down, and vice-versa.

Yesterday, we saw the first technical signs that the mortgage markets may want to take a short break from the recent run up in prices and all-time-low rates. The above 90-day chart of the January Ginnie Mae 5.0% MBS from Bloomberg shows that, if you draw a trend line connecting the most recent lows to establish a support line for the most recent up-trend in prices (drop in rates), you can see the market violated this trend line for the first time yesterday. Market technicians may take this breaking of the up-trend support line as a sign that we could have a short term trend reversal, or at least as a sign that the market could be a bit over-extended at these levels. There is a saying on Wall Street that "old support equals new resistance". With this in mind, if the market were to turn back around and rally, market technicians would expect there to be overhead resistance at this trend line on any upward move in MBS prices (drop in rates).

We always tell our customers, "LOCK 'EM IF YOU'VE GOT 'EM" to protect yourself from market volatility - especially during these unprecedented times! However, we provide this information and insight on capital markets trading patterns so you can hopefully better educate your clients about what is happening with short-term trading and gyrations in mortgage interest rates. It also may help you to understand when and why you see investor price changes like we saw yesterday.

One of the driving forces behind this technical chart pattern breakdown may have been the enormous amount of supply in treasuries that came to the market yesterday. Though the $38 billion auction of 2-year treasury notes yesterday was well received by investors continuing to flock to the safe haven of treasuries, that's a lot of supply! Additionally, another $28 billion of 5-year notes will be auctioned off today, and this additional supply could continue to weigh heavily on treasuries, which impact mortgages. There definitely isn’t as strong of a correlation between how treasuries and mortgages move as there used to be, but a lessened correlation does still exist. This lessened correlation (or “beta” if defining the 10-year treasury as your market benchmark equivalent for you market technicians out there) is why many of you who may still be watching the 10-year treasury to try to figure out what the heck is going on with mortgage rates may have gotten very confused the last several months – it feels like your compass is broken, doesn’t it? J If you have been a lender using treasury futures and options instead of MBS forward short sales in this environment to hedge your pipeline of mortgage locks . . . OUCH! Assurity’s secondary marketing department has chosen the latter, more conservative approach, incorporating a sophisticated “delta hedging” model to provide security to the company and its customers.
Lots of economic data came out today that you can share with your clients:

• 3rd quarter GDP (quarter-over-quarter, annualized) came in at -0.5%. The market was expecting -0.5%.
• 3rd quarter personal consumption was -3.8%. The market was expecting -3.7%.
• 3rd quarter GDP price index was +3.9%. The market was expecting +4.2%.
• 3rd quarter GDP Core Personal Consumption Expenditures (quarter-over-quarter) was +2.4%. The market was expecting +2.6%.

Since the actual numbers were so close to market estimates, none of this data was a major market mover in early trading this morning. Markets tend to move on data releases only when there is a material discrepancy between expected versus actual. An understanding of this fundamental concept is why many borrowers are confused when they hear that "the Fed cut rates", for example, but mortgage rates didn't go down (or even went up!). Markets are always forward-looking, pricing in all future expectations at any given point in time. So, if the markets are already predicting a given cut in rates by the Fed, for example, and the actual Fed rate cut comes right in line with market expectations, there are often times no drop in mortgage rates because THE MOVE WAS ALREADY PRICED INTO THE MARKET. Similarly, when the Fed comes out with historic, ground-breaking announcements that "surprise" the markets, like they did on November 25th and on December 16th when they announced that the Fed would make major purchases of mortgage-backed securities and GSE debt to support the mortgage markets, you can see MAJOR market moves - because the markets weren't expecting it!

Assurity Financial hopes to continue to be a trusted advisor to YOU, our valued customer, so that you may in turn do so with your clients, by providing you with world-class service, good pricing, conservative and flexible lock desk policies, and market information that will position you as a cut above the rest! WE ARE HUNGRY FOR YOUR LOANS AND HOPE TO DO OUR PART TO CONTINUE TO ADD VALUE TO YOUR BUSINESS IN ORDER TO EARN IT!

Have a wildly successful day, LOCK 'EM IF YOU'VE GOT 'EM, and if we don't get around to writing another market update before then, have a Merry Christmas!

Assurity Financial Services, LLC
6025 S. Quebec St., Ste 260
Englewood, CO 80111

*All Rates and Programs are subject to change without notice.

--Calvin Hamler/Managing Member

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MERRY CHRISTMAS!     HAPPY HANNUKKAH!     FELIZ NAVIDAD!

30-DAY TICK CHART OF GNMA 5.0% MBS FOR JANUARY SETTLEMENT

30-DAY TICK CHART OF FNMA 4.5% MBS FOR JANUARY SETTLEMENT


**Make sure you read about our rate lock renegotiation mindset and official release of a written renegotiation policy at the end of this market update!**

WOW!!! The Federal Reserve played the role of Santa Claus yesterday, not so much by cutting the target fed funds rate to 0.00% to 0.25% (yes, that’s ZERO percent!), but more importantly by saying they would do “whatever it takes” in terms of mortgage-backed securities purchases needed to support the mortgage markets and drive rates lower. Can’t you just picture the trading scene as all these banks, hedge funds, and other investors are selling mortgage assets at never-before-seen prices to de-leverage and raise cash? Imagine one guy in the crowd with a bright green jacket that says “FED” on it - he is in the middle of the crowd, palms toward him, which indicates he is buying, and he has purchase tickets stuffed into every pocket, falling out into a growing pile around him on the floor. He can’t write them fast enough! Surrounding him are hundreds of other traders, representing financial institutions of every shape and size, wearing red jackets, palms out (selling), screaming at the top of their lungs over one another to be the next in line to get the attention of the much coveted guy with that green FED jacket that seems to have an unlimited order to fill! I sure hope he keeps buying, because the minute he steps out of the crowd, there would be a fairly significant supply / demand imbalance at these prices (low mortgage rates).

Meanwhile, feel free to don your best “Refi ‘08” t-shirts.

Our advice? LOCK 'EM IF YOU'VE GOT 'EM! Rates have been great for about 3 weeks now, and have gradually gotten better, reaching a crescendo-like improvement with this unprecedented Fed announcement yesterday. Capital markets being what they are, it would stand to reason that the MBS markets, with their large jump in price yesterday afternoon, may be already discounting most of what is expected to occur with the release of today's rate sheets - TODAY SHOULD BE AN AWESOME DAY TO LOCK MORE LOANS, and Assurity in particular is stepping into the crowd and taking an aggressive stance to bring improved pricing to its customers today!!! It's not that rates can't continue to go lower - they certainly can - it's just that we wonder if the guy with the green jacket might not be getting a bit fatigued at this point. Even if he continues to have this insatiable appetite, what happens to MBS prices (mortgage rates) if he steps out of the crowd, just for a day or two, before stepping back in? In other words SHORT TERM UPDSIDE VERSUS DOWNSIDE RISK IS NOT GOOD HERE FOR HOLDING RATE LOCKS. Therefore, we continue to adopt the mindset that we as mortgage originators are not speculators, and that when we have an order in hand (a loan application) we should just fill it (lock in the rate) and move on to the next trade (loan application) to make that next x.xx% in fees / YSP. After all we have been through in the past 18 months, why risk a sure thing?

What does YOUR pull-through look like?
Before we get into this discussion, please understand that we are just trying to provide you with information and insight to help run your business. We hope our customers appreciate honest, straightforward discussion and that they can appreciate our candor and that they find our insights and advice to be helpful. It is from this perspective that we approach this sensitive topic.

A major topic of discussion on the secondary desk of every mortgage banker right now is their customers' pull-through. This will be examined under a microscope this month by Assurity and by virtually every other mortgage lender doing any sizeable business like they have never done before, due to this unprecedented market movement. If your pull-through is sub-par, prepare yourself and your company for worse rates in the future, or worse, regardless of what lender you are dealing with. Most of the large aggregators have begun to FIRE THEIR CUSTOMERS over low pull-through! It's common knowledge that Chase just terminated thousands of brokers due to low pull through and other counter-party quality measures. Do yourself a favor - if you have committed a loan (locked the rate and / or submitted the loan) to Assurity, make sure you make every "best effort" to deliver that loan at the agreed upon terms. Assurity has one of the most sophisticated secondary marketing departments on the Street, and we will be paying extra attention to who our good customers are, and rewarding them accordingly. IF YOU WERE FIRED BY ONE OF OUR COMPETITORS, WE WELCOME YOU WITH OPEN ARMS, BUT LOYALTY IS A TWO-WAY STREET. In short, the secondary desks at lenders are talking, and we all have the same customers and we all have the same policies and objectives. All of us can figure out who is locking with us yet delivering away if we just communicate better, and this will now get unprecedented attention due to this recent market move. These kinds of capital market moves are significant enough that they can bury a lender if their customers don't perform on their rate locks - every lender is on "Amber Alert" on this topic right now, including us.

So why does my pull-through matter so much?
Basically, because mortgage bankers hedge their pipelines by selling short mortgage backed securities in order to lock in their profits (and insulate themselves from risk, which is what we are recommending that you do at the loan officer level by locking early and often). If MBS prices move sharply up, and rates move sharply down, as they have done recently, unless mortgage bankers get their customers to deliver on the long position (rate locks), they are just stuck with massive losses on their hedge coverage and no offsetting revenue from funded loans. It costs money to bring you those great rates! That money is in the form of hedging coverage and costs.

And what is Assurity doing to help out its customers?
The first thing we have to do is for all of us to be realistic in order to make the relationship work. Anyone that thinks that a loan officer isn't going to have a handful of customers that are market-savvy and want (insist) on getting a lower rate "just because they can" with no regard for loyalty to their loan officer right now should have their head examined. At the same time, any loan agent that thinks their lender (especially Assurity) isn't going to be watching them like a hawk for delivery this month is recklessly headed for heartache. You probably already got the impression that we are fairly out-in-front when it comes to dealing with market forces. So what are we going to do? Well . . . as of this morning, senior management has given Secondary the marching orders to adopt a mindset of, "WE'RE NEGOTIABLE!"

Assurity will be coming out with a formal, written, rate lock renegotiation policy later today or tomorrow. Meanwhile, this market is moving fast, so if you have customers that are forcing you to renegotiate, we want to work with you to make sure you get the deal and are able to deliver it to us to avoid the negative implications of not doing so! Our rate lock renegotiation philosophy will consist of two key points:

• Rate lock renegotiation must be customer driven, giving a direct benefit to the borrower via a lower rate offered to the borrower.
• The loan officer will not receive additional YSP above what was offered on the original rate lock by renegotiating the rate on their customers' behalf. This is meant to be a direct benefit to the borrower, driven exclusively by the borrower. It will cost Assurity considerably to put the previously agreed upon loans into lower coupon mortgage backed securities, but we are willing to help out the best we can by already cutting deep into our margins to help save your deal and make you look like a hero.

Assurity Financial remains steadfastly committed to being as progressive as possible in finding creative ways to support the mortgage broker community. We believe YOU and we believe in wholesale lending! We hope to add value to you, your business, and your clients by providing you with common sense underwriting, good pricing, world-class service, market intelligence, and by being an understanding business partner that actually "gets it" when it comes to what it looks like to be in the shoes of the industry's most valuable asset - LOAN OFFICERS.

Have a wildly successful day and LOCK 'EM IF YOU'VE GOT 'EM!

Assurity Financial Services, LLC
6025 S. Quebec St., Ste 260
Englewood, CO 80111

*All Rates and Programs are subject to change without notice.

--Calvin Hamler/Managing Member