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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: Ramsey Su who wrote (8308)	8/14/2006 9:39:09 PM
From: TobagoJack	Respond to of 219809

the paper gold bull turns afraid a bear is one who shorts

To: Ramsey Su who wrote (8308)	8/15/2006 9:23:59 AM
From: foundation	Respond to of 219809

... welcome to fantasy island. 8:30AM Core PPI -0.3% vs +0.2% consensus 8:30AM PPI +0.1% vs +0.4% consensus

To: Ramsey Su who wrote (8308)	8/15/2006 10:03:57 AM
From: foundation	Respond to of 219809

... a return to inversion perversion bondtalk.com

To: Ramsey Su who wrote (8308)	8/18/2006 7:23:53 AM
From: foundation	Respond to of 219809

Option ARMs still favored by lenders amid scrutiny Aug 17, 2006 today.reuters.com NEW YORK (Reuters) - Residential loans that have raised eyebrows at the Federal Reserve and other regulators are increasing in popularity with lenders as a way to buoy profits in a shrinking market. So-called payment-option adjustable-rate mortgages have become popular in the $10 trillion U.S. home-loan market as borrowers facing high prices try to lower early payments at the risk of later payment shocks. The demand has delighted lenders, who have found the loans are coveted assets on Wall Street, where their prices top those on many other kinds of loans. Pay-option ARMs allow borrowers to postpone payment of principal and some interest, lowering payments but inflating liabilities in future months. The prospects for defaults on the product and interest-only loans have led regulators, including the Fed, the Office of the Comptroller of the Currency and the Office of Thrift Supervision, to band together in proposing new guidance for lending practices. "Option ARMs are the best-executing product in the market right now, despite the market noise," said Brad Morrice, chief executive officer at Irvine, California-based New Century Financial Corp. <NEW.N>. The company is selling non-prime loans at about 102 1/2 cents on the dollar, compared with option ARMs "north of 104," he said. Regulators are still considering what their final guidance should be after receipt of more than 100 comment letters from lenders earlier this year, an OCC spokesman said. For lenders, the outcome is crucial. At Countrywide Financial Corp. <CFC.N>, the biggest U.S. mortgage lender, margins on sales of loans to the secondary market increased in the second quarter, "with pay-options playing a significant role," it said in its earnings report. It also cited incentives to hold pay-option loans. "We believe this product is an attractive portfolio investment as the higher credit risk inherent in pay-option loans is balanced by higher expected returns relative to other first mortgage products," the Calabasas, California-based company said in a regulatory filing. Through July, Countrywide had this year made $44 billion in pay-option ARMs, or 17 percent of loans, and slightly less than in the same period of 2005. Santa Fe, New Mexico-based Thornburg Mortgage Inc. <TMA.N>, which reported second-quarter earnings that fell short of estimates, said buying and originating pay-option ARMs was part of its strategy to boost earnings enough to maintain its dividend into 2007. INVESTOR 'DISCONNECT' Still, pay-option loans may not always command high prices. Ratings companies last year started requiring issuers to spend more on credit enhancements on bonds backed by the loans -- which may reduce the prices lenders receive, analysts said. The requirements of Fitch Ratings are so costly that the company has rated only a small number of the bonds. "We perceive a need for more credit enhancement that a lot of these deals are getting done with," given chances for payment shock, said Glenn Costello, co-head of residential mortgage ratings at Fitch in New York. Investors appear to have a "disconnect" with the risks involved, he said. The credit make-up of pay-option ARM borrowers is eroding, Costello said. While the average borrower had a credit score near 740 a few years ago it is now closer to 700, he said. Credit scores range from 300 to 850, worst to best. New Century's Morrice conceded that mortgage loan defaults may rise, though from extremely low rates in the recent years. For now, demand for pay-option loans on Wall Street suggests investors feel adequately protected and compensated, given the prices accepted. In AAA and AA-rated portions of pay-option ARM securities, "you will be compensated enough, especially in comparison with alternate investment opportunities," said Alex Wei, who manages asset- and mortgage-backed bonds at Delaware Investments in Philadelphia. ---------- <g>