Chatter

Sept. 14, 2005

After reaching a peak soon after Hurricane Katrina, oil and gasoline prices have been sliding. How does the consumer know this? He or she sees the price at the pump gradually going down, although the number of gas stations in the United States has been declining. In 1995 there were approximately 200,000 retail gas stations in the US, but now the number is below 165,000. This is due to a couple factors, one being the environmental clean-up costs associated with owning a gas station, and the other being, as one petroleum expert said, “the large gas companies buying or eliminating the ‘mom & pop’ gas outlets from local markets”. Gas stations have also improved efficiencies. But back to gasoline prices, besides the cost of oil petroleum companies have federal and state taxes, refining costs, marketing and distribution costs, and profit.

Yesterday, and so far again today, mortgage prices have improved slightly. As mentioned yesterday the Producer Price Index indicated a slower than expected rise in wholesale inflation. The core PPI (excluding food & energy) was unchanged for the first time in nearly 2 years. The Trade Deficit also came in nearly $2 billion lower than expectations and now stands at -$57.9 billion. With the improvement in prices it seemed that many brokers and borrowers decided to stay on the sidelines: locks were somewhat light, and fallout continues. The MBA Mortgage Application Index fell 1.4% last week with the Purchase Index +2.9% and the Refi Index -6.7%.

For mortgage-backed securities, Hurricane Katrina is set to push up delinquencies in loan payments temporarily and may lead to limited losses of principal payments due to lack of flood insurance on some homes, a Citigroup report said. But while late payments from Louisiana and Mississippi are a concern, a spike doesn’t necessarily translate into losses for bondholders, since mortgage loan servicers continue payments to bondholders until loans are deemed uncollectible. There could be limited losses to bondholders due to a lack of flood insurance coverage on some New Orleans properties. In most hurricanes, the damage is caused by the wind, and therefore covered by insurance that all mortgage lenders require. But in New Orleans the flooding caused much of the damage. Lenders do require flood insurance for properties that are in federally-designated flood zones, the report said, but some of the affected properties aren’t in such zones. The U.S. Census bureau lists 213,000 housing units in New Orleans as of the end of 2002, but it’s estimated that 150,000 properties were flooded. Of those, it is estimated that 85,000 residential and commercial flood insurance policies are in place so perhaps roughly 65,000 properties without flood insurance have been flooded. These properties may leave investors high and dry.