Mortgage Market Minute

Market Update – April 26, 2010

2010-04-26T07:36:00.000-07:00

Commentary from Rob Chrisman:

Apparently the Fed thinks that we have money in our pockets, but is the economy really in good enough shape for the Fed to start selling their $1.25 trillion of mortgage-backed securities? I don't think so, but maybe the press doesn't have enough else to talk about, so the Fed possibly lightning up on their balance sheet has been receiving some publicity. Federal Reserve Vice Chairman Donald Kohn declared on March 1 that he was planning to retire, and SF Federal Reserve's Janet Yellen was immediately mentioned. But the nomination still hasn't been made. In a story from the Washington Post, not only is that spot unresolved, but there have been two seats on the seven-member Fed board of governors that have been unfilled this year! MIT economist Peter Diamond and Maryland bank regulator Sarah Raskin have been mentioned. But unlike vacancies in the Supreme Court, open spots on the Fed don't seem to garner many headlines in spite of the Fed determining short term interest rates, the pace of job creation and employment, even mortgage rates over the last year or two.

Recent statistics are showing continued strength in FHA and VA production volumes. Maybe not Streamline Refinances, but for purchases and non-streamline refi's. With the reduction of lenders offering subprime loans at decent rates, the reliance on FHA/VA loans is now easily exceeding the experience of the 1990s or early-2000s. Any agent will tell you that there are currently only three options for borrowers: Very clean and well documented non-agency borrowing with low LTV's, clean GSE loans with FICO's well above 700 and LTV's generally less than 80%, and FHA & VA often as a choice of last resort. Yes, everyone is excited about the Redwood/Citi deal coming to the market, but we have a ways to go until non-agency securities are welcomed by investors and non-portfolio lenders.

Wall Street has been pleased with the earnings of the MI companies, although cynics would say that they are still losing money. MGIC lost $150 million in the first quarter versus a loss of $185 million a year ago. RMIC had a net income of $25 million last quarter versus a loss of $54 million for the same period last year. And PMI lost $649 million for all of 2009 versus a loss in 2008 of $929 million.

Do you think that, years from now, we'll be telling our grandkids how analysts and traders would analyze every word of the Fed statement that was produced after they met just to look for microscopic clues on the markets? And how prehistoric that seems? This week we'll hear from the Fed, and most expect that the Fed is seeing the same thing many are: slow but sustained economic growth, lagging consumer spending, tight credit, a muddling housing market, and little sign of inflation. The committee will likely conclude that conditions continue to warrant leaving rates "exceptionally low" for an "extended period."

New Home Sales were up 26.9% in March. Granted, February was a pretty light number, but still it appears that the business is seeing yet another wave of folks taking advantage of the tax credits that won't exist after this week. The South and Northeast posted the strongest gains, with sales in the South rising 43.5% in March, 35.7% in the Northeast, 4.3% in the Midwest and 5.7% in the West. March's new home sales figure is up 23.8% from a year earlier even though new home sales growth has been sluggish. In March, the median price (half below, half above) for a new home increased 4.3% on a year-over-year basis to $214,000. In looking at home sales sorted by price, in the first quarter 45% of new home sales were below $200,000, while only 13% were above $400k. That certainly helps the argument that FHA/VA, Fannie/Freddie will dominate for most, if not all, of 2010 and possibly beyond.

Which entities were buying mortgages Friday, without the Fed? Asian investors, banks, hedge funds, and money managers were all reported to be in sniffing around. And originators were happy to oblige by selling an estimated $1.5 billion to them. And with a lot of Treasury supply coming in most every week, there's a school of thought that suggests that investors buy mortgages rather than Treasuries. The mortgages being originated now are cleaner, better documented, and of better quality than in the last several years. Besides, with the Fed keeping short term rates near 0%, funds can earn 1% in 2-yr USTs, 2.5% in 5-yr Treasury notes... why not pick up a little yield by earning 5.25% on some 60% LTV full doc loan?

Greece actually requesting financial help, along with that solid New Home Sales figure and the thought of more auctions this week pushed rates higher on Friday. (One can argue that no one knows exactly what moves markets, but it was easiest to blame those factors.) This week presents us a mixed-bag of economic releases, on top of the auction. Today we have Building Permits. Tomorrow we have the S&P/Case-Shiller Price Index, along with Consumer Confidence. Wednesday is the Fed meeting mentioned above, Thursday is Initial Claims and the Chicago Fed numbers, and on the last day of April we have the GDP numbers, the Employment Cost Index, and Chicago Purchasing Managers' numbers. Currently the 10-yr yield is 3.80% and the 5-yr Treasury and mortgage prices are both better by about .125.

On today’s date: April 26…
1986: Worst nuclear disaster, 4th reactor at Chernobyl U.S.S.R. explodes, 31 die
1983: Dow Jones Industrial Average breaks 1,200 for 1st time
1968: Students seize administration building at Ohio State
1514: Copernicus makes his 1st observations of Saturn

The last word:
“Don't expect to build up the weak by pulling down the strong.” – Calvin Coolidge

All this plus commentary and opinion at http://mortgagemm.blogspot.com

Market Update – April 16, 2010

2010-04-16T08:22:00.000-07:00

Market Update – April 16, 2010

Commentary from Rob Chrisman:

At Bank of America, just like at JPMorgan Chase, credit and income is improving! Bank of America Corporation reported first-quarter net income of $3.2 billion compared with a net loss of $194 million in the fourth quarter and net income of $4.2 billion a year earlier. The company earned $0.28 per diluted share in the first quarter, up from a loss of $0.60 per share in the fourth quarter and earnings of $0.44 per share in the first quarter of 2009. All in all, analysts were pleased with the results, and the stock has improved on the news in pre-market trading. Interestingly, according to BofA's president, core loan demand from consumers is slow - smaller companies are not hiring yet. Banks have money to lend, and are willing to do so, but certainly are not loosening up their underwriting criteria.

The Treasury released its "International Capital" report yesterday, nicknamed TIC. China continues to be the largest owner of debt of the United States, although their holdings fell by over $11 billion to $877 billion. Overall, foreigners were net buyers of long-term U.S. financial assets in February.

If an agent or company is having trouble originating loans in this interest rate environment, the rest of the year might not be much better. We've been in a 45 basis point range in the 10-year Treasury for nearly 4 months (3.54-3.99%), and mortgage prices have also been in a narrow range. It seems that a 4% yield on the 10-yr gets us about a 5.25% 30-yr mortgage rate. Does anyone believe that rates are going to drop? The Fed, however, certainly has no reason to raise short term rates, given the current job, housing, and inflation situation here in the US - so don't look for too much of a move toward the upside.

Thursday we had the Philly Fed (up from 18.9 to 20.2), Industrial Production (+.9%) and Capacity Utilization after the Initial Jobless Claims number. The reports were mixed, though the back months saw nice upward revisions and Capacity Utilization, a traditional Fed barometer, did well at +.2% to 73.2%.

Today had New Home Construction and will have the University of Michigan Sentiment Survey. Housing Starts for March were better than expected, up 1.6%. March Building Permits were up 7.5% from 637,000 to 685,000 on an annualized rate. It is nice to see the economic activity associated with housing, but don't we already have a pretty good inventory of existing housing stock in many locales? After these housing stats the 10-yr is at 3.80% and mortgage prices are better by .125-.250.

On today’s date: April 16…
2007: Cooper Griffin was born
1962: Walter Cronkite begins anchoring CBS Evening News
1945: U.S. troops enter Nuremberg, Germany, during WW II
1724: 1st Easter observed

The last word:
“History will be kind to me for I intend to write it." – Winston Churchill

All this plus commentary and opinion at http://mortgagemm.blogspot.com

Market Update – April 12, 2010

2010-04-12T08:05:00.000-07:00

Market Update – April 12, 2010

Commentary from Rob Chrisman:

Last week we had a very limited amount of economic news, so bonds were pushed around by the auction results. When the yield on the 10-yr hit 4%, it seems to have attracted investors, so we "bounced". Overall the auctions were okay; although there is continued nervousness about whether or not the US will see others support our deficit. Regardless, mortgage rates actually ended the week on a decent note - certainly no disaster has occurred since the Fed stopped buying MBS's - and are following Treasury rates. Money managers, insurance companies, and pension funds are buyers of mortgages, and although there are weekly volume fluctuations, most indicators still point to a slower year in 2010 than 2009. And if production (supply) is down, and demand steady...

This week we have a little more substantive economic news, including Wednesday's Consumer Price Index (CPI), Retail Sales report, and Beige Book. Tomorrow we'll see some trade balance figures. Industrial Production & Capacity Utilization and the Philly Fed survey are announced on Thursday (after Initial Jobless Claims come out). Housing Starts ("New Residential Construction") are on for Friday. Inflation certainly appears under control and the March CPI is expected to be +.3% with the core rate only up .1% (which the Fed likes). And March's Retail Sales figure is expected to be +1.8%, probably due to strong auto sales. Ahead of all that, the 10-yr is at 3.88% and mortgage prices are better by about .125.

On today’s date: April 12…
1945: Harry Truman sworn in as 33rd president
1945: U.S. liberates Buchenwald concentration camp
1844: Texas became a U.S. territory

The last word:

“Be nice to nerds. Chances are you'll end up working for one.” – Bill Gates

All this plus commentary and opinion at http://mortgagemm.blogspot.com

April 8, 2010

2010-04-08T07:25:00.000-07:00

Market Update – April 8, 2010

Commentary from Rob Chrisman:

Commercial loans are still being made, in spite of the predictions that the default rate on older loans is only expected to increase. According to the MBAA, Wells Fargo was the top US commercial & multifamily originator in 2009. Other originators in the top 10 include PNC Real Estate, Deutsche Bank, CBRE Capital Markets, HFF, Prudential Mortgage Capital Company, Meridian Capital Group, MetLife, Northmarq Capital, and Capmark Financial Group. Based on investor groups, Wells topped the list for commercial banks & savings institutions, HFF for conduits, MetLife for life insurance companies, PNC Real Estate for Fannie Mae's, CBRE Capital Markets, Inc. for Freddie Mac's, TIAA-CREF for pension funds, Glacier Real Estate Group for credit companies, and Deutsche Bank Commercial Real Estate for specialty finance.

Huh? Mortgage rates improved, even after the Fed stop buying them last Thursday? Wow! Just think of all the folks who thought that mortgage rates would zoom up relative to Treasury rates! Money managers, pension funds, insurance companies, and servicers were all buyers, and the only selling came from lenders with about $1.5 billion of origination.

With rates going up and now back down somewhat, hedged originators might be feeling a little whipsawed, but since the pipelines aren't all that big these days perhaps the damage is minimal. (And of course the largest owner of MBS (the Fed) controls its own funding costs and doesn't have to hedge.) We are past the quarter-end, almost done with the first of the April auctions, and banks are appearing to be stepping into the void left by the Fed. Remember that the Fed was never a traditional buyer of mortgages, so we are back to a more normal market - another good thing. Origination is still expected to be down 40-50% in 2010 as good credit homeowners refinanced in 2009. They won't be back to refi again in 2010, so most origination will be purchases as we are already seeing.

Yesterday we continued to see bonds' prices improve, and rates drop, after a solid $21 billion 10-yr sale by the Treasury. The yield on the auction was within 2 basis points of where the existing 10-yr was trading, indirect bidder participation was solid and the bid/cover was highest for a 10-year auction since at least 1994 - so maybe 4% is the current magical yield after all. The bond market was helped by Ben Bernanke's somber statements about the economy not being out of the woods yet and the fact that inflation is not an issue. On Monday the 10-yr hit 4% for the first time since June, but we've bounced off that level and are now back down to 3.86%. And today we got our first economic news of the week, with Initial Jobless Claims coming in at 460,000, up 18k from 442,000. The 4-week moving average moved up slightly. After the number mortgage prices are generally better by about .125.

On today’s date: April 8…
1966: Leonid Brezhnev elected Secretary-General of Communist Party
1952: President Truman seizes steel mills to avert a strike
1879: Milk was sold in glass bottles for 1st time
1789: House of Representatives 1st meeting

The last word:
“Bobby Knight told me this: 'There is nothing that a good defense cannot beat a better offense.' In other words a good offense wins.”– Dan Quayle

All this plus commentary and opinion at http://mortgagemm.blogspot.com

April 6, 2010

2010-04-06T07:13:00.000-07:00

Market Update – April 6, 2010

Commentary from Rob Chrisman:

As expected, rates this year have moved up. Did anyone think that they weren't? In a cocktail party discussion, it is a quick and easy statement to make: "Well, the economy is doing well, which can be somewhat inflationary and lead to higher rates, and our government keeps auctioning off more debt to finance our spending deficit." Of course you can go into the details about higher oil and gold prices, the stock market rally, etc. if you like. The yield on the 10-yr hit its highest level since the summer of 2008, and the job numbers are showing some strength. And we all know that the government plans on hiring more census workers in the coming months.

But the economy is still too weak to handle high rates. As Paul Jacob from the Banc of Manhattan noted, this expansion may be different from the last expansion, "which was marked by relatively low rates, low volatility, low inflation and low spreads." This time around the US deficit situation is much worse, adding supply pressures & some long-term inflation fears, and the economy is worse, with negligible current inflation.

All rates have been going up, but what have spreads between MBS's and Treasuries been doing since April 1? Fortunately for originators, spreads haven't done much, and in some cases actually improved. So even though all rates have been going up, mortgage rates, even without the Fed, have not done much on a relative basis - it seems that bank and money manager demand as picked up. It helps, in a convoluted way, that mortgage origination appears to be down, which tends to work in our favor for mortgage rates. No one wants to catch a falling knife, but there is plenty of cash out there waiting to be put to work in buying securities.

Yesterday we had the Pending Home Sales Index, a forward-looking indicator based on contracts signed in February, go up 8.2% in February. This measure stands about 17% above where it was a year ago. This data measures contracts signed, not closings, and a lot can happen in the month or two it takes to process a loan. As mentioned, the 10-year note traded through the psychological 4.00% level, although the market liked the strong 10-yr TIPS (Treasury Inflation Protected Security) auction coming at 1.709%, 4bps through the 1PM levels, a record 3.43 bid to cover. Today, however, is another day, and we have $40 billion in 3-year securities to buy. (Tomorrow we have $21 billion in 10's, and on Thursday $13 billion 30-yr bonds.) And we are seeing a bounce this morning: the 10-yr is down to 3.95% and mortgage prices are better between .250-.50.

On today’s date: April 6…
1980: Post It Notes, introduced
1930: Hostess Twinkies invented by bakery executive James Dewar
1917: U.S. declares war on Germany, enters World War I
1789: 1st U.S. Congress begins regular sessions, Federal Hall, New York City

The last word:
“By three methods we may learn wisdom: First, by reflection, which is noblest; Second, by imitation, which is easiest; and third by experience, which is the bitterest.”– Confucius

All this plus commentary and opinion at http://mortgagemm.blogspot.com

March 29, 2010

2010-03-29T08:08:00.000-07:00

Market Update – March 29, 2010

Commentary from Rob Chrisman:

Last week was not the best week for interest rates (including mortgage rates). Overall a combination of the increasing US Government budget deficit, continued problems with Greece and European debt were the primary culprits, along with some signs that our economy is picking up a little steam (stocks are hitting 18-month highs). Two out of the three auctions did not go well, and gee, what will the Fed do with the $1+ trillion of agency Fannie/Freddie product it has purchased? This week brings the end of the Fed's buying program - and who is going to buy mortgages? Smart money is betting that the same institutions that invested in mortgages prior to the Fed will take up the slack: pension funds, insurance companies, hedge funds, money managers, and banks. Besides, origination is supposed to drop, right? And if rates go up too high, our housing market will get smacked - something that the Federal Government doesn't want to see happen.

Unfortunately departments within the Treasury Department (OCC and OTS) said the percentage of current and performing mortgages fell to 86.4% at the end of the fourth quarter of 2009, falling for the seventh consecutive period. This means that serious delinquencies rose: a 21.1% increase in mortgages 90 or more days past due to 4.7% of all mortgages in the portfolio at the end of 2009. The increase in seriously delinquent mortgages was most pronounced among prime borrowers, which account for 68% of all mortgages. To continue the "good news", home sales are slumping, with New Home Sales falling to an all-time low and Existing Home Sales dropping for the third consecutive month, and homebuilder sentiment has dropped.

What do we have to look forward to this week? Besides Easter coming up next Sunday, today we have Personal Income & Consumption and the PCE Price Index, Tuesday the S&P/Case-Shiller Home Price Index & Consumer Confidence, Wednesday the Chicago Purchasing Managers Index, Thursday we have Initial Jobless Claims, Construction Spending, and the ISM Manufacturing data, and then on Friday we'll see the employment data - expected to show a pickup in jobs.

Personal Income was expected +.2% but came out as unchanged for February. Personal consumption expenditures were expected to rise, and did, coming out at +.3%. After the data, bonds and stocks didn't do much. The 10-yr seems happy for the moment around 3.87%, and mortgage prices are about unchanged from Friday's closing levels.

On today’s date: March 29…
1989: Michael Milken, junk bond king, indicted in New York for racketeering
1973: U.S. troops leave Vietnam, 9 years after Tonkin Resolution
1867: Congress approves Lincoln Memorial
1852: Ohio makes it illegal for children under 18 and women to work more than 10 hours a day

The last word:
“Change is inevitable - except from a vending machine.”– Robert C. Gallagher

All this plus commentary and opinion at http://mortgagemm.blogspot.com

Market Update – March 26, 2010

2010-03-26T07:26:00.000-07:00

Market Update – March 26, 2010

Commentary from Rob Chrisman:

The prices in the swap market (exchanging one type of debt or interest income for another) are creating some headlines lately. There is a massive amount of supply of new corporate debt hitting the capital markets in the U.S. and Europe currently, and the cost of exchanging interest payments for 10 years was 0.023 percentage point below low-risk Treasury yields. This implies that investors see more risk in holding triple-A-rated 10-year Treasury notes than in swapping rate payments with private counterparties. At the height of the credit crisis, when investors were in panic-mode about counterparties, that cost shot up to as much as 0.780 percentage point above the 10-year Treasury yield. Tighter swap spreads indicate investors' confidence (or complacency) about credit risk, and vice versa, but typically the spread is positive relative to Treasuries. But this time, the swaps market reflects demand to receive fixed rates as a hedge, especially by corporations issuing new bonds. That's resulted in the 10-year swap spread moving to negative 5.5 basis points. It is easy to argue that this is another sign of how far credit markets have recovered: risk premiums in the interest-rate swaps market-in which investors exchange fixed-interest payments for floating payments-turned negative on the 10-year sector for the first time on record. There is one fundamental point, however, and that is market concerns about the US budget are growing as Treasury supply increases.

For the second to last time, the Federal Reserve today reported on their weekly purchases of agency MBS's: a gross total of $8.26 billion agency MBS's, selling $260 million for technical reasons resulting in a net total of $8.0 billion agency MBS purchases.

After Wednesday's drop, fixed-income securities saw some volatility Thursday. The bond market headed south, causing investors to worsen their prices, then bounced back, resulting in some price improvements. The $32 billion 7-yr auction coming in around 3.37% with a bid-to-cover of only 2.61 didn't help things, but then investors apparently thought, "We like these yields" and back the market came. Traders continued to see selling in 4.5% and 5.0% securities - current coupons, with hedge funds also selling, and banks selling heading into quarter-end. But in the afternoon buyers like private investors, the Fed, pension funds, and money managers started putting some of their cash to work - how exciting!

With the market well off of the lows, the treasury auctions out of the way, originator supply likely to decline, and convexity related mortgage selling finished for the time being, there is some short-term optimism about rates and bond prices. In addition, there is belief that when April rolls around, banks, with their cash, will step in and fill the void left by the Fed and helping current coupon production. Generally speaking, however, why would rates go down with the healthcare package adding to the deficit, questions about China and overseas buyers being increasingly concerned about our exploding deficits, and Bernanke stating he'd like the Fed to get their balance sheet down to its pre-crisis level. Don't look for overnight Fed Funds to move up soon, but they don't control long term rates - and many believe that although in the short term rates won't go up too much, in the long term these factors will definitely push rates higher.

Call it old news, but the 4th quarter GDP was revised to 5.6% versus 5.9%, down .3% - about as expected. After the GDP news the yield on the 10-yr is at 3.88%, and mortgage prices appear to be .125-.250 better than Thursday.

On today’s date: March 26…
1989: 1st free elections in U.S.S.R.; 190 M votes cast; Boris Yeltsin wins
1934: Driving tests introduced in Britain
1885: Eastman Film Co. manufactures 1st commercial motion picture film
1804: Territory of Orleans organizes in Louisiana Purchase

The last word:
“A man should look for what is, and not for what he thinks should be.”– Albert Einstein

All this plus commentary and opinion at http://mortgagemm.blogspot.com

Market Update – March 24, 2010

2010-03-24T07:27:00.000-07:00

Market Update – March 24, 2010

Commentary from Rob Chrisman:

Yesterday the House Financial Services Committee held a hearing to discuss the future of housing finance, trying to start answering questions about what the new system should do. Many people spoke, although Treasury Secretary Tim Geithner was the headline witness with 17 pages of testimony. "It's important as we think about the future to make sure we retain what was good in this system." But Geithner said that the old system, would not be re-created and that Fannie and Freddie's status as shareholder-owned companies with the implicit backing of taxpayers would end. Basically, Fannie Mae and Freddie Mac won't be allowed to return to a pre-crisis structure that rewarded shareholders with big profits for years but ultimately saddled taxpayers with massive losses. Look for this to be a long and involved process.

As California goes, so goes the nation? Yesterday Realtors (with a capital "R") released February sales data showing that the median (half above, half below) house price to $279,840, due in part to increased demand from using the tax credit, and that the prices are 14% above where they were a year ago. Overall, however, nationwide Existing Home Sales fell 0.6% in February about as expected. The median price for an existing home was $165,100 in February, down 1.8% from February 2009. "Stable but fragile" seems to sum things up. And the total inventory at the end of February rose 9.5% to 3.59 million existing homes available for sale, which represents an 8.6-month supply at the current sales pace.

FHA mortgage delinquencies dropped in February, with about 4.8% of FHA-backed loans made in the last two years were at least three months late, down from 5 percent in the two-year period ended Jan. 31. FHA officials expect losses to slow, since the 2007 and 2008 are now passing through their worst years: failures most often occur two to three years after a mortgage is obtained.

Mortgage securities did receive a little boost yesterday from Treasury's Geithner. Rates and prices improved slightly versus Treasury rates, and the current coupon yield spread to the 10-yr Treasury (not exactly accurate, but still used as a benchmark) is sitting around 65 basis points - very strong. We also had Fed Governor Yellen on the tape yesterday, saying that she believes that although the labor market is stabilizing at a high level of unemployment and inflation should stay low, and that the housing market has stalled. And we are in the middle of yet another 3-day period of auctions with $44 billion in 2-yr notes, and $118 billion in all. With inflation expected to be tame, and the Fed expected to leave short-term rates low for an extended period, the argument can certainly be made to own some fixed-rate securities. This morning we've had Durable Goods +.5% for February, versus +3.9% in January. After the strong news the 10-yr is up to 3.76% and mortgage prices are worse by .250-.375.

On today’s date: March 24…
1964: Kennedy half-dollar issued
1962: Mick Jagger and Keith Richards perform as Little Boy Blue and Blue Boys
1944: 811 British bombers attack Berlin
1868: Metropolitan Life Insurance Co forms
1765: Britain enacts Quartering Act, required colonists to provide temporary housing to British soldiers

The last word:
“Giving money and power to government is like giving whiskey and car keys to teenage boys.” – P.J. O’Rourke

All this plus commentary and opinion at http://mortgagemm.blogspot.com

Market Update – March 19, 2010

2010-03-19T07:49:00.000-07:00

Market Update – March 19, 2010

Commentary from Rob Chrisman:

Let's talk about the government buying mortgages. Last week the Fed purchased $10 billion net in agency MBS's, hitting the $1.236 trillion mark. Fannie Mae released more details of the delinquent loans it will be purchasing out of pools. Almost all 6.5% and higher coupon delinquent loans will be bought out in March. Almost all 6.0% coupon buyouts will happen in April, leaving 5.0% & 5.5% in May and June. Fannie said that lower coupons can be bought out ahead of this monthly schedule if they're 24 months delinquent or ready for permanent modification under loss mitigation (per FNMA) FNMA has announced that it will repurchase 220,000 loans in the April report.

With no news today, aside from many folks watching the results of the NCAA basketball tournament, the trading today may match yesterday's (and much of the week's): spreads steady, moderate selling from originators (e.g., moderate locks), buying from the Fed, money managers, hedge funds, servicers. There is some movement of positions from April out to May in order to avoid some volatility due to the Fannie & Freddie buyouts and the end of the Fed purchase plan on the 31st. Some traders believe that volatility will increase substantially when the Fed exits the market as the street's appetite for risk remains very low.

As opposed to today, which has no scheduled economic news, yesterday we had quite a bit. I had already mentioned the inflation numbers and initial claims. Later in the morning we also saw the Conference Board's Leading Economic Indicators increase for the 11th straight month - impressive, and consistent with the belief that the economy has bottomed out and is slowly strengthening. The "Philly Fed" came out slightly stronger than expected, which also helped the equity markets but to the detriment of bonds. In fact, stocks have improved for 8 straight days.

The yield curve, which has been steepening, recently has gone the other way. In fact, the slope of the curve, measuring the difference between risk-free Treasury 2-yr notes and 30-yr bonds, fell to the narrowest level in two months. At the short end, futures show a 38% chance that the FOMC will increase the Fed Funds' target by at least a quarter-percentage point by the September meeting, compared with 49% odds a month ago. With no news today, we find the yield on the 10-yr. Treasury note sitting around 3.69% and mortgage prices worse between .125 and .250 depending on coupon.

On today’s date: March 19…
1991: Sacramento Kings set NBA record of 29 consecutive road loses
1942: Franklin D. Roosevelt orders men between 45 and 64 to register for non military duty
1931: Nevada legalizes gambling
1918: Congress authorizes time zones and approves daylight saving time
1895: Los Angeles Railway established to provide streetcar service

The last word:
From The Road Not Taken:
“Two roads diverged in a wood, and I- I took the one less traveled by, and that has made all the difference.” – Robert Frost

All this plus commentary and opinion at http://mortgagemm.blogspot.com

March 18, 2010

2010-03-18T07:36:00.000-07:00

Market Update – March 18, 2010

Commentary from Rob Chrisman:

Lenders originated $26.9 billion of FHA single-family loans in January, down over 10% from the previous month, according to a FHA activity report. Refinancings totaled $11.5 billion and comprised 40% of January originations. FHA originations per month have been ranging between $26 billion and $30 billion for the previous five months. But as many in our industry would expect, FHA's serious delinquency rate continues to rise: 9.4% of FHA loans are 90 days or more past due in January, up from 9.12% the previous month. FHA servicers have foreclosed on 28,000 homes from October 2009 through January 2010, up 42% from the same period a year ago. Short sales totaled 4,000 during that four-month period, up 132% from a year ago.

The number of started trial modifications dropped again in February to just under 73k from 86k. Given the considerable focus by servicers on conversion to permanent modifications, this is not too surprising and could continue to slide in future months since there is still a substantial backlog of trial modifications that needs to be converted. The numbers are indeed large. There were almost 53,000 permanent modifications in February, up from the 50,000 the month before. In addition, there were another 92,000 approved permanent modifications awaiting borrower approval and still more of a backlog past that. Early 2009 modifications have been performing better than those from late 2008 and the early data from modifications in the second half of 2009 show this trend continuing with performance as good if not better than those from the first half.

Yesterday was more of the same, which is not a terrible thing: hedge fund, pension fund, money manager, servicer, and Fed buying of mortgages, met with a pick-up in selling by originators. But looking at the overall economy, last week we saw the second week in a row that weekly unemployment claims have declined. This is perhaps implying that businesses are finished firing workers. Continuing claims however, increased for the first time in weeks, and so far there is not any evidence that hiring is occurring. Until more jobs are created, the economic outlook will remain muddled. To get the economy moving, most believe that we need new jobs that will get consumer spending going. You have heard it many times; consumers normally account for 70% of economic growth. Up to this point, consumer spending has not engaged much. Unless consumer spending improves, the economic outlook will remain questionable and subject to rapid sentiment changes.

The CPI came out at unchanged in February, slightly less inflationary than expected. The core rate, ex-food and energy, was +.1%, as expected. Year-over-year numbers for CPI showed an increase of +2.1%, well within expectations and certainly indicative of a suitable amount of inflation at the consumer level. Initial claims for jobless insurance came out about as expected at 457,000, with continuing claims coming in at 4.579 million. Bonds seemed happy with the news, although stocks don't care. The 10-yr went from 3.63% down to 3.62% but is now up to 3.64%, and mortgage prices, which improved a little, are now about unchanged.

On today’s date: March 18…
1963: Supreme Court's Miranda Decision; defendants must have lawyers
1959: President Dwight D. Eisenhower signs Hawaii statehood bill
1949: NATO, North Atlantic Treaty Organization, treaty ratified
1940: Mussolini joins Hitler in Germany's war against France and Britain
1834: 1st railroad tunnel in U.S. completed, in Pennsylvania (275 m long)

The last word:

“Little by little, one travels far.” –J.R.R. Tolkien

All this plus commentary and opinion at http://mortgagemm.blogspot.com

March 17,2010

2010-03-17T09:09:00.000-07:00

Market Update – March 17, 2010

Commentary from Rob Chrisman:

Markets don't wait until the last minute, since they are usually driven by fear and greed. Yesterday's Fed announcement, although it was nothing new and left overnight rates unchanged, caused an immediate improvement in stocks and bonds. In mortgages, with originators selling and the Fed, hedge funds, Asian investors, and money managers buying, rates improved and caused several investors to improve prices. One interesting thing to note is that Ginnie Mae securities, made mostly up of FHA and VA loans, are seeing continued interest from domestic and overseas banks for their reinvestment money (from buy backs) adding support to those prices.

The FOMC's statement didn't surprise anyone. Since markets don't like surprises, and there were none, things improved. "Economic activity has continued to strengthen and the labor market is stabilizing...Household spending is expanding at a moderate rate but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit...investment in nonresidential structures is declining, housing starts have been flat at a depressed level, and employers remain reluctant to add to payrolls. While bank lending continues to contract, financial market conditions remain supportive of economic growth. Although the pace of economic recovery is likely to be moderate for a time, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability...inflation is likely to be subdued for some time."

In the mortgage markets, as expected, "To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve has been purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt; those purchases are nearing completion, and the remaining transactions will be executed by the end of this month. The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability. In light of improved functioning of financial markets, the Federal Reserve has been closing the special liquidity facilities that it created to support markets during the crisis. The only remaining such program, the Term Asset-Backed Securities Loan Facility, is scheduled to close on June 30 for loans backed by new-issue commercial mortgage-backed securities and on March 31 for loans backed by all other types of collateral."

Some mortgage security traders believe that we will all be better off with the Fed out of the MBS business, and that overseas investors and banks are expected to be key new buyers of Agency MBS, thus providing confidence to other investor groups to follow suit. A growing trade deficit and persistently steep yield curve may lead overseas investors and banks to increase MBS holdings. In a related issue, "foreclosure to REO transition rates" rose modestly this month across all sectors after falling for two years or more in most cases, as the foreclosure process has been stalled. REO pipelines have grown mildly lately after shrinking in 2009. As homes get pushed through loan modification evaluation, look for a change. Any increase in home prices would be positive, and as most folks in the business know lower priced homes have been performing better than higher ones, a partial cause for the slight improvement in subprime default rates.

In fact, many analysts believe that the entire yield curve, short term rates relative to long term rates, to do very little in the next three months. Of course, crystal balls don't work so well farther out, and in the 6-and 12-month horizons most believe that yields will begin to rise sharply. Not only because the economy is beginning to heat up, but we will have the Fed's balance sheet contracting quite a bit over the coming 12 month horizon on a combination of pay downs, redemptions, and buyouts.

For this morning's market, ahead of the Producer Price Index, rates were down and stock market futures were pointing to yet another improvement. The February PPI was -.6%, mostly due to energy costs; ex-food and energy the core rate was +.1% (as expected). The year-over-year numbers were also satisfactory, and overall it does appear that inflation is not a big deal. After the numbers we find the yield on the 10-yr at 3.63% and both 5-yr Treasury and mortgage prices a shade worse.

Lastly, this morning's report from the Mortgage Bankers Association of America (MBAA) showed that its application index rose last week by .5%. It is nice to see that purchases outpaced refinances +5.7% versus -1.5%.

On today’s date: March 17…
1959: Dalai Lama flees Tibet for India
1905: Eleanor Roosevelt marries Franklin D. Roosevelt in NY
1836: Texas abolishes slavery
1753: 1st official St. Patrick's Day

The last word:
“Excellence is not a skill. It is an attitude.” – Ralph Marston

All this plus commentary and opinion at http://mortgagemm.blogspot.com

March 16, 2010

2010-03-16T07:42:00.000-07:00

Market Update – March 16, 2010

Commentary from Rob Chrisman:

I notice that gasoline prices are back up, usually attributed to demand by China and India. The price has been drifting around, not attracting too much attention, which is good because historically speaking any sharp spike in the price of oil leads to a sharp drop in consumer confidence. After all, gasoline prices are the most publicly visible prices in the economy - no other prices are displayed in bold, two-foot-tall numbers. But higher gasoline prices may not have the same impact as they did a year or two ago. To a great extent gas prices have already dropped the demand for SUV's, including the Hummer. This, in turn, impacted jobs, and to some extent housing since fewer people want or have a long commute to an over-priced suburb.

One curious thing to note about the deficit here in the United States is that as the budget deficit hits records highs, the interest on the public debt is hitting record lows. How is that possible? Just like borrowers who have refinanced their mortgage in the last year, the US Government is refinancing its debt - at very low rates. So although the government budget deficit is climbing (which could actually result in a downgrade by the rating agencies of our country's credit rating), the interest rate that the US is paying debt holders is low. In fact, and I know that this is a simplistic approach but one that is good if you're talking to your neighbor while washing cars, but the yield on the 10-yr Treasury note 10 years ago was above 6%. As that debt matures this year, and is replaced by new Treasury notes, the yield is in the high 3's, saving the government 3%.

During a war, it is easy to remember what being a "hawk" or being a "dove" means. As it turns out, employees of the US Government who are involved in setting monetary policy are also classified as hawks and doves. In this instance, a "hawk" is someone who believes that the Fed's primary duty is to control inflation. Inflation has not been an issue in quite some time, and in fact in our country's history there have only been a handful of periods of high inflation. "Doves" believe in keeping unemployment low while at the same time raising interest rates quickly to fight inflation. The Fed meets today. No one is expecting them to increase the overnight Fed Funds rate, which has hovered between 0-.25% for many moons.

Of particular note is that yesterday mortgage traders saw light-to-normal volumes, but with only the Fed buying. Money managers, servicers, and Asian investors stayed on the sidelines - and mortgage prices were stable. The FOMC will likely acknowledge that rates will remain low for an extended period but possibly signal that they are ready to act if conditions warrant change. Although economic data has shown the recovery is taking hold, the Fed's main concern is employment. The news from the economy continues to fluctuate. For example, last week's Retail Sales was strong but there were three key reports on the labor market recently (Job Openings and Labor Turnover survey, Jobless Claims, and the unemployment data) which were mixed. One was slightly positive, while the other two pointed to continued trouble. In spite of heightened inflation expectations, it appears the FOMC wants a sustainable labor market before moving on rates.

In spite of the news yesterday, the fixed-income markets were pretty quiet. Industrial Production expectedly climbed for the 8th straight month. The Empire State Manufacturing Survey dropped slightly - but really, is news like that supposed to move rates when entire countries like Greece or Spain are worried about their debt and the impact on global markets? Speaking of which, it was reported by the TIC (Treasury International Capital report) that during the month of January net foreign purchases of US long-term securities was roughly $19 billion. China continued selling U.S. Treasuries, although it remained the largest foreign holder following revisions that showed it never actually lost the top spot to Japan, the Treasury Department said.

Yesterday mortgage prices started off the day by improving about .125, and pretty much stayed there for the rest of the day. Today, of course, the Fed will announce the results of their two-day meeting. Most expect the Fed to note the approaching end of the MBS Purchase Program and reiterate that it will continue to evaluate its purchases of securities in light of the evolving economic outlook. One interesting thing to note is that long-term mortgage investors are beginning to receive cash from the Freddie & Fannie buydowns. The money is somewhat expected, given the performance of certain pools. Some of it is going back to work in buying mortgages on a forward basis, but for other investors they are sitting on the cash - concerned about the end of the purchase program and more desirous of shorter term instruments and cash flow.

This morning we've seen some import and export prices levels, along with Housing Starts and Building Permits. Import prices were -.3%, with a year-over-year change of +11.2%, and export prices were -.5%. Housing Starts were about as expected, down 5.9% from upwardly revised number, and Housing Permits were down 1.6% (versus January's 4.7%) to an annual rate of 612,000 down from 622,000. There was little impact on rates, and the 10-yr seems comfortable around 3.70%, and mortgage prices are worse by a shade.

On today’s date: March 16…
1985: Associated Press correspondent Terry Anderson taken hostage in Beirut
1945: Allies secure Iwo Jima
1935: Hitler orders German rearmament, violating Versailles Treaty
1881: Barnum and Bailey Circus debuts
1802: U.S. Academy at West Point founded

The last word:

“The ladder of success is best climbed by stepping on the rungs of opportunity.” – Ayn Rand

All this plus commentary and opinion at http://mortgagemm.blogspot.com

March 4, 2010

2010-03-04T07:29:00.000-08:00

Market Update – March 4, 2010

Commentary from Rob Chrisman:

What is a "millennial"? It is anyone currently age 18-29, and the Pew Research Center released a comprehensive study of the 50 million people in the millennial generation. Why does matter to loan agents? If you have to ask, skip to the next paragraph. But doesn't this group contain the next critical segment of potential borrowers? They tend to be pro-government Democrats, liberals, likely to not join a church, favoring non-military solutions, and very diverse: only 60% white. (38% of them have tattoos, and of those, half have more than one.)The millennial generation says older people have better moral values and a better work ethic. 68% believe that either now or at some time in the future they will earn enough money to lead the kind of life they want, higher than previous generations even though they have this high level of unemployment. 1 in 8 have moved back home after college. Most of their education about ads, trends, and news comes from the web, through Face book, Twitter, blogs they find their information from these sources. Where do you market your mortgage services?

The market has twenty trading sessions before the cessation of the MBS purchase program. Traders believe that mortgage rates should increase, most noticeably in the lower coupon, current production area. At this point, besides the Fed, traders are not seeing much buying outside of some hedge funds and money managers for current coupon product. There was some hope that with the agencies buying delinquent mortgages out of pools, demand would pick up, but so far they have seen little interest in spite of the ultra-clean current production. Possibly their reinvestment decisions are now going to coincide with the end of the fed program. Much of this community is concerned with higher yields because of this and the overall macro environment.

Mortgage prices got off to a softer start Wednesday as the Non-Manufacturing ISM number showed an unexpected increase. The 8:15AM EST ADP employment number suddenly had analysts lowering their forecasts for tomorrows Non-Farm Payroll number, and the estimates now seem to be -60,000 jobs with an unemployment rate of 9.8%. Yesterday, as stocks lost some steam and the results of the Beige Book came out, bonds rallied somewhat and mortgage spreads tightened, and investors produced some intra-day price improvements which were welcomed. The Fed's Beige Book (which is literally beige, but is a report of the various Fed districts) showed some improvement but with soft labor markets and a weak commercial real estate sector.

Today we have Jobless Claims, some productivity numbers, and Factory Orders, along with the Treasury announcing the amounts of next week's 3, 10, and 30-year auctions. And tomorrow we could see some volatility with the unemployment data. Greece is still in the spotlight as investors are still wary, but most agree that a bailout is likely with Greece issuing a 10-yr note and a meeting scheduled for tomorrow between the Greek Prime Minister and the German Chancellor. Currently the US 10-yr is, once again, hovering around 3.62% and current coupon mortgage prices are roughly unchanged.

On today’s date: March 4…
1977: 1st CRAY 1 supercomputer shipped, to Los Alamos Laboratories
1964: Jimmy Hoffa convicted of jury tampering
1933: Franklin D. Roosevelt inaugurated as 32nd president, pledges to pull U.S. out of Depression and says "We have nothing to fear but fear itself."
1837: City of Chicago incorporates
1789: 1st Congress declares constitution in effect (9 senators, 13 reps)

The last word:

“Always do whatever's next.” – George Carlin

All this plus commentary and opinion at http://mortgagemm.blogspot.com

February 25, 2010

2010-02-25T07:42:00.000-08:00

Market Update – February 25, 2010

Commentary from Rob Chrisman:

A copy of the first issue of Superman comics was sold for one million dollars. The copy originally sold for ten cents in 1938. Someone said that if that same dime had been invested in General Motors stock in 1938, it would be worth at least a quarter.

As I tell groups whenever I speak, you can't drive through a downtown anywhere in the United States without seeing "For Rent," "For Sale," "For Lease" signs, or plain empty storefronts. It turns out that the default rate for commercial property mortgages held by U.S. banks more than doubled in the fourth quarter and may peak at 5.4 percent at the end of 2011, according to a study by Real Capital Analytics Inc. The default rate for loans on office, retail, hotel and industrial properties jumped to 3.8 percent from 1.6 percent a year earlier. The default rate for loans on apartment buildings rose to 4.4 percent from 1.8 percent. Commercial property values, which fell 29% in December from a year earlier, are down 41% from the October 2007 peak, according to the Moody's/REAL Commercial Property Price Index. Unfortunately for banks here in the US with between $100 million and $1 billion in assets, they hold 25 percent of commercial property loans outstanding and 15 percent of apartment loans. The biggest banks, those with more than $10 billion in assets, hold about half of commercial loans and two-thirds of apartment loans.

Freddie Mac said yesterday that it lost $7.8 billion in the fourth quarter, or $26 for every man, woman, and infant in the United States. On the plus side, it was better than the $23.9 billion Freddie lost in the same quarter a year ago, and apparently doesn't need more money (for now) than the $51 billion in taxpayer aid it already received. For all of 2009 the company lost $21.6 billion versus 2008's loss of $50.1 billion. But Freddie Mac's chief executive, Charles Haldeman, warned of a "potential large wave of foreclosures" still to come

Yesterday's $42 billion 5-yr auction did not go well. It goes back to the "What if we held an auction and nobody bid?" Indirect bids, which in the past indicated a level of interest from foreign entities but in the last year became a little convoluted, have been on a roller coaster: Tuesday's 2-yr hit over 53% of the auction while yesterday's was the lowest since July at 40%. Not good. The Bernanke testimony (rates need to remain low), along with the much worse-than-expected New Homes Sales data, muddled the picture somewhat for investors yesterday. The good news for mortgage folks is that dealers are reporting heavy selling, and selling is often powered by locks, so current locks must be picking up.

The New Home Sales data was particularly bad. In January sales dropped 11%, the worst on record and erasing all the gains from last year. Nationwide, inventory represents over a 9 month supply - the highest in almost a year. And year-over-year the median price for a new home fell in January by 2.4%, to $203,500 from $208,600 a year ago. Regionally, January new-home sales dropped 35.1% in the Northeast, 11.9% in the West, and 9.5% in the South. Sales rose 2.1% in the Midwest.

And although Mr. Bernanke said the economy still needs the Fed's support via low rates, he said the central bank is prepared to tighten credit when the time comes to prevent inflation. A first step toward tighter credit could involve the Fed draining the more than $1.0 trillion in excess reserves banks have accumulated after the central bank bought mortgage-backed securities and U.S. Treasury securities to combat the financial crisis, most likely through reverse repurchase agreements.

This morning the markets are being pushed around by Jobless Claims, the GDP, a $32 billion 7-yr note auction, and continued testimony from Ben Bernanke. Prior to the 8:30AM EST numbers the yield on the 10-yr was back down to 3.66%. Durable Goods were up 3% for January versus December's +1.9%. (Ex-transportation the number was -.6%.) Jobless Claims showed an increase of 22,000 to 496,000, with a four-week moving average creeping up by 6,000 to 473,750. Immediately after the news the yield on the 10-yr dropped to 3.64%, and mortgage prices are better between .125 and .250, depending on coupon.

On today’s date: February 25…
1948: Communists seize Czechoslovakia
1933: 1st genuine aircraft carrier christened, USS Ranger
1926: Francisco Franco becomes General of Spain
1910: Dali Lama flees Tibet from Chinese troop to British-Indies
1793: 1st cabinet meeting at George Washington's home

The last word:

“Always remember that the future comes one day at a time.” – Dean Acheson

All this plus commentary and opinion at http://mortgagemm.blogspot.com

February 18, 2010

2010-02-18T06:56:00.000-08:00

Market Update – February 18, 2010

Commentary from Rob Chrisman:

"Suppose They Gave a War and Nobody Came" was a 1970 movie with Ernest Borgnine and Tony Curtis (both of whom are still with us). What if the Treasury gave an auction and nobody bid, aside from Primary Dealers who must bid? That is one of the fears that drove prices down and rates up yesterday, especially with the news that China fell behind Japan to become the second-biggest holder of US Treasuries. That is not a good thing, and is an indication that the Chinese have been acting on recent complaints about US policy by unloading US debt. China was a net seller of Treasuries by $34 billion, bringing its total holdings down to $755 billion from $790 billion in November. Money talks.

Treasury prices went south yesterday after this China news came out, the positive data on the housing market, and the apparent progress on Grecian debt (Treasuries don't need to be the "safe haven"). More important than numbers reflecting last month's economic climate, however, were the Fed minutes. "A few suggested that the pace of asset sales, and potentially of purchases, could be adjusted over time in response to developments in the economy and the evolution of the economic outlook". Does this mean that the Federal Open Market Committee will adjust asset sales and purchases rather than the overnight Fed Funds rate? Perhaps!

Traders saw a higher-than-recently-normal amount of selling from originators Wednesday, which made mortgage rates move a little more than Treasury rates toward the downside. The minutes from the late-January meeting revealed that members debated how and when to shrink the central bank's $2.26 trillion balance sheet, with some policy makers pushing to start selling assets in the "near future." Officials unanimously agreed that Fed assets and banks' excess cash will need to shrink "substantially over time" and return the central bank's holdings to just Treasuries, but obviously there is concern about upsetting the stability of the markets.

Today we have another large amount of economic news with which to grapple. We have already had the Producer Price Index and Jobless Claims; still ahead are the Philly Fed and Leading Economic Indicators. The PPI showed that inflation picked up more than expected: +1.4%, with the core rate +.3%. Year-over-year the PPI was +4.6% and the core rate was +1.0%, roughly as expected. Jobless Claims rose 31k to 473,000. On this news stocks moved down, and rates improved somewhat: the yield on the 10-yr is chopping around 3.71% and mortgage prices are a tad better.

Generally speaking locks desks around the nation were a little slower last week. Yesterday the MBAA reported that applications from last week were down about 2%, with purchases down 4% and refi's down about 1%. Refi's are still amounting to about 69% of the mortgage activity (what would your volumes look like if refi's went below 50%?), and ARM loans are still less than 5%. Yesterday morning, after the Starts & Permits number, we learned that in January Industrial Production was +.9% and Capacity Utilization went from 71.9% to 72.6%, both relatively strong numbers.

On today’s date: February 18…
1970: U.S. president Nixon launches "Nixon-doctrine"
1915: Germany begins a blockade of England
1908: 1st U.S. postage stamps in rolls issued
1885: Mark Twain's "Adventures of Huckleberry Finn," published
1861: Confederate President Jefferson Davis inaugurated at Montgomery Alabama

The last word:
“Every man dies. Not every man really lives.” – William Wallace

All this plus commentary and opinion at http://mortgagemm.blogspot.com

February 5, 2010

2010-02-05T07:48:00.000-08:00

Market Update – February 5, 2010

Commentary from Rob Chrisman:

Yesterday's stock market drop dominated the financial news. And a slowing economy helps rates and mortgage loan agents, right? (It's a two-edged sword.) So the markets did not pay much attention to Non-Farm Productivity increasing over 6% during the fourth quarter of 2009. Efficiency in the last nine months of 2009 soared at the fastest pace since 1966 as companies cut worker hours even after sales stabilized. And Factory Orders for November were up 1%, better than expected. But the focus, and one of the reasons given for stocks taking a beating, was on Jobless Claims which hit a 7-week high.

There is certainly a lot to be nervous about. There is the concern that around-the-world budget deficits will need to be financed by issuing more debt. California, with the 8th largest economy in the world, is continuing to have budget problems. On top of all that, oil prices declined over 5% while gold prices also fell, down over 4%. The dollar was weaker to the yen, but firmer to the euro as the risk aversion trade returned, and this helped Treasuries and mortgage security prices, dropping rates to December levels.

Forecasts for today's Non-Farm Payroll number centered on a gain of 15,000, although the ADP number from Wednesday showed that the private sector lost 22,000 jobs, so the difference will be in the government arena. As it turned out, Non-Farm Payrolls fell 20,000 in January, and the December numbers were revised downward from -85k to -150k (Nov's went from +4 to +64k). Conversely the Unemployment Rate dropped to 9.7%, once again highlighting the fact that a sharp increase in the number of people giving up looking for work helped to depress the jobless rate. After this news, the 10-yr is at 3.64% and mortgage prices (and the 5-yr Treasury) are worse by about .125.

Does volatility in bonds or stocks help or hurt the markets? Although volatility has little lasting impact on markets, in the long run volatility makes ordinary investors less inclined to trust markets. And aversion to risk makes capital more expensive, as we are seeing now, and in turn the economy can become less dynamic. On the flip side, traders love volatility, although they tend to overestimate their knowledge of finance and the accuracy of their predictions. And overconfidence can encourage excess trading, and in a down market this can lead to "chasing losses" - if you've lost some, it is tempting to make big bets in an attempt to get your money back.

Steady as she goes. For the week ending yesterday, the Federal Reserve's MBS program was a net buyer of $12 billion agency MBS ($17.6 billion gross), which was the same as the previous week. The bulk of the purchases were 4.5% securities, which are mostly comprised of 4.75-5.125% 30-yr conventional mortgages. Program-to-date now stands at $1.173 trillion.

New York Attorney General Andrew Cuomo, who encouraged the agencies to reach down the credit curve several years ago to help precipitate the credit crisis, and also usher in the HVCC regulations, charged Bank of America Corp, former Chief Executive Kenneth Lewis and former Chief Financial Officer Joe Price with fraud for allegedly misleading shareholders about the acquisition of Merrill Lynch. On the other hand, BofA just settled with the SEC by agreeing to pay a $150 million civil fine and bolster disclosure and governance practices. Cuomo is using a New York law used to combat securities fraud to accuse Bank of America, Lewis and Price of intentionally failing to disclose massive losses at Merrill prior to a December 5, 2008 shareholder vote on the merger.

On today’s date: February 5…

1988: Joe Cabrall’s birthday - Happy Birthday Joe!
1977: Sugar Ray Leonard beats Luis Vega in 6 rounds in his 1st pro fight
1937: 1st Charlie Chaplin talkie, "Modern Times," released
1904: American occupation of Cuba ends
1901: Pierpont Morgan forms U.S. Steel Corp
1736: Methodists John and Charles Wesley arrive in Savannah, Georgia

The last word:

“A joke is a very serious thing.” – Winston Churchill

All this plus commentary and opinion at http://mortgagemm.blogspot.com

February 4, 2010

2010-02-04T12:12:00.000-08:00

Market Update – February 4, 2010

Commentary from Rob Chrisman:

MapQuest really needs to start their directions on #5. Pretty sure I know how to get out of my neighborhood. Speaking of neighborhoods, in signs of a rebound from very low levels, according to the MBAA, commercial and multifamily mortgage loan originations in the fourth quarter of 2009 were 12% higher than they were during the same period last year and 15% higher than during the third quarter of 2009. Loans for hotels were up 105%, retail loans were up 101%, industrial property loans were up 59%, but multifamily loans were down 8%.

Who are the big commercial servicing companies out there? At the end of 2009, Wells Fargo topped the charts with about $475 billion in U.S. master and primary servicing volume. Next were PNC Real Estate/Midland, Berkadia Commercial Mortgage, Bank of America, KeyBank Real Estate Capital, and GEMSA Loan Services. (A primary servicer is generally responsible for collecting loan payments from borrowers, performing property inspections and other property-related activities. A master servicer typically serves in a fiduciary capacity and is generally responsible for collecting cash and data from primary servicers and then providing that cash and data, through trustees, to investors, per the MBAA.)

What is the American Securitization Forum? Darned if I know, exactly, but they were meeting in Washington DC and came out with a statement conjecturing that non-agency product (a $1.2 trillion market 4-5 years ago, $25 billion in '08 and $44 billion in '09) may start to be securitized again later this year. The reason? There's more talk about it this year than last! Right now, however, jumbo loan production is pretty small, and profit margins are pretty slim since jumbo rates aren't all that much higher than agency rates. (I have an idea! Let's split the pools into tranches, and then have Wall Street work with the rating agencies... oh, never mind, I guess we tried that.) As I mentioned yesterday, banks are holding onto this product, but if other buyers materialize and the loans can be sold at profits, things could loosen up. Whole loan packages and syndications of interests in pools of loans may be steps in the right direction.

Today we have already seen the weekly Jobless Claims number and productivity numbers and will have Factory Orders later on. In other words, pretty quiet on the economic news front. We do have another $81 billion in 3, 10, and 30 year Treasury instruments to auction off next week. Overall, rate-wise relative to Treasury securities, mortgages have been doing well. In fact, if an investor buys a current coupon mortgage security (without originator profit margins) their yield will be less than 70 basis points higher than the 10-yr Treasury yield! Jobless Claims unexpectedly rose last week, up 8,000 to a seasonally adjusted 480,000 in the last week of January. The four-week moving average for new claims rose 11,750 to 468,750 last week, which is the third straight week of increases. And U.S. non-farm productivity rose faster than expected in the fourth quarter up 6.2%. For all of 2009, productivity grew 2.9%. Employers have been cutting costs and headcounts. The bond market likes the news, and is retracing yesterday's losses: mortgage prices are better by .250 and the 10-yr is back down to 3.65%.

On today’s date: February 4…
1974: Patricia Hearst (19) kidnapped by Symbionese Liberation Army
1969: John Madden is named head coach of NFL's Oakland Raiders
1969: Yassar Arafat takes over as chairman of PLO
1945: FDR, Churchill and Stalin meet at Yalta
1865: Robert E. Lee is named commander-in-chief of Confederate Army

The last word:

“Defeat is not the worst of failures. Not to have tried is the true failure.” – George Edward Woodberry

All this plus commentary and opinion at http://mortgagemm.blogspot.com

January 29, 2010

2010-01-29T08:49:00.000-08:00

Market Update – January 29, 2010

Commentary from Rob Chrisman:

Markets don't like uncertainty, and a little of that was removed yesterday as Federal Reserve Chairman Ben Bernanke was approved by the Senate for a second four-year term by a 70-30 vote. Supporters admitted that that the Federal Reserve under Bernanke had missed signs leading up to the recent economic crisis, but argued that under Bernanke's leadership the Fed had helped steer the U.S. economy away from utter catastrophe. But no one wants to switch horses in midstream, even if there could be found a "new horse" that was qualified.

Overall, how have the programs designed to stop mass foreclosures been working? Not so well, and for a variety of reasons. Servicers often don't have the ability to do renegotiations in bulk, and sometimes make more money by dragging their feet. Loans being placed into securities, which are then sliced and diced, make things more complicated, and borrowers usually are not even sure if they're eligible. We should all keep in mind, according to a recent paper by the Boston Fed, that foreclosing is often more profitable than renegotiating. Almost a third of delinquent borrowers "self cure". And of those who have their mortgages modified, more than a third end up defaulting eventually anyway. So in both cases, modifications make the servicer worse off. The housing bubble was very expensive - it will be surprising if we can deal with its consequences on the cheap.

At least there is no ambiguity about what the Fed is doing in their mortgage purchase program. Last week the Fed purchased a net $12 billion in agency MBS, bringing its total net purchase to $1.161 trillion. But everyone has a pretty good sense of how this movie is going to end, right? Well, perhaps not. The odds are highly in favor of the Fed keeping overnight rates where they are through June. In fact, an article in the Wall Street Journal yesterday points out that there is a growing belief among investors that when the Fed's mortgage security purchase program ends at the end of March, mortgage rates won't soar. "They argue that investors, searching for higher-yielding securities, will find government-backed mortgage-backed securities a bargain relative to other investments, like corporate debt, that have rallied for much of the past year."

I don't think that anyone believes that the US government will suddenly leave the entire housing and mortgage market on its own. Those markets have had either implicit or explicit government backing for decades, which makes investors much more likely to buy mortgage-related securities. Lately production has dropped, as has the weekly amount of Fed purchases from $21 billion to $12 billion, yet mortgage rates are still relatively low. Yes, mortgage rates may move higher, and in fact rates in general may move higher, but at some point the yields look more attractive to investors, and as they buy these securities, the price goes up and rates move back down. Thus goes the argument against lenders saying, with regard to mortgage rates, "The end is near!" Now, if we could only get underwriting guidelines to loosen up!

Yesterday, only one day after the FOMC meeting (which had its first dissenter in over a year), the market started off slightly worse, but then came back later in the day. A weak stock market helped, as did a very good $32 billion 7-yr Note auction. Today we saw Gross Domestic Product for the 4th quarter, estimated to be 4.6% versus the 2.2% annual rate in the prior quarter. The 5.7% pace was certainly stronger than expected, and the highest pace in more than six years.

Growth was boosted a sharp slowdown in the pace of inventory liquidation, but even stripping out inventories the economy expanded at an annual rate of 2.2 percent. Later we'll have the Chicago Purchasing Manager's Survey and the University of Michigan Consumer Sentiment Survey. But the GDP number has pushed rates higher, and mortgage prices are worse by about .250 and the yield on the 10-yr is up to 3.68% again.

On today’s date: January 29…
1964: Unmanned Apollo 1 Saturn launcher test attains Earth orbit
1933: German president von Hindenburg appoints Hitler chancellor
1919: Secretary of state proclaims 18th amendment, prohibition
1861: Kansas becomes 34th state
1834: President Jackson orders 1st use of U.S. troops to suppress a labor dispute

The last word:

“Great spirits have always encountered violent opposition from mediocre minds.” – Albert Einstein

All this plus commentary and opinion at http://mortgagemm.blogspot.com

January 25, 2010

2010-01-25T14:24:00.000-08:00

Market Update – January 25, 2010

Commentary from Rob Chrisman:

In the current environment, the government giveth, and the government taketh away. Barney Frank once again made headlines last week with the statement that the House Financial Services Committee will recommend doing away with Fannie Mae and Freddie Mac and “rebuilding the U.S. housing-finance system from scratch”. “A whole new system of housing finance," although most analysts feel that there will be continued government involvement. Given that they set the standards for the mortgage industry, own or guarantee half of the $11 trillion in outstanding home mortgages, and attract huge amounts of capital, it is hard to imagine replacing them with several private investors whose cost of capital would be much higher. No one expects much to happen for a very long time on this issue.

Last week the stock markets took a tumble – does that mean that we’ll see a bounce back this week? Perhaps, but the continued nervousness about our economy and our banking system that caused stocks to sell off caused bonds to rally and rates to drop. And mortgage traders saw origination pick up a little, as folks locked when rates were dropping. Some believe that rates may stabilize this week, perhaps creep a little higher, with yet another Treasury auction to deal with ($44 billion in 2-yr tomorrow, $42 billion 5-yr Wednesday, and $32 billion in 7-yr. Thursday).

This week we can look forward to Existing Home Sales today at 10AM EST, Consumer Confidence tomorrow, and Durable Goods and New Home Sales on Wednesday. Thursday we have Jobless Claims, and on Friday we have GDP. Let’s not forget the Fed meeting this week, with no change in rates expected, and the Senate’s vote on Bernanke’s confirmation. The yield on the 10-yr is up to 3.63% and mortgage prices are worse between .125-.250.

The term "The Fed" encompasses many entities. It meant something different to Al Capone, for example, than a bond trader. (At least, I hope so.) For example, the futures market believes that there is almost a 90% chance that "the Fed" will keep rates somewhere between 0% and .25% through the end of April. The Federal Open Market Committee is responsible for open market operations, which influence "the demand for, and supply of, balances that depository institutions hold at Federal Reserve Banks and in this way alters the federal funds rate. The FOMC meets eight times per year, with one of these meetings starting tomorrow, where it reviews "economic and financial conditions, determines the appropriate stance of monetary policy, and assesses the risks to its long-run goals of price stability and sustainable economic growth." Although the minutes (released later) list numerous attendees, "the FOMC consists of twelve members--the seven members of the Board of Governors of the Federal Reserve System; the president of the Federal Reserve Bank of New York; and four of the remaining eleven Reserve Bank presidents, who serve one-year terms on a rotating basis." I think that we, the taxpayer, spring for the donuts and coffee. Maybe some fruit.

Are Down Payment Assistance Programs really "like zombies", as one person wrote, in that they just won’t go away even when shot with a gun? Just ask the FHA, which has billions in losses from a down-payment-assistance program terminated in 2008, but is now dealing with a bill introduced by U.S. Representative Al Green, a Texas Democrat. “It would restart a program that allowed nonprofit groups to donate the 3 percent down payment low-income buyers needed to get FHA-insured mortgages. Sellers, often homebuilders, would then contribute that amount, plus a fee, to the nonprofits.” There are obviously the “put more Americans in homes” arguments, along with “put more people to work”. Night of the Living DAP.

On today’s date: January 25…
1983: Nazi war criminal Klaus Barbie arrested in Bolivia
1981: 52 Americans held hostage by Iran for 444 days arrived back in US
1970: Robert Altman's "M*A*S*H," premieres
1915: Transcontinental telephone service inaugurated (New York to SF)
1787: Shays' Rebellion suffers a setback when debt-ridden farmers, led by Captain Daniel Shays, fail to capture an arsenal at Springfield, Mass

The last word:
“Ability will never catch up with the demand for it.” –Confucius

All this plus commentary and opinion at http://mortgagemm.blogspot.com

January 20, 2009

2010-01-20T08:41:00.000-08:00

Market Update – January 20, 2010

Commentary from Rob Chrisman:

The MBAA reported that mortgage application volumes increased 9.1% last week from the week before. Refinancing filings rose almost 11%, and purchase apps were up a little over 4%. Nationwide refi’s make up almost 72% of apps.

The press has certainly focused on FHA lending lately, and many feel with good reason. FHA-insured mortgages are thought to be a problem in the future. Government officials, who only five years ago were clamoring for more lenient guidelines to increase home ownership percentages, now want to further tighten guidelines. The FHA allowed builder and seller-funded down-payment assistance programs longer than other loan types, which didn’t help their situation or their capital reserve ratio, nor did institutional investors refinancing “at risk” mortgages into FHA loans. According to a story in the Wall Street Journal, the FHA says the loans it is guaranteeing these days will turn a profit because the credit profile of its borrowers has improved. The average credit score for FHA borrowers has risen to 681, from 630 two years ago. The median U.S. score is about 720. Of course, those in the business know that investors have FHA overlays which have contributed toward the improvement.

And in fact the FHA announced changes to its guidelines yesterday. It will raise the minimum down payment required for borrowers with credit rating scores below 580 to 10%, while the down payment for higher-ranked borrowers would stay at 3.5%. The up-front MI premium is also going from 1.75% to 2.25%. HUD is seeking congressional approval to allow it to raise annual mortgage insurance premiums -- which are paid out by the borrower over the life of the loan -- above the 0.55 percent maximum. Lastly, the FHA also said it was cutting the amount of aid sellers could provide buyers to 3 percent of the purchase price from 6 percent; a move it said could help lessen incentives to inflate appraised home values.

Of course the press, and economists, will question whether or not it will cut off the housing recovery. If you think about it, in the long run is raising the down payment requirement, or the minimum credit score, the cost of MI, or cutting seller contributions going to kill the housing market? The FHA, after all, doesn't lend money to home buyers. It collects fees to insure lenders against default on loans that meet FHA criteria. Of course, with the current criteria, everyone in the business knows that their nickname, deserved or not, is now the "new subprime" loan: average credit scores of FHA borrowers is lower than other types of loans, delinquencies are much higher, and the market share of FHA loans is between 25-50% in many parts of the US.

In an interesting quote, Warren Buffett weighed in on the plan to tax banks. "I don't understand plans for a bank tax - it just doesn't make any sense to me that banks should be taxed to cover losses at other bailed-out companies, such as automakers, Fannie Mae , or Freddie Mac.”

Getting back to the market, yesterday was pretty quiet, giving lenders and lock desks a day after the holiday to work on projects, extensions, renegotiations, etc. Dealers reported that mortgage selling was pretty light, with just under $1 billion in supply, and the Fed, money managers, and hedge funds doing the buying. But today we have had a flurry of news. U.S. Housing Starts unexpectedly fell 4% in December, pulled down by a lack of activity for single-family dwellings. Starts for single-family homes fell 6.9 percent last month, but multifamily starts were up over 12%. The Producer Price Index was up for the third month in a row, rising .2% (up 4.4% for the year) versus expectations of being unchanged. The core rate, ex-food & energy, was unchanged, lower than expected.

But perhaps more important than the economic news were the earning results this morning. Morgan Stanley earned $413 million in the 4th quarter, but it was still below estimates. Wells Fargo swung to a profit in the fourth quarter on net income of $2.82 billion, versus Bank of America’s loss of $5.2 billion due to taking a hit from higher credit costs and TARP repayments. And the Bank of New York Mellon profit beat estimates, hitting almost $600 million.

Bank of America’s stats included a 2009 net income of $6.3 billion, a one-time $4 billion TARP repayment cost, provisions for credit losses of $10.1 billion, and nonperforming assets of $35.7 billion. Morgan Stanley reported income from continuing operations for the year of $1.1 billion, compared to a loss of about $800 million a year before. They also incurred a repurchase of TARP capital, net revenues for the year of $23.4 billion compared with $18.2 billion in the prior year, total nonperforming assets of $27.6 billion as of December 31.

After all of this we find the 10-yr yield at 3.65% and mortgage prices better by between .125 and .250.

On today’s date: January 20…
1987: Anglican Church envoy Terry Waite taken hostage in Beirut, Lebanon
1955: 1st atomic sub, USS Nautilus, launched at Groton Conn
1942: Japanese invade Burma
1892: 1st basketball game played (Mass)
1265: 1st English Parliament called into session by Earl of Leicester

The last word:
“I did not have three thousand pairs of shoes, I had one thousand and sixty.” –Imelda Marcos

All this plus commentary and opinion at http://mortgagemm.blogspot.com

Monday January 19, 2010

2010-01-19T10:48:00.000-08:00

Market Update – January 19, 2010

Commentary from Rob Chrisman:

In more “great” news items is news like the kind that is issued by market researcher RealtyTrac, which stated that 2.8 million US properties had foreclosure filings in 2009 in spite of legislative and industry-related delays and loan modifications. The Federal Reserve is scheduled to wind down its MBS purchase program at the end of the first quarter, and tax incentives will expire at the end of April. Many markets still have too many houses for sale and too few buyers, and of course tight underwriting guidelines don’t help the supply & demand issue as appraisers continue to struggle to confirm sales prices. That being said, many markets are seeing stable prices and continued solid interest, especially on the low end.

Three more U.S. banks were shut down Friday, in Illinois, Minnesota, and Utah. The FDIC found buyers for two, but was unable to secure a buyer for a third failed bank in Utah and instead created a bridge bank to give customers time to transfer their money elsewhere. Gone are Town Community Bank and Trust (now under First American Bank), St. Stephen State Bank (now under First State Bank), and Kaysville-based Barnes Banking Company in Utah.

We had Citigroup, parent of CitiMortgage, post a fourth-quarter loss of $7.6 billion, or 33 cents a share, compared to a loss of $17.24 billion, or $3.40 a share a year ago. The loss was about as expected (but apparently folks were hoping for less of a loss); on an adjusted basis, excluding the $6.2 billion after-tax loss associated with TARP repayment and exiting a loss-sharing agreement, the fourth quarter net loss was $1.4 billion, or 6 cents a share.

We finished off last week with Industrial Production, which was up for the 6th time in a row, Capacity Utilization, which hit its highest level in a year, and the University of Michigan Consumer Sentiment, which rose. It is no surprise that Federal Reserve officials are more confident the U.S. economy is moving toward self-sustaining growth, and therefore calling into question 0% overnight rates. Or buying fixed income securities, for that matter.

This week has only four business days, but there is a fair amount of economic news. We have zip today, but the Producer Price Index (PPI) on Wednesday, as well as Housing Starts & Building Permits. Thursday we have Jobless Claims, Leading Economic Indicators, and the Philly Fed Index, as well as yet again another auction announcement for the following week. Currently the yield on the 10-yr is at 3.69% and mortgage prices are worse by about .125.

On today’s date: January 19…
1981: U.S. and Iran sign agreement to release 52 American hostages
1955: 1st presidential news conference filmed for TV (Eisenhower)
1920: U.S. Senate votes against membership in League of Nations
1840: Antarctica discovered, Charles Wilkes expedition (U.S. claim)

The last word:
“If you don't like something, change it. If you can't change it, change your attitude.” – Maya Angelou

All this plus commentary and opinion at http://mortgagemm.blogspot.com

January 15, 2010

2010-01-15T11:29:00.000-08:00

Market Update – January 15, 2010

Commentary from Rob Chrisman:

JPMorgan Chase & Co., the second-largest U.S. bank by assets, announced this morning that its fourth-quarter profit more than quadrupled. Net income increased to $3.28 billion. JPMorgan was the #1 underwriter of stocks and bonds in the US last year, and income from that more than helped offset loan losses in consumer banking and credit cards. And we all know the impact that they’ve had on mortgage lending. Jamie Dimon told investors last month that the credit-card unit could lose about $1 billion a quarter in the first half of 2010, since defaults typically track unemployment.

But in yet another reason why I will never make money day-trading stocks, before the stock market opens JPM’s price is down. "I don't think we can take away from these results that we are any further along in the (economic) recovery than we thought we were," said one analyst. JPMorgan is the first of the largest U.S. banks to report earnings. Goldman Sachs, Citigroup, Bank of America, and Wells Fargo all come out during next week, with various results expected.

Right now, the futures market is pricing in an 85% chance that the Fed keeps rates somewhere between 0% and .25% through the end of April. With all of the deficit spending going on, not to mention the flood of money that the Federal Reserve has put into the economy, why isn’t inflation (and interest rates) out of control? The deficit spending money has primarily gone into counteracting the sharp decline in consumer and business activity. Our government is borrowing more, but folks like you and me, and businesses, are borrowing less. Besides, many banks are holding on to the money rather than releasing it into the economy in the form of loans. On top of that, productivity is high, wages are stagnant, and overall there is slack in the economy – so sky-high inflation and rates are a long way off. And, if you think about it, in almost the last 100 years here in the United States, inflation has only been a big issue in the 1970’s.

On the plus side of things, we have lower rates. Yesterday Retail Sales, Jobless Claims, and a good $13 billion 30-yr bond auction all contributed to an “up day” in bonds with prices going up and rates going down. Jobless Claims were up 11,000, although continuing claims were down 211,000, and Import Prices for December were unchanged, helping the inflation picture. We also learned that the Fed purchased $14 billion during their prior week, which brings the total purchased so far only about $115 billion short of their $1.25 trillion target.

This morning we had the Consumer Price Index. We headed in to it with estimates of it being +.2%, and it came in at +.1%, a shade less inflationary than expected. For those of us who don’t eat or use energy, the core rate was up 0.1% in December after being flat the prior month. We will also see Industrial Production and Capacity Utilization, along with the University of Michigan’s Consumer Sentiment Survey. With that in mind, currently the 10-yr yield is 3.70% and both the 5-yr Treasury and mortgage prices are better by about .125.

On today’s date: January 14…
2009: Captain “Sully” ditches U.S. Airways plane in the Hudson River – all 155 passengers survive
1991: UN's deadline for Iraq to withdraw from Kuwait (they don't)
1977: Coneheads debut on "Saturday Night Live"
1943: World's largest office building, Pentagon, completed
1861: Steam elevator patented by Elisha Otis
1535: Henry VIII declares himself head of English Church

The last word:
“Darkness cannot drive out darkness; only light can do that. Hate cannot drive out hate; only love can do that.” – Martin Luther King, Jr.

All this plus commentary and opinion at http://mortgagemm.blogspot.com

January 14, 2009

2010-01-14T11:41:00.000-08:00

Market Update – January 14, 2010

Commentary from Rob Chrisman:

There is no one that will disagree with the statement that the mortgage markets benefited from government intervention last year. And practically everyone believes that, given the significant challenges housing is facing, the government will stay focused and do whatever it takes to support the market. For this reason, analysts feel that this year we’ll see home price stability or only moderate weakness. Of course, we still have the ARM resets, but if the Fed keeps overnight rates near 0%, and short term rates stay low, ARM loans may not be going up much in rate and may actually decline. And when the Fed purchase program comes to an inevitable end, whether it is in March, or later, banks and money managers will be the primary buyers of agency MBS until the private market kicks in again.

The market did not do so well yesterday and in fact I saw some intra-day price changes from some investors. Treasury supply issues don’t help, with the US government continuing to sell large amounts of fixed income securities to finance the deficit. The 10-yr sale went “ok”, and today we have $13 billion of 30-yr bonds to wade through. Dealers reported an increase in mortgages for sale as both servicers and originators were in selling, and it was estimated that volume increased to $2.5 billion instead of the recent pace of $1.5 billion per day.

Today we will have Jobless Claims and Retail Sales, along with Import/Export Prices. Ahead of those numbers the market were pretty quiet. As it turns out, Retail Sales unexpectedly fell in December by 0.3% last month, the first decline in three months, after rising by an upwardly revised 1.8 percent in November. The yield on the 10-yr is 3.76% and mortgage prices are better by about .125 versus the close Wednesday.

On today’s date: January 14…
1993: David Letterman announces his show is moving from NBC to CBS
1979: President Carter proposes Martin Luther King's birthday be a holiday
1978: Sex Pistols' final concert (Winterland, SF)
1943: Franklin D. Roosevelt and Winston Churchill confer in Casablanca concerning WW II
1914: Henry Ford introduces assembly line, for T-Fords
1784: Revolutionary War ends; Congress ratifies Treaty of Paris

The last word:
“Ask five economists and you'll get five different answers - six if one went to Harvard.” – Edgar R. Fielder

All this plus commentary and opinion at http://mortgagemm.blogspot.com

January 12, 2009

2010-01-12T07:43:00.000-08:00

Market Update – January 12, 2010

Commentary from Rob Chrisman:

“Do housing prices ever go down?” sounded like a poorly conceived question two years ago. Now, of course, no one would ever say no: of course they do. Early last decade people began buying houses as if it were their last chance to ever buy a house: prices will never be this cheap again! Speculators flipped houses, and nationwide home prices increased by 60% between 2000 and 2006. Of course real estate dealers, mortgage originators, and Wall Street firms had no reason to slow things down, especially if they are paid on a transaction basis. In “the old days” there were natural limits on home mortgages: often times whoever originated the loan owned it and serviced it.

Here’s something to ponder: Given the production statistics, in the past year the Fed has purchased 73% of the mortgages that government-backed Fannie Mae, Freddie Mac and Ginnie Mae have turned into securities. Nervous about the end of March, when the Fed plans/expects to end its purchase program? Remember that it is not in their best interest to just cut the mortgage market loose…

As I mentioned yesterday, everyone is chewing on that unemployment data. We have over 15 million unemployed here in the US, and the length of time of unemployment continues to climb – it is now up to 20.5 weeks. The longer a worker is unemployed, the less relevance their skills have to employers looking to hire, and this can become a big problem.

Yesterday was a bit of a slow day in rate-land, with the only volatility coming after “hawkish” comments from Fed Governor Hoenig who said that an unemployment rate of 10% does not preclude the Fed from raising rates. The TIPS auction went well enough, but we still have another $74 billion in Treasury supply ahead of us this week. And the yield curve is steepening again (anytime short term rates barely budge, and long term rates go up, of course the curve steepens.)

Like a college kid’s social life, this week becomes busier as we approach Friday. Thursday and Friday contain news on inflation, manufacturing, and retail sales. And besides the standard news we have the auction and several Fed speakers. (The next Fed meeting starts on January 26th.) Today we have the Treasury’s $40 billion 3-yr auction. We will have the Trade Balance figures at 8:30AM EST, and then the Fed’s Beige Book release at 2PM EST, but ahead of those items dealers are reporting a wave of solid buying, and rates are down: the yield on the 10-yr is down to 3.74% and mortgage prices are better by .375.

On today’s date: January 12…

1995: Major earthquake kills 5,092 in Kobe Japan
1991: U.S. Congress gives George Bush authority to wage war against Iraq
1969: Superbowl III: New York Jets beat Baltimore Colts, 16-7 in Miami Superbowl MVP: Joe Namath, New York Jets, quarterback
1945: German forces in Belgium retreat in Battle of Bulge
1777: Mission Santa Clara de Asis founded in California

The last word:

“A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.” – Winston Churchill

All this plus commentary and opinion at http://mortgagemm.blogspot.com

January 4, 2010

2010-01-04T08:12:00.000-08:00

Market Update – January 4, 2010

Commentary from Rob Chrisman:

Goodbye, 2009. Typing "2009" is so much easier than typing "2010", but such is life. And folks who are better at using words than I am ("than me"?) say 2010 is pronounced "twenty-ten", not "two-thousand ten". Speaking of “2’s” and “1’s”, The U.S. Treasury had a record year of debt sales last year, selling more than $2.1 trillion in bonds and notes, a record and more than the amount in the previous two years combined.

Why are rates where they are? The answer is stronger-than-expected economic news. Well, Thursday morning we learned that Jobless Claims unexpectedly fell by 22,000 to 432,000, which is their lowest level in almost a year and a half. Continuing Claims fell by 57,000. So the thinking goes that “if fewer people are filing jobless claims, the employment picture is starting to look a little rosier, which means that the economy must be doing better…” We also had the ISM Index print its highest level in almost 4 years.

This week promises to be a busier week, news-wise, than last. Today we start with an “amuse bouche” of ISM Manufacturing data. Tomorrow we throw in a few Pending Home Sales and Construction Spending numbers, Wednesday ISM Services, Thursday Jobless Claims, and on Friday, for desert, we have all the Unemployment numbers. The odds continue to drop for the Fed keeping their “0-.25% Fed Funds target” past April – it is down into the low 80% range. We start the year here in the US with the 10-yr yield at 3.85% and mortgage prices roughly unchanged from Thursday’s levels.

On todays date: January 4…
1980: President Carter announces U.S. boycott of Moscow Olympics
1970: Beatles last recording session at EMI studios
1965: Lyndon Baines Johnson's "Great Society" State of the Union Address
1863: 4 wheeled roller skates patented by James Plimpton of NY

The last word:

“Follow effective action with quiet reflection. From the quiet reflection will come even more effective action.” – Peter Drucker

All this plus commentary and opinion at http://mortgagemm.blogspot.com

December 29, 2009

2009-12-29T10:38:00.000-08:00

Market Update – December 29, 2009

Commentary from Rob Chrisman:

One item that escaped some notice recently was the relaxation of GSE portfolio size requirement by the Treasury Department. Until recently Freddie and Fannie were required to reduce their servicing retained portfolio by 10% every year. Now the maximum portfolio of the GSEs (which is $900 billion each) is to be reduced by 10% every year. In other words, the maximum portfolio size of each GSE is now set at $810 billion by the end of 2010, but since their portfolios are currently at around $760-$770 billion each, things look pretty good. What this means to the loan agents in the trenches, however, is that although neither Fannie nor Freddie will be adding much to their servicing portfolios neither will be big sellers of it either.

There has been some recent news about HVCC. Specifically, the House voted to terminate the Code of Conduct once a new Consumer Financial Protection Agency begins operations. “As part of its financial and mortgage industry reform bill, the House The new agency would assume primary federal responsibility for equal opportunity in credit, real estate settlement procedures, financial disclosures to borrowers, plus unfair and deceptive marketing in mortgages and other financial products.” Be careful what you wish for!

The market? Rates were up again yesterday (the 10-yr was up to 3.85%), but then improved ever so slightly in spite of a mediocre $44 billion 2-year note auction. The bid/cover ratio was 2.91, below the average for the last four months, and “Indirect bidders” bought 34% of the issue versus 45%, which is the average over the last several sales. $118 billion is a lot to swallow during a holiday weekend. This morning, and this week, we will have the S&P/Case-Shiller index, the Chicago Purchasing Manager’s Survey, Jobless Claims. One thing working in our favor is that the bond market is technically extremely “oversold”, so, like a spring, may be due to head the other way. But there is no bounce-back yet: the yield on the 10-yr is sitting at 3.85% and mortgage prices are worse by another .125.

On todays date: December 29…
1997: Hong Kong begins slaughtering all its chickens to prevent bird flu
1982: Bob Marley postage stamp issued in Jamaica
1978: Spain constitution goes into effect
1867: 1st telegraph ticker used by a brokerage house, Groesbeck and Co, New York
1848: Gas lights 1st installed at White House (Polk's administration)
1845: Texas admitted as 28th state

The last word:

“Knowledge comes, but wisdom lingers.” – Alfred Lord Tennyson

All this plus commentary and opinion at http://mortgagemm.blogspot.com

December 22, 2009

2009-12-22T09:29:00.000-08:00

Market Update – December 22, 2009

Commentary from Rob Chrisman:

What the heck happened to rates yesterday? Rates are back to October levels, the yield on the 10-yr Treasury went up above 3.60% (a technical support level), and the yield curve continued to steepen since overnight and short-term rates are still near 0%. (And many feel a steep curve indicates future growth.) Some traders blamed a rallying stock market, thin holiday trading done by “the B-team”, few buyers ahead of year-end, or the chance that next week’s auctions will be poorly received. Mortgage servicers were in doing some selling, and the Fed was in doing some buying.

Today we’ve already had some news out. The final revision to the 3rd Quarter GDP numbers came out which showed that the U.S. economy grew at a much slower pace than initially thought. The final estimate showed GDP grew at a 2.2% annual rate instead of the 2.8% pace it reported last month. It was still the fastest pace since the third quarter of 2007 and ended four straight quarters of decline in output. Is that helping bonds? Nope. The yield on the 10-yr is now above 3.70% and mortgage prices are worse by another .250-.375.

Existing home sales for November were released this morning, and came in higher than expected, a sign that housing is gaining strength along with the broader economy. November purchases came in at 6.54 million units annualized, a 7.4% increase from the prior month. The median sales price dropped 4.3% from year ago levels, which was the smallest decrease since November 2007.

On todays date: December 22…
1990: Iraq announces it will never give up Kuwait
1989: After 23 years of dictatorial rule, Romania ousts Nicolea Ceausescu
1943: WEB Du Bois elected 1st black member, National Inst of Arts and Letters
1937: Lincoln Tunnel, in New York City, opens to traffic

The last word:
“It's not whether you get knocked down, it's whether you get up.” – Vince Lombardi

All this plus commentary and opinion at http://mortgagemm.blogspot.com

December 15, 2009

2009-12-15T08:11:00.000-08:00

Market Update – December 15, 2009

Commentary from Rob Chrisman:

A quick note on the House (not the Senate!) passing the Financial Overhaul bill: The legislation includes significant reforms to monitor systemic risk, improve stability of the financial markets, establish and administer a new agency, the Consumer Financial Protection Agency, that will be responsible for regulation and enforcement of consumer protection laws, and reform laws governing capital markets and credit reporting agencies. The House voted against an amendment that would have permitted bankruptcy judges to modify ("cram down") mortgages during Chapter 13 bankruptcy proceedings.

How ‘bout that yield curve? Recently we’ve seen the steepest yield curve ever, spurred on by Fed Funds being near 0%, the 2-yr Treasury note being around .8%, and 30-yr bonds moving up to 4.50% after a poor auction last Thursday. Some investors have a somewhat bearish outlook for mortgages due to this yield curve environment, inflation issues, and the Fed's eventual exit from the agency MBS market, currently scheduled to end in March.

U.S. producer prices were up 1.8%, more than expected in November, mostly due to energy costs. (Analysts seemed to believe that the PPI was only going to be up .8% last month.) Year-over-year the PPI was up 2.4% in November versus an expected number of +1.6%. Gas was up over 14%, hurting Escalade and Hummer drivers everywhere, and the “core rate” without food and energy was +.5%. Although we still have Industrial Production and Capacity Utilization ahead this morning, currently the bond market is taking the news on the chin: the yield on the 10-yr is up above 3.62%, and mortgage prices are worse between .375 and .625.

On todays date: December 15…
1997: San Francisco 49ers retire Joe Montana's #16
1944: U.S. Congress gives General Eisenhower his 5th star
1916: French defeat Germans in WW I Battle of Verdun
1791: Bill of Rights ratified when Virginia gave its approval

The last word:
“The only source of knowledge is experience.” – Albert Einstein

All this plus commentary and opinion at http://mortgagemm.blogspot.com

December 14, 2009

2009-12-14T07:57:00.000-08:00

Market Update – December 14, 2009

Commentary from Rob Chrisman:

According to Fed Chairman Bernanke, the Fed still expects the labor market to improve very slowly, so they are reluctant to remove monetary stimulus by raising rates. Fed officials believe that inflation will remain low for the next couple of years, meaning that there is little short-term pressure to raise rates. But mortgage rates are not set by the Fed, or their thoughts on inflation – they’re set by “the market”.

Abu Dhabi, one of the seven United Arab Emirates, will be giving Dubai, another one of the seven, a $10 billion “lifeline” to head off a bond default. This action has helped overseas stocks, since it should enable Dubai World to repay a $4.1 billion Islamic bond its property developer unit Nakheel was due to pay today. I am not quite sure if this is like Atlanta giving Miami a loan, or Delaware giving New Jersey a loan, or Mexico giving Canada a loan, but it is similar.

Well, traders on Friday saw the usual cast of characters in buying mortgages: the Fed, banks, and hedge funds & money managers. But based on recent auction demand, investors appear to believe that there is little risk of higher inflation in the short-term, and are comfortable buying short term fixed income securities. But the demand for the 10-yr and 30-yr auctions was very disappointing: gee, you don’t want to earn 3.5% for 10 straight years? To top it all off, on Friday the University of Michigan Consumer Sentiment Survey was higher than expected.

What do we have to look forward to this week? It will be a busy pre-Christmas week for economic news. For one, the Fed meeting on Wednesday is expected to have no change for rates but, as usual, investors will be closely watching the language. The Producer Price Index (PPI) comes out tomorrow, as does Industrial Production and Capacity Utilization, and the Empire State Manufacturing Index. This is followed by the Consumer Price Index (CPI) and New Residential Construction on Wednesday. Housing Starts comes out Wednesday. Jobless Claims, Leading Economic Indicators, and the Philly Fed are on Thursday. This morning we find rates (10-yr at 3.54%) and mortgage prices about unchanged from Friday afternoon’s levels.

On todays date: December 14…

1984: Howard Cosell retires from Monday Night Football
1946: U.N. General Assembly votes to establish United Nations HQs in New York City
1819: Alabama admitted to Union as 22nd state

The last word:
“Money is better than poverty, if only for financial reasons.” – Woody Allen

All this plus commentary and opinion at http://mortgagemm.blogspot.com

December 9, 2009

2009-12-09T08:36:00.000-08:00

Market Update – December 9, 2009

Commentary from Rob Chrisman:

Was your Lock Desk busier last week? The MBAA reported that applications hit their highest level in two months (up 8.5%). Purchases were up 4% and refinancing was up over 11%, with refinancing accounting for almost 75% of apps.

Is it my imagination, or is everyone tightening up their guidelines, changing processes and procedures, and making it tough for compliance staffs to do their jobs? And it isn’t only the Fannie 8.0 release; there are many other changes also. Of note, some firms, like GMAC, are giving deadlines to buy Fannie 7.1 loans (Bank of America is February 26th), whereas others, like Wells, are not. This is often a result of loan programs that were acceptable under 7.1 being eliminated, and some large investors were never purchasing those programs.

Would you want TARP money showing up on your balance sheet at year end, or limiting your pay any longer than necessary? Probably not, and Citigroup & Wells Fargo are seeking to repay billions in federal bailout aid but so far haven't received permission from the government. How much capital would the banks would need to raise to repay taxpayers? Citigroup received $45 billion in bailout money and is now 34 percent owned by the government, and the government supposedly has told Citi that it would need to raise at least $20 billion in common equity to quit TARP. Wells Fargo received $25 billion. This has been motivated not only by year end but by Bank of America announcing it would return $45 billion it had received, adding to the $71 billion already repaid by about 50 other financial companies. Of course, TARP recipients are subject to restrictions on employee compensation until they repay the government.

Rates moved up slightly yesterday, which some attribute to a fair/decent 3-yr note auction by the Treasury. Still, it showed that this country continues to underwrite debt at lower and lower yields with demand still solid. Wall Street dealers are seeing light origination, and “not great” liquidity in spite of mortgage prices behaving very well since the unemployment data on Friday. Today for excitement we have the $21 billion 10-yr note auction, currently yielding 3.40%. Mortgage security prices appear to be giving back early gains, and are worse by about .250.

On todays date: December 9…
2000: Supreme Court halts Florida vote recount
1974: Dow Jones index hits 570.01
1965: "A Charlie Brown Christmas," premieres
1793: Noah Webster establishes New York's 1st daily newspaper, American Minerva

The last word:

“Never trust a computer you can't throw out a window.” – Steve Wozniak

All this plus commentary and opinion at http://mortgagemm.blogspot.com

December 7, 2009

2009-12-07T07:54:00.000-08:00

Market Update – December 7, 2009

Commentary from Rob Chrisman:

Last week strong economic & housing data, an improved economic outlook from the Fed, and headline-grabbing unemployment data increased concerns about future inflationary pressures and thus higher rates. The US continues to lose jobs in manufacturing and construction, and add them in the service sector. Temporary employment has risen by 113,000 over the last three months, a good portion of it within the mortgage banking industry. Even though the unemployment rate fell to 10%, things are still grim on the unemployment front. The U-6 measure of unemployment, which is the broadest measure around, is still above 17%. What was missed by the unemployment rate was the pick-up in the duration of unemployment: the median duration of unemployment is over 20 weeks, and a record 38.3% of workers have been unemployed for at least six months.

Wall Street traders saw an increased level of origination selling last week, suggesting that lock desks were busy. Interestingly, and a key reason why I could never be a day trader, the stock market improved dramatically early in the morning, but then lost all of its gains and came back to nearly unchanged for the day. The 10-yr note was down (worse) almost a point, the price of gold fell, the dollar rallied, and crude oil moved higher with the view the economy is recovering more rapidly than what was thought. Suddenly the stock market is concerned that a better economy will lead to higher rates, which will in turn depress the economy. Is that how it works?

After a full week of economic news, this week promises to be light. We do have the sizeable auctions ($74 billion), but in terms of scheduled releases today, tomorrow, and Wednesday we have nothing of substance, Thursday we have the Trade figures and Jobless Claims, and on Friday we have Retail Sales and the Imports/Exports data. With no news, the 10-yr is at 3.46% and mortgage prices are a shade better than Friday afternoon.

On todays date: December 7…
1981: Spain becomes a member of the NATO alliance
1917: U.S. becomes 13th country to declare war on Austria during World War I
1877: Thomas A Edison demonstrates the gramophone
1787: Delaware becomes 1st state to ratify constitution

The last word:
“All our dreams can come true, if we have the courage to pursue them.” – Walt Disney

All this plus commentary and opinion at http://mortgagemm.blogspot.com

December 3, 2009

2009-12-03T08:41:00.000-08:00

Market Update December 3, 2009:

Commentary from Rob Chrisman:

I would imagine that plenty of folks at Bank of America, and their clients, are happy. Bank of America Corp. said that it plans to repay its $45 billion in government bailout funds, as soon as this week! Apparently the Bank has that much available cash, without sniffing around in the safe deposit boxes of its customers, and raise $18.8 billion in capital to repay the money. This is great news for shareholders (the stock moved higher on the news). Of the 4 major mortgage investors & servicers, this will leave Citi ($45 billion) and Wells ($25 billion) with owing TARP funds. There is no news from Citi. As for Wells, ever since they accepted their $25 billion of federal bailout assistance last year, management has said that the bank never needed the money, didn’t want it, and shouldn’t have been forced by the government to take it. They keep saying they’d like to pay it back, too, but have not offered up a schedule.

If you went to a mall last weekend to look for Cabbage Patch Dolls, the odds are pretty good that it was owned by General Growth Properties – they own and manage more than 200 of them here in the US. They are in the middle of a Chapter 11 bankruptcy plan after failing to refinance portions of its $27 billion in debt. According to the Wall Street Journal, they filed a plan in bankruptcy court to restructure $9.7 billion in mortgage loans which “puts the mall owner a step closer to pulling 166 malls out from the bankruptcy protection entered in April.” That leaves another $11.7 billion in remaining debt. “The pact allows mortgage holders to report the loans as performing on their books at the end of the year rather than distressed at a time when delinquency rates on commercial mortgages are rising.” Wouldn’t it be nice if residential mortgage servicers could do the same?

Lock desks were a little busier last week, and the MBAA reported that applications were up 2.1%. Both refi and purchase applications moved up, and applications to refinance amounted to over 72% of total applications.

If your business is based on originating FHA loans, you should be aware that the HUD Secretary is expected to announce changes to the FHA mortgage insurance program to curtail defaults. And they won’t be loosening up anything. The changes may include an increase in the minimum credit score for FHA loans from 500, a boost in the minimum down payment from 3.5% and a reduction in the maximum amount of seller concessions from 6% of the home's value to 3%. Experts say monthly insurance premiums charged to borrowers and the current upfront premium -- currently 1.75% of the loan value -- also could be hiked.

Starting today, GMAC Bank Correspondents, should know that “as outlined in the Mortgagee's Assurance of Completion Document (Form HUD 92300), the Lender is required to hold Escrow Repair Funds. Title Insurance companies and Closing Agents are not permitted to hold Escrow Repair Funds for any FHA loan Transaction.” GMAC Bank will only permit approved Delegated Clients to hold escrow repair funds for HUD Transactions.

Without a program, it is easy to lose track of all the acronyms flying around the mortgage business these days. HAFA: Home Affordable Foreclosure Alternatives. The Treasury released details of the HAFA program to servicers. It was originally announced in May, and this refinement includes the general terms and conditions, evaluation process, documentation, and reporting requirements. The program will be effective April 2010 and servicers already participating in HAMP will be required to follow the Treasury’s guidance. The program standardizes eligibility for short sales, available to borrowers who meet HAMP eligibility requirements but do not qualify for or complete for a Trial Period Plan. “Upon the successful closure of a short sale or deed-in-lieu through the program, incentives of $1,500 in relocation assistance to the borrower, $1,000 in expense reimbursement to the servicer, and up to $1,000 in investor reimbursement for subordinate lien releases will be provided.” And servicers have some leeway to create their own policies.

Today we had the weekly Jobless Claims number. Tomorrow we have the unemployment data. They are two different measures, somewhat correlated but compiled by different organizations and which don't look at exactly the same data. (By the way, analysts are always pointing out the problems between the two.) If I file a claim for unemployment benefits for the first time, I show up on the weekly Jobless Claims number. And I will also show up on the unemployment rate. I can be out of work for months, showing up as unemployed, and collecting unemployment, but I am not a "new" claim. That is where the "continuing claims" number comes into play. People who file claims, and then go back to work show up as having filed a claim but then don't show up on the unemployment radar because they found a job.

Also, if I am looking for work, but unemployed, or just can’t work, the government measures me differently than someone who is not looking for work, and unemployed. And if I get a part time job, I am no longer unemployed, but "under employed" - a category that has been increasing. Certain Jobless Claims numbers represent claims from the survey week for nonfarm payrolls which will be released tomorrow. There are always "back month revisions" to the unemployment data, since the initial number is a sample (survey). Nonfarm Payroll (tomorrow) is put out by the Bureau of Labor Statistics whereas the weekly Jobless Claims number is put out by the Department of Labor, and is a measurement of the number of jobless claims filed by individuals seeking to receive state jobless benefits.

Although there was little volatility in the stock market yesterday, interest rates crept higher. Analysts are carefully following the spread between mortgage rates and Treasury rates: it has become historically narrow in recent weeks but now seems to be widening out, which is bad news for mortgage prices. Secondary folks get calls from agents saying, “Dude, the 10-yr is unchanged, but you made your pricing worse by .125. You have a Mercedes payment coming up?”

This morning we learned that the number of U.S. workers filing new applications for jobless insurance (see above) unexpectedly fell last week to the lowest level in more than 14 months, dropping 5,000 to 457,000 in the week ended 11/28. Jobless Claims have dropped for five consecutive weeks. The four-week moving average for new claims fell 14,250 to 481,250 last week, the lowest level since November last year, and declining for the 13th straight week. However, the number of workers still collecting benefits after an initial week of aid rose 28,000 to 5.47 million in the week ended Nov 21, after declining for 10 straight weeks. After the news we find the 10-yr up to 3.37% and mortgage prices worse between .125 and .250.

And the hits just keep on coming (and don’t blame me)…
• Phil Mickelson called Tiger's wife to get advice on how to beat Tiger with a golf club.
• Apparently the police asked Tiger's wife how many times she hit him. She said "I don't know exactly, 4, 5, maybe 6 times...but put me down for a 5.”
• What’s the difference between a car and a golf ball? Tiger can drive a ball 400 yards.
• Ping just offered Elin Woods an endorsement contract pushing her own set of drivers. They are said to be named Elin Woods...."Clubs you can beat Tiger with."
• News travels fast. The Chinese are already making a movie about Tiger Woods' crash. They are calling it, "Scratching Swede, Lying Tiger.
• Tiger just changed his nickname but still kept it in the cat family. His new name? Cheetah.

December 2, 2009

2009-12-02T11:19:00.000-08:00

Market commentary from Rob Chrisman:

Market Update December 2, 2009

We’re in December, and the Fed program to buy residential mortgages comes to an end in March. It has already been extended once, and some feel that they will extend it again. Others would rather they bring things to a close, and let the free market determine mortgage rates. And still others believe that just as the US government winds down its $1.25 trillion agency MBS program, it will be forced to create another program to address the refinancing need in the commercial real estate market. As anyone who has driven through a downtown area in the US in the last six months knows, the number of “for sale”, “for lease”, “for rent”, and just plain vacant office and storefronts is not declining.

Whatever happens in the commercial arena, the Federal Reserve plans to sell back small amounts of mortgage securities to the market in coming weeks via reverse repurchase transactions as an exercise in operational preparedness and did not signal a tightening of monetary policy or an effort to begin raising interest rates. The Fed recently announced that they will slowly begin taking over these operations beginning yesterday and that it will gradually slow the $1.25 trillion program. Up to now the Fed had been using only external investment managers, but from here on will use internal staff on some days.

Between the stock market and some decent economic news yesterday, interest rates moved slightly higher yesterday. Wall Street traders noticed a pickup in selling as prices dropped, as one would expect. A few hours after the market opened we found out that Construction Spending for October was unchanged after declining for the last five months. (There are exceptions, of course, but what builder wants to build, given the residential foreclosure issues and the commercial real estate vacancies?) Pending Home Sales were up almost 4% in October, ahead of the Existing Home sales figures because tight credit conditions and tougher rules on appraisals are killing some deals before they close. The ISM Manufacturing Index dropped more than expected after hitting a 3-yr high last month. And lastly, as the market adjusts to the Dubai situation, our fixed income securities become less of a “flight to safety”, and the demand drops.

It doesn’t help that U.S. banks are hoarding all the reserves the Fed creates when it buys securities outright or lends to various banks and institutions. Currently it is believed that the banks are sitting on $1 trillion of excess reserves for a variety of reasons, not the least of which is more cushion against potential issues down the road. Along the same lines, as we saw with the Treasury auctions last week, US and foreign demand is still solid. Which in turn, once again, leads in to a discussion about how the dollar’s continued weakness has contributed to the impressive Treasury results. With the Fed keeping rates low, this contributes to the weakness in the US dollar and helps us finance our debt. And with the issues in Dubai, the same goes for foreign banks as well – there is little reason to raise rates if there are more potential problems in the emerging markets. Stay tuned for Friday’s November employment data to potentially move markets: the unemployment rate is expected to hold at 10.2% and could put further pressure on the markets if the rate jumps more than is expected.

The only news out today is the ADP and the Beige Book (2PM EST). The correlation between the ADP job numbers and the unemployment data that comes out on Friday has always been a little sketchy, especially with large numbers of government hiring or firing. Regardless, U.S. private employers shed 169.000 jobs in November, fewer than the 195,000 jobs lost in October. Currently the 10-yr is at 3.28% and mortgage prices are worse by between .125 and .250 from yesterday afternoon.

On todays date: December 2….
1993: Dow-Jones hits record 3702.11
1990: 1st parliamentary election in newly reunified Germany
1914: Austria army occupies Belgrade Serbia
1901: Gillette patents 1st disposable razor
1804: Napoleon Bonaparte crowned emperor of France in Paris by Pope Pius VII

The last word:
“Between two evils, I always pick the one I never tried before.” –Mae West.

All this plus commentary and opinion at http://mortgagemm.blogspot.com

December 1, 2009

2009-12-01T09:01:00.000-08:00

Commentary from Rob Chrisman.

How has our friend the Fed been lately in buying production (old and new)? For the week ending on November 25th, the Federal Reserve's MBS program was a net buyer of $16 billion agency MBS, which was the same as the previous week. The YTD purchases of agency MBS is now at $1,039 billion.

Overseas, the Dubai situation continues to be watched carefully. Dubai World, it seems, has $59 billion of debt out of $80 billion in total Dubai debt. In a world-wide economic crisis, can a struggling borrower (with no oil) missing their payments be a shock? One trader asked, “Did S&P and the creditors really not see this coming?” The trader went on to liken this situation to the speculative overbuilding/overcapacity in Las Vegas and Phoenix.

Yesterday it was estimated that originators sold about $2 billion of new production (so if the Fed is buying $3 billion a day…), and mortgage prices are pretty much tracking the 5-yr Treasury note’s price movement. Analysts are pouring over the shopping numbers. At this point it seems that there were 13% more shoppers but each shopper spent 8% less than last year. And online shopping continues to grow – why battle the crowds to buy Uncle Milton’s Ant Farm?

We had a little surprise from the Chicago Purchasing Manager’s Index, announced on Monday, which shot up expectedly to its highest level in over a year. Sales were up and inventories were down, and “New Orders” were at their highest level since May 2007. Today we have three 10AM EST numbers. (Not to be confused with the typically-more-important 8:30AM EST numbers.) We have Construction Spending, the ISM Services survey, and Pending Home Sales. Ahead of those it was quiet overnight, and we find the 10-yr at 3.22% and mortgages roughly unchanged from Monday afternoon.

Besides worrying about capital reserves and RESPA, the FHA has not been idle. The FHA imposed $512,000 in penalties on Lend America for allegedly violating FHA requirements, including failing to document borrowers' income and creditworthiness, and for submitting false certifications. The move prohibits the company, owned by Ideal Mortgage Bankers, from making new mortgages insured by the Federal Housing Administration or issuing mortgage-backed securities insured by Ginnie Mae. No word yet on a counter action by Lend America, based in Long Island.

The parent company of AmTrust Bank (AmTrust Financial - Cleveland) has filed for bankruptcy, but the filing does not include the bank's 66 branches in Northeast Ohio, Florida and Arizona. All of AmTrust Bank's branches are open as normal, the company said. The request for bankruptcy protection, filed in Cleveland, comes less than two weeks after its third-quarter financial report showed its financial strength fell nearly in half in a year when regulators ordered the bank to improve its finances. Instead, the numbers went the other way.

Last week Bank of America Home Loan correspondent’s channel told patrons that effective the day before Thanksgiving the maximum total price, for Conventional and Government loans, will increase for all loan programs to 105.00 for Best Efforts and Mandatory locks. (If they’re paying 105, originators had better hope that the loan stays on BofA’s books for a while!)

SunTrust reminded clients that “the deadline for loans currently in the pipeline that reflect DU Refi Plus eligibility; but will close as a ‘Standard Limited Cash Out Refinance (Rate/Term)’ transaction must have been locked by November 18, 2009 (instead of November 16, 2009) and delivered to SunTrust BY December 31, 2009. Lock-in extensions and relocks will not be granted.” And loans delivered after December 31 with DU Refi Plus eligibility and processed as a Standard Limited Cash-out Refinance (Rate/Term) transaction, must be submitted to DU exercising the Opt Out Option. Lock-in extensions and relocks will not be granted.

On todays date: December 1….
1992: Amy Fisher sentenced 5-15 years for shooting Mary Jo Buttafuoco
1990: British and French workers meet in English Channel's tunnel (Chunnel)
1988: Benazir Bhutto named 1st female Prime Minister of a Moslem country, Pakistan
1973: Jack Nicklaus becomes 1st golfer to earn $2M in a year
1843: 1st chartered mutual life insurance company opens

The last word:
“A man begins cutting his wisdom teeth the first time he bites off more than he can chew.” –Herb Caen.

All this plus commentary and opinion at http://mortgagemm.blogspot.com

November 30, 2009

2009-11-30T07:57:00.000-08:00

Market Update – November 30, 2009:
The FNMA 4.5 issue is up 1 tick to 102-17, and the FNMA 5.0 is up 3 ticks at 104-26. 10-year Treasury yields up 2 bps compared with the yesterday’s close, with the 10-year yield at 3.23%. The yield curve is holding steady with the 2-year / 10-year spread at 254 bps, 1 bps steeper compared to Friday’s close.

Commentary from Rob Chrisman:

Dubai, home of the palm tree-shaped island, sail-shaped high-rise hotel, and indoor skiing, is not immune to the credit crisis. Apparently they borrowed quite a bit to finance their world-famous expansion, but on Wednesday the city-state said it would restructure its largest corporate entity, Dubai World and announced a six-month standstill on the company's debt. Of course this news immediately pushed up the price of insuring against a default and reminded everyone of the collapse in its once-booming real-estate sector late last year. Fortunately it appears that our banks, and the mortgage business, have limited exposure to Dubai’s problems. But the question is whether Dubai World is isolated, or a sign of widespread sovereign debt defaults in emerging markets? One investor said, “I always thought that Dubai was way too flashy anyway, and they’re getting what they deserve – it’s fine unless its problems impact me.”

What does the public see about the mortgage business these days? “Fannie Mae, the giant mortgage finance company that helps shape lending guidelines, plans more crackdowns next month to further tighten lending practices.” Those in the business know that this is the rollout of DU 8.0, “raising of minimum credit score requirements and limiting the amount of overall debt that can be carried related to income.” And get this: in spite of the credit nightmare that we find ourselves in, “There is concern, however, that the mortgage industry may become too restrictive and impede an economic recovery in its attempts to roll back loose lending standards that led to the current crisis, The Washington Post says.”

The week before last it was reported by HUD that credit scores on FHA single-family loans have risen steadily over the past three years with the average score reaching 689 at the end of September, a 10% improvement from a year ago. So far this year 44% of the loans have FICO scores above 680 and only 13% have FICO scores below 620. This compares to 2007, when only 19% of the loans had FICO scores above 680 and 47% of the loans had FICO scores below 620. Steve from Franklin First wrote, "I think this is funny because HUD had nothing to do with this. As you know it was the mortgage industry self-regulating itself using overlays which, by the way, would be much needed positive press for our industry that seems to be ignored. It makes you wonder if HUD “geared” the major banks in this direction due to fact that they could not because it would have been politically incorrect...”

How about interest rates and the market in general? The day prior to Thanksgiving, the results of the 7-year note were very strong coming in at 2.86% with a bid/cover ratio of 2.76. (The YTD bid/cover has averaged 2.53, but had averaged 2.73 since the June 1 change in auction bidding rules.) The indirect bids were 62.5% of the auction. We also had New Home Sales up over 6% in October, much better than the drop that experts had forecast, and inventories shrank to about a 6.7 month supply at the current sales rate. We also had Consumer Spending pick up a little bit, which may give retailers a little hope for the upcoming buying season.

Things were relatively quiet over the weekend, although the Treasury is meeting with the large mortgage servicers today in an effort to push along loan modifications. Many are quick to point out that a few years back, the government was pushing lenders to widen their guidelines to promote home ownership, and now they pushing servicers to be actively keep many of these same borrowers in their houses. Today we have the Chicago Purchasing Manager’s Survey at 9:45 EST. Tomorrow will be Construction Spending and ISM, Wednesday is the Fed’s Beige Book, Thursday Jobless Claims, and then on Friday is all of the unemployment data. The Dubai turmoil has pushed our rates down relative to Wednesday (“flight to quality”), and we find the 10-yr at 3.23% and mortgage securities better than Wednesday but a little worse than Friday. Whole loan pricing will be dependent on the investor, of course.

The last word:
“Confidence is contagious. So is lack of confidence.” – Vince Lombardi.

All this plus commentary and opinion at http://mortgagemm.blogspot.com

November 25, 2009 - Happy Thanksgiving!

2009-11-25T09:06:00.000-08:00

Market Update – November 25, 2009:
The FNMA 4.5 issue is up 2 ticks to 102-10, and the FNMA 5.0 is down 1 tick at 104-18. 10-year Treasury yields are flat bps compared with the yesterday’s close, with the 10-year yield at 3.32%. The yield curve is holding steady with the 2-year / 10-year spread at 259 bps, the same as yesterday’s close.

Commentary from Rob Chrisman:

Whoever wants a 4.50% 30-yr fixed rate conforming loan with a point back to cover closing costs, raise your hand! Well, we’re just about there. Fannie 4% securities are shuffling around 99 or 100, and when you throw some servicing-released premiums on the price, you’re easily above par. And who wouldn’t want to own this servicing? Even I am thinking about refinancing, and I don’t even own a place! Seriously, heck, I have a 7-yr ARM that closed in 2003 at 4.75% (so it starts adjusting next year) that I am thinking about refinancing. Given the 30% LTV maybe I can even find an investor!

So if rates are so great, why are applications dropping and agents continuing to work twice as hard for half as much business? For last week, the MBAA’s weekly application index dropped 4.5% with applications to buy a home up 9.6% and refi’s down 9.5%. (“The MBA revised the indices for the prior week.) Does this data support what many in the business already are feeling: That most people who can refinance already have, that the economy would have to go further into the tank for mortgage rates to drop much more, and we’d better get used to a purchase market in the coming months and next year?

How long does it take the MBAA to compile multifamily statistics? I guess eleven months, since Monday’s headline read, “MBA Reports Multifamily Lending 40 Percent Lower in 2008 than 2007; Market Remained Broad and Diverse”. Their report stated that “2,877 different multifamily lenders provided a total of more than $88 billion in new financing for apartment buildings with five or more units, which is a 40% decline from 2007 levels, and the top five were PNC Real Estate, Wachovia, Wells Fargo Bank, N.A, Capmark Financial Group Inc, and Deutsche Bank Commercial Real Estate. The report also mentioned that 26% of lenders who made multifamily loans in 2008 made just one, and two-thirds made five or fewer!

The Federal Open Market Committee is responsible for open market operations. It has the ability to influence “the demand for, and supply of, balances that depository institutions hold at Federal Reserve Banks and in this way alters the federal funds rate. The federal funds rate is the interest rate at which depository institutions lend balances at the Federal Reserve to other depository institutions overnight.” What do they see in their crystal ball? The FOMC sees growth strengthening in the next two years, although commercial real estate has a lot of potential for risk. They still see bank credit as “tight”, not much capital spending, and don’t seem overly concerned by the orderly decline of the dollar but do see the potential for inflation. (Think of the photos of wheelbarrows of money being used to buy bread in some countries…)

Why would anyone care about Fannie’s ruling on removing loans from MBS pools to complete HAMP modifications? Well, if you’re an investor who paid 102 for a pool, and suddenly loans turn up missing, it creates concern. This month “Fannie Mae suspended some MBS mortgage loan reclassifications to provide servicers with an opportunity to confirm the completion and validation of required HAMP documentation. For loans not reclassified in November 2009, servicers must review the Query/Cancel Manual Reclass Request link (the “Reclassification Request Report”) through HomeSaver Solutions Network (HSSN) in December 2009 and comply with these new requirements based on receipt and validation of all of the required HAMP documentation.”

To remove a loan, Fannie’s requirements are based on the number of payments received by the servicer and notifications to Fannie Mae of the receipt of the payments before the servicer’s reclassification date. “Before a mortgage loan is removed from the MBS pool to facilitate a HAMP modification, a servicer must receive all of the required trial period payments; receive all of the required documentation (other than the Home Affordable Modification Agreement and if required, reevaluate the borrower for HAMP eligibility and confirm that the borrower is eligible. Servicers, I am sure, have the full details on the forms required by Fannie, along with the procedure – as you can imagine it involves more than just a phone call.

The bond market has low rates, the stock market has improved dramatically this month, yet the unemployment rate is hitting new highs. Many experts believe that the “odd man out here” is the stock market. The Fed and the Treasury have placed a huge bet on a recovery driven by asset prices. Stock prices have improved because corporate earnings are up due to cost cutting measures. The biggest single cost they’re cutting is their payrolls. Apparently some companies are cutting payrolls even below where they were 3-6 years ago, either outsourcing the work to other countries, contracting it out, or using automation. So obviously productivity looks great because companies are generating almost as much output with fewer workers and fewer hours. And if a large company can borrow money cheaply, it’s easy to substitute capital for labor, and to buy foreign assets with cheap American money.

This Friday is the traditional start of the holiday shopping season, although it seems some stores like Costco have had a holiday motif ever since Labor Day. (The bond market is open all day today, but has an early close Friday, and there will be no commentary.) No economy can recover without consumers, which still make up about 70% of the U.S. economy, but we are still grappling with increasing unemployment, part time work, pay cuts, and empty commercial buildings.

In addition to the FOMC minutes mentioned above yesterday, and GDP, we had the S&P/Case-Shiller Home Price Index which increased .27% from the prior month, although their numbers are down over 9% from September 2008. Not content to have only one measure, they produce both a 10-city and a 20-city index; though still negative, annual returns for both the 10-city and the 20-city index showed some level of improvement in every month since the beginning of the year. And over the third quarter, the US National Home Price Index -- which covers all nine US census divisions -- recorded a 3.1% increase.

Unlike the mediocre-at-best 2-yr auction on Monday, yesterday’s 5-year note auction was extremely strong. The yield came in at about 2.18%, and the bid/cover ratio was 2.81 (much higher than the average 2.28 for 2009). The indirect “takedown” (think foreign buyers, give or take a little) was almost 61% of the auction versus the 2009 average of 48%. Are you slightly more confident than you were last month? Join the crowd: Consumer Confidence increased slightly from October to November.

In addition to gold hitting another high on dollar weakness (nearing $1,200 per ounce), and the final auction of the week ($32 billion of 7-yr Treasury notes), today we have many economic numbers to digest. Personal Income and Consumption, Durable Goods, Housing Starts and Building Permits, New Home Sales, and the University of Michigan Consumer Sentiment Survey. Jobless Claims dropped 35,000 last week, which surprised forecasters – is the labor market really improving or are folks just not filing? But October’s Durable Goods number, always volatile, was down .6% in October, and ex-transportation it was -1.3%. With more news ahead, we find ourselves about where we were yesterday with the 10-yr at 3.32% and mortgages about unchanged.

A young man named John received a parrot as a gift. The parrot had a bad attitude and an even worse vocabulary. Every word out of the bird's mouth was rude, obnoxious and laced with profanity. John tried and tried to change the bird's attitude by consistently saying only polite words, playing soft music and anything else he could think of to "clean up" the bird's vocabulary. Finally, John was fed up and he yelled at the parrot.

The parrot yelled back.

John shook the parrot and the parrot got angrier and even ruder. John, in desperation, threw up his hand, grabbed the bird and put him in the freezer. For a few minutes the parrot squawked and kicked and screamed. Then suddenly there was total quiet. Not a peep was heard for over a minute.

Fearing that he'd hurt the parrot, John quickly opened the door to the freezer.

The parrot calmly stepped out onto John's outstretched arms and said "I believe I may have offended you with my rude language and actions. I'm sincerely remorseful for my inappropriate transgressions and I fully intend to do everything I can to correct my rude and unforgivable behavior."

John was stunned at the change in the bird's attitude. As he was about to ask the parrot what had made such a dramatic change in his behavior, the bird continued, "May I ask what the turkey did?"'

On todays date: November 25….
1990: Lech Walesa wins in Poland's 1st popular election
1986: A's Jose Canseco wins AL Rookie of Year
1973: Maximum speed limit cut to 55 MPH as an energy conservation measure
1963: John F. Kennedy laid to rest at Arlington National Cemetery
1940: Woody Woodpecker debuts with release of Walter Lantz's "Knock Knock"
1792: Farmer's Almanac 1st published

The last word:
“Don't gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it.” – Will Rogers.

All this plus commentary and opinion at http://mortgagemm.blogspot.com

November 24, 2009

2009-11-24T08:27:00.000-08:00

Market Update – November 24, 2009:

The FNMA 4.5 issue is flat at 102, and the FNMA 5.0 is flat at 104-12. 10-year Treasury yields are down 1 bps compared with the yesterday’s close, with the 10-year yield at 3.34%. The yield curve is flattening today with the 2-year / 10-year spread at 259 bps, down from 263 bps on yesterday’s close, an increases in the 2 year yield is driving the flattening. Equities are modestly negative after a strong showing yesterday.

A story in the Wall Street Journal confirms what many in our industry already knew, which is that mortgage restructuring is a growth business for hiring. The four key investors/servicers, Wells Fargo, Bank of America, Citigroup, and JPMorgan Chase “have collectively hired almost 17,000 people this year”. Given that almost 7 million households are 30 days or more overdue, that’s a lot of figuring out how much they can afford to pay each month! Wells alone, per the article, has hired 7,000 employees this year; Citi has added 1,400 jobs.

Yesterday’s 2-yr sale didn’t move the markets much. The overall demand for the $44 billion 2-yr note was lower than last month’s auction. Historically speaking, a shortened holiday week can increase the volatility, either up or down, but with the additional supply coming into the market more folks are worried about prices heading down and rates going up. But it isn’t as if we didn’t know about the auction last week, right? And rates did fine, in spite of stocks rallying, gold hitting a new high, and an incredibly strong Home Sales number. And mortgage prices did especially well, since, as we’d expect, origination was slow. How long can this last?

But how ‘bout that Existing Home Sales number being up over 10% and hitting the highest level in almost three years? We all knew that there would be a “first time home buyer tax credit ending” crunch, but it exceeded what experts had forecast. Inventories of previously owned homes decreased by 3.7% - that represented a 7-month supply at the current sales pace, with median prices down 7.1% a year ago. Regionally, sales in October compared to September rose 11.6% in the Northeast, 14.4% in the Midwest, 12.7% in the South, and 1.6% in the West.

We learned this morning that U.S. economy grew more slowly than initially thought in the third quarter. The second reading of 3rd quarter GDP showed 2.8 percent annual increase rather than the 3.5 percent pace it estimated last month and a touch below the 2.9% expected. Although we have another auction ahead of us, after the GDP news we find the 10-yr down to 3.34%.

On todays date: November 24….
1995: Ireland votes to end 70-year-old ban on divorce (50.28% to 49.72%)
1993: Brady bill passes establishing 5-day waiting period for handgun sales
1989: Communist Party resigns in Czechoslovakia
1971: Dan "DB" Cooper parachutes from a Northwest AL 727 with $200,000
1871: National Rifle Association organized in New York City

The last word:
“All life is an experiment. The more experiments you make the better.” – Ralph Waldo Emerson.

All this plus commentary and opinion at http://mortgagemm.blogspot.com

November 23, 2009

2009-11-23T09:40:00.000-08:00

The FNMA 4.5 issue is up 3 ticks to 101-28, and the FNMA 5.0 is flat at 104-07. 10-year Treasury yields are up 2 bps compared with the yesterday’s close, with the 10-year yield at 3.38%. The yield curve continues to steepen with the 2-year / 10-year spread at 265 bps, up from 261 bps on yesterday’s close. Equities are rallying.

Runaway success often stems from a unique approach to solving ordinary problems.
http://www.homeownershipaccelerator.com/

Here is some new commentary from Rob Chrisman:

I was showing my Dad my cell phone over the weekend. He said, "Son, no one gives a damn about all the things your cell phone does. You didn't invent it, you just bought it. Anybody can do that." Life with Dad, always an adventure…

Speaking of buying things, us taxpayers bought us another bank on Friday, although Central Bank of Stillwater, MN agreed to assume all of the failed bank’s deposits and all of its assets. Commerce Bank of Southwest Florida was taken over, and for those keeping a tally, it was #124 for this year and the 12th in Florida. They had total assets of about $80 million and total deposits of about $76.7 million, according to the FDIC. The FDIC and Central Bank will share in losses on about $61 million of Commerce Bank's assets.

Do you have a 401(k) plan? It is the most popular retirement savings vehicle in the US, with about 65 million, or an estimated 40%, of private sector employees having one. It is named after the section of the IRS code, and came about in 1978 after Congress provided for taxpayers to receive a break on deferred income. In 1981 the IRS allowed employees to defer part of the pretax salary into their retirement plan. Most are offered at a lower cost than a traditional pension plan, and of course billions of dollars have moved from mattresses into the financial markets. But do they make investors smarter? Of course not – for better or worse, many companies encourage employees to use their 401(k) plans to invest in the company’s stock by offering discounts and other plans. Employees of companies like Enron, Countrywide, WorldCom, Lehman Brothers, Fannie Mae, Freddie Mac, etc. were encouraged to, in effect, double down instead of diversifying, not only relying on the company for employment but also hoping to rely on the stock during their retirement. So as we come up on the end of the year, and employees are realizing that they can put more money into their 401(k) plans, they should be careful where it goes.

But speaking of retirement plans, Flagstar requires evidence of liquidation when a borrower’s funds to close are coming from a “401(k), IRA or other acceptable retirement account, regardless of documentation required by Total Scorecard. Loans will not be cleared-to-close until acceptable evidence of liquidation is provided. Document liquidation with the following: a copy of the distribution check and evidence of deposit to the borrower’s bank account or a copy of the retirement account showing withdrawal and evidence of deposit to the borrower’s bank account.

Flagstar told their clients that the Verbal VOE must be completed no earlier than 10 days prior to closing, although Flagstar strongly suggests it be done as close to closing as possible. Also, “This requirement is needed in addition to the verbal verification of employment that the Flagstar underwriter performs during the underwrite.” And for self-employed borrowers, Flagstar requests that the VOE must be performed within 30 days of closing.

As most of us, and Flagstar, know, for FHA Streamline Refinance transactions with case numbers assigned after last Monday, FHA requires verification of funds to close. When funds to close are coming from a borrower’s checking or savings account, Flagstar requires the most recent two months bank statements. The statements must be within the most recent 90 days, and large deposits must be verified. (Is this stuff dry, or what?) “A borrower’s funds to close may come from any source acceptable to FHA. Flagstar requires a payment history for all mortgages being paid off through a Streamline refinance transaction. The mortgage pay history must be provided by the existing servicer and must include the most recent 12 months pay history. If the mortgage has been in effect less than 12 months, the history must reflect the length of time the mortgage has been in effect. Loans that are currently being modified or for which foreclosure proceedings have begun may not be refinanced.

Keen observers of pricing out there have noticed a move toward rewarding high FICO, low LTV product, and penalizing the opposite. So rather than just saying that an investor just doesn't want the product, they accentuate the product that they do want. For example, the latest example of this is from Caliber Funding. They improved their pricing for loans with a FICO above 760 and an LTV of less than 70% by .250, along with other improvements for loans with FICO scores above 720 with relatively low LTV’s. They also did the same for FHA fixed rate products. (Caliber Funding also confirmed that they will be embracing the extension of the conforming and high-balance conforming loans, although “Caliber Funding does not currently offer financing on the High Balance loan programs”.)

Wells Fargo correspondents should know that after December 13 Wells will revise its conventional policy for income qualification and documentation on all Prior Approval loans submitted to Wells Fargo for manual underwriting (including the Home Opportunities program). The guidelines included are Wells Fargo policy and apply to transactions submitted for Prior Approval manual underwriting for the following six scenarios: 1. Document requirements for dividend and interest income, 2. Document requirements for seasonal income, 3. Document requirements for military income, 4. Requirements for including public assistance in qualifying income, 5. Requirements for including foster care in qualifying income, and 6. Documentation requirements for rental income. Wells’ bulletin included five pages of underwriting excitement – it is best for their clients to check it out.

AmTrust Bank has updated their guidelines which apply to their Conforming High Balance Fixed Core (Standard and IO); Conforming High Balance My Community (Fixed & ARMs) & Conforming High Balance Flex 97 product line(s).

Think back to Friday… rates… yup, they didn’t do much. The Fed was in doing some buying, origination seemed to be $3 billion or less, and other buyers were mostly interested in lower coupon product. There is some speculation that many are still flushed with cash and need to put cash to work by year end.

Things could be pretty quiet this week, although there is a decent amount of economic data to be released. Today is Existing Home Sales at 7AM PST. Tomorrow we have GDP, Consumer Confidence, and the FOMC Minutes from the November 4th Fed meeting. Wednesday, when everyone would rather be somewhere else, we have Durable Goods Orders, Personal Income, Core PCE inflation, New Home Sales, and Consumer Sentiment. Add on the Treasury auctions today through Wednesday, and many traders off for the week, and we have a recipe for volatility. Currently the 10-yr is back up to 3.38% and mortgages are worse by about .125.

Four Catholic men and a Catholic woman were having coffee.

The first Catholic man tells his friends, "My son is a priest. When he walks into a room, everyone calls him 'Father'."

The second Catholic man chirps, "My son is a Bishop. When he walks into a room people call him 'Your Grace'."

The third Catholic gent says, "My son is a Cardinal. When he enters a room everyone says 'Your Eminence'."

The fourth Catholic man then says, "My son is the Pope. When he walks into a room people call him 'Your Holiness'."

Since the lone Catholic woman was sipping her coffee in silence, the four men give her a subtle, "Well....?"

She proudly replies, "I have a daughter, slim, tall, 38D, 24" stomach and 34" hips. When she walks into a room, people say, ‘Oh, My God’.”

November 20, 2009

2009-11-20T07:58:00.000-08:00

Market Update – November 20, 2009:
The FNMA 4.5 issue is up 1 tick to 101-22, and the FNMA 5.0 is flat at 104-05. 10-year Treasury yields are up 2 bps compared with the yesterday’s close, with the 10-year yield at 3.37%. The yield curve continues to steepen with the 2-year / 10-year spread at 266 bps, up from 262 bps on yesterday’s close. Equities continue to show weakness on light news.

Runaway success often stems from a unique approach to solving ordinary problems.
http://www.homeownershipaccelerator.com/

Here is some new commentary from Rob Chrisman:

Will the jumbo market ever come back? I, for one, believe that it will. Obviously many banks offer the product through their retail branches – it earns them a very nice spread versus their cost of deposits. Things are a little iffier through the correspondent channel, but moving in the right direction. Chase, for example, offers non-agency product to eligible Chase clients. Their maximum loan amount is $2 million with a maximum LTV/CLTV of 80% and only for a primary residence. It is available for purchases and cash-out/no cash-out refinances with a fully executed 4506-T. Chase’s correspondent clients must be approved by the Chase Customer Management Group prior to participation, be approved to do business with Chase Correspondent for at least one year and minimum volume of $6MM for the previous 12 months, have a minimum audited HUD adjusted net worth of $1MM, and have a 12-month Conventional 90+ active ongoing delinquency <100% of channel average.

GMAC Bank Correspondent Funding followed suit on the 2010 conforming loan limits, so as determined by the Federal Housing Finance Agency (FHFA) they remain unchanged. The maximum general conforming loan limit for one-unit properties will remain at $417,000. The maximum high-cost area conforming loan limits have been extended for 2010 originations.

Builder D.R. Horton, based in Fort Worth, said it lost “only” $232 million in its fiscal fourth quarter, compared to a loss of $800 million a year ago. Inventory write down costs and other expenses totaled $192.6 million pretax in the latest quarter. And, as with most other builders, sales orders during the quarter were better than last year, but more foreclosures, high inventories and rising unemployment remain a challenge for the industry.

It was a somewhat interesting market yesterday. The stock market sold off, mostly blamed on profit taking, and Leading Economic Indicators only being +.3% instead of the +.4% that was expected. (Forget that it was balanced out by the Philly Fed survey coming in much stronger than expected – stocks and bonds chose to ignore that one this time around given that manufacturing in the Philadelphia area might not be indicative of the entire US economy.) LEI were up 1% in September, so generally speaking it is pointing to a recovery in the future.

In the fixed income markets, mortgage-backed securities were a little “wider” yesterday, meaning that their rates went up slightly relative to Treasury rates. It was announced that NY Federal Reserve would use its own staff on “select days” in executing MBS purchases instead of being in the market every day, so one can expect more choppiness on those days. And the Treasury announced next week’s auctions for Monday, Tuesday, and Wednesday: $44 billion in 2-yr notes, $42 billion in 5-yr notes, and $32 billion in 7-yr notes for a total of $118 billion.

The Fed noted that they had purchased another $16 billion of MBS’s during the week ending 11/18 after adding $13.5 billion during the previous holiday-shortened week. For those keeping score at home, year-to-date net purchases of agency MBS is now at $1.023 trillion. If the average loan size is $250,000, and I am not saying it is, that means that they have bought almost 4.1 million home loans! They have been buying securities mostly made up of 4.75-5.625% 30-yr mortgages.

On today’s date: November 20….
1984: McDonald's made its 50 billionth hamburger
1974: The U.S. files antitrust suit to break-up AT&T
1969: Alcatraz Island off SF, is seized by militant Native Americans
1969: Pele scores his 1,000th soccer goal
1920: Nobel Peace Prize awarded to U.S. president Woodrow Wilson
1789: New Jersey is 1st state to ratify Bill of Rights

The last word:
“A man who carries a cat by the tail learns something he can learn in no other way.” – Mark Twain.

All this plus commentary and opinion at http://mortgagemm.blogspot.com

November 19, 2009

2009-11-19T09:45:00.000-08:00

Market Update – November 19, 2009:
The FNMA 4.5 issue is up 3 ticks to 101-25, and the FNMA 5.0 is down 1 tick at 104-04. Longer dated Treasury yields are giving up the yesterday’s increase, with the 10-year yield at 3.32%, down 4 bps versus the prior close. The yield curve continues to steepen with the 2-year / 10-year spread at 262 bps, up from 259 bps on yesterday’s close. Equities are following through with yesterday’s weakness with a continued sell off on light economic news.

Initial Jobless Claims Hold Steady.
Weekly initial jobless claims data released this morning showed initial claims came in flat at 505k compared to 502k in the prior period, and a consensus estimate of 504k. However, the 4-week moving average for initial claims continued its 11th weekly decline showing moderation in job losses. While the job losses show moderation, we have a long way to go before jobs actually begin to be created for positive net hiring. A common belief among many economists is that GDP needs to come in at a positive 3.5% growth for the overall economy to create net new jobs. While the unemployment news seems to not be getting much worse, we have a big hill to climb before any net new jobs are created.

Runaway success often stems from a unique approach to solving ordinary problems.
http://www.homeownershipaccelerator.com/

On today’s date: November 19….
2008: Claudia Castillo has a successful trachea transplant from stem-cell created organ
1985: President Reagan and Soviet leader Mikhail Gorbachev meet for 1st time
1979: Astros sign Nolan Ryan, to record 4 year, $4.5 million contract
1928: 1st issue of Time magazine, Japanese Emperor Hirohito on cover
1863: Lincoln delivers his address in Gettysburg; "4 score and 7 years..."
1620: Mayflower reaches Cape Cod and explores the coast
1493: Christopher Columbus discovers Puerto Rico, on his 2nd voyage

The last word:
“A successful man is one who can lay a firm foundation with the bricks others have thrown at him.” –David Brinkley.

All this plus commentary and opinion at http://mortgagemm.blogspot.com

Housing Starts, CPI

2009-11-18T08:03:00.001-08:00

Market Update – November 18, 2009:
The FNMA 4.5 issue is down 4 ticks to 101-20, and the FNMA 5.0 is down 4 ticks as well at 104-02. Longer dated Treasury yields are up, with the 10-year yield at 3.35%, up 2 bps versus the prior close. The 2-year / 10-year spread and yield curve is steeper at 259 bps, up from 255 bps on yesterday’s close. Equities are selling off relative to yesterday. Weak earnings outlook from companies like Autodesk, and Salesforce.com is putting pressure on equities.

Housing Starts Come in Weak.
In a sign of home builder caution, housing starts in October unexpectedly fell to 529,000 compared to the consensus estimate of 600,000, and 590,000 in September. The region with the largest decline was the Northeast with an 18.8% decline. On an annualized basis, October’s pace of home starts was 24.3% below the year ago level. This piece of news seemed to be presented with a negative slant. However, given the large supply of housing inventory and falling values, it is hardly surprising that new home starts would be weak and continue to be weak until inventory levels are normalized. The graph below shows the long steady decline in housing starts over the last few years:

Source: Haver Analytics

Consumer Price Index Show Prices Remain Constrained.
While the CPI came in slightly above consensus estimate, 0.3% actual compared to 0.2% estimate, the bulk of the increase came from energy in the form of higher gas prices in October. The core rate came in unchanged, and food prices showed restraint at 0.1% rise following a 0.1% drop in September. All in All, the CPI is showing no real signs of inflation at the moment, which bodes well for lower interest rates in the near term.

On today’s date: November 18….
1993: NAFTA passes House of Representatives
1976: Spain's parliament establishes democracy after 37 years of dictatorship
1963: Bell Telephone introduces push button telephone
1961: John F. Kennedy sends 18,000 military advisors to South Vietnam
1903: Hay-Bunau-Varilla Treaty gives U.S. exclusive canal rights in Panama
1477: 1st English printed book "Dictes and Sayengis of the Phylosophers"

The last word:
“I buy expensive suits. They just look cheap on me.” –Warren Buffett.

All this plus commentary and opinion at http://mortgagemm.blogspot.com/

Friday the 13th, Bill Gross, Widening Trade Deficit, Consumer Sentiment

2009-11-13T10:08:00.000-08:00

Market Update – November 13, 2009:

The FNMA 4.5 issue is up 5 ticks to 101-21, and the FNMA 5.0 is flat at 104-02. Treasury yields are relatively flat, with the 10-year yield at 3.43%, down 1 bps versus the prior close. The 2-year / 10-year spread and yield curve is narrower at 262 bps, down from 263 bps on yesterday’s close. Equities are rebounding back after selling off yesterday. Strong earnings from companies like Disney, Abercrombie and Fitch, along with continued M&A activity, is supporting the strength in equities.

Bill Gross Anticipates Credit Spreads Will Widen.
Bill Gross runs the world’s largest bond fund for PIMCO, the Total Return Fund, with $192.6 Billion under management. Bill Gross is arguably the most influential investors in the world. In an interview with Bloomberg, Gross postulated that mortgage and high-yield corporate debt is “overvalued” relative to treasuries and investment grade corporate debt. Gross cited the fact that credit spreads on mortgage and high-yield debt are at the lowest levels since the collapse of Lehman Brothers as an indication that value may have faded from these segments. To his point, high-yield bonds have returned 52% this year. Gross called into question the sustainability of the U.S. economic recovery by the private sector after government stimulus program run their course. Consumer Sentiment numbers released this morning support this view, as the actual sentiment number came in at 66, below the consensus estimate of 71. Consumers today are feeling less confident, relative to the last few months.

Trade Deficit Increases.
The U.S. Trade deficit in September increased to $-36.5 billion compared to the consensus estimate of $-32.5 billion. The increase was driven by higher oil imports. Overall, the report did indicate that the freeze up in global trade does seem to be thawing. Total exports increased 2.9%, and total imports jumped 5.8% in the month. The graph below shows the dramatic change in international trade:

Source: Haver Analytics

On today’s date: November 13….
1997: U.N. pulls out arms inspection teams from Iraq
1994: Sweden agrees to join European Union
1986: U.S. president Reagan confesses weapon sales to Iran
1940: Walt Disney's "Fantasia" released
1789: Ben Franklin writes "Nothing . . . certain but death and taxes"

The last word:

“A nickel ain't worth a dime anymore.” –Yogi Berra. All this plus commentary and opinion at http://mortgagemm.blogspot.com/

2009-11-09T13:49:00.000-08:00

Market Update – November 9, 2009:
The FNMA 4.5 issue is up 4 ticks to 101-13, and the FNMA 5.0 is flat at 103-28. Treasury yields are relatively flat, with the 10-year yield at 3.49%, down 1 bps versus the prior close. The 2-year / 10-year spread and yield curve is narrower at 264 bps, down from 266 bps on yesterday’s close. Equities continue a strong advance on a light news day. The economic release calendar is fairly light this week and markets will be closed on Wednesday for Veterans Day. We’ll see continued treasury auctions and later in the week stay tuned to jobless claims on Thursday and consumer sentiment on Friday.

FANNIE And FREDDIE Continue in the Red.
Last week Fannie reported a $19.8 billion loss in the 3rd quarter, and requested an additional $15 billion in capital from the Treasury. This morning, Fannie said they may need to increase the capital request, because the government is rejecting a request by Fannie to sell certain tax credits it is due on losses. Treasury said the sale would result in a loss of tax revenue greater than the savings to the government, because the investors could use the credits to reduce their own tax bills. Freddie reported a loss in the quarter of $6.3 billion, and said it did not need additional capital at this time.

Treasury Auctions Go Well.
Treasury auctions continue to go well with strong participation and bid to cover ratios. The Treasury auctioned off $30B in 4wk bills, $30B in 3mo bills, $31B in 6mo bills, and $40B in 3yr notes. The bid to cover ratio, a measure of investor demand, in all auctions exceeded 3 and was 3.33 in the 3 yr note auction indicating strong investor demand and participation. The historically low yields on treasuries are not deterring investors as signs of inflation and growth continue to be limited.

On today’s date: November 9….
1989: East Berlin opens its borders
1966: Oakland Coliseum Arena opens
1966: John Lennon meets Yoko Ono at a London art gallery
1938: Crystal Night - Germans break windows owned by Jews
1865: Confederate General Lee surrenders to Union General Grant at Appomattox

The last word:
“Formula for success: rise early, work hard, strike oil.” –J. Paul Getty.

All this plus commentary and opinion at http://mortgagemm.blogspot.com

GDP and Jobless Claims

2009-10-29T11:15:00.000-07:00

Market Update – October 29, 2009:
We are giving up yesterday’s gains with the FNMA 4.5 issue is off 10 ticks to 100-27, and the FNMA 5.0 is off -10 ticks to 103-076. Treasury yields are up, with the 10-year yield at 3.50%, up 6 bps versus the prior close. The 2-year / 10-year spread and yield curve is wider at 252 bps, up from 249 bps on yesterday’s close. A strong 3rd quarter GDP, released this morning, is helping equities rebound strongly after selling off yesterday. Today’s market action is being driven by the GDP release, weekly jobless claims, and treasury auction results.

3rd Quarter GDP Grows at 3.5%.
GDP came in stronger than expected at 3.5% annualized growth for the quarter, exceeding the consensus estimate of 3.0%. This was the first time the economy showed growth in just over one year. The improved GDP was caused by increases in personal consumption, inventory builds, exports, and residential fixed investments. The improvement in personal consumption and residential fixed investments indicate the cash for clunkers program and the first time home buyer tax credit did spur economic activity. It remains to be seen if this is simply taking activity from the future. The weaker components of the GDP release were a downturn in state and local government spending and a deceleration in federal government spending. This decline in government spending is surprising, as most assumed the stimulus package would start to show increases in government spending by this point. Who knew it was so hard to spend a trillion dollars?

Weekly Jobless Claims Hold Steady.
Weekly jobless claim numbers released this morning indicate that job losses are moderating, but hiring has not begun in earnest. The four-week moving average of initial claims was down around 20,000 to 526,250 compared to a month ago. The numbers for continuing claims showed the most improvement, with a weekly drop of 148,000 to 5.797 million receiving unemployment benefits. Peeling the onion a bit, one will find that this is predominantly the result of unemployment benefits expiring for people, and not from people actually being hired and re-entering the work force. We have a big mountain to climb to get the employment train back on track.

On today’s date: October 29….
1998: John Glenn returns to space at the age of 77 as a payload specialist on the Discovery
1993: Dow Jones index reaches record 3687.86
1982: Paul McCartney and Michael Jackson release "Girl is Mine"
1960: Muhammad Ali's 1st professional fight, beats Tunney Hunsaker in 6
1811: 1st Ohio River steamboat leaves Pittsburgh for New Orleans

The last word: “A people that values its privileges above its principles soon loses both.” –Dwight D. Eisenhower.

All this plus commentary and opinion at http://mortgagemm.blogspot.com

New home sales, durable goods, mortgage apps

2009-10-28T12:03:00.000-07:00

Market Update – October 28, 2009:

Nice rally today. The FNMA 4.5 issue is up +9 ticks to 101-00, and the FNMA 5.0 is up +8 ticks to 103-15. A surprise drop in new home sales is boosting demand for the safety of U.S. debt. Nice timing for Treasury, since today they happened to be holding a little auction for a record $41 billion in 5-year T- notes, resulting in a very healthy bid-to-cover ratio of 2.63, which was the best in over a year. Amazing demand, which probably tells you something about the general outlook for the economy - - safety is still wildly popular. Also of extreme importance is the willingness of foreign investors to keep buying our debt (watch out when this runs low on steam); indirect bidders scored 54.4% or $22.3 billion of the pool, and got 77.7% of what they bid on – so things continue to look strong. For now. The 10-year is at 3.41%, down from 3.49% yesterday. The 2-year / 10-year spread and yield curve is slightly narrower/flatter at 247 bps, down from 250 bps yesterday.

New home sales stumble.

Sales of new U.S. homes fell by a surprise -3.6% to an annualized pace of 402,000, well below even the lowest forecasts, according to the Commerce Department today. This stokes fears that the economy is still on wobbly legs as it makes a stab at a recovery. The expiration of a $8,000 tax credit may be having an impact. Bloomberg news quoted Michael Feroli, an economist at JP Mortgage Chase in New York as saying that the unexpected drop in sales “does raise some questions about where the housing market is going to be in six months, arguably without any more support,” indicating that without more assistance, we may see another dip forming. The sales level had been forecast to rise to 440,000 -- last week the NAR reported that sales of existing homes rose over +9%, so an increase in new home sales had been widely expected. Median prices of new homes were off significantly, from $225K last year, to just under $205K this year. Inventories of new homes remained steady at 7.5 months’ supply. Congress is considering a proposal to extend the first time homebuyer tax credit as part of an unemployment benefits package.

Runaway success often stems from a unique approach to solving ordinary problems.
http://www.homeownershipaccelerator.com

Durable goods orders up but still anemic

Orders for durable goods, big-ticket manufactured items, rose by +1% in September. The advance was driven by a large jump in demand for machinery, which offset weakness in commercial aircraft and autos. This marks the second advance in 3 months, but experts pointed out that the gains could largely be temporary benefits of stimulus spending. Machinery orders rose nearly 8%, the best bump since March 2008. Orders for non-defense capital goods, considered a good proxy for businesses' investment plans for new equipment, rose just 2%; despite this, it marked the strongest advance since June. The smallish size of the overall increase indicated that the road ahead will likely remain bumpy - - remember that August showed a decline of -2.6% and July showed an increase of +4.8%. Another concern is that the jump in demand was driven also by orders for military equipment, rather than for private-sector items – defense aircraft orders, which were up +12.5%, more than offset a -2.1% drop for civilian commercial aircraft and a -0.1% drop in auto and auto parts orders.

Mortgage app activity slows for third week.

U.S. home loan demand slid for the third straight week, the Mortgage Bankers Association said on Wednesday, with purchase applications the weakest since mid-May and refinancing requests at a two-month low. The downturn comes as the $8,000 first-time homebuyer tax credit faces extinction unless Congress soon agrees on an extension. The mortgage applications index fell -12.3% on a seasonally adjusted basis to 562.3, with purchase applications dropping -5.2% to 254.9 and refinancing demand falling -16.2% to 2,352.5.

On today’s date: October 28…

1636: Harvard University (Cambridge Mass) founded
1790: New York gives up claims to Vermont for $30,000
1793: Eli Whitney applies for a patent on cotton gin
1858: Macy's Department store opens in New York City1886: Statue of Liberty dedicated by President Grover Cleveland
1954: Ernest Hemingway wins Nobel prize for literature
1965: 630 foot high Gateway Arch completed in St. Louis
1989: Oakland A's sweep San Francisco Giants in earthquake/BART series

The last word:

“So, where's the Cannes Film Festival being held this year?” --Christina Aguilera

October 22, 2009

2009-10-22T09:35:00.000-07:00

Market Update – October 22, 2009:

The FNMA 4.5 issue is off -4 ticks to 100-22, and the FNMA 5.0 is up 1 tick to 103-08. Treasury yields are up, with the 10-year yield at 3.40%, up 1 bps versus the prior close. The 2-year / 10-year spread and yield curve is wider at 246 bps, up from 242 bps on yesterday’s close. A better than expected Leading Indicators index released today is helping equities rebound modestly after selling off late in the day yesterday and opening down this morning. Other news released this morning included weekly jobless claims and the FHFA House Price Index for August. Tomorrow existing homes sales data is released for September.

Leading Economic Index Higher than Expected.
The Conference Board released the index of leading economic indicators for September, which showed a 1.0% increase in the month for the sixth monthly gain in a row. This was well ahead of the consensus estimate of a 0.6% increase, indicating that moderate growth can be expected in the near term. The factors adding to the positive bias of the release included increasing demand for longer term debt in the economy as well as improving consumer sentiment. The factors negatively contributing to the overall index were a decrease in the manufacturing workweek and a dip in building permits.

Weekly Jobless Claims Continue Higher.
Initial jobless claims continue to push higher. Claims in the week of October 10th, increased 11,000 to a higher than expected level of 531,000. However, the four week moving average continues to move lower indicating moderation in the rate of overall job losses in the economy.

Data Source: Haver Analytics

On today’s date: October 22….
1981: U.S. national debt tops $1 trillion
1962: John F. Kennedy imposes naval blockade on Cuba, beginning missile crisis
1907: Ringling Brothers Greatest Show on Earth buys Barnum and Bailey circus
1836: Sam Houston inaugurated as 1st elected President of Republic of Texas
1746: Princeton University (NJ) received its charter

The last word: “I've failed over and over and over again in my life and that is why I succeed.” –Michael Jordan.

All this plus commentary and opinion at http://mortgagemm.blogspot.com/

October 21, 2009 -

2009-10-21T09:37:00.000-07:00

Market Update – October 21, 2009:
The FNMA 4.5 issue is off -9 ticks to 100-20, and the FNMA 5.0 is off -4 ticks to 103-04. Treasury yields are up, with the 10-year yield at 3.39%, up 4 pbs versus the prior close. The 2-year / 10-year spread and yield curve is wider at 244 bps, up from 240 bps on yesterday’s close. Equities are rebounding into positive territory after selling off yesterday. Wells Fargo and US Bancorp released earnings that beat Wall Street expectations, adding support to the market and the banking sector. Both banks reported strong mortgage results that bolstered earnings in the period, offsetting increases in loan losses. News is light today, with the MBA purchase index released this morning, and the Fed Beige book scheduled to be released at 2:00 pm eastern.

Building Permits Drop, and MBA Purchase Index Down.
Two economic data points released this week offer a glimpse of potential weakness in the housing market. On Monday, the National Association of Home Builders released the October Housing Market Index, which fell 3 points to 14 indicating fewer new construction starts in the near term. Today, the Mortgage Bankers Association released the Purchase Index for the week of October 16th, with a 7.6% weekly drop compared to a 5% drop in the prior week. The pending expiration of the $8,000 first-time buyer credit seems to be sapping some purchase activity. Stay tuned to see if the tax credit is extended as the lobbying effort intensifies in D.C.

Wells and US Bancorp Post Strong Earnings.
After disappointing earnings from Bank of America early in the week, Wells Fargo and US Bancorp have both posted 3rd quarter earnings that beat Wall Street Expectations. Loan losses continued to be an issue for both banks, but mortgage banking was a bright spot for both. US Bancorp reported mortgage banking revenue increased 350% from the year ago period. Wells reported that more than half of the pre-tax income from mortgage banking was due to an increase in mortgage servicing rights and hedge positions.

On today’s date: October 21…
1994: North Korea signs pact to end their nuclear projects
1989: Buck Helm found alive after being buried 4 days, in San Francisco earthquake
1945: Women in France allowed to vote for 1st time
1805: Battle of Trafalgar, Admiral Nelson defeats French and Spanish fleet and dies
1492: Columbus Lands on San Salvador Island

The last word:
“Always bear in mind that your own resolution to succeed is more important than any other.” –Abraham Lincoln.

All this plus commentary and opinion at http://mortgagemm.blogspot.com

October 19, 2009

2009-10-19T08:42:00.000-07:00

Market Update – October 19, 2009: The FNMA 4.5 issue is off -2 ticks to 100-25, and the FNMA 5.0 is off -3 ticks to 103-09. Treasuries yields are down slightly, with the 10-year yield at 3.39%, down 4 pbs versus the prior close. The 2-year / 10-year spread and yield curve is narrower at 244 bps, down slightly from 246 bps on Friday’s close. Equities are starting off with a positive bias on a light news day so far. Equity trading will be focused on earnings releases throughout the week including Wells Fargo, US Bancorp and American Express. The focus for economic news this week will be on Housing Starts, and PPI releases Tuesday, Jobless Claims on Thursday, and Existing Home Sales on Friday.

Fannie and Freddie Worthless?
Bose George, an equity analyst with Keefe, Bruyette & Woods has released a new report reducing the price target on both stocks to $0.00 from $1.00. “In order for the government-sponsored entities to survive going forward, we believe they need to be recapitalized through investments from the banks that benefit from their role in the secondary market,” KBW wrote in a research note. That sounds very similar to the capital structure of the Federal Home Loan Bank system, which has faired relatively well through this turmoil. Maybe we have something to learn from the FHLB capital structure for Fannie and Freddie? According to Bloomberg, the U.S. has put $98 billion of capital into Fannie and Freddie since they went into receivership last year.

Demand for Treasuries Remains Strong.
Even as the federal deficit climbs beyond $1 trillion for the year, investor demand for treasury securities is not wavering. This demand is helping to keep treasury yields at historic low levels. According to a report in Bloomberg, foreign buyers increased their holdings in August to an all time high of $3.45 trillion. Foreign investors have added $370 billion in treasury holdings since December, indicating the flight to quality continues to outweigh deficits as far as the eye can see, and a weakening dollar. This is holding true for all fixed income, as fixed income funds have attracted 18 times more money than stock funds this year according to Morningstar, Inc. In the market’s game of musical chairs, the music continues to play for treasuries.

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On today’s date: October 19…
2006: Dow closes above 12,000 for the first time
1991: Longest NCAA football game (3:52) as RI beats Maine 52-30 (6 OTs)
1987: "Black Monday"-Dow Jones down 508.32 (22%), 4 times previous record
1960: U.S. imposes embargo on exports to Cuba
1879: Thomas Edison demonstrates electric light
1765: Stamp Act Congress met in New York, wrote declaration of rights and liberties

The last word:
“Control your own destiny or someone else will.” –Jack Welch. All this plus commentary and opinion at http://mortgagemm.blogspot.com

Consumer prices, manufacturing, and jobless claims.

2009-10-15T09:21:00.000-07:00

Market Update – October 15, 2009:

The FNMA 4.5 issue is off -2 ticks to 100-25, and the FNMA 5.0 is off -3 ticks to 103-09. Treasuries are holding level, with the 10-year yield steady at 3.45%, unchanged versus the prior close. We’re seeing some weakness in general due to good earnings releases from JP Morgan and Intel. This was countered to some degree by poor results from Goldman Sachs and Citi, so overall, stocks are off slightly. The 2-year / 10-year spread and yield curve is slightly wider at 251 bps, down slightly from 249 bps yesterday. Friday we get Industrial Production (expect +0.2% in September, versus +1.8% in July and August).

Consumer prices remain tame.

The consumer price index grew at a +0.2% rate, following a +0.4% bump in August. The gain was in line with forecasts. Excluding food and energy, the core inflation rate also climbed +0.2% (higher than expected), driven by health care and auto prices. The continued low level of price increases means that the Fed may be more likely to hold the benchmark rates low for awhile longer. “Inflation remains muted,” said Jennifer Lee, an economist at BMO Capital Markets in Toronto. “There is still much excess capacity to absorb, retailers are still fighting for their share of consumers’ shrinking wallets.” Prices have fallen -1.3% versus the year-ago period, with core prices climbing +1.5% versus September of 2008. Food costs were actually down. The end of the “cash for clunkers” program drove up auto prices. Fed Vice Chairman Donald Kohn said earlier this week that inflation and growth will probably stay below the the Fed’s objectives for some time, meaning that we could see low interest rates for an “extended period.”

NY Manufacturing Index rises at fastest pace in 5 years.

The Empire State manufacturing index showed that manufacturing in the New York region expanded in October at the fastest pace in five years, jumping from 18.9 in September to 34.6 in October. This could mean that the economy is gradually working its way through the tail end of the recession. Economists had forecast that the index would drop to 17.3. Nnew orders rose to 30.8 from 19.8, while shipments rose to 35.1 from 5.3. Inventories rose to -18.2 from -25, and the employment sub-index shot up to 10.4 from -8.3. In a somewhat deflationary fashion, prices paid declined from 20.2 to 19.5, while prices received fell from -3.6 to -5.2. Factory execs were more optimistic in general, with the 6-month outlook rising from 52.3 to 55.7.

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Jobless claims ebb slightly.

New jobless claims dropped to 514,000, below the forecast of 520,000, and hitting the lowest level since January. The decline was tempered by an upward revision of the prior week to 524,000, but still marked the fifth decline in six weeks. The four-week average fell for the sixth straight time to 531,500. Continuing claims ebbed slightly by -75,000 to just under 6 million; however the number of people dropping off the rolls due to expiration of benefits clouds the data here. "Claims are not yet low enough to indicate rising payrolls, but they certainly suggest" that net job cuts will be lower in October than last month, Ian Shepherdson, chief U.S. economist at High Frequency Economics, wrote in a note to clients. The upcoming monthly release may show that net job losses in October fell below 200,000 overall, versus 263,000 in September.

On today’s date: October 15…

1815: Napoleon Bonaparte exiled on Island of St. Helena
1863: Cliff House opens in San Francisco (1st of many on site)
1878: Edison Electric Light Company incorporated
1949: Billy Graham begins his ministry
1951: "I Love Lucy" debuts on CBS TV
1991: Clarence Thomas is confirmed as Supreme Court Justice
1997: U.S. launches nuclear powered Cassini to Saturn

The last word:

“Always end the name of your child with a vowel, so that when you yell the name will carry.” --Bill Cosby.

Tax credit extension legislation, new foreclosure-avoidance program

2009-10-13T09:19:00.000-07:00

Market Update – October 13, 2009:

Today, the schedule for news is light. It’s looking like yields will continue to squeeze tighter as time goes on. Accordingly the FNMA 4.5 issue is up +13 ticks to 101-10, and the FNMA 5.0 is up +9 ticks to 103-15. Treasuries appear to be outperforming MBS, with the 10-year Treasury yield is down considerably at 3.31%, versus 3.38% at the prior close. The safe-haven investments have risen on speculation that the Fed won’t raise rates until the end of 2010, with the long-end of the stack plunging the most. The lower dollar is also making it easier for international investors to jump into the Treasury market. The 2-year / 10-year spread and yield curve is slightly narrower at 241 bps, down slightly from 242 bps on Monday. In early morning trading, the stock market is in the red, with broad based losses led by financials. Wednesday we get Retail sales - - look for a big trough following the cash-for-clunkers party, with a -2.1% drop expected. We also get Business Inventories, expected to continue to fall by -0.9%, and a 4-week bill auction at Treasury. Thursday, we will see the Consumer Price Index (up +0.4% in August – up +0.1 core) which should inch up by +0.1%. Inflation continues to remain off-stage, apparently. The Empire State manufacturing survey is expected to show a 17.5 mark, slightly below September’s 18.9, and (in the same day) we get the Philly Fed manufacturing report (expect 12.5 versus 14.1 in September). We also get Jobless Claims, forecast at 520,000 versus last week’s 521,000. Friday we get Industrial Production (expect +0.2% in September, versus +1.8% in July and August).

Legislation would extend first-time homebuyer credit.

Bills introduced by Representative Judy Biggert (R-IL) would extend and amplify the popular first-time home buyer tax credit, set to expire next month. The bill would ensure that military families do no lose out on the credit due to their highly mobile lifestyle. The first bill would extend the existing tax credit (the lesser of $8,000 or 10% of the home’s value) through June 1, 2010 The second bill would extend the credit for a year, raise the maximum to $15,000, include non-first-time buyers, and eliminate the restrictions that exclude buyers who earn over $75,000 annually ($150,000 for couples). Both bills would be paid for by recapturing unspent funds from the Obama stimulus package. For military families, who move frequently, legislation would nullify a provision requiring repayment of the credit should the home be sold within 2 years. USAA, which provides financial services to members of the U.S. military and their families, praised the legislation saying “We look forward to partnering with her to secure passage of this important legislation.”

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Treasury to announce new foreclosure-avoidance program.

Next week, the Treasury Department will announce a new program to help troubled borrowers avoid foreclosure. At the MBA’s Annual Convention in San Diego, Laurie Maggiano, Chief of the Treasury Department’s Homeowner Preservation Office released information on the program, which will allow borrowers who are about to default to “make a graceful exit” from their home. The program, named HAFA, for Home Affordable Foreclosure Alternatives, will provide financial incentives to servicers and borrowers and associated secondary investors to facilitate a short sale or deed in lieu of the property. Borrowers must be HAMP (Home Affordable Modification Program) eligible.

On today’s date: October 13…

1792: Washington lays cornerstone of Executive Mansion (White House)
1792: 1st Old Farmer's Almanac is published
1864: Battle of Harpers Ferry, WV (Mosby's Raid)
1884: Greenwich established as universal time meridian of longitude
1989: Dow Jones down -190.58 points

The last word:

“Take the first step in faith. You don't have to see the whole staircase, just take the first step.” --Martin Luther King, Jr.

Dollar hits new lows, Arnold signs mortgage-related laws

2009-10-12T10:27:00.000-07:00

Market Update – October 12, 2009:

Bond markets are closed today in observance of Columbus Day. The 10-year Treasury yield is up at 3.38%, versus 3.40% at the prior close. The 2-year / 10-year spread and yield curve is slightly narrower at 241 bps, down slightly from 242 bps on Friday. The stock market isn’t wasting time while the bond market naps. The S&P 500 is nearing 1,078, almost to its 2009 high, which stands just above 1,080, but the Dow hit a fresh high for the year at 9,865, and is flirting with the 10,000 mark. Tuesday, we get the Treasury’s release of the final 2009 budget statement, which is expected to show an expansion of debt by nearly $1.4 Trillion (nearly triple the $500B additional debt added the year before). Some analysts think the real number will show a $1.5 Trillion deficit. We’ll also see an auction of 3-month and 6-month bills. Wednesday we get Retail sales - - look for a big trough following the cash-for-clunkers party, with a -2.1% drop expected. We also get Business Inventories, expected to continue to fall by -0.9%, and a 4-week bill auction at Treasury. Thursday, we will see the Consumer Price Index (up +0.4% in August – up +0.1 core) which should inch up by +0.1%. Inflation continues to remain off-stage, apparently. The Empire State manufacturing survey is expected to show a 17.5 mark, slightly below September’s 18.9, and (in the same day) we get the Philly Fed manufacturing report (expect 12.5 versus 14.1 in September). We also get Jobless Claims, forecast at 520,000 versus last week’s 521,000. Friday we get Industrial Production (expect +0.2% in September, versus +1.8% in July and August).

Dollar plummets to fresh lows.

A gaping budget deficit and no sign of spending controls from Congress or the Obama administration is driving the dollar to fresh lows, as Central banks around the world increasingly turn their backs on dollars in favor of euros and yen. The dollar has fallen more in the last two quarters than in almost two decades. Meanwhile the Obama administration is essentially betting it all that a cheap dollar will boost exports and the economy, risking that the nation’s creditors will hang with us (or perhaps hang alongside us?). Foreign nations now put nearly two-thirds of new cash into euros and yen during the 2nd quarter, making good on threats to abandon the dollar as the world standard currency. “Global central banks are getting more serious about diversification, whereas in the past they used to just talk about it,” said Steven Englander, the chief U.S. currency strategist at Barclays. “It looks like they are really backing away from the dollar.” Typically, the dollar commands about 63% of new reserve activity, yet now it attracts only about 37%. The dollar’s weakness is actually hurting foreign companies, since their own currency is relatively stronger, hurting their ability to export to the U.S. “The diversification out of the dollar will accelerate,” said Fabrizio Fiorini, a money manager who helps oversee $12 billion at Aletti Gestielle SGR SpA in Milan. “People are buying the euro not because they want that currency, but because they want to get rid of the dollar. In the long run, the U.S. will not be the same powerful country that it once was.” Here in the U.S., however, the administration hopes that the trend will reverse once the Fed starts raising interest rates from near zero, expected to occur late in 2010. However, if other central banks around the world also raise rates at the same time, the dollar may run into difficulty gaining any value. Bill Gross, who manages the world’s largest bond fund, said in June that dollar investors should diversify before central banks do the same on concern that the U.S.’s budget deficit will deepen.

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Schwarzenegger signs mortgage-related consumer-protection bills

California Governor Arnold Schwarzenegger approved seven new laws that provide consumer protections to home-mortgage holders.
-AB 260 by Assemblyman Ted Lieu (D-Torrance) tightens restrictions on mortgage brokers so they cannot "steer" borrowers to riskier, higher-interest loans when they can afford and qualify for more economical ones. The new law also bans neg-am loans in which the principal keeps rising even though monthly payments are made. The measure caps prepayment penalties at 2% of the principal balance.
-- SB 36, by Sen. Ron Calderon (D-Montebello), sets standardized licensing requirements for all residential loan originators.
-- SB 239, by Sen. Fran Pavley (D-Agoura Hills), makes it a felony to commit fraud on a mortgage loan application.
-- AB 329, by Assemblyman Mike Feuer (D-Los Angeles), requires lenders to provide more, clear information to senior consumers interested in reverse mortgages.
-- SB 237, by Calderon, creates a registration program for appraisal management companies.-- AB 957, by Assemblywoman Cathleen Galgiani (D-Stockton), allows buyers of foreclosed homes to choose local escrow officers.
-- AB 1160, by Assemblyman Paul Fong (D-Cupertino), Requires that mortgage loan documents be translated into the language the verbal negotiations were conducted in.

On today’s date: October 12…

1492: Columbus arrives in Bahamas (San Salvador Is.)
1792: Columbus Day is 1st celebrated
1933: Alcatraz becomes a federal prison (unofficially)
1960: Nikita Khrushchev pounds his shoe at United Nations General Assembly
1972: Mariner 9 takes pictures of Martian north pole

The last word:

“A learned blockhead is a greater blockhead than an ignorant one.” --Benjamin Franklin

Trade deficit falls, Fed debates rate increase

2009-10-09T11:34:00.000-07:00

Market Update – October 9, 2009:

The MBS market finally broke its upward streak this morning, with the FNMA 4.5% at 101-13, down -15 ticks, and the FNMA 5.0 is at 103-15, down -11 ticks. Treasurys are lower, on remarks from Federal Reserve Chairman Ben Bernanke that the central bank is ready to lift interest rates when the economic recovery takes hold, raising speculation that the central bank may start draining excessive reserves. The Financial Times also said that the Fed has started small-scale tests of Wall Street "reverse repo" trades where the Fed sells dealers assets such as Treasuries for cash then agrees to buy them back at a higher price later, which would let it hold short-term rates steady while draining cash from the financial system. The 10-year Treasury yield is up at 3.33%, versus 3.27% at the prior close. The 2-year / 10-year spread and yield curve is steady at 237 bps.

Trade deficit falls on weak imports.

A cheap dollar which hit 14-month lows, coupled with weak demand at home driven by the recession, caused the trade deficit to fall by -3.6% to $30.7 billion, below the forecast $33.6 billion. Exports improved by +0.2% to a new 2009 high in August, while imports shrank by -0.6% overall, according to the Commerce Department today. Rising oil prices, which hit $64.75 in the month, had been expected to push the trade deficit higher, but the volume of oil imports never materialized as expected, falling -5.7%. Experts predicted that the latest trade data will probably subtract one-quarter of a percentage point from GDP growth in Q3, which should come in around +3.8% annualized.

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Fed debating on how and when to raise rates; history gives further insight.

Policy makers at the Federal Reserve are becoming split over how and when to start raising the benchmark interest rate from its current level just above zero. Thomas Hoenig, president of the Kansas City Fed displayed impatience in a speech this week, saying “My experience tells me that we will need to remove our very accommodative policy sooner rather than later.” Same for Richard Fisher, president of the Federal Reserve Bank of Dallas, who said on Sept. 29 that the “wind-down process needs to begin as soon as there are convincing signs that economic growth is gaining traction.” On the other hand, Daniel Tarullo, a Fed governor said “The turnaround is certainly welcome, but it shouldn’t be overstated.” Incredibly, William C. Dudley, president of the NY Fed, said “Some observers are concerned that this expansion will ultimately prove to be inflationary. This concern is not well founded.” In any case, don’t look for the Fed to bump rates until after unemployment peaks. Usually the Fed waits up to 18 months after the unemployment rate peaks before raising rates. In the early 1990’s, with unemployment nearly 8%, the Fed waited 18 months to raise rates, and following the 2003 recession with unemployment hitting 6.3%, the Fed waited a year to raise rates. In both cases unemployment had to fall by around 1% before rates were directed upward. Based on that, don’t look for rates to jump until late 2010 or early 2011.

On today’s date: October 9…

1855: Isaac Singer patents sewing machine motor
1870: Rome is incorporated into Italy by royal decree
1936: Hoover Dam begins transmitting electricity to Los Angeles
1985: Central Park's Strawberry Fields, dedicated
1991: San Jose Sharks beat Calgary for their 1st NHL win, 4-3

The last word:

“I don’t think it’s a bad thing that the bad loans occurred. It was an effort to keep prices from falling too fast. That’s a policy.”
--Barney Frank, chairman of the House Financial Services Committee on recent FHA lending.

Inventories, initial claims, and loan rates

2009-10-08T09:50:00.000-07:00

Market Update – October 8, 2009:

The MBS market hovers near yesterday’s close. The FNMA 4.5% is at 101-28, and the FNMA 5.0 is at 103-30, both off a tick from the close. Treasuries continue up steadily, so the 10-year Treasury yield continues its relentless decline, at 3.17%, versus 3.21% at the prior close. The 2-year / 10-year spread and yield curve continues to be narrower (flatter) at 230 bps versus 234 bps at Friday’s close, which indicates continued pessimism from an economic standpoint. The stock market is up strongly, up over 1% on the major indices, but appears to be running into resistance, with the Dow at 9826, near the 2009 high of two weeks ago. Investors submitted more than $60 billion worth of bids at Wednesday's $20 billion sale of reopened 10-year notes, for a healthy bid-to-cover ratio of 3.1 (compared to 2.77 at the last auction, and 2.42 for the long-term average). That means that investors still are attracted to the implied safety of Treasuries. Indirect bidders (including foreign central banks) bought nearly half of the notes sold. Today, the U.S. will offer $12 billion in reopened 30-year bonds Thursday. The Fed bought $1.3 billion in Treasuries on Wednesday as part of its plan to buy $300 Billion worth this year. The Fed is down to its last $15 billion in this effort. Demand for the record amounts of Treausury debt has been relatively healthy, but analysts continue to worry that buyers will eventually lose their appetite for U.S. debt unless runaway Federal spending is curbed.

Inventories fall for 12th straight month.

Inventories fell by -1.3% in August, marking the 12th straight month of reductions, a record-long stretch. The drop follows July’s -1.4% decrease, and puts the annual total at -14.7%. That compares to a sales reduction of -17.7% versus last year. Businesses are slashing inventories in the wake of poor demand, no doubt, but analysts believe that it will help the rebound once that occurs. The current inventory-to-sales ratio of 1.20:1 is close to the year-ago level of 1.16: 1.

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Initial claims for unemployment fall.

Weekly claims for unemployment benefits during the week ending 10/3 fell to 521,000 new claims, lower than expected, and the lowest figure since early January. After last week’s 554,000 claims (revised), experts were forecasting 540,000 initial claims for this most recent week. Still, economists said that we have a long way to go before the jobs situation improves. “We believe claims need to settle into the 400k to 450k range before job losses should halt,” said Joseph LaVorgna, chief US economist at Deutsche Bank. “Nevertheless, the downtrend in claims is encouraging and points to continued, albeit gradual, improvement in the labor market.” Continued claims fell to 6.04 million, the lowest level since March, and the third consecutive decline. Experts pointed out, however, that the decline may reflect the fact that benefits have been exhausted by many who have been on the unemployment rolls for months on end.

Loan rates remain below 5%.

The average 30-year fixed rate loan remained below 5% for the second-straight week, helping to fuel refi activity, according to Freddie Mac today. The average rate on a 30-year fixed mortgage was 4.87%, down from 4.94% last week, Freddie Mac said. It marks the lowest level since May 21, when rates averaged 4.82%. The record low established just prior to that was 4.78%. Rates are over a full percentage point lower than the corresponding week last year, which saw average of 5.94%. "Such low rates are spurring mortgage demand," said Frank Nothaft, Freddie Mac's chief economist. Refinance applications climbed 18% from last week, the Mortgage Bankers Association said Wednesday. With the Federal Reserve's recent announcement that it is slowing down purchases of MBS, analysts say mortgage rates could eventually move higher, so homeowners wishing to refinance shouldn’t sit on the sidelines. The average rate on a 15-year fixed mortgage fell from 4.36% to 4.33%, the 5-year Arm fell from 4.42% to 4.35%, and the 1-year ARM actually rose slightly from 4.49% to 4.53% last week.

On today’s date: October 8…

1860: Telegraph line between Los Angeles and San Francisco opens
1871: Great Fire kills 200, destroys over 4miles (10 km) of Chicago buildings, and original Emancipation Proclamation
1896: Dow Jones starts reporting an average of selected industrial stocks
1957: Brooklyn Dodgers announce move to Los Angeles
1958: Dr. Ake Senning installs 1st pacemaker in Stockholm
1982: Poland bans Solidarity and all labor unions

The last word:

“The key is not to prioritize what's on your schedule, but to schedule your priorities.” --Stephen Covey

Mortgage rates fall, unemployment hits 26 year high, Factory orders fall

2009-10-02T08:46:00.000-07:00

Market Update – October 2, 2009:

The MBS market continues to show strength, particularly at the 5.0 coupon. The FNMA 4.5% is at 101-23, off a tick from the close and the FNMA 5.0 is at 103-25, up +5 ticks from yesterday’s close. Treasuries are also up strongly, so the 10-year Treasury yield continues its amazing decline, at 3.22%, versus 3.31% at the prior close. The 2-year / 10-year spread and yield curve continues to be narrower (flatter) at 232 bps versus 234 bps at Friday’s close, which indicates continued pessimism from an economic standpoint. The stock market was off sharply this morning, on dour unemployment news, but has recovered somewhat.

Mortgage rates break below 5%, edging toward record lows again

Yesterday afternoon, Freddie Mac's Primary Mortgage Market Survey was released, which showed that mortgage interest rates are again nearing record low territory, with the 30-year fixed averaging 4.94% with 0.7 point for the week ending October 1, compared to the week before when the average was 5.04% and 0.6 point. The 15-year FRM averaged 4.36% and 0.6 point, down from 4.46% during the week ending September 24. The five-year Treasury-indexed hybrid ARM had an average rate of 4.42% with 0.6 point, down from 4.51% with 0.5 point, the lowest mark all year. "Low mortgage rates are helping to stabilize home sales," said Frank Nothaft, Freddie Mac vice president and chief economist.

Unemployment clicks up to 9.8%, true jobless rate at record 17%.

So much for the stimulus package that was supposed to keep unemployment at 8% or below (anyone hear that flushing sound?). After a three-day selloff, equities again opened strongly lower this morning on the big news that the economy shed more jobs than Wall Street was expecting in September. The monthly employment report said 263,000 jobs were lost in September, almost one-hundred thousand worse than the market forecast. The unemployment rate clicked up one-tenth to a new 26-year high at 9.8%. The average duration of unemployment also sits at a record high of 26.2 weeks, with 35.6% of the unemployed now jobless for 27 weeks or more. Since December 2007, the start of the recession, basic unemployment has increased by 7.6 million to 15.1 million. While the numbers were better than the dark days of the first quarter, where monthly losses were in the mid-600,000’s, it means that the economy has failed to respond as much as desired to the various and expensive intervention programs. An important measure, the number of discouraged workers ― those not currently looking for work because they believe no jobs are available ― rose to 706,000 in September, a rise of 239,000 compared to last year. That makes the true unemployment rate (basic rate + discouraged workers + involuntary part-timers) now a record 17%, up +0.2%. Look for a serious hit to retailers this Christmas.

Factory orders slip unexpectedly.

U.S. factory orders fell unexpectedly in August, down -0.8%, following a revised +1.4% increase in July, the Commerce Department said today in Washington. Orders were expected to hold steady. Excluding transportation equipment, orders rose 0.4%. Companies are holding off production until they see stronger gains in demand. With “cash for clunkers” now expired “We could have a choppy recovery,” Benjamin Reitzes, an economist at BMO Capital Markets in Toronto, said. “Employment is still falling, and until that turns around the economy is going to have trouble gaining any momentum.”

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On today’s date: October 2…

1916: San Diego Zoo founded
1919: President Woodrow Wilson has a stroke, leaving him partially paralyzed
1924: League of Nations approves protocols of Geneva
1957: New volcanic island appears off Fayal Island Azores
1959: Rod Serling's "Twilight Zone" premieres on CBS-TV
1967: Thurgood Marshall sworn in as 1st black Supreme Court Justice
1991: Steffi Graf becomes the youngest woman to win 500 pro tennis matches

The last word:

“You know there is a problem with the education system when you realize that out of the 3 R's only one begins with an R.” --Dennis Miller

Manufacturing update, jobless claims, consumer spending

2009-10-01T10:12:00.000-07:00

Market Update – October 1, 2009:

The MBS market has moved up on continued fears about the economy not being on the mend as strongly as some had hoped, fueling a flight to safety which has lifted most fixed-income markets. The FNMA 4.5% is at 101-16, up +8 ticks from the close and the FNMA 5.0 is at 103-15, up +6 ticks from yesterday’s close. Treasuries are also up strongly, so the 10-year Treasury yield continues its amazing decline, at 3.22%, versus 3.31% at the prior close. The 2-year / 10-year spread and yield curve continues to be narrower (flatter) at 233 bps versus 236 bps at Friday’s close. The stock market is off this morning, with the S&P500 down -1.8%. Equity investors are in a sour mood due to the continued mixed bag of recent economic data. Word is out that Bank of America CEO Ken Lewis is retiring. Oddly, Bank of America has yet to name a successor. Friday, we get the unemployment figure, which is expected to officially hit 9.8% (the true number being some 5-6 points north of that, when you count part-time workers who want full time jobs and discouraged job seekers exiting the job market).

Manufacturing activity shows expansion, but less than expected

Manufacturing activity, which accounts for about 12 percent of the U.S. economy, is expanding, but only slightly, and less than expected. Stocks tumbled this morning, on the news from the Institute for Supply Management which said that manufacturing activity in September slipped from the index value of 52.6 from 52.9 in August, against expectations of a 54 reading. “We’re still in positive territory but we’re just not advancing at quite the same rate,” said Brian Bethune, chief financial economist at IHS Global Insight Inc. in Lexington, Massachusetts. “Retailers are anticipating a weak sales season and they’re playing it conservative on orders and hiring.” A gauge of export orders slipped to 55 from 55.5. The employment index dipped to 46.2 from 46.4. The index of prices paid decreased to 63.5 from 65. Economists had projected that the measure, which averaged 66.5 last year, would rise to 66. Economists yesterday said the end of the clunkers incentive may have helped fuel a weaker-than-forecast September reading, indicating that the incentive program may have only succeeded in advancing the timing of certain economic activity.

New jobless claims rise again

The Labor Department said new claims for jobless benefits rose more than expected to 551,000, evidence that the labor market is struggling and that jobs remain scarce. Economists had predicted claims to rise to only 535,000. The increase puts an end to three weeks of declines. Economists are now forecasting that the official monthly unemployment report will show a reading of 9.8%, up from 9.7% in August, and will top 10% by early 2010. Today’s news means that companies are still cutting workers as the economy pulls out of recession.

Consumer spending surges as personal income growth lags.

The Commerce Department said consumer spending surged by the largest amount in nearly eight years in August, as personal income growth lagged. The 1.3% increase in purchases was larger than forecast and follows a 0.3% gain in the prior month. Incomes climbed 0.2% for a second month. Even so, economists worry whether that rebound can be sustained with U.S. households facing rising unemployment and tight credit conditions. With the holiday season from 2008 ranking as the worst on record, economists are fretting about the 2009 season already. And for good reason.

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On today’s date: October 1…

1896: Yosemite becomes a National Park
1908: Henry Ford introduces Model T car
1969: Concorde 001 test flight breaks sound barrier
1971: Walt Disney World in Orlando, Florida opens
1977: Department Of Energy established

The last word:

“Pain is temporary. Quitting lasts forever.” --Lance Armstrong

Case-Shiller, Consumer Confidence, FDIC reserves

2009-09-29T12:02:00.000-07:00

Market Update – September 29, 2009:

The MBS market is relatively quiet again today, with the FNMA 4.5% is at 101-10, down -1 tick from the close and the FNMA 5.0 is at 103-12, down -1 tick from yesterday’s close. The 10-year Treasury yield continues its decline, at 3.29%, versus 3.31% at the prior close. The 2-year / 10-year spread and yield curve continues to be narrower (flatter) at 231 bps versus 233 bps at Friday’s close. The stock market seems to be indecisive this morning, on the heels of a better Case-Shiller report mixed in with a worse-than-expected Consumer Confidence report. Wednesday, we get the ADP employment survey, which should show lower job losses, down to 195,000 from last month’s 260,000. We also get an update to the 2nd Quarter GDP, which is expected to drop to -1.2% from -1.0%. Thursday we get the Personal Income/Outlays report, which should show flat wage growth but more consumer spending (due to cash-for-clunkers); prices are expected to stay level. We also get Jobless Claims, which are expected to log in at 537K versus 530K last week. We also get the ISM Manufacturing Survey, which is expected to show growth mode again (53.5 expected), and a Construction Spending report which shows more bad news in this sector (expect -0.1%). Lastly, Thursday will give us the Pending Home Sales report, which after last week’s -2.7% drop, could spell a bit more trouble. Friday, we get the unemployment figure, which is expected to officially hit 9.8% (the true number being some 5-6 points north of that, when you count part-time workers who want full time jobs and discouraged job seekers exiting the job market).

Case-Shiller shows another housing price increase

It’s looking more and more like housing prices have found the bottom. The S&P Case-Shiller Home Price Index reported that average home prices were up +1.6% in July, versus the prior month. Prices were flat or up in 18 of the 20 metro areas in the index, with 13 areas now reporting at least 3 straight months of growth. Only two markets, Seattle and Las Vegas, saw declines - - the worst was Las Vegas, with a -1.15% drop in July, making for a -54.8% drop since the peak in August 2006. On an annualized basis, the index is now off (just) -13.3%, versus -15.4% reported in June. July pricing is roughly on par with that of the Fall of 2003, but down -32.6% since the mid-2006 peak. Experts remained cautious however, noting that the Federal first-time buyer tax credit expiration, plus higher unemployment rates and increased foreclosures could still have a lingering effect.

Consumer Confidence surprises to the downside

Consumers are apparently quite concerned about the short-term outlook and about their own incomes, according to the latest Conference Board report on Consumer Confidence. The Conference Board’s Consumer Confidence index dropped to a lower-than-expected 53.1 in September, lower than August’s 54.5 reading. Experts had expected a 57.0 reading. The report showed an unexpected decline in future expectations, and an even worse decline (expected) in present conditions. The Present Situation Index fell significantly, to 22.7 from 25.4, due to the creeping unemployment rate, which is expected to reach 9.8% in this Friday’s employment report. More importantly, the Expectations Index fell from 73.8 to 73.3. Experts had predicted that the buoyant stock market would boost consumer expectations, but that failed to materialize. “While not as pessimistic as earlier this year, consumers remain quite apprehensive about the short-term outlook and their incomes,” said Lynn Franco from the Conference Board. “The failure for the job market to show more convincing improvement appears to be discouraging planning spending on big ticket items as fewer respondents in September say they plan to buy a car, home, or major appliance in the next six months,” said analysts from Nomura Global Economics.

Banks to prepay premiums to help rebuild drained FDIC reserves.

The FDIC is asking lenders to prepay three years of insurance fund premiums, some $45 billion, in order to re-establish adequate reserves which have been completely used by recent bank failures. The FDIC’s insurance fund is completely exhausted at the current time. It is expected that bank failures will have cost the FDIC nearly $100B thru 2013, said the agency, which is rejecting an idea to borrow the funds from the Treasury. Instead the agency plans to tap the liquidity of the banking industry (much of which came via taxpayer bailouts) in order to avoid borrowing from the Treasury. The law requires the FDIC to keep a minimum level of funds. Over the last two years 120 banks were shut down, 95 in this year alone. The fund had over $10B on hand as of mid-year. It’s expected that the new source of funds will bring the fund back to target by 2012. Banks will begin to pay the new prepayment premiums in the last quarter of 2009, and through 2012. The industry appears to welcome the new approach; it had lobbied against a special fee which would have weakened income, and thus, their ability to raise capital. Under accounting rules, the prepaid premiums will be classified as an asset when paid, and only become an expense during the quarter they are actually due.

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On today’s date: September 29…

1906: U.S. intervenes in Cuba --ousts dictator Estrada Palma
1944: Soviet troops invade Yugoslavia
1976: Tommy Lasorda replaces Walter Alston as Dodger manager
1976: Syria drives Palestinian guerrillas out of Lebanon
1988: Union Station reopens in Washington D.C.
1994: House votes to end lobbyists buying meals and entertainment for Congress (hmmm, that obviously worked)
1994: 1st phase of O. J. Simpson murder trial jury selection ends (304 chosen)

The last word:

“A man will fight harder for his interests than for his rights.” --Napoleon Bonaparte

Mediation efforts, Rate update, Treasury to help state housing agencies

2009-09-28T11:20:00.000-07:00

Market Update – September 28, 2009:

The MBS market is relatively quiet today, with the FNMA 4.5% is at 101-07, up +1 ticks from the close and the FNMA 5.0 is at 103-06, down -1 tick from yesterday’s close. The 10-year Treasury yield is off yet again at 3.32%, versus 3.34% at the prior close. The 2-year / 10-year spread and yield curve continues to be significantly narrower (flatter) at 233 bps versus 236 bps at Friday’s close. The stock market is on a tear this morning, shaking off last week’s sour-tasting durable goods report, with the major indices up over +1.5% on a flurry of activity spurred by news of several major acquisitions. Tuesday we get the Case-Shiller Home Price Index report, which is expected to show a slight increase in home prices, consistent with the FHFA report of last week, which showed a +0.3% increase. We also get Consumer Confidence, which should show an increase. Wednesday, we get the ADP employment survey, which should show lower job losses, down to 195,000 from last month’s 260,000. We also get an update to the 2nd Quarter GDP, which is expected to drop to -1.2% from -1.0%. Thursday we get the Personal Income/Outlays report, which should show flat wage growth but more consumer spending (due to cash-for-clunkers); prices are expected to stay level. We also get Jobless Claims, which are expected to log in at 537K versus 530K last week. We also get the ISM Manufacturing Survey, which is expected to show growth mode again (53.5 expected), and a Construction Spending report which shows more bad news in this sector (expect -0.1%). Lastly, Thursday will give us the Pending Home Sales report, which after last week’s -2.7% drop, could spell a bit more trouble. Friday, we get the unemployment figure, which is expected to officially hit 9.8% (the true number being some 5-6 points north of that, when you count part-time workers who want full time jobs and discouraged job seekers exiting the job market).

NCLC says mortgage foreclosure mediation efforts generally ineffective

The nonprofit National Consumer Law Center (NCLC) says that mortgage mediation efforts, where lenders try to help troubled borrowers, lacks industry accountability, and that it’s not conclusive that the efforts have led to a substantial number of sustainable results. New regulations that call for mediation as a requirement prior to foreclosure, which are becoming more common at state and local levels, sound good, says the NCLC, but are just not that effective. “There is as yet no data to confirm that foreclosure mediation programs anywhere have led to a substantial number of affordable and sustainable loan modifications,” according to the report. The NCLC reviewed 25 foreclosure mediation programs in 14 states, and found that the existing programs fail to impose significant obligations on mortgage servicers.

Rates hold steady; 30-year averages 5.04%

Freddie Mac reported that mortgage rates held steady for the week ended Thursday, with 30-year, fixed-rate mortgages averaging 5.04%, compared to 6.09% a year-ago. The average 15-year, fixed-rate mortgage was 4.46% versus 4.47% last week and down from 5.77% last year. This marks an all-time low for the 15-year, at least since Freddie Mac began tracking it in 1991. — the lowest it had been since Freddie Mac (NYSE:FRE) started tracking it in 1991. One-year, adjustable-rate mortgages averaged 4.52% this week, down from 4.58% last week, and 5.03% last year.

Treasury to buy mortgage bonds to help state agencies

The U.S. Treasury will buy up to $20 billion in tax-exempt mortgage bonds issued by the state-sponsored housing agencies through the end of the year, working through Fannie Mae and Freddie Mac, and is expected to inject additional liquidity for as long as three years. The bond purchase program will assist state finance agencies providing mortgages to low-income borrowers and expected to be officially announced by Sept 30. Under the program, the new round of liquidity will provide sufficient financing to restart and fund state home loan programs through end-2010, and will provide a federal backstop for a number of liquidity facilities, to lower funding costs, the agency said.

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On today’s date: September 28…

1528: Spanish fleet sinks in Florida hurricane; about 380 die
1687: Venetians take Athens from the Turks
1785: Napoleon Bonaparte (16) graduates from the military academy in Paris (42nd in a class of 51)
1942: Luftwaffe bombs Stalingrad
1959: Explorer VI reveals an intense radiation belt around Earth
1995: Yitzhak Rabin and Yasir Arafat, sign accord to transfer West Bank

The last word:

“Education is not the filling of a pail, but the lighting of a fire.” --William Butler Yeats

Fed summary, existing home sales, jobless claims

2009-09-25T10:25:00.000-07:00

Market Update – September 25, 2009:

Mortgage rates continue to benefit from the generally favorable commentary of the Fed on the state of the economy, coupled with generally better economic reports which are still laced with indications that we’re not quite out of the woods yet. Accordingly, in stocks, the bulls have apparently decided to take a siesta, leaving the 6-month party to the bears for at least the moment. Traders have begun to rethink these latest reports and have essentially concluded that the recovery isn’t going to be much fun. So the interest in fixed-income is still buoyant for now, with the FNMA 4.5% is at 101-00, up +2 ticks from the close and the FNMA 5.0 is at 103-07, up +1 tick from yesterday’s close. Treasuries are similarly in demand, though this rethinking of the economy's momentum, prompting cautious investors to keep some money in these perceived safe havens. And so, the 10-year Treasury yield is off yet again at 3.33%, versus 3.40% at the prior close. Since last week, the 10-year has fallen -0.16%. The 2-year / 10-year spread and yield curve continues to be significantly narrower (flatter) at 236 bps versus 247 bps yesterday. The government sold a record $112 billion worth of Treasuries this week. On Thursday, the U.S. drew strong demand for a $29 billion offering of 7-year notes. Wednesday's $40 billion sale of 5-year notes and a $43 billion sale of 2-year notes Tuesday were also well received. Later today, we get the Consumer sentiment report, which last month jumped by +4.5 points to 70.2 - - expect another improving month.

New home sales edge up for 5th month, but report shows continued issues

New home sales extended their run of positive results to a fifth straight month during August, with a +0.7% increase, though falling short of the experts’ projections of +1.6%. The sales rate on an annualized basis is 429,000, still -3.4% below last August’s. Worse, the increase was mostly a decrease, with one bright spot – sales in the West shot up +12.1%, but fell -16.3% in the Northeast, -5.8% in the Midwest, and remained flat in the South. Sales prices fell to $195,200 on average, down from $215,600 in July. Prices are off -25.7% since the peak. Inventories fell to 7.3 months’ supply, versus 7.6 months’ supply in July. Apparently nobody’s building anything - - according to analysts at Nomura Securities, nearly all of the remaining excess new homes are completed, versus under construction.

New Orders fall -2.4%, reversing July spike

New orders fell -2.4% in August, well below experts’ forecast of a +1.0% gain, and marking a sharp reversal from July’s +4.8% bump. That pesky transportation sector was to blame (remember last month’s jet-airliner ordering party?), with a -9.3% drop. Excluding that, orders were in only a slight decline. Shipments were off -1.4%, versus the +2.2% gain in July. Inventories were off -1.3%, making for an 8-month decline. Non-defense capital orders fell -7.1%, which was a huge drop, but when adjusted for those volatile aircraft orders, was only down -0.4%. Bright spots were found in the areas of primary metals, machinery, and fabricated metals; experts saw this as foundation components essential for economic recovery.

Vegas foreclosures gradually winding down

We’ve all heard about the foreclosure problem in Vegas. It’s gradually disappearing. MDA DataQuick said that the inventory of previously foreclosed homes there is drying up, causing sales volume to decrease from July to August. Sales of resale homes and condos in the greater Las Vegas area were down -11.2% from July to August, to a level of 4,716. That figure is +16.5% above last year’s level. Foreclosures accounted for 68.4% of sales, down from 69.7% in July and the 73.7% peak set in April. The median price was essentially flat at $129,990, on a month-to-month basis, but is still down a whopping -40% from last year’s $215,000 August figure. And down a whopping -58% since the November 2006 peak for the region… of $312,000.

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On today’s date: September 25…

1493: Columbus sails with 17 ships on 2nd voyage to America
1639 : 1st printing press in America
1775: American Revolutionary War hero Ethan Allen captured
1846: U.S. troops under General Taylor occupies Monterey Mexico
1890: Congress establishes Yosemite National Park
1926: Henry Ford announces 8 hour, 5-day work week
1973: 3-man crew of Skylab 3 make safe splashdown in Pacific after 59 days

The last word:

“We're giving our freedoms away. The American experiment was about freedom. Freedom to be stupid, freedom to fail, freedom to succeed.” --Glenn Beck

Fed summary, existing home sales, jobless claims

2009-09-24T10:08:00.000-07:00

Market Update – September 24, 2009:

The FNMA 4.5% is at 100-27, up +6 ticks from the close and the FNMA 5.0 is at 103-05, up +4 ticks from yesterday’s close. The 10-year Treasury yield is off again at 3.38%, versus 3.44% at the prior close. The 2-year / 10-year spread and yield curve continues to be narrower (flatter) at 244 bps versus 248 bps yesterday. The Fed ended its 2-day meeting yesterday with a widely expected pronouncement on the state of the economy: “…economic activity has picked up following its severe downturn…conditions in financial markets have improved further, and activity in the housing sector has increased…household spending seems to be stabilizing, but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit. Businesses are still cutting back on…investment and staffing, though at a slower pace; …progress in bringing inventory stocks into better alignment with sales…. economic activity is likely to remain weak for a time, the Committee anticipates that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will support a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability…inflation will remain subdued for some time.” MBS investors were watching for clues as to how the Fed would approach the remaining portion of its $1.25T commitment to buy MBS. The news was that the Fed still plans to complete the task, but to slow down and stretch out purchases by another quarter, ending at the end of 1Q2010, instead of 4Q2009. Friday we get Durable Goods orders, which were up +5.1% in July driven by transportation. Look for just a 1% gain this month. We also get the Consumer sentiment report, which last month jumped by +4.5 points to 70.2 - - expect another improving month. New Home sales data will also be released - - expect a +2.8% gain to a rate of 445K units.

What does the Fed’s most recent statement mean for mortgage rates?

Well, if you’re in the market for buying a home or refinancing, you might want to get rolling sooner than later. Extending the MBS purchase program by a quarter and still maintaining the same $1.25T means that the market impact of the largest buyer of MBS will be lessened as the purchases are spread out over a longer period of time. As a result, conforming mortgage rates will not fall by as much if Treasury rates continue their recent decline. Conversely, if Treasury rates move up, it’s likely then that mortgage rates will rise at an even faster rate without the additional market weight of Fed purchases. Further, large banks believe that MBS are overvalued - - Wells Fargo CEO John Stumpf told investors recently that it would not purchase additional MBS for its own portfolio, nor would it retain its own originations. This indicates that the Fed has effectively been overpaying for MBS in order to support housing with lower mortgage rates. This could also cause MBS prices to slip, and mortgage rates to rise. If you’re looking for a mortgage, you probably shouldn’t wait.

Existing home sales fall for first time in 4 months

In an unexpected and unpleasant surprise, sales of previously-owned homes fell -2.7% last month from July, but were up +3.4% from a year ago, said the National Association of Realtors. Sales had jumped +15.2% in the previous four months. Despite low mortgage rates and lower prices, home sales logged a seasonally-adjusted annual rate of 5.1 million units, down from 5.24 million in July. Experts had predicted 5.35 million. "The decline demonstrates we can't take a housing rebound for granted," Lawrence Yun, NAR chief economist, said. The median price of homes sold in August was just $177,700, a -12.5% year-over-year drop. Foreclosures and short sales are pushing down the median price because they typically sell for 15-20% less than traditional homes. Distressed property sales comprised 31% of home resales in August. The good news was that the supply of homes on the market fell significantly in August, by -10.8% to 3.62 million existing homes for sale, or an 8.5 month supply (down from 9.3 months in July).

Jobless claims slow for third week in a row.

In the week ending Sept. 19 there were 530,000 new filings for jobless benefits, below the expected 550,000 claims and the lowest number since July 11. “We do suspect that some of the improvement continues be a result of seasonal factors playing catch-up due to the later than usual Labour Day holiday,” said Ian Pollick from TD. The weekly numbers are still a long way from showing stabilization, roughly thought to be defined by levels around 370,000 per week. Still, the numbers are an improvement from the August average of 569,000.

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On today’s date: September 24…

1789: Congress creates Post Office
1789: Federal Judiciary Act is passed and creates a six-person Supreme Court; George Washington appoints John Jay as first Chief Justice
1960: USS Enterprise, 1st nuclear power aircraft carrier, launches
1979: Pete Rose reaches 200 hits in a season for 10th time
1990: East Germany leaves Warsaw Pact; Supreme Soviet gives approval to switch to free market

The last word:

“Opportunities multiply as they are seized.” --Sun Tzu

Mortgage rates, FBI arrests pair, Fed impact on rates, Lawyers beat Congress in popularity

2009-09-23T09:06:00.000-07:00

Market Update – September 23, 2009:

The markets are relatively quiet while the Fed concludes its 2-day meeting today. The FNMA 4.5% is at 100-15 (same as yesterday morning, down 3 ticks from the close) and the FNMA 5.0 is at 102-30 (up 2 ticks from the close). The 10-year Treasury yield is off slightly at 3.44%, versus 3.46% at the prior close. The 2-year / 10-year spread and yield curve is slightly narrower (flatter) at 242 bps versus 244 bps yesterday. The Fed 2-day meeting ends today, and the usual pronouncement is expected at around 11am Pacific Time. “We would be amazed to see anything in the FOMC statement today that even resembles a hint that the Fed is preparing to withdraw any of the net monetary policy support to the economy,” said Ian Shepherdson from High Frequency Economics. “The U.S. economy is now performing better because, and only because, of the policy intervention, both monetary and fiscal,” he continued, echoing the general consensus that any recovery is expected to be relatively weak. A key focus area for Fed-watchers is whether the Fed plans to continue MBS purchase (currently $840B of the way into a $1.25T plan). Yesterday we had a record $43 billion auction in 2-year notes yesterday; today we’ll see an auction for 5-year Notes at 1:00pm Eastern. Thursday we get the weekly jobless claims data. Expect 550K, versus 545K last week. We also get Existing Home Sales which should post their fifth monthly gain in August. Friday we get Durable Goods orders, which were up +5.1% in July driven by transportation. Look for just a 1% gain this month. We also get the Consumer sentiment report, which last month jumped by +4.5 points to 70.2 - - expect another improving month. New Home sales data will also be released - - expect a +2.8% gain to a rate of 445K units.

MBA: Rates edge below 5%, application activity jumps by nearly 13%.

The Mortgage Bankers Association reported today that average mortgage rates fell to 4.97% in the week ending September 18, with application activity jumping by +12.8% on the strength of refinances by current homeowners (64% of all loans) coupled with purchase activity, fueled by the impending expiration of the first-time homebuyer tax credits. This marks the first time since mid-May that rates have edged back below 5% on average. Refinance activity surged by +17.4% versus the prior week, boosting the 4-week average by +6.8%. Purchase activity grew by +5.6%, with nearly half of the loan applications for government-insured programs, the largest share since November 1990.

Manteca mother and daughter arrested by FBI for mortgage fraud

Accused of defrauding lenders of about $5 million from home sales, a Manteca CA mother and daughter team have been arrested by the FBI . Prosecutors say 49-year-old Helen Sotiriadis and her daughter, 23-year-old Irene Sotiriadis, sold 30 properties to Cambodian nationals between March 2006 and November 2007. The women allegedly inflated the buyers' incomes on loan papers and promised them payment reductions through refinances; however, the women apparently never did any refinancing, and the homes went into foreclosure. FBI agents arrested the pair Sunday after they got a tip that the Sotiriadises were planning to relocate to Greece. Attorneys for the women insist their clients were not trying to flee. They were released Tuesday on $750,000 bail and put under electronically-monitored house arrest.

What’s the rate impact of the Fed’s purchase of MBS?

A study of the Fed’s purchase of MBS as well as Treasuries, comparing the 30-year Fannie Mae and Freddie Mac averages to the monthly average of the 10-year Treasury yield over time indicates that the effect of the Fed’s purchases of MBS may be reducing the average mortgage rate (versus historical) by around 35 bps. That would indicate that when the Fed stops buying MBS, as expected later this year, average mortgage rates should rise by around 35bps. Read the full report at the Calculated Risk blog at http://www.calculatedriskblog.com/2009/09/impact-on-mortgage-rates-of-fed-buying.html .

Congress viewed more unfavorably than lawyers, journalists, Wall Street, and CEO’s.

A new Rasmussen poll shows that Congress has a new issue to deal with: the public hates them. The updated study shows that Congress, with an unfavorable rating of 72%, polls worse than big-company CEO’s (69% unfavorable), and Wall Street, Journalists and Lawyers (each 54% unfavorable). Even 56% of Democrats have an unfavorable view of Congress although their party controls both the House and the Senate. Of course, their opposition pales next to the 86% of Republicans and 81% of adults not affiliated with either party who have an unfavorable opinion of Congress. In fact, 42% of U.S. voters even say that a group of people randomly selected from the phone book would do a better job than Congress. Sounds like it’s time to get a PR agency.

On today's date: September 23....

1642 Harvard College in Cambridge, Massachusetts, 1st commencement
1863 Confederate siege of Chattanooga begins
1962 ABC's 1st color TV series-Jetsons
1986: Congress selects the rose as U.S. national flower
1990: Saddam says he will destroy Israel

The last word:

“Age is an issue of mind over matter. If you don't mind, it doesn't matter.” --Mark Twain

Home Prices, FDIC goes borrowing, Product mandate outlook

2009-09-22T09:56:00.000-07:00

Market Update – September 22, 2009:

Everyone’s waiting for the Fed. The FNMA 4.5% is at 100-15 and the FNMA 5.0 is at 102-26, both holding steady. The 10-year Treasury yield is off slightly at 3.46%, versus 3.48% at the prior close. The 2-year / 10-year spread and yield curve is unchanged at 250 bps. Stocks are higher at the open with both the Dow and the S&P up by +0.60% and +0.80% respectively. The dollar is hitting a 1-year low against the Euro, as commodity prices hit fresh highs. The Fed’s Open Market Committee starts its 2-day meeting today, with policy-watchers expecting the Fed to hold steady until well into 1020. However, all eyes are on the actual language of the report issued tomorrow, which will hopefully provide more insight into how Fed Chairman Ben Bernanke views the end of the recession. The other big insights will hopefully include information on how and whether the Fed will keep buying MBS – to-date they are at $862B out of the $1.25T commitment. Many investors think that with housing beginning to stabilize, the Fed will stop short of the full allotment. Thursday we get the weekly jobless claims data. Expect 550K, versus 545K last week. We also get Existing Home Sales which should post their fifth monthly gain in August. Friday we get Durable Goods orders, which were up +5.1% in July driven by transportation. Look for just a 1% gain this month. We also get the Consumer sentiment report, which last month jumped by +4.5 points to 70.2 - - expect another improving month. New Home sales data will also be released - - expect a +2.8% gain to a rate of 445K units.

FHFA report: Home prices up less than expected.

Home prices edged up in July, rising +0.3% versus June’s level, a half-point less than experts had predicted. The 12-month index fell -4.2%. Eight out of nine areas saw prices decline from a year earlier, FHFA said. The biggest drop was 9.8% in the Nevada and Arizona area. California and other Pacific coast states declined 9%, and Florida was down 5.6%. This could mean that the housing recovery is still on shaky ground, at least for the present. Since the peak, housing prices have fallen nearly 30% nationwide, and record foreclosure levels persist. Still, signs of life persist, including a first-time homebuyer credit which seems to have had an impact, and lower prices and mortgage rates which have helped at least some borrowers jump back in. July’s data showed five out of nine U.S. regions had price increases July from June, led by a 1.6% gain in the area that includes California, the FHFA said. New York, New Jersey and Pennsylvania had the second-largest advance with a 1% increase. However, unemployment levels at 26-year highs have kept many on the sidelines and in foreclosure. The Obama administration is evaluating whether or not to extend the first-time homebuyer tax credit. “If we start to see a major fallback in housing they’re going to have to bring back more federal support,” said Brian Bethune of IHS Global Insight.

Weird twist: FDIC to borrow from big banks?

The fund maintained by the FDIC that backstops depositors when banks fail is just about out of money, and in a bizarre twist, regulators may borrow billions from big banks to shore up the dwindling fund. The FDIC is also considering a special emergency fee on all banks (which tends to hit small banks harder), and also borrowing from the U.S. Treasury. FDIC spokesman Andrew Gray downplayed the option of borrowing from big banks, but the option is on the table apparently. Multiple bank failures each week have driven the FDIC fund to the lowest levels since 1992 during the S&L crisis. Failures will have cost the fund $70B by 2013, with 94 banks failing this year already and hundreds more expected to fail due to residential and commercial real estate loan defaults. The Fund stands at 0.22% of insured deposits, versus the 1.15% mandated by Congress. The good news for small banks is that if the FDIC borrowed from big ones, they might be able to avoid painful fees from the FDIC, one of the other options on the table. The plan is seen by some as a creative way to avoid another bailout, and is supported by bankers and lobbyists.

Senate may nix Obama’s financial product mandate

Congress is expected to say no to Obama’s proposed mandate that banks offer customers "plain vanilla" financial products, such as a 30-year fixed mortgage. Under Obama’s plan, a politically-expedient attack on sophisticated financial products blamed for the recession, yet another government agency would be established to watchdog the details of mortgages and credit cards - - the Consumer Financial Protection Agency would impose new requirements on lenders and force availability of standard “low-risk” alternatives. The proposal also was expected to fall flat in the Senate, where conservative Democrats and Republicans say they are concerned it would give the government too much control in the marketplace and would limit innovation. "Implied in this belief is the notion that some people, such as the government bureaucrats, can make informed decisions about the value of products and services while others, such as the American consumer, cannot," said Sen. Richard Shelby, the top Republican on the Senate Banking Committee. The defeat would be a victory for the industry, which contends that such a proposal would give the government an unprecedented role in the marketplace.

On today’s date: September 22…

1692: Last person hanged for witchcraft in U.S. (Salem Mass)
1957: "Maverick" premieres
1973: Henry Kissinger, sworn in as Secretary of State
1980: Iraqi troops seize part of Iran in a border dispute; war begins
1991: California University makes Dead Sea Scrolls public
1993: Supreme Soviet dismisses president Boris Yeltsin

The last word:

“Because of their size, parents may be difficult to discipline properly.” --P. J. O'Rourke

FHA policy changes, Leading Indicators, Fragile housing market

2009-09-21T09:55:00.000-07:00

Market Update – September 21, 2009:

The FNMA 4.5% is at 100-21 up +6 ticks, and the FNMA 5.0% is at 102-29 up +4 ticks versus the prior close. The 10-year Treasury yield is off slightly at 3.43%, versus 3.49% at the prior close. The 2-year / 10-year spread and yield curve is slightly wider (steeper) today by +2 bps from 246 to 248 bps. Stocks are lower at the open with both the Dow and the S&P off by about -.25% on speculation a six-month rally has outpaced prospects for profit growth, with oil and gold both weaker as well. The dollar looks stronger today. Today’s sole report is the Leading Economic Indicators index for August, which was expected to show a +0.7% increase (vs +0.6% last month). Tuesday we get the FHFA House Price Index (last month +0.5%).Wednesday we get the FOMC Meeting Announcement, and the Fed Funds rate update, which is expected to remain under 0.25% - - as usual, the focus will be on the language within the statement. Thursday we get the weekly jobless claims data. Expect 550K, versus 545K last week. We also get Existing Home Sales which should post their fifth monthly gain in August. Friday we get Durable Goods orders, which were up +5.1% in July driven by transportation. Look for just a 1% gain this month. We also get the Consumer sentiment report, which last month jumped by +4.5 points to 70.2 - - expect another improving month. New Home sales data will also be released - - expect a +2.8% gain to a rate of 445K units.

FHA policy changes to include HVCC (some).

The Federal Housing Administration (FHA) on Friday announced several significant policy changes intended to improve risk exposure, including adoption of some, but not all, of the Home Valuation Code of Conduct Guidelines (some not all). FHA decided to adopt language from HVCC appraisal guidelines, which has been the source of lots of debate within the industry. Until now, FHA loans have benefitted from increased demand, partly due to not having adopted HVCC. The new requirements will prohibit any commissioned based lender staff member from ordering an FHA appraisal, but stopped short of requiring the use of AMC’s or other third party organizations. FHA released 5 new Mortgagee Letters (09-28 through 09-32) dealing with appraisals, counterparty risk periods and streamlines. Of note, borrowers who switch lenders do not need to have the old appraisal transferred to the new lender, but can order a second appraisal under limited circumstances (appraisal deficiencies, appraiser excluded by new lender, and delay in closing which would cause borrower to be harmed). Advertising rules were clarified, and streamline rules were also amended (borrower must have made minimum 6 payments, and meet other payment history guidelines).

Leading indicators up for 5th straight month

The Conference Board’s measure of the three-to-six month outlook rose 0.6% in August, in line with forecasts, after a 0.9% increase in July (revised upward). This marks the longest stretch of gains since August 2004. The news was tempered by continued rising unemployment and tight credit - - indicating that while the worst of the recession may be behind us, recovery will be slow. The index was projected to rise by +0.7%. The Conference Board’s index of coincident indicators, which measures current economic activity (payrolls, incomes, sales and production), was unchanged in August after increasing 0.1% in July. Lagging indicators (business lending, length of unemployment, service prices and ratios of labor costs, inventories and consumer credit) fell - 0.1% following a -0.5% drop in the prior month. Leading indicators (supplier deliveries, interest-rate spreads, building permits and the stock market) jumped +0.3%. “Customer traffic patterns have started to indicate signs of stability,” Jim Muehlbauer, chief financial officer for Richfield, Minnesota-based Best Buy, said in a Sept. 15 statement.

Fragile housing market may see end of rebound

The Obama administration is studying whether to let the first-time home buyers’ tax credit expire as scheduled at the end of November. On top of that Ben Bernanke deliberates on how to wind down purchases of mortgage- backed securities. Together, the two expensive programs have steadied demand for real-estate in recent months. Lawrence Yun, NAR’s chief economist, estimates that about 350,000 home sales through August were directly attributable to the tax credit of up to $8,000 for first-time buyers, amounting to 43% of sales (up from 32% prior to the program). Now, ending those programs amidst record unemployment levels, continued foreclosures, and potentially rising interest rates may doom the fragile housing market to a relapse of sorts; it could also have an impact on the broader economy. Lawmakers now face the challenge of winding down the massive levels of government support for the economy without the patient crashing. Bernanke and team meet tomorrow and Wednesday to map monetary strategy, and are continuing to discuss “tapering” the Fed’s purchases of mortgage-backed securities and housing-agency debt, following on their talks from their last gathering in August. Under the current program, the Fed planned to buy up to $1.25 trillion of MBS and $200 billion of Agency debt by the end of the year. So far, it has purchased $862 billion in MBS and $125 billion of Agency debt. Experts think that stopping the purchases abruptly will pop interest rates by +0.5-1.0% immediately. Tapering the purchases might minimize that effect, it is thought.

On today’s date: September 21…

1192: English king Richard I the Lion hearted, captured
1814: "Star Spangled Banner" published as a poem
1837: Charles Tiffany founded his jewelry and china stores
1915: CH Chubb buys Stonehenge for 6,600 pounds
1954: 1st nuclear submarine, USS Nautilus, commissioned
1996: John F. Kennedy, Jr. marries Caroline Bisset

The last word:

“Civilization is the progress toward a society of privacy. The savage's whole existence is public, ruled by the laws of his tribe. Civilization is the process of setting man free from men.” --Ayn Rand

GDP update, jobless claims, FDIC problem bank list grows

2009-08-27T08:56:00.000-07:00

Market Update – August 27, 2009:

The FNMA 4.5% is at 100-08 down -2 ticks, and the FNMA 5.0% is at 102-11 down -1 tick versus the prior close. The 10-year Treasury yield is steady at 3.44% The 2-year / 10-year spread and yield curve is slightly wider (steeper) today by +2 bps from 238 to 240 bps. The market today is focused on the conclusion of the Treasury’s fund raising process this week with the auction of $ 28 billion in 7-year notes. Stocks are on the retreat this morning, trading with broad-based weakness; the Dow is off about half-percent, and the Nasdaq is off over -1%. Tomorrow we get Personal Income/Outlay (expect incomes to rise just +0.1% vs -1.3% last month). We also get the Reuters/University of Michigan Consumer Sentiment report (expect 64.0 vs 63.2).

GDP for second quarter holds at -1%.

Updated second-quarter GDP was reported to remain at the original -1% figure, pleasing experts who had expected the figure to fall to -1.5%. Inventories fell further than expected ($-159.2B vs $141.1B). However, consumer spending, which represents 2/3 of the economy, was slightly better than expected (down -1% vs -1.2%). Falling inventories may indicate that businesses will need to crank up production sooner than anticipated. Employment is still expected to remain sluggish, however, with even Ben Bernanke stating last week that “The economic recovery is likely to be relatively slow at first, with unemployment declining only gradually from high levels.”

Jobless claims still pouring in

The labor market remains a mess, and it’s looking more and more like a jobless recovery is in the making. This week’s snapshot of applications for jobless benefits showed a slight decline, as anticipated, but the continued torrential flow of jobs lost means that double-digit unemployment continues to be on the agenda in the coming months. First-time claims for jobless benefits fell by just 10,000 last week to 570,000, versus expectations for a drop to 565,000. Still the numbers mark the lowest level since the first week of August. On the flip side, the prior week’s data was revised up by 4,000 to 580,000. We need to get the numbers down to the mid 300,000’s to get back into stable territory, which is a long way off still. Continuing claims fell by 119,000 in the week prior, to 6.113 million. Most of the decline likely represents unemployed people who have run out of benefits. Can’t get a break, can we?

FDIC’s problem-bank list increases by +36%.

The FDIC added 111 lenders to its list of “problem banks” in the second quarter, up +36% to a 15-year high. The list now totals 416 banks, with combined assets of nearly $300 billion. These banks failed the FDIC’s grading system for asset quality, liquidity, and earnings. FDIC Chairman Sheila Bair said in a statement that “For now, the difficult and necessary process of recognizing loan losses and cleaning up balance sheets continues to be reflected in the industry’s bottom line.” Regulators have taken over 81 banks this year, 24 in the second quarter alone. The FDIC has even had to levy an emergency fee to raise $5.6 B to replenish the insurance fund, which fell to just over $10B at the end of the second quarter, from $13B in the prior quarter. This week, the FDIC approved new guidelines for private- equity firms investing in failed banks, which seeks to increase the pool of buyers and reduce costs to taxpayers.

On today’s date: August 27…

1667: Earliest recorded hurricane in U.S., Jamestown, Virginia
1776: British defeat Americans in Battle of Long Island
1928: Kellogg-Briand Pact, where 60 nations agree to outlaw war (yeah, that really worked)
1945: U.S. troops land in Japan after Japanese surrender
1955: Guinness Book of World Records 1st published
1988: Dodger Tommy Lasorda wins 1,000th game as manager tops Philadelphia, 4-2

The last word:

“I've had a few arguments with people, but I never carry a grudge. You know why? While you're carrying a grudge, they're out dancing.” --Buddy Hackett

Mortgage activity, durable goods, new home sales

2009-08-26T08:41:00.000-07:00

Market Update – August 26, 2009:

In today’s news, we have positive data across the board: mortgage activity, durable goods, and new home sales. However, the mortgage-backed securities market seems to be holding up fairly well in light of the good news. Fear the double-dip recession, perhaps. The FNMA 4.5% is at 100-13 up +2 ticks, and the FNMA 5.0% is at 102-12 unchanged versus the prior close. The 10-year Treasury yield has risen from 3.48% to 3.49%. The 2-year / 10-year spread and yield curve is wider (steeper) today by +3 bps from 243 to 246 bps. Ben Bernanke’s re-appointment yesterday was a weak screen for the news that the Federal debt will double over the next 10 years, challenging Obamacare and other spending initiatives. On current spending planned by the Administration, the cumulative $9 trillion deficit by 2019 is now expected to expand to $20 trillion. That works out to about three-fourths of GDP. "If anyone had any doubts that this burden on future generations is unsustainable, they're gone," said Senator Mitch McConnell, adding that economic stimulus funds should be diverted to pay down U.S. debt. In upcoming news, Thursday we get the 2nd Quarter GDP report; expect a downward revision from -1% to -1.6%. Jobless claims are expected to continue to be bad, with the number of claims expected to fall only a fraction from 576K to 565K. Friday we get Personal Income/Outlay (expect incomes to rise just +0.1% vs -1.3% last month). We also get the Reuters/University of Michigan Consumer Sentiment report (expect 64.0 vs 63.2).

Rates edge up but mortgage activity continues its increase.

The Mortgage Bankers Association (MBA) said that in the week ending August 21, interest rates for 30-year loans increased by +9 bps points to 5.25%. Rates had previously stood at a 6-week low. Demand for loans has accelerated in the most recent week, up +7.6% overall, compared to +5.6% in the prior week. Refinances increased +12.7%, to their highest level since early June, and marking the third week in a row of activity gains. The Purchase Index also increased, up +1.0%. The nation’s lowest rates were in Georgia, at 5.12%, and the highest rates were in Maryland, at 5.33%.

Durable goods orders spike on aircraft orders.

The latest durable goods report showed that new orders for durable goods spiked by +4.9% in the month of July, well past expectations for a +3% gain. The uptick, being the largest in 2 years, came as welcome news compared to the upsetting -1.3% dip in June (which was -2.5% before being revised this month). Experts cheered the news as another sign that the recession dragon had been slain (with naught left to do but clean up the mess). However, those pesky aircraft orders once again were found to be at the root of the good news, and when removed, the orders only expanded by a decidedly blah +0.8%. To explain, the busybodies at Boeing and their customers had apparently decided to celebrate the recession by doubling orders for shiny new planes, causing the transportation segment of the new orders report to soar by +18.4% (what fun!). While official reports didn’t comment on the source of such ebullience, this writer remains suspicious. Not wishing to deny pilots the opportunity to experience that “new plane smell” on occasion, perhaps Obama and crew secretly cut a “cash for clunkers” deal with the airlines? Hey, it worked for cars (gosh, people like free money, who knew?). Let the good times roll. Er, in this case, fly.

New home sales jump nearly 10% on tax credit strength.

The Commerce Department said today that sales of new homes increased +9.6 percent, the most since February 2005, to a 433,000 annual pace, ahead of the 390,000 expected by economists. Meanwhile, inventories dropped -35% from last year’s levels to 7.5 months, the lowest level in 16 years. “We’re seeing a clear pickup in housing activity,” said Michael Moran, chief economist at Daiwa Securities America Inc. “The correction phase is essentially over and we expect continued improvement, though not a vigorous pickup.” The median price of a new home decreased -12% versus last year, to $210,100. Sales levels are still down -13% versus last year, however. Activity in the Northeast jumped by +32%, followed by a +16% gain in the South, a +7.6% gain in the Midwest, and a mere +1% gain in the West. The first-time buyer tax credit was touted as the source of the gains.

On today’s date: August 26…

580: Chinese invent toilet paper
1843: Charles Thurber patents a typewriter
1883: Krakatoa erupts with increasingly large explosions kills 36,000
1920: 19th amendment passes - women's suffrage granted
1942: Russian WWII counter-offensive begins in Moscow

The last word:

“Some people wanted champagne and caviar when they should have had beer and hot dogs.” --Dwight D. Eisenhower

HomeBuyer Tax Credit, Case-Shiller, Consumer Confidence

2009-08-25T08:45:00.000-07:00

Market Update – August 25, 2009:

In today’s news, we have positive data on home prices and consumer confidence (see posts below). This is causing a weaker market for MBS and the sun is shining on stocks. The FNMA 4.5% is at 99-31 down -6 ticks, and the FNMA 5.0% is at 102-02 down -6 ticks versus the prior close. It’s looking like Ben Bernanke will be reappointed to his old post today. The 10-year Treasury yield has risen from 3.48% to 3.49%. The 2-year / 10-year spread and yield curve is wider (steeper) today by +3 bps from 243 to 246 bps. Wednesday we get Durable Goods (expect +3.0% vs -2.5% in June, with core orders up just +0.8% vs +1.6% in June), and New Home Sales (expect +5% vs +11% in June). Thursday we get the 2nd Quarter GDP report; expect a downward revision from -1% to -1.6%. Jobless claims are expected to continue to be bad, with the number of claims expected to fall only a fraction from 576K to 565K. Friday we get Personal Income/Outlay (expect incomes to rise just +0.1% vs -1.3% last month). We also get the Reuters/University of Michigan Consumer Sentiment report (expect 64.0 vs 63.2).

House Committee considering extension and expansion of Home Buyer Tax Credit.

The House Ways and Means Committee is considering an extension and expansion of the current popular First Time Home Buyer Tax Credit, which is due to expire on December 1, 2009. Introduced by Republican Howard Coble of North Carolina and also known as HR 2801, the Home Ownership Moves the Economy (HOME) Act of 2009 would continue the availability of the credit into 2010 and allow all home buyers to take advantage of the program. The program expiring this year offers a 10% one-time credit, up to $8,000, to first-time buyers (or buyers who haven’t owned a home in the last 3 years); the program phases out for buyers with AGI’s over $75,000 ($150,000 couples filing jointly), and doesn’t apply if your AGI is over $95,000 ($170,000 filing jointly). The new proposal would lift these income restrictions and apply to all purchases, not just first-time purchases.

S&P Case-Shiller shows second month of improvement.

The S&P Case-Shiller Home Price Index survey of 20 metropolitan cities showed that home prices in June advanced for the second month in a row, up +1.4%, following +0.5% growth in May. Eighteen of the twenty markets showed improvement. The gain was well above the flat month that experts had predicted. On an annualized basis, the decline now averages -15.4%, versus expectations of a -16.5%. The San Francisco market showed a +3.8% gain (June/May) versus a +1.4% gain in the prior month (May/April), but prices on an annualized basis are still off -22%. While home prices still are struggling overall due to record-high foreclosure levels, the news is positive in that it indicates a certain amount of stabilization to the market. TD senior strategist Eric Lascelles said “it is still an open question whether home prices will manage to increase in each and every month going forward, but the foundation has at least been laid.”

Consumer Confidence reading exceeds expectations

The Conference Board’s consumer confidence index (a survey of 5,000 households) rose to 54.1 in August from an upwardly revised 47.4 in July. Experts were anticipating an increase to 48.0. Survey head Lynn Franco said that consumer confidence "appears to be back on the mend." The present situation index rose from 23.3 in July to 24.9 this in August, but the expectations index rose from 63.4 in July to 73.5 in August, the highest since December 2007, when the recession began. The percentage of consumers who said jobs were "hard to get" declined in August to 45.1% from 48.5%, while the percentage who said jobs were "plentiful" rose to 4.2% from 3.7%. The net jobs plentiful number improved to -40.9 from -44.8. Over the next six months, 18.4% said they expected more jobs and 23.3% expected fewer jobs.

On today’s date: August 25…

325: Council of Nicaea ends with adoption of the Nicene Creed establishing the doctrine of the Holy Trinity
1609: Galileo demonstrates his 1st telescope to Venetian lawmakers
1814: British forces destroy Library of Congress, containing 3,000 books
1944: Paris liberated from Nazi occupation, Freedom Tuesday
1952: Puerto Rico becomes a U.S. commonwealth
1970: Elton John's 1st U.S. appearance, Los Angeles
1990: U.N. security council authorizes military action against Iraq

The last word:

“Let him who would enjoy a good future waste none of his present.” --Roger Babson(noted economist and founder of Babson College in MA).

Nouriel predicts, Real Estate forecast, Rate outlook

2009-08-24T10:35:00.000-07:00

Market Update – August 24, 2009:

After some initial weakness, MBS have leveled off a bit and seem to be edging higher. The FNMA 4.5% at 99-21 down -1 tick, and the FNMA 5.0% is at 101-25 down -3 ticks versus the prior close. The Treasury market is relatively quiet, with somewhat thin trading ahead of tomorrow’s 2-year auction. The Treasury is set to auction $109 billion of two-, five- and seven-year notes this week amid investor concern that the global appetite for massive doses of U.S. securities may be waning. The 10-year Treasury yield has risen from 3.56% to 3.58%. The 2-year / 10-year spread and yield curve is wider (steeper) today by 9 bps from 243 to 252 bps. This week is full of market-moving news. On Tuesday we get the S&P Case-Shiller Home Price Index, which is expected to show moderating price declines nationwide. Last month’s +0.5% gain was a welcome change in direction, and experts are hoping for at least a flat month. We also get the Consumer Confidence report, which should be interesting as we’ve just come off the cash-for-clunkers program (who ever thought giving away free money to buy cars could be so successful?) and recent stock market gains (expect 47.6, vs 46.6 in July). We also get the FHFA House Price Index report. Wednesday we get Durable good (expect +3.0% vs -2.5% in June, with core orders up just +0.8% vs +1.6% in June), and New Home Sales (expect +5% vs +11% in June). Thursday we get the 2nd Quarter GDP report; expect a downward revision from -1% to -1.6%. Jobless claims are expected to continue to be bad, with the number of claims expected to fall only a fraction from 576K to 565K. Friday we get Personal Income/Outlay (expect incomes to rise just +0.1% vs -1.3% last month). We also get the Reuters/University of Michigan Consumer Sentiment report (expect 64.0 vs 63.2).

NYU recession sage says government must soak up stimulus dollars and cut deficits.

The New York University professor who predicted the financial crisis, Nouriel Roubini, said that the process of ending the massive government stimulus programs is increasingly looking like it will result in a double-dip recession. Roubini said in a Financial Times article today that the global economy will bottom out in the second half of 2009 for most countries (with the U.S., the U.K. towards the end of the year). “There are risks associated with exit strategies from the massive monetary and fiscal easing,” Roubini wrote. “Policy makers are damned if they do and damned if they don’t.” Roubini predicts that countries that maintain large budget deficits will be punished by bond market vigilantes, as inflationary expectations and yields on long-term government bonds rise and borrowing costs climb sharply. That will in turn lead to stagflation, Roubini said. Roubini expects a slow U-shaped recovery, where growth will be “anemic and below trend for at least a couple of years.” He worries about speculation in commodities, such as food and oil. “Last year, oil at $145 a barrel was a tipping point for the global economy as it created negative terms of trade and a disposable income shock for oil-importing economies,” he said. “The global economy could not withstand another contractionary shock if similar speculation drives oil rapidly toward $100 a barrel.” Billionaire investor Warren Buffett echoed these concerns last week, writing that the U.S. must address the massive amounts of “monetary medicine” that have been pumped into the financial system and now pose threats to the economy and the dollar.

Housing Predictor releases 2009 forecast of Real Estate prices.

Housing Predictor released an update of its 2009 forecast of real estate prices, showing that the nation’s worst real estate markets will have fallen by nearly 37% by the end of the year, compared to the prior year. Detroit, Michigan takes the top position with the worst forecast deflation in 2009, expected to be down -36.9%. That’s followed by Manhattan, where hundreds of thousands of job layoffs are hurting condo and apartment prices, placing the Big Apple second on the list, down -32.8%. Number 3 is Grand Rapids, MI (− 28.4%), followed by #4 Phoenix, AZ (− 25.9%), #5 Miami , FL (− 24.2%), #8 Fresno, CA (− 20.2%) #9 Bakersfield, CA (− 19.3%), #10 Riverside, CA (− 19.1%), #12 San Jose, CA (− 18.5%), #13 Anaheim, CA (− 18.3%), #14 Los Angeles, CA (− 18.2%), #15 Oakland, CA (− 18.2%), #17 San Francisco, CA (-17.6%). California sure gets its share of mentions.

Long-term outlook on rates continues to be “steady as she goes”.

Bond investors drove two-year Treasuries down on Aug. 21 by the most since early June after Federal Reserve Chairman Ben S. Bernanke said the economy is “beginning to emerge” from recession. That made bond buyers fret about rising rates from the Fed. But the fears may be unfounded. History shows that the Fed usually waits to raise rates until well into a recovery – 12 months after the 2001 recession and 17 months after the 1991 recession. “It’s going to be very difficult for the Federal Reserve to raise rates simply because there’s no inflation,” said Michael Cheah, who manages $2 billion in bonds at SunAmerica Asset Management in Jersey City, New Jersey. The government is preparing to sell $42 billion in 2-year securities this week. Long positions outnumbered short positions on the Chicago Board of Trade, indicating that most investors are looking for higher prices. Even after the Aug. 21 tumble, the odds of a Fed rate increase this year are just 9 percent, down from 25 percent a month ago, futures data on the Chicago Board of Trade show.

On today’s date: August 24…

1891 Thomas Edison patents motion picture camera
1909 Workers start pouring concrete for Panama Canal
1912 Territory of Alaska organizes
1949 NATO, North Atlantic Treaty Organization, goes into effect
1969 Peru nationalizes U.S. oil interests

The last word:

“God not only plays dice, He also sometimes throws the dice where they cannot be seen.” --Stephen Hawking

All this plus commentary and opinion at http://mortgagemm.blogspot.com

Initial claims, mortgage rates, TB&W

2009-08-06T09:24:00.000-07:00

Market Update – August 6, 2009:

Slowly, but higher still. Profit-taking in stocks has helped to push the market for mortgage-backed securities (MBS) higher. The FNMA 4.5% at 99-13 up +3 ticks, and the FNMA 5.0% is at 101-25 up +4 ticks. The long end of the Treasury market is higher today, with the 10-year Treasury yield falling from 3.80% to 3.75%. The 2-year / 10-year spread and yield curve is quite wider (steeper) again, today by 6 bps from 248 to 254 bps. Friday, the Employment Situation report is released, which will post data on job losses for July (expect a reading of -300,000 vs -467,000 in June, and unemployment moving up from 9.5% to 9.7%).

Initial claims for unemployment slow slightly; continuing claims higher.

The Labor Department reported this morning that initial claims for unemployment benefits during the week ending August 1 fell -38,000 from the previous week to 550,000. The numbers in recent months have gone as low as the July 11 low of 524,000, the data, and as high as the March high of 658,000. Continuing claims, well, continued - - at their blistering pace of over 6 million - - 6.310 million more properly, which is an increase of 69,000 from the prior week. Any report over the 400K mark is considered recessionary, so it’s clear that the economy is still on the rocks for the near term. Experts (uh…), are forecasting that the third quarter’s data will show a dramatic slowdown in job losses – though it was not clear exactly how or why that would happen, particularly since the third quarter is already well underway.

Mortgage rates drop.

According to Freddie Mac’s weekly survey, the average 30-year rate dropped to 5.22 % from 5.25%, and the 15-year rate averaged 4.63% for the week ending today. This was the first drop in three weeks, and if it continues, demand for homes in the later part of the year may be enhanced. While rates on Treasuries have climbed lately on concerns about higher government debt, the Fed’s MBS purchase campaign has helped to keep mortgage rates reasonable, and relatively near historic lows. That still seems to only partially invigorate the housing market, since continued job losses and foreclosures have put a lid on a full housing recovery.

FHA suspends Taylor, Bean & Whitaker from originating and underwriting loans.

Yesterday, the FHA suspended Taylor, Bean & Whitaker, an Ocala Florida based mortgage wholesaler and the nation’s third-largest FHA lender, from originating and underwriting FHA-insured mortgages. The agency said Taylor Bean failed to disclose “irregular transactions” that raised concerns of fraud, and that it had failed to file a required annual financial report. Ginnie Mae also declared TBW to be in default, and both terminated TBW’s issuer status and took control of TBW’s Ginnie Mae portfolio. Per the agreement with Ginnie, any fraudulent originations have to be repurchased out if they are delinquent. The day before, federal agents had removed documents from Taylor Bean’s offices. Agents also raided the Orlando offices of Colonial Bank in Orlando, a lender in which Taylor Bean had planned to make a big investment until the deal was called off Friday. The deal with Colonial involving Taylor Bean & Whitaker had the company receiving 75 percent controlling interest in Colonial Bank and five seats on its board in exchange for $300 million in cash.

On today’s date: August 6…

1945: Atom bomb dropped on Hiroshima, effectively ending WWII
1952: Satchel Paige, 47, becomes oldest pitcher to win a complete shutout
1961: 1st case of motion sickness in space reported
1962: Jamaica becomes independent after 300 years of British rule
1983: Supertanker Castillo de Bellvar crashes at South Africa
1990: U.N. Security Council votes 13-0 to place economic sanctions against Iraq

The last word:

“Governments tend not to solve problems, only to rearrange them.” --Ronald Reagan

Mortgage apps, ISM Services, ADP Employment update

2009-08-05T10:26:00.000-07:00

Market Update – August 5, 2009:

Full moon tonight. Perhaps the power of such is gently tugging MBS a couple notches higher this morning with the FNMA 4.5% at 99-24 up +2 ticks, and the FNMA 5.0% is at 101-25 up +2 ticks. The long end of the Treasury market is higher today, with the 10-year Treasury yield falling from 3.70% to 3.66%. The 2-year / 10-year spread and yield curve is wider (steeper) again, today by 1 bps from 250 to 251 bps. More debt is coming our way in the form of Treasury auctions. The Treasury said it expects to reach its $12.1 trillion debt ceiling sometime in the fourth quarter. "We will continue to work with Congress to make sure that the debt limit is raised in a timely and orderly manner going forward," said Matt Rutherford, a deputy assistant Treasury secretary, at a press conference in Washington. Thursday, we get the usual Jobless Claims report (expect 575K for last week, vs 584K in the prior week). Friday, the Employment Situation report is released, which will post data on job losses for July (expect a reading of -300,000 vs -467,000 in June, and unemployment moving up from 9.5% to 9.7%).

Mortgage rates lower, application activity surges.

The Mortgage Bankers Association reported today that average rates for a 30-year mortgage dropped last week, from 5.36% to 5.17% marking the lowest level of the July. In response, overall mortgage applications increased by +4.4%, driven by an increase in refinance applications of +7.2% last week. Purchase activity increased by +0.9%.

ISM Services index disappoints.

The ISM Services (Non-Manufacturing) Index fell in July, offsetting the good news from the ISM Manufacturing report from Monday. The Services index, which tracks services, construction, and financial industries, fell by -0.6% in July versus the prior month. The overall index declined to a reading of 46.4, the 10th straight overall decline, and came in worse than forecast (48.2 forecast). “The majority of respondents' comments reflect a sense of uncertainty and cautiousness about business conditions,” said Norbert Ore, spokesman for the report. Business activity fell 3.7 points to 46.1, new orders fell 0.5 points to 48.1, employment fell 1.9 points to 41.5, and exports fell by a very significant 7 points to 47.5. On the good side, prices were lower, driven by oil price reductions.

ADP report shows definite jobs improvement, but falls short of expectations.

The ADP private employment report found that 371,000 jobs were lost in the private sector in July, worse than the 300,000 expected, but certainly better than the June reading of 463,000 lost. July’s employment data represented the smallest decline in 9 months. Analysts cheered that statistic, but not universally. “The improvement relative to last month is encouraging, though we continue to believe that the U.S. labor market remains deeply fractured,” said strategist Ian Pollick from TD Securities. ADP spokesman Joel Prakken said “Despite recent indications that overall economic activity is stabilizing, employment, which usually trails overall economic activity, is likely to decline for at least several more months, albeit at a diminishing rate.” Small businesses lost -138,000 employees, medium businesses -159,000, and large businesses -74,000. In a similar report, the Challenger Mass Layoffs report revealed that there were 97,373 job cuts announcements in July, worse than the 74,393 announcements in June.

On today’s date: August 5…

1924: Comic strip "Little Orphan Annie," by Harold Gray, debuts
1958: Atomic sub USS Nautilus completes 1st trip under North Pole
1986: U.S. Senate votes for SDI-project, Star Wars
1973: Arab terrorists open fire at Athens airport, kills 3 injures 55
1981: President Regan fires 11,500 striking air traffic controllers
1985: Establishment of a Rock and Roll Hall of Fame is announced

The last word:

“If everyone is thinking alike, then somebody isn't thinking.” --George S. Patton

Personal Income, Pending Home Sales, and Someday...

2009-08-04T08:50:00.000-07:00

Market Update – August 4, 2009:

The market continues downward this morning on a move towards equities, with the FNMA 4.5% at 99-23 down -11 ticks, and the FNMA 5.0% is at 101-24 down -7 ticks. On selling in the long-end of the curve, driven by a fairly upbeat pending home sales report (see post below), 10-year Treasury yields have risen from 3.63% to 3.69%. The 2-year / 10-year spread and yield curve is wider (steeper) again, today by 3 bps from 245 to 248 bps. Wednesday we get the ADP employment report (expect 335K jobs lost in July vs 473K lost in June). We also get Mortgage Applications info, plus the ISM Services Index (expect 48.0, still in contraction). Thursday, we get the usual Jobless Claims report (expect 575K for last week, vs 584K in the prior week). Friday, the Employment Situation report is released, which will post data on job losses for July (expect a reading of -300,000 vs -467,000 in June, and unemployment moving up from 9.5% to 9.7%).

Without stimulus money, June Personal Incomes falls.

Personal income fell -1.3% in June, reversing May’s artificially-induced gains, as the stimulus package’s effect on the prior month dried up. June’s drop was the largest income drop in four years. Disposable personal income similarly fell -1.3%, following a +1.6% gain in May. Consumption advanced only +0.4% suggesting that consumers who received stimulus checks pocketed much of the money or used it to pay bills. Adjusting for inflation, real consumption actually fell -0.1% in June. Ian Pollick, strategist at TD Securities said “We know that consumers continue to be backed into a corner, and despite the reduction in the personal savings rate, we continue to believe that going forward consumers are likely to have more propensity to save than to spend.”

Pending Home Sales jumpin’ in June.

Pending Home Sales surged +3.6% in June, far exceeding the +0.6% expected by analysts and the +0.5% from May. Driven by lower prices and attractive mortgage rates, it marked the fifth straight month of increases. Experts were concerned, however, that with mortgage rates edging upward (or at least not falling) and with unemployment rising, a full recovery in housing is still months in coming. All four regions in the U.S. saw an increase in pending sales, led by a +7.1% gain in the South and a +2.9% increase in the West. NAR’s affordability index reached a record high of 178.8 in April but backed down a bit to 159.2 in June due to slightly higher mortgage rates.

Yes, indeed, someday there’ll be a loan like that.

Someday, there will be a loan that can help you minimize the interest costs of owning your home, while maximizing the return on your idle cash. Instead of sitting in the bank earning nothing, your money will be working to keep your loan balance lower, and it will reduce your mortgage interest costs. You’ll still have access to the money, just like with your old checking account. But with lower mortgage costs, you’ll also have more money for other things, like paying off your loan faster. And these days, that’s a good thing. What would life be like without a mortgage? While the answer to that question might be different for each of us, there is little question that life would be better - - less pressure, more choices, more freedom. Yes, indeed, someday there’ll be a loan like that.

On today’s date: August 4…

1181: Supernova seen in Cassiopia
1914: U.S. declares neutrality in WW I
1925: U.S. Marines leave Nicaragua after 13-year occupation
1964: North Vietnamese torpedos U.S. ships Gulf of Tonkin
1971: U.S. launches 1st satellite into lunar orbit from manned spacecraft
1994: Howard Stern drops out of New York gubernatorial race

The last word:

“Sometimes I do get to places just when God's ready to have somebody click the shutter.” --Ansel Adams

Q2 GDP, ISM Manufacturing update, Construction Levels update

2009-08-03T09:00:00.000-07:00

Market Update – August 3, 2009:

The market is selling off this morning on a move towards equities, with the FNMA 4.5% at 99-31 down -21 ticks, and the FNMA 5.0% is at 101-30 down -14 ticks. 10-year Treasury yields have risen from 3.52% to 3.56% this morning on a price weakness caused by the recent stock market rally – at the close of July, the S&P500 had just logged its best 5-month streak since 1938. The 2-year / 10-year spread and yield curve is wider (steeper) by 2 bps from 239 to 241 bps. News? You bet. We’ve got lots of news this week, and all eyes are on the data to see how much of it speaks to economic recovery. It seems that many analysts are rushing to proclaim the end of the recession, which should in itself give pause. Today, we get the ISM Manufacturing report (see post below) and the Construction Spending report. Tuesday, we get Personal Income & Spending (last month +1.4% thanks to the stimulus checks, expect +0.3% this month). We also get the NAR Pending Home Sales Index for June (expect +0.6% vs +0.7% in May). Wednesday we get the ADP employment report (expect 335K jobs lost in July vs 473K lost in June). We also get Mortgage Applications info, plus the ISM Services Index (expect 48.0, still in contraction). Thursday, we get the usual Jobless Claims report (expect 575K for last week, vs 584K in the prior week). Friday, the Employment Situation report is released, which will post data on job losses for July (expect a reading of -300,000 vs -467,000 in June, and unemployment moving up from 9.5% to 9.7%).

Better: Q2 GDP off just -1%, although Q1 GDP revised downward.

The nation’s Gross Domestic Product, or GDP, contracted at an annual pace of just -1% in Q2, much better than in the prior quarter. That means that the worst of the contraction is probably behind us. That was the good news. The bad news is that the hole we find ourselves digging out of is significantly deeper than previously announced. Q1 was revised downward from -5.5% to -6.4%, and the overall 2008 figure was revised down from +1.1% to +0.4%. In the last 12 months, GDP has contracted by -3.9%, the largest decline in nearly 50 years. Unemployment is expected to continue to hamstring any recovery for some time to come.

ISM Manufacturing Index much improved.

The ISM Manufacturing Index increased to a reading of 48.9 in July, up more than 4 points from the June score and exceeding the 46.5 score expected for the month by analysts. While this marks the 18th straight month in contraction-territory, it also marks the fourth straight improvement in the data, and may provide reason to believe that the economic slowdown is gradually reversing itself. The jump was the largest since September of 2005. New Orders led the way, in growth territory, with a 55.3 score. Production logged a 57.9 score. Dragging down the data was Employment, which showed contraction at 45.6, although much improved from the 40.7 score last month. “It is also worth noting that the New Export Orders Index shows growth following nine consecutive months of decline, suggesting that the global economy is recovering,” said Norbert J. Ore, chairman of the ISM’s survey committee. International data also showed expansion. Experts felt that if these trends continue, the country would see growth in the third quarter.

Construction levels up, mostly due to government spending.

Government spending drove construction in June to levels above what was expected, according to the latest report out this morning. June construction spending rose +0.3%, according to the Commerce Department this morning, although the total spending level remained -10.2% below June 2008 levels. Analysts had expected a drop of -0.5%, following May’s -0.8% drop. In the absolute, public construction rose +1.0% to $321.75 billion, a record. State and local construction rose +1.0% to a record $295.79 billion. Federal construction was up +1.9%. Public construction makes up a third of total spending. Your tax dollars at work. That’s actually a problem, since private construction (which is more appropriately a measure of economic health than spending driven by government programs) dropped for the second month in a row, by -0.1%, led by residential construction which fell -3.1% in June.

On today’s date: August 3…

1492: Columbus sets sail from Palos, Spain for "Indies"
1914 : Germany invades Belgium and declares war on France in WW I
1914 : 1st seaworthy ship through Panama Canal
1943 : Gen. Patton slaps a U.S. GI in the hospital accusing him of cowardice
1958: USS Nautilus begins 1st crossing of Arctic Ocean under icecap
1967: 45,000 U.S. soldiers sent to Vietnam

The last word:

“You know you're old if they have discontinued your blood type.” --Phyllis Diller

Initial claims; inflation harbingers

2009-07-30T11:40:00.000-07:00

Market Update – July 30, 2009:

The market is moving back upward this morning, with the FNMA 4.5% at 99-27 up +3 ticks, and the FNMA 5.0% is at 101-30 up +6 ticks. 10-year Treasury yields have risen from 3.69% to 3.71% this morning on a bit of price weakness. The 2-year / 10-year spread and yield curve continues to become narrower (flatter) by 1 bp from 252 to 251 bps. Today the government auctions off $28 billion in 7-year notes. We’ll be watching after this week’s poor performance in auctions thus far. The government received lukewarm demand for the $39 billion in 5-year notes it sold Wednesday. That came after a $42 billion in 2-year notes on Tuesday. "The poorly received 2 and 5 year auctions suggest that prices will have to remain depressed to attract buyers," said analysts at MF Global in a research report. Friday we get the big GDP estimate, the first of the 2nd Quarter, which is expected to fall -1.5%.

Jobless claims back up towards 600K

Right on target, initial jobless claims rose to 584,000 in the week ending July 25, nearly hitting the expected 585,000 claims projected by experts. The number is 25,000 greater than the prior week’s data, ending a 3-week string of improvements driven by seasonal factors. “All of those 'benefits' from the seasonal factor adjustments to U.S. initial claims over the past few weeks are in full reversal mode,” said Jennifer Lee from BMO Capital Markets. “The reversal, along with the reasons behind it, have been widely broadcast for a while now, so it does not come as any surprise, but it doesn't soften the blow of the headline.” Continuing claims fell by 54,000 to 6,197,000, mostly driven by unemployed persons no longer receiving benefits due to reaching benefits limits.

BlackRock buying inflation-protected securities

In what could be considered a harbinger of future inflation risks, BlackRock Inc., which oversees $1.4 trillion in assets, is buying U.S. and U.K. index-linked bonds, betting on inflation driven by lots of cheap money being injected into world economies via central bank asset purchases. BlackRock is buying TIPS, or U.S. Treasury Inflation Protected Securities with 10-year or longer maturities, as well as U.K index-linked gilts with maturities between 5- and 10-years. BlackRock oversees $18 bilion in index-linked assets. The idea is that central banks may have a hard time recovering all the dollars injected into various efforts. Experts there feel that the market is overinvested in short-term protection and underinvested in the long end. TIPS have far outperformed other government debt issues, yielding 3.85% on the year, while nominal Treasuries slumped -4.87%, according to Merrill Lynch. Investors expect inflation to exceed central bank targets in the U.S. and Britain in the next two to five years, according to a survey by JPMorgan Chase & Co. on July 24.

On today’s date: July 30…

1898: Will Kieth Kellogg invents Corn Flakes
1909: Wright Brothers deliver 1st military plane to the army
1954: Elvis Presley joins Memphis Federation of Musicians, Local 71
1956: U.S. motto, In God We Trust, authorized
1975: Teamsters President Jimmy Hoffa disappears in suburban Detroit

The last word:

“Americans are not a perfect people, but we are called to a perfect mission.” --Andrew Jackson

Mortgage apps, Consumer Confidence

2009-07-29T08:51:00.000-07:00

Market Update – July 29, 2009:

The market is moving back upward this morning, with the FNMA 4.5% at 99-31 up +9 ticks, and the FNMA 5.0% is at 101-28 up +3 ticks. 10-year Treasury yields have fallen from 3.72% to 3.63% this morning on renewed strength. The 2-year / 10-year spread and yield curve continues to become narrower (flatter) by 9 bps from 260 to 251 bps as longer-term debt prices advance and prices for short-term notes are slumping after yesterday’s huge auction. Today we have a $39B sale of 5-year notes, so investors are bracing for a flood of supply. It’s becoming a balancing act between demand created by investors returning to bonds from a struggling stock market (which is beginning to appear overbought) and supply created by record government spending. Tomorrow, we get the Jobless Claims data (expect 585K, continuing the trend near 600K), and we’ll watch $28B in 7-year notes get sold. Friday we get the big GDP estimate, the first of the 2nd Quarter, which is expected to fall -1.5%.

MBA says rates up slightly, applications down, in most recent week.

The Mortgage Bankers Association said average rates for a 30-year fixed rate mortgage edged up by +0.05% percentage points to 5.36% in the week ending July 24. This marked the second straight week of mortgage rate increases. Demand for mortgages fell -6.3% in the week. The 4-week average, however, was still up 2.6%. Refinance applications represented 52.6% of activity, down from 55.5% in the prior week. That number had peaked in January at 85.3%. ARM applications increased from 4.8% to 5.5% of activity.

Consumer confidence falls for second month in a row

Markets retreated on sour news that durable goods orders fell five times more than expected, by -2.5% in June, compared to forecasts of -0.5%. The drop is the largest in five months, and reverses a two-month uptick in the data. However, much of the decline was due to transportation, which when excluded, brought the data up to a +1.1% increase. Transportation was off -12.8% in the month on weakness caused by a -35.8% drop in orders for commercial airliners driven by Boeing’s production problems with the 787 Dreamliner. Defense spending fell -28%, also hurting the results. Despite the overall news, TD strategist Millan Mulraine noted that core capital goods orders were “quite strong” and that it appeared that the data would rebound in coming months.

On today’s date: July 29…

1907: Sir Robert Baden-Powell forms Boy Scouts in England
1920: 1st transcontinental airmail flight from New York to SF
1920: Mexican rebel Pancho Villa surrenders
1938: Olympic National Park forms
1938: Comic strip "Dennis the Menace," 1st appears
1952: 1st nonstop transpacific flight by a jet
1978: Pioneer 11 transmits images of Saturn and its rings

The last word:

“What we play is life.” --Louis Armstrong

Consumer confidence, Case-Shiller, Rasmussen on Bank Confidence

2009-07-28T10:08:00.000-07:00

Market Update – July 27, 2009:

Rebound time, with the FNMA 4.5% is at 99-27 up +12 ticks, and the FNMA 5.0% is at 101-26 up +8 ticks. 10-year Treasury yields have fallen from 3.72% to 3.63% this morning on renewed strength. The 2-year / 10-year spread and yield curve is narrower (flatter) by 7 bps from 269 to 262 bps. The market continues to be influenced heavily this week by a record $115 billion Treasury auction over the course of the week, as well as by the first estimate of 2nd quarter GDP on Friday. Today’s auction is for $42B in 2-year notes. Wednesday we get the Durable Goods report (expect -0.5% decline), and a $39B auction of 5-year notes. Thursday, once again, we get the Jobless Claims data (expect 585K, continuing the trend near 600K), and we’ll watch $28B in 7-year notes get sold. Friday we get the big GDP estimate, the first of the 2nd Quarter, which is expected to fall -1.5%.

Case-Shiller: fourth month of home price improvement

According to the S&P Case-Shiller Home Price Index, released today, home prices in May across the nation improved for the fourth month in a row, by +0.5% versus April, in the 20-city composite index, but remain about -17% lower than one year ago. “There is a clear inflection point in the year-over-year data, due to four consecutive months of improved rates of return, after the steep decline that began in the fall of 2005,” said David Blitzer, Chairman of the S&P’s Index Committee. Prices have fallen a whopping -33.3% since the peak in the second quarter of 2006, in the 10-City Composite. “In addition to the 10-City and 20-City Composites, 17 of the 20 metro areas also saw improvement in their annual returns compared to those of April.” That puts home prices at mid-2003 levels, “indicating that the three years of appreciation that occurred from 2003-2006 were all given back in the following three years,” said the report. On a regional basis, price declines are the worst in the West and South, with Phoenix off -34.2%, Vegas off-32.0%, San Francisco off -26.2%, and Miami down -25.2%. While prices are finally finding a bottom, increases are still way off, said experts.

Consumer confidence falls for second month in a row

Rising unemployment continued to put consumers in a darker mood than expected in July, as evidenced by the latest Conference Board measure of consumer confidence, which fell to 46.6 in July, down from 49.3 in June. The expectations component, which measures the situation 6 months hence, fell from 65.5 to 62.0, and drove the overall results most significantly. The present situation component fell also, to a 23.4 reading, down from 25.0 last month. “The decline in the Present Situation Index was caused primarily by a worsening job market, as the percent of consumers claiming jobs are hard to get rose sharply,” said the Conference Board’s Lynn Franco. “The decline in the Expectations Index was more the result of an increase in the proportion of consumers expecting no change in business and labor market conditions, as opposed to an increase in the percent of consumers expecting conditions to deteriorate further,” she added. Franco said there is more pessimism concerning income expectations, “which does not bode well for spending in the months ahead."

Rasmussen: confidence in banks falters

A new Rasmussen poll of American consumers finds that despite massive bailouts and improved profitability, fewer Americans, now 43%, are at least somewhat confident in the stability of the U.S. banking system, down five points from 48% in April. The numbers are off significantly from a year ago, before the meltdown, when 68% of Americans were confident in the stability of the nation’s banking system, despite the Treasury secretary’s warning of increasing bank failures. Only 9% of adults are very confident in the banking system, but that’s up slightly from the two previous surveys.

On today’s date: July 27…

1148: Crusaders attack Damascus
1540: English King Henry VIII marries Catharine Howard, his 5th wife
1900: Hamburger created by Louis Lassing in Connecticut
1914: World War I began when Austria-Hungary declares war on Serbia
1978: Price of gold tops $200-an-oz level for 1st time

The last word:

“Boy, those French: they have a different word for everything!”-- Steve Martin

New Home Sales, Rasmussen Bailout Poll, Geithner-speak

2009-07-27T08:42:00.000-07:00

Market Update – July 27, 2009:

Well, we’re down to the last week of July, folks - - those lazy days of summer (as if there are such things in the mortgage industry) are nearing the home stretch. We’re seeing a negative effect from the forthcoming Treasury auctions of record size throughout the coming week, as well as some pain brought on by the equities market of last week. The new Home Sales data released this morning hasn’t quite quelled investors’ mood, so we are down thus far. The FNMA 4.5% is at 99-07 down -11 ticks, and the FNMA 5.0% is at 101-15 down -4 ticks. 10-year Treasury yields have risen from 3.70% to 3.72% this morning on some weakness there. The 2-year is steady in yield, so the 2/10 spread and yield curve is wider (steeper) by 2 bps to 267 bps. The market will be influenced heavily this week by a record $115 billion Treasury auction over the course of the week, as well as by the first estimate of 2nd quarter GDP on Friday. Today we get New Home Sales data (see post below), which is expected to show weak sales, but at 355,000 units, a slight improvement from May’s 342,000 units. Later today, Barney Frank speaks to the National Press club on the Future of Financial Regulation (the answer is sadly, Yes). Tuesday, we get the S&P Case-Shiller index for June (expect -17.9% annualized decline, versus -18.1% in May). We also get the Consumer Confidence data from Reuters/University of Michigan (expect 47, down from 49.3 in June). We’ll also see an auction of $42B in 2-year notes. Wednesday we get the Durable Goods report (expect -0.5% decline), and a $39B auction of 5-year notes. Thursday, once again, we get the Jobless Claims data (expect 585K, continuing the trend near 600K), and we’ll watch $28B in 7-year notes get sold. Friday we get the big GDP estimate, the first of the 2nd Quarter, which is expected to fall -1.5%.

New Home Sales jump.

According to the Commerce Department, new home purchases jumped +11% in June, as unit sales increased to a pace of 384,000 on an annualized basis. It was the largest monthly jump in eight years, and may indicate that thanks to low mortgage rates and low home prices (better affordability), the housing sector has exited the worst of the economic drubbing. The number blew away experts’ forecast for an increase to 352,000, but was still -21% off the year-ago level. The data from May was revised up from 342,000 to 346,000. Home prices fell -12% from $234K a year ago to $206K on average in June (down from $219K in May). Inventories fell to 281,000 units, down -4.1% from May and down -36% from last June, leaving 8.8 months of inventories - - the lowest level since October of 2007. “We are making some progress in absorbing this huge inventory overhang” and that “is a fundamental step we need to take to begin to see home prices improve,” said Robert Dye, of PNC Financial Services Group, adding that due to the jobs situation, “a rebound will be modest at best,” he added.

Rasmussen Poll: Only 25% Now Say Stimulus Has Helped Economy, 31% Say it Hurt

A new Rasmussen Reports national telephone survey shows that confidence in President Obama’s $787-billion economic stimulus plan continues to fall. Now only 25% of U.S. voters now say the stimulus plan has helped the economy, down from 31% a month ago. And, 31% say the stimulus actually hurt the economy. This is the first poll showing that more voters believe the plan hurt rather than helped. In total, 67% say that the plan has either hurt the economy or had no impact. With regard to what to do about the unpopular original stimulus package, 45% say that the remaining spending should now be cancelled; this outnumbers the 36% who say it should be spent. Fully 60% of voters oppose the passage of a second economic stimulus plan, an idea recently floated in the press by some of Obama’s advisors. Only 27% believe that a second stimulus is needed. While voters are opposed to another spending stimulus plan, 51% favor an across-the-board tax cut for all Americans.

Geithner seeks to ease China concerns over Administration’s spending spree

Treasury Secretary Geithner said that the U.S. would shrink its budget deficit over the next 4 years, as well as boost national savings, calling on China at the Strategic and Economic Dialogue meetings with Chinese officials in Washington to work with the U.S. in solving the global recession. “We are committed to taking measures to maintaining greater personal saving and to reducing the federal deficit to a sustainable level by 2013,” Geithner said in opening remarks. China, the largest foreign holder of U.S. debt is concerned about the unprecedented levels of spending put forth by the Obama administration. This year’s budget deficit is expected to total a whopping $1.8 Trillion in the red. China’s holdings of U.S. Treasuries reached $801.5 billion in May, recording about a 100 percent increase on the level at the beginning of 2007, according to U.S. government figures.

Tour de France update: Final results.

1.) Alberto Contador (Spain/Astana) 85:48:35; 2.) Andy Schleck (Lux./SaxoBank) +4:11; 3.) Lance Armstrong (USA/Astana) +5:24.

On today’s date: July 27…

1586: Sir Walter Raleigh brings 1st tobacco to England from Virginia
1866: Atlantic telegraph cable successfully laid (1,686 miles long)
1944: U.S. regains possession of Guam from Japanese
1986: Greg Lemond is 1st American to win Tour de France
1996: Bomb explodes at Atlanta Olympic Park, 1 killed, 110 injured

The last word:

“I have always believed that it's important to show a new look periodically. Predictability can lead to failure.”-- T. Boone Pickens

Consumer confidence, vacant homes, CA budget update

2009-07-24T11:52:00.000-07:00

Market Update – July 24, 2009:

The market on both the equities and fixed-income sides is taking a breather today, thus far. As of this writing the S&P has backed down about -1% and the Dow is off about -0.6%. MBS are also lower in the early going, and the FNMA 4.5% has fallen to 99-11, down -3 ticks, and the FNMA 5.0% is at 101.17, down -3 ticks. The 10-year Treasury yield has backed off a bit, from 3.72% yesterday to 3.66% this morning. The yield curve is a little steeper with the 2-yr/10-yr spread widening from 264 bps yesterday to 265bps currently. Expect some erosion of price in Treasuries next week as the market digests a record $115 billion auction in government debt. "The market will have to cheapen to digest supply as risk aversion has faded in the wake of corporate profit reports," said analysts at MF Global in a research report.

Consumer confidence falls

As evidenced by more consumers who are shopping at discount stores like T.J. Maxx, Marshall’s and 99 Cents Only Stores, all of whom reported sales gains in recent earnings reports, the Reuters/University of Michigan consumer sentiment report showed that consumer confidence in July fell to a reading of 66, from 70.8 in June. The confidence index was forecast to fall to 65. This marks the first drop in five months. Households continued to retrench and go into a defensive mode, as mounting job losses and low home values shook confidence in the near term. “Consumers are aware that the labor market is still pretty bleak even if the economy is going to grow in the second half” of the year, said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts. “Any recovery in consumer spending will be very, very modest. This clearly is a restraint on the economy.” The current-conditions component fell from 73.2 to 70.5, and the 6-month outlook fell from 69.2 to 63.2, a more severe drop.

Record quantities of vacant homes

The U.S. Census Bureau said in a report today that during the second quarter of this year, there were 18.7 million vacant homes in the U.S., as demand for real estate vaporized and banks repossessed properties from delinquent borrowers. While home ownership came in at 67.3%, banks own nearly twice as much property as they did a year ago – now holding $29.7 billion in property acquired through foreclosure. One in every eight U.S. households with a mortgage is now late on their payments or already in foreclosure, according to Jay Brinkmann, chief economist for the Washington-based Mortgage Bankers Association. The U.S. delinquency rate rose to a seasonally adjusted 9.12% in the first quarter and the share of loans entering the foreclosure process rose to 1.37%, the bankers’ group said in a May 28 report. The total inventory of homes in foreclosure, old and new, was 3.85%. All three figures were the highest in records going back to 1972.

CA State Senate approves plan to close $26B deficit; Assembly continues debate.

Ten days after Moody’s cut the state’s bond rating by two notches to Baa1, California’s Senate passed a plan to close the $26 billion deficit gap that has nearly bankrupt the state. The new plan includes cuts and closes loopholes and relies on a number of accounting tricks to close the gap in the $100 billion budget. “There are a whole host of cuts that pain me,” said Senate President Darrell Steinberg, a Sacramento Democrat. “Nobody likes this budget because there’s not much to like about it.” In a sign of how desperate lawmakers are to close the gap, Democrats agreed to expand oil drilling off the coast in order to raise part of the funds required. The package cuts spending by $15 billion (including $9 billion from education and $1.2 billion from prisons). It also raises $4 billion, in part by accelerating and increasing personal and corporate income- tax withholding. The new plan, however, will see opposition in the courts. It essentially passes the buck along to local governments, allowing the state to grab $2 billion of local property taxes meant for cities and other local jurisdictions, $1 billion of gasoline tax revenue targeted for local governments, and some $1.7 billion earmarked for redevelopment agencies. California cities may sue to block the state from appropriating local revenue, said Chris Mackenzie, executive director of the League of California cities. “In 1998, the voters imposed limits on the ability of the Legislature to use gas tax funds for other purposes,” Mackenzie said in an interview with Bloomberg Television today. “They are clearly violating that provision of the constitution by stealing those funds. We are considering filing a lawsuit shortly after that type of legislation is passed.” In addition, it shifts the last payday for state workers to the next fiscal year, an accounting trick that essentially kicks the at least a portion of the can down the road a year.

Tour de France update: After 19 of 21 stages; Bourgoin-Jallieu to Aubenas.

1.) Alberto Contador (Spain/Astana) 77:06:18; 2.) Andy Schleck (Lux./SaxoBank) +4:11; 3.) Lance Armstrong (USA/Astana) +5:21; 4.) Brad Wiggins (G.Br./Garmin) +5:36.

On today’s date: July 24…

1793: France passes 1st copyright law
1870: 1st trans-U.S. rail service begins
1941: Nazis execute entire Jewish population of Grodz, Lithuania
1943: RAF bombs Hamburg (20,000 dead)
1948: Soviets blockades Berlin from west
1974: Supreme Court unanimously rules Nixon must turn over Watergate tapes
2005: Lance Armstrong retires after winning his 7th straight Tours de France

The last word:

“I must study politics and war that my sons may have liberty to study mathematics and philosophy.” --John Adams

Existing home sales, HVCC survey, Initial Claims report

2009-07-23T10:21:00.000-07:00

Market Update – July 23, 2009:

The stock market rally has evidently distracted the market for fixed-income securities. As of this writing the S&P is up over 2% in an earnings report-driven rally that seems to have good breadth. Accordingly, the FNMA 4.5% has fallen to 99-22, down -14 ticks, and the FNMA 5.0% is at 101.25, down -10 ticks. The 10-year Treasury yield continues its march higher, up from 3.58% yesterday to 3.66% today. The yield curve is steeper with the 2-yr/10-yr spread widening from 260 bps yesterday to 263bps currently. Yields on Treasuries are also higher as bond investors fret about next week’s record-breaking auction of government debt. The government announced $115 billion worth of bond auctions, breaking the record of $104 billion set in June. Friday we get Consumer Sentiment, which is expected to come in about the same as last month’s figure (64.6) at 65.0.

Existing home sales up.

The National Association of Realtors said today that Existing Home Sales in June were up for the third month in a row by +3.6%, to an annualized rate of 4.89 million units. First-time homebuyers and the sales of distressed properties helped drive the increase. The data was in line with analysts’ expectations. “The increase in existing-home sales occurred in all major regions of the country,” said Lawrence Yun, NAR’s chief economist, who added that sales should continue upwards “due to tax credit incentives and historically high affordability conditions.” Single-family home sales rose +2.4%, to a pace of 4.32 million in June, slightly below June 2008 levels. The national average for a 30-year mortgage rose to 5.42% in June, up from 4.86% in May, but still well below last June’s level of 6.32%. Inventories fell by -0.7% to a 9.4 month supply. The median price was $181K, down -15.4% from last June. First time homebuyers represented nearly 1 in 3 sales; foreclosure-related sales also represented nearly 1 in 3 sales.

NAR: Survey quantifies extent of HVCC problems

In a press release the National Association of Realtors stated that a June survey of realtors found that 37% experienced “at least one lost sale as a result of the new Home Valuation Code of Conduct,” which was put into effect May 1, “with seven out of 10 reporting an increased use of out-of-area appraisers. In addition, 70% of NAR appraiser members said consumers were paying higher fees, while 85% report a perceived reduction in appraisal quality. “Clearly the process needs to be revised, but the most logical approach is to use appraisers with local expertise, industry designations and access to local data, who make a physical examination of the property and use apples-to-apples comparisons with nearby home sales,” said NAR Chief Economist Lawrence Yun. “In many cases, normal homes are being compared with distressed homes sold at a discount, which often are in subpar condition – this is causing real harm to both buyers and sellers.”

Initial unemployment claims up, but data is volatile

The Labor Department said in its weekly report today that the number of Americans filing for initial unemployment insurance rose from 524,000 in the prior week to 554,000 initial jobless claims filed in the week ended July 18. The number was a bit lower than the 557,000 expected. Analysts believed that the jump could be due to continued volatility from the auto industry meltdown. In a research note, Ian Shepherdson of High Frequency Economics noted the jump "reflects the seasonal adjustment problems" seen last week when initial claims hit a 6-month low. Shepherdson said he expected "another hefty rise in claims next week," with total initial claims rising back above 600,000 before stabilizing over the next few weeks. Continuing claims fell by 88,000 to 6,225,000 people, but again, this number is likely skewed lower by the number of people who are reaching the expiration limit on their claims.

Tour de France update: After 18 of 21 stages; Annecy (time trial).

1.) Alberto Contador (Spain/Astana) 73:15:39; 2.) Andy Schleck (Lux./SaxoBank) +4:11; 3.) Lance Armstrong (USA/Astana) +5:25; 4.) Brad Wiggins (G.Br./Garmin) +5:36.

On today’s date: July 23…

1798: Napoleon captures Alexandria, Egypt
1903: Ford Motor sells 1st Model A car
1920: British East Africa renamed Kenya and becomes a British crown colony
1968: PLO's 1st hijacking of an El Al plane
1980: Billy Carter admits to being paid by Libya

The last word:

“Kind words can be short and easy to speak, but their echoes are truly endless.” --Mother Teresa

Mortgage app activity; Wells bad loans update

2009-07-22T08:54:00.000-07:00

Market Update – July 22, 2009:

MBS are pulling back slightly this morning after yesterday’s nice rally. The FNMA 4.5% is at 100-07, down -1 tick, and the FNMA 5.0% at 102.02, down -6 ticks. The 10-year Treasury yield is edging higher up from 3.50% yesterday to 3.51% today. The yield curve is steeper with the 2-yr/10-yr spread widening from 254 bps yesterday to 260bps currently. Federal Reserve Chairman Ben Bernanke continues his Congressional testimony this morning to the Senate Committee on Banking, and while his comments are expected to echo yesterday’s testimony, traders will be watching for any new insights. Other than that, there’s a lack of official reports today other than the MBA’s report on mortgage application activity (see post below). Thursday we get Jobless Claims (expect 560,000 vs 522,000 last week). We also get Existing Home Sales (expect 4.85 million in June, vs 4.77 million in May; inventories are expected to drop to 9.6 months). Friday we get Consumer Sentiment, which is expected to come in about the same as last month’s figure (64.6) at 65.0.

Mortgage app activity up, along with rates.

The Mortgage Banking Association reported this morning that for the week ended July 17, mortgage applications were up for the third week in a row, marking a +6.6% increase versus last year. Refinance applications were up +4.0% over the prior week, and purchase applications were up +1.3% over the prior week. The four-week moving average for all mortgages as tracked by the MBA was down 1.0%. Refinancings made up 55.5% of all applications last week, up from 54.9% the week before. Adjustable-rate mortgages accounted for 4.8%, down from 5.0%, the MBA said. Rates on 30-year fixed-rate mortgages averaged 5.31% (and 1.18 points) last week, up from 5.05% the week before. Fifteen-year fixed-rate mortgages carried an average rate of 4.80% (and 1.03 points) last week, up from 4.59% the week before.

Wells says bad loans up sharply

Wells Fargo said bad loans jumped in the second quarter, up +45% versus the prior quarter to $18.3 Billion in assets no longer collecting interest, as borrowers struggled to make payments amidst the worst recession in 80 years. Shares fell -6.6% in early trading, pulling the overall market lower. Wells boosted credit reserves in response. Despite this, Wells posted second quarter earnings that were up +81% to a record $3.17 Billion. The increase in bad assets, including a $5.3 billion rise in loans that aren’t accruing interest, was tied to Wachovia mortgages, the cost of modifications, the difficulty of liquidating holdings, and the deterioration of commercial real estate, Wells Fargo said.

Tour de France update: After 16 of 21 stages; Martigny – Bourg-Saint-Maurice.

1.) Alberto Contador (Spain/Astana) 67:33:15; 2.) Lance Armstrong (USA/Astana) +1:37; 3.) Brad Wiggins (G.Br./Garmin) +1:46.

On today’s date: July 22…

1796: Cleveland, Ohio, founded by General Moses Cleaveland
1933: Wiley Post completes 1st round-the-world solo flight
1937: Senate rejects Franklin D. Roosevelt proposal to enlarge Supreme Court
1983: Dick Smith makes 1st solo helicopter flight around the world
1994: O. J. Simpson pleads "Absolutely 100% Not Guilty" of murder

The last word:

“Believe you can and you're halfway there.” --Theodore Roosevelt