There isn’t too much to report from yesterday.   After a weak open, the prices of mortgage backed securities trudged along sideways closing where they began the day.  There were no reports of lenders repricing but we did see higher mortgage rates when compared to last week.  Overnight, weakness in Asia and Europe has led to a flight to quality where investors sell riskier assets(stocks) in favor of the relative safety of treasuries and MBS. 

Today is day one of the Federal Open Market Committee’s two day meeting where our nation’s monetary policy is set.   These meetings occur approximately every six weeks and are considered the most influential event for all markets.   At these meetings, the Fed sets the federal fund rate which serves as a benchmark for all other rates.  Currently, the fed fund rate sits in a range of 0% to .25% and it is widely accepted that there will be no change to that rate.    On day one, nothing much happens but tomorrow we will get the Fed statement at 2:15pm eastern where they will announce any change to the fed fund rate, give an economic outlook and announce any changes to Fed policies such as the MBS purchase program which is set to end in a couple months.  

S&P/Case Shiller released their monthly Home Price Index which tracks the monthly change in the value of residential real estate across the United States.   Many economists believe that until home prices start to stabilize and rise, it will be extremely difficult for our economy to sustain acceptable growth which makes tracking home sales data of much more importance in today’s market.   During periods of declining home values, consumers are much more likely to save money and pay off debt as they watch the value of the largest investment depreciate.  This is good for the consumers bottom line but does not help the economy to grow.  Rising home values encourages new construction, remodeling, etc… which increases consumer spending and benefits the overall economy.   Recent reports from Case Shiller have shown home price depreciation easing with some cities posting positive monthly gains.

The report indicated home prices in November rose for the sixth consecutive month but less than expectations.  Home prices increased on a seasonally adjusted basis by 0.2% following a 0.3% increase in October.   In the 20 metropolitan regions, 14 showed an increase while only 6 had a decline.  Year over year, home prices registered a 5.3% decline which is the smallest year over year reading in two years.  The biggest monthly gain was in Phoenix which increased by 1.1% while Chicago registered the largest decline at 1.1%.

The Conference Board released their Consumer Confidence survey which tells market participants how consumers are feeling.  An optimistic consumer is much more likely to spend money while a pessimistic consumer is more likely to save.   Five thousand consumers are surveyed each month on their attitudes about the present economic conditions and their expectations of future conditions.   Recent surveys have shown consumers becoming more optimistic with last month’s report registering a 52.9 reading.  Economists surveyed prior to this month’s report expected further improvement with a reading of 53.5.  The report showed consumers are more optimistic than expected coming in at 55.9. Following the release, stocks have moved from negative to positive which has pulled money away from MBS which have moved off the highs of the day.

At 1:00pm eastern, the U.S. Department of Treasury will auction $44billion of 2 year notes.  Since the supply is already known, market participants will look at the demand for our nation’s debt to gauge its success.  Strong demand, especially from foreign bidders is one of many factors that have contributed to mortgage rates holding near record low levels despite record amounts of government borrowing.   Weak demand can pressure mortgage rates higher today while strong demand can benefit mortgage rates.  

Reports from fellow mortgage professionals indicate lenders have passed along better rates this morning.  The par 30 year conventional rate mortgage has once again fallen to the 4.75% to 5.00% range for well qualified consumers.  To secure a par interest rate you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including an estimated one point loan origination/discount/broker fee.  For consumers with lower scores to secure a par rate, they will be required to pay higher fees.

With a busy week ahead and the Fed statement due out tomorrow, I still favor locking over floating.   If you are a risk taker and want to continue to float keep an eye on the stock market.  It has had a higher impact on MBS of late which we refer to as the stock lever.  If stocks move higher, MBS will move lower and vice versa. 

For mortgage rate watchers, last week was a good week.  The prices of mortgage backed securities moved higher which allowed lenders to pass along the best rates of 2010.  Weakness in the equities market helped spark the flight to quality where market participants sold riskier assets in favor or the relative safety of treasuries and MBS.   By week’s end, most lenders were offering 4.75% as par for a 30 year conventional rate mortgage.   At the open this morning, the fixed income sector has come under some selling pressure as equities look to move higher following several days of declines.   

We have a busy week ahead of us.  The only report today was Existing Home Sales which totals the number of existing homes, not new construction, in which a sale closed in the prior month.  Recent reports have shown existing home sales moving higher thanks to near record low mortgage rates and government stimulus for home buyers.  Last month’s report surged 7.4% higher following October’s record 9.9% increase.  The annual sales rate posted a 6.54million pace last month and economists surveyed are expecting a pull back to an annualized pace of 5.90million for this report.   

The report showed existing home sales for December declined much more than expected to an annualized pace of 5.45million.   This is the largest monthly decline since 1968!   More bad news from the report was the rise in supply of homes from a 6.5 months in November to 7.2 months in December.   One bit of positive data was the average price of a home increased a sizable 4.9%.    Following the release, there was not much reaction as the market awaits an action packed week of data and events.   

Tomorrow brings us another look at the housing sector with the S&P Case-Shiller Home Price Index which tracks the monthly change in the value of single family residences across the country.  Many economists believe that until home prices stabilize and start to increase, it will be very difficult for our economy to sustain any growth.  This makes tracking home sales data of much more importance than in past times.   In addition to this data, we also get Consumer Confidence, a 2 year note auction totaling $44billion of new debt and the beginning of the Federal Open Market Committee’s 2 day meeting where our nation’s monetary policy is set. 

Wednesday brings us more home sales data with the weekly Mortgage Bankers’ Associations Application index and New Home Sales.   This data will be followed by testimony from Treasury Secretary Tim Geithner to the House Oversight Committee and an auction $42billion of 5 year treasury notes.  At 2:15pm eastern, the Fed Statement will be released which sets the Federal Fund rate, gives an economic outlook and announces any changes to our governments quantitative easing programs such as the MBS buying program where our government is buying $1.25trillion of MBS to help sustain low mortgage rates and an economic recovery.   Later in the evening, President Obama delivers the State of the Union address to Congress.

Thursday brings us

-          Durable Goods Orders

-          Jobless Claims

-          $32billion of 7 year notes to be auctioned 

Friday we get…

-          GDP, the initial estimate of fourth quarter growth

-          Chicago PMI

-          Consumer Sentiment 

Reports from fellow mortgage professionals indicate lender rate sheets to be worse than what we had on Friday.   The par 30 year conventional rate mortgage has risen to the 4.875% to 5.125% range for well qualified consumers.  To secure a par rate you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including an estimated one point loan origination/discount/broker fee.  You may elect to pay less in upfront costs but you will have to accept a higher interest rate.  Your mortgage professional should be able to provide you a break even analysis to determine the optimal fee vs rate structure for you.   

If you didn’t follow my advice from last week in locking your loan, than you are in the float boat today.  In my opinion, lenders were quite conservative with rates this morning as MBS opened lower.  Since the open, MBS have regained some ground.  If the stock market shows some weakness, the fixed income sector should benefit which could lead to better pricing later today.   If you are in the float boat, at day’s end evaluate what rate and fee you can lock and make your decision.  If you can get 4.75% with a point, I would lock. 

Mortgage backed securities closed at a new 2010 high yesterday as a stock sell off lead to a flight to safety rally.   The move higher in the fixed income market and the move lower in stocks was prompted by an announcement from President Obama that he is planning on getting more involved in the financial markets.   He proposed limiting the size of banks and their risk taking/profit making strategies.  Market participants were rattled by this announcement resulting in a need to re-allocate their funds to the safety of U.S. treasuries and MBS.   As the price gains with MBS held through close, most lenders did reissue rate sheets lowering consumer borrowing costs.  

There is no economic data hitting the news wires this morning.  

Reports from fellow mortgage professionals indicate lender rate sheets are slightly worse than the last rate sheets of yesterday.  The par 30 year conventional rate mortgage remains in the 4.75% to 5.00% range for well qualified consumers.  To secure a par interest rate you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including an estimated one point loan origination/discount/broker fee.  If you are seeking to access home equity, you should expect an interest rate .125% to .375% higher or additional closing costs.   

I am shifting my lock advice from you should consider to you should strongly consider locking.  Yesterday’s rally in the fixed income market was very reactionary due to the lack of details from the Obama administration’s proposed financial reforms.  It is very possible we get a correction today.  The recent price gains and improvement with mortgage rates warrant locking.   Lacking a significant shift with investor sentiment, it is going to be very difficult for mortgage rates to continue to improve. 

If you decide to risk it and float, keep an eye on the stock market today.  If stocks rebound, money will flow out of the fixed income market resulting in higher consumer borrowing costs.  If stocks trade in the red or sell off, we could possibly see mortgage rates move lower; however, the safe call is to lock and take advantage of the price gains we have enjoyed this week.  As I have said in the past, it is better to lock when you should have floated than it is to float when you should have locked.  

I hope everyone has a great weekend

Yesterday, mortgage backed securities closed at their highest level since early December which resulted in lenders offering the best rates of 2010.    Despite the downward pressure created when the Treasury Department is about to announce more debt, tame inflation data helped MBS hold onto the gains.   Lender rate sheets held unchanged on the day. 

We have another busy day of data… 

First to be released was the weekly jobless claims.  This report gives us several readings on the number of Americans who filed for unemployment benefits:

1.       Initial claims totals the number of first time filers. 

2.       Continuing claims totals the number of Americans who continue to file due to a lack of finding new employment.

3.       Extended benefits which totals the number of Americans who are receiving emergency benefits beyond the traditional time allowed to collect.  Under a recent government stimulus program, benefits can be extended up to 20 additional weeks and another 13 additional weeks in states with higher levels of unemployment. 

To help you better understand the flow of claims.  When a American first files for benefits they are counted in initial claims.  If that American files in the following week, they are now counted in continuing claims.  They will continue to be counted in this category until they find a job or they use up their traditional benefits.  If they continue to file after traditional benefits are used up, they leave that category and are now counted in extended benefits.  They will be counted in that category until they find a job or until those benefits run out and they are no longer counted.  

The report indicated initial jobless claims rose 36,000 last week to 482,000, much worse than the 440,000 that was expected.  This was the third straight week of higher claims and the highest level in two months which doesn’t point to an improving jobs sector.  Continuing claims fell 18,000 to 4.599 million.  Offsetting the positive continuing claims reading was the substantial increase in the extended benefits category which posted an increase of 613,000 to 5.92million!  What we see from this report is the improvement in continuing claims is simply people leaving that category and moving into the extended benefits count.  

The next report of the day came from the Conference Board with their Leading Indicators report.  This is a composite index of 10 economic indicators that should lead to overall economic activity.  If the month over month change is positive, it indicates the economy is improving.  Most of the components of this report have already been released so this doesn’t give us much new information about the economy. 

The release indicated that Leading Indicators continues to show our economy improving with a  1.1% increase beating estimates of only a 0.7% rise.   

The final economic release of the day and the week gives us a measure of the strength of manufacturing in the Philadelphia region.  Readings above 0 indicate improving conditions while readings below 0 indicate contraction.   Recent readings have shown manufacturing conditions improving with last month’s report jumping from 16.7 in November to 20.4 in December.   Economists surveyed expect a slight pull back with this month’s report to 18.4. 

The release indicated manufacturing conditions took a step back coming in lower than expectations at 15.2. 

The U.S. Department of Treasury announced the size of next week’s debt offering.   When our government does not have the cash to pay for spending, they borrow the money by issuing Treasuries.  The added supply of debt on the market can pressure both treasury and mortgage yields higher.  Today they announced a new supply of $44billion of 2 year notes, $42billion of 5 year notes and $32billion of 7 year notes.  

Reports from fellow mortgage professionals indicate lender rate sheets to be similar to yesterday’s.  The par 30 year conventional rate mortgage remains in the 4.75% to 5.00% range for well qualified consumers.  To secure a par rate you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including an estimated one point loan origination/discount/broker fee.  If you are seeking a 15 year term, you should expect a par rate in the 4.25% to 4.50% range with similar costs.  

With lenders still offering the best rates of the year and the inability of MBS to move above overhead resistance, you should consider locking.   As I said yesterday, we have picked up some gains this week and by locking you take advantage of those gains.  At this point, without a fundamental shift in investor sentiment or the economy, it is going to be very difficult for mortgage rates to move lower.   In my opinion you do not have much to gain by floating.  Also like yesterday, I am not totally against floating into tomorrow but do feel the recent price gains warrant some profit taking.    

Currently, the stock market is posting large declines which has moved some money into the fixed income sector.   It appears the equities market is reacting negatively to a proposal from President Obama limiting the size and trading activities of financial institutions as a way to reduce risk.   This could spark the shift in investor sentiment as I mentioned above.  If you plan to take advantage of today’s rates, wait until close of business to lock.  It is quite possible that we see some reprices for the better which can lower your closing costs. 

Mortgage rates held steady yesterday as mortgage backed securities traded in a narrow range all day but did close in the red.  There were no reports of lenders repricing for the worse as the losses had occurred prior to the release of rate sheets.   Despite the lower open, lenders were offering the best rates of the year as a few lenders were offering 4.75% as par for a 30 year fixed rate mortgage. 

The economic calendar picks up today with several data prints.  First out was the weekly Mortgage Bankers’ Associations Application Index which tracks the weekly change in the number of mortgage applications at major lenders.  This data gives economists a look into consumer demand for mortgage loans.  A rising trend of mortgage applications indicates an increase in home buying interest, a positive for the housing industry and economy as a whole.  Furthermore, an increasing trend in refinances  implies consumers are seeking out lower monthly payments which can result in increased disposable income and therefore more money to spend on discretionary items or to pay down other debt. 

The release indicated purchase activity increased 4.4% last week while the refinance activity posted an increase of 10.7%.  This is positive news following yesterday’s home builders index which took a step back falling from 16 to 15 in January after peaking at a 19 in September.  The Home Builders’ Index is a survey of home builder optimism.   

Of much more importance today was the next two reports which were released at the same time.  First is the Producer Price Index which measures inflation at the producer level.   Part of the reason for mortgage rates rising at the end of last year was the expectations of inflation.  Last month’s PPI report indicated the prices paid by producers increased 1.8% which helped to spark inflationary fears.    However, with unemployment hovering around 10%, producers are finding it difficult to pass along the higher prices to the end consumer.  The CPI report which we received last week continues to show inflation at the consumer level to be at very acceptable levels.  Additionally, the Fed has continued to state that they feel inflation is not a worry today.   

The release indicated overall prices paid by producers increased 0.2% which was slightly above the consensus of no change.  When you strip out volatile food and energy, the core rate, prices paid by producers held unchanged beating expectations of a 0.1% increase.   So, we have another report indicating inflation is not a concern today which should allow the Fed to maintain the current accommodative stance with our nation’s monetary policy. 

The final report of the day gave us another look into the housing sector with the release of Housing Starts.  This report totals the number of homes in which construction has begun on an annualized pace in the prior month.   Also included within this report is building permits which is more forward looking since you must get a permit before construction can begin.  Housing starts in December fell 4.0% and more than expected to an annualized pace of 557,000(575k expected).  This follows last month’s revised reading of an annualized pace of 580,000.  Building permits; however, posted a large increase from 584,000 last month to a higher than expected total of 653,000 which is offsetting the disappointing housing starts portion.   

Tomorrow is another busy day with jobless claims, leading indicators, Philadelphia Fed Survey and more treasury supply.  

Reports from fellow mortgage professionals indicate improved rate sheets this morning.  The par 30 year conventional rate mortgage has dipped to the 4.75% to 5.00% range for well qualified consumers.  To secure a par interest rate you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including an estimated one point loan origination/discount/broker fee.   

I am going to continue to advise cautiously floating for the day. If you have been floating your rate for some time, you have picked up some gains this week and there is nothing wrong with taking your chips off the table and locking.   Currently the stock market is moving considerably lower which should help MBS hold onto early morning gains despite the downward pressure of more treasury supply coming tomorrow.  With that said though, there isn’t much room for rates to continue to improve.  If you have been waiting to pull the trigger for mortgage rates to decline back to the low’s of last year, I would suggest that you stop waiting.  It is unlikely that we see par again at 4.5% without a dramatic turn for the worse with our economy.  Consult with your mortgage professional at day’s end and strongly consider locking at close of business ahead of the new supply of debt coming tomorrow.  

Hud has announced this morning some proposed changes to FHA guidelines.  These changes include an increase in the upfront mortgage insurance fee from 1.75% of the loan amount to 2.25%.  On a $200,000 loan that is an increased cost to the consumer from $3500 to $4500.   They also announced seller concessions decreasing from the current allowable 6% to only 3%.  This means the seller can only pay 3% of the purchase price to the buyer to help offset closing costs and prepaids.   Prepaids include the paying of 1 years insurance and setting up of an escrow account.  It appears the tightening of guidelines is continuing.   To read more on these and other proposed changes, check out the press release. 

Would like to hear your opinion on these proposed changes by FHA. Do you feel this is a necessary move or a continuation of the over tightening of lender guidelines?  

All U.S. markets were closed yesterday in honor of Martin Luther King Jr. day.   The rate sheets that were released by lenders were the same as Friday’s.    

We have no economic data today; however, Citigroup announced third quarter results matching expectations of a .33 cent loss per share but missing on total revenue.  In total, Citigroup lost $7.6billion mainly due to a pretax charge of $8billion when they repaid bailout funds.  

Tomorrow the data picks up with the weekly Mortgage Bankers Associations Application Index followed by Housing Starts which will give market participants a look into the strength of the housing sector.   We also get a reading on inflation with the Producer Price index.   

Thursday brings us the weekly jobless claims, leading indicators and Philadelphia Fed Survey.  In addition to the data we also get another round of treasury auctions with the U.S. Department of Treasury announcing the size of next week’s offering of 2 year, 5 year and 7 year notes.   The additional supply of debt will continue to pressure treasury yields higher to attract buyers which can cause mortgage rates to rise as well.   

Friday we have no economic reports hitting the news wires.  

Reports from fellow mortgage professionals indicate lender rate sheets to be improved this morning.  The par 30 year conventional rate mortgage remains in  the 4.875% to 5.125% range for well qualified consumers.  To secure a par interest rate you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including an estimated one point loan origination/discount/broker fee.  You may elect to pay less in closing costs but you will have to accept a higher interest rate.  If you are looking to secure a 15 year term, you should expect a par rate in the 4.25% to 4.50% range with similar fees. 

Currently, mortgage backed securities are holding within the recent trading range but off the highs reached on Friday.  With that said and with the range holding, I am going to continue to advise cautiously floating.   Lender rate sheets came out when MBS were at the lows of the day.  If MBS can rally back to Friday’s closing level, we could receive reprices better later today. 

The U.S. markets are closed today in honor and memory of Martin Luther King, Jr. Day.   

The week ahead is light on economic data but earnings season is once again here.   Corporate earnings and outlook are very important as strong earnings can pull money out of the fixed income sector to fund an equities rally.   However, weak earnings can cause a flight to safety where market participants sell riskier stocks and move the cash into the safety of treasuries and bonds. 

The key data for the weak will be Producer Price Index and Housing starts on Wednesday  followed by Jobless Claims and Leading Indicators on Thursday.   

With today being a National holiday, most lenders secondary departments are closed.  If your lender issues a rate sheet it will be the last one from Friday.  If you have not locked your loan as of yet, floating into tomorrow morning would be my recommendation.   

I am in need of some participation from consumers that read my blog.   Starting this year, there is a new good faith estimate that must be used.  It is intended to more accurately present the closing costs of a loan to the consumer and prevent added fees once the good faith estimate has been provided.   

Among the mortgage professionals I speak with on a daily basis, the new GFE hasn’t been met with much optimism.   The consumers I have spoken with have found it to be very confusing.  A one page document has now been expanded to three pages in an attempt to make it easier to understand.  If you are a consumer that has received the new GFE from your mortgage professional, please provide us your feedback.   Do you find it to be easier to understand?  What do you like or dislike about it?

The Treasury Department successfully auctioned $13billion of 30 year bonds yesterday ending the current cycle of issuances.  Mortgage backed securities went in rally mode following the release of the auction results which did lead to sporadic reprices for the better.   The rally didn’t last long as MBS gave back much of the gains but still closed in the green marking the third consecutive day of a higher close price.  To remind readers, as the prices of MBS move higher lenders can offer lower consumer borrowing costs.  

Our week wraps up with a busy day of data.   First out and of most importance today was the Consumer Price Index.  This report is a measure of the average price change of a fixed basket of goods and services purchased by consumers.  In other words, it gives us a reading on inflation at the consumer level.  If inflation is on the rise, interest rates will follow.    Most economic data  to date has indicated inflation to be of very little concern today which is also supported by recent Fed statements; however, we are starting to hear more and more about inflationary pressures.  

The Department of Labor reported the consumer price index came in basically in line with expectations.  Both the headline and the core reading, which strips out volatile food and energy prices, indicated consumer prices increasing 0.1% in December.   This follows a 0.4% increase last month for the headline and 0.0% reading for the core.   Year over year, overall prices increased 2.7% while the core rate increased only 1.8% in 2009.  Once again we have economic data supporting inflationary pressures are in check despite the economic recovery which should allow the Fed to maintain the current accommodative stance with monetary policy.    

Released at the same time as the CPI report was the Empire State Manufacturing Survey which is conducted by the New York Fed.  This monthly survey of around 175 manufacturing executives gives market participants a gauge into the strength of manufacturing in the New York region.   The bond market prefers slower growth which keeps inflationary pressures in check so they generally move higher when the report is less than expected.  This survey plunged last month to a 2.55 reading after November’s 23.51 and October’s 34.57.  Economists surveyed prior to the release expected a rebound to 12.0.  The release of the survey indicated higher than expected optimism with manufactures posting a reading of 15.92.   Since this is the lowest impacting report of the day, it had no affect on the markets.   

The next report of the day is Industrial Production which measures output at U.S. factories, utilities and mines.   The report indicated Industrial Production increased 0.6% matching economists’ expectations.  

The final report for the week lets us know how you the consumer is feeling with  the Consumer Sentiment report.  The University of Michigan’s Consumer Survey Center questions 500 households each month on their personal financial condition and attitudes about the overall economy.  An optimistic consumer is much more likely to spend money while a pessimistic consumer is more likely to save.   Since our economy is driven by consumer spending, stocks generally improve with optimistic consumers while bonds benefit with pessimism.   The release indicates consumer sentiment holding steady but below expectations at 72.8 following last month’s 72.5.  Market was looking for a 74.0 reading.   

Reports from fellow mortgage professionals indicate lender rate sheets to be  improved this morning.  The par 30 year conventional rate mortgage remains in the 4.875% to 5.125% range for well qualified consumers.  To secure a par rate you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including an estimated one point loan origination/discount/broker fee.   

Following the release of all economic data, mortgage backed securities are in rally mode moving considerably higher.  This might allow lenders to reprice later today which can lead to lower consumer borrowing costs; however, with a 3 day weekend ahead of us lenders quite often are conservative with their pricing and reluctant to pass along improvements.   If you are currently floating, continue to do so but evaluate what rate and fees you can lock later today.   If you are happy with what you can secure, than lock.   If your lender does not pass along improved pricing later today, I feel floating might pay off despite the risk of the 3 day weekend.   

I hope everyone has a fantastic weekend.  Monday all markets will be closed in honor of  Martin Luther King Jr. Day. 

Following a couple days of improving consumer borrowing costs, yesterday mortgage rates took a small step back.  After a higher open which led to many lenders issuing their best rate sheets in over a month, mortgage backed securities started moving lower.   The losses continued following the auction of 10 year notes that saw very weak indirect bids.   On top of that, the Beige Book painted a prettier economic outlook which caused further losses in the fixed income sector.   Most lenders did reprice for the worse as the losses continued to close. 

The economic data picked up heavily this morning with some high impacting reports.  First out was the weekly jobless claims.  This report gives us three readings on the number of Americans that filed for unemployment benefits.  The initial claims totals the number of first time filers, the continuing claims totals the number who continue to file due to a lack of finding a new job and the extended benefits total the number who are receiving emergency benefits beyond the traditional time allowed to collect due to recent government extensions.   On June 30, 2008, the EUC08 program provided up to 20 weeks of federally funded benefits to eligible unemployed workers who have collected all their regular state unemployment benefits.  An additional 13 weeks of benefits are available in states with high levels of unemployment. 

The report showed initial claims rising more than expected to 444,000  in the week ended Jan. 9 from last week’s revised higher 437,000 claims.  Continuing claims continue to post improving numbers falling by 211,000 to 4.6 million.   The extended benefits also posted an improvement dropping 135,000 to 5.3million.   

Next we received the monthly Retail Sales report which shows the monthly change in the total receipts at retail stores.   Since consumer spending accounts for a large majority of GDP, market participants track retail sales to gauge economic growth.   The report indicated retail sales unexpectedly declined in the month of December by 0.3% following November’s revised higher reading of a 1.8% increase.   Economists had expected December retail sales to post a 0.5% increase.  When excluding auto sales from the data, sales dropped more than expected by 0.2% when economists had forecasted a 0.3% increase.  November’s ex-auto sales data was also revised better to a 1.9% increase from the first reported increase of 1.2%.    Even when excluding auto and gasoline sales, the numbers still disappoint declining 0.3%.  All in all, this report is very disappointing as it was much worse than expectations.   

We also received a report on inflation this morning with the Import and Export Prices report.  This data shows the monthly change in the price paid for imported items into the US and exported items overseas.   There has been recent concern that inflation might be creeping into the US economy, but this report indicated import prices are unchanged in December.  Export prices posted a 0.6% increase mainly due to higher agricultural prices which jumped 2.0% last month.   Tomorrow we get another reading on inflation with the Consumer Price Index.   

The final Treasury auction for the week was held at 1:00pm eastern.  The Department of Treasury offered $13billion of 30 year bonds to the highest bidder.   As always with treasury auctions, market participants look at the demand, especially from indirect(foreign) bids to gauge its success.   The results of the auction were fantastic which has immediately resulted in MBS recapturing the losses from yesterday.   

There has been recent talk regarding foreclosures.  For 2009, our nation experienced a record amount of foreclosures topping 2.80 million.  Arizona, California, Florida and Nevada are leading the way.   Economists are expecting 2010 to top 2009 with 3 million more foreclosures.  I would like to hear from the readers regarding the strength of housing in your area.  Do you feel foreclosures are going to continue to increase in 2010? 

Reports from fellow mortgage professionals do indicate lender rate sheets to be improved from the worsened rate sheets of late yesterday.  The par 30 year conventional rate mortgage remains in the 4.875% to 5.125% range for well qualified consumers.  To secure a par rate you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including an estimated one point loan origination/discount/broker fee.  You can elect to pay less in fees but you will have to accept a higher rate.  

MBS continue to move higher and we should be receiving reprices for the better from most lenders but do not be surprised if they hold back on some of the gains.   If you have not locked in as of yet, hold steady and give lenders a chance to pass along the improvement. 

The fixed income market went on quite a rally yesterday despite no significant economic data hitting the news wires.   Helping the rally continue through close was the successful auction of $40billion of 3 year notes by the Department of Treasury.   As the price gains held, all lenders did reprice for the better passing along only some of the price improvements.   At the open this morning, mortgage backed securities continue to hold onto the price gains achieved yesterday which should allow for better rate sheets this morning.  

The economic calendar once again remains quite thin with only a couple lower tier reports being released.  First out this morning was the weekly Mortgage Bankers’ Associations Applications index which tracks the weekly change in the amount of mortgage applications at major lenders.  This report measures the change in both purchase and refinance activity.  An increasing trend in purchase applications would be a positive economic indicator for a couple reasons.  First, you would have to feel pretty confident in your own personal financial position and job security to purchase a new home.  Secondly, the purchase of a new home would lead to many other purchases of items to fill the new home from flooring to drapes to furniture.  Increasing refinance activity is also a positive indicator as home owners would refinance to lower rates and lower payments giving them additional money to spend into the economy.  The release of the report indicated purchase activity rose 0.8% in the week of January 8 while the refinance activity posted an increase of 21.8%.   

At 1pm eastern, the Department of Treasury will conduct another auction this time offering $21billion of 10 year notes.  Since the supply is already known, market participants will look to the demand to gauge its success.  Weak demand at today’s auction will pressure the fixed income lower in price which can lead to higher consumer borrowing costs.    Tomorrow, the Treasury will offer up $13billion of 30 year bonds to the highest bidder.  

The final report of the day is the Fed’s Beige Book, named that for the color of its cover.  This data outlines the economic conditions around the United States and is used during the FOMC meetings where our nation’s monetary policy is set.  Most of the information in this report is already known but if any surprises are revealed it can move the markets.     

Reports from fellow mortgage professionals indicate lender rate sheets to be improved today.  The par 30 year conventional rate mortgage remains in the 4.875% to 5.125% range for well qualified consumers.  There are a couple lenders offering 4.75% today.  To secure a par interest rate you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including an estimated one point loan origination/discount/broker fee.   If you are seeking a 15 year term, you should expect a par interest rate in the 4.375% to 4.50% with similar fees. 

Floating remains risky at this point with the 10 year note auction later today and some high impacting economic reports due out Thursday and Friday with Retail Sales and Consumer Price Index.   We are seeing considerably better rate sheets this morning than we had in late December so it might be a good time to lock in and take advantage of the price gains.   If you can tolerate some risk and can afford to be wrong, floating could pay off if the auction sees strong demand and the economic data is weak.

Not much happened yesterday in the world of fixed income investments.  The prices of mortgage backed securities bounced a little bit in a tight range closing at the same level in which they opened.  Treasuries also moved sideways in a very boring, light trading day partly as a result of the lack of economic data for the markets to digest.  The lack of data continues today as well with no economic reports on the docket. 

The only potential market mover today occurs at 1pm eastern when the U.S. Department of Treasury will auction $39billion in 3 year notes.   What we look for to gauge the success of the auction is the demand by investors.  Strong demand keeps the prices of treasuries high which keeps the yield low.   Since MBS and treasuries are both a fixed income investment, they tend to follow each other.  Thus the reason why we watch these auctions as a indicator for the potential movement of MBS and the direction that mortgage rates might move.   Despite record borrowing by our government, demand for our nation’s debt has remained very strong. 

The auction today does not carry the weight of tomorrow’s 10 year note auction as it relates to MBS.  This is due to the average life of a mortgage being much closer to 10 years than it is to 3 years, but today’s auction could set a tone for tomorrows. 

Tonight, Kansas City Federal Reserve Bank President and voting member of the FOMC Thomas Hoenig will deliver a speech to an economic forum in Denver.  Anytime fed officials speak, market participants pay attention  for any hint of future monetary policy and their economic outlook.   So, his speech could have an effect on the markets tomorrow. 

Early reports from fellow mortgage professionals are indicating that the par 30 year conventional rate mortgage remains in the 4.625% to 4.875% range for the best qualified consumers.  To secure a par interest rate you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including an estimated one point loan origination/discount/broker fee.   If you are seeking a 15 year fixed rate mortgage, the par conventional rate is in the 4.125% to 4.375% range.   To secure that rate you would need a FICO score of only 620 or higher, a loan to value at 80% or less and pay all closing costs including an estimated one point loan origination/discount/broker fee. 

Ahead of the auction today, MBS are under some pressure to move lower in price.  Since we are holding near the lowest mortgage rates in history, I am continuing my opinion that floating is risky.   There always remains the possibility of rates moving lower, but when rates are at historic low levels it is difficult to go any lower.   At the end of the day, there is much more room for rates to rise than to move lower.  Additionally, I can think back to Black Wednesday May 27th.  On that day, rates were similar to what we have today but during the day MBS went on a massive selloff which increased mortgage rates by one half a percent.   During one hour of that day, lenders increased rates by .25%, in just an hour!!  The point being, mortgage rates will always move higher faster than they will move lower.   Locking removes all risks of higher rates and you might just sleep better tonight. 

Last week was a very nice week for mortgage rates.    The economic data was rather mixed, some pointing toward economic growth, while others hinting at a double dip recession.   Despite this mixed data, the prices of mortgage backed securities approached the highest levels of the year bringing  mortgage rates to 5 month lows.    After hitting the highs of the year early on Friday, MBS did come under some selling pressure which lead to many leaders repricing for the worse Friday afternoon as the losses held til close.   There is a possibility that we are beginning to see a shift in economic outlook away from the quick V shaped recovery toward a more painful W(double dip) shaped recovery.   If this holds true, it could cause stocks to move lower which would benefit MBS and treasuries. 

Following last week’s plethora of tier one economic reports, the week ahead is rather light on data.   The only release set for today is a measure on the strength of the non manufacturing sector of our economy with the ISM Non-Manufacturing Index.   The Institute for Supply Management surveys about 400 firms including agriculture, mining, construction, retail, etc… on their economic outlook.  Readings above 50 indicate expansion while readings below 50 indicate contraction.  Unlike its sister report, ISM Manufacturing index which measures the strength of the manufacturing sector of our economy, this report has yet to register a reading over 50 but economists surveyed expect this month’s report to come in at the breakeven level of 50.   The report indicates that the non-manufacturing sector of our economy is expanding with a  50.9 reading. 

Tuesday brings us no economic data but we do have round one of Treasury auctions.  The U.S. Department of Treasury will offer up $39billion of 3 year notes to the highest bidder.  Since the supply is already known, market participants will gauge the success of the auction by looking at the demand especially by foreign investors.  Despite record amounts of government borrowing, investor appetite for of nation’s debt has remained very robust which has helped to keep mortgage rates near historic lows.   Later in the evening, Kansas City Federal Reserve Bank President Thomas Hoenig will speak to an economic forum in Denver.  Any time fed members and voting member of the FOMC speak, market participants pay attention for any hint at future monetary policy and their outlook on the economy. 

Wednesday is also very light on data with the only relevant report being the weekly Mortgage Bankers’ Association applications index which measures the weekly change in the number of mortgage applications at major lenders.  Despite record low mortgage rates, very affordable home prices and government incentives for first time home buyers, last week’s report was very disappointing falling over 6% indicating a slowing for home sales which have recently just started to show signs of recovery.   Later in the day, comes round two of auctions with the U.S. Department of Treasury offering up $20billion in 10 year notes. 

Thursday brings us the weekly jobless numbers which are expected to show less claims then the prior week continuing the recent trend of continued improvement.   Additionally, the last auction of the week will be held with $12billion of 30 year bonds going on sale to the highest bidder.   Lastly, Thomas Hoenig will deliver his second speech of the week but this time to an economic forum in Oklahoma.

The week wraps up with the highest impacting report,  International Trade numbers.  This data measures the difference between what our country imports and exports.   Last month’s report showed our trade balance widening significantly to $32billion from a revised $27.5 billion in July, and economists surveyed expect further widening in this month’s report to $33billion.

As I have mentioned quite frequently on the blog, the first time home buyer tax credit which gives up to a $8000 tax credit to first time home buyers is set to expire on November 30th.   Your loan must close on or before that date to take advantage of the government stimulus.   The Wall Street Journal, read story, wrote a story last week that Congress is considering extending the tax credit.   Since many believe that our economy will have a difficult time recovering until the housing market improves, the extension of this program is possible.   However, if you are looking to take advantage of this incentive do not count on it being extended.   The aforementioned article gives viewpoints on why it should be and why it shouldn’t be extended.  As the deadline date approaches, volume at lenders should pick up as applicants rush to take advantage so I expect lenders turn times to be extended.  Additionally, we are seeing the best rates since early this year which is also increasing volume at lenders so be prepared for longer turn times.   As it is right now, if your loan for any reason closes after November 30th, there will be no soup for you.

Early reports from fellow mortgage professionals are indicating that the par 30 year conventional rate mortgage is in the 4.625% to 4.875% range for the best qualified consumers.  In order to secure a par interest rate on a 30 year conventional mortgage you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including an estimated one point loan origination/discount/broker fee. 

The last time rates were at the current levels, lenders got slammed with business as applicants rushed to take advantage of the low rates.  With the increased volume, lenders started to raise rates as a way to slow down the submission of applications and not because MBS moved lower in price.  Granted, many people that could refinance have done so already but the possibility exists that lenders may repeat what they did in the past.  Looking at recent history and learning from it, makes me continue to caution you on floating. 

Prices of mortgage backed securities went on quite a rally yesterday closing at levels not seen for quite some time. As the rally continued into the close, lenders did issue new rate sheets improving consumer borrowing costs. There were even few lenders offering 4.5% for 30 year mortgages for consumers with exceptionally high FICO scores and low loan to values. But today is Employment Situation day which is arguably the single most important piece of economic data that we get on a monthly basis and can move the markets dramatically.

The U.S. Department of Labor releases the monthly Employment Situation report this morning. This data provides four key measures on the strength of the labor market in our country. The first is the number of jobs loss or created from the prior month. Recent reports have shown that the number of jobs that our economy has been losing is easing. After peaking at a loss of over 700,000 jobs in January, economists surveyed for this month’s report are calling for a loss of only 175,000 following last month’s -216,000. The next measure is the official unemployment rate which is expected to post a increase from last month’s 9.7% to 9.8%. The final two measures are the average hourly earnings and work week. Average hourly earnings is expected to post a 0.2% increase while the average work week is expected to hold steady at 33.1 hours. These final two measures are important because if wages are going down or if hours worked decreases, consumers will have less money to spend into the economy.

The Labor Department reported that our economy lost a worse than expected 263,000 jobs last month following a revised better 201,000 decline in the prior month. The official unemployment rate came in right on expectations at 9.8% which is a 26 year high. Average hourly earnings only posted a 0.1% increase while the work week shrank to 33.0 hours matching a record low, indicating that consumers who have a job are working less hours. Following the release of this report, the stock market has moved lower while MBS and Treasuries have moved higher in price as market participants flock to safety.

The U.S. Department of Commerce released the monthly factory orders report which represents the dollar level of new order for both durable and non durable goods. If orders are increasing, that is a signal that factories will be busy in the months ahead to fill the orders which could lead to increased hiring. Additionally, increasing orders indicates increasing demand by consumers for those products which will could increase profits which is better for stocks. Economists surveyed expect factory orders to post a rise of 1.0% following last month’s surge of 1.3% which was the biggest increase since last summer. The report shows that factory orders plunged 0.8% last month far worse than expectations. Despite the worse than expected economic data, the stock market has moved off its lows and the fixed income sector is moving off the highs.

Early reports from fellow mortgage professionals are indicating that the par 30 year conventional rate mortgage has dipped this morning to 4.5% to 4.75% range for the best qualified. To secure a par rate you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including an estimated one point loan origination/discount/broker fee. If you are seeking a 15 year fixed rate, you can expect a par rate from 4.00% to 4.25%.

The weak jobs report confirms the recent rally in MBS which have driven rates to near historic lows. Since the release of lenders rate sheets, MBS have started to give back some of the early morning gains. The recent rally appears to have run out of steam. There is a saying about locking loans, lock the highs and float the lows. Well, MBS are very near the highest levels of the past year. If you are currently floating, strongly consider locking today and take advantage of the great rates that we are seeing this morning. Additionally, if you have locked your loan in the past couple weeks, call your mortgage professional about a float down. This is where the lender will lower your interest rate despite it already being locked. Most lenders offer this as a way to discourage you from pulling your loan and going with a new lender.

I hope everyone has a great weekend and feel free to ask questions in the comment section below.

As the third quarter ended yesterday, mortgage rates were unchanged as prices of mortgage backed securities held to the recent range. Since MBS rallied on Monday which pushed them to levels not seen for quite some time, they have moved sideways since as market participants await the key Employment Situation report due out on Friday. However, today we do have several economic reports coming out which can have an effect on the flow of investor money.

The U.S. Department of Labor released the weekly jobless claims which totals the number of Americans that filed for first time unemployment benefits in the prior week. Since our economy is driven by consumer spending, market participants look to job numbers for an indication of future spending. If more people are out of work, that would lead to less spending which is not good for the overall economy but it is good for low interest rate. The report indicates that jobless claims moved higher than expected to 551,000 following last week’s revised higher reading of 534,000 signaling that companies continue to lay off workers even as our economy appears to be pulling out of recession. The continuing claims, which totals the number of Americans that continue to file due to lack of finding a new job, fell last week by 70,000 to 6.09million beating estimates. Despite jobless claims remaining stubbornly high, tomorrow’s Employment Situation report is expected to show a sizable improvement in the nonfarm payroll numbers. Expectations call for a loss of 170,000 jobs and the unemployment rate moving higher to 9.8%.

Next, the U.S. Department of Commerce released the monthly Personal Income and Outlays report which tracks how much money people are making and spending. Personal income rose last month more than expected by .2% matching last month’s revised higher reading. The spending or outlays part of the report indicates a big surge in spending with a higher than expected increase of 1.3%. Spending was expected to post a big rebound thanks to the cash for clunkers program which ended in August but spending on non autos also posted nice gains indicating that the consumer is getting out there and spending money. The increase in spending was the largest since October 2001!

As part of the Personal Income and Outlays report, we get the Fed’s favorite gauge for inflation with the Personal Consumption Expenditure. The headline number did post a larger than expected increase in prices but the core reading which strips out food and energy due to their volatility came in right on expectations. On a year over year basis, the core rate of PCE inflation dipped from 1.4% to 1.3% which is well within the fed’s comfort zone. Once again we have another economic report showing that inflation is of no concern in the near term which should allow the Fed to keep the Fed fund rate low for quite some time.

Also out this morning is a reading on the strength of the manufacturing sector of our economy with the ISM Manufacturing index. The Institute for Supply Management(ISM) surveys over 300 manufacturing firms across American on their outlook for economic growth. Readings above 50 indicate growth in manufacturing while readings below 50 indicate contraction. After hitting the lowest reading in 60 years in December of 2008, this report has shown improving numbers each month with last month’s report being the first above 50 reading since January of 2008. The report indicates that the manufacturing sector of our economy continues to grow coming in just below expectations but still above the 50 reading indicating that more manufacturers are reporting expansion.

We also received a reading on home sales from the National Association of Realtors. Pending home sales, which is one in which a contract has been placed on the home but the loan has not closed, showed a sizable increase last month of 6.4%. All regions of the country did show improvement . This is a positive economic indicator since more home purchases should lead to other consumer spending on flooring, furniture, etc… However, a pending home sale does not always turn into a closed transaction. A government report yesterday showed that 1/3 of all applications for a home loan have been denied this year.

The final report of the day also comes from the U.S. Department of Commerce with the release of construction spending. If spending on construction is increasing, that is a positive sign of economic growth. More construction leads to higher purchases of lumber, roofing, etc.. and will also lead to more jobs as companies hire workers. The report indicates that spending on construction increased much more than expected indicating that housing may be on an upward trend.

Currently, Federal Reserve Chairman Ben Bernanke is testifying on Capitol Hill on regulatory reform in the financial sector. He is not expected to speak on monetary policy or economic outlook, but market participants will still pay attention to what he has to say.

At 11am the U.S. Department of Treasury will announce the size of the upcoming auctions next week of 3 year notes, 10 year notes and 30 year bonds. The added supply on the market might pressure treasury and MBS prices to fall to attract buyers. As prices of treasuries and MBS fall, yields or rates move higher. The added supply should be around $70billion.

Following the release of all the economic data, MBS have moved higher which is allowing lenders to offer better rates this morning. Early reports from fellow mortgage professionals are indicating that the par 30 year conventional rate mortgage is in the 4.625% to 4.875% range for the best qualified consumers. In order to secure a par interest rate you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including one point loan origination/discount/broker fee.

With the Employment Situation report coming out tomorrow morning at 8:30am, floating an interest rate if very risky. If the numbers come in better than expected, we could see a quick and large sell off in MBS which will move rates higher. Always remember that rates move higher faster than they move lower. I am continuing to caution all my clients on floating and recommending that they lock in today to take advantage of the improvement in rates over the last week.

Written by Victor Burek, CMPS

Prices of mortgage backed securities held relatively stable yesterday resulting in mortgage rates holding steady on the day. Following Monday’s rather light volume of trading which pushed MBS to levels not seen in quite some time, yesterday’s volume picked up and MBS were able to hold onto the recent gains and closed once again above the recent range that has kept them contained since early this summer. Today is the final day of the third quarter, so we will be more optimistic if the topside breakout holds when the fourth quarter begins tomorrow.

The economic data picks up today with the first report coming from the Mortgage Bankers’ Association. They released their weekly applications index which tracks the weekly change in the volume of mortgage applications at major lenders. An increasing trend, especially in the purchases index, would be positive for the economy. More home purchases should lead to other consumer spending which increases corporate profits and helps move the stock market higher usually at the expense of the fixed income sector(MBS and Treasuries). In a troubling sign, the index fell sharply last week despite very low mortgage rates and government stimulus. The purchase activity dipped 6.2% while the refinance activity fell 0.8%. The dip in the purchases index points to a slowing in home sales which have recently been showing signs of improvement. Does anyone think the first time home buyer tax credit will be extended?

Next we get a reading on the jobs sector from the payroll company ADP. This data differs from the official government report we get on Friday by only looking at private company payrolls and does not take into account government employment. This report has varied greatly from the official numbers but it is gaining more attention as its accuracy has been improving. ADP estimates that our economy shed a worse than expected 254,000 jobs last month. The official Employment Situation report due out on Friday is expected to show a loss of only 170,000.

The U.S. Department of Commerce gave us the third estimate for second quarter Gross Domestic Product(GDP). GDP is the broadest measure of total economic activity and includes every sector of the economy which basically means it is the scorecard for our economy. The report indicates that our economy contracted less than expected at -0.7% hinting that our recent recession might have bottomed out in the second quarter. Since this report looks in the rear view mirror by reporting on growth last quarter, there was only a slight blip in the MBS market following this better than expected data.

The final report on the day gives us a reading on the strength of business conditions in the Chicago region known as Chicago PMI. The Institute of Supply Management conducts a survey of business conditions in the Chicago area. Readings above 50 indicate expanding or improving conditions while readings below 50 indicate contraction. Recent reports have shown business conditions improving with last month’s report coming in at a breakeven 50 which was the highest reading since the middle of 2008. Economists surveyed are expecting continued improvement with a 52.0 reading for September. The report indicates that business conditions dipped back below the breakeven level to 46.1! Following the release of this much worse than expected economic data, the stock market has moved much lower registering a triple digit decline while MBS have moved higher.

Later today, Atlanta Federal Reserve Bank President Dennis Lockhart will give a speech on the U.S. economic outlook. Yesterday, Fed member Richard Fisher spoke cautioning of a slow and sluggish economic recovery but did say that he sees signs of improvement. He also spoke about the Fed raising rates quickly if inflation starts to take hold. Currently, inflation is nothing more than a headline on news as all Fed members and economic reports have shown inflation to be of no concern today or in the near term. Any time Fed officials and voting members of the FOMC speak, market participants will pay attention for any hint of future monetary policy and their outlook on the economy.

Early reports from fellow mortgage professionals are indicating that the par 30 year conventional fixed rate continues to hold in the 4.75% to 5.00% range for the best qualified consumers. If you are looking to secure a 15 year fixed rate, you should expect a par rate in the 4.25% to 4.50% range. As always, to secure a par interest rate you must have a FICO credit score of 740 or higher(620 for 15yr), a loan to value at 80% or less and pay all closing costs including one point loan origination/discount/broker fee.

We continue to see the best rates since early this summer and with the Employment Situation report looming I am continuing to caution clients and readers on floating. If you have been floating until today, you have picked up some gains and now is the time to take your chips off the table and walk away a winner. Additionally, we have the announcement tomorrow of the upcoming size of the next treasury auctions which will pressure yields on both treasuries and MBS to move higher. So locking today is a conservative play but takes away all the risk of the upcoming reports and new quarter starting tomorrow.

I have been receiving information that underwriting at lenders is getting tougher. A recent Fannie Mae announcement stated that the maximum debt ratio for loans will be lowered which will make it more difficult for consumers to be approved for a refinance or a purchase loan. Your debt ratio is your total monthly obligations for items on your credit report divided by your gross pay. Typically, you would be approved up to a 55% DTI, but the new announcement is lowering that to 45% but will go higher if consumer has strong compensating factors like low loan to value, strong assets, etc…. I would like to hear from fellow mortgage professionals on this topic. Are you seeing tougher underwriting and more conditions on the approvals?

Written by Victor Burek, CMPS

Mortgage backed securities moved higher yesterday despite the stock market posting a triple digit gain. No economic data was released and the volume of trades was quite thin, but by the end of the day MBS closed at their highest level since early this summer. The move higher in price allowed lenders to reissue new rate sheets which lowered consumer borrowing costs. MBS have been range bound for some time now and yesterday was the first time that they closed above that range. Despite the gains in MBS price, it is not a indicator of a new trend or a new higher range. We need confirmation by staying above the range for at least today. Keep in mind, we have some very important economic data coming on Friday which can cause multiple outcomes regardless of any trend set now.

Our day begins with the first somewhat important economic data release with the Case Shiller Home Price index. This report tracks the monthly changes in the value of residential homes in 20 metropolitan regions across the United States. Many economists believe that until home prices stabilize, consumers will be reluctant to spend money which is bad for economic growth as our economy is driven by consumer spending. As home prices have declined we have seen a shift away from spending toward savings as homeowners attempt to improve their balance sheet. Additionally, during periods of declining home prices, less new homes are built which leads to less construction jobs which also dampers consumer spending. Recent reports have shown that the pace of price declines is easing while some markets, like Grandview, are posting monthly gains.

The report indicates a third month in a row of gains for home prices. Home values across the 20 metropolitan regions posted a monthly gain of 1.6% while the year over year shows a smaller than expected decline of 13.3%. The only region posting a decline in the month over month reading is Las Vegas. On a yearly basis, Cleveland posted the smallest decline at 1.3% while Las Vegas posted the largest decline of 31%. Following the release of this better than expected economic data, MBS gave back some of the gains which they enjoyed from yesterday.

Grandview Federal Reserve Bank President Richard Fisher is speaking on the economy to the Texas Christian University Business Network of Grandview while Philadelphia Federal Reserve President Charles Plosser will give a speech on the role of the Fed in the economy later this evening. Anytime a Fed official and voting member of the FOMC speaks, market participants pay attention for any hint of future monetary policy and the outlook on the economy.

If you are still floating an interest rate, you might want to consider locking today. We are seeing some great rates and you have already made some gains. You have to know when to pull your chips off the table and today may be that day. We still have the announcement later this week of the upcoming treasury supply which is usually not friendly to MBS. Additionally, the Employment Situation report is due on Friday which if better than expected could cause mortgage rates to move higher. Remember, mortgage rates move higher much faster than they move lower. So you might have more to risk than to gain by floating. When floating always ask yourself this question. What would bother you the most, floating and interest rates move higher or locking and interest rates move lower?

Written by Victor Burek, CMPS

Last week was a good week for mortgage backed securities and mortgage rates despite some mixed economic data.   It appears that the weak housing data was the main driving force of the markets.   Many economists believe that until housing picks up it will be extremely difficult for our economy to return to stable growth.  After a brief moment on Wednesday when MBS sold off, they managed to gain some support as money flowed into the fixed income.  Following the weak housing data on Thursday and Friday, MBS moved to the highest closing level seen for quite some time.   As MBS moved higher in price, lenders were able to pass along better mortgage rates bringing the par 30 year fixed rate mortgage to 4.75% by week’s end.  

The week ahead is full of economic data with the highest impacting report coming Friday with the release of the Employment Situation report.   Today is the only day with no scheduled data to be released.  To remind readers, MBS tend to benefit with worse than expected data, while stocks benefit with better than expected data.

On Tuesday we get a couple lower tier reports with the release of the Case Shiller Home Price Index and Consumer Confidence.   In addition to the scheduled releases, we also have a couple  Federal Reserve Bank Presidents giving speeches.  Anytime voting members of the Fed speak, market participants will pay attention for any hint of future monetary policy and their outlook on the economy. 

Wednesday brings us several releases beginning with the weekly Mortgage Bankers’ Association Applications index which tracks the weekly change in the number of mortgage applications at major lenders.   This report will be followed by the ADP Employment report which will give us a sneak preview of the jobs outlook.  The ADP report is nowhere near the importance of the official Employment Situation report which comes Friday, but it is gaining some credibility among market participants.   The highest impacting report of the day will be the release of the Gross Domestic Product(GDP) for second quarter.  This will be the final revised numbers for quarter two and expectations call for the numbers to be revised down to -1.2% from -1.0%.  However, since this report is looking backwards I do not expect it to be a major market mover unless it varies greatly from expectations. 

The busiest day of the week for economic data will be on Thursday.   The highest impacting report will be the Personal Income and Outlays report which gives us a measure on the strength of the consumer.  This data provides us information on whether consumers are making more or less money and how much they are spending.   Since our economy is driven by consumer spending, investors pay close attention to how much money the consumer is making.  If personal income is rising, it should lead to more spending which would benefit the stock market at the expense of the fixed income sector.   Personal income is expected to post a very small increase while spending is expected to post a healthy month over month gain of 1.1%.   Other scheduled releases include the weekly jobless claims, construction spending and a read on the strength of manufacturing with the ISM Manufacturing index.  Also of note will be the announcement from the U.S. Department of Treasury of the upcoming supply of treasuries to be auctioned next week.   The added supply of debt available will pressure treasury yields to move higher which will also apply pressure on mortgage rates to follow.   It is expected that the upcoming supply will be $40billion in 3year notes, $20billion in 10 year notes and $12billion in 30 year bonds.

The week wraps up with the release of probably the single most important piece of economic data, the Employment Situation report.   This report gives us four different reads on employment.  The first being the number of jobs lost or created from the prior month.  Economists surveyed expect a loss of 170,000 from the prior months loss of 216,000.  This would be a large improvement over early this year when our economy was shedding jobs at a pace over 500,000 a month.   Next is the official unemployment rate which is expected to move higher to 9.8% from 9.7%.  The final two measures are a measure on income with hours worked and average hourly wages.  Wages are expected to post a increase of 0.2% while the average work week is expected to hold steady at 33.1 hours. 

Early reports from fellow mortgage professionals are indicating that the par 30 year conventional rate mortgage remains in the 4.75% to 5.00% range for the best qualified consumers.  In order to secure a par interest rate you must have a FICO score of 740 or higher, a loan to value at 80% or less and pay all closing costs including one point loan origination/discount/broker fee.  You can elect to pay less fees or even no fees but your interest rate will be higher.   If you are seeking a 15 year term, expect a par rate in the 4.25% to 4.50% range with the same closing costs. 

To remind readers that are considering becoming first time home buyers, the clock continues to tick.   The first time home buyer tax credit of up to $8000 is set to expire on November 30th.  Your loan must close on or before that date for you to qualify for the credit.  If for whatever reason your loan closes after that date, you will not get the stimulus money.   I suspect that turn times at lenders will increase as many people slam in mortgage applications to beat the deadline.  If you are looking to take advantage of this benefit, I suggest that you get moving sooner than later.   Many things can happen that delay closings and cause you to lose out.   For example, the person you are buying the home from might be buying another home.  Maybe there is a problem with that transaction  which could delay or prevent your loan from closing.  The point being is that there are many moving pieces when buying a home of which many are outside of your control.