Prestige Family Mortgage Blog

Banks Have Adequate Capital but Buffers Needed, Stress Test Paper Shows

U.S. banks are adequately capitalized but the Federal Reserve wants them to hold excess capital in case the economy deteriorates in the next two years, according to a paper addressing the design and implementation of the Fed's stress test.

However, bank reserves have been "substantially reduced," the Fed said. "Most U.S. banking organizations currently have capital levels well in excess of the amounts required to be well capitalized."

In an effort to improve transparency and confidence in the banking system, the Fed ordered stress tests of the 19 largest financial institutions in the United States in order to ensure they are strong enough to withstand a further substantial decline in the economy. Banks will be asked to create buffers for losses through 2011 based on a worse-than-expected economic outlook.

The Federal Reserve said bank holding companies need to hold a "substantial" amount of capital above regulatory requirements in case the economy deteriorates. The Basel II international accords mandate that banks hold 8% in Tier 1 capital.

The paper released Friday showed that the economic assumptions used by the Fed were decided upon in February, but appear optimistic because of the recent weakness in the economy. The Fed noted that "the economy has deteriorated somewhat and professional forecasters have revised their outlooks for GDP growth and the unemployment rate in 2009 and 2010."

The Federal Reserve uses a baseline of -2.0% GDP growth in 2009 and +2.0% in 2010, which compares to the current -2.5% and +1.85% consensus estimates. The alternative, more averse scenario suggests -3.3% growth in 2009 and +0.5% growth in 2010.

The Fed's baseline is for 8.4% unemployment in 2009 and 8.8% in 2010. The alternative, more adverse scenario is 8.9% this year and 10.3% next year. The current consensus estimates are 8.9% (the same as the adverse scenario) and 9.40%.

The Fed uses a 14% drop in housing prices in 2009 and 4% in 2010 as a baseline. The more averse scenario suggests a 22% drop in 2009 and 7% decline in 2010.

"New information on house prices suggests that the market's expectation for house price declines is similar to what was anticipated in February," the paper said.

Market watchers are noting that Citi used all the 'more adverse' figures in February in their internal stress test criteria. Some are suggesting that since it appears banks already know the criteria, they may have been able to estimate the capital needed months ago.

Officials at the White House said they are inclined to be transparent about the releases. They added that some banks will release their own stress test results, while the government will release others.

By Adam Button and edited by Stephen Huebl
©CEP News Ltd. 2009

loss mitigation, loan modification, short sales, join in foreclosure, modifications, foreclosure... help is free!

BEWARE OF FORECLOSURE RESCUE SCAMS - HELP IS FREE!

(Unless you trust the loan officer or broker you are working with and you feel comfortable paying a nominal fee of $500.00 to $2500.00 to have your paperwork submitted and your case handled by someone familiar with the processes).

Beware of any person or organization that asks you to pay a fee in exchange for housing counseling services or modification of a delinquent loan. Do not pay – walk away!

Before the government made it possible for homeowners to seek out assistance on their own, I tried to help as many clients as i could. I worked hours, days, weeks, on files for free.  I have now given up and I'm telling everyone to call HOPE NOW. HOPE NOW is an alliance between HUD approved counseling agents, mortgage companies, investors and other mortgage market participants that provides free foreclosure prevention assistance. You may call or visit the following for more information:

888-995-HOPE

http://www.hopenow.com/ or you may go directly to the HUD site http://www.makinghomeaffordable.gov/.

Prestige Home Mortgage wishes you the best of luck, and remember that if you have any questions  do not hesitate to call. We are always willing to lend our assistance and offer you the most current up to date advise.

Michael S. Torres                                                                             Branch Manager                                                                          Prestige Home Mortgage                                                               License # ML-3040 Branch # 35

2848 NE Rainier Dr, Bend, OR 97701

(541) 598-8888                                                                              www.prestigefamily.com

Do you have to be delinquent in your payments to be considered for a short sale?

You don't HAVE to be delinquent for a short sale consideration.  This was the case a little while ago but now (some) banks are starting to negotiate before you start missing payments.  Do not risk your credit just to get a loan mod which you may be able to get anyway.  Each late payment costs 100 points!!  If your FICO is currently at 800...which is near perfect, after 3 missed payments, it'll be around 500 points..You wont be able to buy anything on credit for a long time.  Not only that, your current credit card companies will raise your interest and cut off your credit line.

Important Mortgage Rate Information For The Month Of April 2009

• Consumer Borrowing Costs on the Decline

  Yesterday, mortgage backed securities (MBS) moved steadily higher throughout the day closing higher by about a .25 in discount. As MBS move higher in price, consumer borrowing costs decline and mortgage rates improve. A couple lenders did reprice for the better but most held back the gains from their rate sheets. So far this morning, MBS continue to move higher which should allow most lenders to pass along par 30 year conventional rate mortgages in the 4.625% to 4.875% range for the best qualified consumers. Some lenders are still offering incentives for consumers with fico scores over 740 and loan to values under 60%, which will place par at 4.5%.

  Today we do not get any major economic reports to move the markets. We did get the release of a couple retail sales reports, ICSC-Goldman Store Sales and Redbook. These reports are released weekly and measure sales at retail stores. Both of these reports show retail sales on the decline, no shock there. These reports are not market movers since this information is already known due to the release last week of the March Retail Sales report.

  We do get to hear from our Treasury Secretary Tim Geithner who will be testifying to Congress on the Troubled Asset Relief Program(TARP). His testimony can move the markets. If you would like to read a letter he wrote to the oversight committee, CLICK HERE. We will be listening to his testimony and will get back to you with any relevant issues.

  Well, that’s it for the day. On days with very limited data, we will get our direction by the stock market, treasuries and headline news items. So far this morning, the stock market has opened in the negative and treasury yields are moving lower. The benchmark 10 year Treasury note is currently trading at a yield of 2.78 which is helping MBS.

  Early reports from fellow mortgage professionals are showing par rates to be at 4.625% today.

  How quickly things can turn. Since typing my blog, the stock market has reversed course and is now in positive territory and is currently up 50 points. This is resulting in the flow of money leaving fixed income (MBS and Treasuries) and into the stock market. Currently, MBS are down a little from closing levels yesterday but well off their highs of the day. The benchmark 10 year Treasury has moved from its low of the day of 2.78 to currently trading at a yield of 2.83. We have not sold off enough to receive reprices for the worse; however, if the stock market continues to improve it might very well be at the expense of MBS resulting in higher borrowing costs.

  For intraday mortgage market updates visit the MBS Commentary blog.
  Published Tue, Apr 21 2009 12:10 PM

• Mortgage Rates Holding Steady and The Week Ahead

  So far this morning, mortgage backed securities (MBS) are holding steady, slightly higher than closing levels from Friday. This should allow lenders to pass along par 30 year conventional rate mortgages in the 4.625% to 4.875% range for the best qualified consumers. These consumers must have a FICO credit score of 740 or higher, loan to value at 80% or under, not accessing any home equity and be willing to pay all closing costs and one point.

  For consumers looking to tap into your home equity expect to pay higher fees or accept a higher interest rate. For example, a consumer with a 750 FICO score and pulling equity out to 80% of the appraised value will have to pay an additional fee of .50 of the loan amount or take an interest rate about .125% higher than par. For a consumer with a 690 FICO score and pulling equity out to 80%, they will have to pay an additional fee of 2.875% of the loan or accept a rate about .50% higher than par. So, if loan amount is $200,000 this new fee is $5750. These new fees are part of the Loan Level Price Adjustment (LLPA) that was implemented by both Fannie Mae and Freddie Mac.

  Onto the data for the week.

  Today, we get the release of Leading Indicators. This report is designed to forecast the strength of the economy 6 to 9 months into the future. This is a forward looking report which tends to carry more weight with investors versus backward looking reports; however, most of the data is released via individual reports beforehand which soften the affect of this report. Economists are looking for a reading of -0.3% following last months -0.4%. The report was just released coming in right on expectations.

  Wednesday

  - Mortgage Bankers’ Association Purchase Applications, which measures the amount of applications at mortgage lenders. This report is a leading indicator of future home sales and housing construction. Since housing is a large part of our economy, this report gives a gauge for both demand for housing and economic momentum. Better than expected numbers generally helps the stock market which is a negative for MBS and mortgage rates.

  Thursday

  - Jobless Claims, this report is released weekly and shows the number of US citizens who filed for unemployment insurance for the first time. As part of the release we get continuing claims which measures the amount of people who continue to file for unemployment insurance. Expectations are for 636,000 first time filers following last weeks surprisingly improved level of 610,000. Continuing claims continues to set new all time high records of more than 6 million Americans still looking for work.

  - Existing Home Sales which measures the number of existing homes that actually sold during the month. The expectations are for a reading of an annual pace of 4.70million which would be slightly lower than the previous months pace of 4.72million.

  - We also get to know the amount of treasuries that the US government intends to auction in the near future. With the added supply of debt announced, it could pressure treasury yields higher which might cause mortgage rates to follow. While on the subject of treasuries, over the weekend treasury yields were pressured lower and the benchmark 10 yr Treasury is currently trading at a 2.85 yield after closing last week over 2.90.

  Friday

  - Durable Goods Order which shows the number of new orders placed with domestic manufacturers for immediate and future delivery. Durable goods are items that are going to be used for 3 years or longer such as automobiles or large appliances. If this report is showing durable goods orders increasing, that is an indication that factories will be busier in the months ahead which leads to economic growth. Since this report is forward looking, it is highly important to investors for a gauge into future economic growth. MBS prefer more moderate growth, so they tend to rally with a lower than expected reading. Last month this report showed durable orders up 3.4% and is expected to show this month a decline of -1.8%.

  - New Home Sales which measures the amount of newly constructed homes that have a sold the prior month. Economists are expecting this report to show an annual pace of new home sales to have fallen even lower to 330,000 after last months pace of 337,000. Just a few years ago, July of 2005, this report showed an annual pace of new home sales at 1.41 million, how far we have fallen.

  While on the subject of home sales, I would love to hear from our readers. Interest rates are at all time lows, and property values have to be near a bottom. How many of you have been waiting to buy a new home and when do you plan on pulling the trigger? If you plan to stay on the sidelines, what are you waiting on? Is job security an issue, are you thinking property values will continue to decline, do you think rates will fallen further? I would love to hear your thoughts on this subject.

  Early reports from fellow mortgage professionals are showing mortgage rates slightly worse than Friday by about .25 in discount. This will allow most lenders to offer 4.625% to 4.875% as their par interest rate.

  Since the release of leading indicators at 10am eastern, MBS have started to improve. The stock market looks to be taking it on the chin and is currently down almost 200 points. If the stock market remains at this level or sells off further, MBS and Treasuries should see some benefit due to the flow of money. Investors sell stocks and move money into fixed income. So far the biggest winner of the day is treasuries with the benchmark 10 yr now up almost a full point to a yield of 2.84.

  For intraday updates on the movement of MBS and mortgage rates, please click over to the MBS Commentary.

        Published Mon, Apr 20 2009 10:25 AM 

• Borrowing Costs Increase Slightly

  Well, we had our 2nd day in a row of downward pressure on mortgage backed securities. As MBS move lower in price, it causes mortgage rates to move higher increasing borrowing cost. A few lenders did reprice for the worse but most lenders left rates unchanged from morning levels. In total, borrowing costs increased by another .25 in discount today.

  In positive news, MBS are up slightly over this point last week so we head into next week at higher levels than we did the prior week. Hopefully, we pick up some steam and see some improvement early next week.

  Economic data is quite thin in the coming week but Treasury issuances are rather large. With the added supply of debt about to come to market, it can place pressure on Treasuries and MBS to move higher in yield. Today, the biggest loser was Treasuries which moved from a yield of 2.85 at open to 2.95 currently probably in anticipation of the upcoming supply.

  If you want to see graphs of today’s action and intraday updates, click over to the MBS Commentary.

  I will get back to everyone Monday with my week in review. I hope everyone has a fantastic weekend and thanks to everyone for the comments this week. Please keep them coming.
  Published Fri, Apr 17 2009 5:29 PM

• Borrowing Costs Increasing, Typical Friday

  Yesterday, mortgage backed securities (MBS) remained relatively stable until mid afternoon when they started to sell off which increased consumer borrowing costs by .25 in discount. Most lenders did reprice for the worse. So far this morning, the downward pressure continues as MBS have already moved lower increasing costs by another .125 in discount. We should still continue to see par 30 year conventional rate mortgages in the 4.625% to 4.875% for well qualified consumers. We have been seeing a few lenders offering 4.5% as par, but that is unlikely to occur today.

  I get many comments from readers asking about the rates I quote on the blog. In order to qualify for the rates that I quote, a consumer would have to have a 740 FICO credit score, loan to value of 80% and pay all closing costs and 1 point. Also, rates do vary by state and since I live in Texas I quote rates available in this state. The difference between states is not large but they might vary by up to .25 to .375 in discount. Meaning, if 4.625% costs 1 point for homeowners in Texas, it might cost 1.25 points in a different state. This is one of the reasons why I give a range of rates and not one specific rate.

  Citigroup announced this morning better than expected earnings. This makes the 3^rd financial institute to beat the streets estimate. The MBS Commentary blog will go into more detail on this subject. How does this affect mortgage rates? Well, positive earnings from corporations will entice investors to buy stocks to take advantage of the higher potential yields they pay. This leaves less investment dollars to buy fixed income investments such as MBS. We typically refer to this as the flow of money.

  Today is extremely light on economic data with the only report being the release of the Reuter’s/University of Michigan’s Consumer Sentiment. This report gives investors insight into future consumer spending. If consumers are feeling positive about their own financial position and their view on the economy, they are more likely to spend. A not so optimistic consumer is more likely to save. When consumer spending increases, it can lead to inflation which is negative for mortgage rates. The report shows consumer sentiment continues to move higher with a reading of 61.9 when economists were only expecting a 58.5. Typically, this would be bad news for MBS but since the release we have moved off the lows of the day. This reinforces the view that MBS are very detached from the rest of the market.

  At 12pm eastern, Fed Chairman Ben Bernanke delivers the keynote speech at the Kansas City Federal Reserve Banks’ conference on Innovative Financial Services for the Underserved. As always, investors will be tuning in to gather any hints on future US monetary policy and for his views on our current economic conditions. We will post any relevant highlights of his speech.

  A big concern today for anyone buying or refinancing is the turn times at lenders. With record low mortgage rates, lenders are so swamped with business that the length of time it takes to close a loan has increased dramatically. One lender as of yesterday was underwriting loans submitted to them on March 9^th. That is 37 days in underwriting!!!! I have found most lenders to be 2 to 3 weeks in underwriting. I would like to hear from consumers and mortgage professionals on this subject. One reader emailed me this morning saying that the credit union he is refinancing with has been underwriting the loan for 6 weeks and counting!!! What turn times are you experiencing?

  Early reports from fellow mortgage professionals are showing par rates to be at 4.625% with the most aggressive lenders. For intraday updates, click over to the MBS Commentary blog.
  Published Fri, Apr 17 2009 9:48 AM 

• Your Mortgage Rate and the Closing Costs Associated with It

  Yesterday, mortgage backed securities (MBS) traded in a tight range and closed near the previous day's closing price levels. This stability will allow lenders to offer par 30 year conventional mortgages ranging from 4.625% to 4.875% depending on individual borrower risk profile characteristics

  To qualify for a par interest rate requires a FICO score of at least 740 with a loan amount to home value ratio of 80% or less. This also assumes that borrowers pay all closing costs which includes 1 origination/discount point or broker charge(how mortgage bankers and brokers earn income. I bring up this topic due to a recent conversation I had with a reader. This reader sent me an email indicating they had been quoted a specific zero point mortgage rate, as is the usual reaction to such a statement I requested this reader to please send me their good faith estimate. Sure enough, there were no points; however, upon further inspection I noticed a 1.00% closing cost labeled "broker fee"(see example below). So although the "fees" were not described as "points", this client was still paying the same amount. Consumers beware of how lenders structure your good faith estimates.

  

  That said, I am not bashing the added cost of origination or discount points but I would like to point out that these "points" and "fees" should go towards a lower rate. I encourage everyone who is refinancing to request a zero point/fee mortgage rate and a 1 point mortgage rate. If you are staying in the home for more than 3 years, paying the point and securing a lower rate will pay for itself and more than likely be the better deal. You are able to determine this breakeven point by calculating the difference between the two mortgage payments (0 point vs. 1 point quote) and comparing to the cost of the "points/fees" that you pay. If you save $100/per month divide that savings by the dollar amount of points you pay to determine the number of months it will take to make up the cost of "points/fees". If you believe you will be in house for a period longer than it takes to recover this cost...I would suggest paying the point in favor of a lower rate.

  I also had a reader comment yesterday about an offer they received on a refinance where the lender was “absorbing the costs”. Well, it appears that way on the surface when you get a good faith estimate that shows the lender paying all the fees; however, the rate they were quoted was abnormally higher than the average market par rate. So, is the lender absorbing the costs, or is this consumer paying the costs via a higher interest rate? If the latter is the case the consumer will pay more money in the long run vs. paying costs up front. Has this concept been presented to you by your mortgage professional? Have you experienced this dilemma. Should you pay additional closing costs? Should you pay a point? ? As always I am interested in hearing your thoughts on the subject.

  I have written in the past about lenders controlling their pipeline of business by increasing borrowing costs for no apparent reason. It was reported yesterday by a fellow mortgage professional of one lender doing this. With the price action of MBS yesterday, there was no reason for any lender to worsen pricing but that is what happened. As lenders start to offer better rates, many consumers jump off the fence and lock their rate. Once the lender gets enough locks, they start to increase rates to slow down their volume of new originations.

  Onto the data for the day.

  First we got the release of housing starts which showed construction of new homes declining sharply last month to an annual pace of 510,000 from February’s annual pace of 583,000. This is the second lowest reading on record. Economists had expected this report to show an annual pace of 570,000. This report is a positive for MBS and lower mortgage rates but not much reaction from the markets. With a glut of housing on the market, I am happy to see this come in lower. Less new homes being built will help the supply of existing homes to move lower.

  Next, the Labor department released the Weekly Claims for Unemployment Insurance. This report shows the number of Americans who have filed for unemployment insurance for the first time each week. We got mixed data with the weekly jobless claims unexpectedly improving from an estimate of 658,000 to 610,000 which is down 53,000 from the prior week. The continuing claims which gives us a reading of the number of Americans that continue to file for unemployment insurance set another record at 6,022,000. This is the 13^th week in a row that this has set a new record high reading and continues to show that unemployed Americans are having a difficult time securing a new job. This suggests that the worst has yet to come in regards to unemployment data.

  Lastly, we received the monthly Philadelphia Fed Survey which gives investors insight into the business conditions around the Philadelphia region. Expectations were for a reading of -30.2 following last months -35.0. Readings below 0 indicate a contracting economy and readings above 0 indicate an expanding or growing economy. The report came in better than expectations at -24.4 but still shows the manufacturing segment of our economy contracting. On the news, there was no reaction from the markets.

  So far this morning, MBS have continued to trade in a tight range. Early reports from fellow mortgage professionals show at least 1 lender offering 4.5% as par today. For intraday updates on the status of the markets, please check out the MBS Commentary.
  Published Thu, Apr 16 2009 11:21 AM 

• Mortgage Rates Inch Lower

  Yesterday, mortgage backed securities (MBS) continued their recent upward trend. As MBS moved steadily higher throughout the day consumer borrowing costs inched lower by about .125 in points. So far this morning, MBS are holding steady near yesterday's closing prices. Lenders continue to offer par 4.625% to 4.875% for well qualified consumers. A few aggressive lenders are offering 4.50% for borrowers with high FICOs and low loan to values.

  Let’s jump into the data released this morning.

  First out this morning was the weekly Mortgage Bankers Purchase applications report which showed purchase and refinance applications dropping last week by 11%. It appears the main cause for the decline was the Easter holiday. The purchase index is still very depressed but the refinance activity remains at very high levels in response to the historically low mortgage rates. The MBS Commentary blog will explain this in greater detail, MBS Commentary.

  Next, the US Labor department released the Consumer Price Index (CPI) which gives us a reading on inflation at the consumer level. Since inflation is the biggest enemy to mortgage rates, this is the highest impacting report for the week. The data came in mixed with overall inflation falling 0.1% which is lower than the 0.2% increase economists were expecting. The core consumer inflation rate came in at 0.2%, a little higher than expectations. After the release mortgages showed continued stability.

  This is yet another piece of economic data that supports the opinion of no risk for inflation today or in the near term. Year over year, headline consumer inflation reflects a drop in consumer prices by 0.4% which is the first yearly decline since 1955!!!

  I have been asked by a few people the difference between headline and core inflation. Well, headline inflation takes into account everything that you buy including food, gas, furniture, appliances, etc… while the core reading strips out food and energy from the report. Core CPI does not take into account the change in price of food or gasoline. There are a couple reasons for this. First, even though the core reading does not take into account gasoline, everything that you buy has the price of gasoline worked into it. For example, does Best Buy make that Sony flat screen TV in the back room, or is it shipped to Best Buy? So, the television that you buy has the price of gasoline worked into its price. Next, food and energy is very volatile and a change in their price may not be a true reflection of current economic conditions. A great way to explain this is to use Oranges. I heard this explanation at a seminar that I attended. Let’s say a cold weather front moves into Florida today resulting in freezing temperatures. We are at the beginning of growing season, so if Florida where to be hit with freezing temperatures it will devastate the orange crop. If the orange crop is severely damaged, the price of oranges will move higher which is inflation; however, was the inflation caused by a current economic condition or an act of God? Thus, the reason why we get a headline number and a core number and the fed’s favorite gauge for inflation is the core reading.

  Next was the release of the New York Empire State manufacturing report which came in much better than expectations and has muted the positive news from the CPI report. This report was expected to show a reading of -34.0 but came in much better at -14.7. It appears that manufacturers are more optimistic about future economic growth than economists had expected. This report is a negative for MBS as future economic growth can lead to higher inflation.

  Just out is the industrial production report which measures the change in production at our nation’s factories. If production is increasing, that is a signal of future economic growth which can lead to higher inflation so MBS prefer a lower reading. Economists had expected this report to show a decline of 0.8% but the actual reading came in at a larger decline of 1.5%.

  Later today the Federal Reserve will be releasing the Beige Book. This report is used at the Federal Open Market Committee (FOMC) meetings where the Fed sets monetary policy. The Beige Book is a survey of economic conditions across the country and is released 2 weeks before the upcoming meeting. This report gives investors insight into how the Fed may act at the upcoming FOMC meeting.

  Early reports from fellow mortgage professionals show at least 2 lenders offering 4.5% to the best qualified consumers. MBS are trading in a tight range today and they have a tough layer of resistance overhead that is preventing them from moving higher which would result in lower mortgage rates. MBS’ have hit this level several times and each time they are pressured lower. If you are sitting on the sidelines in hopes of lower rates, you may want to consider jumping off the fence and proceed with your refinance. There is much more room above for mortgage rates to move higher than there is for mortgage rates to move lower.

  I would love to hear from readers who are sitting on the sidelines currently. What is your reason for not pulling the trigger now? Are you hearing news from other sources that rates will be lower? I would just like to get your opinion so I have a better understanding of the mind set of the average consumer who is considering refinancing or buying a new home.
  Published Wed, Apr 15 2009 10:35 AM 

• Mortgage Rates Decline After Holiday Weekend

  Yesterday, mortgage backed securities (MBS) had a stable day which allowed a few lenders to reprice for the better. Overall mortgage rates moved slightly lower after the long holiday weekend.

  What's Moving Money Today....

  So far this morning, despite some very friendly MBS data, mortgage rates are holding steady near yesterday's closing rate levels

  Before we get to the data I should remind all that we are currently in the midst of corporate earnings season. During this time, I will spot light a few "money moving" earnings reports from various companies focusing on financials since they are the most relevant to the mortgage industry.

  Goldman Sachs, a recipient of TARP money, pre-released much better than expected 1Q earnings per share and 1Q revenues. This is the 2^nd financial institute, Wells Fargo being the other, who reported better than expected earnings. Goldman also indicated that they intend to issue more common stock in effort to raise $5 billion so they can pay back their TARP funds. This news will dilute the earnings potential for current shareholders but will create a buying opportunity for new entry equity investors. Unfortunately this will encourage investors to move money from bonds to higher yielding stocks.

  The US Department of Labor released producer price inflation data this morning. This report measures inflation on the producer level and has very influential implications for fixed income (bond) markets. Consumer inflation data is however slightly more important due to the fact that companies have several means by which to spread around higher prices (as opposed to passing them directly to consumer). There are 2 readings released with this report, core inflation and overall inflation. The core reading strips out food and energy due to their volatility. The month to month core reading was expected to show producer prices rising 0.2%; the actual reading indicated no change from last month (0.0%). The headline producer inflation number unexpectedly declined 1.2% from February, much lower than economist forecasts. So, we have yet another report confirming that a deflationary spiral is much more applicable compared to inflation worries (it will become a problem down the road though). Since inflation is the biggest enemy to mortgage rates, this report is very favorable for MBS, however, as has been the trend lately, MBS remains insulated from individual economic reports (that dont move money from stocks to bonds or from bonds to stocks).

  Also today we received perhaps the most important data of the week: retail sales report. Since consumer spending accounts for 2/3rds of our economy, investors pay this report a lot of attention. Our economy will not recover until the consumer starts to spend. Economists expected this report to indicate retail sales had increased by 0.3% from the prior month, unfortunately the number came in weaker than forecasted, a month over month decline of 1.2%!!! When excluding auto sales, retail sales were still weaker than expected, a 0.9% month over month decline. Economists were expecting a flat 0.0% reading. Retails sales were weak in all areas with electronics and appliances showing the largest declines. This report took the wind out of the sails of optimistic investors, the stock market immediately moved lower on the news. Stock markets moving lower implies money flowing into fixed income securities and support for lower mortgage rates. But, once again, MBS remains insulated from major swings in money flows. Mortgages continue to take only "directional guidance" from the "stock lever" and its effects on Treasury yields.

  At 10AM we got the release of business inventories. Economists had expected business inventories to show a month over month decline of 1.0%, but this also came in worse than expected at a month over month decline of 1.3%.

  In a sign of the crazy times we live in today, we got 2 reports this morning that are very favorable for MBS but we are not getting any love, yet. In a speech last night, Ben Bernanke made forward looking comments on his hope for sunny days ahead. This served to create some optimism in stock markets which will offset potential gains in MBS.

  President Obama is scheduled to deliver a "MAJOR" speech on the economy any minute now. All ears will be tuning in to see what he has to say. Headline news always remains a possible money mover. I suspect President Obama will speak of brighter days ahead and attempt to highlight the positives of his young administration. Remember, just a month or so ago the Dow was at 6500! Check out MBS Commentary for mortgage updates after he reads President Obama reads speech (off the teleprompter :-D). I will post an update later today if mortgage rates move higher or lower.

  Early reports from fellow mortgage professionals have shown at least one lender offering 4.5% as par rate this morning. To qualify, you must have a 740 FICO credit score, pay all closing costs and 1 point
  Published Tue, Apr 14 2009 10:53 AM 

• Rates Stable and the Week Ahead

  First of all, I hope everyone had a wonderful Easter weekend with friends and family. My wife and I enjoyed ours, but now back to work.

  So far this morning, mortgage backed securities (MBS) are holding at unchanged levels. This should allow lenders to pass along par 30 year conventional rate mortgages in the 4.625% to 4.875% for the best qualified consumers. To qualify for the best rates a consumer would have to have a FICO credit score 740 or higher, fully document your income and assets and pay all closing costs associated with your loan including 1 point.

  This week, we will continue to receive corporate earnings which can have an impact on the flow of investment money. Last week, Wells Fargo came out with a report of much higher than expected first quarter profits which helped to move the stock market higher at the expense of fixed income. This resulted in par interest rates moving about .25 to .375 higher in costs. If we continue to receive above expected numbers, investors will be tempted to sell their fixed income investments (MBS and Treasuries) and move the money over to the higher yielding returns of the stock market.

  Onto the data for the week:

  Tuesday

  - Producer Price Index (PPI), which measures inflation on the producer level. Inflation reports are always very relevant to MBS and mortgage rates as higher inflation leads to higher mortgage rates. PPI measures prices at the producer level before they are passed along to consumers. This report is not as important as consumer inflation reports due to producers sometimes do not pass along the higher prices to the end consumer. This report is expected to show a month over month increase of 0.1% following last months 0.1% rise. When excluding volatile food and energy, this report is expected to show a month over month increase of 0.2%.

  - Retail Sales, which measures the total receipts at stores. Since consumer spending accounts for 2/3rds of GDP, higher than expected retail sales would be very positive for stocks and negative for MBS. Economists are expecting this report to show retail sales up from last month 0.3% after the previous months -0.1% decline. When excluding auto sales, this report is expected to show a flat reading of 0.0% month over month.

  - Business Inventories, which is the dollar amount of inventories held by producers, wholesalers and retailers. When businesses are optimistic of future economic growth, they tend to increase their inventories to handle expanding sales, but when businesses are pessimistic, they tend to lower inventories due to a drop off in sales. MBS tend to improve with a lower than expected reading. This report is expected to show a month over month decline of 1.0% after the previous months 1.1% decline.

  Wednesday

  - Mortgage Bankers’ Association purchase applications which gives investors insight into demand for housing. Strong housing demand is a very positive sign for the economy since a consumer will have to feel very comfortable in their own financial position to purchase a home so a better than expected reading can lead to investors selling MBS which results in higher borrowing costs.

  - Consumer Price Index (CPI), which is a measure of inflation at the consumer level and measures the month over month change in the price level of a fixed basket of goods and services purchased by consumers. We get two readings with this report; we get the headline reading which includes food and energy and the core reading which excludes food and energy. The headline reading is expected to show consumer prices rising 0.2% after last months 0.4% increase. The core is expected to show consumer prices rising 0.2% which would be equal to the previous month. Since inflation is the biggest enemy to mortgage rates, MBS tend to improve with a lower than expected reading.

  - Empire State Manufacturing Survey which is a survey that gives inventors a gauge into the strength of our manufacturing segment of our economy. Last month this report came in at very low reading of -38.2 and it is expected to come slightly better this month at -34.0. MBS’s prefer a slower growing economy so a worse than expected reading would be positive for MBS.

  - Industrial Production which is a measure of the physical output of our nation’s factories, mines and utilities. This report is expected to show another decline of -0.8% after the prior months -1.4% decline. If a company expects future economic growth, they tend to start producing more goods to match the expected rise in sales. So, MBS tend to improve with a lower than expected reading.

  - Fed Beige book which is published a couple weeks before the monetary policy meetings of the Federal Open Market Committee. This report is used at the FOMC meetings where the Fed sets interest rate policy every 6 weeks and it allows investors to see for themselves one of many indicators the Fed uses to set monetary policy.

  Thursday

  - Housing Starts which measures the number of new homes that construction has begun each month. If housing starts are increasing it could lead to future demand for furniture, appliances, flooring, etc… So the stock market tends to rally with a better than expected reading and MBS tend to improve with a lower reading. Last month, housing starts came in better than expected at an annual pace of 583,000 and is expected to come in this month at a yearly pace of 570,000.

  - Jobless claims, expected to show 650,000 US citizens to have filed for unemployment insurance last week. Higher unemployment tends to keep wage based inflation in check, so MBS tend to improve with a higher than expected reading.

  - Philadelphia Fed Survey which measures the strength of the general business conditions around the Philadelphia area. The report is expected to improve over the prior months reading of -35.0 and come in at -30.2. Readings below 0 indicate a contracting economy and readings above 0 indicate an expanding economy.

  Friday

  - Consumer Sentiment which is a survey of over 500 households each month on their financial conditions and attitudes about the economy. Our economy is driven by consumer spending, so a positive consumer is more likely to spend money while a pessimistic consumer is more likely to save money. Higher consumer spending can lead to inflationary pressures, so the MBS market tends to improve with a lower reading. This report is also expected to show a slight improvement over the prior months reading. Last month, this report came in at 57.3 and is expected to come in at 58.5 this month.

  - Federal Reserve Chairman Ben Bernanke will deliver the keynote speech at the Kansas City Federal Reserve Bank’s conference on Innovative Financial Services for the Underserved. As always, when Ben Bernanke speaks, investors will listen for any clue regarding the economy or future monetary policy.

  Matt Graham, one of the featured writers at the MBS Commentary blog wrote an excellent post Friday that I would encourage everyone to read. The blog goes over some very important technical analysis and includes some graphs to support his opinions. If you would like to read, <<Click Here>>.

  Early reports from fellow mortgage professionals are showing par mortgage rates to be in the 4.625% range for the best qualified consumers.

  For intraday updates, Matt and Adam will be posting at the MBS Commentary.
  Published Mon, Apr 13 2009 10:56 AM 

• Happy Good Friday

  Yesterday mortgage backed securities (MBS) dropped in price increasing consumer costs by .25 in discount. Lenders where quite conservative yesterday with the rates they offered to hedge against any unexpected events over the 3 day weekend.

  All markets are closed today in celebration of Good Friday and Easter weekend; however, banks are open for business. We will get rate sheets from lenders but I suspect they will be very conservative with par 30 year fixed rate mortgages anywhere from 4.75% to 5% for the most qualified consumers.

  Next week we do get some new economic data that can move the markets. On Tuesday and Wednesday, we get inflation data on the producer and consumer level. Since inflation is the biggest enemy to mortgage rates, investors will be paying these reports a lot of attention. We are also getting retail sales data, industrial production, housing starts, jobless claims and consumer sentiment among others. We have a busy week next week not just for economic reports but also corporate profit and losses. I will bring you all the action and a detailed week in review on Monday.

  I hope everyone has a pleasant holiday weekend.
  Published Fri, Apr 10 2009 8:39 AM 

• Better than Expected Earnings Raising Mortgage Rates

  Yesterday mortgage backed securities (MBS) had a strong rally leading to many lenders repricing for the better early in the afternoon, however a late day sell off forced lenders to reconsider their decision to pass along lower borrowing costs. After the first reprice for the better consumer borrowing costs decreased by .125 in discount with several lenders offering 4.5% par rates for well qualified borrowers. Only a few lenders repriced for the worse late in the afternoon.

  What's Moving Money Today...

  This morning the Labor Department released the weekly jobless claims report. The report showed jobless claims had decreased 20,000 from the prior week to 654,000 people filing for unemployment insurance which was slightly better than economist’s predictions. Continuing claims set a new record high with 5.84 million Americans continuing to file for unemployment insurance which indicates the labor market will remain a big concern for financial policymakers. The jobs outlook continues to look very weak which should help to keep wage based inflation in check.

  The US International Trade numbers were also released this morning showing that our trade gap had decreased. Economists were expecting this report to show that our country had a trade deficit of -$36.5billion, meaning our imports outnumbered our exports by $36.5billion. The actual number came in considerably better as the trade gap narrowed to -$26.0billion which is the lowest reading in over 9 years. No reaction after the release.

  Import/Export prices were also released this morning which gives investors another chance to check out inflation. The report indicated that prices of imported products increased 0.5% month over month, which is more than the expectations of a -0.2% drop. The more important information in the month over month report is import prices excluding oil. This showed import prices to have fallen for the third month in a row by 0.7%. This implies inflation is not a concern which was supported by the FOMC minutes from the last fed meeting...the FOMC stated that inflation over the near term is very unlikely. Year over year prices though declined more than expectations of -12.8% to a decline of -14.9%. Export prices showed a bigger decline than expected to a month over month drop of -0.6% and year over year drop of -6.7%. No reaction after the release.

  Today at 1pm eastern, we are getting another round of 10 year treasury notes up for auction. With the added supply of debt on the market, it may apply pressure on treasuries and MBS to move lower in price. As MBS move lower in price mortgage rates move higher. We had a record amount of 3 year treasuries available yesterday for auction which had strong demand, especially from foreign investors. This helped to keep the rally in MBS going throughout the day yesterday.

  In some related news, Wells Fargo is reporting this morning that they will have record profits in the first quarter. It appears this news is creating a lot of optimism in the stock market which is currently up over 100 points. Strength in the stock market could apply pressure on MBS to move lower as investors want to sell low yielding fixed income investments and move the money over to higher yielding stocks. So far MBS are holding steady but they are down a little bit on the day. The MBS market closes early today at 2pm eastern and will be closed tomorrow in celebration of Good Friday and Easter weekend.

  I receive a lot of emails and comments from readers asking whether they should lock or hope for rates to move lower and wait. This morning, well qualified consumers should be able to get a 30 year fixed at 4.5% with 1 origination point. If you are waiting on the sidelines hoping rates move lower, I would suggest getting off the fence as mortgage rates are still at record lows.

  Over the last few months, we have seen rates move to 4.5% but not much lower, unless you wished to pay higher fees. Each time we hit these levels, rates start to move higher. We say quite often to lock the lows and float the highs. Well, rates have been moving in a range from 4.875 %(the highs) to 4.5%(the lows), so we are once again at the lows. Now would be a great time to lock in and move on with your life and be glad that you secured a fantastic interest rate.

  Early reports from fellow mortgage professionals are indicating that well qualified borrowers can still lock a 30 year conventional mortgage close to 4.5%. To qualify, you must have credit scores over 740, fully document your income, and pay all closing costs associated with loan including 1 point. Can rates move lower, perhaps, but history implies that rates are near the lowest levels that lenders have been willing to offer. The better question is: Can rates move higher, DEFINITELY. At this point, there is much more room for rates to move higher compared to the room for rates to move lower.

  As always, for intraday updates check out the MBS Commentary Blog.
  Published Thu, Apr 09 2009 10:04 AM 

• Mortgage Rates Lower After Solid Session

  Yesterday, mortgage backed securities, the investment vehicle that determines mortgage rates, had a very strong day. MBS moved steadily higher throughout the day and made higher highs and higher lows. As MBS improved in price, consumer borrowing costs steadily decreased. The days action can be best summarized with a GRAPH . Yesterday's strong session has allowed lenders to lower borrowing costs by .125 to .250 discount points. Well qualified borrowers should be able to attain a par 30 year fixed conventional mortgage in the range of4.625% to 4.875%.

  As far as economic data goes...this morning the Mortgage Banker's Association of America (MBAA) released their Weekly Application Activity Report. The purchase index jumped higher by 11% the week of April 3^rd while the refinance index moved higher by 3.2%. This report is not a broad market mover but it is nonetheless a positive to see purchases increasing considering the glut of housing supply on the market.

  At 1pm eastern the US Treasury will auction off $35bn 3 yr notes. The added supply of debt may pressure treasury yields higher which could cause MBS to follow. When I speak of yield and price, keep in mind that they are inversely related. As price moves higher, yield moves lower and as price moves lower, yield moves higher. As a mortgage professional, I want the price of MBS to move higher which results in lower mortgage rates.

  Lastly, the minutes of the last Federal Open Market Committee meeting (where our country’s monetary policy is decided) will be released. Most of the information in the minutes will already be known, but investors will still read through it thoroughly for any hint on future monetary policy.

  Yesterday’s mini rally in MBS can probably be attributed to weakness in the stock market. Investors sold stocks and moved the money over to fixed income. We are in the beginning stages of corporate earnings season. Over the last few weeks, investors have shown some optimism mainly due to the G20 rhetoric and the relaxing of mark to market accounting rules, but a weak earnings season may bring them back to reality. Alcoa, the largest aluminum producer in the US reported last night it’s first back to back quarterly loss since 1994. If the Dow continues to move lower, MBS should continue to see improvements.

  So far this morning, MBS are holding onto the gains from yesterday. Early reports from fellow mortgage professionals are showing lenders rates to be slightly improved this morning.
  Published Wed, Apr 08 2009 11:04 AM 

• Rates Stabilizing

  Yesterday loan officers got an early afternoon reprice scare following a sell off in the thinly traded MBS market. Overall, besides the reprice alert, it was a sleeper of a day. Mortgage backed securities traded, again, in a very tight range closing at the same level they opened. This should allow lenders to continue to offer well qualified borrowers a par 30 year fixed conventional mortgage rate in the range of 4.625% to 4.875%.

  The economic calendar is light today with the only relevant data being the release of the Federal Reserve's report on Consumer Credit. G.19 Consumer Credit gives us the dollar value of consumer installment credit outstanding. If consumer credit is increasing it is a sign that consumers are spending, which is a positive signal for the economy. Negative implications can be taken away because more spending can lead to future inflation. MBS prefer moderate growth which helps to keep inflation in check. Inflation is not of concern to investors at the moment. Economists are expecting this report to show that consumer credit, month over month, had declined by -$3.0bn after an unexpected rise in January of -$1.8bn. Are American's spending more money they don’t have?

  Earnings season gets started today. Many equity investors are beginning to view the stock market's recent run of optimism as a "bear market rally". These market players will display this outlook by selling any news of "weaker than expected" company earnings releases. This bias has the potential to indirectly influence the MBS market through a "flight to safety" rally in Treasuries. Higher MBS prices imply lower mortgage rates. We call this the "stock lever". The stock lever demonstrates the flow of money between risky stocks and safe bonds. Investors basically have 2 areas that they invest into, equities (stocks) and debt (Treasuries, MBS, Agency Bonds, etc..). Typically, on days when the stock market is up, the fixed income (debt) market is trading lower, and vice versa.

  Headline news remains a constant risk. On slow economic data days, investors will look deeper into news headlines for any indicative clues regarding future economic conditions. One headline that crossed tapes this morning was that Europe’s recession has deepened more than expected. Since we live in a world economy, it is important for us to look at overseas data. This news could be considered a positive for US debt markets, MBS included, as global investors seek out safe havens within the US financial system.

  Considering the economic calendar is light and earnings reports are not scheduled to hit the wires until after market close, barring any blaringly optimistic headline news, I suspect we will have another sluggish day in the mortgage market. It will be very difficult for MBS to have a big rally, but if the stock market closes in the red and treasury yields move lower, we should at least have marginal MBS improvements which will provide rate sheet stability. On the MBS Commentary Adam outlined a rather complex topic that may help you better understand why certain rates on lender price sheets have a higher probability of falling from 98.500 to 95.500 overnight. Read More: MBS Commentary.

  So far this morning, fellow mortgage professionals are reporting lenders rate sheets to be slightly improved over yesterdays. This is keeping 30 year fixed rate mortgages in the 4.625% to 4.875% range. Over the previous few days, we have been seeing lenders rate sheets worsening, so it is nice to get some improvement even though the improvement is very modest.

  For intraday updates, remember Matt and Adam’s MBS Commentary!!!
  Published Tue, Apr 07 2009 9:39 AM