Mortgage Market Review 6/29/09

This Morning…Monday, June 29, 2009:
Mortgage backed securities (MBS) prices continue to trade higher (rates lower) as signs emerged that foreign buyers are scooping up record amounts of U.S. debt speculating the economy's recovery may be slow. The U.S. relies on foreign central banks to finance the huge federal deficit, with over 50% held outside the U.S. Crude oil advanced to $70.41 a barrel and is poised for a 42% quarterly gain. While the economic slump tempers global demand growth, it may also cause supply to shrink as lower exploration and production spending delays projects and reduces spare capacity. There are no economic reports due out today.

Last Week:
Last week the auctions went pretty well, which is a good thing for the bond market and interest rates in general as mortgage rates found support from investors around the world. The Treasury sold bonds totaling 104B that were well received by foreign central banks. The indirect bidder participation, an indication of foreign demand, was near all-time highs. The 7-yr note on Thursday came at 3.33%, capping off $104 billion of supply last week. There are no scheduled auctions for a few weeks, which, if one adheres to a strict supply/demand model, is a good thing. The Michigan Consumer Sentiment Survey on Friday hit its highest level since February of 2008, and Personal Income and Consumption were up, which help our savings rate.

This Week:
It is a short news week. The Chicago PMI and ISM national manufacturing indices will come out on tomorrow and Wednesday respectively along with Pending Home Sales, a leading indicator for the housing market. Consumer Confidence, Construction Spending, and Factory Orders are later in the week. The employment report Thursday will be the most important release this week. The ADP employment report will give an earlier glimpse into the employment situation though the two reports are derived from different data so there could be some divergence. Strength in the other economic data will do little to help mortgage interest rates improve.

EconomicIndicator
Analysis
Consumer Confidence
Tuesday, June 30,10:00 am, et
55.1
Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.
ADP Employment
Wednesday, July 1,8:30 am, et
-363k
Important. An indication of employment. A large decrease in payrolls may bring lower rates.
ISM Index
Wednesday, July 1,10:00 am, et
44.00
Important. A measure of manufacturer sentiment. A larger decline may lead to lower mortgage rates.
Employment
Thursday, July 2,8:30 am, et
9.6%-370k jobs
Very important. An increase in unemployment or a large decrease in payrolls may bring lower rates.
Factory Orders
Thursday, July 2,10:00 am, et
Up 0.2%
Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.
Market Holiday
Friday, July 3
None
Important. Bond market closed in honor of Independence Day.

Market Forecast:
Mortgage rates have risen, potentially delaying a rebound in the housing market as central bankers have indicated they accept the rising yields as long as they reflect expectations for an economic recovery. However, further increases may put such an outcome in jeopardy. Home sales, the engine that has powered every U.S. recovery since 1960, have stalled due to stricter qualifying rules and rising rates. The $8,000 first time homebuyer’s tax credit and a government program to subsidize some mortgage payments have had little effect. Mortgage lending is at a 13 year low and the 3.8 million homes for sale (2.1 million unoccupied) does not help the situation. At the current pace it would take 9.6 months to unload them all, while the 5yr historical average is 3.6 months.

Some Humor:
Last weekend I was driving when a traffic camera flashed. I thought my picture was taken for exceeding the speed limit, even though I knew I was not speeding.
Just to be sure, I went around the block and passed the same spot, driving even more slowly, but again the camera flashed. I thought this was quite funny, so I slowed down even further as I drove past the area, but the traffic camera flashed yet again.
I tried a fourth time with the same result. The fifth time I was laughing when the camera flashed as I rolled past at a snail's pace.Two weeks later, I got five traffic fine letters in the mail for driving without a seat belt.

6/26/09

We had a nice little improvement in rates yesterday (prices up, rates down), and a nice improvement in the stock market due to an enormously strong 7yr note auction that drew higher demand from foreign central banks than in previous auctions. Folks who think that every time the stock market moves in one direction rates should move in the opposite direction are not always correct. This morning however, mortgage backed securities (MBS) prices are lower (rates higher) after yesterday's substantial gains. Expectations that the Fed will keep interest rates low have increased; traders now see a 46% chance of a rate hike in 2009, down from about 90% a week ago. Personal income surged in May, more than expected, though nearly all the gain is related to temporary fiscal stimulus. The savings rate has reached a 15 year high, indicating the economic recovery will be slow to develop. Consumer spending rose for the first time in three months, a sign that efforts to revive the economy may be starting to pay off and Consumer Sentiment showed a slight improvement.

Today for news we have Personal Income and Consumption (in recent years popularly known as “spending, along with the Michigan Consumer Sentiment Survey around 7AM PST. The bond market is relatively quiet ahead of this, but be wary today of a sell off as it is a Friday after a strong run up in prices. Have a great weekend.

6/25/09

Ah…the economy. New Home Sales fell .6% in May, which was somewhat unexpected. Year-over-year sales are down almost 33%. The Treasury auction went well, but the spotlight was on the Fed announcement, which, as expected left the overnight rates unchanged. Their statement indicated that the sensitive economy is in better shape than several months ago – that the “pace of economic contraction is slowing," What does that mean for mortgage rates, which we all know have shot up in the last month and threaten any kind of housing-based revival? Mortgage rates have followed Treasury rates, which have gone up given the supply in the market and also the psychology that the recession is near a bottom. More recently, rates have come down slightly but are still higher than where much of the public thinks they are (“What do you mean I can’t get a 30-yr mortgage at 4.75% with one point? My realtor said…”) Rates went higher yesterday afternoon, and traders remind us that it usually takes a day or two for the market to sort this out. Most expect choppy trading until next week.
This morning we’ve had Jobless Claims (unexpectedly up to the highest level since mid-May) and GDP (the U.S. economy contracted in the first quarter, capping the worst six-month stretch in more than 60 years). Both pieces of news are not good for the equity markets, but should be fine for rates. Let me know if you have any questions.

6/24/09

Mortgage backed securities (MBS) prices are lower (rates higher), ahead of the FOMC policy statement due at 1115am pt and before the Treasury auction of $ 5yr notes. Today's 5yr note auction is the largest sale of the security since 1953. The concern is the liquidity injections and unprecedented borrowing will cause inflation to accelerate, endangering the prospects for a recovery. The Fed will probably reassure investors they can keep interest rates at record lows without igniting inflation, stressing the increasing slack in the economy will contain consumer prices into next year. New Home Sales unexpectedly fell in May and the median sales price fell 3.4% from a year ago, but was up 4.2% from a month ago. All eyes are on the FED today. Call me with any questions.

6/23/09

Mortgage backed securities (MBS) prices opened lower this morning after yesterday's gains which were fueled by stock market losses boosting demand for fixed income assets, like MBS. MBS prices have since rebounded. Today the Treasury will auction $40 billion of 2yr notes, first of this week's three sales totalling a record $104 billion. The last auction drew the most demand since November 2006 from foreign central banks, helping ease concern that international investors will begin to shy away from Treasuries as U.S. borrowing surges to fund bank bailouts, fiscal stimulus spending and a record budget deficit. The Fed starts a two day meeting today to consider any changes to its pledge to buy Treasuries, agency debt and MBS to lower consumer borrowing costs, and whether to keep its benchmark interest rate near zero. The FOMC statement is due at 1115am pt tomorrow.

Mortgage Market Review 6/22/09

This Morning…Monday, June 22, 2009:
Mortgage backed securities (MBS) prices are higher (rates slightly lower) after the World Bank cut its forecast for global economic growth this year, causing stocks and commodities to retreat, benefiting fixed income assets like MBS; The DOW is down 100pts. No economic data will be released today, though the Fed will be purchasing Treasuries which is a part of the plan to lower borrowing costs and revive the economy. Investors are focused on the upcoming FOMC meeting that begins tomorrow, looking for possible news on changes in Fed's view on the economy. There is a risk that higher rates will hold back the budding economic recovery by lifting borrowing costs for homeowners and buyers. Volatility will continue in MBS markets as supply concerns weigh heavy on traders minds.
Last Week:
Mortgage bond prices remained volatile in up and down trading last week. We started the week in positive territory only to have the gains erased as stronger than expected housing starts data shocked the market Tuesday and overshadowed the tame inflation data. Producer and consumer price data showed inflation remained in check however oil prices remained volatile. US debt concerns continued as the Treasury announced record auctions ahead. For the week interest rates remained near unchanged.
This Week:
Even with no economic data released on Monday, this week will a busy one with large Treasury auctions June 23-25 and the FOMC meeting that begins Tuesday and concludes Wednesday with a policy statement due out at 11:15am pt. The Fed may acknowledge the economy has improved since their last gathering, while reassuring investors that interest rates will stay low for the foreseeable future, preventing borrowing costs from climbing and undermining tentative signs of recovery. The Fed statement will likely have a significant impact on MBS markets. On Tuesday Existing Home Sales will be released and New Home Sales are due on Wednesday, giving traders a glimpse of the current housing market. Also on Wednesday is information on mortgage applications from the Mortgage Bankers Association and Durable Goods Orders, an important indicator of economic activity. Wednesday shapes up as the important day of the week, with a 5yr note auction and the FOMC policy statement. Thursday brings Gross Domestic Product (GDP) final revision figures and Jobless Claims too. The week ends with Personal Income/Spending numbers, Personal Consumption Expenditure (PCE) and Consumer Sentiment all set for Friday.

EconomicIndicator
Existing Home Sales
Tuesday, June 23,10:00 am, et
Up 3.2%
Low importance. An indication of mortgage credit demand. Significant weakness may lead to lower rates.
2-year Treasury Note Auction
Tuesday, June 23,1:30 pm, et
None
Important. $40 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
Durable Goods Orders
Wednesday, June 24, 8:30 am, et
Down 0.9%
Important. An indication of the demand for "big ticket" items. Weakness may lead to lower rates.
New Home Sales
Wednesday, June 24, 10:00 am, et
Up 2.3%
Important. An indication of economic strength and credit demand. Weakness may lead to lower rates.
5-year Treasury Note Auction
Wednesday, June 24, 1:30 pm, et
None
Important. $37 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
Fed Meeting Adjourns
Wednesday, June 24, 2:00 pm, et
No change
Important. Few expect the Fed to change rates, but volatility may surround the adjournment of this meeting.
Q1 GDP final revision
Thursday, June 25,8:30 am, et
Down 5.7%
Moderately important. A measure of US economic production. Weakness may lead to lower rates.
7-year Treasury Note Auction
Thursday, June 25,1:30 pm, et
None
Important. $27 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
Personal Income and Outlays
Friday, June 26,8:30 am, et
Up 0.2%,Up 0.4%
Important. A measure of consumers’ ability to spend. Weakness may lead to lower mortgage rates.
U of Michigan Consumer Sentiment
Friday, June 26,10:00 am, et
69.0
Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.

Market Forecast:
All eyes will be focused on the Fed meeting Wednesday. No one expects the FED to raise rates, but the market is looking to see what their assessment of the US economy is. A cautious approach to float/lock decisions is prudent heading into the meeting. Market volatility is likely.
Some Humor:
At St. Mary's Church they have a weekly husbands' marriage seminar. At the last session, the priest asked Giuseppe, who was approaching his 50th wedding anniversary, to take a few minutes and share how he had managed to stay happily married to the same woman for so many years.
Giuseppe replied to the assembled husbands, “Wella, I've a-tried to treat her nicea, spenda da money on her, but besta of alla is, I tooka her to Italy for our 25th anniversary!”
The priest responded, “Giuseppe, you are an amazing inspiration to all the husbands here! Please tell us what you are planning for your 50th anniversary?”
Giuseppe proudly replied, “I'ma gonna go get her.”

6/19/09

Mortgage backed securities (MBS) prices are lower (rates higher) in quiet sideways trading, typical for a Friday in June, as stock markets are higher and there are no economic reports due out today; MBS prices opened higher, only to fall back into negative territory. Market participants are concerned over the looming supply of Treasuries, driving investors out of fixed income assets, like MBS, into more riskier investments seeking higher yields. The demand from foreign investors will be closely watched, as they are crucial for continuing the administration's record budget deficits. Gold prices have declined amid signs of recovery, after investors bought the metal to protect against plunging equities and a deepening recession, and are buying other assets such as real estate, reversing flight to quality trades. Crude oil prices rose for the third day on speculation that fuel consumption will climb as the global economic downturn subsides. Today is a Friday, so volatility is probable this afternoon

6/18/09

Good morning. Mortgage backed securities (MBS) prices opened sharply lower amid concern the administration's record borrowing will overwhelm demand as the recession shows signs of easing and the release of today's economic reports. The administration projects a record $1.85 trillion budget deficit this year and pushed the marketable debt to an unprecedented $6.45 trillion, while relying on foreign central banks to finance the massive debt. Treasury Secretary Geithner is testifying today before the Senate Banking Committee on financial industry regulatory reform. Market participants will be listening intently. Initial jobless claims rose from the prior week, while the 4-week moving average fell to the lowest level since February. The total number receiving unemployment benefits plunged, ending a long streak of increases. The data indicates the economy is stabilizing. Leading Economic Indicators jumped in May, pointing to economic leveling followed by a mild recovery. Contraction in new orders slowed substantially, but the good news is the general business conditions index rose more than 10pts. Employment is certain to lag as manufacturers hold off on new hiring until six months down the road. All in all, this morning’s data will increase talk that government stimulus, whether fiscal or monetary, may have to be withdrawn sooner than later. Stay tuned and as always, call me with any questions.

6/17/09

Good morning. The rebound continues as mortgage backed securities (MBS) prices continue to climb higher (rates lower), extending the rally for a fifth day, after a Labor Department report showed consumer prices rose less than forecast, easing concern inflation will accelerate. Consumer Price Index (CPI), the broadest monthly price gauge because it includes goods and services, increased 0.1% in May despite higher energy costs. The boost in energy costs was due to a 3.1% gain in gasoline prices, though partly offset by declines in natural gas. Please let me know if you have any questions.

6/16/09

Good morning. Another goofy day. Bonds started lower (down 9 basis points from yesterdays close) and are now up again (14 points). The prices are changing as Russia, India and China consider buying each other's bonds, swapping currencies to lessen dependence on the dollar and shifting reserves out of Treasuries. Speculation that the Fed will raise interest rates this year, if the economy is recovering, is fading as quickly as it surged the past two weeks as investors become less concerned inflation will increase. U.S. Producer Prices rose in May, sharply falling short of expectations, as food expenses dropped. An increase in fuel led to the jump in wholesale prices and these costs may rise further in June. Core prices, excluding food and fuel, unexpectedly in May, the first decrease since October 2006. Overall PPI fell 4.7% on a year over year basis, the biggest decrease since 1949, reflecting the drop in fuel prices late last year that has since partially reversed. The bottom line is that inflation currently is moderate. U.S. Housing Starts soared up 17.2% in May, showing surprising strength. Building permits, an indicator of future construction, rose 4% from the previous month. However, building permits are down 47% from a year earlier. Factory production, 80% of total production, was down 15% in the last year, the biggest 12-month drop since 1946. Manufacturing is still contracting, maintaining a moderate decline. As orders have tumbled, companies have slashed production to lower inventories. The excess capacity will help control inflation as raw material costs keep rising. We’ve had a little improvement in pricing and we are hoping it will continue. Please let me know if you have any questions. Have a great day today

Mortgage Market Review - 6/15/09

This Morning…Monday, June 15, 2009:

Mortgage backed securities (MBS) prices continue to rally higher (rates lower) as weakness in the stock market is lifting MBS markets as money flows out of equities and into fixed income assets. Market participants note the price rally may continue this week as MBS are likely to benefit from a brief respite in government supply and the Fed's two scheduled purchases of Treasuries. The outlook for the next six months climbed to the highest level in almost two years as the drawdown in goods on hand clears the way for factories to ramp up output. Regional and national purchasing manager surveys have shown a declining rate of contraction in recent months, but actual improvement will not be evident until current new orders pick up and destocking comes to an end. International holdings of long term U.S. financial assets, a safe haven for foreign investors during the global financial crisis, rose in March. Foreigners were net buyers of equities, but turned sellers of U.S. corporate bonds and agency debt. The key topic among foreign investors remains the U.S. commitment to a strong dollar

Are we (the tax payer) making any money from the AIG, TARP, and other government investments? Check out http://money.cnn.com/news/storysupplement/economy/bailouttracker/index.html

Last Week:

After two weeks of steadily increasing mortgage rates, volatility in the mortgage market has show signs of stabilization. Last week mortgage rates topped out near 5.625% before a late week MBS market improvement allowed lenders to lower the 30 year conventional fixed mortgage rate. US debt concerns played the biggest factor in rate swings as worries continued that countries would shift out of US dollar holdings. Russia indicated a willingness to move some reserves from US Treasuries to International Monetary Fund bonds. Retails sales rose 0.5% as expected but the positive figure reinforced the belief that the economy is turning. Oil prices continued to escalate hitting over $72/barrel.

For new readers and as a reminder for long standing rate watchers, the foundation for how mortgage rates are generated is built upon trading in the secondary mortgage market, specifically mortgage backed securities (MBS). If investor demand for MBS is high, prices are generally moving higher which helps mortgage rates tick lower. If investor demand is weak for MBS, that drives prices lower, which increases mortgage rates. Investor demand is determined by their perception of the overall economy and the gyrations for the yield curve. If investors believe the economy is strong and growing, they tend to move their funds into higher yielding stocks as a growing economy tends to lead to higher corporate profits and higher returns for their investment dollar. When our economy is struggling, investors tend to move their money into safer lower yielding investments such as MBS and treasuries to avoid losing money by holding stocks. During a struggling economy, corporate profits tend to decrease or disappear thus the flight into safer assets. Investors make their investment decisions based on many factors including economic reports which are released almost on a daily basis.

This Week:

This week provides investors information on the housing market and manufacturing, but the most significant economic data released will be the monthly inflation reports. The week begins with the Empire State manufacturing index, a survey of factory executives from New York, New Jersey and one county in Connecticut and the earliest measure of regional manufacturing. Also Monday, the Treasury International Capital report details long term investment inflows from foreign investors. Tuesday the Producer Price Index (PPI) comes out, which focuses on the increase in prices for goods used to produce finished products. Housing starts and building permits provide a view of the housing market and construction industry, both expected to be awful. Rounding out a busy Tuesday is Industrial Production and Capacity Utilization figures. Consumer Price Index (CPI) is the most closely watched inflation report and will come out on Wednesday. The CPI looks at the price change for finished goods sold to consumers, while the core rate excludes volatile food and energy prices. Information on mortgage applications from the Mortgage Bankers Association is due out also on Wednesday. Thursday we get Jobless Claims, Leading Economic Indicators and the Philadelphia Fed Index, all important barometers of the economy, but ultimately the Treasury's announcement of the size of their next round of debt offerings will be the primary focus of the day. Friday there are no economic reports due out but it is "Quadruple Witching" day, when all cash and futures contracts expire along with the indexes themselves. Tendency is for an extremely volatile day in the equity markets.

Economic Indicator

Housing Starts Tuesday, June 16,
8:30 am, et Up 6.9% Important. A measure of housing sector strength. Weakness may lead to lower rates.
Producer Price Index Tuesday, June 16,
8:30 am, et Up 0.4%,
Core up 0.1% Important. An indication of inflationary pressures at the producer level. Lower figures may lead to lower rates.
Industrial Production Tuesday, June 16,
9:15 am, et Down 0.5% Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.
Capacity Utilization Tuesday, June 16,
9:15 am, et 68.6% Important. A figure above 85% is viewed as inflationary. Weakness may lead to lower rates.
Consumer Price Index Wednesday, June 17,
8:30 am, et Up 0.2%,
Core up 0.1% Important. A measure of inflation at the consumer level. Lower figures may lead to lower rates.
Leading Economic Indicators Thursday, June 18,
10:00 am, et Up 0.9% Important. An indication of future economic activity. A smaller increase may lead to lower rates.
Philadelphia Fed Survey Thursday, June 18,
10:00 am, et Down 16.4 Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates.

Market Forecast:

Market participants expect the consumer price index to be critical heading into the Fed’s meeting next week. Inflation friendly data may lead to improvements in mortgage interest rates. However, unexpected consumer price spikes may push interest rates higher in the short-term. A cautious approach to float/lock decisions is prudent.

Some Humor:

Jim died.
His will provided $40,000 for an elaborate funeral.
As the last guests departed the affair, his wife Sharon turned to her oldest and dearest friend. "Well, I'm sure Jim would be pleased," she said.
"I'm sure you're right," replied Brenda, who lowered her voice and leaned in close.
"How much did this really cost?”
"All of it: $40k," said Sharon.
"No!" Brenda exclaimed. "I mean, it was very nice, but $40,000?”
Sharon answered, "The funeral was $6,500. I donated $500 to church. The whiskey, wine and snacks were another $500. The rest went for the Memorial Stone.”
Brenda computed quickly. "$32,500 for a Memorial Stone? How big is it?”
“5 carats.”

6/12/09-Finally Some Good News

Good morning. Mortgage backed securities (MBS) prices are sharply higher in active trading as demand at yesterday's 30yr bond auction helped ease concern that international investors will slow purchases amid record U.S. debt sales and after release of this morning's economic reports. This helps to move rates lower (Hooray!!!); Indirect bidders, an investor class that includes foreign central banks, bought 49% of the bonds on offer yesterday, the biggest percentage since 2006. Japanese Finance Minister said his country's confidence in U.S. debt is unshakable. Japan is the second largest U.S. creditor behind China. U.S. import prices rose in May, for the third straight month and the largest increase since July last year, reflecting the increasing cost of oil that threatens to undermine the economic recovery. Prices of imported goods, compared with a year earlier, dropped 17.6%, the biggest decrease since 1982. The Consumer Sentiment index edged higher, showing little improvement and some concerns over inflation. The expectations component, which has been driving measurements sharply higher for the last two months, actually fell 4pts, the first decline since February. Inflation expectations rose, which typically appears when coming out of recessions, certainly reflecting higher prices at the gas pump. Crude oil fell after a record plunge in European industrial production prompted speculation that bets on an economic recovery are premature. It’s a lot of information today, but the bottom line is the rates have finally improved a bit.

6/11/09-An Overview of Why Rates are Increasing

As you have been hearing, interest rates have been increasing over the past 30+ days and in particular since the 1st of the month. I wanted to give you the “short version,” non technical explanation of what’s going on. Interest rates move with the bond market which is the safe haven for investors. When there is bad news in the economy, investors generally move money from the stock market (which is the more volatile and short term investment). Obviously as the economy slogged through the recession, investors remained cautious and plugged into bonds, keeping interest rates lower. As of today, the Dow Jones industrial average has surged 30% since hitting its 12-year low on March 9. Investors have been shrugging off bad economic news and seeing 'less bad' news as good news. As investors grow more optimistic about recovery, the investments into the Treasury market waned and interest rates have moved higher. The rise is also a result of the massive amount of supply hitting the market. The government has been spending at a breakneck pace and has been selling an unprecedented amount of debt to finance its rescue efforts.

To try to keep a cap on mortgage rates and continue the housing recovery, the Federal Reserve unveiled a program in mid-March to buy back $300 billion of its own debt. The so-called quantitative easing program was launched to jolt the Treasury market with demand and boost prices. The program worked for a while: Mortgage rates fell and refinances surged. But the benefits of the Fed's program were short-lived. And the debt buyback program is beginning to look a lot like the government using a sponge to clean up a flood.

6/11/09

Good morning. There’s a lot of information today. Mortgage backed securities (MBS) prices opened lower, but have since turned positive after release of economic data that was at best luke warm. I don’t have to tell you that rates have increased. The 30yr fixed FNMA required net yield (60 day) is now 5.59%, up from 4.91% on June 1st. The good news is that stocks have increased 35% since March, which helps to recover some of the losses in our portfolio. This morning, the DOW is up another 100pts in early activity. Traders continue to believe that long term interest rates are headed higher on concern surging budget deficits and a falling dollar will prompt investors to reduce holdings of U.S. fixed income assets, like MBS. Crude oil prices climbed over $72 a barrel today with increased global consumption outlook amid signs the recession is bottoming out. Retail sales rebounded moderately in May, first time in three months with the gain related to higher gasoline prices and shoppers seeking bargains from ailing automakers. Retail sales on a year ago basis in May were and show little sign of an underlying rebound in spending. Jobless claims fell 24K, fewer than forecasted and the lowest level since January, from a revised higher figure the prior week as businesses are slowing staff reductions. The improvement is clearly evident in the 4 week moving average, a less volatile measure, which fell to its lowest level since February confirming global expectations that U.S. payroll contraction has peaked. Business inventories fell in April following a decline in March indicating that businesses were not anticipating better conditions; however May appears to have a much less weak month so watch for a pivot in inventory data as retail sales increase. Index consumer’s economic enthusiasm faded this month as the jobless rate reached a 26 year high, gas prices climbed daily and the initial fervor for the government's economic remedies waned, even though consumer expectations continue to show improvement. Despite current financial woes increasing numbers are starting to believe the worst is behind them. There is still some devastating mortgage news on the horizon. 1 million option ARMs (negative amortization loans) will reset higher in the next four years, with 750,000 adjusting in 2010 and 2011 and the peak coming August 2011 when 54,000 loans recast. The delinquency rate for payment option ARMs originated in 2006 is soaring to 42.44% For 2007 loans, the rate went from 10.1% to 35.25% on loans 60 days or more past due. U.S. foreclosure filings reached 321, 480 properties last month, up 18% from a year earlier. One in 400 U.S. households received a filing last month. As you can see, there is so much mixed news that it is impossible to forecast the direction of the market. Please bear with me. Good or bad, I will always be honest with you.

6/10/09

Mortgage Bonds finally mustered up some nice gains yesterday, but those gains were erased in early trading this morning.
In the news, US exports fell to the lowest level in almost 3 years, as the US Balance of Trade widened in April for the second month. However, US exports should improve a bit in May after the US Dollar recently sank against foreign currencies, which makes US goods cheaper and more attractive to buy.
In a recent development, investors are moving money into Oil and commodities, which is forcing Mortgage Backed Securities down even further.

6/9/09

Mortgage Bonds are trading slightly higher today, after big losses yesterday due to added supply in the markets. Where is that supply coming from? Simple. Those refinances you've heard about lately are actually turned into Mortgage Backed Securities after they're closed, which adds more Bonds to the market.
Although the Fed has a program to purchase some of these Mortgage Bonds, the number of new Bonds simply outweighs what the Fed is able to buy. Still, the Fed's program is helping slow down the rate increases we are seeing.
Currently, Mortgage Bonds are in a good position. So I recommend floating

6/8/09-Mortgage Market Review-A New Look

Good morning. There is a different look to my weekly email starting today. I’ve consolidated information from the multiple sources I read each morning into one “review.” Please let me know your thoughts on the new format.

This Morning:

In the news this morning, mortgage backed securities (MBS) prices are lower (rates higher), after opening positive, as the Fed prepares to purchase Treasuries today and also on June 10, part of its plan to cap consumer borrowing costs. The 30yr fixed FNMA required net yield (60 day) is at the highest level since Nov 25. 30yr fixed mortgage rates jumped from a low of in April, and costs for homebuyers are now higher than in December. The combination of an improved economic outlook, rising budget deficits and an 11% drop in the dollar over the last 3 months are potentially inflationary and the catalyst for higher rates. A burst of inflation could sap demand just as the economy is starting to right itself after the biggest contraction in 5 decades. Gasoline prices are up $.54 since May 1, which removes over $70 billion from consumer’s annual spending borrower. The DOW is down over 100pts, but fixed income assets are not benefiting.

Last Week:

Mortgage bond prices had a rough week pushing mortgage interest rates higher. Personal income, outlays, construction spending, ISM Index, and payrolls data came in stronger than expected. This did little to help the already shattered bond market. Oil prices continued to escalate hitting over $70/barrel. The Fed attempts to keep rates in check were not very effective as selling pressure continued. Bernanke tried to calm the markets by reiterating forecasts of tame inflation but his words fell on deaf ears among bond traders and interest rates rose throughout the week.
Last week was a prime example of the divergence between the unemployment rate and payrolls figure along with the risk of floating into important data. Unemployment came in at 9.4%, higher than the expected 9.2%, while non-farm payrolls fell 345,000, not as much as the expected 520,000 decline. Mortgage bond prices fell and rates spiked higher. Bond traders hoped the report would provide a solid indication that the labor market remained weak. Unfortunately it left more uncertainty. The unemployment figure is derived from a household survey while the payrolls number comes from an employer report.

This Week:

This week is light on economic reports, as investors will be focused on the large Treasury auctions June 9-11, particularly the longer term 10yr and 30yr offerings Wednesday and Thursday. With recent economic data generally favorable, investors believe the Fed will not increase it's purchases of MBS or Treasuries, so the level of demand for the new bonds will be closely watched. The most significant economic data will be the Retail Sales (which account for 70% of economic activity) report released on Thursday, along with Jobless Claims and Business Inventories. There are no economic reports due Monday, but Tuesday brings Wholesale Trade and data on chain store sales from ICSC-Goldman & Redbook. Wednesday is the day for the Mortgage Bankers Association's weekly survey of mortgage applications which provides information on purchase activity and refinance demand. The Trade Balance figures are also due out on Wednesday along with the Fed's Beige Book. The week ends Friday with important inflation data on Import and Export Prices and a gauge of Consumer Sentiment. 30yr fixed mortage rates jumped last week to 5.45%, from a low of 4.85% in April; which may sideline consumers planning to refinance or purchase their first home. Costs are now higher for homebuyers than they were in December.

EconomicIndicator
ReleaseDate & Time
ConsensusEstimate
Analysis
3-year Treasury Note Auction
Tuesday, June 9,1:30 pm, et
None
Important. $35 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
Trade Data
Wednesday, June 10, 8:30 am, et
$28.7 billion deficit
Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
10-year Treasury Note Auction
Wednesday, June 10, 1:30 pm, et
None
Important. $19 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
Fed "Beige Book"
Wednesday, June 10, 2:00 pm, et
None
Important. This Fed report details current economic conditions across the US. Signs of weakness may lead to lower rates.
Retail Sales
Thursday, June 11,8:30 am, et
Up 0.3%
Important. A measure of consumer demand. A smaller than expected increase may lead to lower mortgage rates.
Business Inventories
Thursday, June 11,10:00 am, et
Down 1.0%
Low importance. An indication of stored-up capacity. A stronger figure may lead to lower rates.
30-year Treasury Bond Auction
Thursday, June 11,1:30 pm, et
None
Important. $11 billion of bonds will be auctioned. Strong demand may lead to lower mortgage rates.
U of Michigan Consumer Sentiment
Friday, June 12,10:00 am, et
68.6
Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.

Market Forecast:

Energy prices have risen considerably stoking inflation fears amid record debt levels and as a result the low mortgage interest rates that everyone considered a given have quickly gone away. The Fed continues to purchase mortgage bonds in an effort to keep mortgage interest rates low but they face a daunting task as the selling pressure continues. The Fed still has over $700b marked for purchasing additional mortgage bonds. The question remains whether that will be enough to help rates turn lower. So far it appears additional measures are needed, though expectations are that rates should bounce off their current ceiling of resistance and hopefully see some improvement in the short term.

Some Humor:

A couple in their nineties are both having problems remembering things. During a checkup, the doctor tells them that they're physically okay, but they might want to start writing things down to help them remember.
Later that night, while watching TV, the old man gets up from his chair. “Want anything while I'm in the kitchen?” he asks.
“Will you get me a bowl of ice cream?”
“Sure.”
“Don't you think you should write it down so you can remember it?” she asks.
“No, I can remember it.”
“Well, I'd like some strawberries on top, too. Maybe you should write it down, so's not to forget it?”
He says, “I can remember that. You want a bowl of ice cream with strawberries.”
“I'd also like whipped cream. I'm certain you'll forget that, write it down?” she asks.
Irritated, he says, “I don't need to write it down, I can remember it! Ice cream with strawberries and whipped cream - I got it, for goodness sake!”
Then he toddles into the kitchen. After about 20 minutes, the old man returns from the kitchen and hands his wife a plate of bacon and eggs.
She stares at the plate for a moment. “Where's my toast?”

The material contained in this newsletter is provided by a third party to real estate, financial services and other professionals only for their use and the use of their clients. The material provided is for informational and educational purposes only and should not be construed as investment and/or mortgage advice. Although the material is deemed to be accurate and reliable, we do not make any representations as to its accuracy or completeness and as a result, there is no guarantee it is not without errors.

If you no longer wish to receive these valuable market updates, please USE THIS LINK or email: mvmfh@msn.com

6/4/09

Good morning. Mortgage backed securities (MBS) prices are lower (rates higher) in another volatile trading session, after a government report showed the number of people collecting unemployment insurance declined for the first time in five months: Bonds also opened lower, in anticipation of a massive Treasury auction expected next week. However, moments ago, we received some good news when the Treasury Department announced that it is scaling back its auction because it was weighing heavily on the Bond market and the US Dollar. In other news, Initial Jobless Claims, which is a leading indicator of the health of the jobs market, was reported inline with expectations.
Overall, Stocks opened a bit higher this morning, but there are several technical signals that suggest weakness ahead. Additionally, Stocks could be exacerbated by the tomorrow's Jobs Report, which is expected to be negative. Therefore, I recommend floating for now and will continue to monitor the situation and keep you posted

6/3/09

Good morning. Mortgage Bonds have been improving this morning (finally!) after the volatility of recent days. There was news from the job front, as ADP reported that the private sector cut 532,000 jobs in May, the fewest jobs lost since November. Maybe the news that GM plans to sell Hummer to China's Tengzhong, saving 3,000 jobs is helping as well. Yesterday we found out that “Pending U.S. Home Resales” were up 6.7% in April, the most since 2001, and the fourth increase in five months and much higher than expected. Of course lower prices are attracting buyers – that is how most markets tend to work. But still, it is a promising statistic. All of this is ahead of Friday's government Non-farm payrolls report where it is expected that there were 550,000 jobs lost for May.
Also this morning, Fed Chairman Ben Bernanke is on Capitol Hill discussing the current economic climate in front of the House Budget Committee, and this could impact the markets. Stocks are battling a key resistance level and if they reverse lower, Bonds could benefit. I recommend floating, and will be watching closely to see what direction the action takes. Let me know if you have any questions.

6/2/09

Volatility is the name of the game again today for Mortgage Bonds, as they continue to fluctuate in a wide range. Stocks, on the other hand, had a good day yesterday and may be set for more gains today.
In the news, Pending Home Sales came in far above forecasts, rising for a third straight month. With home affordability levels at the second highest level ever on record, that means now is the time to act--while rates are still low and affordability is still high.
Currently, Mortgage Bonds are off their best levels from earlier this morning. There is a chance they will bounce off an important floor of support and eventually make some gains. But, there's also a risk they'll deteriorate more.

6/1/09-Bonds Free Fall, Rates Climb - from Fred Holland

Good morning. What a week it was! On Wednesday, we saw a significant move lower for bonds and then a substantial increase on Friday. Stocks are climbing this morning which is putting added pressure on the bond market. Although higher rates may dampen the housing recovery, if one is indeed occurring, we should remember that rates are only part of the “home buying equation”. Many houses are now more affordable, families are saving money now and may have more for a down payment, and rates are still low. Complicating things is the fact that U.S. bond markets are not trading naturally due to the massive intervention by the Fed. The Fed has been buying mortgage-backed securities to keep mortgage rates low, which has reduced the spread between the Treasury bonds and mortgages unnaturally. But with a steady rise in 10-year Treasury yields, the rates on mortgages can no longer escape the Treasury market, and as we saw last week mortgage rates shot up.

For economic news it is a busy week. We have already had GM filing for bankruptcy, Personal Income and Consumption (consumer spending fell in April by .1% despite personal income posting the largest increase in 11 months, up .5%), and later this morning we will have Construction Spending and the ISM Index. Tomorrow we take a break, but Wednesday we resume with Factory Orders and the ISM Services index. On Thursday we have Jobless Claims and Productivity, and then on Friday the slew of employment data. It will be another interesting week. Stay tuned and let me know if you have any questions.

Fred

If you can't see the newsletter, or would like to view it online, use this link
If you have received this newsletter indirectly and would like to be added to our weekly distribution list, use this link



Provided to you Exclusively
By
Fred W. Holland
”Committed to Helping Attain Your Goals.”

Fred W. Holland Mountain View Mortgage, Inc. 22020 17th Ave SE #220 Bothell, WA 98021 Office: 425-821-9028 E-Mail: mvmfh@msn.com Website: www.mountainviewmortgage.com



For the week of Jun 01, 2009 --- Vol. 7, Issue 22



Last Week in Review


"I'M FREE...FREE FALLIN'." Tom Petty. And a free fall indeed was the case last Wednesday, as Bonds had their worst one-day performance since last October, losing an astounding 206bp. So what caused this free fall...and what helped Bonds and home loan rates rally back and improve later in the week? Here's what you need to know.
The main culprit for Wednesday's sell off was supply. The Treasury auctions and the increased number of refinance transactions closing have added hundreds of Billions of dollars of new Bond supply to the market. Economics 101 tells us that anytime supply vastly exceeds demand, prices will move lower, and that's exactly what we saw last week...and as Bond prices move lower, home loan rates move higher. And the trend isn't likely to end anytime soon, as the Treasury will have to continue to pump out major supply of Bonds, in order to pay for the massive government stimulus plans...and the Fed buying plan simply won't be enough to balance out supply and demand - it's like trying to sop up a flood with a sponge. Bottom line - rates are likely on the rise, but still near historic lows. Let's talk and make sure you have taken necessary actions for your own financial situation.
Yet the news wasn't all doom and gloom - as both the Dow and S&P 500 have seen three months of positive gains for the first time in over a year! And the National Association for Business Economics (NABE) said that the end of the recession is in sight, noting that, "While the overall tone remains soft, there are emerging signs that the economy is stabilizing." The Commerce Department's report that Gross Domestic Product for the first quarter fell at an annual rate of 5.7% was better than initial estimates, also indicating that the recession may be slowing down and turning more moderate. Important reminder: An improvement in the economy will likely push rates higher over time, which is why it's important to take action during this opportunity of low rates.
In other news, Initial Jobless Claims were better than expectations, but a higher revision to the prior week's reading offset the slightly positive headline number. Durable Goods Orders in April also came in a bit better than expectations. On the housing front, while New Home Sales were just under estimates, Existing Home Sales came in higher than expectations. These reports didn't impact the markets a great deal last week, as the impact from all the extra supply was the real mover and shaker.
Bonds were able to regain some ground Thursday and Friday after their steep free fall on Wednesday, but even with the improvement, home loan rates ended the week .25% to .375% worse than where they began.
READY TO CLEAN OUT SOME OLD CLUTTER AND GAIN SOME EXTRA CASH? IF YOU'VE BEEN THINKING ABOUT HOLDING A YARD SALE THIS SUMMER, CHECK OUT THIS WEEK'S MORTGAGE MARKET VIEW FOR GREAT TIPS THAT WILL HELP YOUR SALE SOAR TO SUCCESS.

Forecast for the Week


There will be big economic reports to bookend the week ahead, starting with Monday bringing the Fed's favorite gauge of inflation, the Core Personal Consumption Expenditure (PCE) index, which is found within the Personal Income Report. Remember, inflation is the archenemy of Bonds and home loan rates, and if this report shows inflation is on the rise, it could dampen the improvement that Bonds and home loan rates mustered up on Friday.
To end the week, Friday will bring the always important Jobs Report. Last month's report showed that there were 539,000 jobs lost in April versus expectations of a 610,000 loss, representing the smallest job loss since October. Even though the Unemployment Rate moved higher and hit a 26-year high of 8.9% in April, this is a lagging indicator, and many other data points have hinted that the worst could be over for the job market. It will be important to see if the most recent numbers continue to move in that direction.
Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result. As you can see in the chart below, Bond prices and home loan rates were able to end the week on an improving trend after record supply caused them to worsen dramatically midweek. I will be watching closely to see if Bonds can continue to climb their way out of last week's free fall.
Chart: Fannie Mae 4.0% Mortgage Bond (Friday May 29, 2009)

The Mortgage Market View...


Not All Yard Sales Are Created Equal
Summer is one of the most popular seasons for holding a yard sale. But simply holding a yard sale doesn't necessarily mean you'll end the day with lots of extra money in your pocket. If you're planning on clearing out your clutter this summer, here are ten tips to help make your yard sale a success:
Start your yard sale earlier than other yard sales in your area so shoppers will start their shopping day with you.
Don't schedule your yard sale on a holiday weekend or during a big event in your area (like a sporting event or festival).
If it rains, take down your signs and reschedule your sale so you can maximize traffic on the day of your sale.
Before your own yard sale, visit other sales in your neighborhood to get an idea of typical prices.
Place all of your items (except for large items) on tables so shoppers don't have to bend.
If you plan to sell electrical items, have an outlet and extension cord handy so you can show shoppers that the items work.
If you want to sell larger ticket items, look for those items in a local circular and then attach the ad to your item so shoppers can see that they are getting a great deal.
If you have a variety of items that men would like, place them on their own table. If married couples stop by your sale, both parties will enjoy looking.
Advertise your sale ahead of time in your local newspaper classified section, on community boards at your local food stores, and online at places like www.Craigslist.org.
Wait until the morning of your garage sale to hang signs in your neighborhood, and make sure you take them down that day to avoid any fines from your homeowner's association or your town. You don't want to have to use all the cash you earn to pay a fine!
And remember, a successful sale is also a safe sale. Keep money in a pouch around your waist instead of in a cash box (which could get stolen while you are helping shoppers), don't accept checks (which could bounce), and never allow strangers inside your home to use the bathroom or telephone.
Follow these tips, and you'll be well on your way to having less clutter in your home, and more cash in your pocket!

The Week's Economic Indicator Calendar


Remember, as a general rule, weaker than expected economic data is good for rates, while positive data causes rates to rise.
Economic Calendar for the Week of June 01 - June 05
Date
ET
Economic Report
For
Estimate
Actual
Prior
Impact
Mon. June 01
08:30
Personal Income
Apr
-0.2%

-0.3%
Moderate
Mon. June 01
08:30
Personal Spending
Apr
-0.2%

-0.2%
Moderate
Mon. June 01
08:30
Personal Consumption Expenditures and Core PCE
Apr
NA

0.2%
HIGH
Mon. June 01
08:30
Personal Consumption Expenditures and Core PCE
YOY
NA

1.8%
HIGH
Mon. June 01
10:00
ISM Index
May
42.0

40.1
HIGH
Wed. June 03
10:30
Crude Inventories
5/29
NA

-5.41M
Moderate
Wed. June 03
10:00
ISM Services Index
May
45.0

43.7
Moderate
Thu. June 04
08:30
Jobless Claims (Initial)
5/30
NA

623K
Moderate
Thu. June 04
08:30
Productivity
Q1
1.2%

0.8%
Moderate
Fri. June 05
08:30
Average Work Week
May
33.2

33.2
HIGH
Fri. June 05
08:30
Hourly Earnings
May
0.2%

0.1%
HIGH
Fri. June 05
08:30
Non-farm Payrolls
May
-550K

-539K
HIGH
Fri. June 05
08:30
Unemployment Rate
May
9.2%

8.9%
HIGH


The material contained in this newsletter is provided by a third party to real estate, financial services and other professionals only for their use and the use of their clients. The material provided is for informational and educational purposes only and should not be construed as investment and/or mortgage advice. Although the material is deemed to be accurate and reliable, we do not make any representations as to its accuracy or completeness and as a result, there is no guarantee it is not without errors.

As your trusted advisor, I am sending you the MMG WEEKLY because I am committed to keeping you updated on the economic events that impact interest rates and how they may affect you.

In the unlikely event that you no longer wish to receive these valuable market updates, please USE THIS LINK or email: mvmfh@msn.com

If you prefer to send your removal request by mail the address is:

Fred W. Holland 22020 17th Ave SE #220Bothell, WA 98021
Mortgage Success Source, LLC is the copyright owner or licensee of the content and/or information in this email, unless otherwise indicated. Mortgage Success Source, LLC does not grant to you a license to any content, features or materials in this email. You may not distribute, download, or save a copy of any of the content or screens except as otherwise provided in our Terms and Conditions of Membership, for any purpose.

6/1/09

Good morning. I hope you enjoyed the weather this weekend. Despite news that General Motors is heading for bankruptcy court, Stocks are starting off strong today after China's manufacturing expanded for the third straight month--signaling that the worldwide recession may be ending. Also today, Personal Spending declined slightly in May, while Personal Income came in better than expectations thanks in part to the economic stimulus package. Overall, indications are that the market may be in the beginning of a bottoming process. But, this process will likely be marked by volatility and confusion,
May was the third month in a row for stock market gains. Stocks have been appreciating as the credit freeze and bank liquidity crisis has eased, while a growing number of economic indicators have signaled a marked moderation in the pace of the economic decline. As one would imagine, this has not helped rates. The S&P 500 stock index has gained about 34% since its March low. Jobless Claims are slowing down, consumer confidence is increasing with an increasing number saying that they will be buying durable goods soon, and oil prices are rising due to the expected recover. But as yields have increased, so has the number of economists who believe that this will only dampen the recover, since higher rates put a damper on housing and borrowing in general, especially refi’s. And it has the potential to cancel out the Fed’s effort to lower the cost of borrowing for consumers and businesses across a broad spectrum of loans and bonds.

For economic news it is a busy week. We have already had GM filing for bankruptcy, Personal Income and Consumption (consumer spending fell in April by .1% despite personal income posting the largest increase in 11 months, up .5%), and later this morning we will have Construction Spending and the ISM Index. Tomorrow we take a break, but Wednesday we resume with Factory Orders and the ISM Services index. On Thursday we have Jobless Claims and Productivity, and then on Friday the slew of employment data. Hang on to your hats! As always, I’ll be in touch.