Mortgage Market Review - 4/19/10

This Morning…Monday, April 19, 2010:
This morning the Goldman-Sachs fraud suit remains the hot topic with various outlooks as to implications for the financial markets in terms of regulatory reform. This began on Friday with an announcement from the SEC that it was filing civil fraud charges against Goldman-Sachs, implying the firm allowed Paulson& Co. to select sub prime loans that went into a security that Goldman was putting together to sell to investors. Paulson, according to the SEC was openly going to short the security and picked the worst possible mortgages to put in the package to sell. Investors lost about $1 billion from the trade. Goldman Sachs denies wrongdoing and has indicated it did nothing wrong and will defend itself "vigorously". The SEC and now the British government are increasing scrutiny now and will look closely at other firms that sold the junk to unsuspecting investors. Large investors and central banks bought the junk without looking at the details in the prospectuses and simply relying on the AAA ratings that were issued by the rating agencies. We wonder when the SEC will take on the rating agencies, the three agencies (S&P, Moody's and Fitch) have greased through all of this without much focus. Who paid them what, and how much? It was then, and even more so now, a question that never has been answered; AAA ratings on junk that was doomed to fail needs explanation.

At 9:30 the DJIA opened -20; 10 yr -2/32 and mortgage rates are stable.

Last Week:
Mortgage interest rates ended up stabilizing at the end of a volatile week. Oil prices continued to fall off the beginning of the week helping to lower rates amid the tame inflation numbers. Unfortunately that trend reversed mid week as oil prices spiked tied to a report which indicated supply declines. Stocks also surged higher as earnings reports generally pleased investors and the DOW easily eclipsed the 11,000 mark. On Thursday Jobless Claims and Manufacturing Data came in worse than expected which helped rates earn back some of the losses. Then on Friday Housing Starts came in better than expected which created some additional volatility. Up and down all week!

This Week:
Things are pretty slow this week for the first few days, although we do have Leading Economic Indicators later this morning (expected to be up 1.3% for March, which would be the largest increase in nine months). On Thursday we have the Producer Price Index (PPI), Existing Home Sales, and Initial Jobless Claims. Friday we have Durable Goods, an important indicator of economic activity, and New Home Sales.
The Goldman situation will settle down; the key take away from the charges filed is whether this is the beginning of a sweep through Wall Street by the SEC. The Street is likely to get a lot of attention and likely more firms and charges will unfold.

EconomicIndicator
Leading Economic Indicators
Monday, April 19,10:00 am, et
Up 1.0%
Important. An indication of future economic activity. Weakness may lead to lower rates.
Weekly Jobless Claims
Thursday, April 22,8:30 am, et
465K
Important. An indication of employment. An increase in jobless claims may bring lower rates.
Producer Price Index
Thursday, April 22,8:30 am, et
Up 0.5%,Core up 0.1%
Important. An indication of inflationary pressures at the producer level. Decreases may lead to lower rates.
Existing Home Sales
Thursday, April 22,10:00 am, et
5.3M
Low importance. An indication of mortgage credit demand. Significant weakness may lead to lower rates.
Durable Goods Orders
Friday, April 23,8:30 am, et
Unchanged
Important. An indication of the demand for "big ticket" items. Weakness may lead to lower rates.
New Home Sales
Friday, April 23,10:00 am, et
Up 1.9%
Important. An indication of economic strength and credit demand. Weakness may lead to lower rates.

Market Forecast:
Overall, look for Thursday or Friday to be the most important day of the week with the Producer Price Index and Durable Goods reports being posted. . If inflation pressures emerge, mortgage interest rates may be pressured higher. The rest of the week will likely be heavily influenced by the stock markets. If the major stock indexes rally, bonds will likely suffer and mortgage rates will move higher

Some Humor:

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Well, gotta go, have to write to the Hefty bag people.

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