Mortgage Market News

Unless you've been out of the country or under a rock you most likely have heard all the news about the economy lately. Today's post will mostly deal with what is going on with the current economy. You probably heard about the "$700B Bailout" being "worked-out" by congress. Well today was the big day, congress over the weekend had supposedly came to a bipartisan compromise and around 1:30pm EST they put it to a vote, the consensus was that it would pass and hopefully thaw out the credit markets and create much needed confidence in the credit markets. However to most's surprise the Plan did not get the 218 necessary votes to pass falling shy by 13 votes. The final tally ... 205 Yea - 228 Nay. The stock market had been trading down on the day just under 300 points but within the following five minutes after the vote had concluded the Dow Jones Industrial proceeded to plunge an unprecedented 400+ additional points! I was watching this unfold on CNBC and C-SPAN and it just seemed surreal, the ticker just kept going lower at such a pace that it seemed that nothing could stop it. Well the stock market did not go to zero and actually after the initial shock on Wallstreet the Dow actually came back to a little below -400 points. But by the end of the day after all hope, at least near term, was gone the Dow closed down on the day -777 points.

So what's next? There are a couple of possibilities on the table. The first is that a new plan will be written, hopefully addressing some of the Republican concerns which could provide enough additional support to allow it to pass. The second is that they continue to lobby for this plan to pass in its current form and bring it back up for vote. The latter could be a quicker resolution if they are able to sway support. However Tuesday is a Jewish Holiday and out of respect for the Jewish members of congress will not officially meet again until Wednesday, meaning the quickest there could be another vote on this plan realistically would be Thursday or Friday. This would still be quicker than the other possibility of drawing up an entirely new plan. The republicans held a press conference shortly after shooting down the bill and gave two main reasons for not supporting it. One, they were upset with a speech the Speaker of the House, Nancy Pelosi, gave which they referred to as partisan rhetoric" and second they claimed to be responding to an overwhelmingly negative response by their constituency. This brings me to my point on this debate. There are many of us that do not agree with the government "bailing out" Wallstreet, with our money, when they were the ones that created all this mayhem in the first place. My first instinct is to let them all fail. However in today's complicated world we unfortunately can not separate Mainstreet from Wallstreet. Consider this. It is estimated that today alone the losses in stock value totaled $1.2 to $1.4 Billion. Now let me ask you ... How many of us have money invested in 401K and Pension funds that are invested in company stocks? I would venture to say a good majority of us. However that is not the only worry, these bonds that are losing value had not only mortgages backing them but also student loans, auto loans and even credit card debt so what that means is that if the credit markets continue to freeze up it would not only affect the average person's ability to get a mortgage, student loan, auto loan or even a credit card. it could ultimately create an all cash society. This doesn't sound to bad until you consider that a huge part of our spending as an economy is based on these big ticket items. This would mean huge layoffs and a spike in unemployment prompting more people to default on their debt obligations because of their loss of employment which would then cause home prices to fall even lower sending us into a vicious downward spiral.

Now I don't believe this scenario will play out because there is to much at stake. I believe congress will get its act together and pass a plan that will get us back on the right track. It will be interesting to see how this all unfolds.

I would like to end with a look at how this affects mortgage interest rates (after all that is what this blog is about). Short term I see continued volatility so each situation should be evaluated individually. However longer term I believe mortgage rates could improve. Technically, mortgage bonds are trading above several strong layers of support including the strong 200 day moving average giving bonds a more favorable upside. However with all this uncertainty things could change quickly, as always I will continue to monitor the markets.

After a great Monday last week the remainder of the week was pretty much sideways until yesterday. Yesterday came the announcement by Lehman Brothers that they are filing for bankruptcy after loosing a tough battle to stay afloat. Additionally, American International Group, Inc. (AIG) lost more than half of its value just on Monday alone. Also, if that wasn't  enough Merrill Lynch also announced that they will be bought by Bank of America, in a move that possibly saved them from bankruptcy. So with all this negative news its no wonder that the Dow Jones Industrial Average fell a whopping -504 points on Monday alone. Now all this bad news has actually been great for mortgage bonds in particular. Typically, when bad news like today's hit the markets money flows out of the uncertainty of stocks and into the safest of bonds which are usually Treasury (Government) Bonds, however this time around with the recent takeover of Fannie Mae and Freddie Mac, mortgage bonds pay a higher premium with the same risk as both bonds are now backed by the Federal Government, so the same risk- better return = lower mortgage rates.

So that was yesterday, today with the Federal Open Market Committee (FOMC) releasing their policy statement and rate decision, which with the ongoing problems on Wall Street a .25% rate cute was priced in to the markets, investors were stunned when the FOMC decided Unanimously to keep the Fed Funds Rate unchanged at 2.00%. After the initial "shock" the stock market began to rally as the decision was perceived as a vote of confidence by the Fed that things are NOT out of control so money began to quickly flow out of bonds, and since in the days before mortgage bonds had been the vehicle of choice for investors to park their funds it was also the biggest loser today after the stock market rallied, mortgage bonds lost a whopping -88 basis points.

So what's in store for the rest of the week? Well the economic calendar is light for the rest of the week with the item to watch being the Index of Leading Economic Indicator, which is scheduled to be released Thursday. This report is used by many investors as a gauge of the current economic climate. However during these volatile times simply the developing stories about the capitalization of certain companies is enough to move the markets, so as always I will continue to monitor the markets.

Mortgage rates have been trending down for the last couple of weeks, in fact last Thursday mortgage bonds finally broke through the tough resistance level at the 200 day moving average (it had been four month since mortgage bonds had broken below the 200 day moving average and since then had been turned back from this level several times). This is a very important level of support now for bonds because it is a tough barrier to breakthrough. Then yesterday, Sunday, the Federal Government announced the seizure of Fannie Mae and Freddie Mac. Now this was not good news for equity owners of the two firms but it was great news for mortgage bonds and in turn mortgage interest rates. Why? For starters the way Fannie and Freddie operate is by issuing bonds to raise capital to be able to buy mortgage loans, if investors lost confidence in the two firms they would stop buying their bonds and therefore the two firms would not be able to continue buying mortgages. This scenario would not be good for the housing market as currently Fannie Mae and Freddie Mac are responsible for about 70% of all mortgages issued in the United States. Needless to say a Government backstop helped mortgage bonds today as they improved a whopping 100 basis points on the day.

So what can we expect this week? This week is a slow one when it comes to economic reports so to a large degree bond markets will most likely take their queue from the equity markets. On Wednesday however the latest Crude Inventories Report will be released. This will be interesting to follow because the recent drop in oil prices has helped bonds. Additionally, the Producer Price Index (PPI) and Core PPI are scheduled to be released on Friday. This is a closely watched inflation measure on the producer level. Depending on market conditions higher costs suffered by producers can be either absorbed or passed on to the consumer, causing consumer inflation. With all this Government involvement the volatility is sure to continue, so as always I will continue to monitor the markets. 

Last week for the most part was a good one for mortgage bonds which in turn meant lower mortgage rates. Mortgage bonds gained about 105 basis points (bps) from last Monday through Thursday only to give some of those gains back last Friday with mortgage bonds closing down on the the day about - 28bps. So overall it was a good gain for the week of a little over 70bps for mortgage bonds which translated to about an eighth to a quarter better in rate.

So what can we expect for the week ahead? First off, with today being a holiday a shorter week could mean increased volatility. This week will be a light week as far as economic reports are concerned, however there are a few that could turn out to be market movers.

For starters, Tuesday we receive the latest ISM Index release, this manufacturing index is closely watched on Wall Street and could be a market mover. On Wednesday the latest ADP National Employment Report is released, although not always very reliable, this report is used by many analysts to handicap the big report which is the Unemployment Rate, scheduled to be released on Friday (more on that below). Also on Wednesday the Beige Book is released, which is a "Fed Survey" of the current state of the economy through anecdotal stories, published eight times a year by the Federal Reserve Bank. During these volatile times it is worth pointing out that Wednesday also marks the release of the latest Crude Inventories Report, lately the crude oil market has been influential in the movement of other markets including the bond market so this report along with developments from hurricane Gustav could have an impact on mortgage bond prices. Finally on Friday the "Grand Daddy" of the week, the latest Employment Report and the closely watched Unemployment Rate will be released. This is a very important report because the trend lately has been higher unemployment, if this trend continues it could mean a more severe economic downturn than previously expected. It will be important to watch closely as it could be a market mover. This week promises to be another volatile one so as always I will continue to monitor the markets.

After a horrible Monday last week mortgage bonds for the most part stabilized for the remainder of last week. This week so far has been positive for mortgage bonds which has translated to lower mortgage interest rates. Today especially after some turmoil in the stock market with Fannie Mae and Freddie Mac on life support a "flight to safety" has helped mortgage bonds, closing up on the day +53 basis points. 

So what's on tap for the remainder of this week? Tomorrow is the release of the Philadelphia Fed Index and the Index of Leading Economic Indicator (LEI) both reports are widely watched and could be market movers. Friday is slated to be a relatively quite day when it comes to economic reports so most likely bonds will take their queue from the stock market and commodities markets. Especially the oil market which after falling to near their 200 day moving average have bounced higher, it will be interesting to see which way oil moves next.

Technically, mortgage bonds today have broken decisively above the 50 day moving average if this momentum can be sustained it could mean even better mortgage interest rates in the next few days. Volatility continues to be in vogue so as always I will continue to monitor the markets.

Well after a wild week last week, mortgage bonds have continued their slide downward. Monday after a hotter than expected Personal Consumption Expenditure (PCE) and Core PCE report, which is the Federal Reserve's favorite measure of inflation, mortgage bonds fell losing about 65 basis points (bps) on the day. Tuesday, after yet more bad news from the financial sector, the Stock Markets sold off,  helping the bond market attempt a rebound closing up on the day +20 bps. But this rebound was short lived, as today mortgage bonds again sold off after a positive start this morning, closing down on the day -19 bps.

Unfortunately, mortgage interest rates have continued to trend higher, which makes working with a true professional is all the more important. During these volatile times you need someone on your side that understands the markets and is willing to explain it all to you. So having said that, below is an outline of the rest of the week and what we can expect.

Thursday, the latest Consumer Price Index (CPI) and Core CPI will be released. Until recently the Core CPI was the favorite measure of inflation of the Federal Reserve before changing to the Core PCE because of its ability to adjust its calculation when certain commodities have a sudden price increase.  Even though it is not currently the favorite measure of inflation (bond's archenemy) it is still a very closely watched measure, so a hotter than expected number could add selling pressure to bonds.

Friday, marks the release of several reports which will measure the current "mood" of the economy. The biggest one being the Consumer Sentiment Index which measures just that, the current sentiment of the consumer this has been a market mover in the past because a negative sentiment by the consumer typically translates to a bad future outlook for the economy as a whole. The other two reports scheduled to be released are the Capacity Utilization and Industrial Production reports. These reports have the potential to move the Stock Markets which in turn could move the bond markets.

Adding to the volatility mix are the Quarterly Earnings reports, which even though we are at the tail end of them they still have the potential to be market movers. As usual I will continue to monitor the markets.

Over the last couple of weeks volatility has been the name of the game. The week before last, mortgage bonds had a terrible week as I mentioned in last week's blog entry. However early last week mortgage bonds attempted to stabilize and in fact moved higher on the week only to be pushed back on Friday giving up alot of the gains from earlier in the week. Yesterday, mortgage bonds again attempted to stabilize and again moved higher closing up on the day an impressive +53 basis points (bps). This rally was short lived as today mortgage bonds fell again in the early morning on a better than expected Consumer Confidence number, only to gain back most of today's losses to close down -16bps. So what does this mean? Well what it means to you is that on average mortgage rates on fixed rate loans have moved up about .250% to .375% in rate over the last couple of weeks, so timing has been very important when locking a mortgage loan ( another reason why you should work with a professional).

So what is next? well as usual below is an outline of the week ahead. This week looks to be a volatile one which means possibly big fluctuations in pricing for mortgages.

Wednesday the release of the latest ADP National Employment Report will give us insight into the current outlook on employment before Friday's headline Employment Report. Although not always a good indicator, some analysts use the ADP report to handicap Friday's number.

Thursday it is Deutsche Bank's turn to release earnings. Deutsche Bank, from Germany and one of the biggest banks in Europe has exposure to the sub-prime paper that has affected many of the U.S. banks so it will be interesting to see how it is affecting Deutsche Bank and it's earnings. additionally, Thursday is the release of the latest GDP Report. This report will show if their was positive or negative GDP growth for the second quarter. We have been barely in positive territory the last two quarters.(Remember: the technical definition of recession is two consecutive quarters of negative GDP growth) 

Friday we get the grand daddy of the week, the official Employment Report and the most closely watched measure of employment; the Unemployment Rate. One of the most important factors in providing support for real estate prices is employment. The greater availability of jobs provides a greater demand for housing so if the unemployment number continues to edge higher it could provide more downward pressure to home prices. (NOTE: real estate markets are very local in nature as are the labor markets, so national numbers should not mean much to you other than to serve as a gage on how your neighborhood is standing up compared nationally).

Remember, in these volatile times markets can change quickly, as always I will continue to monitor the markets.

As the title of this post asks, so do many of my clients; "Will mortgage interest rates continue to move up?" Before we get into that question lets first review last week. After a good start to the week last Monday it all went terribly wrong. When it was all said and done and the dust had settled mortgage bonds had lost a whopping -210 basis points (bps). (this translates to roughly 2 whole points higher in price for mortgage interest rates). In the process mortgage bonds proceeded to breakthrough several layers of resistance during it's free-fall. It seemed like there was no end in sight, until yesterday. Yesterday, mortgage bonds after again opening down bounced back to close at +28bps on the day. However the euphoria only lasted a minute ... Today mortgage bonds again tumbled down as much as -41 basis points on the day before gaining some of those loses back to close at -28bps. Exactly were we started the week!

So now to the original question ... This week is light on economic reports, however there are plenty of earnings reports scheduled this week ( some are highlighted below) and these reports will undoubtedly move the markets. What is harder to predict is which way rates will move. As usual below I have outlined the rest of the week ahead.

Today Wachovia announced poor earnings with a loss for the 2nd quarter $8.9 billion, this translate to a loss of $4.20 per share. Additionally, Washington Mutual also reported a loss of $3.33 billion, which translates to $6.58 per share. Wachovia's earnings report came out before the markets opened, while Washington Mutual's was released after the close. The Wachovia report initially helped bonds however hard talk about the seriousness of our inflation outlook in speeches by a couple of Federal Reserve Presidents caused bonds to take a turn for the worse.

Wednesday, there are no major financial companies reporting earnings, however two companies to watch for are Amazon and McDonald's with the former reporting after the market closes while the latter reports before markets open. It will be interesting to see how two "staples" are doing during these slow economic times. If their reporting is grim it could send stock lower and possibly move bonds higher (good for interest rates).

Thursday is National City's day to release 2nd quarter earnings. National City was one of the players during the mortgage boom so investors are eager to see how bad the news really is.

Friday is a relatively light day as far as economic reports are concerned. However, the Consumer Sentiment Index is scheduled to be released this has been a market mover in the past so we must keep an eye on it. As always I will continue to monitor the markets.

A notable news item occurred after the close of business last Friday. Federal officials seized Indymac Bank as a "run on the bank" over the last couple of months caused them to be undercapitalized. For anybody with an account at Indymac your bank account (ie. checking, savings, CD, etc.) should be guaranteed under the Federal Deposit Insurance Corporation (FDIC) up to $100,000 per account holder. Visit your local branch as it is my understanding there are Federal Officials there to assist.

Technically, mortgage bonds attempted another push higher today, only to be stopped right in its tracks, amazingly, right at the 200 day moving average. Also it is important to note as I have numerous times before on my Daily Mortgage Market Update mortgage interest rates are pegged to mortgage backed securities NOT to the 10 Year Treasury Note as many loan officers will tell you. Today is a good day to illustrate this as mortgage bonds closed lower on the day prompting some lenders to issue intra-day repricing for the worse while the 10 year T-note actually moved higher by +28 basis points. What this means is that if you or your advisor was tracking the 10 year T-note you were expecting better rates which did not materialize.

Ok now for the week ahead. This week is the beginning of Earnings season which will no doubt add to the volatility. Additionally, there are several important economic reports scheduled to be released this week. Below is an outline of the week ahead, this will be an interesting week as mortgage bonds have a triple layer of resistance just overhead at the 50,100 and 200 day moving averages. If mortgage bonds can push through, this could bring us better interest rates; however a move lower will put upward pressure on mortgage interest rates.

The latest reading on inflation at the producer level was released today. This is measured by the Producer Price Index (PPI) and Core PPI, which excludes volatile food and energy. The headline number came in at a year-over-year rate increase of 9.2%, the highest since 1981.

Wednesday brings us the latest reading on inflation at the consumer level by way of the Consumer Price Index (CPI) and Core CPI. Until fairly recently this was the Fed's favorite measure of inflation. Additionally, the Federal Open Market Committee (FOMC) will release the minutes from their last meeting, this sometimes has an affect on the markets. On the earnings front Wednesday marks the release of earnings from E-bay, Yum! Brands (Pizza Hut, Taco Bell, KFC, etc.) and Wells Fargo Bank to name a few, they could have an impact on the markets.

Thursday we get a whole slew of earnings reports, this could be a very volatile day for the markets. Earnings reports are scheduled to be released for companies from many important sectors of the economy which could add to the volatility.

Friday, the big earnings report should come from Citigroup, the largest bank on the planet. Citigroup has been under pressure as of late and added deterioration in the mortgage markets could cause additional write-downs. This release has the potential to move the markets. As always I will continue to monitor the markets.

Earnings Season begins tomorrow for stocks. This will be important to watch because of late bonds have taken their queue from the stock market in an inverse correlation. So if this trend continues, earnings could have an impact on the bond markets. But before we get to this week lets take a look back at last week. Mortgage bonds had a tough last week giving up all of their gains from the previous Friday and Monday to finish the week exactly where it was a week ago last Thursday. Mortgage bonds attempted to break through a tough layer of resistance at the $100.96 level only to be pushed back lower.

This brings us to today, after a flat start mortgage bonds began to lose ground dropping down to a low of the day of -41 basis points (bps) only to bounce back to positive territory at the end of the session closing up on the day +9bps.(incidently this happened as stocks opened higher on the day and continued to trade higher until the end of the session when they began to reverse lower to close down on the day -56 points,  this shows the current trend of the inverse correlation between stocks and bonds). So what is in store for this week? With a light week as far as economic reports are concerned, earnings could be the catalyst for bonds this week. There are no earnings scheduled to be released this week from major financial companies, however having said that recently reports from companies outside of the financials have had an impact on the stock market which in turn has effected the bond markets.

The two significant reports scheduled for release this week are: Thursday - the weekly Initial Jobless Claims report which shows the current trend of employment nationally. Friday - the Consumer Sentiment Index which shows just that, the current sentiment of the consumer. This has been a market mover of late.