Thursday, 90210

The stage is set - and the waiting has begun.


The mortgage market has had a terrific rally over the past month or so - with the contract rate for 30-year fixed-rate mortgages moving to a new all-time low of 4.36%. While historically low mortgage interest rates are good news for borrowers and mortgage originators - it is nervous news for mortgage investors since the price of the underlying mortgage-backed securities these investors are currently buying has just touched an all-time record high.



The growing for these buyers of mortgage-backed securities is that they will be caught holding the bag should the great rally in the mortgage market come to a sudden and screeching halt. In order for current buyers of mortgage securities to make a profit on their just completed transactions - by necessity they will have to find a ready, willing and able party eager to pay an even greater price for the same security.


If this "greater fool" is nowhere to be found - current mortgage investors will quickly realize they have made a major financial blunder -- and will immediately begin scrambling to unload their mortgage assets as quickly as possible to minimize the financial pain. The more selling pressure this activity creates -- the more desperate sellers will become and the harder it will be to find buyers - a scenario, should it develop, marked by surging note rates and plummeting rate sheet prices = higher rates!



Mortgage investors will be keenly attuned to tomorrow morning's August nonfarm payroll data. If the headline payroll number matches or exceeds the consensus estimate for a loss of 100,000 jobs -- and/or the national jobless rate creeps up 9.6% or higher -- mortgage investors will breathe a sigh of relief as mortgage interest rates trade steady to fractionally lower.


Should the August nonfarm payroll report indicate 75,000 or fewer jobs were lost during the month -- and/or should the national jobless rate post a reading of 9.5% or lower -- the race for the market exists will be on - with mortgage interest rates moving higher and prices slumping sharply lower. This latter scenario carries a lower probability of actually occurring - though not so low that it can be discounted completely. Be ready.


AND historically a Friday going into a three day holiday weekend spells higher rates!!