Happy Halloween!

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Happy Halloween!

As the serious business of drilling down into the essence of yesterday's much heralded euro-zone debt deal gets underway the euphoria that drove a sharp rally in global stock prices and bounced mortgage interest rates higher is slowly beginning to give way to disillusionment as it becomes increasingly evident a convincing fiscal and political solution to the European crisis has yet to be developed.


Against this backdrop stock markets are growing exceptionally vulnerable to a November slide - a condition almost certain to support the prospects for steady to perhaps fractionally lower mortgage interest rates!!



In other news of the day - according to Commerce Department figures sluggish growth in consumer income lead households to dip into savings to increase their spending, a condition casting doubt on the durability of the third-quarter economic growth spurt and further eroding expectations for accelerating corporate earnings for the fourth-quarter.



With consumer income edging up a very thin 0.1% last month, the 0.6% increase in spending obviously came at the expense of savings - a "burn rate" that is not sustainable for an extended period of time. The saving rate (the percentage of disposable income socked away) fell to 3.6%, the slowest since December 2007, from 4.1% in August. The bright spot of this report was found in the core personal consumption expenditure component -- the Fed's favorite measure of inflation at the consumer level -- which showed no overall change last month.



The two major items on the coming week's calendar are the Federal Open Market Committee meeting on Wednesday, November 2nd -- and Friday's scheduled release of the October Nonfarm Payroll figures. Mortgage investors currently expect both events to be mortgage interest rate neutral.

Monsters, goblins and super-heroes will soon be descending on homes everywhere and while Halloween is a time for fun and treats, certain dangers abound.

The key to keeping kids safe this year, and every year, is close parental supervision and a few trick-or-treat precautions.

Doctors at Cincinnati Children's Hospital Medical Center and experts in the Drug and Poison Information Center offer these tips to make this year's holiday a safe one.

Costumes
Avoid potential burn injuries: Look for flame-resistant materials for costumes and be particularly aware of open flames in jack-o-lanterns.

Choose costumes that do not have sharp objects as accessories.

Beware of costumes made with flimsy materials and outfits with big baggy sleeves or billowing skirts.

Make sure masks allow for full vision.

If your child wears a hat or scarf, make sure it fits securely and provides adequate ventilation.

Apply non-toxic face paint or cosmetics as an alternative to masks.

Make sure children wear properly fitting shoes.

Plan costumes of highly visible colors.

Adhere reflective tape or stickers to costumes or treat bags or have the child wear a reflective bracelet.

Attach each child's name, address and phone number to their clothes in case they become separated from adults.

Trick-or-treating
The most important thing to remember is to make children visible to automobile drivers. A child is four times more likely to be hit and killed by a car on Halloween than any other time.

Give kids flashlights to carry.

Accompany children under age 10.

Allow children to travel only in familiar areas.

Remind children to follow rules of crossing streets - look both ways and cross only at intersections and crosswalks.

For people who are giving out treats, healthy food alternatives for trick-or-treaters include packages of low-fat crackers with cheese, single-serve boxes of cereal, packaged fruit rolls, mini boxes of raisins and single-serve packets of low-fat popcorn.

Non-food treats may include plastic rings, pencils, stickers, erasers and coins.

Battery powered jack-o-lantern candles are preferable to a real flame. If adults who are passing out treats do use candles, place the pumpkin well away from where trick-or-treaters will be walking or standing.

Candy
Feed kids a good meal before trick-or-treating so they don't get cranky or hungry half-way through.

Do not allow children to eat any treats until they've been sorted and checked by an adult at home.

Throw candy away if it appears to have been unwrapped and re-wrapped, or appears suspicious in any way.

Do not allow young children to have any items that are small enough to present a choking hazard or that have small parts or components that could separate during use.

Children's fears
Halloween can sometimes be a frightening holiday for young children. To help ease the fright of "monsters" and unfamiliar sights, child psychologists at Cincinnati Children's say parents should help their children interpret Halloween as a make-believe situation.

Show children that someone is just wearing a mask by asking that person to remove it. Parents should also have small children try on their costumes before Halloween.

This exercise will give them time to get used to how they look.

Trick or Treating Safely!

Mortgage Rates...edging up today...Why?? BUT November Could bring lower rates - Read

Almost all of the momentum behind this morning's selling pressure in the mortgage market is being generated by investors' perception that Euro-zone leaders have stuck a deal to limit the damage from the financial crisis gripping the region.  Early this morning international bankers, heads of state, and officials from the International Monetary Fund announced they had reached a deal to recapitalize ailing European banks together with an aggressively negotiated commitment to expand the euro-zone rescue fund to $1.4 trillion.  

 

The headlines surrounding this event make it sound as though the 17-country currency bloc has managed to avert a major financial collapse just in the nick of time.  And maybe they have - but the devil is in the details - which are largely missing.  That fact should come as no surprise to most analysts - the just completed summit is the 14^th such meeting in less than two-years designed to produce "the" solution to the regions economic woes. 

 

As the serious business of drilling down into the essence of today's agreement gets underway -- it is highly likely the current euphoria driving a sharp rally in global stock prices will morph into disillusionment as it becomes evident a convincing fiscal and political solution to the European crisis has yet to be developed.  If this assessment proves accurate - stock markets will be exceptionally vulnerable to a November slide - a condition almost certain to support the prospects for steady to perhaps fractionally lower mortgage interest rates.

 

In other news of the day -- the government reported earlier this morning the economy, as measured by Gross Domestic Product, expanded at a 2.5% pace in the third-quarter.  Most mortgage investors discounted the news a bit - assigning part of the improved performance to temporary factors not likely to be repeated in the fourth-quarter.  Still, the expansion signals some relief as the economy appeared to be on the brink of another recession just weeks ago. 

Quiz: What Type of Buyer Am I?

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Do you let impulse rule your decisions or are you a more methodical consumer? Your past spending habits have a lot to say about what type of home buyer you'll make. Take this quick quiz to see your strengths and possible buying pitfalls.

Freddie Mac Mortgage giant can't pay $65B as CEO plans exit

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Former Putnam Investments chief Charles E. “Ed” Haldeman Jr. plans to step down as CEO of troubled mortgage giant Freddie Mac after two years.

Game 6 of World Series postponed due to rain, rescheduled for Thursday; Rangers lead Cards, 3-2

Game 6 of World Series postponed due to rain, rescheduled for Thursday; Rangers lead Cards, 3-2

Know Your High School Nicknames???

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This Date in History...

This Date in Kings Island History: On October 25, 1975, daredevil Evel Knievel ...successfully jumped over 14 Greyhound buses on his motorcycle in the Kings Island parking lot to set a new world's record. The jump was nationally televised by ABC-TV's "Wide World of Sports" and held the highest rating in the show's history.

How to store firewood: Keeping your firewood dry - FIRE SEASON - THIS IS A GOOD READ

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There are endless ways to store firewood. But when money is tight and you need dry firewood stored outdoors, something simple such as inexpensive tar paper and a fiberglass tarp can do the trick.

 

Expansion of Mortgage Program Is Limited in Scope

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WASHINGTON — The federal government’s expansion of a mortgage refinancing program could reduce the monthly payments of up to one million homeowners, but analysts said the modest scope of the plan meant it would probably do little to heal the housing market or help the broader economy.

Tricks, Not Treats: 6 Horror Stories of Bad Neighbor Behavior

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HouseLogic lists some of the craziest, creepiest, and grossest neighbor behavior, and provides some valuable advice for managing neighbor-on-neighbor disputes.

 

Improve soil quality by raking less - NOW THIS IS WHAT I LIKE TO HEAR!!!

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If you dread the annual task of leaf-raking, I have good news for you: Raking and collecting leaves every autumn is a tradition without scientific basis. Research has proven that mowing leaves into your lawn can improve its vigour, and observation shows that mulching with leaves in planting beds doesn't smother shade-tolerant perennials.

Halloween Cupcakes

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Make creepy (and tasty) cupcakes for Halloween.

Home Renovation: Tips for Thrifty Upgrades

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Gone are the days when home improvements were "a dollar in, a dollar (or more!) out."

Still, it's an excellent time to undertake home renovation projects. Contractors, tradesmen, and other skilled craftspeople are eager for work. Their empty schedules may mean better rates for you than in years past. And scaling a gigantic home renovation down to a smaller scope can save money.

Apple bacon coffee cake

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After a spring and summer of early morning marketing and weekends filled with putting my bounty by, I know the shorter days have a little less to keep me busy. One way I fill the Saturday morning void is with baking and preparing breakfast treats. And this is one of my fall favorites. A moist morning cake topped with maple-sweetened apples and salty, crispy bacon. It is a perfect warm treat for a crisp autumn morning.

Curb Appeal Ideas - A Checklist for Creating Curb Appeal

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If you are planning to sell your home in the near future, you need to start working on your curb appeal to make a good first impression on potential buyers. This article offers a variety of landscaping tips to help you succeed.

White House Pledges Support for Housing

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Housing is "extremely important to the President," a key White House advisor told the Mortgage Bankers Annual convention in Chicago.

Beware of the Mortgage Scammers

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The Joys of Homeownership

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Today's experts spout off the latest statistics about long-term wealth, home values, and interest rates, yet there's a much more sentimental side to homeownership. In fact, many home buyers are drawn to homeownership for these warm and fuzzy reasons.

12 Exterior Doors That Make a Statement

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While any old doors will provide passage to and from your home, high-style doors can make a great first impression and offer a sneak peek at your home's interior decor.

OPEN HOUSE TODAY 1PM-3PM.

OPEN HOUSE TODAY 1PM-3PM.  Great buy in the Wedgwood Community in Morrow.  House is WAY bigger than this cover photo shows.  Don't judge a book by its cover.  Four Bedrooms.  Two Full Baths and Two Half Baths.  Finished Basement.  Hardwood Floors.  Fenced-in Level Yard.  Great community.  Two community pools, a park, walking paths and two ponds!  You won't be disappointed.  Move in ready!!  Spread the post.  Thanks!!!

 

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Triggers for Rejection

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“WE regret to inform you...” Nobody applying for a new mortgage or a refinancing wants to see or hear these words. But last year more than two million people were turned down for home loans, according to federal data, often because they didn’t meet certain lender requirements or because their applications were incomplete or otherwise problematic.

61% of Americans unaware of energy efficiency rebates, incentives

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Whether it's a $60 utility rebate on a new refrigerator, a $500 federal tax credit for upgraded insulation or $1,875 from the state for replacing a natural gas water heater with a solar model, Southern California homeowners are eligible for dozens of financial incentives when they make energy-efficient upgrades.

Leaf Rakes, Blowers/Vacuums and Shredders

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Autumn leaves start out beautiful, but eventually they become just a mess on the lawn. Fall clean-up of leaves is not a chore most gardeners look forward to. Some gardeners wonder if it is even necessary to rake leaves. Won't the leaves just compost naturally on the lawn?

Construction spending increased 1.4 percent in August but remains well below healthy levels

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U.S. builders increased spending on homes, office buildings and other projects in August after a big decline in July.

The gain is modestly good news for the economy, but it still left the construction industry far below levels considered healthy.

Mortgage Daily Commentary

The lion's share of the European debt crisis, a slowing domestic economic picture, and the expected impact of the credit market intervention plans of the Fed are already well priced into the mortgage market.  From this point forward it will take massive amounts of even more dismal news and events to support steady to fractionally lower mortgage interest rates - but the slightest glimmer of improving economic news will trend to nudge rates higher and at a fast pace!

  

Fed Chairman Bernanke, speaking to members of a bipartisan congressional panel earlier this morning, said the Fed is prepared to take further steps to help a fragile economic recovery get back on its feet.  Bernanke urged lawmakers not to cut spending too quickly in the short-term to avoid creating even more drag on the economy as it attempts to recover from the deepest most sustained recession since the Great Depression.   The more aggressive the efforts to revive economic growth -- the more hesitant mortgage investors will become in terms of pushing rates notably lower.

 

A bill circulating through Congress aimed at forcing China into letting its currency rise is increasing the potential of a trade war between the U.S. and China.  Lawmakers want to slap duties and other restrictions on imports from China and other countries found to be subsidizing their exports by undervaluing their currencies.  Adopting protectionist measures against one of the largest financiers of American government debt may cause greater problems than it is intended to resolve.  Mortgage investors are going to watch developments very carefully here.  Should a major buyer choose to leave the market - the upward pressure on rates will increase notably.  

 

As always...stay tuned,,,

11 Delicious Pumpkin Recipes

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Carve out a spot on your plate (no matter how full it is) for these yummy dishes.

Button up your house for winter

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Some people don't button up the house until caulking fails, wind whistles in, and the first eye-popping utility bill of the winter lands in the mailbox. But you can cut fuel costs, stop air leaks, and prevent damage from water, ice and snow by sealing the house before winter hits.

Man Caves and Other Magnets

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Every home should have a place to relax on your own or with family or friends. For some this retreat is claimed by one gender and is often called a “man cave,” and is stocked with potables, munchables, and viewables.

6 Houseplants You Can't Kill

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6 Houseplants You Can't Kill. No green thumb? No problem! Here are six botanical best bets that can survive some neglect. 

Bernanke calls for more housing help from Washington

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Federal Reserve Chairman Ben Bernanke delivered a speech Wednesday afternoon on emerging market economies, but it was his remarks about the state of the still-ailing U.S. economy in a Q&A after the speech that garnered the most attention.

Mortgage Rates Remain Low After Mixed Housing Reports

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With the summer season now over, mortgage rates continue to remain low after mixed housing reports for the month of August.

30 Can't-Miss Home Staging Tips

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Designed to Sell designer Lisa LaPorta shares some of her best home staging tips.

Much to most economists' surprise the pace of expansion in the service sector of the economy accelerated in August, snapping a three month losing streak.



The Institute of Supply Management said its services index rose to 53.3% in August from 52.7% in July. This index represents about 90% of all domestic economic activity. Today's uptick suggests the recovery is continuing to limp along even in the face of anemic job growth. Mortgage investors took note of the better-than-expected performance for the ISM's Service Sector Index - and then shrugged the whole thing off.



For the time being mortgage investors appear content to tread water as they await Fed Chairman Bernanke's 1:00 p.m. ET speech on Thursday and President Obama's address to a joint session of congress at 7:00 p.m. ET the same day. Until then the mortgage market will probably take directional cues from trading action in the stock markets. Higher stock prices will tend to push mortgage notes fractionally higher while lower stock prices will likely prove supportive of steady to perhaps slightly lower rates.



For what it is worth, some models are indicating the Dow Jones Industrial Average (a price-weighted average of 30 actively traded, primarily blue chip industrial stocks, considered to be an indicator of overall stock market conditions) will attempt to put in a short-term bottom somewhere in a price range between 11,040 to 10,950. This bottom, according to those models, will likely be made sometime between today and the close of business on Friday. If this assessment proves anywhere close to accurate, it will be difficult, if not impossible for mortgage note rates to move significantly lower from current levels. Heads up.

Mortgage investors have completely shrugged-off this morning's stronger-than-expected decline in the weekly jobless claims number and the better-than-anticipated Institute of Supply Management Manufacturing Index. The near-term trend trajectory of mortgage interest rates is now leaning entirely on tomorrow morning's 8:30 a.m. ET release of the August Nonfarm Payroll figures.



The majority of economist are projecting the headline nonfarm payroll number will fall within shouting distance of 80,000 and the national jobless rate will remain at its current 9.1% level. These expectations are already well priced into the mortgage market. Numbers that match or exceed the current consensus estimate will probably exert upward pressure on mortgage interest rates -- while a headline number less than 75,000 and/or a jobless rate of 9.2% or higher will almost certainly prove supportive of fractionally lower rates before the day is over.



While lower rates are certainly welcome by borrowers and mortgage originators alike -they don't do much for the end investors. Yields to investors are approaching the point where they don't offer a return much greater than what the investor could get by simply stuffing their money under the mattress. The "so what" factor here is worth noting. At some point - from the investors' perspective - accepting lower yields on their mortgage portfolio becomes pointless - or dangerous - or both. Against this background it will not take much in the way of an inflation spike or signs of an accelerating economic recovery to prompt a dramatic upward surge in note rates.



FYI: The mortgage market will operate on a normal schedule on Friday, September 2nd and will be closed on Monday, September 5th for the Labor Day Holiday.

Mortgage investors gave this morning's slightly stronger-than-expected 2.4% gain in the July Factory Orders report little more than a passing glance. Vehicle orders climbed last month by the most since January 2003, rebounding from a slump caused by supply disruptions linked to the earthquake in Japan. Stripping out the outsized gain in the transportation component of this data - so called "core" factory orders posted a very modest 0.9% gain for the month.



In a separate report the Mortgage Bankers of America said their mortgage application survey for the week ended August 26th showed overall mortgage loan demand slumped 9.6% on a week-over-week basis. Refinance requests fell by 12.2% while purchase applications edged 0.9% higher.



The contract rate for 30-year fixed rate mortgages finished the week at 4.32%, down 7basis-points from the prior week, down 13 basis-points from the month ago mark, and down 11 basis-points from this time one-year ago. Refinance requests represented eight out of 10 loan applications taken last week.

Normally the most scrutinized report of the month, the August jobs report takes on added importance given Fed Chairman Bernanke's recent public comments stressing how crucial it is for the long-term health of the economy that the national jobless rate fall below 9.0% (as of the July report the national jobless rate stands at 9.1%). Many analysts believe Friday's nonfarm payroll figures will play a major role in determining what, if any, new economic stimulus plans are forthcoming from the central bank.



An August jobless rate of 9.1% or higher will tend to support the prospects for steady to fractionally lower mortgage interest rates while a jobless rate of 9.0% or lower will almost certainly cause investors to nudge mortgage rates higher. It is a close call - but for the time being I suggest you remain in your fox holes with your helmets on and your head down until/unless the Fannie Mae 4.0% 30-year mortgage-backed security can muster strong enough upward momentum to close above a price of 103.875. As I mentioned in this space last Friday -- it will not take much in the way of an inflation spike or signs of an accelerating economic recovery to prompt an ugly change in your investors' rate sheets



FYI: The mortgage market will operate on a normal schedule on Friday, September 2nd and will be closed on Monday, September 5th for the Labor Day Holiday.

This morning's stronger-than-expected July Personal Income and Spending report is just the latest in a series of various reports suggesting the economy has not yet fallen into the black hole of a recession. The Commerce Department said spending rose 0.8% last month - it fastest pace in the past five months. Income grew 0.3% on a month-over-month basis and the core rate of inflation as measured by the personal consumption expenditure component of the index posted a modest 0.2% increase.
This morning's data is actually little more than background noise as mortgage investors brace for Friday morning's much more important August nonfarm payroll figures.



Normally the most scrutinized report of the month, the August jobs report takes on added importance given Fed Chairman Bernanke's recent public comments stressing how crucial it is for the long-term health of the economy that the national jobless rate fall below 9.0% (as of the July report the national jobless rate stands at 9.1%). Many analysts believe Friday's nonfarm payroll figures will play a major role in determining what, if any, new economic stimulus plans are forthcoming from the central bank.



An August jobless rate of 9.1% or higher will tend to support the prospects for steady to fractionally lower mortgage interest rates while a jobless rate of 9.0% or lower will almost certainly cause investors to nudge mortgage rates higher. It is a close call - but for the time being many suggest you remain in your fox holes with your helmets on and your head down until/unless the Fannie Mae 4.0% 30-year mortgage-backed security can muster strong enough upward momentum to close above a price of 103.875. It will not take much in the way of an inflation spike or signs of an accelerating economic recovery to prompt an ugly change in your investors' rate sheets



FYI: The mortgage market will operate on a normal schedule on Friday, September 2nd and will be closed on Monday, September 5th for the Labor Day Holiday.

Many market participants had hoped Mr. Bernanke would serve up the financial equivalent of a juicy steak hot-off-of-the-grill this morning -- but instead he offered nothing more than a bowl of lukewarm Cream-of-Wheat.



Federal Reserve Chairman Ben Bernanke stopped short of signaling further immediate action from the central bank to boost economic growth during his much hyped keynote speech at a global economic conference in Jackson Hole, Wyoming earlier this morning. His position disappointed many and matched the minority of market analysts' expectations.



The furthest Mr. Bernanke chose to go out on a professional limb was to solemnly pronounce that he believes reducing the record high level of workers who have been unemployed for six months or more would help achieve stronger U.S. economic growth. The best Mr. Bernanke had to offer market participants was his commitment to talk about additional ideas to stimulate economic growth with the other members of the Open Market Committee at an extended two-day gathering beginning on Tuesday, September 20th. The whole thing was decidedly mortgage interest rate neutral.



In terms of economic news the Commerce Department reported earlier this morning the economy grew slower than previously thought during the second-quarter. Gross Domestic Product, a government guesstimate of the value of all the goods and services produced nationally, improved by 1.0% -- a downward revision to the government's first guess suggesting growth of 1.3%. The revision was generally in range of the performance level most mortgage investors had been anticipating rendering this report essentially "toothless" with respect to its impact on the current trend trajectory of mortgage interest rates.



Looking ahead to the coming week several important economic reports will be featured starting with Monday's Personal Income and Spending data from July followed by Thursday's measure of activity in the manufacturing sector to be delivered in the form of the July Institute of Supply Management's Manufacturing Index and culminating in Friday's August Nonfarm Payroll report.



The risk is that one or more of these reports prove stronger-than-expected - a condition should it occur - almost certain to cause mortgage investors to nudge interest rates higher. Heads up - this is definitely not time to get complacent with your pipeline risk management strategies. It will not take much in the way of an inflation spike or signs of an accelerating economic recovery to prompt an ugly change in your investors' rate sheets.



FYI: The mortgage market will operate on a normal schedule on Friday, September 2nd and will be closed on Monday, September 5th for the Labor Day Holiday.

Different day - same story.



It is another very slow start to the trading day in the mortgage market. Mortgage investors are putting the finishing touches on their risk management strategies in front of tomorrow morning's much anticipated speech by Fed Chairman Bernanke.
Many market participants are hoping Mr. Bernanke will use his time at the podium to announce a new monetary policy stimulus program designed to avert the immediate threat of another recession will soon be forthcoming from the Fed. It is far more likely he will discuss the various methods the Fed has at its immediate disposal to provide additional lift to the struggling economy - and he will reaffirm his commitment to act decisively should the need arise -- but Mr. Bernanke will probably stop short of making any "big bang" announcement.


If this assessment proves accurate -- look for the stock market to sell-off while mortgage interest rates move sideways to perhaps fractionally lower. Mr. Bernanke is scheduled to begin his address at 10:00 a.m. ET.



The Labor Department reported earlier this morning that the number of Americans standing in line to file first-time claims for government unemployment benefits jumped a stronger-than-expected 5,000 to 417,000 during the week ended August 20th. A Department spokesperson said at least 8,500 new filings last week were attributable to the Verizon strike. Even without the distortions created by the Verizon strike - the data continues to clearly show labor market conditions remain grim.



Uncle Sam will wrap-up this week's three-part Treasury debt auction series with the sale of $29 billion worth of 7-year notes this afternoon. Early indications suggest the auction will draw solid demand from foreign and domestic investors alike. Investors have been migrating to the longer dated securities as they grab for yield following last month's commitment by the Fed to keep short-term interest rates near zero for at least two years. If this assessment proves accurate, this event will tend to be supportive of steady to perhaps fractionally lower mortgage interest rates.

It is another very slow start to the trading day in the mortgage market. Mortgage investors are putting the finishing touches on their risk management strategies in front of Friday's much anticipated speech by Fed Chairman Bernanke.



Many market participants are hoping Mr. Bernanke will use his time at the podium to signal a new monetary policy stimulus designed to avert the threat of another recession. It is far more likely he will discuss the various methods the Fed has at its immediate disposal to provide additional lift to the struggling economy - and he will reaffirm his commitment to act decisively should the need arise -- but Mr. Bernanke will probably stop short of making any "big bang" announcement. If this assessment proves accurate -- look for the stock market to sell-off while mortgage interest rates move sideways to perhaps fractionally lower.



The Commerce Department announced earlier today that orders for goods manufactured to last 3-years or more posted a 4.0% gain in July on a huge jump in transportation equipment - particularly aircraft where orders were up 14.6%. Things were not nearly so heady for the component of the report that excluded transportation orders -where the July gain was a very modest 0.7%. Overall, the data continues to reflect continued softness in broad sections of the economy.



As they do every Wednesday, the Mortgage Bankers of America have released their mortgage application survey data for the week ended August 19, 2011. Overall loan demand declined 2.4% from the previous week with purchase money requests dropping 5.7% and refinance requests down by 1.7%.



The contract rate for 30-year fixed rate mortgages finished at 4.39%, up 7 basis-points from a week ago, down 18 basis-points from four weeks ago, and down by 16 basis-points from a year-ago. Refinance applications accounted for eight out of every ten applications taken last week.



Mortgage investors are currently doing nothing more than milling around with their hands in their pockets waiting for the results of this afternoon's 1:00 p.m. ET sale of $35 billion of 5-year notes. Early indications suggest the auction will draw solid demand from foreign and domestic investors alike. If this assessment proves accurate, mortgage interest rates will not likely move much in either direction. Only in the off-chance demand is so weak at today's debt sale Uncle Sam finds it necessary to "sweeten-the-pot" by offering a notably higher yield on today's offering of 5-year notes will mortgage investors feel particularly compelled to push rates upward from current levels.

Mortgage investors are putting the finishing touches on their risk management strategies in front of this week's three-part, $99 billion Treasury debt auction. The process will kick-off tomorrow with $35 billion of 2-year notes on the auction block followed by $35 billion of 5-year notes on Wednesday and concluding on Thursday with $29 billion of 7-year notes. The yields on these securities are flirting with 60-year lows -- so reasons for investors to step up and buy will need to be very compelling. If demand is soft at this week's government debt sale look for the upward pressure on mortgage interest rates to increase.



The biggest event on this week's schedule is Fed Chairman Ben Bernanke's Friday morning address to attendees at the Fed's global banking conference in Jackson Hole, Wyoming. Bernanke is expected to acknowledge his disappointment over the pace of economic growth -- but the probabilities remain low he'll provide any new guidance on a new round of monetary stimulus. If my assessment proves accurate, it's a perfect recipe for a churning, range-bound trading environment for both stocks and bonds. Heads up.

There is nothing on the economic calendar for mortgage investors to chew on.
What little trading occurs in the mortgage market today will be largely dictated by trading activity in the stock markets. Higher stock prices will likely create a little upward pressure on mortgage rates while lower stock market prices will tend to be supportive of steady to perhaps fractionally lower rates.



Looking ahead to next week the headliner event will be Fed Chairman Ben Bernanke's key-note address Friday morning at 9:00 a.m. CT on the "Near- and Long-term Prospects for the U.S. Economy." Mr. Bernanke will be speaking at the Federal Reserve Bank of Kansas City Economic Symposium in Jackson Hole, Wyoming.



There are some analysts suggesting the Fed Chairman will publicly announce another round of central bank sponsored fiscal stimulus in the form of "QE3." The majority of major Wall Street investment houses are putting the probabilities this generally mortgage interest rate unfriendly event will occur at less than 40%. Most of these market participants believe the politics surrounding such a move together with major questions regarding the true effectives of "QE2" make it unlikely the Fed will try to deploy the same strategy a third time.



Also on tap for the coming week will be a $99 billion, three-part Treasury debt auction scheduled to run from Tuesday through Thursday. July New Home Sales numbers on Tuesday, July Durable Goods Orders on Wednesday and revised second-quarter Gross Domestic Product numbers on Friday will make up the total of the coming week's rather lackluster battery of macro-economic news.

The Dow Jones Industrial Average took a 500+ point nosedive earlier this morning as fears over growing signs of a global economic slowdown sent capital scurrying for the relative safe-haven of dollar denominated assets like Treasury debt obligations and mortgage-backed securities.



While the infusion of additional buyers supporting steady to lower mortgage interest rates is certainly welcome - bear-in-mind these "safe-haven" investors are not acquiring Treasury debt obligations and mortgage-backed securities with the intent of holding these assets in their portfolio for an extended period of time. The majority of these "flight-to-quality" investors will dump their "safe-haven" investments like a hot potato the second the last panicked seller in the stock markets has been indentified and satisfied.



Morgan Stanley's index of global stocks is currently posting a forward-earnings ratio for MSCI index of 11.7 versus a 22-year average of 16.4. In other words, these riskier assets are approaching such heavily discounted values any perceived sign(s) of stabilization for global economic growth will send professional investors the world over into a swirl of activity redeploying capital back into riskier but higher yielding investments like stocks. The process, when it occurs, will create a significant amount of selling pressure in both the Treasury and mortgage-backed securities market.



The days of support for steady to fractionally lower mortgage interest rates from international "safe-haven" buyers could be numbered. With 8 out of every 10 loans in most pipelines representing refinance requests - it is critically important borrowers are aware how quickly their funding sources may dry up - even though all the current underlying government economic reports suggest rates should be moving yet lower.

Mortgage investors gave this morning's Labor Department report indicating inflation at the nation's factory gates rose at a stronger-than-expected pace little more than a passing glance.


The specifics of the July Producer Price Index showed overall prices were higher by 0.2% following a 0.4% drop in June. The core rate of inflation at the producer level, a value which strips out the more volatile food and energy costs, rose by 0.4% -- double most economists' expectations and the largest single monthly increase for this measure of inflation since January.



A jobless rate of 9.0+% continues to take a major toll on salaries and wages which in-turn crimps consumer spending. As long as the labor market remains weak -- it is highly unlikely businesses will find the pricing power necessary to pass their rising raw material costs through to consumers.



If tomorrow morning's 8:30 a.m. ET July Consumer Price Index confirms this assessment -- the report will tend to be supportive of steady to perhaps fractionally lower mortgage interest rates. In the off-chance the core rate of the July Consumer Price Index posts a reading of 0.3% or higher -- expect mortgage investors to respond by pushing rates higher in tomorrow's early going.



As they do every Wednesday, the Mortgage Bankers of America have released their weekly mortgage application survey numbers for the five-business-day period ended August 12th. The composite index gained 4.1% from the previous week, driven entirely by a huge surge in refinance requests. Refinance loan demand was up 8.0% on a week-over-week basis while request for purchase money mortgages fell 9.1%.
The contract rate for 30-year fixed-rate mortgages finished the week at 4.32%, down 5basis-points from the prior week, down 22 basis-points from the month-ago mark, and down 28 basis-points from the year-ago level.



Refinance applications accounted for eight of every ten loan applications taken last week by lenders across the country.

TUESDAY, AUGUST 16

I WAS OUT OF THE OFFICE YESTERDAY SO HERE IS YESTERDAY'S MARKET UPDATE:

Second verse - same as the first.


The mortgage market continues to idle as investors watch trading action in the stock market for clues on where to set their interest rates. Higher stock prices will tend to drive mortgage interest rates fractionally higher while lower stock prices will probably prove supportive of steady to perhaps fractionally lower mortgage interest rates.


Recent economic data suggest second-half economic growth will be softer than first thought. Unemployment has remained stuck near 9.0%, raising speculation the Federal Reserve may have to be more aggressive in its monetary policy in order to revive the labor market. Inflation data on Wednesday and Thursday will give Fed Chairman Bernanke and his fellow central bankers a sense of how much fuel they can add to the economy's growth engine without awakening the inflation beast.


Here's the "so what" factor attached to all this mumbo-jumbo. A key reason stocks have rebounded so aggressively from a nearly 20% slump was the Fed's decision to make an unprecedented pledge to keep their benchmark interest rates near zero for another two years while they explore other options for breathing life back into the economy.


If the Fed is successfully in their efforts to rekindle job creating economic growth - stocks will likely move notable higher from current levels at the expense of higher mortgage interest rates. On the other hand, if the Fed fails in their effort to revive the sputtering economic growth engines - stocks will almost certainly turn notably lower. A major sell-off in the stock markets will undoubtedly prove supportive of the prospects for steady to perhaps fractionally lower mortgage rates.


the 11,200 price level as indexed to the Dow Jones Industrial Average represents the demarcation line for mortgage interest rates. As long as the DJIA trades above the 11,200 mark -- it will likely prove difficult, if not impossible for mortgage interest rates to make a sustained move to notably lower levels.
Today's economic news did nothing but confirm mortgage investors' current expectations for slow growth - but not so slow the economy slips into another recessionary spiral.


July Industrial Production increased a stronger-than-expected 0.9% after an upwardly revised 0.4% gain in June. Capacity Utilization - a general measure of slack in the manufacturing sector - rose to 77.5% in July from 76.9% in June. This is the highest level of capacity utilization since August 2008. Until/unless the capacity utilization rate exceeds 80.0% on a sustained month-over-month basis mortgage investors will not be concerned about the potential of inflation producing production bottlenecks developing within the economy.



To no one's surprise, the Commerce Department reported this morning that housing starts fell 1.5% in July. Building permits, a proxy for future construction, declined 3.2% on a month-over-basis. Mortgage investors gave this data nothing more than a passing glance.

The mortgage market is currently idling as investors watch trading action in the stock market for clues on where to set their interest rates.


Higher stock prices will tend to drive mortgage interest rates fractionally higher while lower stock prices will probably prove supportive of steady to perhaps fractionally lower mortgage interest rates.


Recent economic data suggest second-half economic growth will be softer than first thought. Unemployment has remained stuck near 9.0%, raising speculation the Federal Reserve may have to be more aggressive in its monetary policy in order to revive the labor market.


Inflation data on Wednesday and Thursday will give Fed Chairman Bernanke and his fellow central bankers a sense of how much fuel they can add to the economy's growth engine without awakening the inflation beast.


Here's the "so what" factor attached to all this mumbo-jumbo. A key reason stocks have rebounded so aggressively from a nearly 20% slump was the Fed's decision to make an unprecedented pledge to keep their benchmark interest rates near zero for another two years while they explore other options for breathing life back into the economy.


If the Fed is successfully in their efforts to rekindle job creating economic growth - stocks will likely move notable higher from current levels at the expense of higher mortgage interest rates.


On the other hand, if the Fed fails in their effort to revive the sputtering economic growth engines - stocks will almost certainly turn notably lower.


A major sell-off in the stock markets will undoubtedly prove supportive of the prospects for steady to perhaps fractionally lower mortgage rates.


The "experts" believe that the 11,200 price level as indexed to the Dow Jones Industrial Average represents the demarcation line for mortgage interest rates.


As long as the DJIA trades above the 11,200 mark -- it will likely prove difficult, if not impossible for mortgage interest rates to make a sustained move to notably lower levels.


Stay Tuned...in the meantime - enjoy the ride and lock em if ya got em!

Who's afraid of a little 'ol credit downgrade on the sovereign debt of the United States?


The majority of investors in the global credit markets seem to have completely shrugged the whole thing off. Foreign and domestic investors alike proved willing to be aggressive buyers of Uncle Sam's 10-year notes at yesterday's Treasury auction. Buying demand was strong enough to push the yield on these securities down to a decade-long low of 2.092%.


The Treasury Department will complete this week's regularly scheduled three-part debt sale this afternoon when they auction off $16 billion worth of 30-year bonds. I suspect demand for today's offering may not be as robust as it was for Tuesday's 3-year notes and yesterday's 10-year notes. If this morning's 200+ point rally for the Dow Jones Industrial Average is sustained through the conclusion of the Treasury auction at 1:00 p.m. ET - it is likely the yield on the 30-year Treasury bond will edge fractionally higher - a condition almost sure to cause mortgage interest rates to creep fractionally higher as well.


The Labor Department reported earlier this morning the number of Americans claiming new jobless benefits dropped 7,000 to a seasonally adjusted 395,000 - the lowest level for this measure of activity in the job market in more than four months. While still elevated, the level of weekly claims for government funded unemployment benefits has improved markedly since hitting a peak of 478,000 during the last week of April. Hiring remains exceptionally weak by historical standards for this stage of the economic recovery. Economists generally agree the U.S. needs to add at least 125,000 jobs a month just to keep up with the growth of the labor force - and double that amount to make a significant dent in the nation's 9.1% unemployment rate.

Amazing. Just-four days after the first-ever downgrade of America's sovereign debt rating to AA+ from AAA -- dollar denominated Treasury debt obligations and their mortgage-backed security cousins are enjoying "rock-star" status in the global credit markets.


The current rally in the credit markets in general - and the mortgage market specifically - is being driven singularly by the fact the rest of world - especially Europe -- is coming apart at the financial seams.


Rumors are circulating around the globe that France will soon loose their AAA sovereign debt rating as the debt crisis that began in Greece continues to infect an increasing number of the other 16 countries that share the euro.


Rick Rieder, chief investment officer at BlackRock Inc., succinctly summarized the stunning power behind this week's rally in the Treasury and mortgage-backed securities market when he said, (I'm paraphrasing) "Whether rated AA+ or not, the world still thinks Treasury debt obligations are AAA rated."

The "so what factor" here is significant. As long as the this AAA global perception of dollar denominated assets remains unshaken - and as long as Europe continues to stagger under the shifting strains of what will likely prove to be one of history's most crippling sovereign debt crisis - the support mechanism for extraordinarily low mortgage interest rates will almost certainly remain in place. If additional reasons develop for the global investment community to question America's ability to repay her debts in a timely manner -- the trend trajectory of mortgage interest rates will undoubtedly reverse course in the blink of an eye. But that is a worry for another day.

More of the same.

In the absence of any economic data to guide sentiment - most mortgage investors will likely spend the balance of the day putting the finishing touches on their risk management strategies in front of this week's $99 billion, three-part Treasury debt auction. Uncle Sam will be peddling $35 billion of 2-year notes tomorrow, $35 billion of 5-year notes on Wednesday and $29 billion of 7-year notes on Thursday. Given the recent increased volatility surrounding domestic and global headlines from the financial markets -- investors are very uncertain about what the correct levels for yields should currently be. Investor nervousness in front of the coming Treasury auctions seems unusually high. The "so what" factor is direct and straightforward -- nervous investors are not normally inclined to push mortgage rates notably lower. Heads up.

Uncle Sam will be in the credit markets looking to sell $32 billion of three-year notes, $24 billion of 10-year notes, and $16 billion of 30-year bonds on Tuesday, Wednesday and Thursday. The Fed has been the dominant buyer of Treasuries sold at recent auctions. Fed Chairman Bernanke has about $75 billion of his original $600 billion "QE2" stimulus allocation left in his checkbook - a sum he intends to spend before the program ends next month. Most observers expect the Fed will use whatever amount is required to "crease-the-wheels" at this week's government debt sale. If so, the upcoming round of auctions will likely have little, if any discernible impact on the trend trajectory of mortgage interest rates.



Not much in the way of economic news is on the docket until Thursday when investors will react to the inflation data contained in the April Producer Price Index and we will get a chance to see how big a hunk, if any, higher energy prices took out of the April Retail Sales numbers. The second part of the inflation story will be told on Friday with the release of the April Consumer Price Index. As long as the core rates (a value that excludes the more volatile food and energy price components) of both the Producer and Consumer Price Indexes remain at 0.2% or below these two data series will likely have little influence on the level of mortgage interest rates. In the off-chance one or both of the core indexes of these two primary measures of inflation post a reading of 0.3% or more -- look for mortgage rates to make a noticeable move to higher levels.

News from the Labor Department earlier this morning indicating the number of Americans filing first-time claims for jobless benefits rose to an eight-month high last week did nothing but add support to the current rally in the mortgage market. Initial claims for state unemployment benefits rose 43,000 during the week ended April 30th to a seasonally adjusted 474,000, the highest mark since mid-August 2010. Applications for unemployment benefits have topped the key 400,000 level in each of the past four weeks. Requests for jobless benefits usually fall below 400,000 per week during periods of strong economic growth.


A Labor Department spokesperson said a spring break holiday in New York, a new emergency benefits program in Oregon, and auto shutdowns caused by the effects of the disaster in Japan were the main reasons for the outsized surge in claims.


This week's initial claims numbers fell outside of the survey period for tomorrow's much more important April Nonfarm Payroll report. Even so, based on today's surprisingly soft weekly claims data, many traders will be "penciling in" expectations the April Nonfarm Payroll figures will indicate growth in the labor sector has stalled. Look for mortgage interest rates to continue to creep lower should headline job creation for April fall below 180,000 and/or the national jobless rate climbs to 8.9% or higher.


A second report from the Labor Department this morning showed first-quarter nonfarm productivity increased at a 1.6% annual rate, braking sharply from the 2.9% pace set during the last three months of 2010. Most mortgage investors were so busy responding to the big surge in the weekly claims data they had little time to give this second report anything more than a passing glance.

This morning's news that the Institute of Supply Management's index of activity in the service sector of the economy slumped a surprising 4.5% in April has proven supportive of fractionally higher mortgage prices in today's early trading.


Most investors appear to view today's sharp drop in the ISM service sector index a bit skeptically. The swoon in this economic benchmark stemmed from the largest decline in the new orders component of this data set since the ISM first began compiling this index 13 years ago. The April decline for new orders is larger than after 9/11, and larger than the mark set following Hurricane Katrina. Just two months ago this index hit a six-year high. While a plunge of the magnitude registered in today's report is certainly possible - most investors will likely need to see other separate but validating reports before beginning to aggressively price-in the likelihood the economy is slipping back into a recession.


In a separate report the Mortgage Bankers of America said the mortgage loan applications rose 4.0% on a week-over-week basis. Refinance applications rose 6.0% during the week ended April 29th while purchase money requests were up a modest 0.3%. Six out of every ten loan applications taken last week were for refi's. The average national contract rate for 30-year fixed-rate mortgages finished the week at 4.76%, down 17 basis points from four weeks ago, down by 26 basis points from the month-ago mark, and down 26 basis points from year-ago levels.

Mortgage investors gave this morning's March Personal Income and Spending data and the first-quarter Employment Cost Index figures nothing more than a passing glance. Both sets of numbers fell roughly inline with the majority of economists' expectations and therefore had already been priced into the market.


Mortgage investors' attention is keenly focused on the upcoming battle developing between the White House and congressional leaders as the clock tick downs on the mid-May deadline to raise the $14.3 trillion cap on government borrowing. Default, even if temporary, could have long-term adverse effects for Treasury debt sales - and by extension - the trend trajectory of mortgage interest rates.


Even if those in power reach an agreement to raise the debt ceiling -- but in the process choose to engage in another round of political brinkmanship that pushes the financial debate down to the wire - you can bet the upward pressure on mortgage interest rates will rise as both domestic and global market participants are forced to prepare for a potential debt default by the United States government. Most observers believe an accord will be reached -- but the timing of such an event is still in question.


The coming week will be a busy one with respect to potentially market moving economic reports. Things kick-off on Monday when the Institute of Supply Management releases their April manufacturing activity index at 10:00 a.m. ET. The Institute's April Service Sector Index will take center-stage on Wednesday morning at 10:00 a.m. ET and the grand finale will occur on Friday with the release of the April Nonfarm Payroll stats at 8:30 a.m. ET. All three major reports are currently expected to prove supportive of steady to perhaps fractionally lower mortgage interest rates.

Wednesday, February 16, 2011

The Labor Department reported this morning that inflation pressures at the wholesale level shot up again in January as energy and food costs continued to rise. The seasonally adjusted 0.8% gain in January follows a 0.9% gain in December and marks the seventh consecutive monthly increase in raw material prices for manufacturers. Even more of a concern than the surge in the headline producer price index, at least from a mortgage investor's perspective, is the fact that the core producer price index, a value which excludes the volatile food and energy costs, spiked 0.5% higher last, marking the largest month-over-month gain for this component since October 2008




Up to this point in the recovery from the Great Recession producers have not had the pricing-power necessary to push through much, if any, of the increases in their raw material costs to the consumer. That story could change quickly. Investors will scrutinize the details of tomorrow morning's January consumer price index (8:30 a.m. ET) for any sign that inflation pressures on Main Street are ramping up.



Most analysts believe the core rate of the consumer price index (a value excluding the more volatile food and energy costs) for January will not post a gain of more than 0.1%. If so, look for mortgage interest rates to move sideways to perhaps slightly lower - but be ready - a core consumer price index of 0.2% or higher will likely send mortgage interest rates sharply higher before the day is over. And here is the "kicker" - even if tomorrow's core rate of inflation posts a reading of 0.1% -- fixed-income investors will likely begin to anticipate an upward trajectory for next month's core consumer price index value.



As they do every Wednesday, the Mortgage Bankers of America have released their Mortgage Application Survey data for the week ended February 11th. The overall index fell 9.5% for the week with purchase applications down by 5.9% and refinance requests lower by 11.4%. The average national contract rate for 30-year fixed-rate mortgages finished at 5.12%, down by 2 basis points from the prior week, up by 35 basis points from four weeks ago, and up by 17 basis points from the year ago mark. Six out of every ten applications taken last week were refinance loan requests.

There is nothing in the way of economic news for mortgage investors to consider today as they brace for this week's upcoming barrage of Treasury auctions.


Uncle Sam will be in the credit markets looking to borrow $72 billion in the form of $32 billion of 3-year notes on Tuesday, $24 billion of 10-year notes on Wednesday, and $16 billion of 30-year bonds on Thursday. Macro-economic news will be limited to Thursday's 8:30 a.m. ET initial weekly jobless claims report and the December Wholesale Inventory data at 10:00 a.m. ET the same day. If yields across the whole spectrum of the credit market have risen to high enough levels that these three offerings should draw decent demand. If so, look for mortgage interest rates to move sideways with a slight potential to creep fractionally lower should bidding at the auctions prove stronger-than-expected.

Trading activity in the mortgage market is light this morning as inclement weather --together with limited risk taking in front of Friday's much anticipated January nonfarm payroll data -- kept most investors on the sidelines. The selling pressure in today's early going is not so much a story about large numbers of traders looking to off-load mortgage-backed securities as it is about a shortage of buyers willing to stick their financial neck-out before a big event like the upcoming jobs number.



A report shortly after the market open by payroll processor ADP Employer Services suggesting the private sector added a stronger-than-expected 187,000 last month was largely discounted by most investors. The one consistent thing about this data set is that it substantially under- or over-shoots the more important numbers from the government.




The key question on the minds of all credit market participants is whether anything but weak hiring will be evident in Friday's nonfarm payroll report. Most investors anticipate the economy created 150,000 more jobs in January than were lost -- while the national jobless rate is expected to tick up to 9.5% from December's 9.4%. Numbers that match or fall below these projections will tend to be supportive of steady to perhaps fractionally lower mortgage interest rates. In the unlikely case the actual numbers are stronger than currently projected -- look for your investors to push mortgage rates higher.




Payrolls are harder to judge this time around given the incessant weather disruptions that have blanketed the nation. Raymond Stone, managing director and economists at Stone & McCarthy Research Associates points out that over the past seven years, the initial print on January payrolls has come in consistently below market expectations. In addition, December payrolls have been revised down 23 times over the past 31 years (75% of the time), with the average revision amounting to about 36,000 jobs. The "so what" factor attached to all this statistical mumbo jumbo is that while it is possible Friday's nonfarm payroll data will prove strong enough to push mortgage interest rates rudely higher from current levels - it is not a very probable outcome.



As they do every Wednesday, the Mortgage Bankers of America have released their Mortgage Application Survey figures for the week ended January 25th. The MBA said mortgage applications were up a collective 11.3% during the period - with refinance demand up by 11.7% and purchase loan requests up 9.5%. The average contract rate for 30-year fixed-rate mortgages finished up at 4.81%, up by 1 basis point from the prior week, down by 1 basis point from the month-ago mark and down 19 basis points from the year-ago level. Seven out of every ten loan applications taken last week were refinance requests.

Protests to the end the 30-year rule of Egyptian President Mubarak continued over the weekend. Egypt's importance to the global economy is relatively small, but its importance to the transportation of oil from other parts of the Middle East is huge.



While investors appear to be attentive to the ever changing dimensions of this event - there is currently no panic. If the Egyptian crisis were to spread to other countries in the region -- or if the flow of oil through the Suez Canal were to be impeded -- things could change in a blink-of-an-eye.



Unsure how much the safe-haven appeal of dollar denominated assets like Treasury obligations and mortgage-backed securities would be overshadowed by the rising inflation pressures created by the almost certain massive surge in energy prices should civil war breakout in the region. Hope is that such a scenario proves to be nothing more than a fleeting "what if" question. If such an event were to actually manifest itself, suspect investors would opt for cash and near-cash (Treasury obligations of 1-year or less) rather than expose their capital to longer-term investments and the attendant financially corrosive power of rising inflation. That's not a story that would be supportive of the prospects for steady to perhaps fractionally lower mortgage interest rates longer-term.



Mortgage investors shrugged-off this morning's report from the Commerce Department indicating consumer spending rose by 0.7% last month. The details of the December personal income and spending report showed that much of the surge in consumer spending came from a notable drawdown in household savings accounts as personal incomes grew a very modest 0.4% during the period. In addition, the renewal of special and extended government unemployment insurance benefits last month put money in the hands of consumers likely to spend it. So while some "talking heads" are harping about the big surge in consumer spending -- most mortgage investors largely discounted the whole thing - especially since the personal consumption expenditure index component of the report, the Fed's preferred measure of inflation at the consumer level, was unchanged in December after edging up 0.1% in November.



Yet to come this week -- Tuesday and Thursday will be dominated by the Institute of Supply Management's reports of activity in the manufacturing and service sectors of the economy to be followed by the release of the January nonfarm payroll figures on Friday morning. The reports scattered through the earlier part of the week are expected to be generally mortgage market neutral and will therefore be overshadowed by the jobs number on Friday. Most analysts anticipate the economy created 150,000 more jobs in January than were lost while the national jobless rate is expected to tick up to 9.5% from December's 9.4%. Numbers that match or fall below these projections will tend to be supportive of steady to perhaps fractionally lower mortgage interest rates. In the unlikely case the actual numbers are stronger than currently projected look for your investors to push mortgage rates higher.

The mortgage market stumbled out of the gates a little bit this morning as investors reacted to the first estimate of the economy's overall growth rate during the last three months of 2010.



The headline Q4 Gross Domestic Product number posted a gain of 3.2% -- slightly below most economists' expectations for a reading of 3.5%. The devil was in the details - especially the detail that showed consumer spending had its biggest gain in four years.



Less experienced traders were quick to latch onto this seemingly super-strong measure of economic growth and they aggressively pushed mortgage interest rates higher in the day's early trading. After letting them have their fun for a little while -- more experienced traders moved in with their substantial financial firepower and turned the trading activity in the mortgage market completely around.



Numbers can be deceiving - especially if one fails to consider the broader view. More experienced traders were already watchfully aware that much of the driving force behind the surge in consumer spending last year resulted from heavy price discounting by retailers. The national consumer income numbers show households chose to dip into their savings to buy the offered goods and services at their "blue light" and "one-time only" special price.



The fourth quarter employment cost index (released earlier this morning as well) showed wage and salary growth eked upward by a mere 0.4%. Extremely high joblessness, along with dim prospects for wage growth, will by necessity cause households to hold spending in check as we move into 2011.



More experienced traders are aware that the improvement in the economy that all the media "talking heads" are so breathlessly reporting this morning was not driven by real growth from the consumer - but rather by all the fiscal and monetary stimulus provided by the government in the form of more than $2 trillion dollars of direct debt purchases by the Fed -- and the dynamics of multiple tax cuts present and future. Once the government contribution is removed from the equation -- economic growth will not likely be nearly as robust as it now appears. That is probably bad news in terms of any notable acceleration in mortgage loan demand through at least mid-year -- but good news in terms of the prospects for steady to fractionally lower mortgage interest rates.



Next week will be a busy week in terms of economic data to be released. Mortgage investors will get a look at the pace of inflation at the consumer level contained in Monday's December Personal Income and Spending report. Tuesday and Thursday will be dominated by the Institute of Supply Management's reports of activity in the manufacturing and service sectors of the economy. The week will round-out with the release of the January nonfarm payroll figures on Friday morning. The reports scattered through the earlier part of the week are expected to be generally mortgage market neutral and will therefore be overshadowed by the jobs number on Friday.


Most analysts anticipate the economy created 150,000 more jobs in January than were lost while the national jobless rate is expected to tick up to 9.5% from December's 9.4%. Numbers that match or fall below these projections will tend to be supportive of steady to perhaps fractionally lower mortgage interest rates. In the unlikely case the actual numbers are stronger than currently projected look for your investors to push mortgage rates higher.

The Treasury Department will sell $29 billion of 7-year notes at 1:00 p.m. ET today.



There is a chance this sale will be the strongest of three-offerings the Treasury Department put on the auction-block this week (compared to Tuesday's 2-year notes and yesterday's 5-year notes).



Portfolio managers who align their investment funds with benchmark indexes often have to make last-minute adjustments to the average maturity of their holdings at the end of each month. Seven-year notes are always the last Treasury notes sold at the end of the month, so they work as a quick fix for managers who need to do a little tweaking to their positions.



The Fed is also expected to be a buyer at today's auction - spending $5 to $10 billion of the roughly $300 billion they have left of their original "QE2" checking account balance ($600 billion in case you don't recall).



A well bid 7-year note auction would likely prove very supportive for the prospects of steady to perhaps fractionally lower mortgage interest - at least between today and the release of next week Friday's January nonfarm payroll figures.



In other news of the day, the Labor Department reported the number of Americans filing first-time claims for unemployment benefits rose by a surprising 51,000 during the week ended January 22nd. Mortgage investors largely shrugged this outsized gain off - reasoning that harsh weather conditions in some parts of the country kept workers at home and caused a backlog in the processing of claims from prior weeks. The latest jump in the initial weekly jobless claims number does not have any implications for next week's larger and more important nonfarm payroll report -- as this week's initial jobless claims data fell outside the more meaningful report's survey period.

The Treasury Department will sell $29 billion of 7-year notes at 1:00 p.m. ET today.



There is a chance this sale will be the strongest of three-offerings the Treasury Department put on the auction-block this week (compared to Tuesday's 2-year notes and yesterday's 5-year notes).



Portfolio managers who align their investment funds with benchmark indexes often have to make last-minute adjustments to the average maturity of their holdings at the end of each month. Seven-year notes are always the last Treasury notes sold at the end of the month, so they work as a quick fix for managers who need to do a little tweaking to their positions.



The Fed is also expected to be a buyer at today's auction - spending $5 to $10 billion of the roughly $300 billion they have left of their original "QE2" checking account balance ($600 billion in case you don't recall).



A well bid 7-year note auction would likely prove very supportive for the prospects of steady to perhaps fractionally lower mortgage interest - at least between today and the release of next week Friday's January nonfarm payroll figures.



In other news of the day, the Labor Department reported the number of Americans filing first-time claims for unemployment benefits rose by a surprising 51,000 during the week ended January 22nd. Mortgage investors largely shrugged this outsized gain off - reasoning that harsh weather conditions in some parts of the country kept workers at home and caused a backlog in the processing of claims from prior weeks. The latest jump in the initial weekly jobless claims number does not have any implications for next week's larger and more important nonfarm payroll report -- as this week's initial jobless claims data fell outside the more meaningful report's survey period.

The Treasury Department will sell $35 billion of 5-year notes at 1:00 p.m. ET today. It will be their second of three auctions scheduled for the week.



A little more than an hour later at 2:15 p.m. ET the Federal Open Market Committee will end its two-day January meeting and release a statement on the economy and monetary policy.



The timing of the release of the Fed's post meeting statement may dampen demand for the 5-year notes. If so, it will be difficult if not impossible for mortgage interest rates to make much headway toward lower levels. In order to be supportive of the prospects for lower mortgage interest rates -- the Fed's post-meeting statement will need to sound cautious in terms of both the sustainability of recent indications of accelerating economic activity and the improving labor market story.



If the Fed leans too far in the direction of seeing the economic glass as half-empty, they will appear out-of-touch with reality and their creditability with credit market participants will slip (yet lower). On the other hand, if the Fed presents a more upbeat view of the economy and job creation together with a view that core inflation pressures will likely begin to tick higher -- mortgage investors will almost certainly feel compelled to push rates higher. The Fed's wordsmiths have their job cut out for them. If they fail today's "finesse-test" - you can bet the impact on your rate sheets won't be pretty.



The Mortgage Bankers of America have released the details of the Mortgage Application Survey for the week ended January 21st. Overall application activity dropped 12.9% on a week-over-week basis. Refinance requests declined by 15.3% while loan request for purchase money was down 8.7%. The average contract rate for 30-year fixed rate mortgages finished down 4.8%, up by 3 basis points from the prior week, down by 13 basis points from four weeks ago, and down by 22 basis points from the year ago level. According to the MBA seven out of every ten loan applications taken last week were for mortgage refinance.

The Treasury Department is set to auction a $35 billion stack of two-year notes today. It will be the first of a series of three auctions scheduled for the week.



The two-year note has drawn generally solid demand at auctions over the past two years, and most observers expect today's event will also be well bid. If so, look for mortgage interest rates to remain essentially unchanged for the day. In the unlikely event this offering requires Uncle Sam to "sweeten-the-pot" by pushing the yield on the 2-year note higher - expect mortgage interest rates to move higher as well.




Earlier this morning the Conference Board (a private, non-profit organization that compiles and produces leading economic indicators for its clients) said consumer confidence rose more than expected in January to its highest level in eight months. The Conference Board said its index of consumer attitudes jumped to 60.6% in January from an upwardly revised 53.3% in December. Consumers rated business and labor market conditions more favorably and expressed greater confidence that the economy will continue to expand and generate more jobs in the months ahead. Mortgage investors are typically far more interested in what consumers are actually doing - rather than how they say they are feeling. Even so, the outsized spike in January consumer confidence created a bit of a headwind as mortgage interest rates took a stab at moving fractionally lower in today's early going.




The balance of the week's economic reports include December New Home Sales on Wednesday, initial weekly jobless claims and December Durable Goods Orders on Thursday and on Friday market participants will get a look at the first estimate of the pace of economic growth in the last-quarter of 2010 (as measured by Gross Domestic Product). These reports will add a little empirical evidence to support the broad opinion of most credit market participants that the economic recovery from the worst slump since the Great Depression gained a little momentum as the previous year drew to a close. This is a view that has already been well priced into the mortgage market - so further upward adjustments to mortgage interest rates as a direct result of this week's battery of economic reports will likely be small - if they occur at all.

Credit market participants are rearranging their portfolios just a bit this morning to make room to accommodate the Treasury Department's three-part, $99 billion note sale.



The Treasury will sell $35 billion of two-year notes on Tuesday, $35 billion of five-year notes on Wednesday and $29 billion of seven-year notes on Thursday. In recent weeks the yield on each of these three debt instruments has moved toward the top of their respective trading range - a condition that should help attract underinvested players.



The Fed has plans to buy a total of $29 billion of government debt obligations this week as part of their "QE2" stimulus program which should help to stabilize the bidding at the debt auctions as well. Well bid Treasury auctions will tend to be supportive of steady to perhaps fractionally lower mortgage interest rates while poorly bid auctions are almost sure to push note interest rates higher.



The "wild card" event of the week will be President Obama's State of the Union address tomorrow evening. Credit market participants will be listening intently for clues as to whether the President appears willing to strike a deal with Republicans to cut spending in exchange for a national debt limit increase. The "so what" factor here is straightforward.




As of January 20th, the national debt stood at $14.004 trillion, just 290 billion below the congressionally mandated limit. The Treasury has estimated that based on recent spending and revenue trends, the government will run out of funding authority as early as March 31st. If the debt limit is not extended -- the government will not have the funding capacity to run its day-to-day operations -- which includes paying interest on money it already owes to its debt holders.




Without an extension of the debt ceiling -- not only will many government offices be shutdown - the U.S. would be very vulnerable to suffering a heavy round of punishment delivered by its debt holders in the form of sharply higher interest rates - a condition, should it develop, that will undoubtedly push mortgage interest rates higher. The good news is that there is little sign in the credit markets right now that investors are deeply concerned about this potential issue. Depending how the political rhetoric develops starting on Tuesday evening -- market participants' current halfhearted and/or dismissive attitude toward this matter will change in the blink-of-an-eye.




The manner and financial processes the President and Congress choose to employ as they address the national debt ceiling issue certainly packs enough potential "firepower" to make a big difference in rate sheets over the course of a very short period of time. Heads up.




The coming week's economic reports include December New Home Sales on Wednesday, initial weekly jobless claims and December Durable Goods Orders on Thursday and on Friday market participants will get a look at the first estimate of the pace of economic growth in the last-quarter of 2010 (as measured by Gross Domestic Product). These reports will add a little empirical evidence to support the broad opinion of most credit market participants that the economic recovery from the worst slump since the Great Depression gained a little momentum as the previous year drew to a close. This is a view that has already been well priced into the mortgage market - so further upward adjustments to mortgage interest rates as a direct result of this week's battery of economic reports will likely be small - if they occur at all.

December retail sales rose slightly less than expected, posting a gain of 0.6% versus the 0.8% increase economists had anticipated. Stripping out auto sales, retail sales were up 0.5%. The December sales gain capped six consecutive months of sales improvement. For the entire year sales were up 6.7% in 2010, the largest yearly gain since an 8.2% jump in 1999. Even though retailers' cash registers were ringing more loudly than they have in some time last year -- the underlying inflation pressure at the consumer level remained tame.



The Labor Department reported this morning that the consumer price index edged 0.5% higher last month, led by higher energy costs. The core rate of inflation at the consumer level, which excludes the more volatile food and energy prices, increased a very modest 0.1%.



A separate report this morning showed a surprisingly large gain of 0.8% for industrial production last month - but capacity utilization remained well below levels where production bottlenecks might be expected to create delivery delays -- which in-turn could ignite a round of inflation producing price increases as supply falls below demand.



The collective story found in this morning's battery of reports points to an economy that is expanding - but well below a pace that might be expected to create inflation pressures - and that's a story that could not be much better for the near-term prospects for steady to perhaps fractionally lower mortgage interest rates.



Looking ahead to the coming holiday shortened week - nothing in the way of market moving data appears on the calendar. Wednesday the Commerce Department will release the December housing starts and building permits numbers and Thursday will feature the weekly initial claims data for the week ended January 15th, December leading indicators and the existing home sale figures.



I expect the trend trajectory of mortgage interest rates next week will be far more influenced by trading action in the stock markets than by any of the scheduled economic releases. If my assessment is correct, falling stock prices will tend to support steady to perhaps fractionally lower mortgage interest rates while rising stock prices will likely drag mortgage interest rates higher as well.

The government is scheduled to sell a combined $66 billion worth of Treasury debt obligations this week: $32 billion of 3-year notes tomorrow; $21 billion of 10-year debt on Wednesday and $13 billion of 30-year bonds on Thursday. The auctions will conclude at 1:00 p.m. ET.


Because of its relatively short duration the 3-year note offering will likely draw sufficient demand from domestic and global investors that this event will not be much of a factor in terms of influencing the direction of mortgage interest rates. The 10-year and 30-year bond offerings represent a bigger concern.



According to data complied by Daniel Kruger, a correspondent for Bloomberg.com, Wall Street banks are cutting their holdings of Treasuries at the fastest pace since 2004. These firms are redeploying this capital in anticipation the economy will strengthen and demand for higher-yielding assets like stocks and corporate debt instruments will increase. The 18 primary dealers that trade with the Federal Reserve reported that their collective holdings of government debt tumbled to a net $2.34 billion on December 29th -- from $81.3 billion on November 24th. That is a heck of a job of house cleaning in anybody's book - and it does not particularly bode well for the likelihood these major broker/dealers will show up with big buying appetites at this week's government debt auctions.




Keep your fingers crossed that ongoing sovereign debt turmoil in the euro zone together with the fact that the upcoming supply of 10- and 30-year Treasuries are on track to be sold at their highest level in seven months will be enough incentive to induce foreign investors to show up aggressively on Wednesday and Thursday. If one or both of these auctions are poorly bid -- it is almost a certainty that mortgage investors will push note rates higher. Heads up.

The mortgage market is taking a beating this morning - driven by a report from private payroll company ADP indicating private employers added 297,000 jobs in December - well ahead of November's revised gain of 92,000. ADP said the December payroll increase was the largest single gain since it first began releasing the data in 2000. Even though the ADP numbers are notorious for falling wide of the government's far more important nonfarm payroll figures -investors decided to be "safe rather than sorry" and have been pushing mortgage interest rates higher all morning. This heavy selling pressure may soon prove to have been a mistake.



In a separate report a little later in the day, the Institute of Supply Management's Service Sector index, which covers about 90% of the economy, showed that while overall activity in industries ranging from merchants to health care, housing, finance, and food services improved 2.1% from November's levels - overall employment dropped 2.2% for December.




Hmmm - now there is a head scratcher for you. ADP says private employers were adding new employees to their payrolls by the thousands - but the government data says that their numbers show that employment actually declined during the month.



So which is it? Did private payrolls explode in December as ADP indicates or did private payrolls turn in a weak performance as the government data wonks say it did.



The correct answer probably lays somewhere in the middle. My bet is that Friday's December headline nonfarm payroll gains will fall within shouting distance of the consensus estimate calling for a net gain of 130,000 to 140,000 new jobs with the national jobless rate retreating fractionally to 9.7% from November's 9.8%. If this assessment proves accurate, it is highly likely the heavy selling pressure we've experienced in the mortgage market this morning will be largely reversed on Friday.

The Institute of Supply Management reported this morning that their index of activity in the manufacturing sector rose slightly from November's 56.6% to 57.0% in December. This marks the second increase in the past three months and puts the index at its highest level since May. Though production remains sturdy, it is not yet translating into expanding job creation - the employment component of this index experienced a 2-point decline from month earlier levels.



The unexpected drop in job creation at the nation's factories probably has many analysts making some downward adjustments to their forecast for the headline December nonfarm payroll report due on Friday at 8:30 a.m. ET.



As I write the majority of market participants are anticipating the economy created 130,000 more jobs in December than it lost -- while the national jobless rate is expected to edge back to 9.7% from November's 9.8% mark. Such an outcome is not totally out of the question. With the virtually certain drop in manufacturing job creation - and continued weakness from local, state, and federal employment -- it will take a supersized surge in private sector hiring to push the December headline nonfarm payroll number over the 130,000 mark.


The "wild card" this week will be trading action in the stock markets.

Strong economic data topped-off with a better than expected December nonfarm payroll data should be "just-the-thing" to extend the current rally in stock markets at the expense of higher mortgage interest rates. However, a weak December nonfarm payroll report will likely cause a heavy round of profit-taking in the stock markets to develop. If this scenario plays out, the flow of capital from riskier asset classes into the relative safe haven of Treasury obligations and mortgage-backed securities will be very supportive of steady to fractionally lower mortgage interest rates.

The labor sector is hemorrhaging job losses - 533,000 in November after revised losses of 320,000 in October and 403,000 in September. The national jobless rate edged higher to 6.7% last month from the 6.5% level in October. Senator Charles Schumer, a New York Democrat, chairman of the congressional Joint Economic Committee succinctly summed up mortgage investor sentiment this morning when he said, "The jobs picture today is staggering, and it should be all the evidence Washington needs to act swiftly and decisively to shore up this economy."



Mortgage investors could agree with Senator Schumer more. Market participants will continue to be very hesitant to push mortgage interest rates notably lower until they see clear signs that Uncle Sam is finally opening his checkbook in a meaningful way. Mortgage interest rates are currently tracing along the edge of levels our industry has ever seen. Without significant and sustained support from the government - private investors will be hesitant to add sizable portions of historically low yielding securities to their portfolio for fear of finding themselves ultimately holding the proverbial "financial bag" when economic conditions begin to improve.



Today's news from the labor sector did "bake-into-the-cake" a 50 basis-point drop in the Fed's benchmark fed fund rate at their upcoming two day meeting (Dec. 16 -17). The mortgage market won't likely respond much to such a move since it has been priced into the mortgage market for weeks. The Fed will probably have to cut the fed fund rate by at least 75 basis-points to induce much of a mortgage market friendly reaction.



Looking ahead to next week Friday's November Retail Sales figure will take center stage. Everybody expects disastrous retail sales numbers - so when they actually appear -- much of the market-moving "thunder" from the report will have already dissipated. With only minor data populating the balance of the calendar expect stock market trading action and news from Washington to dictate the trend trajectory of mortgage interest rates for most of the week.