CT Mortgage Blog

09/18/2008

September 23rd, 2008 7:35 PM

In one of the most interesting times in the financial markets I just wanted to let you in on some interesting facts in this current environment we're experiencing. While the Dow lost 500 pts on Monday and 449 pts on Weds, you seem to here the underlying tone that interbank lending has seized up entirely. Here's some statistics:

While most analysts thought the Fed meeting was surely going to result in an emergency drop, the Fed chose to leave "target" rates at 2% for the Fed Funds Rate (the rate that interbank lending is made at). If you look at the real numbers, interbank lending is really lent at 6-8% in these current markets. According to one unnamed bank CFO "We're not lending out money out to anyone, even if they are a bank".
On Weds the market saw one of it's highest volume trading days ever. And if you're curious what a 90 day treasury return was to investors...it was priced at .02%. It's amazing that something so nominal is considered amazing these days, but when Russia closes it's markets for a week it's no wonder why people are rushing to qualify vs. speculative returns. To put that in perspective, that's the lowest return since WWII
The gap between LIBOR (London Inter-Bank Offer Rate) and treasuries which is commonly referred to as swap spreads gapped out. What that means is the 2 Yr LIBOR rate was 1.30% higher in Weds market finish over 2 Yr Treasuries. Putting that in perspective, in 2006 swap spreads were .20%. We're currently 50% over the highest gap levels seen in the history of swap spreads EVER! Weds move was the biggest in ten years
That same market day all 86 members of the S&P traded on a decline and in total the index dropped 8.9%. Wall Street firm stock prices had their worst declines in history with Goldman Sachs down 14% and Morgan Stanley was down 24%. Keep in mind these are the only 2 wall street firms left
The Russian government closed their stock exchanges from Tues-Friday and was forced to dump $44B into it's 3 largest banks to avoid what could have been the countries worst financial crisis in history
Corporate debt yields rose to points that were worse than the infamous stock market crash of 1987.
Gold had it's largest one day price increase in history. No matter who you are and where you are, gold is king. Plus girls dig it...so who didn't see that coming???
HERE'S SOME POSITIVE NEWS! Mortgage trading prices actually traded up and were about the only thing that did that. With a government backing on mortgage securities, and with treasuries still low, liquidity is more than adequate at this point to maintain a solid credit market, Those that deserve credit will have no problem getting credit, although the term "deserve" has a much different meaning in these resent days.
HERE'S SOME MORE POSITIVE NEWS! Mandatory mortgage trading prices saw their best spreads ever and are now more than 50 basis points better than a best efforts delivery. That means if an investor commits to deliver a mortgage pool and pulls through, that pricing is drastically better than lenders that have high lock fall out. Industry wide currently only 2% of mortgage delivery is being done as a mandatory commitment due to poor pull through and market volatility, but it also supports the draw to quality and delivery of that quality.
ONE MORE POSITIVE POINT! Mortgage yields were up .30% more than treasury yields showing that there is still a belief in investors that mortgage backed securities are still a strong and safe investment

I guess the point would be that a rationale person may deduct that a debt securitized to real estate is almost as valuable as gold. Ladies...don't be surprised this Valentines day when you open a cute little box and find a mortgage deed inside. It could be the gift that keeps on giving this year....

Posted by Edward Woodhead on September 23rd, 2008 7:35 PMPost a Comment (0)

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09/23/2008

September 23rd, 2008 7:39 PM

Tuesday's bond market has opened up slightly as the markets try to stabilize. The stock markets are showing gains with the Dow up 36 points and the Nasdaq up 10 points. The bond market is currently up 7/32, which will likely improve this morning's mortgage rates by approximately .250 of a discount point.

There is no relevant economic news scheduled for release again today. The rest of the week brings us the release of five economic reports for the markets to digest. Three of them are considered to be of low importance and likely will have little impact on mortgage rates. With none of the data being released until Wednesday, we will likely see the most activity in rates the latter part of the week.

The first piece of data comes tomorrow morning with the release of August's Existing Home Sales report. The National Association of Realtors posts this data, giving us an indication of housing sector strength by tracking home resales in the U.S. It is exp ected to show a decline from July's sales, however, this data is not considered to be of high importance to the bond market.

August's Durable Goods Orders will be posted early Thursday morning. This report gives us an indication of manufacturing sector strength by tracking orders for big-ticket items at U.S. factories. Current forecasts call for a drop in orders in the neighborhood of 1.3%. A larger decline could help bond prices and cause mortgage rates to drop Thursday. However, a smaller than expected decrease would indicate a stronger than expected manufacturing sector and would likely help push mortgage rates higher.

Also Thursday morning will be the release of August's New Home Sales. It is expected to show that sales of new homes rose slightly in August. As with Wednesday's Existing Home Sales data, this report will likely not have a significant impact on mortgage rates.

Posted by Edward Woodhead on September 23rd, 2008 7:39 PMPost a Comment (0)

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09/08/2008

September 8th, 2008 3:15 PM

Huge improvement in rates today. I just priced out what would be cosidered a picture perfect deal. A client paying 2 pts would have put someone between 5.50% - 5.625% for a 30 year fixed.

Well if you haven't heard yet, the compounding speculation to the outcome of Freddie Mac and Fannie Mae is now seeing an end. Over the weekend both agencies were taken over by the federal government in what will become on of the most important federal bailouts we've seen to date. The DOW is now on a 200 pt rally since the open today as a result, as this move has subsided some investor fears. According to the Bush administration, this move was made to help stabilize the turbulent economy and reduce interest rates. As I've commented in the past, mortgage rates have not trended down with other indicators to where you'd expect them to be. Today seems to be evidence of that correction.

Treasury Secretary Henry Paulson commented that each company will be put under what they classify as a government conservatorship. Each CEO of the organizations will be replaced and the treasury has plans to inject around $100B into each company to keep them afloat in exchange for preferred stock shares. Between the 2 companies they hold over half the countries mortgage debt. The plan is to help reduce Freddie and Fannie's costs to lend and hopefully ease interest rates, but many speculators are uncertain as to the full effect this move will make. Their shares have plummeted 73% and 81% respectively since the announcement.

Based on this news over the weekend, mortgage backed securities were up as much as 118 bps on the open, but have slowly trickled down to a gain of 94 bps. This still puts us a bit ahead of the open Friday even after the 35 bp loss by the end of day Friday. This is mainly due to the now stimulated appetite for these types of mortgage backed bonds which will hopefully continue, or at least maintain. With confidence back in this market, weekly reports may hold less weight as they come out this week. We are now sitting 132 bps better than the 200 day moving average which is staggering looking at previous trends where we haven't been close to that mark. Crude inventories will be released as the only major report on Weds of this week, and Thurs brings the jobless claims and balance of trade reports. Friday will be the most important economic data released made up of the Producer Price Index reports, Retail Sales, Core PPI, and Consumer Sentiment. As this government control of Freddie and Fannie continues to unfold I will keep you informed.

Posted by Edward Woodhead on September 8th, 2008 3:15 PMPost a Comment (0)

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