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    All last week we saw improvements of mortgage backed securities of 150 bps in total  before a little sell off yesterday that was inevitable.  

    Consumer inflation numbers yesterday posted a little over the Feds comfort levels. Although a rate hike today would help slow inflation and strengthen the dollar, it would also slow the ability for borrowers to finance at affordable costs.  This put the Fed into a really tough spot so little was priced into the market.

    Today's FOMC meeting has adjourned with an announcement that there was not a change to key short-term interest rates. This was the second consecutive meeting with no change and was widely expected. The post-meeting statement indicated that the Fed was aware and considered the economic slowdown but also was quite concerned about the threat of inflation. That created concern in the bond market since inflation erodes the value of a bond's future fixed interest payments.

Bonds have actually held up quite well during afternoon trading. Earlier the stock markets have extended their earlier gains with the Dow up 275 points and the Nasdaq up 50 points. The bond market is near morning levels, so I am not expecting a change to mortgage rates unless bonds fall from current levels.

There was no relevant economic news posted this morning. Stock started the day off strong as oil prices continue to fall, down to $120/barrel. High fuel costs have been noted by many sources as a contributing factor to the slowing economy. As oil prices fall well off their recent highs, that concern seems to be easing. This leads to better expectations for economic activity and corporate earnings.

On the flip side, uncertainty lies as we now enter hurricane seasons, threats of wiping out refineries, and all the other good excuses needed to jack pricing up again with fears of slowed production to meet demands and crude inventories are low. 

There is no relevant economic data scheduled for release tomorrow. The next piece of news is Thursday's posting of weekly unemployment figures and those are not considered to be of high importance to the markets. This leaves the bond market to be influenced by stock and oil prices. If stocks continue to move higher, we may see bonds suffer and mortgage rates move higher until Friday's data is posted. If the major indexes begin to fall, bond could benefit and drive mortgage rates lower.

With everything moving so fast, we are trying to provide as much insight as we can.

Monday's bond market opened relatively flat with no relevant economic news scheduled for release. The stock markets kicked the week off in positive territory with the Dow up 70 points and the Nasdaq up 14 points. The bond market stayed nearly unchanged from Thursday's close.

Tuesday's bond market has opened relatively flat again as investors prepare for this week's earnings releases. The stock markets are showing small gains with the Dow up 23 points and the Nasdaq up 7 points. The bond market is nearly unchanged from yesterday's closing level, but we should see an improvement in this morning's mortgage rates due to strength late yesterday (3pm update - rates have improved).

There is no relevant economic news scheduled for release today. I am expecting the stock markets to continue to be the biggest influence on bond trading the rest of the day. If the major stock indexes remain near current levels, mortgage rates will likely follow suit.

I am remaining on the cautious side, particularly in the short-term outlooks

This week brings us the release of only two economic reports for the bond market to digest. It also is the beginning of corporate earnings season. Those quarterly earnings reports can lead to significant volatility in the stock markets, which could influence bond trading and mortgage rates.

The first piece of economic news that may affect mortgage rates is Thursday's weekly unemployment figures from the Labor Department. Analysts will be paying a little more attention to this week's release than usual because last week's report showed that claims had crossed above 400,000 the previous week. This is an important benchmark that will be watched closely. Last week's numbers didn't get much attention because they were posted at the same time as June's monthly Employment report. But with little data scheduled for release this week, I believe more focus will be made on Thursday's report.

Also worth mentioning are a couple of public speeches by Fed members including Fed Chairman Bernanke and a 10-year Treasury auction of inflation protected notes. The speeches will be watched closely for any possible hint of the Fed's next move. The Treasury auction likely will not have an impact on rates, but could influence bond trading slightly if it is met with a strong or weak demand from investors. In a very light week of economic news such as this week is, events like these sometimes have a greater impact on the markets than if they took place during a busy week of news.

Overall, I am e xpecting to see a fairly calm week in mortgage rates. Friday will be the most important day with two economic reports scheduled for release. If the corporate earnings reports that are scheduled for this week are a disappointment, we could see stocks move lower and investors seek safe-haven in bonds. This would likely help push bond prices higher and mortgage rates lower for the week.

    Before I even start typing this, I want to stress I am well aware this post may be less than popular. Oh well. Also, part of this post has exerts from an article written by Dave Biggers. Please just read all the way to the end, to my final question, before thinking I'm the one who's lost my mind.

ver the last couple of months, as many have been dealing with analyzing, publicizing, and trying to affect the final "look and feel" of the HVCC (Home Valuation Code of Conduct - the supposedly solution to stop inflated home values), I've been surprised frankly at the near-irrational venom directed toward mortgage brokers. There's nothing wrong with criticizing the problems of another cog in the huge real estate machine, but you have to begin to wonder if we've lost our minds and are just looking for a scapegoat.

The last time I checked, mortgage brokers didn’t do the underwriting of all these fraudulent and unsupportable loans... it was unvarnished underwriting negligence and pure consumer greed and fraud that drove the market to the edge, and beyond.

Let me get a couple of things out of the way by starting with the headline in reverse order. Let's start with the "ugly". I've seen and heard a lot of really ugly - and true - stories regarding "bad behavior" by some mortgage brokers. It makes sense. In most states, there's been no licensing and virtually no oversight of mortgage brokers. A less-respectable snake oil salesman and his or her buddies could start up a large unregulated business almost overnight, buy a bunch of online loan application leads, and start spamming and calling, and placing borrowers in exotic loans on properties which they acquired during bouts of "irrational exuberance". In a matter of weeks, a new mortgage broker could be driving a Hummer and buying all the champagne at the local bars, because there was an endless line of those all-too-eager borrowers banging on the door. It wound up attracting some of the worst of the worst, as cheap and easy money often does. With the mass exodus by many out of the mortgage industry, now those con artists have moved on to another gig.

But where did that cheap and easy money come from? Not from the brokers. They only were selling what the lenders were tripping all over each other to offer. Lenders and the GSEs and everyone in between knew full well that unqualified borrowers were being placed into loans designed for a different financial profile. The last time I checked, mortgage brokers didn't do the underwriting of all these fraudulent and unsupportable loans. They did their "brokerage" jobs, by putting borrowers in front of as many lenders as they could, getting them a shot, and the lenders opened their doors wide and said "Come on in, the water's fine". Of course it's fine, because when the water gets hot, the lender won't be in it, since they didn't have any skin in the game. Loans got sold upstream, bundled into blocks of mortgage backed securities, and out of the lender's hands as quickly as they came in.

All the while, the AVMs used by Wall Street and the ratings agencies and the automated underwriting systems used by the lenders made nary a chirp. If appraisers and mortgage brokers are all so corrupt and compliant, I wonder why the "objective" underwriting systems from Fannie and Freddie and the "objective" AVMs didn't raise alarm bells all day long.

Actually, I know why. Because any "objective" analysis would show that neither appraisers nor brokers were to blame for the problem, and nobody at the GSEs or the lenders wanted that really "ugly" part to come to light. In the end, it was unvarnished underwriting negligence and pure consumer greed and fraud that drove the market to the edge, and beyond.

Mortgage brokers didn't do any more than anyone else to make that happen. In fact, even the statistics that indicate that they were neither better nor worse get interpreted to make it seem like they were to blame. Case in point, the Mortgage Banker's Association recently publicized a headline stating 58% of all mortgage loan applications which were later found to be fraudulent had been originated by a mortgage broker. But the same organization had often included articles showing 60% to 70% of all loan applications, good and bad, came through mortgage brokers. If brokers originated more than 60% of all the loans, and they were involved in only 58% of the fraud, then the lender's own loan officer employees were actually more likely to engage in fraud than brokers.

In the end, 100% of the fraud involved borrowers and lenders. That sounds trite, but think about it. No matter how many people are involved or what their agendas may be, the fundamental underlying assumption should always be that lenders will not loan money to someone who is likely to default, and even if so, that there is a hard asset of sufficient quality and value to cover the loss when it happens. But with lenders offering "no doc" loans to everyone with a pulse, and even some without, and the media encouraging everyone to get in on the feeding frenzy, is it any surprise that there were borrowers who were willing to say and do just about anything to get in on the "flipping" frenzy?

And that brings me to my real point about what went wrong here and where the pressure on appraisers - from mortgage brokers and others - came from. While lenders were eager to move loans and overstepped their bounds in doing so, and mortgage brokers and Realtors and everyone else wanted their commissions, the most unlikely of players, the borrowers themselves, were the ones putting the most pressure on everyone in the transaction regarding the appraised value. They usually forced loan officers and mortgage brokers to be their mouthpieces to pressure appraisers, though it's obvious that they also sometimes proudly took on the task themselves.

I personally have a hard time grasping that. Decades ago, when someone bought their first house, they wondered if their loan would go through, and whether the house was worth what they thought. Had the appraisal come back below what they offered, they would have been inclined to thank the appraiser for helping them avoid a potential disaster as opposed to screaming and yelling at their broker to keep getting new appraisals or AVMs until the amount they offered magically becomes fair market value.

The part that just escapes me is how borrowers could possibly believe that it's bad when an expert warns them that they're about to overpay for something. Sure, I understand the greed aspect and the emotional factors that come into play, but that's secondary to the logic that's supposed to drive economic activity on the scale of a home purchase. For the vast majority of Americans, the equity - real or imagined - in their home is the largest asset they have. The payments on a home or investment property dwarf their other bills. That should cause some pause on their part before jumping in at all, much less pressuring others to make it happen even when they're being told it's a mistake. Clearly, it didn't. But that's not completely the mortgage broker's fault either.

So, if that's the ugly and the bad of a mortgage broker-centric lending system, what's the good? Why am I defending brokers?

Fundamentally, the "good" thing about brokers is that they're the appraiser and homebuyers clients. For appraisers, anything like the HVCC that removes their access to all of their clients with the stroke of a pen and replaces them with a middleman taking 50% or more of their fee must be stopped. Yet, in their rush to condemn mortgage brokers, many appraisers literally said "I don't care what's wrong with the HVCC, if it gets rid of brokers then it's fine with me". That's a knee-jerk reaction that doesn't help appraisers at all.

For homebuyers (as well as appraisers), the other good thing about brokers is their activism. Brokers are salespeople; they're comfortable making calls and asking people to do things. They're vocal and willing to act to get what their client wants. By and large, your minimum wage earning customer service rep at a local bank is not.

And now for my final question -

If you purchased an automobile from a dealership and months, or even years later, all around the country that make and model starting to fall to pieces, or worse yet...explode, would you hold the car salesmen who sold you the car responsible? Would you hold the dealership, the conduit for a product, responsible? Of course you would'nt, you would hold the company that created the product responsible. So why is the broker, who mearly provided a conduit for a product created by greedy lending insitutions (because they saw enormous profit margins compared to the risk...or so they thought) your scapegoat?

Yes there are exceptions to every rule, but you never shoot the messenger.

Scholastic Mortgage is a lender. We take pride in our integrity and business ethics.

David Biggers is the Founder and Chariman of A la mode