CT Mortgage Blog

October 10th, 2008

October 14th, 2008 8:04 PM

Grab onto your pants and close your eyes...the volatility continues...I'm not even sure what to comment on. Most investors won't even price to market because of the volatility. In the words of Barry Habib..."I've never seen this before, I don't even know what's going on". Here's the deal, the market is in a major sell off, and that means all parts. No one wants to own stocks, bonds, mortgage backed securities, and even CHFA is having a tough time capitalizing itself. There's a ton of rumors going around, but lets face the fact that in a market like this the media does not help. It's plastered all over the news the markets are in a free fall and people are chasing the market. Today the president made an announcement and stated "Here's what the American people need to know: The U.S. government is acting, and we will continue to act, to resolve this crisis and return stability to our markets". We all know the "need to know" stances of the current administration, but what does that even mean?

Times of desperation bring desperate measures. Secretary Paulson is expected to make an announcement today, and it's probably going to have to do with a nationalization of banks to put confidence in these markets. In normal markets a rational person would assume if you don't have the stomach to invest in stocks, you flee to secure instruments like bonds or mortgage backs. Of course most rational people are now crawled up in the fetal position crying and trying to comprehend how their 401K is worth half of what it was Jan 1st of this year. Like the completely rational 93 yr old women that was foreclosed on by Countrywide and shot herself when the sheriff came to escort her out. It's a happy ending though...she survived and Countrywide forgave the mortgage. But is this setting a precedence that if your down on your mortgage and can withstand a little pain that this is the answer? No one has a real answer, but we know the Fed cut was undoubtedly not the solution. For anyone...and I mean anyone that believes the federal reserve cuts have anything to do with mortgage rates, look at the facts: FED CUTS .50% = MORTGAGE RATES INCREASE .625%. Consumers are not economists, and these days even economists don't even understand what's driving the market. Fear makes people accuse others people of being witches and results in mass murder. Fear makes peoples judgment irrational. Today, its quite evident fear makes people not even know what to do when it comes to their financial positions. Anyone with the opinion that we should have taken this federal bail out money and divided it up among tax payers is pretty ridiculous when it has every business from the largest auto manufacturers in the country face bankruptcy, down to the average business owner that can't float their payroll because there bank froze all their credit cards and are forced to purchase goods with cash.

This is a big deal, and the government needs to act. Good people with impeccable credit are being impacted. Did you know that credit cards companies are ruining peoples credit scores because someone responsible that carries a $2,000 balance on a card with a $10,000 max is now getting their max cut down to their current balance. 1st, that means if they have an emergency and need to access credit, what do you do? 2nd, most people never realize your score is derived by your ability to manage credit. If your balance on your credit cards is near your max it can drop your score by as much as 60 points. Is that fair? Is it fair that you can rob a bank at gun point and get a way with only a couple hundreds dollars, and face more jail time than the CEO that just drove a company in the ground and got a $75M severance package and ruined the financial position of hundreds of thousands of people? Now is when when the government needs to and will act. You can't hide your money in a bucket under the deck, especially considering winter is on it's way. This will correct itself, and it will cost a lot of money, but these are the times where wealth is made as wealth. Rates will most likely settle down and property values are about at a bottom. People buying homes today will have HUGE smiles on their faces a couple years from now, and that's what buying a home is about.

Posted by Edward Woodhead on October 14th, 2008 8:04 PMPost a Comment (0)

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Week of October 27th, 2008

October 27th, 2008 2:12 PM

Monday's bond market has opened fairly flat with the stock markets mixed and despite stronger than expected economic news. The stock markets are in another volatile session after the international markets that had another significant sell-off. The Dow is moving in a range of 250 points between its high and low of the morning, but currently stands up 30 points. The Nasdaq is also fluctuating between positive and negative ground and is currently down 6 points. The bond market is up 2/32. More importantly, as of 1:43pm today Mortgage Back Securities were down 47bps. We will likely see an increase in this morning's mortgage rates due to movements late Friday.

Today's only economic data is the week's least important. September's New Home Sales report was posted late this morning, showing an increase in sales of 2.7% when it was expected to reveal another decline. However, offsetting that increase was a downward revision to August's sales figures. Still, this data is not considered to be of high importance and has not influenced bond trading or mortgage rates today.

Tomorrow morning brings us the release of the Consumer Confidence Index (CCI) for the month of October. This Conference Board index will be posted at 10:00 AM and gives us a measurement of consumer willingness to spend. It is expected to show a sizable decline in confidence from last month's 59.8 reading, indicating that consumers are less likely to make large purchases in the near future. As long as the reading doesn't exceed the forecasted 52.0, we will likely see the bond market react favorably to this report. This data is watched closely because consumer spending makes up two-thirds of the U.S. economy.

The week's FOMC meeting is a two-day meeting that begins tomorrow and adjourns Wednesday afternoon. Assuming the Fed stands pat and leaves rates unchanged, traders will be looking at the post-meeting statement for any indication of the Fed's next move. Since there is a fair amount of uncertainty and a lack of a strong consensus of what the Fed will do here, the move itself, if it happens, will likely cause plenty of volatility in addition to the post-meeting statement. The meeting will adjourn at 2:00 PM Wednesday, so look for quite a bit of volatility during afternoon hours.

Overall, it is difficult to peg a single day of the week as being the most important but I am expecting to see plenty of movement in rates this week. The data being posted tomorrow, Wednesday and Thursday is all very important to the markets. The FOMC meeting is the single most important event of the week, but we may see noticeable movement in mortgage rates several days this week. Accordingly, please maintain contact with your mortgage professional.

Posted by Edward Woodhead on October 27th, 2008 2:12 PMPost a Comment (0)

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Monday October 20th, 2008

October 20th, 2008 1:44 PM

Interesting information -

The Social Security wage base increases in 2009 to $106,800, a $4,800 increase over the current figure of $102,000. That's an extra $298 tax bill for high-paid employees and their employers. The tax rates will remain the same: 6.20% for FICA and 1.45% for Medicare.

Home Sale Exclusion

Congress will not extend a home-sale tax break for surviving spouses. For sales after 2007, a survivor can use the full $500,000 gain exclusion on the sale of a primary residence if the house is sold within two years of the death of the spouse. In essence, the survivor is treated as if he or she is still married. But the surviving spouse loses out if he or she can't sell the home within two years, even if the local real estate market is depressed. In that situation, the survivor is stuck with claiming the $250,000 exclusion.

Monday's bond market has opened up slightly despite early stock gains. The stock markets are mixed the Dow up 102 points and the Nasdaq down 3 points. The bond market is currently up 2/32.

Today's only economic data was September's Leading Economic Indicators (LEI). This index attempts to measure future economic activity, particularly during the next three to six months. It was expected to show a decline of 0.3% but revealed an increase of 0.3%. This means that the economy may strengthen during the next few months when it was expected to worsen. However, offsetting this news was a downward revision to August's reading. What was previously announced as a 0.5% drop in August is now believed to be a 0.9% decline. That revision is helping to offset the surprise jump in this month's reading.

The primary focus in this morning's trading is Chairman Bernanke's testimony before the House Budget Committee. He updated the committee on the status of the economic recovery, which included a prediction that the economy would be weak for several quarters. He also encouraged another economic stimulus package that may benefit taxpayers. His words are being taken as favorable to bonds, so look for some improvement as the morning goes on.

There is no relevant economic data scheduled for tomorrow or Wednesday. This will likely keep bonds fairly calm unless the stock markets are volatile again. As long as the major stock indexes remain calm, I am expecting the bond market and mortgage rates to follow suit for the most part.

Overall, I am expecting to see a fairly quiet week for mortgage rates, assuming the stock markets are not wild again. The most important day will likely turn out to be today. However, just because it is a light week in terms of economic news, we should not let our guard down as the markets can implode or rally at anytime these days.

Posted by on October 20th, 2008 1:44 PMPost a Comment (0)

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October 14, 2008

October 14th, 2008 8:05 PM

Our posts seem to back in working order. The previous two would only save as "drafts"...but we seem to back up and running.

We did have trading yesterday and the Dow finished up almost 1000 pts which is a big recovery. The market for bonds was closed yesterday so we did not have any live action on rates until today. Mortgage Backed securities are down today 19 bps and climbing. We are down approximately 38 bps since pricing came out at 9:30, and we have yet to see any repricing that we would expect to see at this point. If you look at the spread from mortgage back trading to actual consumer rates it is obvious the margins have narrowed. We are about as far to passing on the savings to the consumer as one could reasonably expect and yet rates are still up a ton from last Monday. We are now down from last Monday 325 basis points on mortgage backed securities, meaning if you were quoted a rate of 5.50% last Monday that same rate would cost you 3.25 more points to obtain...and that's if that rate coupon is still being actively traded and sold.

We are now so far below the 25 day, 40 day, 50 day, 100 day, and 200 day moving average for rates. Mortgage backed securities have taken a bath, along with the DOW up until yesterday, and rates have gone up a lot. Where that floor is would be tough to say, but we have to be near a bottom with a point of recovery. My personal opinion is we have to be really close to that point and primed for an upswing in premiums. All last week you could see the trends of a sell off waiting for a confidence rebound, and hopefully that gain in the market yesterday is a sign we may see some confidence built up in mortgage backs. There will also be a settling in the market over the next week or so considering that short selling is no longer allowed on Wall St. The concept of betting a stock will go down has influenced the markets to have good companies trading poorly. All things considered, there has just been a ton of influences that make it tough to say why things are panning out the way that they are.

Here's a couple happy little things to latch onto:

We are probably at a market bottom, just like 6 years ago in Oct 9th, 2002. These things work in cycles and this is just a violent cycle we're getting grips on.

A 938 pt DOW means money is getting sucked out of secure trading instruments and into equities. As the dust settles, most investors will see that bonds and mortgage backs are way under valued. Money doesn't just produce itself and stimulate markets (unless you're the US Treasury). With the stock market taking record hits, there was a ton of opportunity to buy low. Now bonds and mortgage backs are in the same position.

THE FED PLAN IS MOVING ALONG TOO - Treasury Secretary Paulson, Fed Chairmen Bernanke, and FDIC Chairmen Sheila Bair announced $250B of the $750B bailout will be used to buy stock in the 9 largest American Banks including Bank of American, JP Morgan Chase, and CITIGroup. This is a really good thing for anyone that is not aware. Loan losses = reduced net worth and reserves = high loans to capital ratio for the banks. The 2 ways to fix that is to sell off a loan portfolio, which we know is pretty much impossible. The 2nd option is recapitalizing and selling a stock issuance. The US Fed has agreed to buy a non voting share to fix that problem for these financial institutions. Since these will also be a government owned institution, you know it will also be run properly and be a secure way to correcting previous fraud issues.

LIBOR has also dropped a little which is positive. Yesterday we celebrated the discovery of the new world by Columbus, and today we discover how we as a country will adapt in this new FINANCIAL WORLD. This should be an interesting week with sales and inflation numbers coming out mid week and housing sales and starts numbers being released Friday

Posted by Edward Woodhead on October 14th, 2008 8:05 PMPost a Comment (0)

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October 8th post

October 14th, 2008 8:03 PM

As we expected, the Fed released their FOMC meeting minutes yesterday and decided to join a worldwide rate cut. The Fed Funds Target Rate was reduced by .50 to 1.50%, and the Discount Target Rate was also dropped by .50 to 1.75%. This was a well coordinated and predictable plan to give relief for inter-bank borrowing. In a normal rate cut in today's markets a Fed rate cut is bad for several reasons. The normal trend is that lower cost of credit weakens the dollar which drives inflation which take the interest away from collateralized investment vehicles like bonds and mortgage backed securities, and tends to revive the stock markets. This normally occurs because each country runs in independently controlled markets. The US has had many rate cuts where indexes like LIBOR (London interbank offered rate) has stayed the same or lately even climbed. Most people don't realize that the majority of adjustable loans have been tied to LIBOR indexes on either the 1 month / 6 month / or 12 month swap. What that means is LIBOR needed some relief to ease inflationary fears in the US and help reduce mortgage payments for borrowers.

This has now set a new precedence for the way the world economies can operate and help each other. This was coined as being a global credit crisis: "The recent intensification of the financial crisis has augmented the downside risks to growth and thus has diminished further the upside risks to price stability," the Fed said. "It tells a lot about the weakness globally," said managing director of the Economic Cycle Research Institute, Lakshman Achuthan. "We have a global recession now. It's not simply a U.S. recession. This is what's weighing on the impact of all of these bailouts." AND GUESS WHAT??? We're not the only country bailing out our banks! The bank of England just announced a $350B bailout for their nation's bank. In July of 2007 the US recorded 301,139,947 citizens, and England posted 60,776,238 citizens. According to my math, England is now 5 times more screwed than us.

U.S. stocks took a huge plunge early but is rebounding as the market continues to trade. In a five-day losing streak for U.S. stocks heading into today, the Dow Jones industrial average has plunged more than 1,400 points. Japanese markets closed down nearly 10%, which was their worst drop since the crash of 1987 and their third worst day in history. European markets were down this morning, even with the $350B bailout, rebounded on the rate cut news and then fell into negative territory. European markets were all down 4% or more in late afternoon trading.

Here's my point....RATES ARE NOT DROPPING!!! There are a lot of misconceptions in the market on what makes rates do what they do. Most borrowers assume that if we announce a huge bail out to relief banks, the FED cuts rates by .50%, so my mortgage rates will go down right??? That is 100% wrong in theory and practice and today is a perfect example. Monday would have been the best day to lock an interest rate. Since Monday we've lost 103 basis points, which roughly means if you had a rate of 5.50% on Monday, that rate would now cost over 1 pt more. The Fed is trying to stimulate the economy and markets which takes interest away from the demand for mortgage premiums, which makes rates go up. Look at it logically...if your investments went down 20%, you'd buy more now to perform what is called Dollar Cost Averaging which means once you return to your starting point to break even, you'd recoup losses on the portion you bought at 80 cents on the dollar so you'd be on the upside. Today we have the release of retail sales numbers, Producer Price Index numbers that indicate inflation, and the Beige Book release. Tomorrow we have the release of Consumer Price Index numbers and jobless claims. To be honest these numbers don't even mean a whole lot lately with all the other influences, but keep an eye on the market and rates. A huge dip is pretty unlikely, but a big jump in rates is more probably and inevitable. And...I'm spent.

Posted by Edward Woodhead on October 14th, 2008 8:03 PMPost a Comment (0)

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Emergency Economic Stabilization Act of 2008

October 6th, 2008 10:42 AM

The United States House of Representatives just passed of H.R. 1424, the Emergency Economic Stabilization Act of 2008 by a vote of 263 - 171 or roughly a 100 vote swing from the previous Tuesday vote. The bill, which establishes a program at the Treasury Department to purchase distressed mortgage-related assets, also includes the extension of several tax provisions that will help steady the American economy.

Paulson's original bill was 3 pages long and designed as a communication tool to the international capital markets that the American markets are safe and sound. The bill that passed is over 450 pages long and addresses a myriad of other topics.

The bill will allow the Treasury to purchase up to $700 billion in distressed mortgage related assets from financial institutions in an effort to increase liquidity and restart the seized credit markets. The true long term cost of the program may be far less than $700 billion as the Treasury has the discretion to redeem or sell the assets, sometimes at a profit, when the market recovers. The bill would also temporarily increase the amount of deposit insurance provided for individuals by the Federal Deposit Insurance Corporation (FDIC) and National Credit Union Administration (NCUA) to $250,000.

The bill also extends a number of tax provisions that were due to expire. Among them are:

Deductibility of forgiven mortgage debt;
$1000 property tax deduction for non-itemizing couples;
Deductions for energy-efficient commercial buildings;
Allowance for expensing of brownfields environmental remediation costs;
Accelerated cost recovery for qualified leasehold improvements.

Again, the bill passed the House by a vote of 263-171. It passed the Senate on the previous Wednesday and will now go to the President for his signature. We shall see if both the capital markets and the stock market respond.

Posted by on October 6th, 2008 10:42 AMPost a Comment (0)

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October 6th, 2008

October 6th, 2008 10:41 AM

This week brings us only one monthly economic report for the markets to digest and it is not considered to be of high importance. This means that the week will be left mostly up to the stock markets and other influences since there is a lack of factual data for bonds to trade on. In addition to the one report, we will also get the minutes from the last FOMC meeting that can also cause movement in rates if it reveals any surprises.

The first news of the week comes Tuesday afternoon when the Fed will release the minutes to the last FOMC meeting. These may be a major mover of the markets or could be a non-factor, depending on what they say. The key will be concerns over inflation and the Fed's next move. If the Fed members were concerned about inflationary pressures, we may see the bond market move lower and mortgage rates higher Tuesday afternoon. However, if they indicate that inflation is easing and that a rate increase is not likely in the coming months, we should see the bond market rise and mortgage rates drop during afternoon trading.

The only factual economic data of the week will be posted Friday morning. August's Goods and Services Trade Balance will be released that day, but is not likely to cause much of a change in mortgage pricing. It will give us the size of the U.S. trade deficit, but usually does not lead to significant movement in bond prices or mortgage rates.

Also worth noting are two public speaking engagements by Fed Chairman Bernanke Monday and Tuesday. I don't expect them to have much of an impact on the markets, but his words always have the potential to create a reaction in trading. He will be speaking at the annual meeting of the National Association for Business Economics, but I don't see this to likely affect mortgage rates.

Overall, the suspicion is this is going to be fairly quiet week for the bond market and mortgage rates, especially compared to last week. For the most part, I believe the week will be left to the stock markets and the Fed minutes. The most important day of the week is likely Tuesday with the Fed minutes, but any day of significant stock volatility may make that particular day the most eventful. The bond market will close early Friday in observance of Monday's Columbus Day holiday, but it will also likely be a non-event to the markets.

Posted by on October 6th, 2008 10:41 AMPost a Comment (0)

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October 2, 2008 - 2nd post

October 2nd, 2008 4:31 PM

Thursday's bond market has opened in positive territory following weaker than expected economic news and another round of stock losses. The stock markets seem to be worried about the potential approval of the Fed bailout program that the Senate approved last night. The result is the Dow down 220 points and the Nasdaq losing 53 points. The bond market is currently up 24/32, which will likely improve this morning's mortgage rates by .125 - .250 of a discount point.

The Commerce Department gave us August's Factory Orders data late this morning, saying that new orders for durable and non-durable goods fell 4.0%. This was a much larger decline than was expected and indicates that the manufacturing sector is still slowing. That is good news for the bond market and mortgage rates.

Also released this morning were last week's unemployment claim figures. The Labor Department said that new claims rose to 497,000 last week, reaching a seven year high. This is also good news because it raises concerns about what tomorrow's monthly Employment report will show.

The Labor Department will post September's Employment report early tomorrow morning. This report will reveal the U.S. Unemployment rate, number of new payrolls added and average hourly earnings. These are considered to be very important readings of the employment sector and can have a huge impact on the financial markets. The ideal scenario for the bond market is rising unemployment, falling payrolls and a drop in earnings.

Weaker than expected readings should help boost bond prices and lower mortgage rates tomorrow. However, stronger then forecasted readings would not be good news for mortgage pricing. Analysts are expecting to see the unemployment rate 6.1%, a decline in new payrolls of approximately 105,000 and a 0.3% increase in earnings.

Posted by on October 2nd, 2008 4:31 PMPost a Comment (0)

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October 2, 2008

October 2nd, 2008 11:11 AM

Stocks fell this morning on continued worries about the economy.

At 10:40 a.m. ET, the Dow Jones Industrial Average had plummeted 212 points, or 2%, to 10,629. The Nasdaq Composite Index had shed 52 points, or 2.5%, to 2,017, and the Standard & Poor's 500 Index was lower by 27 points, or 2.3%, to 1,134.

The Senate passed the government's $700 billion financial rescue plan last night 74 to 25, but investors remain cautious this morning ahead of the House's second vote on the bill Friday.

And worries persist over the plan's prospects for success, even if it's enacted. Credit markets remain tight, indicating lenders are skeptical.

"There's no lending. Most money markets are frozen," Pang Meng Yam, a money market dealer at KBC Bank in Singapore, told Bloomberg News.

Adding to the pressure this morning was a dismal report on factory orders, which fell 4% in August. Economists had expected a 3% decline. It was the biggest monthly decline in two years.

The Senate passes rescue bill

Treasury Secretary Hank Paulson was pleased with the Senate vote.

"This sends a positive signal that we stand ready to protect the U.S. economy," Paulson said in a statement after the vote.

The bill allows the Treasury Department to buy up to hundreds of billions in distressed assets from banks, investment firms and other financial institutions.

The version of the rescue plan approved by the Senate differs significantly from the version the House rejected on Monday. The Senate bill includes a measure that would increase the deposit-insurance cap for the Federal Deposit Insurance Corp. from $100,000 to $250,000. It also includes a number of tax breaks.

The changes were designed to assure easy passage in the Senate and to win support from at least a dozen House members who voted against the bill on Monday. Passage in the House will require that at least a dozen members change their minds.

SEC extends short-sale ban

The Securities and Exchange Commission late Wednesday moved to extend the ban on short-selling until both houses of Congress pass the government's rescue package.

The ban, which had been set to expire today, will now run through the third day after the legislation is approved. President Bush has indicated he will sign the bill immediately.

If the bill doesn't get passed, the ban will expire no later than Oct. 17, the SEC said.

Fund data provided by Morningstar, Inc. StockScouter data provided by Gradient Analytics, Inc. Quotes supplied by Interactive Data.
Exerts taken from MSN Money. Our articles, columns, message board posts and other features should not be construed as investment advice, nor does their appearance imply an endorsement by Scholastic Mortgage of any specific security or trading strategy. An investor's best course of action must be based on individual circumstances.

Posted by Edward Woodhead on October 2nd, 2008 11:11 AMPost a Comment (0)

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October 1, 2008

October 2nd, 2008 9:45 AM

Wednesday's bond market has opened in positive territory as investors show concern about today's Senate vote on the Fed bailout plan. The stock markets are showing losses with the Dow down 113 and the Nasdaq down 22 points following yesterday's record gain in the Dow. The bond market is currently up 33/32, but we will still see an increase in this morning's mortgage rates of approximately .375 of a discount point due to yesterday's sell-off in bonds as stocks rallied.

Also helping boost bonds today was a large drop in the Institute for Supply Management's (ISM) manufacturing index for September. Today's release revealed a reading of 43.5, which was its lowest reading since October 2001. Analysts were expecting to see a reading of 49.5, meaning manufacturer sentiment about business conditions was much lower than thought. This is good news for bonds because a weakening manufacturing sector indicates slowing economic activity and eases inflation concerns.

We need to again keep an eye on the stock markets and Fed bailout vote. The Senate is expected to vote on their plan this evening, after the markets close. Current polls are expecting the measure to pass the Senate vote, but the real question is what the House will do with it once they get it. Since current expectations are showing passage by the Senate, I don't think we will see a massive sell off in stocks again today. It seems that the markets are more concerned about the House approving the bill if the Senate does approve it. As we get closer to the House vote, we will likely see the volatility in stocks rise.

The Commerce Department will post August's Factory Orders data late tomorrow morning. This manufacturing sector report is similar to last week's Durable Goods Orders release, but includes orders for non-durable goods. It can usually impact the financial markets enough to change mortgage rates if it varies from forecasts by a wide margin. Current forecasts are calling for a decline in new orders of approximately 2.9%. An unexpected rise could drive mortgage rates higher, while a weaker than expected reading should push them lower tomorrow. However, look for the results form tonight's Senate vote to heavily influence trading in the markets tomorrow morning.

Posted by on October 2nd, 2008 9:45 AMPost a Comment (0)

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