Tuesday, December 23, 2008

Holiday Peak

I hope you and your family finds peace, solice and safe travels over the next 10 days. 2009 looks to be an exciting challenge to just about every industry in the US.

Release Date & Time
Economic Indicator
Consensus Estimate

Mon. Dec. 22, 1:00 p.m. ET
Treasury auctions $38 bil. of
2-year notes
Market participants’ desire for maximum asset protection continues to trump their desire for a meaningful return on invested capital as Uncle Sam comes to the market place looking to borrow a record setting $38 billion in the form of 2-year notes. This event will was supportive of steady mortgage interest rates.

Tue. Dec. 23, 8:30 a.m. ET
Final revision Q3
Gross Domestic Product
-0.5% vs. last -0.5%
Look for this data set to do nothing more than take up space on this week’s economic calendar as far as mortgage investors are concerned.

Tue. Dec. 23, 10:00 a.m. ET
Nov. Existing Home Sales
Down 1.6%
Mortgage investors have already “priced-in” expectations for a dismal November existing home sales figure. A reported value that falls anywhere near the consensus estimate will likely have little, if any impact on the trend trajectory of mortgage interest rates today.

Tue. Dec. 23, 10:00 a.m. ET
Nov. New Home Sales
Down 3.0%
Rising unemployment, stock market losses, tight credit underwriting standards and competition from a huge stock of existing homes for sale probably took a toll on the pace of new home sales last month. A number that lands to close to the consensus estimate will likely draw nothing more than a passing glance from mortgage investors. In the unlikely case new home sales post a decline of 2.5% or less – look for “surprised” investors to push mortgage interest rates fractionally higher.

Tues. Dec. 23, 1:00 p.m. ET
Treasury auctions $28 bil. of
5-year notes
Economic uncertainties will likely be strong enough to create decent support for this offering. If so, this event will tend to be supportive of steady mortgage interest rates. A poorly bid 5-year note auction will almost certainly make it difficult for mortgage interest rates to move notably lower today.

Wed. Dec. 24, 8:30 a.m. ET
Initial jobless claims for the week ended 12/20
The modest expected decline in the initial jobless claims figure will likely draw nothing more than a passing glance from mortgage investors today.

Wed. Dec. 24, 8:30 a.m. ET
Nov. Personal Income
Core PCE index
0.0% vs. last +0.3%
-0.7% vs. last -0.1%
0.0% vs. last 0.0%
The most important component of this data series is the core personal consumption expenditure index, the Fed’s favorite measure of inflation pressure at the consumer level. The expected unchanged reading for core PCE will tend to be supportive of steady to fractionally lower mortgage interest rates.

Wed. Dec. 24, 8:30 a.m. ET
Nov. Durable Goods Orders
-3.0% vs. last -6.9%
The modest improvement in this forward looking measure of manufacturing activity will likely be completely overshadowed by the announced month-long plant closing for most of the auto industry. This report will likely have little, if any impact on the direction of mortgage interest rates today.

Wed. Dec. 24, 2:00 p.m. ET
The mortgage market closes early for the Xmas Holiday

Thurs. Dec. 25,
Marry Christmas

Fri. Dec. 26, 2:00 p.m. ET
The CBOT will close early.

Thursday, December 11, 2008

US Financial Crisis Circa 2007 - 2010

Did my title grab your attention? I changed it 5 times in an attempt to properly convey my thoughts regarding this Blog.

Last night one of my partners' called me on his way home and during our discussion he stated that it was his opinion the US was in the bottom of it’s current "recession cycle". He has good reason to believe such a trend as we are having one of our best months year to date. But one month (good or bad) doesn't make a Quarter and One Quarter (good or bad) doesn't make a year. While I hastily supported his comment over the phone, selfishly because of statements I had made earlier this year regarding the timing of our rebound, it nonetheless got me thinking.

This morning I started to do a little research on where our country is today, reviewed how we got here and how exactly our government has attempted to fight this present economic slowdown. Time and time again, my research would defer to a lengthy recession which started in the 80’s and in Japan. While our country’s economic infrastructure is quite a bit different I concluded 7 similarities that I would like to share. Additionally, how their government responded is eerily similar to how the US’s.

In Japan mid to late 1980s, you found excess liquidity in the financial system. This caused an asset and stock market bubble. People with spare cash bought assets and shares causing them to rise (in the US this was paid through credit cards and mortgages. In the last 1987, the Japanese monetary authorities worried about inflation doubled interest rates. As the economy stalled, they were then slow to reduce them.

Loan defaults increased because Japanese banks had made a series of bad lending decisions. Sound familiar?

This caused a fall in house and share prices. Hmmm….

Higher interest rates ensued and slumping asset values caused an increase in loan defaults.

The Japanese economic miracle was based on a strong degree of government intervention. See Obama’s Great Works Plan.

When the crisis came, banks were encouraged to continue lending to firms, even if on verge of bankruptcy. In other words, the decision to bailout declining / inefficient firms masked the problem but didn't deal with the underlying issues.

There was a failure to acknowledge the true extent of the problem, hoping asset prices would rebound. Check your 401k value recently?

Inflation expectations fell to negative. Deflation made normal demand side policies ineffective. See US backs bonds at 0% yield.

The Japanese government eventually cut interest rates to 0%. As mentioned above, they increased government spending to try and increase aggregate demand. Unlike the US, there was well documented reluctance to increase money supply because even though Japan had deflation, they held an unwarranted fear of inflation. Here in the US, do you know anyone who would be interested in buying residential mortgages with negative HPA values a 8-15% annually? It’s almost as bad as car loans where you know you are going to lose value month over month on the asset.

Your history lesson for today is that the economic consequences of Japan's crisis were the following:

Longest Bear Market in History (10 years)

Long Period of stagnant Growth

Significant rise in Unemployment. Japan’s unemployment was almost unheard of from the post war period.

Rise in inequality. Issues such as homelessness have become a real problem.

National Debt rose to 180% of GDP.

These findings provided above will not be the first to declare that the systemic risks associated with the current path in which our country’s government decisions to address our problems will do more harm than good. When our government made that fatal decision that certain companies were too large to fail, capitalism (as this country is famous for) died. There are deep rooted discussions which I will save for another time regarding our country's softness as it relates to "Everyone being a winner" and the changing (liberal) attitues within this country.

In closing I am now under the impression that our economic woes will continue throughout all of 2009. Should some of this country's fiscal policies not change there is a very good chance we fall straight into a depression. This is the first time I have the D word and am afraid you may see it in future posts.

This Week’s Remain Economic Figures

Fri. Dec. 12, 8:30 a.m. ET
Nov. Producer Price Index
Core Rate
-2.0% vs. last -2.8%
+0.1% vs. last +0.4%
Falling food and energy prices will continue to limit inflation pressure at the producer level. The notable drop in the core rate (a value that excludes the more volatile food and energy components) will be welcome news for most investors. Look for this data to be supportive of steady mortgage interest rates.

Fri. Dec. 12, 8:30 a.m. ET
Nov. Retail Sales
Ex. Auto
-1.9% vs. last -2.8%
-1.7% vs. last -2.2%
No one will be surprised to see a sharp drop in retail sales as consumers are stressed by meltdown in the labor sector. If the consensus estimate proves accurate, investors will likely consider this data a positive for the prospects of steady to perhaps fractionally lower mortgage interest rates.

Monday, November 24, 2008

Holiday Focused Week

The next 10 days are fairly busy on the economic front. I'll keep this fairly light.

The Economic Calendar for the week of Monday, November 24th through Monday, December 1st, 2008

Release Date & Time
Economic Indicator
Consensus Estimate
My Analysis
Mon. Nov. 24, 8:30 a.m. ET
Oct. Existing Home Sales -2.5%
Most investors expected sluggish economic growth and an unsettled labor market took a toll on the pace of existing home sales last month. They were right and mortgage fell rates today.

Mon. Nov. 24, 1:00 p.m. ET
Treasury auctions $36 bil. of
2-year notes
Most observers believe demand will be solid for this debt offering from Uncle Sam. If so, this event should prove to be supportive of steady to perhaps fractionally lower mortgage interest rates.

Tue. Nov. 25, 8:30 a.m. ET
2nd estimate Q3
Gross Domestic Product
-0.5% vs. last -0.3%
Previously released economic data strongly suggests economic activity cooled sharply during the quarter. A downward revision to the initial estimate will not likely surprise anyone – rendering this data toothless in terms of its impact on the direction of mortgage interest rates today.

Tue. Nov. 25, 10:00 a.m. ET
Nov. Consumer Confidence
38.0 vs. last 38.0
No one will be surprised to see that gloomy news from the economy, rising joblessness and plunging stock markets have all taken a toll on consumer confidence. This data will likely draw little more than a passing glance from mortgage investors.

Tue. Nov. 25, 1:00 p.m. ET
Treasury auctions $26 bil. of
5-year notes
The majority of analysts believe this offering will be well bid. If so, it will likely have little impact on the trend trajectory of mortgage interest rates. If analysts are proven to be overly optimistic (as I think they likely will be) the yield of these notes will rise -- which will cause mortgage interest rates to move higher as well

Wed. Nov. 26, 8:30 a.m. ET
Oct. Personal Income
Core PCE Index
+0.1% vs. last +0.2%
-0.9% vs. last -0.3%
0.0 vs. last +0.2%
If the consensus estimate proves accurate, incomes will post their smallest gain in three months while a sharp drop in spending is likely setting retailers up for the worst holiday season in six years. The decline in income and spending combined with the Fed’s favorite measure of inflation at the consumer level, the personal consumption expenditure index, showing that core inflation pressures are nowhere to be seen -- will all likely be viewed as a positive for the prospects of steady mortgage interest rates today.

Wed. Nov. 26, 8:30 a.m. ET
Initial jobless claims for the week ended 11/22
Down 7,000
The modest expected decline in the initial jobless claims figure will likely draw nothing more than a passing glance from mortgage investors today.

Wed. Nov. 26, 8:30 a.m. ET
Oct. Durable Goods
-2.6% vs. last +0.9%
If the consensus estimate proves accurate, look for the news to push stock prices lower creating a “flight-to-quality” in the mortgage market which will be supportive of slightly lower rates.
Wed. Nov. 26, 10:00 a.m. ET

Oct. New Home Sales
The combination of weak economic conditions and tight credit likely restrict the pace of new home sales in October. Look for this data to have little, if any impact on the direction of mortgage interest rates today.

Wed. Nov. 26, 2:00 p.m. ET
All markets closes early

Thurs. Nov. 27
Market closed for the Thanksgiving Holiday. I wish you and your family a safe and enjoyable holiday.

Fri. Nov. 28, 2:00 p.m. ET
Fixed income markets closes early

Mon. Dec. 1, 8:30 a.m. ET
Nov. Institute of Supply Mgmt.
37.6 vs. last 38.9
Everybody knows the manufacturing sector is weak so today’s report will only define the degree of weakness. Look for this data to have little, if any impact on the direction of mortgage interest rates today.

Monday, November 10, 2008

The Ride That Never Ends

I have started working on our firms' forecast for 2009 and in looking an a number of micro and macro economic reports I've got to tell you that I don't like what I am seeing. Not in one bit.
The concerns are many, the challenges are well publicised. Am I predicting the end of modern finance as we know it.... No. Do I believe the experts when they say Americans have run out of money.... Perhaps. The driving concern I have is jobs. Should this recession (we are in one and if you don't believe me feel free to contact me off line to discuss) prolong itself past the second quarter of 2009, I anticipate significant job loss. Note that we have certain markets almost at 9.5% today (see my previous post titled National City Bank - Did the C ranks really drop the ball). I am referring to a national average perhaps as high as 12%.

Like it or not, the US government has and will continue to socialize our way out of this mess(including debt) because my first prediction mentioned above may no longer be a No. We could end up with a completely socialized banking, auto and our financial system. Since our country is no longer manufacturing oriented, service industries which make up a HUGE percentage of GDP (perhaps as high as 75%) now take center stage. In case you haven't noticed, it's a whole lot easier to get that corner table at the new high-flying restaurant or club. In short, if you think people aren't spending money today... you haven't' seen anything yet!

Back to jobs. If you look at the largest labor sectors (housing, manufacturing, service - already mentioned above) most are already depressed with the latter having more room to fall. The latest GDP numbers 0.3% was somewhat smaller then I expected. The reason for this contraction is not really a sound one: government spending soared. While I had expected government spending to rise, it rose a lot more than usual. Government purchases rose from 20.1% of GDP to 20.4%-the highest since Q3 1991, and up from just 17.6% in Clinton's last quarter (During the Clinton era, government purchases decreased significantly as military spending fell). As before, military spending increased particularly much, but non-military federal spending and state & local government spending increased its share of GDP too. Excluding government purchases, the contraction would have been closer to 2%.

My point, the citizens of the United States might have elected the right party in charge (at the present time). A return to a strong financial footing for this country may be through a significant government spending package, one the Democrats will likely give us. Otherwise, this could be a long painful road, one which this country hasn't seen in 70+ years.

This weeks economic figures: dominted by Treasury Auctions

Release Date & Time
Economic Indicator
Consensus Estimate

Mon. Nov. 10, 1:00 p.m. ET
Treasury auctions $25 billion of 3-year notes
This will be the first leg of a three-part borrowing Uncle Sam will engage in this week. By the time Friday rolls around, Uncle Sam will have tapped investors for an additional $55 billion. That’s a record amount for November – well above last year’s $18 billion capital need. All of this incoming supply from the government will likely make mortgage investors hesitant to push mortgage interest rates notably lower.

Mon. Nov. 10, 2:00 p.m. ET
The mortgage market will close at 2:00 pm EST for the Veteran’s Day Holiday

Tue. Nov. 11
Veteran’s Day Holiday

Wed. Nov. 12, 1:00 a.m. ET
Treasury auctions $20 billion of 10-year notes
All of this incoming supply from the government will likely make mortgage investors hesitant to push mortgage interest rates notably lower.

Thurs. Nov. 13,
The current delivery month for most mortgage-backed securities “rolls” to December
This is a standard monthly administrative function of the mortgage market. The small price impact this event creates is already reflected on most investors’ rate sheets.

Thurs. Nov. 13, 8:30 a.m. ET
Initial jobless claims for the week ended 11/8
Up 1,000
The modest expected increase for initial jobless claims will likely draw nothing more than a passing glance from mortgage investors today.

Thurs. Nov. 13, 1:00 p.m. ET
Treasury auctions $10 billion of 30-year bonds
We might see a small “relief rally” in the bond and mortgage-backed security once the supply from Uncle Sam is out of the way. Any such rally will likely be limited in terms of price movement and duration.

Fri. Nov. 14, 8:30 a.m. ET
Oct. Retail Sales
Ex. auto
-1.9% vs. last -1.2%
-1.0% vs. last -0.6%
Unless they’ve been living under a rock – there is no one that doubts the October retail sales figures will be weak – the only question is how weak. The consensus estimate is already reflected in current mortgage prices, so it will take numbers considerably worse (a headline drop of 2.1% or more and an ex auto value showing a decline of 1.2% or more) to create much support for the prospects fractionally lower mortgage interest rates. The likelihood that the consensus estimate proves to be overly pessimistic is very small. Nonetheless a headline number showing October sales did not fall as sharply as expected will probably tend to nudge all credit including mortgage interest rates higher.

Fri. Nov. 14, 10:00 a.m. ET
Sept. Business Inventories
0.0 vs. last +0.3
This sliver of dated economic news will undoubtedly be completely overshadowed by the much more important October retail sales report that was released early today.

Mon. Nov. 17, 9:15 a.m. ET
Oct. Industrial Production &
Capacity Utilization
-0.5% vs. last -2.8%
76.1 vs. last 76.4
Already released reports showing sagging factor orders and plummeting retail sales make it a virtual “given” that these two measures of manufacturing activity will be puny as well. Look for this data to have little, if any noticeable impact on the trend trajectory of mortgage interest rates today.

Fannie Mae posts $29 billion loss

As recently reported in the AP, Fannie Mae on Monday posted a $29 billion loss in the third quarter as it took a massive tax-related charge, and said it may have to tap the government’s $100 billion lifeline in the coming months.
The mortgage finance company, seized by federal regulators more than two months ago, posted a loss of $13 per share for the July-September quarter, mainly due to a $21.4 billion non-cash charge to reduce the value of tax assets. That compares with a loss of $1.4 billion, or $1.56 a share, in the year-ago period. Analysts surveyed by Thomson Reuters had expected a loss of $1.60 per share.

Fannie Mae’s net worth — the value of its assets minus the value of its liabilities — fell to $9.4 billion at the end of September down from $44.1 billion at the end of last year. If that number turns negative, Fannie Mae would be forced to obtain funding from the Treasury Department.
The ultimate bill for taxpayers remains unclear. Jim Vogel, a debt analyst with FTN Financial in Memphis, Tenn., said total aid for Fannie and its sibling company Freddie Mac is unlikely to exceed the $200 billion initially pledged by the government.

Despite worsening housing market conditions, Fannie Mae is “still setting aside way more for future losses than they’re absorbing today,” Vogel said. Others aren’t so sure. Barclays Capital analyst Rajiv Setia said the government’s arrangement with Fannie and Freddie “may need to be amended” next year. Many analysts consider Freddie Mac, which is expected to report earnings later this week, to be in worse financial shape.

The real estate industry is also waiting to see if the government, under President-elect Barack Obama, will use Fannie and Freddie to help alleviate the foreclosure crisis by aggressively modifying or refinancing loans. Together, Fannie Mae and Freddie Mac own or guarantee around half of U.S. home loans. “They’re no longer being run for profit,” said Fox-Pitt Kelton analyst Howard Shapiro. Fannie Mae posted a loss of $13 per share for the July-September quarter, mainly due to a $21.4 billion non-cash charge to reduce the value of a tax asset and $9.2 billion in expenses resulting from falling home prices and surging defaults. Fannie Mae, which has bled $33.5 billion in red ink so far this year, is now run by CEO Herbert Allison, formerly chairman and chief executive of retirement fund manager TIAA-CREF. Fannie Mae’s former top executive, Daniel Mudd, was ousted as part of the government takeover. Fannie and Freddie are now facing a federal grand jury investigation into their accounting practices.

Last month, Fannie Mae said it would change its accounting for its deferred-tax assets, which can result from operating losses and be used to offset taxes on future profits. But Fannie may not have any profits for a long time to come, the company said. The U.S. housing market is continuing to decline. Fannie Mae posted $9.2 billion in credit losses, up from $1.2 billion in the quarter a year earlier. Delinquent loans rose to 1.7 percent of all single-family loans — double the level last fall.

Fannie Mae owned more than 67,500 foreclosed properties at the end of September, up 25 percent from the end of June. Shares fell 4 cents to 70 cents in afternoon trading.

Thursday, October 30, 2008

Feds probe Countrywide's 'V.I.P.' program

By Lisa Myers & Amna Nawaz, NBC News
The wide-ranging criminal investigation into wrongdoing at Countrywide - once the nation's largest mortgage originator - now includes serious scrutiny of a loan program that provided special mortgage deals to the well-connected and powerful, including two U.S. senators.
NBC News has learned that Robert Feinberg - a former Countrywide loan officer who handled what were known as the "V.I.P." mortgages - spent six hours last Thursday with a six-person team from the Justice Department. The team included prosecutors from the Public Integrity section, which handles investigations of possible public corruption.

"The Justice Department is making very serious inquiry into any possible wrongdoing that may involve (former Countrywide CEO) Angelo Mozilo, other Countrywide employees, Sen. Chris Dodd, Sen. Kent Conrad, (former Fannie Mae CEO) Franklin Raines or other public officials," said Feinberg's lawyer, Anthony Salvano. "Robert has always cooperated thoroughly with authorities and is strictly a witness in their investigation."

'Friends of Angelo's'Salvano said the prosecutors and FBI agents seemed focused on whether the preferential treatment given to V.I.P. customers was part of an effort by Countrywide to buy influence - as well as on the conduct of each public official who received a mortgage from Countrywide.

Feinberg says that Countrywide's clients in this program were known by a nickname.
"We called them F.O.A.'s," Feinberg told NBC News, "which were Friends of Angelo's."
"Angelo" is Countrywide's then-CEO, Angelo Mozilo, who once called an ordinary borrower's plea for help on his mortgage payments, "disgusting."

But Mozilo seemed to have a different attitude toward people of influence. In fact, Feinberg says part of his job was to hammer home to the V.I.P. clients that they were getting special deals.
"You spoke in a manner that was different than you spoke with a regular customer," said Feinberg. "'Your loan has been specially priced by Angelo.' 'You're getting special discounts because you're in the V.I.P. loan department."

So what would a "Friend of Angelo" get that an average customer would not? According to Feinberg, the possible benefits ran the gamut.
"They got a discount on the interest rate," said Feinberg. "They got discounts on their fees. They got a free floatdown option before closing."
In one instance of a "Friends of Angelo" deal, Mozilo sent an e-mail to Feinberg ordering him to "Take off one point" on a loan to Sen. Conrad. That one point equaled a savings of $10,700 in fees.

Feinberg's client list also runs the gamut. Among those benefitting from the VIP program were four former Cabinet members spanning Democratic and Republican administrations: Henry Cisneros, Richard Holbrooke, Alphonso Jackson, and Donna Shalala. Two former CEO's of Fannie Mae, James Johnson and Franklin Raines, heads of the government-sponsored entity which bought Countrywide's mortgages - also received VIP mortgages from Countrywide.
All have denied impropriety and declined to elaborate to NBC News. Some say they had no idea they were getting favorable rates or any sort of discount. But Feinberg insists part of his job was to make clear to VIP's they were receiving special treatment. "There were many, many taglines we used to let them know their level of importance to make sure that they understand where they're located," said Feinberg. "And nine times out of ten, once you mention 'V.I.P' the person's gonna ask you 'what am i getting for being in this V.I.P department?' Or 'what am I getting because I know Angelo?' Or 'I talked to Angelo and he said I'm getting this.'"

Senator Conrad says he never asked for, expected, nor was aware of any special treatment from Countrywide, and only found out about the discount after it had been reported in the press. He released and posted to his website all his mortgage documents, and donated all the money he saved to Habitat for Humanity.

Senator Dodd says he thought the VIP program just meant better customer service, and that he received market terms that he could have received from other lenders. The senator said in a press conference on the matter that if anyone had suggested at the time that he was receiving some kind of financial benefit on the loans because of his position, he would have terminated the relationship immediately.

Both Conrad and Dodd say they never sought any favors, and are cooperating with the Senate Ethics Committee investigation. Feinberg says he's not aware of any discounts linked to favors, but he did see e-mails noting the potential value of the relationships to Countrywide's political and business interests. The e-mails noted one particular client was "of importance to Countrywide." Another encouraged a discount, noting "they are incredibly important to us." Yet another asked that the loan officer, "make an exception" in Countrywide's lending rules, "due to the fact that the borrower is a Senator."

Daniel Golden investigated the program for Condé Nast's Portfolio magazine.
"There was a great variety of people who got special deals," said Golden. "Many of them were figures in Congress or government or business partners of Countrywide - all of whom were in a position to help Countrywide in one way or another." To Golden, the company's intention was clear.

"The purpose for Countrywide was to ingratiate itself with the people in Washington who might be able to help the company down the road," said Golden.
But was any of it illegal? Legal experts say prosecutors will be looking into whether Countrywide was trying to buy influence, and into whether public officials were taking improper gifts, or gifts they should have disclosed.

Tuesday, October 21, 2008

Round 4

I used this title because while I have been a supporter of the aggressive Fed action over the past several weeks, I believe we are early in this lengthy three sided fight with capital restrictions, the economy as a whole and inflation. This is a light week for economic news. I'll keep this report light as my follow up report is already looking lengthy.

Release Date & Time
Economic Indicator
Consensus Estimate

Mon. Oct. 20, 10:00 a.m. ET
Sept. Leading Indicators
-0.3% vs. last -0.3%
This second tier economic report will likely draw little investor attention and should not be a factor in terms of the trend trajectory of mortgage interest rates.

Mon. Oct. 20, 10:00 a.m. ET
Fed Chairman Bernanke testifies before the House Budget Committee
This will be the “wild card” event of the week. Mr. Bernanke will provide prepared text testimony on the economic outlook and financial markets. It is highly unlikely this proceeding will include anything mortgage market moving – but you never know until you know. Heads up.

Tue, Oct. 21
Nothing posting today

Wed. Oct. 22
Thurs. Oct. 23, 8:30 a.m. ET
Initial jobless claims for the week ended 10/18
Up 9,000
The expected weakness in this data set takes on added importance because it coincides with the survey period for the more important October nonfarm payroll number. If the consensus estimate proves accurate, rising jobless claims will almost certainly be viewed by investors as supportive of steady to fractionally lower mortgage interest rates.

Fri. Oct. 24, 10:00 a.m. ET
Sept. Existing Home Sales
Up 0.2%
Investors have already priced in expectations that existing home sales will be puny in September. In the unlikely event the pace of existing home sales posted a gain of 1.1% or more last month – look for mortgage interest rates to edge higher. On the other hand, a September sales pace of 1.0% or lower will tend to be supportive of steady to fractionally lower mortgage interest rates.

Mon. Oct. 27
Sept. New Home Sales
Down 2.1%
No one doubts new home sales remain in a slump – the only question involves the depth of the slump. Mortgage investors will probably give news that new home sales fell by 2.0% or more in September little more than a passing glance. A sales gain of 0.5% or more will likely put some upward pressure on mortgage interest rates. For what it is worth, I think there is a better chance that you’ll find a multi-million dollar winning lottery ticket stuck under you windshield wiper this morning than there is that new home sales posted a huge gain in September.

Thursday, October 2, 2008


September 30, 1999
Fannie Mae Eases Credit To Aid Mortgage Lending

In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.
Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.
In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.

''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''

Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.

''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift

Under Fannie Mae's pilot program, consumers who qualify can secure a mortgage with an interest rate one percentage point above that of a conventional, 30-year fixed rate mortgage of less than $240,000 -- a rate that currently averages about 7.76 per cent. If the borrower makes his or her monthly payments on time for two years, the one percentage point premium is dropped.

Fannie Mae, the nation's biggest underwriter of home mortgages, does not lend money directly to consumers. Instead, it purchases loans that banks make on what is called the secondary market. By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.

Fannie Mae officials stress that the new mortgages will be extended to all potential borrowers who can qualify for a mortgage. But they add that the move is intended in part to increase the number of minority and low income home owners who tend to have worse credit ratings than non-Hispanic whites.

Home ownership has, in fact, exploded among minorities during the economic boom of the 1990's. The number of mortgages extended to Hispanic applicants jumped by 87.2 per cent from 1993 to 1998, according to Harvard University's Joint Center for Housing Studies. During that same period the number of African Americans who got mortgages to buy a home increased by 71.9 per cent and the number of Asian Americans by 46.3 per cent.

In contrast, the number of non-Hispanic whites who received loans for homes increased by 31.2 per cent.
Despite these gains, home ownership rates for minorities continue to lag behind non-Hispanic whites, in part because blacks and Hispanics in particular tend to have on average worse credit ratings.
In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae's and Freddie Mac's portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups.
The change in policy also comes at the same time that HUD is investigating allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.

Monday, September 29, 2008

Bailout Bill Defeated

As I write this blog, the Dow Jones Industrial Average is down 625.4 points. By far the largest single day loss of capital in the history of the US financial markets. Instead of discussing if Speaker Pelosi's negative rhetoric prior to the vote soured the momentum, I'd like to turn your attention to what's next. In my opinion the core of the financial challenges isn't the 4.1% of all mortgage loans which are delinquent. It isn't the 2 million home owners who may lose their home this year. It's the lack of clarity of the markets, or simply put... it's the fear of the unknown. I choose the word "fear" cautiously. It's a powerful emotion made even more powerful given the demographics of this country. When banks end up in the news, people right or wrong will look to put their money elsewhere. When deposits are pulled, banks lose the ability to keep the necessary funds on hand for the loans in which they have written. Additionally, they lose the ability to lend additional money. In short, they fail to do what they are designed to do. When banks fail, either the government or another bank must step in to pick up the outstanding obligations. Jobs are lost and perhaps more importantly, the competitive landscape for lending decreases. Those left standing are left to profit immensely.

Release Date & Time
Economic Indicator
Consensus Estimate

Mon. Sept. 29, 8:30 a.m. ET
Aug. Personal Income
PCE Index
+0.2% vs. last -0.7%
-0.3% vs. last 0.4%
+0.2% vs. last +0.3%
Mortgage investors will focus almost exclusively on the core personal consumption expenditure index component of this data set. The number barley edged up by a revised .01 percent in July, a weaker than the consensus estimate of a modest 0.1% drop in the underlying inflation rate. Given the attention at the Bailout Bill will be receiving, this will not likely create much of a stir in the mortgage market.

Tue. Sept. 30, 10:00 a.m. ET
Sept. Consumer Confidence
55.0 vs. 56.9
I anticipate this report will also be overshadowed by news of the financial market rescue agreement from Congress and Friday’s non farm payroll data that it is virtually guaranteed to do nothing more than take up space on this week’s calendar.

Wed. Oct. 1, 10:00 a.m. ET
Sept. Institute of Supply Mgmt.
49.5 vs. last 49.9
The modest anticipated 0.4% decline in the level of activity in the manufacturing sector will likely go unnoticed – particularly if investors are still sorting through the details of the financial markets rescue package. Only a reading of 51.0 or higher will likely have enough “power” to cause investors to push mortgage interest rates notably higher as a direction result of this report.

Thurs. Oct. 2, 8:30 a.m. ET
Initial jobless claims for the week ended 9/27
Down 18,000
This report will may have little, if any impact on direction of mortgage interest rates should the report be close to the estimate of 18,000. That said, if the number is as high as I anticipate, (say 25,000+) expect headline news and additional gloom and doom from all media outlets.

Thurs. Oct. 2, 10:00 a.m. ET
Aug. Factory Orders
-2.5% vs. last +1.3%
As business credit conditions continue to tighten factory orders are getting squeezed. If the consensus estimate proves accurate, this data will likely add a little encouragement to the prospects for steady to fractionally lower rates today.

Fri. Oct. 3,
Sept. Non farm Payroll
Jobless Rate
Avg. hourly earnings
+0.3% vs. last +0.4%
Most mortgage investors have already “priced-in” expectations for a very weak September employment reading. If the data confirms investors broad presumptions, the direct impact on the mortgage market will likely be minimal. On the other hand, if overall payrolls decline by 50,000 or less and/or the jobless rate slips back to 6.0% or lower -- look for surprised investors to respond by pushing mortgage rates sharply higher.

Thursday, September 18, 2008

The Other Shoe Dropped...

This article is about as spot on as I have read over the last several weeks... I thought I would share.

Few options as world faces what may be the greatest loss of wealth ever
By Steven Pearlstein
The Washington Post
updated 1:15 a.m. CT, Thurs., Sept. 18, 2008

You know you're in a heap of trouble when the lender of last resort suddenly runs out of money.
Having pumped $100 billion into the banking system and lent $115 billion more to rescue Bear Stearns and AIG, the Federal Reserve was forced to ask the Treasury yesterday to borrow some extra money to replenish its coffers. If there was any good news in that, it was that investors here and abroad were eager to help out, having decided that the only safe place to put their money is in U.S. government securities. Indeed, demand was so brisk at one point yesterday that, for an investor, the effective yield on a three-month Treasury bill was driven below zero, once the broker's fee was figured in.
This is what a Category 4 financial crisis looks like. Giant blue-chip financial institutions swept away in a matter of days. Banks refusing to lend to other banks. Russia closing its stock market to stop the panicked selling. Gold soaring $70 in a single trading session. Developing countries' currencies in a free fall. Money-market funds warning they might not be able to return every dollar invested. Daily swings of three, four, five hundred points in the Dow Jones industrial average.
What we are witnessing may be the greatest destruction of financial wealth that the world has ever seen -- paper losses measured in the trillions of dollars. Corporate wealth. Oil wealth. Real estate wealth. Bank wealth. Private-equity wealth. Hedge fund wealth. Pension wealth. It's a painful reminder that, when you strip away all the complexity and trappings from the magnificent new global infrastructure, finance is still a confidence game -- and once the confidence goes, there's no telling when the selling will stop.
But more than psychology is involved here. What is really going on, at the most fundamental level, is that the United States is in the process of being forced by its foreign creditors to begin living within its means.
Cheap money days That wasn't always the case. In fact, for most of the past decade, foreigners seemed only too willing to provide U.S. households, corporations and governments all the cheap money they wanted -- and Americans were only too happy to take them up on their offer.
The cheap money was used by households to buy houses, cars and college educations, along with more health care, extra vacations and all manner of consumer goods. Governments used the cheap money to pay for services and benefits that citizens were not willing to pay for with higher taxes. And corporations and investment vehicles -- hedge funds, private-equity funds and real estate investment trusts -- used the cheap financing to buy real estate and other companies.
Two important things happened as a result of the availability of all this cheap credit.
The first was that the price of residential and commercial real estate, corporate takeover targets and the stock of technology companies began to rise. The faster they rose, the more that investors were interested in buying, driving the prices even higher and creating even stronger demand. Before long, these markets could best be characterized as classic bubbles.
At the same time, many companies in many industries expanded operations to accommodate the increased demand from households that decided that they could save less and spend more. Airlines added planes and pilots. Retail chains expanded into new malls and markets. Auto companies increased production. Developers built more homes and shopping centers.
Suddenly, in early 2007, something important happened: Foreigners began to lose their appetite for financing much of this activity -- in particular, the non-government bonds used to finance subprime mortgages, auto loans, college loans and loans used to finance big corporate takeovers. What should have happened at that point was that the interest rate on those loans should have increased, demand for that kind of borrowing should have decreased, the price of real estate and corporate stocks should have leveled off, takeover activity should have slowed and companies should have begun to cut back on expansion.
Mostly, however, that didn't happen. Instead, the Wall Street banks that originally made these loans before selling them off in pieces decided to try to keep the good times rolling -- and, significantly, keep the lucrative underwriting fees pouring in. Some used their own "AAA" credit ratings to borrow more money and keep the loans on their own balance sheets or those of "structured investment vehicles" they created to hide these new liabilities from regulators and investors. Others went back to the foreigners and offered to insure those now-unwanted takeover loans and asset-backed securities against credit losses, through the miracle of a new kind of derivative contract known as the credit-default swap.
As a result, when the inevitable crash finally came, it wasn't only those unsuspecting foreigners who bought those leveraged loans and asset-backed securities who wound up taking the hit. It was also their creators -- Bear Stearns, Merrill Lynch, Citigroup, Lehman Brothers, AIG and others -- who made the mistake of doubling-down on their credit risk at the very moment they should have been cutting back.
We are now nearing the end of the rocky process of uncovering the full extent of the credit losses of the major Wall Street banks and hedge funds. But as Robert Dugger, an economist and partner in a leading hedge fund likes to points out, the markets have only just begun to force some financial discipline on the majority of U.S. households that relied on borrowed money to maintain their lifestyles.
Two choicesWith nobody willing to finance those lifestyles, there are really only two choices.
One is to turn to Uncle Sam to keep the economy and the financial system afloat. Unlike businesses, households and Wall Street firms, the Treasury can still borrow from foreign banks and investors at incredibly attractive rates. And by acting as an intermediary, the Treasury and the Federal Reserve have shown a newfound willingness to use those funds to keep the housing market and the financial system from totally collapsing.
Last spring, the government borrowed $165 billion to send tax rebates to households in an effort to boost consumer spending. Now, some Democrats want to create a new agency that would use money borrowed by the Treasury to recapitalize troubled financial institutions by buying some of their unwanted loans and securities at discounted prices. The same strategy was used successfully during the Great Depression and the savings and loan crisis of the 1990s, and even some Republicans are warming to the idea.
In the end, however, there is only so much the government can borrow and so much the government can do. The only other choice is for Americans to finally put their spending in line with their incomes and their need for long-term savings. For any one household, that sounds like a good idea. But if everyone cuts back at roughly the same time, a recession is almost inevitable. That's a bitter pill in and of itself, involving lost jobs, lower incomes and a big hit to government tax revenues. But it could be serious trouble for regional and local banks that have balance sheets loaded with loans to local developers and builders who will be hard hit by an economic downturn. Think of that, says Dugger, as the inevitable second round of this financial crisis that, alas, still lies ahead.

Tuesday, September 9, 2008

Expect a Rally

Markets, whether they are equity, bond, or futures focused are most successful when risks are removed from the marketplace. We witnessed that over the weekend with Fannie and Freddie moving into conservatorship. This weeks economic numbers may fall on deaf ears as markets should rally throughout the week with all of the liquidity currently sitting idle being moving into action.

Release Date & Time
Economic Indicator
Consensus Estimate

Mon. Sept. 8
Fannie and Freddie will dominate mortgage trading. Expect to see sizeble gains with the FMN 4.5, 5.0 5.5, 6.0, 6.5 for both Fannie and Ginnie instruments.

Tue. Sept. 9, 10:00 a.m. ET
July Wholesale Inventories
+0.7% vs. last +1.1%
This bit of old, stale macro-economic data will likely do nothing more than take up space on this week’s calendar. Expect a continued rally with Fannie and Ginnie instruments.

Tue. Sept. 9,
Most mortgage-backed securities “roll” to October delivery
This is a standard monthly administrative function of the mortgage market. The impact of this event is already reflected on most investors’ rate sheets.

Wed. Sept. 10,
Thurs. Sept. 11, 8:30 a.m. ET
Initial jobless claims for the week ended 9/6
Down 4,000
This report will likely have little, if any impact on direction of mortgage interest rates today.

Thurs. Sept. 11, 1:00 p.m. ET
Treasury auctions estimated $11 bil. 10-year notes.

Fri. Sept. 12, 8:30 a.m. ET
Aug. Retail Sales
Ex. Auto
+0.2% vs. last -0.1%
-0.2% vs. last +0.4%
Major incentives from auto manufacturers and sharp discounting from retailers likely combined to nudge headline retail sales higher last month. Slumping labor market conditions and high energy costs probably took a toll on the ex. auto component of this data set. If my assessment proves correct, this report will have little, if any impact on the direction of mortgage interest rates today.

Fri. Sept. 12, 8:30 a.m. ET
Aug. Producer Price Index
Core Rate
-0.5% vs. last +1.2%
+0.2% vs. last +0.7%
Energy and other commodities fell sharply during the month. Few doubt headline and core inflation (a value that excludes the volatile food and energy components) at the producer level remained benign in August.

Mon. Sept. 15, 9:15 a.m. ET
Aug. Industrial Production &
Capacity Utilization
-0.2% vs. last +0.2%
79.7 vs. last 79.9
The modest expected decline in both elements of this data set will likely have little if any impact on the direction of mortgage interest rates today.

As a partner of mine often says, Be Well.

Sunday, September 7, 2008

The Domino's Continue to Fall....From GSE to GCE

Fannie Mae and Freddie Mac are no longer Government "Sponsored" Entities, but Government "Controlled" Entities. The following series of statements were made by Secretary Henry M. Paulson, Jr. on Treasury and Federal Housing Finance Agency Action to Protect Financial Markets and Taxpayers
Good morning. I’m joined here by Jim Lockhart, Director of the new independent regulator, the Federal Housing Finance Agency, FHFA.
In July, Congress granted the Treasury, the Federal Reserve and FHFA new authorities with respect to the GSEs, Fannie Mae and Freddie Mac. Since that time, we have closely monitored financial market and business conditions and have analyzed in great detail the current financial condition of the GSEs – including the ability of the GSEs to weather a variety of market conditions going forward. As a result of this work, we have determined that it is necessary to take action.
Since this difficult period for the GSEs began, I have clearly stated three critical objectives: providing stability to financial markets, supporting the availability of mortgage finance, and protecting taxpayers – both by minimizing the near term costs to the taxpayer and by setting policymakers on a course to resolve the systemic risk created by the inherent conflict in the GSE structure.
Based on what we have learned about these institutions over the last four weeks – including what we learned about their capital requirements – and given the condition of financial markets today, I concluded that it would not have been in the best interest of the taxpayers for Treasury to simply make an equity investment in these enterprises in their current form.
The four steps we are announcing today are the result of detailed and thorough collaboration between FHFA, the U.S. Treasury, and the Federal Reserve.
We examined all options available, and determined that this comprehensive and complementary set of actions best meets our three objectives of market stability, mortgage availability and taxpayer protection. Throughout this process we have been in close communication with the GSEs themselves. I have also consulted with Members of Congress from both parties and I appreciate their support as FHFA, the Federal Reserve and the Treasury have moved to address this difficult issue.
Before I turn to Jim to discuss the action he is taking today, let me make clear that these two institutions are unique. They operate solely in the mortgage market and are therefore more exposed than other financial institutions to the housing correction. Their statutory capital requirements are thin and poorly defined as compared to other institutions. Nothing about our actions today in any way reflects a changed view of the housing correction or of the strength of other U.S. financial institutions.

I support the Director’s decision as necessary and appropriate and had advised him that conservatorship was the only form in which I would commit taxpayer money to the GSEs.
I appreciate the productive cooperation we have received from the boards and the management of both GSEs. I attribute the need for today’s action primarily to the inherent conflict and flawed business model embedded in the GSE structure, and to the ongoing housing correction. GSE managements and their Boards are responsible for neither. New CEOs supported by new non-executive Chairmen have taken over management of the enterprises, and we hope and expect that the vast majority of key professionals will remain in their jobs. I am particularly pleased that the departing CEOs, Dan Mudd and Dick Syron, have agreed to stay on for a period to help with the transition.
I have long said that the housing correction poses the biggest risk to our economy. It is a drag on our economic growth, and at the heart of the turmoil and stress for our financial markets and financial institutions. Our economy and our markets will not recover until the bulk of this housing correction is behind us. Fannie Mae and Freddie Mac are critical to turning the corner on housing. Therefore, the primary mission of these enterprises now will be to proactively work to increase the availability of mortgage finance, including by examining the guaranty fee structure with an eye toward mortgage affordability.
To promote stability in the secondary mortgage market and lower the cost of funding, the GSEs will modestly increase their MBS portfolios through the end of 2009. Then, to address systemic risk, in 2010 their portfolios will begin to be gradually reduced at the rate of 10 percent per year, largely through natural run off, eventually stabilizing at a lower, less risky size.
Treasury has taken three additional steps to complement FHFA’s decision to place both enterprises in conservatorship. First, Treasury and FHFA have established Preferred Stock Purchase Agreements, contractual agreements between the Treasury and the conserved entities. Under these agreements, Treasury will ensure that each company maintains a positive net worth. These agreements support market stability by providing additional security and clarity to GSE debt holders – senior and subordinated – and support mortgage availability by providing additional confidence to investors in GSE mortgage backed securities. This commitment will eliminate any mandatory triggering of receivership and will ensure that the conserved entities have the ability to fulfill their financial obligations. It is more efficient than a one-time equity injection, because it will be used only as needed and on terms that Treasury has set. With this agreement, Treasury receives senior preferred equity shares and warrants that protect taxpayers. Additionally, under the terms of the agreement, common and preferred shareholders bear losses ahead of the new government senior preferred shares.
These Preferred Stock Purchase Agreements were made necessary by the ambiguities in the GSE Congressional charters, which have been perceived to indicate government support for agency debt and guaranteed MBS. Our nation has tolerated these ambiguities for too long, and as a result GSE debt and MBS are held by central banks and investors throughout the United States and around the world who believe them to be virtually risk-free. Because the U.S. Government created these ambiguities, we have a responsibility to both avert and ultimately address the systemic risk now posed by the scale and breadth of the holdings of GSE debt and MBS.
Market discipline is best served when shareholders bear both the risk and the reward of their investment. While conservatorship does not eliminate the common stock, it does place common shareholders last in terms of claims on the assets of the enterprise.
Similarly, conservatorship does not eliminate the outstanding preferred stock, but does place preferred shareholders second, after the common shareholders, in absorbing losses. The federal banking agencies are assessing the exposures of banks and thrifts to Fannie Mae and Freddie Mac. The agencies believe that, while many institutions hold common or preferred shares of these two GSEs, only a limited number of smaller institutions have holdings that are significant compared to their capital.
The agencies encourage depository institutions to contact their primary federal regulator if they believe that losses on their holdings of Fannie Mae or Freddie Mac common or preferred shares, whether realized or unrealized, are likely to reduce their regulatory capital below “well capitalized." The banking agencies are prepared to work with the affected institutions to develop capital restoration plans consistent with the capital regulations.
Preferred stock investors should recognize that the GSEs are unlike any other financial institutions and consequently GSE preferred stocks are not a good proxy for financial institution preferred stock more broadly. By stabilizing the GSEs so they can better perform their mission, today’s action should accelerate stabilization in the housing market, ultimately benefiting financial institutions. The broader market for preferred stock issuance should continue to remain available for well-capitalized institutions.
The second step Treasury is taking today is the establishment of a new secured lending credit facility which will be available to Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. Given the combination of actions we are taking, including the Preferred Share Purchase Agreements, we expect the GSEs to be in a stronger position to fund their regular business activities in the capital markets. This facility is intended to serve as an ultimate liquidity backstop, in essence, implementing the temporary liquidity backstop authority granted by Congress in July, and will be available until those authorities expire in December 2009.
Finally, to further support the availability of mortgage financing for millions of Americans, Treasury is initiating a temporary program to purchase GSE MBS. During this ongoing housing correction, the GSE portfolios have been constrained, both by their own capital situation and by regulatory efforts to address systemic risk. As the GSEs have grappled with their difficulties, we’ve seen mortgage rate spreads to Treasuries widen, making mortgages less affordable for homebuyers. While the GSEs are expected to moderately increase the size of their portfolios over the next 15 months through prudent mortgage purchases, complementary government efforts can aid mortgage affordability. Treasury will begin this new program later this month, investing in new GSE MBS. Additional purchases will be made as deemed appropriate. Given that Treasury can hold these securities to maturity, the spreads between Treasury issuances and GSE MBS indicate that there is no reason to expect taxpayer losses from this program, and, in fact, it could produce gains. This program will also expire with the Treasury’s temporary authorities in December 2009.
Together, this four part program is the best means of protecting our markets and the taxpayers from the systemic risk posed by the current financial condition of the GSEs. Because the GSEs are in conservatorship, they will no longer be managed with a strategy to maximize common shareholder returns, a strategy which historically encouraged risk-taking. The Preferred Stock Purchase Agreements minimize current cash outlays, and give taxpayers a large stake in the future value of these entities. In the end, the ultimate cost to the taxpayer will depend on the business results of the GSEs going forward. To that end, the steps we have taken to support the GSE debt and to support the mortgage market will together improve the housing market, the US economy and the GSEs’ business outlook.
Through the four actions we have taken today, FHFA and Treasury have acted on the responsibilities we have to protect the stability of the financial markets, including the mortgage market, and to protect the taxpayer to the maximum extent possible.
And let me make clear what today’s actions mean for Americans and their families. Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe. This turmoil would directly and negatively impact household wealth: from family budgets, to home values, to savings for college and retirement. A failure would affect the ability of Americans to get home loans, auto loans and other consumer credit and business finance. And a failure would be harmful to economic growth and job creation. That is why we have taken these actions today.
While we expect these four steps to provide greater stability and certainty to market participants and provide long-term clarity to investors in GSE debt and MBS securities, our collective work is not complete. At the end of next year, the Treasury temporary authorities will expire, the GSE portfolios will begin to gradually run off, and the GSEs will begin to pay the government a fee to compensate taxpayers for the on-going support provided by the Preferred Stock Purchase Agreements. Together, these factors should give momentum and urgency to the reform cause. Policymakers must view this next period as a “time out” where we have stabilized the GSEs while we decide their future role and structure.
Because the GSEs are Congressionally-chartered, only Congress can address the inherent conflict of attempting to serve both shareholders and a public mission. The new Congress and the next Administration must decide what role government in general, and these entities in particular, should play in the housing market. There is a consensus today that these enterprises pose a systemic risk and they cannot continue in their current form. Government support needs to be either explicit or non-existent, and structured to resolve the conflict between public and private purposes. And policymakers must address the issue of systemic risk. I recognize that there are strong differences of opinion over the role of government in supporting housing, but under any course policymakers choose, there are ways to structure these entities in order to address market stability in the transition and limit systemic risk and conflict of purposes for the long-term. We will make a grave error if we don’t use this time out to permanently address the structural issues presented by the GSEs.
In the weeks to come, I will describe my views on long term reform. I look forward to engaging in that timely and necessary debate.

Look for additional releases over the next several days from Paulson and others to this and other GCE's matters. I would also expect announcements from the 4 major mortgage lending firms discussing hopefully business as usual or futher pullbacks on capacity or product depth.

Monday, August 25, 2008

Fannie & Freddie: "To Regulate or Not to Regulate... that is the Question"

As I write this piece, the current stock prices for Fannie Mae (FNM) and Freddie Mac (FRE) are sitting just off their 60’ year lows at $5.20 and $3.28 respectively. There has been a plethora of talk, both on Wall Street and those around Capital Hill as to what exactly should and can be done with these Government Sponsored Entities (GSE's).

Here’s a question; Assuming these entities are “too big to fail” (or perhaps too important) which I believe they are, it begs to question who really benefits if these firms are not privatized.

My thoughts: Both of these companies have some of the largest lobbyist groups in the country. The non-balance sheet payrolls these firms have include very senior officials in both branches and on both major governmental parties. In fact the GSE's have some of the most impressive "paid" supporters of any industry.... and that’s pretty impressive considering the likes of the auto industry, oil, and others.

While the discussions may publicly revolve around the GSE’s ability to remain solvent or if necessary raise more capital to meet federal regulations as it relates to balance sheet ratio’s, a real challenge remains; Will the large number of people who receive a handout from these firms do the right thing, look themselves in the mirror and recognize the overwhelming benefits of taking these firms off of the national balance sheet or will greed and self interest prevail. Unfortunately, I believe we all quickly realized the answer to that question. So look for more shallow justification about the values and virtues of keeping the mission statement alive for Fannie and Freddie.

This week’s economic news:

Release Date & Time
Economic Indicator
EstimateMy Analysis

Mon. Aug. 25, 10:00 a.m. ET
July Existing Home Sales
Up 0.8%
Certainly one month of data does not make a trend and no one is suggesting that the bottom has been reached in the housing sector – but if the consensus estimate is accurate, the July number may be a first small step in the right direction. Just kidding!!! This number is insignificant… most pundits are now in strong support of a lengthy recovery which may last till 2010.

Tue. Aug. 26, 10:00 a.m. ET
July New Home Sales
Down 1.3%
Most fixed income traders will take a pretty good look at this number. This data is expected to add one more hopeful sign to a growing number of signs that the worst of housing bubble may soon be behind us. While this is a narrow minded approach, the sales number that matches the forecast won’t likely influence the direction of mortgage interest rates much. A sales pace number showing a drop of 0.6% or less will probably put a little upward pressure on mortgage rates. My personal opinion is that the consensus estimate will likely prove to be too pessimistic this time around.

Tue. Aug. 26, 10:00 a.m. ET
Aug. Consumer Confidence
53.0 vs. last 51.9
Investors are always far more interested in what the consumer is actually doing -- than how they say they are feeling. Look for this data to have little, if any direct impact on the trend trajectory of mortgage interest rates today.

Tue. Aug. 26, 2:00 p.m. ET
Minutes of Aug. 4th & 5th Federal Open Market Committee meeting released
While this document will likely do little more than reinforce mortgage investors’ conviction that the Fed will not hike short-term interest rates anytime in the foreseeable future, it will provide for some guidance for Wednesday and Thursday and a low volume trading week in the equities.

Wed. Aug. 27, 8:30 a.m. ET
July Durable Goods Orders
+0.1% vs. last +0.8%
July orders probably eked out a small gain on an uptick in demand for aircraft and auto manufacturers response to increased calls for more fuel efficient vehicles. This data will likely do little more than take up space on this week’s calendar.

Wed. Aug. 27, 1:00 p.m. ET
Treasury auctions $31 bil. of 2-year notes
It likely will be very difficult for mortgage interest rates to move to notably lower levels in the face of the deluge of supply coming in from Uncle Sam over the next two days.

Thurs. Aug. 28, 8:30 a.m. ET
1st revision to Q2 Gross Domestic Product
+2.7% vs. last +1.9%
New information released since the government made its initial estimate of the value of all the goods and services produced in the United States points to a sizeable upward revision here. Mortgage investors have already priced this expectation into their rate sheets.

Thurs. Aug. 28, 8:30 a.m. ET
Initial jobless claims for the week ended 8/23
Down 2,000
Unless this number is significantly lower, this report will likely have little, if any impact on direction of mortgage interest rates today.

Thurs. Aug. 28, 1:00 p.m. ET
Treasury auctions $21 bil. of 5-year notes
Wednesday’s $31 billion of 2-year notes and today’s big 5-year note offering will likely choke the thinly traded pre-holiday market. If my assessment proves accurate, it will be very difficult for mortgage interest or any fixed income products rates to move notably lower today.

Fri. Aug. 29, 8:30 a.m. ET
July Personal Income Spending PCE
Index 0.0 vs. last +0.1% 0.2% vs. last +0.6%+0.3% vs. last +0.3%
The few traders still at their desk will likely shrug off the income and spending figures but will bore in on the personal consumption expenditure index with laser-like intensity. A gain of more than 0.3% for this measure of inflation pressure at the consumer level will likely prod investors into pushing mortgage interest rate higher.

Fri. Aug. 29, 2:00 p.m. ET
US market will closes early for Labor Day Holiday

Tuesday, August 19, 2008

Anyone had enough of the Economic Ride we’re on?

As much as I would love to opine about the bottoming out of our economy and how now is the time to jump back into equity investing and home purchasing, I continue to shake my head in disbelief as I see a systematic dismantling of precious economic levels which have been supporting our economy over the past eight years. Above and beyond the obvious issues plaguing our economy (gas at $3.50+ a gallon, rising unemployment, inflation creeping to well over 1% a month, depressed or negatively convexed housing values) is the continued hammering and stress our financial markets are taking from overseas participants. Like it or not we live in a global economy. The US does not have the financial wherewithal to operate independently of the world. The economies of scale working with global partners allows our financial system to be much more efficient, in turn passes the savings on to us… the consumer. The stress I am eluding has been most publically seen in the Godfather and Godmother of our housing markets; Fannie Mae and Freddie Mac.
The Government Subsidized Entities (GSE), as Fannie and Freddie are known for rely heavily in foreign investment to keep the capital wheels well greased. With US government backing, foreign governments have traditionally purchased up to two-thirds of every multi-billion dollar note offering these two companies release of Mortgage Backed Securities (MBS). Last week? Central banks bought only 37 percent, down from 56 percent in May. Last week may be an anomaly, but considering the deficient our country presently has outstanding, and the unknown to what exactly the level of participation and to who’s detriment US government will bail these two behemoths is causing for quite stir. There are some who might argue against my next statement; but in my mind, there is no doubt that the US economy is a highly agile and fluid economy. Our capital markets and national diversified industries allow intellectual know-how to adapt very quickly to market pressures and demands both within the US and globally. That said, this economy will rebound with housing playing its’ part. Note: I did not say leading or significant part. However, should MBS bonds continue to trade poorly, Fannie and Freddie will be forced to raise rates to spur interest in their products. This will be like coming down with the flu while battling cancer….possibly deadly. As mentioned above, add an already increasing inflationary environment and we have a very, very painful period for everyone in every segment of the US economy. That includes Housing, Banking, Food, Energy, Technology, Consumer Spending, Finance, Public Services, and just about every supply or demand curve business.

Hand on kids… this ride isn’t nearly over yet.

This week’s economic releases

Release Date & Time
Economic Indicator
Consensus Estimate
My Analysis

Mon. Aug. 18
Tue. Aug. 19, 8:30 a.m. ET
July Housing Starts &
Building Permits
These numbers are distorted by changes in the New York City building code that pulled June starts and building permits sharply higher as builders scrambled to get projects underway before the code changes took effect on July 1st. Excluding the northeast multifamily figures, housing starts probably slipped 4.0% lower last month. It really doesn’t matter all that much, investors have already priced in lower starts and permits figures for July – so a number a little higher or lower than expected won’t likely mean much in terms of its impact on the direction of mortgage interest rates today.

Tue. Aug. 19, 8:30 a.m. ET
July Producer Price Index
Core rate
+0.6% vs. last +1.8%
+0.2% vs. last +0.2%
Ugh oh!!! 1.2% is NOT what the Dr. Ordered. At this juncture, even a hint of building non-energy related inflation pressure will likely be enough to induce mortgage investors to defensively nudge mortgage interest rates higher.. and well expect them to have a serious movement.. if you know what I mean.

Wed. Aug. 20,
Nothing Listed

Thurs. Aug. 21, 8:30 a.m. ET
Initial jobless claims for the week ended 8/16
Down 7,000
This report has been skewed for the past several weeks by the impact of a federal program that extends the benefit period for many claimants. One way or the other, the story is the same – the labor sector remains weak – a factor that investors have already priced into current rate sheets. This report will likely have little, if any impact on direction of mortgage interest rates today.

Thurs. Aug. 21, 10:00 a.m. ET
July Leading Indicators
-0.2% vs. last -0.1%
This index is a composite of 10 different statistics ranging from building permits to the Gross Domestic Product figures – and is designed to foretell economic activity levels six to nine months hence. Its accuracy factor is not particularly high but a negative reading today (indicating slower economic growth ahead) will tend to support steady to fractionally lower mortgage interest rates.

Fri. Aug. 22, 10:00 a.m. ET
Fed Chairman Bernanke speaks on financial stability at Kansas City Fed symposium. My initial thought was that Bernanke will likely hold to the “company” line – talking up the Fed’s commitment to inflation fighting while talking down the likelihood the Fed will find it necessary to take any action in that regard. With the latest inflation numbers released today, I anticipate a little more calming of the waters talk than what may have been originally expected. Depending on what is said this event will likely have little or a lot to do with the trend trajectory of mortgage interest rates.

Mon. Aug. 25, 10:00 a.m. ET
July Existing Home Sales
Up 0.8%
Certainly one month of data does not make a trend and no one is suggesting that the bottom has been reached in the housing sector – but if the consensus estimate is accurate, the July number may be a first small step in the right direction.

Tuesday, July 22, 2008

This Week's Economic Figures....Lot's of Data, little value.

Stock movements, Oil, regulation push from Hank Paulson (America's Treasury Secretary) on Fannie and Freddie matters, as well as financial updates from our nations largest banks (Wachovia due out today) are going to drive residential mortgage pricing this week more than any of these macro-economic reports. That said, this country continues to slide into recession, regardless of the two day run we witnessed last week in the stock market.

Release Date & Time
Economic Indicator
Consensus Estimate

Mon. July 21, 10:00 a.m. ET
June Leading Indicators
-0.1% vs. last +0.1%
This second tier report drew nothing more than a passing glance from mortgage investors.

Tue. July 22, 1:00 p.m. ET
Treasury auctions 20-year inflation-indexed securities
The “adjustable” feature of this offering will likely make it attractive to a broad range of investors. As witnessed, this had no discernible impact on the direction of mortgage interest rates today. If fact we opened lower and continue to trend lower still.

Wed. July 23, 1:00 p.m. ET
Treasury auctions
2-year notes
A solid auction with good foreign investor participation will likely be considered an omen that not only is confidence returning to dollar denominated assets -- but the prospects of a near-term rate hike from the Fed remains extremely low. If this auction goes well, it will tend to be supportive of steady to perhaps fractionally lower mortgage interest rates.

Wed. July 23, 2:00 p.m. ET
Fed releases latest “Beige Book” data
Named for the color of its cover, this compilation of economic data from all 12 Federal Reserve Districts is expected to show generally sluggish growth across the country and anecdotal evidence of an uptick in inflation pressures at both the wholesale and consumer levels. Nothing in this report will likely surprise anyone – so its impact on the direction of mortgage interest rates will probably be minimal to non-existent.

Thurs. July 24, 8:30 a.m. ET
Initial jobless claims for the week ended 7/19
Up 9,000
Most investors tend to discount some of the jobless claims data this time of year to compensate for the volatility surrounding auto manufacturers’ temporary plant shutdowns for new model year retooling. An increase of 9,000 or more new jobless claims will tend to support steady to perhaps fractionally lower mortgage interest rates. If jobless claims fell last week look for investors to push mortgage note rates higher. My take here, it will be higher and while and we shall see headline news in this area.

Thurs. July 24, 10:00 a.m. ET
June Existing Home Sales
Down 1.2%
The expectation for another puny existing home sales number from the National Association of Realtors is already priced into the mortgage market – probably making it a “yawner” as far as most investors are concerned. In the off-chance the Realtors report a month-over-month gain for existing home sales – look for mortgage interest rates to move higher.

Thurs. July 24, 1:00 p.m. ET
Treasury auctions
5-year notes
Given the big run-up in yields last week – I look for this offering to be well received by market participants.

Fri. July 25, 8:30 a.m. ET
June Durable Goods Orders
-0.3% vs. last 0.0%
The modest decline in the June Durable Goods Orders figure was likely created by significant weakness in transportation orders. It really does not matter much – since this data is unlikely to have a notably impact on the trend trajectory of mortgage interest rates today.

Fri. July 25, 10:00 a.m. ET
June New Home Sales
Down 1.8%
Home Builders continue to find it difficult to reduce their inventories. As long as this number remains negative -- it will likely have little impact on the direction of mortgage interest rates. In the off-chance that new home sales post a positive number expect investors to react by pushing note rates higher and prices lower.

Mon. July 28
No releases.

Have a great week. Keep an eye on the developments of Fannie and Freddie. I am not sure their powerful lobbyist' contingencies are going to keep them out of regulation any longer. They simply failed to keep the cash aside over the last few years run up for anyone to feel comfortable in allowing themselves to be self-managed.

Wednesday, July 16, 2008

National City Bank - Did the C' Ranks Really Drop the Ball?

The following blurb was taken directly from National City Bank's 2007 annual Report:

National City Corporation (NYSE: NCC), headquartered in Cleveland, Ohio, is one of the nation's largest financial holding companies. The Company, though it's principal subsidiary National City Bank, operates an extensive banking network in Ohio, Florida, Illinois, Indiana, Kentucky, Michigan, Missouri, Pennsylvania, and Wisconsin, and also serves costumers in selected markets nationally. Primary business activites include commercial and retail banking, mortgage and asset management. Visit NationalCity.com for more information.

I believe the opening statement says a lot about who National City is and exactly why NCC's present stock price (currently $3.82) has dropped from a 55 week high of $33.54. Keep in mind, 6 months ago, NCC was the US' 8th largest U.S. bank. Wisely National City no longer offers the current daily quote for NCC's stick price on their splash page.

While CFO and Vice Chairman Jeff Kelly has been asked to step down (ok retire) and several other C' level executives (including CEO Peter Raskind) have also been rumored to consider early retirement, it appears all is lost for this once proud intuition.

It's easy to pick on someone when they are down. So I don't give additional props to such characters as widely watched tv televangelist Jim Cramer and his Mad Money show (http://www.cnbc.com/id/15838459 & http://www.cramers-mad-money.com/) along with many, many others who (correctly so), shown National City ZERO love as this struggling entity trys valiantly to stay afloat. So what happened? Was NCC' so mismanaged that despite their efforts to explain otherwise see (http://biz.yahoo.com/prnews/080714/clm098.html?.v=71) that they indeed are the next to fall? Are we going to find out that there was an exploit of this firm in the way Enron and others have come to light? The answer may be a little of both.

To understand what currently and has happened to NCC, one need not look at volumes of their financial records, trading account, negotiated execution levels through their various trading partners or even their C' level expense accounts. NCC is a humble company with humble leadership. Corporate expanses are tightly controlled and waste is looked down upon. What happened to NCC can be derived by simple economic fundamentals (mostly outside the CEO and Board's control) and a few poor decisions. Allow me to opine further.

Well before the national liquidity crisis which halted (for all intense and purposes) the fixed income mortgage markets in August of 2007, NCC was in trouble. It's mortgage unit (once a top 6 player nationally) had fallen due to new market participants, poor product placement, lack of technology, poor service times, as well as a weak marketing and branding effort. The banking unit found it's deposits slowing and reversing in key states such as Ohio, Indiana and Michigan. NCC leadership witnessed these events and to their credit looked to expand their banking arm to sunnier states such as Florida and Illinois. As illustrated below, NCC was concentrated in markets which were troubled prior to any bubble bursting. National City's mortgage unit drove a significant amount of revenue to NCC's bottom line. In order to understand the health of the mortgage market and capture credit conditions, one has to look at the dynamics for the entire market. Many other measures simply reflect certain parts of the process, and can vary significantly based on local conditions. A heat map reflecting Q3 mortgage late's and foreclosures are shown below (sorry the images aren't great).

There are few other charts worth mentioning. I think you'll begin to see my agreement.

National City based its growth out of the rust belt focusing on auto, manufacturing and steel. It has been well documented that these industries are in trouble. Unlike Comerica who moved their headquarters out of Michigan to Texas, NCC choose to ride it out and make the best of it's markets. While other banking institutions were focused in 2006 and 2007 on depository growth, NCC through it's marketing efforts was fee' based. This was the wrong decision and can be blamed on executive management. The fact that the banking footprint for NCC is an absolute albatross is not their fault. While several of it's competitors Key Bank and 5th Third choose to extend their efforts on commercial lending not residential, it does not bode well for NCC's C group to not aggressively expand into other markets. Playing Monday morning quarterback is easy given the executive decisions made by NCC over the past 18 months. It should be noted and understand the challenges NCC's leadership has to work with. 2006 was a highly robust year for the US economy and the mortgage industry (NCC's so-called cornerstone). To properly respect the challenges the bank was facing (prior to this present day economic challenges), I'll leave you with the unemployment totals for 2006'. You need income earning clients to fund aand grow a bank.

2006 Unemployment Totals


1 HAWAII 2.40
2 UTAH 2.90
5 MONTANA 3.20
5 WYOMING 3.20
9 FLORIDA 3.30
10 IDAHO 3.40
12 ALABAMA 3.60
12 DELAWARE 3.60
12 VERMONT 3.60
15 IOWA 3.70
16 MARYLAND 3.90
17 OKLAHOMA 4.00
20 ARIZONA 4.10
21 NEVADA 4.20
21 NEW MEXICO 4.20
23 COLORADO 4.30
25 ILLINOIS 4.50
25 KANSAS 4.50
25 NEW YORK 4.50
28 GEORGIA 4.60
28 MAINE 4.60
28 NEW JERSEY 4.60
33 MISSOURI 4.80
35 TEXAS 4.90
38 INDIANA 5.00
43 ARKANSAS 5.30
44 OREGON 5.40
45 OHIO 5.50
46 KENTUCKY 5.70
49 ALASKA 6.70
51 Michigan 6.90

The following websites were used in preparing this blog:

National City Bank http://www.nationalcity.com/

Mortgage Bankers Association http://www.mortgagebankers.org/
Housing America http://www.housingamerica.org/

National Mortgage News Online http://www.nationalmortgagenews.com/
Reuters http://www.reuters.com/
US Census - Government Link
US Treasury http://www.ustreas.gov/

Tuesday, July 15, 2008

Present Day Fixed Income Challenges

As I write morning, Fed Chairman Bernanke just finished his monetary policy testimony to the Senate Banking Committee. Today’s appearance is part of his semi-annual trek to Capitol Hill to discuss the economy and monetary policy with members of Congress. In response to questions from committee members, Bernanke made it crystal clear that restoring financial market stability is job #1 at the Fed. Bernanke offered nothing new in terms of how exactly the Fed intended to achieve their primary mission – leaving little on which to pin hopes for notably lower mortgage interest rates on.
Just prior to Bernanke began his testimony the Labor Department reported that headline inflation at the producer level rose 1.8% in June as energy prices soared – pushing the overall Producer Price Index to its biggest monthly gain since November. Over the past twelve months producer prices are up 9.2% -- the strongest year-over-year gain since a jump of 10.4% in June of 1981. If there was any good news on inflation, it was that core producer prices (a value that excludes the more volatile food and energy components) edged up just 0.2% last month – a touch below most economists’ forecast calling for a gain of 0.3%. Look for mortgage investors to be very edgy for the balance of the day – the big gains in producer prices can only be absorbed by businesses income and balance sheets for so long before they are passed on to the consumer. We’ll find out if that time has come tomorrow morning when the June Consumer Price Index figures hit the news wires at 8:30 a.m. ET. A core consumer price index reading of more than 0.2% will likely bring the recent rally to lower note rates and higher investor prices to a screeching halt. Separately, the Commerce Department reported this morning that retail sales rose 0.1% in June, less than economists had forecasted. Excluding autos, retail sales rose 0.8% which was also below the consensus forecast. It appears the government rebate check effect faded sharply after supporting the May sales figures. Most bond investors had been anticipating a rather weak June retail sales report – so the actual numbers had little, if any direct effect on the current level of mortgage interest rates.

My old employer (National City Bank) has been in the news alot lately on fears of a similiar event of Indymac Bank. I have conducting a sizeable amount of research on National city and what exactly happened. I anticipate uploading this blog this evening.
It's something you don't want to miss!

This weeks' economic events:
Release Date & Time
Economic Indicator
Consensus Estimate

Mon. July 14,
No data

Tue. July 15, 8:30 a.m. ET
June Producer Price Index
Core rate
+1.3% vs. last +1.4%
+0.3% vs. last +0.2%
Surging energy prices undoubtedly drove up costs at the producer level for the sixth straight month. The core rate, (a value stripped of the more volatile food and energy components) probably posted a gain of 0.3% last month. Investors have already priced-in a relatively “hot” read for June producer inflation. If the consensus estimate proves accurate look for a rather muted market reaction. Should the core producer price index post a gain greater than 0.3% -- mortgage interest rates will likely finish the day notably higher.

Tue. July 15, 8:30 a.m. ET
June Retail Sales
Excluding Autos
+0.4% vs. last +1.0%
+1.0% vs. last 1.2%
The expected gain in June retail sales will be heavily discounted as investors’ factor in the impact of government rebate checks on overall activity. Look for this data to be sharply overshadowed by the Producer Price Index report and Fed Chairman Bernanke’s testimony to the Senate Banking Committee later this morning.

Tue. July 15, 10:00 a.m. ET
May Business Inventories
+0.5% vs. last +0.5%
This bit of stale data will do nothing more than take up space on today’s calendar of events.
Tue. July 15, 10:00 a.m. ET
Fed Chairman Bernanke testifies to the Senate Banking Committee
Bernanke will be on the “hot seat” today as he will undoubtedly be grilled on everything from his take on the economy, to inflation and to the biggest question of all -- what, if anything, happens next in relation to the financial viably of Fannie Mae and Freddie Mac. Look for Bernanke to do a decent job of allaying the overwrought disaster scenarios whipped up by the media and, at least temporarily, soothing investor fears. If I’m right I don’t expect a rally to lower mortgage interest rates today – but I do think one of the preliminary stepping-stones for a bounce toward the end of the week will have been put in place.

Wed. July 16, 8:30 a.m. ET
June Consumer Price Index
Core Rate
+0.7% vs. last +0.6%
+0.2% vs. last +0.2%
In my opinion this is the “bigge” of the week with respect to the macro-economic reports scheduled for release. If the core rate (a statistical measure of inflation pressure at the consumer level that is net of the more volatile food and energy components) matches the consensus estimate, a second stepping-stone for a rally in the mortgage market later this week will have been moved into place. On the other hand, a core consumer inflation reading of 0.3% or higher will likely slingshot note rates higher while investor prices plummet. My personal opinion is that the actual core rate number will match the consensus estimate.

Wed. July 16, 9:15 a.m. ET
June Industrial Production &
Capacity Utilization
79.3 vs. last 79.4
The earlier Consumer Price Index and Fed Chairman Bernanke’s testimony later this morning will easily overshadow this data.

Wed. July 16, 10:00 a.m. ET
Fed Chairman Bernanke testifies to the House Financial Services Committee
His prepared text testimony will be exactly the same as he delivered yesterday before the Senate Banking Committee – and I bet the structure of the questions he will be called on the answer this morning won’t differ much either – likely making this event anticlimactic with respect to its likely impact on the trend trajectory of mortgage interest rates today.

Thurs. July 17, 8:30 a.m. ET
Initial jobless claims for the week ended 7/12
Up 34,000
Most investors tend to discount some of the jobless claims data this time of year to compensate for the volatility surrounding auto manufacturers’ temporary plant shutdowns for new model year retooling. An increase of more than 15,000 new jobless claims will tend to support steady to perhaps fractionally lower mortgage interest rates. If jobless claims fell by more than 15,000 last week look for investors to push mortgage note rates higher.

Thurs. July 17, 8:30 a.m. ET
June Housing Starts &
Building Permits
Down 1.5%
Down 1.8%
This report will have headline news but regardless of the figure, both starts and permits are broadly anticipated and therefore this data will likely have little, if any impact on the trend trajectory of mortgage interest rates today.

Fri. July 18,

Mon. July 21, 10:00 a.m. ET
June Leading Indicators
-0.1% vs. last +0.1%
This second tier report will likely draw nothing more than a passing glance from mortgage buyers.