Last week certainly held some surprises as the data unfolded and mortgage backed securities reacted.  As has been occurring, data seemed to be mixed as far as the economic recovery goes, leaving the main events of the week at the forefront, those two being the Jobs Jamboree and the FOMC Meeting, particularly the Policy Statement.  The Fed again downplayed inflationary risks, though MBS prices fell as mortgage bond traders were hoping for an expansion of the Fed’s MBS purchasing program beyond the $1.25 trillion.  Mortgage bond traders did shrug off this negativity and fought back to move higher Wednesday, which continued through the remainder of the week.  Friday’s Jobs Jamboree showed more jobs lost than expected and despite the revisions to prior month’s that offset the excess, mortgage backed securities rose on the headlines of double-digit unemployment as the Unemployment Rate was reported at 10.2%.  All-in-all, MBS prices finished the week up only 10 basis points, but breaking through resistance to forecast lower mortgage rates ahead.

This week, data is comparatively scarce with the main focus being the weekly Jobless Claims and Consumer Sentiment, along with a host of Treasury Auctions.  Here is the breakdown of currently scheduled events…

• Monday:  3-month T-Bill Auction (11:30), 6-month T-Bill Auction (11:30), 3-year T-Note Auction (1:00)
• Tuesday:  Dennis Lockhart Speaks (9:15), Janet Yellen Speaks (10:00), 4-week T-Bill Auction (11:30), 10-year T-Note Auction (1:00), Richard Fisher Speaks (7:00)
• Wednesday:  No data – Veteran’s Day
• Thursday:  MBA Purchase Applications (7:00), Jobless Claims (8:30), Crude Inventories (10:30), 30-year T-Bond Auction (1:00), Money Supply (4:30)
• Friday:  Balance of Trade (8:30), Import and Export Prices (8:30), Consumer Sentiment (9:55), Charles Evans Speaks (10:30)

With recent Treasury Auctions showing continued strong demand, the spillover into mortgage bonds should aide in keeping mortgage rates low.  The notable Treasury Auctions this week are the 10-year T-Note on Tuesday and the 30-year T-Bond on Thursday, both of which could have a big impact on MBS prices depending on their results.

As we look at the charts, here is where change has happened, and quickly.  We went from a negative looking chart to one that all but guarantees lower mortgage rates ahead.  Fortunately, my gut was wrong, but I was dead on saying we would know the direction of mortgage rates by week’s end.  Currently, stochastic indications, along with other positive signs, all point to strength in MBS prices.  The 10-day MA has now crossed over the 25-day MA and the 50-day is moving upwards towards another positive crossover if mortgage bonds can keep going.  Stochastic indications are on middle ground, so there is plenty of room for upward movement to come.

The bottom line is we have a trend reversal and things are now looking favorable for lower mortgage rates for the foreseeable future.  As always, there will need to be a retracement of the recent move higher, so you may need to lock your clients in the coming days if they will not have time to wait for the next leg higher.

Looking back at last week, we saw data continue to be mixed overall, and that mixed bag of news carried over into the Treasury auctions as well.  Amazingly, despite the Treasury auctions becoming worse the longer the duration, mortgage backed securities managed to edge out gains for the week.  We saw mortgage bonds fail to maintain the bottom initially, then bounced back and exploded through the top, breaking the potential of a downward trend pattern.  Data showed housing price improvements, but not in units sold.  Consumer Confidence fell yet Consumer Sentiment edged out a slight gain.  That was how the week went, but the biggest driving force of MBS pricing was that of the PCE data, which again showed inflation under control.

This week, data is going to continue to play a major role in the markets as we will not see data easing back.  In fact, unlike the last two weeks, we start off with data, namely the ISM Manufacturing Index.  We also have more major players this week, not to mention the FOMC Meeting and the upcoming Policy Statement.  Here is the currently scheduled breakdown…

• Monday:  ISM Manufacturing Index (10:00), Pending Home Sales (10:00), Daniel Tarullo Speaks (10:30), 3-month T-Bill Auction (1:00), 6-month T-Bill Auction (1:00)
• Tuesday:  FOMC Meeting Begins, 4-week T-Bill Auction (1:00)
• Wednesday:  MBA Purchase Applications (7:00), ADP Employment Report (8:15), 30-year T-Bond Announcement (9:00), ISM Services Index (10:00), Crude Inventories (10:30), 3-year T-Note Announcement (11:00), 10-year T-Note Announcement (11:00), FOMC Meeting Announcement (2:15)
• Thursday:  Jobless Claims (8:30), Productivity and Costs (8:30), Treasury STRIPS (3:00), Money Supply (4:30)
• Friday:  Timothy Geithner Speaks, Nonfarm Payrolls (8:30), Unemployment Rate (8:30), Hourly Earnings (8:30), Average Work Week (8:30), Consumer Credit (3:00), Elizabeth Duke Speaks (3:00)

With the Fed meeting and numerous data plays this week, mortgage bonds will likely have the future spelled out for them by the end of the week.  Despite some positive signs in the markets, the data may very well begin to turn against mortgage backed securities and may send mortgage rates higher.

Looking at the charts, what used to be a picture that favored higher mortgage rates has now changed into almost the opposite.  However, I have never been one to get overly optimistic and there are negatives that remain, powerful ones at that.  For starters, the 25-day MA has not been successfully penetrated since it last failed on October 14, despite repeated attempts.  While this latest move to the upside in MBS prices is a short term uptrend and shows of breaking a potential downtrend, this move does not appear to have much more strength behind it.  Mortgage bonds are trapped between their 25-day MA and their 50-day MA, a gap that is narrowing each day.

The bottom line for mortgage rates this week is this, by the end of the week, the future will likely be determined as data plays will cause a breakout one way or the other from this narrowing trading range between the 25-day and 50-day moving averages.  My gut says they will break out to the bottom, but it will be yet another week of day-by-day action.

Radio, TV, billboards, magazine pages, banner ads, the side of your car…

Or, if you want to get a bit more extreme: People selling the back of their heads on Ebay for advertising space… Once I read about that crazy little phase, I thought I had seen it all. Apparently I was wrong. VERY wrong:

Watch this advertising stunt

I know, I know… The intent was not to have the little signs carried by the flies read so much as it was to raise awareness and to create… I’m going to say… Please forgive me… BUZZ! I’m sure they reached their goal, and that’s wonderful. But I just can’t stop thing to myself: “Just how long did it take to attach those tiny little banners to those “organic airplane replacements?”  (My new term when I see a fly from now on) No real point to this post other than to share what I found interesting.

Chad Weber – Loan Officer Marketing Lab

A quick recap, and I do mean quick, shows us that mortgage backed securities continue to struggle to maintain low mortgage rates.  Here is how I ended last week’s update…

The bottom line for this week is that there will be a chance to gain lower mortgage rates for a brief period, though do not expect to see them get back to recent lows.  Take advantage of the move, but be ready for the next leg of mortgage rates moving higher.

Interestingly enough, this is almost exactly what happened, as MBS pricing did climb to about the 50% retracement level, then immediately turned lower, all taking place on Tuesday.  Mortgage bonds continued their attempt to find strength, but ultimately their 10-day moving average kept pushing them lower and they ended the week down about 12 basis points.  The housing market recovery remains questionable as the data showed increases in pricing and in existing home sales, but the new homes market may not be ready for a comeback as new home starts and building permits were down.  Inflation appears to remain in check, though the future economic improvement is still hopeful.  That’s the recap in a nutshell.

As for the week ahead, it is going to come in like a lamb and leave like a lion.  Just like last week, we start off with just the short-term Treasury Auctions, though we do add the 5-year TIPS to the mix which could add some volatility.  Things due start heating up starting on Tuesday and and then get slammed on Friday.  Here is the current breakdown of events…

• Monday:  3-month T-Bill Auction (11:30), 6-month T-Bill Auction (11:30), 5-year TIPS Auction (1:00)
• Tuesday:  S&P Case-Shiller HPI (9:00), Consumer Confidence (10:00), 4-week T-Bill Auction (1:00), 2-year T-Note Auction (1:00)
• Wednesday:  MBA Purchase Applications (7:00), Durable Goods Orders (8:30), New Home Sales (10:00), Crude Inventories (10:30), 5-year T-Note Auction (1:00)
• Thursday:  Jobless Claims (8:30), GDP (8:30), 7-year T-Note (1:00), Money Supply (4:30)
• Friday:  Personal Consumption Expenditures Index (PCE – 8:30), Personal Income (8:30), Personal Spending (8:30), Employment Cost Index (8:30), Chicago PMI (9:45), Consumer Sentiment (9:55)

As you can see the week will slowly build to its climax on Friday, and mortgage backed securities will be put to the test this week.  Remember that inflation is the archenemy of MBS prices, and thus mortgage rates, but even signs of an improving economy can destroy mortgage bonds as well.

Looking at the charts, we see mortgage backed securities are trying to develop a bottom and establish a sideways trading pattern at their current levels.  Stochastic indications are showing this may be a possibility, though it is a stretch as the only positive sign is that they are entering the oversold spectrum.  Remember that the 10-day moving average was nose-diving for the 50-day and 200-day moving averages and it is almost there, though it is flattening out now.  With current MBS pricing below the 50-day, the momentum will clearly establish a negative crossover, which is never a good sign.  And with the 200-day moving average just 4 basis points below the 50-day, we may very well see a double negative crossover on the same day, or shortly thereafter, if MBS pricing cannot find the strength to rise again.

The bottom line for this week is that there will be a severe stress test of mortgage bonds and their ability to rise above it all.  Looking at the charts, I see them failing this test, but I will take it day by day because strange things happen in the markets these days.  If you want my daily mortgage market updates, visit Florida Mortgage Daily.  I am turning the Fasten Seatbelt Sign on as we may experience some turbulence.

During our State of the Union Webinar on Oct. 1st, we received hundreds of questions about the future of YSP.  Please join us on Tuesday @ 3pm EST, 12 noon PST for a live Webinar dedicated to answering your questions on that topic.

Your Panelists:

Jim Pair, Current President of NAMB
Roy DeLoach, Chief Executive Officer of NAMB
Denise Leonard, Executive Director of Massachusetts Mortgage Assoc.
Yours truly and Mark Madsen will moderate the discussion on the call and on the web.

Critical Note:  Response to our State of the Union was overwhelming and not everyone could participate online.  Please read below for critical details on how we’ll accommodate EVERYONE for this webinar:

1)  The webinar room can hold 1,000 attendees – and it’s the first 1,000 who log into the live session (not the first 1,000 who register).
2)  If you do not get onto the web portion – you can still call in and participate on the live conference call.
3)  We will once again have a live backnoise/chat room and will moderate your comments and questions.  This will be a very interactive webinar.  Please be sure to send us your questions when registering for the webinar.

Voila. Everyone is happy. The Fed has just completed its first order, which it was able to fill with zero product cost, having produced the money out of thin air. And Congress is happy because they have obtained the funds they needed without having to tax the people. The people are happy because they are being taxed at a zero percent rate. Everyone is happy.

The trouble is that, using this system, the United States debt will grow in perpetuity. According to the U.S. National Debt Clock, the total national debt is $12 trillion. That’s around $100k per household. That means that in addition to your mortgage, car payments, and credit card debt, your family is in debt an additional $100,000.

The reason our economy is having trouble is because the economy itself is fundamentally flawed. It is a mathematical impossibility for the United States to get out of debt. We owe $12 trillion, but if you emptied every checking account, savings account, wallet, and piggy bank, it wouldn’t be enough. We couldn’t pay the national debt if we paid everything that we have.

But it’s not just the national debt that we owe. State and local governments are in debt. You and I are in debt. We have car payments and mortgages to pay as well as plasma TV and boat payments. Businesses owe money too. And Medicare and Social Security have future obligations that need to be met. If you add it all together, our total debt obligation is in excess of $57 trillion. That’s a total debt obligation in the ballpark of $500k per household. We owe more than $57 trillion, but there is only around $15 trillion in existence. We couldn’t get out of debt even if we wanted to.

If you want a good laugh, go to the Federal Reserve’s homepage. Above the navigation bar it says, “The Federal Reserve, the central bank of the United States, provides the nation with a safe, flexible, and stable monetary and financial system.” (emphasis mine)

Ha! The system created by the central bank is anything but safe and stable. I don’t feel very safe and stable — knowing that I’m in a debt hole that I can never crawl out of. Not only is it mathematically impossible for us to get out of debt, it is mathematically inevitable that the system will crash. What will happen when the financial system does crash? Your guess is as good as mine. Perhaps we should all start growing gardens.

by Wade Young

Last week, I ended the Mortgage Market Update with the following statement…

The remainder of this week will be a determining one and will show the development of a new sideways trading pattern, or the likely development of the next downtrend in MBS prices (higher mortgage rates).

As the week drew to a close, the sideways pattern had become nearly impossible to develop and the trend favors the next leg downward in mortgage backed securities pricing, or simply higher mortgage rates.  We saw Retail Sales come in better than expected, the CPI slightly higher than expected, the Philly Fed slightly below expectations, and Consumer Sentiment dropping.  Clearly, inflation is becoming a greater concern in the minds of MBS traders and the fact the Fed has begun to “back down” certainly is not helping mortgage bond pricing, and thus mortgage rates ended the week slightly higher than when they began despite the end of the week rally.

The week ahead is may prove to be a tough one despite the lack of major data plays.  The main focus will be on the housing market, though some data on the economy will be seen as well.  The week will be certainly not be lacking in speeches by the Feds trying to talk up the markets, and we will see more Treasury Auction Announcements that could pressure MBS pricing with the added supply.  Here is the rundown of currently scheduled events…

• Monday:  Ben Bernanke Speaks (11:00), Thomas Hoenig Speaks (12:20), Housing Market Index (1:00), 3-month T-Bill Auction (1:00), 6-month T-Bill Auction (1:00), Donald Kohn Speaks (4:30)
• Tuesday:  Housing Starts (8:30), Producer Price Index (8:30), 4-week T-Bill Auction (1:00), 52-week T-Bill Auction (1:00), Christina Romer Speaks (6:00), Charles Plosser Speaks (8:00)
• Wednesday:  MBA Purchase Applications (7:00), Crude Inventories (10:30), Daniel Tarullo Speaks (1:00), Beige Book (2:00), Jeffrey Lacker Speaks (3:45), Eric Rosengren Speaks (4:30)
• Thursday:  Jobless Claims (8:30), Leading Indicators (10:00), Eric Rosengren Speaks (10:30), Treasury Announcements (11:00), William Dudley Speaks (1:30), Charles Evans Speaks (4:00), Money Supply (4:30)
• Friday:  Ben Bernanke Speaks (8:30), Existing Home Sales (10:00), Donald Kohn Speaks (11:30)

The week is certainly light on data, but not the Feds providing their thoughts.  With the latest FOMC Minutes showing dissention among the ranks regarding monetary policy, this week may get interesting just with the various speeches taking place.  As I said before, there are no major data plays which leaves technical indications in the drivers seat, so let’s look at the charts.

While we cannot completely rule out a sideways trading pattern, the recent lows in MBS pricing were below the tops of the last pattern, thus this latest move is likely the beginning of a downtrend, even though a correction may appear to break back into the previous pattern.  Stochastic indications show mortgage bonds to be somewhat oversold and in need of a move higher, and indeed we may see that move this week as a retracement needs to be seen, likely at least to the 25-day, or even the 10-day, moving average.  Beyond that corrective move, the charts favor the next leg lower.

The bottom line for this week is that there will be a chance to gain lower mortgage rates for a brief period, though do not expect to see them get back to recent lows.  Take advantage of the move, but be ready for the next leg of mortgage rates moving higher.

In an Oct. 14 letter to the U.S. Committee on Financial Services, Reps. Barney Frank and Spencer Bachus, the National Association of Mortgage Brokers (NAMB), along with the American Bankers Association, Consumer Bankers Association, Consumer Mortgage Coalition, Financial Services Roundtable, Housing Policy Council, Mortgage Bankers Association, National Association of Federal Credit Unions and the Real Estate Services Providers Council Inc., have shown their support for an initiative by Rep. Judy Biggert that would stagger the U.S. Department of Housing & Urban Development’s (HUD) implementation of its revised Real Estate Settlement Procedures Act (RESPA) rule, set to take effect Jan. 1, 2010.

Full text of the letter to Rep. Frank, Chairman of the Committee on Financial Services, and Rep. Bachus, Ranking member of the Committee on Financial Services is as follows:

Dear Chairman Frank and Ranking member Bachus:

As the Financial Services Committee considers HR 3126, the Consumer Financial Protection Agency (CFPA) Act, the undersigned organizations representing the real estate finance industry urge the committee to adopt an amendment, expected to be offered by Rep. Judy Biggert, that would require the U.S. Department of Housing & Urban Development (HUD) to provide for a more gradual implementation period for its Real Estate Settlement Procedures Act (RESPA) rule.

The RESPA rule is scheduled to take full effect on Jan. 1, 2010–less than three months from now. Despite the best motivations of HUD, and the sincerest efforts of the industry, there are simply too many unresolved issues to allow the industry to be fully RESPA-compliant by the first of the year. HUD’s guidance has come far too late in the process and has been inadequate and often contradictory. Due to unresolved issues and critical unanswered questions, many lenders and settlement service providers are unprepared to comply. This, in turn, will cause very inconsistent implementation and confusion for consumers seeking to purchase a home.

The Biggert amendment would require HUD to postpone the implementation date of its RESPA reform rule for a reasonable amount of time and take several steps to achieve effective implementation. It would also allow both new and old forms to be used during the transition period. And it would require that, going forward, HUD and the Federal Reserve coordinate their regulatory efforts to ensure comparable RESPA and Truth-in-Lending Act (TILA) disclosures.

RESPA reform is important to consumers and the industry. Passage of the Biggert amendment would give all participants the additional time they need to get it right and assure full compliance.

Sincerely,

American Bankers Association
Consumer Bankers Association
Consumer Mortgage Coalition
Financial Services Roundtable
Housing Policy Council
Mortgage Bankers Association
National Association of Federal Credit Unions
National Association of Mortgage Brokers
Real Estate Services Providers Council Inc.

For more information, visit NAMB.org.

Related Articles:

• The Fall Forecast:  A Message From Jim Pair
• MBA submits letter to Reps. Frank and Bachus on CFPA
• WashingtonWatch.com – H.R. 3126, The Consumer Financial Protection Agency Act of 2009
• The Consumer Financial Protection Agency Act: Attempting to Improve Bad Policy
• Lubbock Avalanche Journal – Misnamed consumer protection bill is a step in wrong direction
  

Confessions of an A.D.D. Loan Officer Part II

Now for the real meat-and-potatoes – potatos[?] – po-tah-tos[?] of how to, not only function as a normal human being, but how to get things done and done well in your day-to-day mortgage practice.  Here it is, are you ready?

 Simplify… it is easy to focus on the wrong things. [How do you think I know that!?]

 For Pete’s sake [who is Pete anyway?] we have just gotten to darn complicated.  We chase this product, that system, and yet another solution when the tools for success are right next to us, in fact – they have been there all along.  [It was coffee by the way – it just tasted like tea because you lost count as you were putting the scoops of grains in the maker.] 

 Here is a new idea.  QUIT TRYING TO DO 1000 THINGS!

 What most of us need is not a new idea, but to stick with one and really squeeze all the life out of it. 

Have you ever done that?  I mean really stuck with one idea and worked it and worked it and worked it!?

So a question that arises is this, “What ‘ONE IDEA’ should I focus on in this New World of real estate, Chris”.  As you can imagine that answer is not a one-size-fits-all but finding that answer may be easier than you think.

 The key for me is meeting up with like minded individuals that are still originating – yet are thriving in this marketplace.  That is what the Mortgage Revolution is all about.  It is about hitting the reset button, shaking off all the fluff that we have been fed over the past few years and getting real.

 It is time to see how some people are simply ‘kickin it’ in this business and finding out how to apply in your marketplace.  Take inventory.  Analyze where your business is.  For me an event like this is not about finding that next “shiny object” – if it is for you… stay home.   It should be just the opposite… discovering which shiny object you already have that is the one to squeeze the life out of.

 You have made it this far through the toughest market that most have seen, congratulations. You are part of the top 30% simply by attrition.  To make it to – or stay in the – Top 10% of those remaining won’t be as easy.  The cream of the crop are all that are left, so picking up your game is a must.

 Trying to do it alone is foolhardy – network with those that are making it and the whole game gets easier.  Not only is it the best way for most people, but it is the only way for the typical A.D.D. LO to remain successful in the new world of mortgage origination.

As my friend Mark Madsen says, “Just keeping it real”.

Chris the Implementer – The Home of Orlando FHA Loans

Last week was light on economic data, but heavy on Treasury Auctions.  While almost all of the auctions went well, the 30-year Treasury Bond, or T-Bond, did not do so well and that started the concerns.  If you follow my daily updates at Florida Mortgage Daily, you know I changed to a locking stance Friday morning as I did not like the way the charts were beginning to look.  By the end of Friday, guess what had happened?  Yes, mortgage backed securities had plummeted 59 basis points, essentially all the way back to their 25-day moving average.  With the monthly bond rollover effect, the charts show them down 91 basis points and below that important level.  Big Ben Bernanke was talking about inflation and the rising stock market all helped to let the air out of the MBS rally.

This week will be a shortened one due to the holiday and that could add to the volatility as I mentioned before.  With stocks seemingly wanting to at least test the DOW 10,000 level, that could add to the downward pressures mortgage bonds have been feeling.  Economic data will again be picking up as we will see a couple of market movers, such as Retail Sales and Consumer Price Index.  With Big Ben’s talk about inflation, the CPI data will likely play an even larger role than normal.  Here is this week’s current schedule…

• Monday:  Happy Columbus Day
• Tuesday:  Christina Romer Speaks (7:30), Donald Kohn Speaks (12:00), 3-month T-Bill Auction (1:00), 6-month T-Bill Auction (1:00), William Dudley Speaks (1:15)
• Wednesday:  MBA Purchase Applications (7:00), Retail Sales (8:30), 4-week T-Bill Auction (1:00), FOMC Minutes (2:00)
• Thursday:  Consumer Price Index (8:30), Jobless Claims (8:30), Empire State Manufacturing Survey (8:30), Philadelphia Fed Survey (10:00), Crude Inventories (11:00)
• Friday:  Industrial Production (9:15), Consumer Sentiment (9:55), Richard Fisher Speaks (10:15)

As you can see, there is not a lot of data forthcoming, though there are some market movers on the way and that, along with the potential volatility of a shortened trading week, means added caution is needed. 

Looking at the charts, we see that the short-term uptrend was broken and that means the best we can hope for is a sideways trading pattern, which may play out.  We are currently sitting at the bottom level of this potential pattern and with a large move lower on Friday, the potential for a bounce to keep us in this pattern is available.  Unfortunately, stochastic indications are not pointing toward that bounce, at least not yet, and that means this pattern may fail to develop.  The reality is that the charts point more toward the pattern failing than towards its success, which means mortgage rates may have bottomed out and are heading higher. 

The bottom line for this week is that hopefully you already locked your loans.  If not, chances are you missed the boat.  The remainder of this week will be a determining one and will show the development of a new sideways trading pattern, or the likely development of the next downtrend in MBS prices (higher mortgage rates).