Consumer prices rose a bit last month, but inflation still seems to be in check as the price cars, clothing, and hotels dropped.

The Consumer Price Index (CPI) rose 0.2 percent last month, according to the Labor Department, and that was mostly due to higher fuel prices.

With energy and food prices excluded, the core CPI stayed unchanged for the third consecutive month. Over the course of the past 12 months, core prices have risen by a mere 0.6 percent, the smallest annual rise since the index began in 1957.

This latest round of data would seem to support the Federal Reserve’s recent moves to boost the economy. Earlier this month, the Fed announced that it would purchase $600 billion in Treasury bonds in an effort to lower interest rates and spur spending.

On Tuesday morning, the government reported that the Producer Price Index (PPI), a measure of prices at the wholesale level, rose by 0.4 percent last month. That’s the same level at which it increased in August and September, and below analysts’ expectations for 0.8 percent growth.

Investors will now turn to the Consumer Price Index (CPI), which comes out tomorrow morning (Wednesday). Analysts also expect that the CPI will reveal dangerously low levels of inflation.

Bond traders watch inflation data very closely, as expectations for how quickly prices rise over the long term could compete with the low yields on government bonds.

A Congressional watchdog group said today that banks in the U.S. should undergo a new round of stress tests to ascertain whether or not they have sufficient capital to absorb losses stemming from investigations into their home foreclosure practices.

The Congressional Oversight Panel released a lengthy report detailing recent allegations that banks filed erroneous paperwork in foreclosure cases across the U.S.

The panel says that the nation’s financial system could hang in the balance if allegations of “robo-signing” are proven to be true.

“If documentation problems prove to be pervasive and, more importantly, throw into doubt the ownership of not only foreclosed properties but also pooled mortgages, the consequences could be severe,” the report said.

The main concern is that banks will be forced to re-purchase mortgage loans that had been bundled and sold in the $7.6 trillion market for Residential Mortgage Backed Securities, or RMBS. That, in turn, could mean severe losses for banks and destabilize the delicate financial system, said the report.

Here we go again.  Baltimore mortgage rates on fixed mortgages dropped to record lows this week after the Federal Reserve unveiled its huge bond-buying program to help stimulate economic growth.

Freddie Mac says that the average rate on 30-year fixed loans fell to the lowest level on record dating back to 1971.

The average rate on 15-year fixed loans fell the lowest levels since the survey began in 1991.

The Federal Reserve unveiled plans last week to purchase $600 billion in Treasury bonds. On Wednesday, the central bank elaborated on that plan, saying that it hopes to buy $105 billion in Treasurys over the next month. The increased demand means that Treasurys will produce lower yields for investors. Mortgage rates often move along with those bond yields.

Rates on five-year ARMs hit their lowest levels since January 2005.  Rates on one-year ARMs were unchanged.

“This is not about my story anymore, it’s about representing a lot of people who are going through this,” says Lauren Rymer, 32. “Homeowners aren’t experts and we can’t navigate the system. This is an impossible system to navigate.”

Rymer’s hunger strike and protest across from the Maryland State House in Annapolis has been effective; aside from news coverage, Rymer said she has been contacted by an official from Gov. Martin O’Malley‘s office about her situation. She is now hoping to hand over the deed in lieu of going through the foreclosure process. She said she’ll eat if it looks like that process is going to work out.

Related articles

• Lauren Rymer, Baltimore Homeowner, Starts Hunger Strike To Protest Foreclosure (huffingtonpost.com)

The number of homes selling in Baltimore fell 30 percent last month compared with 12 months ago, when buyers were trying to beat the deadline for $8,000 in incentives.

Average sale prices fell about 1.4 percent to just beneath $272,000, according to figures released by Metropolitan Regional Information Systems (MRIS).

Honebuyers closed on 1,560 homes in the greater Baltimore area, down from the 2,219 that sold 12 months ago.

Sales in October 2009 were bolstered by homebuyers who thought they had only until November 30 of that year to settle on contracts if they wanted the first-time home buyer tax credit.  That a deadline that was later extended into 2010.

The bond market struggled yesterday, with yields increasing in the afternoon as investors sifted through the effects of the Fed’s new bond-buying program.

Last week, the Federal Reserve announced plans to buy up $600 billion of Treasuries by the second quarter of next year.

Now, the market is “trapped” between the expectation of government debt purchases and foreign investors selling similar assets.

Investors now seem to be playing a waiting game and taking cues from the equity markets.

Demand for bonds remained high for Tuesday afternoon’s bond auction, in which the government offered $24 billion in 10-year notes. The bid-to-cover ration for the auction was 2.80, suggesting that demand remains robust.

On Wednesday, Treasury will conclude its auctions for the week by offering $16 billion in 30-year notes.

Bond markets will be closed on Thursday for the Veterans Day holiday.

The yield on the benchmark 10-year Treasury note moved higher to 2.66 percent Tuesday, from its close of 2.55 percent on Monday. Bond prices and yields move in opposite directions.

Yields for the 30-year bond increased to 4.25 percent, the 2-year note was up to 0.45 percent, and the 5-year note ticked up to 1.25 percent.

The Federal Reserve is facing some intense global criticism as leaders from around the world get ready to meet in South Korea on Wednesday.

Last week, the U.S. Federal Reserve said that it would pump another $600 billion into the nation’s economy through the purchase of long-term Treasuries, a move known as quantitative easing, or “QE2″ as it’s the second round of such measures.

The announcement has since elicited fears that it could reignite inflation pressures, cause a new global asset bubble or spark a “currency war” where nations devalue their own currencies to keep their exports competitively priced.

President Barack Obama will hear certainly hear some of those complaints when he arrives at the G-20 meeting in South Korea.

The harshest criticism so far came on Friday when German Finance Minister Wolfgang Schäuble told reporters that, “With all due respect, U.S. policy is clueless.”

“It’s not that the Americans haven’t pumped enough liquidity into the market,” he said. “Now to say let’s pump more into the market is not going to solve their problems.”

Schäuble elaborated in an interview with the German magazine Der Spiegel where he stated that the Fed’s move undermines attempts by the United States and Europe to get the Chinese to allow its currency to rise in value.

“It’s inconsistent for the Americans to accuse the Chinese of manipulating exchange rates and then to artificially depress the dollar exchange rate by printing money,” he said in the interview.

Chinese officials have so far been more subtle with their criticism of the Fed’s move.

People’s Bank of China Governor Zhou Xiaochuan said the Fed’s move could be “a good choice” for the U.S. but might that it could contribute to global imbalances by devaluing the dollar and causing a flood of cash into emerging economies.

The short-term rates Freddie tracks—for five-year and one-year Treasury-indexed hybrid adjustable-rate mortgages—hit the lowest levels since the mortgage financier began tracking them in January 2005 and January 1984, respectively.

Rates have been slumping for months, setting record lows in the process, as yields on Treasurys slid amid economic uncertainty. Mortgage rates generally track yields, which move inversely to Treasury prices.

The 30-year fixed-rate mortgage averaged 4.24 percent for the week ended Thursday, up from the prior week’s 4.23 percent average but down from 4.98 percent a year ago. The average for 15-year fixed was 3.63 percent, down from 3.66 percent and 4.40 percent, respectively.

Five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 3.39 percent, down from the prior week’s 3.41 percent and 4.35 percent a year earlier. One-year Treasury-indexed ARMs were 3.26 percent, dropping from 3.3 percent last week and 4.47 percent a year ago.

The Virginia-based company asked the government for $100 million to stabilize its balance sheet in its latest draw on its credit line. Believe it or not, this is the smallest amount Freddie Mac has requested since the government put it in conservatorship in September 2008.

Freddie (FMCC), which has been majority owned by taxpayers since its rescue two years ago, has received $64 billion in federal funds so far and expects to take more in coming periods as house prices fall and more borrowers default.

Freddie Mac said the amount it set aside to cover credit losses tumbled by more than half, to $3.7 billion in the latest quarter from $8 billion a year earlier. The company said 3.8percent of borrowers were 90 days or more late on payments at Sept. 30, down from 3.96percent in June.

That good news, however, was tempered by the observation that more late borrowers are defaulting on their loans.

During the third quarter, the company continued to see slowdowns in new single-family delinquencies, a reduced volume of newly modified loans subject to individual impairment, and higher expected recoveries from mortgage insurers; however, those improvements were largely offset by worsening default probabilities.

The company’s CEO, Charles Haldeman, was appropriately subdued in his commentary.

“As we near the end of 2010, the housing market remains fragile, and has recently come under renewed pressure from slowing economic growth, weaker employment and foreclosure uncertainties,” Haldeman said. “We believe that it will be a considerable time until the housing market has a sustained recovery.”

The company was able to ask Treasury for a check that amounts to just 4percent of its latest-quarter loss because falling interest rates drove up the value of its securities portfolio, increasing the company’s worth.

But the increase in its net worth was less than the $1.6 billion Freddie owed the government as a quarterly dividend on its preferred stock investment in the company, so Freddie was forced to ask for the latest handout.

Supporters of Freddie and its big sister Fannie Mae (FNMA) have been pushing Treasury to reconsider the terms of its dealings with the companies. They sell the government preferred shares in exchange for any federal funds they receive, but then must pay 10percent of that sum annually to the feds in dividends.

The National Association of Realtors wrote in a letter to Treasury this summer that paying the dividends interferes with the companies’ duties in supporting the housing market.

The pushback comes at a time when the administration and a newly Republican House are likely to consider quite different approaches to restructuring the companies and the U.S. housing market.

“Eliminating a punitive dividend is a step that should be taken now, regardless of how the GSEs may be restructured in the coming years,” NAR said.

Related articles

• Freddie Mac Reports Loss and Takes a Draw from Treasury (nytimes.com)
• Faltering housing market hits Freddie (theglobeandmail.com)
• Freddie Mac Posts $4.1B Loss for Q3 (abcnews.go.com)