Mortgage Rates

Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Building Strong, Lasting Relationships; One Client at a Time. Thursday, September 13, 2012 A little better start this morning with MBS prices at 9:00 up 31 bp on FNMA 30s, the 10 yr note yield at 1.73% -3 bp. Weekly jobless claims were expected up 5K to 369K as reported claims increased 15K to 382K, last week’s claims were revived up 2K frm 365K to 367K. Claims the highest in two months. Tropical Storm Isaac resulted in about 9,000 applications for benefits, the Labor Dept. said. The four-week moving average, a less volatile measure than the weekly figures, climbed to 375,000 last week, the highest in almost two months, from 371,750. The number of people continuing to receive jobless benefits dropped by 49,000 in the week ended Sept. 1 to 3.28 million. Wholesale prices in the U.S. increased in August by the most in more than three years, reflecting a surge in energy costs. The producer price index climbed 1.7% after an increase of 0.3% in July, the Labor Department reported. The core rate, ex food and energy was in line with estimates, up 0.2%. Compared with a year ago, companies paid 2.0% more for goods, after a 0.5% gain in the 12 months ended in July. The core index increased 2.5% in the year ended in August, matching the rise a month earlier. Fuel costs surged 6.4% from the prior month after five straight declines. Gasoline prices advanced 13.6%, while home heating oil costs increased 10.8%, the most since October 2010. The producer price index is one of several inflation measures monitored by the Fed. The consumer price index, due tomorrow, is projected to increase 0.6%. At 9:30 the DJIA opened +2, NASDAQ and S&P +1. The 10 yr note at 1.72% -4 bp frm yesterday’s close with MBS prices +20 bp. It is all about what the FOMC policy statement will say at 12:30 this afternoon and Bernanke’s press conference at 2:15. Markets generally believe some kind of easing will be announced by the Fed; interesting though this morning, there is talk that the Fed easing won’t be enough or do much good for the economy; something we have been saying for weeks. Buying treasuries and/or MBSs won’t increase employment or get businesses to spend. The calendar continues to click off days until the election and what Congress will do with the Bush tax cuts and the SS cut that will end at the end of the year. What the Fed does is secondary to how those issues will be resolved. Don’t expect businesses and consumers to increase spending until Congress and the Administration deal with them. If at the end of the day today the 10 yr note yield is higher than yesterday’s close (1.76%) we will want to lock all loans regardless of the date to closing. The bond market has to hold here; most of the safety trades into the bond market over the last two years have been closed out; any additional increase in rates will be a result of a stronger economic outlook. Technically, the 10 yr note has been bearish now for over a week, mostly due to the risk off on so-called progress in Europe. The ECB will buy bonds from Spain and Italy, however those economies are declining; Greece is just a waiting game before it has to exit the EU.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Building Strong, Lasting Relationships; One Client at a Time. Treasuries and mortgages opened weaker this morning on the German high court ruling that Germany can participate in the European Stability Mechanism. German opposition on the basis that participation was unconstitutional was defeated. The German constitutional court rejected bids to block ratification of a permanent euro-area rescue fund, while ruling the country’s 190 billion-euro ($245B) contribution can’t be increased without legislative approval. The court said a cap should be set on potential German liabilities, unless parliament backs the allocation of extra funds. “We are an important step closer to our goal of stabilizing the euro,” German Economy Minister and Vice Chancellor Philipp Roesler told reporters in Berlin after the ruling today. “It has always been the goal of this government” to establish a “clear limit and to include parliament in all important decisions.” The bailout fund would work in tandem with the European Central Bank in buying bonds to lower yields for states such as Spain and Italy. The FOMC meeting starts today, the conclusion tomorrow. Based on various surveys of economists and Wall Street firms markets are expecting some form of easing according to almost two-thirds of economists in a Bloomberg survey. CNBC survey indicates that many don’t expect a flat dollar amount if the Fed does ease as it has with the past easing moves and Operation Twist. The idea that the Fed would ease by announcing at each FOMC meeting the amounts of buying of treasuries and mortgage-backed securities from one FOMC meeting to the next instead of a lump sum over a defined time frame. A novel idea, we will know tomorrow at 12:30 when the policy statement will be released. Treasury rates continue to increase; the 10 yr note rate has now increased 18 basis points since last Tuesday. For over two years huge sums have flooded US treasury markets on safety fears over the crisis in the EU debt mess, those moves into safe havens are being closed out sending interest rates higher now that those fears have moderated. Given the outlook for another easing move by the Fed, the amounts of money that went into treasuries must have been sizeable. In the face of more QE the bond treasury market should be improving instead of rising rates. Mortgage rates also have increased but not much compared to the 10 yr note; investors moving to MBSs as housing markets stabilize and the idea the Fed, when it eases, will focus more buying of MBSs than in previous easing’s. Early this morning the MBA mortgage applications increased 11.1% from one week earlier. This week’s results include the customary upward adjustment for the Labor Day holiday. The adjusted Refinance Index increased 12% from the previous week. The seasonally adjusted Purchase Index increased 8% from one week earlier, it was 7% higher than the same week one year ago. The holiday adjusted numbers may overstate the level of refinance applications because some lenders who rely primarily on the internet/consumer direct channel for originations saw little if any decline in applications for Labor Day as compared with the drops for lenders relying on retail offices, perhaps because borrowers had additional time over the Labor Day weekend to complete online refinance applications according to the MBA. The refinance share of mortgage activity increased to 80% of total applications from 79% the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 4.5 percent of total applications. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 3.75% from 3.78%, with points increasing to 0.44 from 0.37 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) decreased to 4.00% from 4.05%, with points decreasing to 0.30 from 0.32 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 3.50% from 3.54%, with points decreasing to 0.43 from 0.44 (including the origination fee) for 80% loans. This 30-year FHA contract rate marks a new low for the survey. The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.07% from 3.10%, with points increasing to 0.38 from 0.37 (including the origination fee) for 80% loans. The average contract interest rate for 5/1 ARMs decreased to 2.63% from 2.64%, with points increasing to 0.47 from 0.35 (including the origination fee) for 80% loans. This 5/1 ARM contract rate is the lowest recorded in the survey. At 8:30 August import prices were reported up 0.7% frm July and yr/yr -2.2%. Export prices increased 0.9%. No reaction to the data. At 9:30 the DJIA opened +40, NASDAQ +12, S&P +5; the 10 yr note at 1.75% +5 bp with MBS prices down 17 bp frm yesterday’s close on 30 yr FNMA wile FHA price up 11 bp. Lenders adjusting to increased GSE fees, decreasing prices. At 10:00 July wholesale inventories were expected to be up 0.3%, inventories increased 0.7% indicating consumers still not meeting inventory builds. At 1:00 Treasury will auction $21B of 10 yr notes re-opening the 10 yr note issued in August. Yesterday’s 3 yr auction saw the strongest dollar demand in many years. Treasury technicals are increasingly more bearish, now well above the 10 yr 20 day and 40 day averages on the 10 yr note with all of our momentum oscillators increasingly more negative. MBSs also bearish but not quite as severe as treasuries as investors continue to exit those safety traded over the EU as the fear factor has lessened.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Building Strong, Lasting Relationships; One Client at a Time. Still marking time in the bond and mortgage markets; not much change yesterday and this morning the bond and mortgage markets opened about unchanged. US stock indexes fell a little yesterday but this morning prior to the open the indexes traded better---but not much. The only scheduled data today; the July trade deficit was -$42.0B, slightly less than $44.0B expected and a little less than -$42.9B in June. No reaction to the report. This afternoon Treasury auction $32B of 3 yr notes, it should be OK but recent Treasury auctions haven’t seen the strong demand that was the case earlier this year as the EU debt crisis is presently in limbo with decreasing concern of defaults. Yesterday afternoon July consumer credit was expected to be up $10.0B; overall credit fell $3.3B while revolving credit (credit cards) fell by $4.8B, the second month in a row the use of credit cards have declined (June revolving credit fell $3.7B). July was a very strong month for retail sales but consumers apparently were paying cash and keeping their credit cards in their wallet. The early indications for August retail sales are positive which hints at a rebound for the revolving credit component in next month's consumer credit report, assuming that is that consumers returned to old habits. For all the optimistic talk that US consumers are increasingly more positive, the two months decline in the use of credit cards suggests consumers are still weary of the future. This morning the NFIB small business optimism index rose 1.7 points in August to 92.9 against estimates of 91.5. The index has averaged 90.0 during the recovery. Improvement in the economic outlook leads the August report followed by a rise in sales expectations and in employment plans. Capital spending plans are also up as are current job openings. On the downside are the assessment of credit conditions and of earnings trends was soft. Germany’s top constitutional court rejected a last-minute bid to delay a case over the European Stability Mechanism, the court said its ruling would be announced at 10:00 tomorrow. The ESM treaty has not been ratified, if the German high court rejects the treaty the ESM will likely fail. The judges will rule tomorrow on whether Germany may ratify the ESM, the final hurdle for the plan to rescue indebted euro-area member states. The consensus in Germany is that the court will allow the ratification, allowing the 500 billion-euro ($640 billion) European Stability Mechanism to be implemented. At 9:30 the DJIA opened +23, NASDAQ and S&P +1. The 10 yr note at 1.68% and 30 yr MBS price down 12 bp. Thursday the FOMC meeting will conclude with its policy statement; the markets remain convinced that the Fed will ease again at the meeting. Still some doubters but overall the Fed is expected to ease with increased purchases of MBSs and treasuries, maybe just an extension of Operation Twist. About the only positive that an easing will do is to keep interest rates from increasing; it will not have any significant impact on the economy. In the meantime markets should trade in a narrow range. We will have to wait to see how markets react on Thursday afternoon; given the majority of traders and investors believe the Fed will act, the bond market is not improving as we would expect.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Building Strong, Lasting Relationships; One Client at a Time. Treasuries and mortgages opened flat this morning. Friday saw a nice rally on the weak August employment data, not in treasuries but MBSs. Treasury market rallied in the morning, dropping the 10 yr rate to 1.59% frm 1.73% prior to the 8:30 employment report, but could not hold the improvement and ended unchanged on the day at 1.68%. Mortgages fell from their 9:30 levels but did hold most of the improvement on employment. MBSs a little stronger than treasuries now with the belief that a Fed easing move will focus on increasing purchases of mortgage-backed securities more than treasuries. The August employment report was weak, even though the headline saw a decline of 0.2% to 8.1% on unemployment. The decline in the rate of unemployment was due to more potential workers becoming discouraged and dropping out of even looking for a job. Non-farm jobs increased just 96K while private jobs up just 103K, both well below estimates from economists. The report has increased optimism the Fed will ease on Thursday at the conclusion of the 2 day FOMC meeting that starts Wednesday. Treasury will auction $66B of 3 yr, 10 yr and 30 yr issues Tuesday through Thursday. Economic data doesn’t hit until Thursday and Friday this week. Today the only scheduled report is at 3:00 with July consumer credit, while markets don’t pay a lot of attention to the report, we do. It is one of my favorite reports each month, measuring how consumers are actually spending and is more important than consumer sentiment or consumer confidence that are reported each month. Putting your money where your mouth is. The revolving credit component was not good in June, declining $3.7B; revolving credit is credit cards and measures underlying consumer confidence in their outlook, more use of cards increasing debt suggests consumers feel better about the outlook----or it could mean consumers are so strapped they are using cards to stay afloat. That isn’t the case now though; any increase in revolving credit should be seen as optimism. The decline in revolving in June does suggest the today’s revolving credit may be up. The stock and bond markets trading in a range, even with talk of an easing move from the Fed there is no sustained improvement in either stock indexes or the bond market. It is important to keep close this week; have the interest rate markets already discounted the easing in present price and yields? Over the weekend Greece’s political parties were unable to agree on spending cuts; stock futures declined today as Greek Prime Minister Antonis Samaras meets officials from the nation’s creditors after failing to secure agreement from coalition partners on spending cuts. The treasury market unchanged. Germany’s Federal Constitutional Court is due to rule on the country’s participation in the European Stability Mechanism, a permanent 500 billion-euro fund that offers loans to member states and may buy their bonds to lower borrowing costs; the ruling is expected on Wednesday.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Building Strong, Lasting Relationships; One Client at a Time. At 8:45 this morning the 10 yr yield was up 6 bp frm yesterday’s close at 1.65%; 30 yr MBS price down 23 bp frm yesterday’s close. 8:15 the ADP August private jobs were expected up 149K, as reported ADP said job growth was 201K. At 8:30 weekly jobless claims were expected down 4K to 370K, as reported claims fell to 365K -12K frm revised claims last week from 374K to 377K. The ADP data; the 201,000 increase in employment, the biggest gain in five months. Estimates in the Bloomberg survey ranged from 90,000 to 170,000. Since April 2010, ADP’s initial estimate has either overstated or understated the Labor Department’s initial reading on private payrolls by 69,000 on average. Goods-producing industries, which include manufacturers and construction companies, increased payrolls by 16,000, today’s figures showed. Employment in construction rose 10,000, while factories added 3,000 jobs. Service providers added 185,000 workers, up from 156,000 a month earlier. Companies employing more than 499 workers added 16,000 jobs. Medium-sized businesses, with 50 to 499 employees, added 86,000 and small companies increased payrolls by 99,000, according to ADP. Weekly jobless claims are the lowest in 4 weeks but still in a range that has kept claims between 360K and 375K. The claims data shouldn’t be taken as a huge turn in employment given the recent range. A Labor Department spokesman said there was nothing unusual in the data last week, and that there was no indication Hurricane Isaac had any effect on filings. The level of claims in Louisiana has been fairly stable, he said, and only one state - Colorado - was estimated last week. While claims are better than thought, and initial comments have been optimistic; the best we can say is that firings and lay-offs appear to have leveled off over the last month. The number of people continuing to receive jobless benefits fell by 6,000 in the week ended Aug. 25 to 3.32 million. The continuing claims figure does not include the number of Americans receiving extended benefits under federal programs. Those who’ve used up their traditional benefits and are now collecting emergency and extended payments decreased by about 11,800 to 2.27 million in the week ended Aug. 18. Overall, a baby step but very welcome. Europe’s stock markets rallying today; US stock indexes also better. At 9:30 the DJIA opened +95, NASDAQ +25, S&P +10. At 9:30 the 10 yr note at 1.65% +6 bp; 30 yr mortgage price down -33 bp. Within 5 minutes of the opening of the stock market the DJIA was up 132 points. The ECB left its benchmark interest rate at a record low of 0.75% today, as expected. The Bank of England kept its key rate at 0.5 percent and held its bond-purchase target at 375 billion pounds ($590B) today. the European Central Bank cut its economic forecast for the region and detailed plans to buy bonds. The ECB outlined what its bond buying program would do; buy bonds from countries struggling, the terms would be bonds with one to three maturities. Countries asking for the assistance to keep their interest rates from increasing would have to agree with terms sat out by ECB that will force more austerity and spending cuts. There will be no limit to how much countries can sell to the ECB; each month the ECB will publish which countries sold to the ECB. The German 10 yr bund yield has increased 10 bp this morning to 1.50%. The last data point today; at 10:00 the August ISM services sector index, expected to be at 53.0 frm 52.6 in July, increased to 53.7, the best since May. Another data point that is better than forecasts. Tomorrow the BLS releases its August employment data. The unemployment rate expected unchanged at 8.3%, non-farm jobs +125K and non-farm private jobs +134K. The ADP data this morning may cause traders to increase their outlook after the payroll people said 201K private jobs. The bond and mortgage markets have been weakening since last Friday and now at crucial technical levels. With today’s data markets now questioning the expectations that the Fed will ease in Sept. Since Tuesday the 10 yr note has been increasing, up 4 bp on Tuesday and Wed, add another 7 bp this morning. Mortgage prices held well until this morning. If the August employment report is better than expected tomorrow the easing idea will likely fade.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Building Strong, Lasting Relationships; One Client at a Time. Another quiet start this morning in the stock and bond markets. At 8:30 the 10 yr +2 bp at 1.58%, stock indexes mixed but essentially unchanged. At 8:30 two Q2 reports; Q2 productivity expected at +1.9% increased to +2.2% (the advance report last month had productivity at +1.6%), Q2 unit labor costs expected at +1.4% was +1.5% (in the advance report last month costs were +1.7%). Increasing productivity leads to lower unit labor costs. There was no noticeable reaction to the reports. In Europe this morning more talk from the ECB but still concerns from Germany that may scuttle Mario Draghi’s plan to buy government bonds with maturities of three yrs or less. His proposal reveled today involves unlimited purchases of government debt that will be sterilized to assuage concerns about printing money ( the ECB will remove from the system elsewhere the same amount of money it spends). The ECB would refrain from setting a public cap on yields, according to the people, and a third official, who spoke on condition of anonymity. The plan will only focus on government bonds rather than a broader range of assets. Draghi told the European Parliament the ECB needs to intervene in bond markets to wrest back control of interest rates in the fragmented euro-area economy and ensure the survival of the common currency. The plan will be debated today and tomorrow Draghi will announce what the outcome of the ECB meeting decides tomorrow. There appears to be a consensus is forming except in Germany’s Bundesbank with concerns the plan would increase inflation in the region. The ECB plan caused the euro currency to firm this morning, but not much. The US 10 yr yield increased by 2 bp on the report. The EU has had many ideas over the last three years but to no avail improving the debt crisis that threatens to drive Spain and Italy into depression unless there is some relief on borrowing costs. Markets are generally numb to news from the region as every plan or thought has been shot down. European stocks advanced on the report; US stock indexes prior to the 9:30 open little changed. An ECB spokesman referred to an Aug. 20 statement in which the Frankfurt-based central bank said it was misleading to report on decisions that haven’t been taken yet. Europe’s economies still declining; dragging global economies with it. In Germany retail sales fell 0.9% from June, when they gained 0.5%, today’s report showed. France reported a gain of 0.9%, while sales fell 1.9% in Spain. Mixed data as is the case in the US with some data better while most are slipping. The Fed is poised to ease again, pushing interest rates lower; but no one has explained to my satisfaction how keeping their historic low interest rates low will add jobs or increase business spending. In terms of improving the economy, the Fed is pushing on a string with little to show for it except a ballooning Fed balance sheet. Even Bernanke says it will take more fiscal changes to turn the economy on. Lower interest rates have stabilized the housing markets but even that isn’t much of a boost as evidenced by the MBA mortgage applications report today. Overall mortgage applications decreased 2.5% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending August 31, 2012 The Refinance Index decreased 3.0% from the previous week to the lowest level since May 2012. The seasonally adjusted Purchase Index decreased 0.8% from one week earlier. The refinance share of mortgage activity remained unchanged at 79 percent from the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 5.0% of total applications. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 3.78% from 3.80% with points decreasing to 0.37 from 0.42 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) decreased to 4.05% from 4.06%, with points decreasing to 0.32 from 0.34 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 3.54% from 3.60%, with points decreasing to 0.44 from 0.48 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.10% from 3.12%, with points decreasing to 0.37 from 0.44 (including the origination fee) for 80% loans. The average contract interest rate for 5/1 ARMs decreased to 2.64% from 2.68%, with points decreasing to 0.35 from 0.36 (including the origination fee) for 80% loans. At 9:30 the DJIA opened +24, NASDAQ -2, S&P +1. The 10 yr note rate at 1.59% +2 bp. 30 yr mortgage prices at 9:30 -3 bp, holding well. Treasuries and MBSs still hold a bullish technical bias, we go with the tape. BUT always nervous; buy the rumor sell the fact. Has the bond market already discounted a Fed easing at the Sept meeting? The 10 yr note rate has fallen from 1.86% to its recent low at 1.55% (1.59% this morning) over the last 10 sessions since the FOMC minutes and comments from Bernanke. The only way we will actually know is after the fact. Tomorrow’s August employment data will provide a clue on the reaction to whatever the report reveals. Just saying; keep an open mind now and don’t anticipate rates are set to fall more. We remain constructive because our technicals look good, but a little concerned about the underlying fundamentals.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Building Strong, Lasting Relationships; One Client at a Time. This week; a big week for the markets. Last week Bernanke somewhat signaled the Fed is ready to ease again, most likely buying more long dated treasuries and increasing the purchases of mortgage-backed securities. When will the Fed actually move? Presently the bond and stock markets are already beginning to discount an easing move as interest rates have fallen 30 basis points since the recent sell-off three weeks ago (10 yr note). Mortgage rates down 20 basis points. This week there are a number of key data points that will either confirm an easing move at the Sept 13th FOMC meeting, or hold off until the Oct meeting. Depends a lot on what this week’s data shows us. The two ISM August reports on manufacturing and services lead right into Friday’s August employment report. Stronger than expected data will diminish the outlook for easing in Sept; weaker will increase the likelihood of easing in Sept. Also this week the ECB will meet on Thursday; it has been three years of dealing with the incessant talk and not very much accomplished. Based on past performances from the EU a betting man would bet the outcome of the meeting will not reveal anything of consequence, just more hope and frustration for global markets. Not until Sept 12th when the German high court will rule on the legality of ECB buying sovereign debt. In the meantime and since the beginning of the EU collapse Germany still holds the cards, unless Germany will back anything suggested by the ECB, IMF or the EU has little chance of being implemented. This week markets may become volatile pending the data and especially August employment on Friday.