Daily Commentary by Larry Baer 4.29.2011

Commentary: Mortgage investors gave this morning's March Personal Income and Spending data and the first-quarter Employment Cost Index figures nothing more than a passing glance. Both sets of numbers fell roughly inline with the majority of economists' expectations and therefore had already been priced into the market.

Mortgage investors' attention is keenly focused on the upcoming battle developing between the White House and congressional leaders as the clock tick downs on the mid-May deadline to raise the $14.3 trillion cap on government borrowing. Default, even if temporary, could have long-term adverse effects for Treasury debt sales - and by extension - the trend trajectory of mortgage interest rates. Even if those in power reach an agreement to raise the debt ceiling -- but in the process choose to engage in another round of political brinkmanship that pushes the financial debate down to the wire - you can bet the upward pressure on mortgage interest rates will rise as both domestic and global market participants are forced to prepare for a potential debt default by the United States government. Most observers believe an accord will be reached -- but the timing of such an event is still in question. I'll keep you posted as this story develops.

The coming week will be a busy one with respect to potentially market moving economic reports. Things kick-off on Monday when the Institute of Supply Management releases their April manufacturing activity index at 10:00 a.m. ET. The Institute's April Service Sector Index will take center-stage on Wednesday morning at 10:00 a.m. ET and the grand finale will occur on Friday with the release of the April Nonfarm Payroll stats at 8:30 a.m. ET. All three major reports are currently expected to prove supportive of steady to perhaps fractionally lower mortgage interest rates.

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Daily Commentary by Larry Baer 4.28.2011

Commentary: The pace of economic growth downshifted sharply over the course of the last three months. Growth as calibrated by Gross Domestic Product - a measure of the value of all goods and services produced within our domestic borders - slowed to 1.8% annual rate after churning along at a 3.1% annual pace during the final three months of 2010. Output was restrained by harsh winter weather, rising imports as well as the weakest government spending in more than 27 years. During the same period, inflation rose at its fastest rate in two years.

Weaker economic growth is a double-edged sword in terms of its impact on the mortgage market. Slower economic growth reduces the demand for capital - which in turn allows interest rates to drift lower. On the other hand, slower economic growth restrains job growth - which in turn reduces the pool of prospective homebuyers. Rather than lower mortgage interest rates -- what we as an industry really need now -- is fractionally higher rates created by accelerating economic growth and its attendant job creation. I think most readers would agree that slightly higher mortgage interest rates seldom cause motivated buyers to abandon the mortgage financing transaction - especially if the prospective buyer reasonably believes mortgage rates and underlying property values are likely to move sideways to higher in the relatively near-term future.

Speaking of job creation, Labor Department data released earlier this morning showed first-time claims for unemployment benefits continue to swing wildly. For the week ended April 23^rd the number of American's standing inline to file for government benefits rose 25,000 to 429,000. Initial weekly claims have now been above the 400,000 level -- viewed by economists as the line dividing an expanding labor market from one that is contracting for three consecutive weeks. A department spokesperson pointed out that supply disruptions in the auto manufacturing sector created by the tragedy in Japan cannot be discounted. Automakers in the U.S. had expected to produce about 3.6 million vehicles in the second quarter - but because of a shortage of parts from Japan - that number is now expected to fall by at least half a million. Even though lost production is expected to be made up in the second half of the year -- it is currently taking a toll on the number of workers on the production lines.

In a nutshell - the collective story told by today's economic data suggests mortgage interest rates will likely continue to bounce back and forth in a relatively narrow range - unfortunately supported in large part by a temporary but noticeable weakness in consumer demand.

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Wednesday Market Update Video 4.27.2011

The FOMC chair Mr Bernanke will hold a press conference for the first time ever today. The market has been waiting for this all week. Mortgage interest rates have improved slightly this week in spite of weak trading in the market. Click here to view this week's Wednesday Market Update Video.

Chrisman Report 4.27.2011

To the surprise of no one, the S&P Case-Shiller HPI (Home Price Index) declined 3.3% in February from a year ago on the 20-city composite, and the 10-city composite was down 2.6% YOY. From a year ago, only Washington DC reported appreciation at 2.7%, while Phoenix and Minneapolis experienced the largest declines at over 8%. 10 of the 20 cities recorded new lows. Economists believe that with already weak home values declining further, refinancing activity will remain limited and keep prepayment speeds relatively slow - a positive with much of the market trading at a premium. At the same time, while affordability holds near record highs, homebuyers may be hesitant to purchase just yet with prices still sliding lower.

Looking at the markets, things aren't too bad, and Tuesday both stocks and bonds did well. This surprised some, given that we're still grappling with rising oil, gold, and commodity prices, a raging deficit, and problems overseas. The 10-yr Treasury closed at 3.32%. On the mortgage side, agency MBS prices improved by about .125 - .250 and one trader commented, "High price and low yield levels have relegated REITs and banks mostly to the sidelines, while other investors were mixed. In general, hedge funds and structured desks were buying..."

This morning we learned that March Durable Goods were up 2.5% versus +.7% in February. The markets seem to believe that the highlight of Wednesday's session will be the first ever post-FOMC press conference beginning at 2:15 EST with Chairman Bernanke discussing the Committee's "current economic projections and to provide additional context for the FOMC's policy decisions," as stated in the press release. We also have a $35 billion 5-yr auction. Across the Atlantic, things don't look so good in Greece as their 2-yr note yield climbed to 25%. Investing in that is not for the timid. And after 3 consecutive up days Treasuries are down this morning due to some profit taking: the 10-yr is at 3.35% and MBS prices are worse a smidge.

Chrisman Report 4.26.2011

Looking at our biz, yesterday we learned that New Home Sales in March jumped 11.1% to 300k from an upwardly revised 270k, previously reported at 250k, but are down 22% from a year ago. The number was greater than expected, but remains weak and just above the historic low of 270k and well below a "normal" level of in the 700k area. Better weather conditions reportedly was a factor in the uptick with possibly some support related to looming increases in FHA financing costs that took effect on April 18. The median home price was $213.8k, down 4.9% from a year ago, and we're looking at about a 7 month supply, down from 8 months reported last month. There were 183,000 new houses on the market at the end of March, the fewest since August 1967, indicating builders are reducing construction. So housing continues to be slow, and refinancing is right along with it given the tight underwriting, increased financing costs, poor home valuations, and a weak jobs market. Folks are waiting for a good chunk of the foreclosed properties to be absorbed, home values to start to recover, and credit standards to ease.

Daily Commentary by Larry Baer 4.27.2011

Commentary: The trend trajectory of mortgage interest rates is largely in a sideways holding-pattern as investors await the results of this morning's sale of $35 billion worth of 5-year notes (11:30 a.m. ET). Trading volume will likely remain low ahead of Fed Chairman Bernanke's first-ever news briefing following the conclusion of the Federal Open Market Committee meeting. It appears few doubt the Fed Chairman and his band of merry central bankers will do or say anything to cause mortgage interest rates to make a sharp move higher. That is the good news.

The bad news is that there is an old market adage that says, "The majority of market participants are always wrong at major turning points." I have no idea whether this old saying will once again prove accurate before the week is over - but I do know that now is not the time to get complacent with respect to your pipeline risk management.

Keep those "lock-in" sheets filled out and ready to go - if it starts to rain on the parade of all of those market participants expecting perpetually lower mortgage rates - the first ones to scramble for cover will avoid the financial drenching those who hesitate will likely experience.

I'll provide an update to this commentary following Fed Chairman Bernanke's news conference later this afternoon.

In economic news, Durable Goods Orders rose 2.5% in March - slightly exceeding expectations. Mortgage investors yawned.

Mortgage investors also seemed largely disinterested in news from the Mortgage Bankers of America that showed overall loan originations slipped 5.6% lower during the week ended April 22^nd. Purchase money loan demand was 13.6% lower than the previous week while refinance requests were off a more modest 0.6%. The national average contract rate for 30-year fixed rate mortgages finished the week at 4.8%, down 3 basis-points from the week-ago mark, down 13 basis-points from four-weeks ago, and down 28 basis-points from the year-ago level. Six out of every ten loan applications taken last week were for refi's.

Daily Commentary by Larry Baer 4.26.2011

Commentary: The trend trajectory of mortgage interest rates is largely in a sideways holding-pattern as investors await the results of this afternoon's sale of $35 billion worth of 2-year notes (1:00 p.m. ET). Trading volume will likely remain low ahead of Fed Chairman Bernanke's first-ever news briefing following the conclusion of the Federal Open Market Committee meeting. This event is scheduled for tomorrow afternoon at 2:15 p.m. ET.

It appears few doubt the Fed Chairman and his band of merry central bankers will do or say anything to cause mortgage interest rates to make a sharp move higher. That is the good news.

The bad news is that there is an old market adage that says, "The majority of market participants are always wrong at major turning points." I have no idea whether this old saying will once again prove accurate before the week is over - but I do know that now is not the time to get complacent with respect to your pipeline risk management.

Keep those "lock-in" sheets filled out and ready to go - if it starts to rain on the parade of all of those market participants expecting perpetually lower mortgage rates - the first ones to scramble for cover will avoid the financial drenching those who hesitate will likely experience.

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Weekly Update by Bill Fisher

Say What?

Last week, we took a look at “the gathering storm that may accompany the end of QE2.” Since then, the storm has indeed been gathering, with the financial pages of the newspapers bursting with articles about bond fund managers who say the end of QE2 will cause interest rates to rise and other bond fund managers who promise that the end of QE2 will be a non-event.

The argument for the latter is pretty compelling. The markets have had plenty of time to prepare for the demise of the program that has seen the Fed buying up hundreds of billions’ worth of Treasury securities. Arguably, if the markets were going to react to the Fed putting QE2 out of its misery, the changes would already be priced into the market.

There is, however, a fly in this logical ointment. Specifically, we haven’t any idea what exactly the Fed will do. It could extend QE2, or alter the program slightly and hold on to a revised version, or stop buying Treasury securities very slowly, or engage in any number of arcane maneuvers that few of us understand (“Oh, we’ll just issue more debt and call in reverse repos and flood the market with CDOs”). Or it could start pocketing the pay-offs when its Treasury securities reach maturity, rather than using the money to buy more securities. Or, as several experts wisely proclaim, it could simply remove the phrase, “for an extended period,” from its monthly statement about keeping short term rates low. Welcome to the fun zone.

In any case, we’ll have some insight into the Fed’s plan, if it really has any, in the Wednesday announcement after this week’s meeting of the Open Market Committee. Fed Chairman Bernanke even promises a press conference of sorts.

Then there’s the question of how and when the Fed will start to put the squeeze on short-term rates. Experts—if it’s possible to be an expert on the unknowable—believe the Fed will be slow to start…possibly swinging into sluggish action by the beginning of next year. And, of course, we don’t know exactly what it will do. In this case, we’re pretty sure the Fed doesn’t entirely know either.

I should add that Bill Gross, who runs PIMCO, is relatively certain the end of QE2 will bring on a lot of volatility and take rates higher. He may be right, of course. The most impressive fact about the winding down of QE2, as we’ve seen, is that no one seems to know how it will be done or when. Without knowing those essential pieces of the puzzle, how can we predict what will happen?

We can’t.

Investor markets, of course, aren’t keen on uncertainty. As we have seen all too many times in the past few years, they tend to flop around like a mackerel thrown into the bow of a fishing boat when they don’t know what to do next. They also tend to rush into safe haven investments, like gold and Treasury securities.

Which raises perhaps the final issue to be watching carefully in the coming months. The turbulence—around questions of how and whether the U.S. is going to be able to handle its debt—has caused the dollar’s exchange value to decline of late, and inspired ratings agencies to look askance at the dollar, and foreign central bankers to consider other currencies for trading oil, gold and other items. These be rather dangerous times, matey, though most of this is more fury than substance.

Nonetheless, it’s hard to imagine that we’re looking at economic and political trends that will be conducive to low interest rates for very much longer. Surely this limb we’ve been crawling out on has bent nearly to the breaking point—though its strength seems capable of surprising us almost indefinitely. The bottom-line truth is that we just don’t—and can’t—know much. But listen carefully to Ben this week.

by: Bill Fisher

Daily Commentary by Larry Baer 4.25.2011

Commentary: Mortgage investors have completely shrugged off this morning's reported 11.1% jump in March New Home Sales as they remain focused on Wednesday's first-ever press conference by the Chairman of the Federal Open Market Committee immediately following a closed-door monetary policy strategy session. This meeting and Mr. Bernanke's post-meeting comments will be particularly important to all credit market participants because it will be the last gathering of the nation's central bankers scheduled before the Fed wraps up its "QE2" fiscal stimulus program currently targeted for the end of June.

The story here is pretty straight forward.

Traders are also particularly interested to hear what the Fed Chairman has to say, if anything, about the likely pace of economic growth should Congress successfully make meaningful cuts to federal spending programs. If Fed Chairman Bernanke convinces market participants that the Fed is prepared to use all means at its disposal to hold benchmark short-term interest rates near historical lows to in an effort to support sagging economic growth - the stage will be set for an extended period (multi-weeks) of steady to perhaps fractionally lower mortgage interest rates.

On the other hand, the current market calm could be upset if Mr. Bernanke says anything that might indicate the Fed's current plans to complete its $600 billion bond-buying program (otherwise known as "QE2") -- and/or to leave benchmark short-term rates unchanged for an "extended period of time" -- will need to be modified in response to recent signs of improving economic performance.

It is a close call and interpretation will trump substance with respect to Mr. Bernanke's comments. Don't get complacent - pay attention and be ready to pull the "lock-in" trigger if the price objectives outlined in the strategy sections above are penetrated to downside.

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Economic Calendar for the week of April 25th

Mon. April 25, 10:00 a.m. ET March New Home Sales Estimate +10%

Tues. April 26, 9:00 a.m. ET Fed begins first day of a two-day monetary policy meeting

Tues. April 26, 10:00 a.m. ET April Consumer Confidence Estimate 64.5 vs. last 63.4

Tues. April 26, 1:00 p.m. ET Treasury sells $35 billion of 2-year notes

Wed. April 27, 8:30 a.m. ET Mar. Durable Goods Orders Estimate +2.0% vs. last -0.6%

Wed. April 27, 12:15 p.m. ET Fed meeting ends with release of traditional post-meeting statement

Wed. April 27, 1:00 p.m. ET Treasury sells $35 billion of 5-year notes

Wed. April 27, 2:15 p.m. ET Fed Chairman Bernanke holds press conference to discuss just completed monetary policy strategy session

For the first time in the 97-year history of the Federal Reserve the Chairman will hold a press conference to communicate as clearly as possible how the central bank intends to meet its twin mandate of controlling inflation and stimulating full employment. What Bernanke says and how he says it will have a significant impact on the direction of mortgage interest rates today.

Thurs. April 28, 8:30 a.m. ET Initial jobless claims for the week ended 4/23 Estimate Down 13,000 to 390,000

Thurs. April 28, 8:30 a.m. ET First estimate Q1 Gross Domestic Product Estimate +2.0% vs. last +3.1%

Thurs. April 28, 1:00 p.m. ET Treasury sells $29 billion of 7-year notes

Fri, April 29, 8:30 a.m. ET Mar. Personal Income & Spending Estimate +0.4% vs. last +0.3%
+0.5% vs. last +0.7%

Fri. April 29, 8:30 a.m. ET Q1 Employment Cost Index +0.5% vs. last +0.4%

Market Commentary: There is something for everybody embedded in this week’s calendar but it will be Wednesday’s televised monetary policy briefing by Fed Chairman Bernanke that will most influence rates.

Daily Commentary by Larry Baer 4.21.2011

Commentary: Trading activity in the mortgage market is once again light this morning - with the few investors still at their desks not inclined to be an aggressive market participant heading into the three-day Easter holiday.

This morning's release of the weekly initial jobless claims data and Leading Indicators for March came and went without a trace with respect to their influence on the trend trajectory of mortgage interest rates.

The Treasury Department sold a record $14 billion of 5-year Treasury Inflation Protected Securities at 11:30 a.m. ET this morning. Investors offered to buy 2.57 times the amount of debt sold, compared to an average of 2.48 times at the last four sales of 5-year TIPS. Indirect bidders, a group which includes foreign central banks, purchased 39.5% of the offering, compared to an average of 36.3% of recent sales. Direct bidders, which include domestic money managers, bought another 2.7%. This group of investor's average participation rate at the last four auctions was 2.2%. With the successful auction out of the way -- look for trading activity in the mortgage market to drift aimlessly into the early holiday close at 2:00 p.m. ET.

Enjoy your holiday break because next week will be a busy one in the mortgage market. March New Home Sales figures are due on Monday. On Tuesday the Federal Open Market Committee will huddle for a two-day monetary policy strategy session -- and Uncle Sam will be splashing around in the credit markets for three-days beginning on Tuesday looking to borrow $99 billion in the form of 2-, 5- and 7-year notes.

By far and away the most influential event of the coming week will be the release of the Fed's post-meeting statement expected at 2:15 p.m. ET on Wednesday. The investment community is expecting the Fed will refrain from making any significant change to their monetary policy which includes allowing the $600 billion QE2 fiscal stimulus program to run to its natural conclusion at the end of June. Any substantial deviation from these mundane expectations will almost certainly jolt mortgage interest rates out of their recent narrow trading range. At this juncture, it appears to me the path of least resistance for rates leads higher. Heads up.

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Wednesday Market Update Video 4.20.2011

Mortgage Backed Securities rallied this week. We are currently seeing some of the lowest mortgage interest rates we have seen during the past two years. Click Here to view your Wednesday Market Update Video.

Daily Commentary by Larry Baer 4.20.2011

Commentary: Trading activity is light this morning in the mortgage market. Many traders have slipped away to get an early start on the upcoming three-day Good Friday Holiday.

Those mortgage investors still at their desks gave this morning's March Existing Home Sales report from the National Association of Realtors nothing more than a passing glance. The data showed the pace of existing home sales took a turn for the better in March - improving 3.7% from the February level. Home sales, whether existing or new, is a jobs story. If job and income growth accelerate in the months to come you can bet the pace of home sales will show an upward trend trajectory as well. This is a "wait-and-see" story.

In other news of the day the Mortgage Bankers of America have released their mortgage application survey for the week ended April 15^th. The overall index climbed 5.3% -- driven in part by a strong 10.0% improvement in the number of purchase applications taken last week. Refinance loan requests were up a modest 2.7%. The average contract rate for 30-year fixed-rate mortgages finished the week at 4.83%, down 15 basis-points from the week ago mark, up 3 basis-points from four weeks ago, but down 21 basis points from the year ago level. According to the MBA, the composition of the forward-looking prospective loan volume for March is now almost perfectly balanced between purchases and refinances.

The mortgage market will likely remain quiet through tomorrow's early close even as investors put the finishing touches on their risk management strategies in front of next week's three-part, $99 billion Treasury debt auction featuring two-, five-and seven-year notes. Traders are also keenly aware that the Federal Open Market Committee will convene a two-day meeting on Tuesday, April 25^th - and will approach that event cautiously as well.

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Daily Commentary by Larry Baer 4.19.2011

Commentary: The mortgage market dodged a bullet yesterday as global investors resisted the temptation to dump Treasury debt obligations after credit ratings agencies Standard & Poor's and Moody's warned Washington it could lose it's top-notch credit standing if the government doesn't get it's financial house in order by 2013. A failure by Uncle Sam to meet the criteria to maintain at least an Aaa credit rating will undoubtedly result in higher interest rates for everything from car loans to mortgages.

As you might imagine, mortgage investors will be keenly attuned to the upcoming Congressional budget battle. The pressure is on both the Administration and on Congress to make hard financial choices. Tangible action with respect to the reduction of deficit spending will be supportive of steady to perhaps fractionally lower mortgage interest rates. On the other hand, should Congress devolve into partisan bickering and political brinkmanship -- the prospect for steady to lower mortgage interest rates will dim rapidly.

The immediate threat to a heavy sell-off in the credit markets has passed - but only temporarily. It would be a mistake to count on credit market participants to take such a passive attitude in the future if real signs of fiscal reform by the United States government are not forthcoming soon.

Earlier this morning the Commerce Department reported residential construction activity regained some lost ground in March. Housing starts rebounded by 7.2% while building permits, an indicator of the pace of future housing construction, rose 11.2%. The outsized surge in the building permits number was largely attributable to a notable increase in plans for future multi-family construction. Both measures of housing activity remain near historical lows.

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Weekly Update by Bill Fisher

The QE2 smashes into the docks at the end of June.

But let’s start here: At the beginning of 2010, a one-ounce silver coin sold for less than $18. At the end of the year, that coin sold for nearly $31.

This remarkable gain surely has something important to tell us, especially as gold has been rising at a similar pace and the value of shares of stock has generally been treading water. Meanwhile, interest rates have generally been creeping higher at the longer-term end (10-year T-notes, for example, which 30-year fixed-rate mortgages follow up and down).

It seems that most people, looking at all this, have reached a simple conclusion: The markets have gone a bit overboard for precious metals…but this has gone on long enough, taking prices high enough, that we should surely see prices correct sometime soon.

Consider, though: While gold and silver have plentiful commercial value as the source of jewelry and in important products like photovoltaic cells, they are—as coins and bullion bars—a form of currency. You can’t walk into most stores and purchase goods with these coins, but you can convert them rather easily into cash.

Take this fact seriously. Gold and silver aren’t so much an investment as they are an alternative currency. Their value rises, not coincidentally, when more and more people see them as a superior alternative to, say, dollars.

In other words, if the price of gold and silver has climbed this much of late, it is a big vote against the future strength and value of the dollar. Those who are worried that the dollar might begin to lose value—and, indeed, it already has—are protecting their wealth by converting it into precious metals.

This is the background, I am guessing, for the gathering storm that may accompany the end of QE2, which will occur on June 30. At that point, the Fed will stop buying up large quantities of longer-term Treasuries; it will no longer support higher demand for the Treasuries, helping to keep rates low; and the market will have to make its way based on actual values and investor decisions, rather than on the propping up provided by the Fed.

The last time this happened, when QE1 ended, the stock market indices fell sharply, the dollar’s exchange rate fell, and interest rates rose. Perhaps that is one of the things that the prices of silver and gold have been warning us: When the artificial manipulation of the market is trimmed back, artificially low interest rates will start to rise in a serious way, artificially high stock share prices will decline, and we’ll see more volatility in all market indices.

Now, a couple of things need to be considered. First, the price of silver, historically, starts to rise long after the price of gold has made a strong move higher for a while. Thus, the rising price of silver could be telling us that the value of precious metals may soon turn around. Second, we aren’t in a good position to foretell the future movements of interest rates—or of just about anything—since they’ve been manipulated so long by the Fed’s maneuverings.

And I guess there’s an obvious third issue: All speculation about silver and gold could simply be wrong. But we’ll know more about that possibility fairly soon into the summer. If the prices of silver and gold do fall, then my concerns about higher interest rates may be unwarranted. If they do not, however, it’s time to watch rates’ swings even more carefully than we usually do. They may swing up…high.

by: Bill Fisher

Daily Commentary by Larry Baer 4.18.2011

Commentary: The same people who once rated subprime mortgage-backed securities as among the highest quality assets money could buy have now announced they think the sovereign debt of the United States is on the verge of becoming junk. In both instances, the opinion of these private, fee based, credit rating agencies has created a sudden and dramatic shift in the trend trajectory of interest rates.

Standard & Poor's has joined Moody's in assigning a "negative" outlook on the U.S. AAA credit rating. These two rating agencies have effectively given a two-year deadline to the United States government to make notable reductions to the government's deficit spending - or face the equivalent impact of seeing their 820 FICO score reduced to 680 or lower. A drop in credit quality of that magnitude would push the cost of government debt substantially higher - a condition that would undoubtedly shove mortgage interest rates higher as well.

As you might imagine, mortgage investors will be keenly attuned to the upcoming Congressional budget battle. The pressure is on both the Administration and on Congress to make the hard choices to get the country's financial house in order. Tangible action on this issue will be supportive of steady to perhaps fractionally lower mortgage interest rates. On the other hand, should Congress devolve into partisan bickering and political brinkmanship the prospect for lower mortgage interest rates will dim rapidly.

It appears Uncle Sam has finally kicked the deficit spending can down-the-road as far as it will go. The nation is now facing a financial "do or die" situation. The pending critical financial decisions will be made in a relatively short period of time - the impact of those decisions will likely last a decade or more. May those upon who we are all counting on be granted the wisdom and the courage to do what is right for the country -- without consideration to what is right for their own political future.

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Economic Calendar for the week of April 18th

Mon. April 18 No reports

Tues. April 19, 8:30 a.m. ET March Housing Starts & Building Permits

Wed. April 20, 10:00 a.m. ET March Existing Home Sales

Thurs. April 21, 8:30 a.m. ET Initial jobless claims for the week ended 4/16

Thurs. April 22, 10:00 a.m. ET March Leading Indicators

Thurs. April 22, 2:00 p.m. ET Mortgage market closes early for the Good Friday Holiday

Fri. April 23, Mortgage market closed for the Good Friday Holiday

This Week In Review by Lou Barnes

Inflation fears this week abruptly gave way to concern for the economy, long-term rates and stocks dipping accordingly. Overriding all financial news: the miraculous outbreak of an authentic effort to repair the nation’s finances.

One at a time. By the end of last week, inflation worry-warts had begun to expect Fed tightening this year. On Monday, Vice Chair Janet Yellen and NYFed Prez Bill Dudley blew them up altogether. Fed tightening now is inconceivable.

Forecasters have called for 4%-plus GDP growth, but a crowd is elbowing for the exit, revising suddenly as low as 1.5%. March retail sales were soggy, a .4% gain and only .1% ex-gasoline. New claims for unemployment insurance spiked 27,000 to 412,000 last week, the highest in two months. The NFIB survey of small business in March retreated from all gains since last October, in sharp contradiction to the Fed’s Beige Book, happy-talk fairy tales from inflation-hawk regional-Feds.

The one bright spot has been manufacturing: March industrial production beat estimates, gaining .8%, and capacity-in-use up to 77.4% is the highest since Lehman.

The benchmark for any US deficit fix is The National Commission on Fiscal Responsibility and Reform, aka Bowles-Simpson, released on November 10, 2008 (www.fiscalcommission.com). The summary should be memorized by every student and adult, and worshiped as no documents beyond the Federalist Papers, Declaration, and Constitution. NCFRR does suggest what to do, but its fairness, humanity, wisdom, and principles are a durable guide to how to do it.

Aside from the ideal structures of taxation and spending priority, NCFRR has one crucial insight and discipline: we must settle on the size of government as measured by percent of GDP. We must no longer tolerate in ourselves the Right’s perpetual dodge of taxation, starving revenue from necessary spending; nor can we tolerate the Left’s perpetual burglary, committing future spending without revenue.

NCFRR suggests 21% of GDP, revenue and spending in approximate balance -- 21% the baseline for spending ever since WWII. I don’t care, give or take a couple of points. Go much lower and government will become a cold and pinched vision of Calvin Coolidge. Go much higher and we’ll be lost in bureaucratic bloat, inefficiency, and confiscatory redistribution.

Small imbalances are okay, deficits in the 1%-2% range (each percent is about $150 billion). Today’s spending is 24% of GDP, in the early stages of un-funded entitlement explosion headed above 30%. Tax revenue today is 15% of GDP.

Big hole. However, revenue has been suppressed about 3% by the Great Recession.

From my usual centrist perspective, designed to annoy everybody, of the two deficit-fixes, Ryan’s and Obama’s, which is closest to wisdom and compromise solution?

Ryan earns praise for tax reform, removing tax goodies in favor of low brackets, and for trying to cap healthcare cost (really, the entire future entitlement problem). It is on the short side of 21%, a safety net with holes. It fails on two other grounds: no additional revenue except by GDP growth, and no cuts in defense.

Obama’s proposal is harder to figure because his behavior has been so odd. He ignored the NCFRR report when released, then dismissed it in his State of the Union, then in February brought an as-is budget, and since refused to engage the matter. Then Wednesday, a hurried, no-detail proposal in a peculiarly timed 1:30PM speech.

He had this key line: “If we truly believe in a progressive vision of our society, we have the obligation to prove that we can afford our commitments.”

No, sir. Not that way. That is the old, corrupt way. Henceforth we cannot make commitments until we have agreed on what we can afford.

The most important thing: there is going to be a deal. The electorate is exhausted with living beyond its means. To the consternation of financial hyenas now salivating at the prospect of US default... ain’t gonna happen. As markets process the news of many fewer new Treasurys ahead, great benefits from sacrifice will accrue.

by: Lou Barnes

FHA monthly MI premiums are going up Monday 4.18.2011

FHA monthly mortgage insurance premiums are going up 25 basis points for FHA case numbers pulled on or after Monday 4.18.2011.

What exactly does that mean for you? For a $200,000 loan with a Loan to Value greater then 95% the monthly premium is going up from $150/month to $192/month. That is a $42/month increase!

Daily Commentary by Larry Baer 4.15.2011

Commentary: As expected, rising food and energy costs pushed inflation at the consumer level 0.5% higher in March. The more important core rate of inflation on Main Street (a measure which excludes the volatile food and energy components) -- rose a very modest 0.1%.

Rising headline consumer costs have more than offset recent wage increases and the one-year reduction in payroll tax to the point that the purchasing power of consumers fell by 0.6% last month on an inflation adjusted basis. Since consumers drive roughly 70% of all domestic economic activity - most analysts are busy marking down the growth expectations for the overall economy this year. The connection to mortgage interest rate levels is pretty straightforward - a slowing economy generally results in reduced demand for capital - which in turn results in steady to fractionally lower mortgage interest rates.

Looking ahead to the coming holiday shortened week - mortgage investors will have little to "chew-on" with respect to economic news. The Commerce Department will release the March Housing Starts and Building Permits figures on Tuesday and the National Association of Realtors will report on the pace of March Existing Home Sales on Wednesday. The mortgage market will close early at 2:00 p.m. on Thursday and will remain closed on Friday for the Good Friday Holiday. Under these conditions the trend trajectory of mortgage interest rates will likely be most influenced by trading action in the stock markets. Higher stock prices will tend to push mortgage interest rates higher while lower stock prices will likely prove supportive of steady to lower mortgage interest rates.

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Daily Commentary by Larry Baer 4.15.2011

Commentary: Mortgage investors have moved to the sidelines as they await the results of today's $13 billion 30-year Treasury bond auction. I'll post auction results on my website as soon as possible once the final gavel falls at 1:00 p.m. ET. Pre-auction trading activity related to this security is not suggesting this auction will be particularly mortgage market friendly.

The Labor Department reported earlier this morning that new claims for unemployment benefits rose 27,000 last week, bouncing back above the key 400,000 level. One week does not make a trend, and most investors continue to believe the economy is on track to create at least 200,000 net new jobs per month through the balance of the year.

The Labor Department also reported this morning that its seasonally adjusted index of prices paid at the farm and factory gate - the March Producer Price Index - rose slightly faster than most economists had anticipated. The core rate of inflation at the wholesale level (a measure stripped of the more volatile food and energy components) rose 0.3% last month after gaining 0.2% in February. In the twelve month period from March 2010 to March 2011, the core producer price index has climbed 1.9%, it biggest increase since August 2009. The upward momentum of inflation at the wholesale level is a concern for some - but in the face of weak labor market and wage growth, producers continue to find it difficult to pass on higher cost to consumers. Even so, inflation chatter is beginning to increase in private and public economic discussions - and as long as that background noise persist - it will be difficult for mortgage interest rates to move notably lower from current levels.

Be patient - be disciplined - and play it by the numbers.

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Wednesday Market Update Video 4.13.2011

Mortgage interest rates are up slightly since last week. Click here to view today's Wednesday Market Update Video.

Daily Commentary by Larry Baer 4.13.2011

Commentary: Mortgage investors have moved to the sidelines as they await the results of today's $21 billion 10-year Treasury note auction. I'll post auction results on my website as soon as possible once the final gavel falls at 1:00 p.m. ET.

I'm hearing chatter suggesting there will be some pretty solid bidding at today's auction by major broker/dealers who will be looking to cover a large part of their rather sizable short-positions. (A short position is created when a trader sells an asset he/she does not currently own in hopes the asset can be purchased at a later time at a lower price - allowing the trader to pocket the difference as profit.) If these whispers prove valid, today's 10-year note auction will likely be well bid and should create little, if any noticeable impact on the current trend of mortgage interest rates.

The Commerce Department reported earlier this morning that Retail Sales posted its ninth consecutive monthly gain in March. The March sales gain was the smallest since the string began last summer. Purchases last month were up 0.4% following a 1.1% revised gain in February. However, if gasoline sales are stripped out of the headline number - retail sales were up a very modest 0.1%. Mortgage investors were quick to discount the hearty round of applause coming from media "talking heads". Retail sales are directly dependent on job creation and wage growth -- and until evidence of sustained improvement in both of these two measures is available - month-over-month improvements for the pace of forward looking Retail Sales will remain questionable.

As they do every Wednesday, the Mortgage Bankers of America released their mortgage application statistics for the week ended April 8^th. Overall mortgage loan demand declined by 6.7% from the prior week. Purchase loan requests declined 4.7% while refinance loan application activity dropped by 7.7%. Refinance applications accounted for six-out-of-every-ten loan requests submitted last week.

The MBA said the average national contract rate for a 30-year fixed-rate mortgage finished the week at 4.98%, up 5 basis-points from the prior week, up 19 basis-points from the month-ago mark, and down by 19 basis-points from the year ago level.

Be patient - be disciplined - and play it by the numbers.

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Rent vs Own Video

This video was created to show you the advantages of buying vs owning. It also shows you the advantage of buying today while interest rates are low rather then buying later (even if home prices drop 5%) at a higher interest rate. Click Here to view the video.

Daily Commentary by Larry Baer 4.12.2011

Commentary: The mortgage market is the direct beneficiary of a sell-off in the stock markets and global concerns related to economic issues connected to the continuing nuclear crisis in Japan. The flow of funds out of riskier assets into the relative safe haven of dollar denominated assets like short-term Treasury debt obligations and mortgage-backed securities could not have come at a better time.

Uncle Sam will be splashing around in the credit markets over the course of the next three days looking to borrow $66 billion dollars. He will sell $32 billion worth of three-year notes today through an auction process that will conclude at 1:00 p.m. ET. The process will be repeated tomorrow with the sale of $21 billion worth of 10-year notes and the government will wrap the whole thing up on Thursday with the sale of $13 billion worth of 30-year bonds.

Current domestic and global economic concerns will likely produce sufficient demand from the world's fixed-income investment community to cause each of this week's debt offerings to go off without a hitch. If so, these debt auctions will not noticeably influence the current trend trajectory of mortgage interest rates.

I continue to believe trading activity in the stock markets will be a major "X-factor" in terms of the trend trajectory of mortgage rates over the course of the coming week. Higher stock prices will tend to put upward pressure on mortgage interest rates while falling stock prices will probably prove supportive of steady to fractionally lower mortgage interest rates.

My models are suggesting the further we get into April - the more difficult it will likely be for the Dow and NASDAQ to sustain their move to higher prices. I am currently projecting the Dow will "top out" in the neighborhood of 12,550 on or about, Friday, April 15^th. The NASDAQ seems to be setting up in a similar manner -- with a projected "top" in the neighborhood of 2,890 coming sometime between Wednesday, April 13^th and Friday, April 15^th.

Be patient - be disciplined - and play it by the numbers.

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Daily Commentary by Larry Baer 4.11.2011

Commentary: Uncle Sam will be in the credit markets this week looking to borrow $66 billion through a three-part auction series running from Tuesday through Thursday.

Wednesday's March Retail Sales, Thursday's March Producer Price Index and Friday's Consumer Price Index will all draw considerable investor attention as well. Investors have already priced in expectations that Retails Sales will post another solid month of gains while core inflation pressures at both the wholesale and consumer levels are forecast to have edged fractionally higher. The consensus estimate among economists is currently calling for a 0.3% gain in the month-over-month core producer price index and a 0.2% month-over-month gain in the core rate of the consumer price index. In my judgment these two core measures of inflation (a value excluding the more volatile food and energy components) is where the rubber-will-meet-the-road in terms of the trend trajectory of mortgage interest rates this week. Core inflation values less than the current consensus estimate will be supportive of steady to perhaps fractionally lower rates -- while higher core inflation readings - especially if it occurs at the consumer level - will unfortunately, but almost certainly send mortgage rates higher.

I continue to believe trading activity in the stock markets will be a major "X-factor" in terms of the trend trajectory of mortgage rates over the course of the coming week. Higher stock prices will tend to put upward pressure on mortgage interest rates while falling stock prices will probably prove supportive of steady to fractionally lower mortgage interest rates.

My models are suggesting the further we get into April - the more difficult it will likely be for the Dow and NASDAQ to sustain their move to higher prices. I am currently projecting the Dow will "top out" in the neighborhood of 12,550 on or about, Friday, April 15^th. The NASDAQ seems to be setting up in a similar manner -- with a projected "top" in the neighborhood of 2,890 coming sometime between Wednesday, April 13^th and Friday, April 15^th.

Be patient - be disciplined - and play it by the numbers.

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Economic Calendar for the week of April 11th

The Economic Calendar for the week of Monday, April 10th through Monday, April 18th, 2011


Mon. April 11, Most mortgage-backed securities “roll” to May delivery.

Tues. April 12, 1:00 p.m. ET Treasury sells $32 billion of 3-year notes.

Wed. April 13, 8:30 a.m. ET March Retail sales

Wed. April 13, 10:00 a.m. ET Feb. Business Inventories

Wed. April 13, 1:00 p.m. ET Treasury sells $21 billion of 10-year notes

Wed. April 13, 2:00 p.m. ET Fed Releases “Beige Book”

Thurs. April 14, 8:30 a.m. ET March Producer Price Index

Thurs. April 14, 8:30 a.m. ET Initial jobless claims for the week ended 4/9

Thurs. April 14, 1:00 p.m. ET Treasury sells $13 billion of 30-year bonds

Fri. April 15, 8:30 a.m. ET March Consumer Price Index

Fri. April 15, 9:15 a.m. ET March Industrial Production & Capacity Utilization

Daily Commentary by Larry Baer 4.7.2011

Commentary: As expected, the European Central Banks raised short-term interest rates for the 17 member nations of the euro-zone by 25 basis-points earlier this morning. It was the first hike since 2008. Mortgage investors shrugged.

Mortgage investors were equally unimpressed by news from the Labor Department indicating the number of Americans standing in line to file first-time jobless claims dropped 10,000 during the week ended April 2^nd. This was the second straight drop for this measure of labor market conditions and continues to signal a slow improvement in overall economic growth - a consideration already well priced into most of investors' rate sheets.

Against the push and pull of the current macro-economic background I believe trading activity in the stock markets will likely be the factor that tilts the trend trajectory of mortgage interest rates decidedly in one direction or the other. Higher stock prices will tend to put upward pressure on mortgage interest rates while falling stock prices will probably prove supportive of steady to fractionally lower mortgage interest rates. My models are suggesting the further we get into April - the more difficult it will likely be for the Dow and NASDAQ to sustain their move to higher prices.

Be patient - be disciplined - and play it by the numbers.

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Daily Commentary by Larry Baer 4.6.2011

Commentary: News that China's central bank raised short-term interest rates yesterday morning for the second-time this year has combined with the likelihood the European Central Bank will nudge their short-term interest rates higher on Thursday to make credit markets uneasy. Federal Reserve Chairman Bernanke stirred the mix with comments he made on Monday night at the Atlanta Federal Reserve Bank Financial Markets Conference when he said the Fed will be monitoring rising domestic prices and inflation expectations closely. Against the global interest rate tightening background - all it took to make many credit market participants weak in the knees was the word "inflation" crossing the lips of the Chairman of the Federal Reserve. The mere discussion of the potential of a hike in the Fed's benchmark short-term interest rates has the power to keep the heat turned up on the prospects of higher mortgage interest rates ahead.

As they do every Wednesday, the Mortgage Bankers of America have released the mortgage application survey figures for the week ended April 1^st. The overall number of mortgage applications taken last week declined by 2.0% on a week-over-week basis. Purchase money requests were higher by 6.7% while refinance applications dropped by 6.2%. The national average contract rate for a 30-year fixed-rate mortgage finished the week at 4.93%, unchanged from the prior week's level, unchanged from four weeks ago, but down 38 basis-points from the year ago mark. Refinance loan requests account for six out of every ten applications taken last week.

Against the push and pull of the current macro-economic background I believe trading activity in the stock markets will likely be the factor that tilts the trend trajectory of mortgage interest rates decidedly in one direction or the other. Higher stock prices will tend to put upward pressure on mortgage interest rates while falling stock prices will probably prove supportive of steady to fractionally lower mortgage interest rates.

Be patient - be disciplined - and play it by the numbers.

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Daily Commentary by Larry Baer 4.5.2011

Commentary: Is the porridge too hot - or too cold?

Mortgage investors are having a difficult time trying to answer that question in terms of the appropriate level for mortgage interest rates.

On the one hand, the pace of economic recovery appears to be cooling a bit. The Institute of Supply Management released their March Service Sector Index figures earlier this morning - and the data was weaker than had been expected. The overall measure of activity in the sector of our economy that accounts for more than 66% of all enterprises and employs as much as 80% of all American workers -- fell for the first time in seven months. The Service Sector index fell to 57.3% last month from 59.7% in February. In the tangled world of credit market influences this morning's report falls in the mortgage market friendly bin.

On the other hand, news that China's central bank raised short-term interest rates this morning for the second-time this year has combined with the likelihood the European Central Bank will nudge their short-term interest rates higher on Thursday to make credit markets uneasy. Federal Reserve Chairman Bernanke stirred the mix with comments he made last night when he said the Fed will be monitoring rising domestic prices and inflation expectations closely. Against the global interest rate tightening background - all it took to make many credit market participants weak in the knees was the word "inflation" crossing the lips of the Chairman of the Federal Reserve. The mere discussion of the potential of a hike in the Fed's benchmark short-term interest rates has the potential to turn-up-the-heat on the prospects of higher mortgage interest rates ahead.

Against the push and pull of the current macro-economic background I believe trading activity in the stock markets will likely be the factor that tilts the trend trajectory of mortgage interest rates decidedly in one direction or the other. Higher stock prices will tend to put upward pressure on mortgage interest rates while falling stock prices will probably prove supportive of steady to fractionally lower mortgage interest rates.

Be patient - be disciplined - and play it by the numbers.

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Daily Commentary by Larry Baer 4.4.2011

Commentary: The economic calendar is virtually barren of anything in the way of macro-economic news for mortgage investors to chew on this week. Tuesday's Institute of Supply Management's Service Sector Index will get some attention as will Thursday's initial weekly jobless claims number - but there is little chance either report will pack enough "punch" to significantly influence the trend trajectory of mortgage interest rates.

In my judgment trading activity in the stock markets will be the controlling factor with respect to changes in your investors' rate sheets. I see reasons to believe the Dow will be vulnerable to a downward correction as it trades into the 12,400 to 12,600 range (as I write the Dow is trading at 12,398). My timing models are suggesting a potential trend change for this asset class will likely occur on or about Tuesday, April 5^th. (It is rare that my timing models produce trend change target dates for both mortgage-backed securities and stocks that match to the day - but it does happen.)

If my projections prove accurate, and if the sell-off in the Dow is stronger than 100 points or so - a large portion of the capital leaving the stock markets will almost certainly be happy to park in the relative safe haven of Treasury debt obligations and mortgage-backed securities - a development that will tend be to supportive of the prospects of steady to fractionally lower mortgage interest rates. On the other hand, if the Dow accelerates toward the upside target of 12,600 it will almost certainly do so at the expense of fractionally higher mortgage interest rates.

By the time the final bell sounds to end the trading day tomorrow -- it is highly likely we will have a solid idea which direction mortgage interest rates will trend for the balance of week. Be patient - be disciplined - and play it by the numbers.

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Daily Commentary by Larry Baer 4.1.2011

Commentary: The economy racked-up a second straight month of gains in March. Headline payrolls grew by a larger-than-expected 216,000 new jobs while the national jobless rate simultaneously fell to a two-year low of 8.8%. The initial knee-jerk reaction to the data sent mortgage interest rates higher - but then calmer, cooler heads stepped in and started to push rates back towards yesterday's closing levels. More seasoned market participants are keenly aware that will current high levels of unemployment persist and while the length of that unemployment is still almost shockingly high, the Fed will remain on the sidelines for many months yet to come before they begin the inevitable process of nudging their benchmark short-term interest rates higher.

One of the other dark spots in this morning's otherwise chipper employment report was found in the component that measures average hourly earnings. On a year-over-year basis earnings were up 1.7%. While any earnings gain is welcome - the fact that during the same period inflation at the consumer level has increased by 2.2% suggests the contribution from consumer spending in the next several months may be notably lower than many now anticipate. Given that consumer spending drives up to 70% of all domestic economic activity -- current forward looking growth expectations for the overall growth of the economy may be too optimistic. Time will tell - but judging by today's price action in the mortgage market - it currently appears more experienced traders are not yet ready to write-off the near-term prospects for fractionally lower mortgage interest rates.

Looking ahead to next week the economic calendar is virtually barren of anything in the way of macro-economic news for mortgage investors to chew on. Tuesday's Institute of Supply Management's Service Sector Index will get some attention as will Thursday's initial weekly jobless claims number - but there is little chance either report will pack enough "punch" to significantly influence the trend trajectory of mortgage interest rates.

In my judgment trading activity in the stock markets will be the controlling factor with respect to changes in your investors' rate sheets during the coming week. I see reasons to believe the Dow will be vulnerable to a downward correction as it trades into the 12,400 to 12,600 range. My timing models are suggesting a potential trend change will likely occur on or about Tuesday, April 5^th. If my projections prove accurate, and if the sell-off is stronger than 100 points or so - a large portion of the capital leaving the stock markets will almost certainly be happy to park in the relative safe haven of Treasury debt obligations and mortgage-backed securities - a development that will tend be to supportive of the prospects of steady to fractionally lower mortgage interest rates.

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME