Mortgage Secrets…Learn What the Experts Say

After a nice rally yesterday afternoon, prices are again higher today and are testing resistance at the best prices of 2008…so stay tuned, as things can change quickly.

The Initial Jobless Claims were 573,000, far higher than expectations of 525,000 and the highest in 26 years. The data shows that businesses are laying off workers at a rapid pace as the current recession drags on.

In other economic news, the Trade Balance for October was reported at -$57.2B, wider than the expected -$53.5B. The weak US economy pushed down exports and imports in October, but the overall deficit rose as the volume of oil imports jumped.

The US House voted 237-170 last night to approve emergency loans for GM and Chrysler shifting the focus to the Senate, where Republican opposition threatens to delay or kill the legislation. The uncertainty on the outcome of this plan is putting a little pressure on stocks.

Mortgage Bonds are trading higher as Stocks trade slightly lower. There are no high impact economic news reports scheduled for release today.

How do you feel about “kicking the tires”?  Looks like the US taxpayers will now be in the automobile business, as it appears a bailout plan for GM, Ford and Chrysler is close by. Democrats in Congress have drafted a plan to aid automakers with $15 Billion in loans.

And some interesting news about the “Uptick Rule”…word from Washington is that five members of the House Financial Services Committee are sponsoring a bill that would force the SEC to reinstate the uptick rule. The NYSE Euronext CEO also wants it back, an opinion shared by 85% of NYSE-listed companies, according to an October survey commissioned by the exchange. The uptick rule is a former rule established by the SEC that requires every short sale transaction be entered at a price that is higher than the price of the previous trade. The reinstatement of the uptick rule would do a lot to quiet the excessive volatility in both Stocks and Mortgage Bonds. As you know, we have written a lot about this during the past 18 months. Since the removal of the uptick rule in July of 2007, volatility for both stocks and bonds have gone wild.

Stocks are building on their recent gains on news that lawmakers on Capitol Hill have reportedly agreed on the outline of a deal to rescue the ailing auto industry.  Also adding some fuel to Stocks is the announcement of a massive infrastructure investment pledged by President-elect Obama.  Stocks have taken a beating this year with the Dow down 40%, S&P 500 down 40% and the Nasdaq down 43% - but these announcements, as well as next week’s Fed Rate cut and pending decision on “mark to market” accounting are setting the stage, that we have been forecasting, for a major Stock Market rally in the first quarter of 2009.  Remember that close to 30% of fund manager’s holdings are in cash and the redemptions we have been talking about from hedge funds will need to be put back to work between January 15th and February 15th.

There are no economic reports due out today so Mortgage Bonds may take a cue from technical factors as prices once again test the best levels of 2008.

Mortgage Bonds are near unchanged this morning as Stocks trade a little lower.

Initial Jobless Claims were 509,000 versus estimates of 540,000.  This is down from 530,000 the week before and was the lowest weekly reading since November 1.  The four-week moving average of new claims - which smoothes out distortions caused by one-time events such as holidays and weather - rose by 6,250 to 524,500, the highest in sixteen years.  The Labor Department also said 4.09 million laid off workers received government unemployment checks in the week ended November 22, the most since December 1982.  Remember you have to factor in that the population is higher now, so while these numbers are certainly not good, they may not have as great a relative significance. Read the rest of this post

After touching the highest prices of the year on Monday, Mortgage Bonds have reversed lower.  The recent trading activity suggests we are still seeing hedge funds and banks de-lever, meaning they have to sell anything, including valuable Mortgage Bonds in order to raise capital. Read the rest of this post

A Thanksgiving-like helping of economic news was served this morning and as a result, Mortgage Bonds are trading a little higher.  Durable Goods Orders, plunged in October by 6.2%, far worse than expectations of a decline of 2.5% and the largest drop in two years.  After excluding transportation orders, Durable Goods fell 4.4%…still not a good number.  Even though the report was worse than expectations, the market had been braced for a bad reading. Read the rest of this post

The Fed is going to buy Mortgage Bonds.  The Federal Reserve just announced that it would purchase $600B of Mortgage-Backed Securities (MBS) backed by Fannie Mae, Freddie Mac, and Ginnie Mae.  This brilliant move by the Fed is designed to help increase the availability of credit, while lowering fixed mortgage rates.

In addition to purchasing debt  backed by Fannie and Freddie, the Fed will set up a $200B program to support consumer and small-business loans.  The Fed looks for the plan to create liquidity in the auto, student and small business loan market.

Taking a backseat this morning was preliminary 3rd Qtr. GDP, which matched expectations of -0.5%.  In light of this morning’s Fed announcement, this report had no effect on the market.

Consumer Confidence is due out shortly and will likely be a very weak number.

At 1pm ET,  the Treasury will auction off $26B of 5 Year Notes.  Again in the wake of this morning’s news, there may not be much of a reaction to the results.

Mortgage Bonds have powered above the Falling Resistance Trendline, which has kept a lid on pricing for months until now.

Falling for a fourth straight month, Retail Sales plunged lower by 2.8% in October, worse than estimates of -2.1%, and representing the worst reading since record keeping on Retail Sales began back in 1992. I have written often to you about the poor retail sales and weak state of the economy and it seems lately that everyday the news reflects the worst readings in decades. It’s not likely to get better anytime soon, as consumers worry about their jobs in this weak labor market, and have watched their financial portfolios decline in value.  As I’ve mentioned, this gives a very bad outlook for the retail industry overall, heading into what looks to be the worst holiday shopping season in a long, long time. Read the rest of this post

The Labor Department reported 240,000 jobs lost in October, worse than the loss of 200,000 that was expected.  The Unemployment Rate jumped significantly to 6.5%, from 6.1% and represented the highest unemployment rate since 1994.  As if the reports weren’t bad enough, there were heavy downward revisions to August and September, which erased an additional 179,000 jobs.  Just a coincidence right after the election? Who knows. So far in 2008, a total of 1.18 million jobs have been lost, with 651,000 coming in just the past three months. 1.18 MILLION! Certain states such as California, Michigan and Rhode Island have definitely been hit the hardest.

Even though Stocks have had their worst back to back days since the 1987 Stock Market crash, the pain in Stocks may continue.  Why? Today’s Jobs Report was brutal and would typically nudge the Fed to cut rates in an effort to stimulate the economy but with the Fed Funds Rate already at 1%, the Fed doesn’t have much more room to cut.  So how much more can the Fed help here?  Although Stocks have opened higher this morning, today’s report and the Fed’s limited ability to provide help, should sink in and create selling pressure on Stocks.  This could and should help bonds improve.

FUNDS TO CLOSE for FHA

As the up and downs continue, many of my clients call wondering how they are going to get the funds needed to purchase a home. There are many alternatives available depending on their own particular situation but FHA may be the answer they are looking for. ***Some of these FHA guidelines may have additional investor and industry restrictions so verification per loan is necessary.

After today’s election, I believe that many people are wondering if the market will return to “normal”. Personally I think we are in for a very long hall in regards to the ups and downs of not only the real estate market but the economy in who. Regardless of anyone’s personal views, it is always prudent that to meet with your client to determine how much and from where they are going to get their down payment and closing cost funds. Below are just 3 of the 22 Important Ways to know well ahead of the closing date before your client starts shopping. Make your transactions smooth sailing from start to finish by being knowledgeable from day 1.

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