Market Snapshot

Starting at 7:00 this morning; the weekly MBA mortgage applications. The Market Composite Index, a measure of mortgage loan application volume, decreased 2.2%. The Refinance Index decreased 3.1% from the previous week and the seasonally adjusted Purchase Index decreased 1.0% from a week ago. The only segment of the survey that posted an increase in activity was the government Purchase Index, which rose 0.5% from the prior week on a seasonally adjusted basis — the seventh consecutive weekly gain.  For the month of August, the government-insured share of purchase applications was 40.4%, up from 38.3% in July and 31.7% in August 2008.  The share was the highest since February 1991. The refinance share of mortgage activity remained unchanged this week at 56.5%. The adjustable-rate mortgage (ARM) share of activity decreased to 5.6% from 6.5% of total applications from the previous week. The average contract interest rate for 30-year fixed-rate mortgages decreased to 5.15% from 5.24%, with points increasing to 1.09 from 1.07 (including the origination fee) for 80% loan-to-value (LTV) ratio loans. The average contract interest rate for 15-year fixed-rate mortgages decreased to 4.57% from 4.58%, with points decreasing to 0.85 from 1.18 (including the origination fee) for 80% LTV loans.

 At 8:15 the August ADP employment data; ADP says job losses in the private sector were 298K, substantially more than the 200K expected from the BLS on Friday, but ADP does not include government jobs, since government jobs generally increase if we add an estimated 20K jobs for government total comp[arable job losses would be 278K, still a larger decline than what has been estimated. We noted last Friday that job losses would likely be larger than the optimistic 200K expected.

 At 8:30 Q2 revision of productivity, expected to be revised lower from 6.4% on the advance report to 6.1%, it actually increased to 6.6%; the implication, business is squeezing more out of workers after job losses, and workers are stepping up fearing for their jobs. Unit labor costs fall as productivity increases, labor costs for the Q were -5.9%, the largest decline in quarterly unit labor costs since Q2 2000. More evidence businesses are benefiting from pushing workers harder.

 At 9:30 the stock market opened -20, the 10 yr note +3/32 and mortgage prices +3/32. The rest of the day will be as it has been—interest rate markets moving inversely with the stock market, stocks up, prices for treasuries and mortgages lower. (see below for 10:10 levels)

 At 10:00 July factory orders; expected to be +2.2%, were +1.3%; July orders were revised to +0.9% frm +0.4%. Excluding transportation orders -0.7%, July ex transportation orders revised to +2.7% frm +2.3%. No initial market reaction to the data.

 At 2:00 this afternoon the FOMC minutes from the 8/12 meeting. Interesting but generally nothing significantly new in the minutes from what we have heard through Fed officials since then. Nevertheless, markets always pay attention to the minutes looking for little pearls of information and clues.

 Still hearing more talk that the Fed should consider slowing the pace of MBS purchases; mostly founded on the declining interest rates for mortgages these days. The logic, slow it down when it isn’t needed and use the rest of the $1.25T (about $460B) when needed to combat increasing interest rates. Will the Fed slow down? Hard to say but it is something the Fed is likely considering. 

 Is this the end times for Fannie and Freddie as we know them? If the MBA has its plan adapted it would be the end of the two behemoths as they are now constituted but not completely eliminating them. MBA’s plan, create smaller private companies that are government sponsored. MBA wants select private enterprises to collect and securitize MBSs, sell them in the markets with the principle and interest guaranteed to investors through an insurance fund paid by the new enterprises. As we understand the outline, the government would manage the insurance fund to assure there will be enough to cover any serious losses. Still a work in progress and just one of a few thoughts being tossed around these days. Investors would have no risk on the credit in the securities but would have the risk on interest rate movements. Sounds a lot like FHA/VA. Our first thought is that big banks would be the private enterprises and take another step for six or seven banks controlling all of the mortgage markets. Stay tuned for more details, this isn’t something that can or will happen anytime soon.

 

PRICES @ 10:00 AM

10 yr note:                    102.08 +3/32 3.36% -1 BP

5 yr note:                      100.10 +3/32 2.30% -3 BP

2 Yr note:                      100.06 unch 0.91% unch

30 yr bond:                   105.12 +22/32 4.18% -5 BP

Libor Rates:                  1 mo; 0.254%; 3 mo 0.330%; 6 mo 0.726%; 1 yr 1.295%

30 yr FNMA 4.5 Oct:     100.12 +3/32 (.09 bp) (+14/32 (.43 bp) frm 10:00 yesterday)

15 yr FNMA 4.0 Oct:     100.24 -1/32 (+9/32 (.28 bp) frm 10:00 yesterday)          

30 yr GNMA 4.5 Oct:    100.19 +3/32 (.09 bp) (+10/32 (.31 bp) frm 10:00 yesterday)

15 yr GNMA 4.0 Oct:    101.10 -3/32 (.09 bp) (+7/32 (.21 bp) frm 10:00 yesterday)

Dollar/Yen:                  92.57 -0.30 yen

Dollar/Euro:                $1.4211 -$0.0008

Gold Dec:                     $966.90 +$10.40

Crude Oil Sept:             $67.94 -$0.11

Goldman-Sachs

Commodity Index:       441.55 -1.66 

DJIA:                            9302.89 -7.71

NASDAQ:                      1968.86 -0.03

S&P 500:                      997.11 -0.93

 

**Please note I will be out of the office 9/17-9/23**

“Your Partner In Success!”

 

Tony Frerking

Sr. Mortgage Consultant

PMZ Home Loans

1600 N. Carpenter Rd Ste. A-1

Modesto CA 95351

 

Methods of contact:

Direct: (209) 404-2200

Fax: (888) 345-2768

Contact Via Skype / Skype name = aplynow