Clint Hammond

First the wrap up on the week, then the move forward ideas and suggestions.

Our benchmark FNMA 5.5% mortgage bond was in the red most of the day before recovering losses late in the session to move 6bp higher to close at $100.25. Mortgage bonds moved lower and stocks higher initially following a worse than forecast Jobs Report. Payrolls in September were worse than forecast with a loss of 159,000 jobs vs. the estimated loss of 104,000. That makes 9 consecutive month of job losses. Investors had been expecting an even worse number and the bad jobs data made it more likely the $700 billion bailout bill would be passed today so the equity markets were viewing this as a positive. It was a case of 'buy the rumor, sell the news' as the stock market traded substantially higher leading up to the House vote then hit a U-turn after the House passed the measure by a final vote of 263-171. The Dow, up more than 300 points prior to passage, gave up all of its gains and fell another 157 points to close at 10,325. The NASDAQ Composite Index shed 29 points to close at 1,947 while the broader S&P 500 Index lost 15 points to end at 1,099. Ahead of bill's passage, investors purchased as prices increased and then jumped into profit taking mode post passage and this is somewhat disturbing as all rallies are sold into to lock in quick gains. This signals that the consensus amount the big investors is that the economy still faces significant challenges due to the credit freeze and job losses. Job losses have been increasing at an accelerated pace over the past nine months indicating a recession could linger longer and be deeper than originally thought. At least overnight dollar LIBOR loans fell below the Fed's 2.00% target rate for the first time since Sept. 14, 2007 by dropping to 1.996%. However, longer duration LIBOR rates still show the credit markets remain frozen as banks pretty much refuse to lend to one another for longer than a day due to concerns the banks they may lend to might fail. This past week alone, six banks scattered throughout Europe and the U.S. required government help to keep them from failing. The Libor-OIS spread, a measure of cash available for loans among banks, jumped to 2.84% from 2.607%, a new record. Oil closed at $93.88 nearly unchanged.

AND NOW FOR THE GOOD NEWS FOR ALL OF US THAT ARE TRUE REAL ESTATE PROFESSIONALS.

Now, more than ever, our job is not only still necessary as people will always need to buy and sell houses and will always need to finance those purchases as this is the largest investment that most people will ever make. Our role, whichever side of the transaction we're on, is on that is "boots on the ground" so speak. We're in the trenches and that means we are in direct contact with the end user, our client. Our clients inevitably will always read the papers, watch the news, listen to radio talk shows, talk to their friends and colleagues, and so forth that are perpetuating misinformation, disinformation, and injecting an increased level of fear and anxiety that will make our job of actually closing that sale all the more difficult. The theme, if you've been reading my blog lately, has been the fact that the problem is not the product. The product itself is good. The problem is the fear and unknown that comes with making an investment that is more important than any other investment 90% of Americans will make.

That means your job as a Realtor is not to sell a house. Not at all is that what you are out to do. Houses sell themselves to their suitable buyer. My job is not to sell an interest rate, interest rates are not something that I have control over. Your job is to sell an idea and to sell a belief that this house, this particular house, is the one that is right for your clients family. That this very house is not going to lose value and put them in the position that they see people in on the front page of the paper or on the nightly news. My job is to ensure them that I am utilizing the tools at my disposal to properly advise them to make sure that their house works for them the way that it should as an asset. To show them how structure, not rate, and how fees, not product, are the tools and the costs that need consideration in the moment of purchasing a home and how a game plan for post closing is more important than anything we work on prior to the closing table. It's the relationship and trust that we're so obligated to work on. Not the sale. The actual sale itself is the most insignificant part of the transaction. If you do your job, and I do mine, prior to the sale, the sale is a byproduct of our work, not the objective.

I enjoy what I do and that pays dividends in the form of my borrowers enjoy working with me. When everything is explained and the process takes on the transparency that it requires, the fear and anxiety is eliminated. When the anxiety and fear is eliminated, the process of closing on the purchase of a new home is a refreshing process for all involved and that perpetuates my business and the business of my Realtor partners regardless of the economic conditions and housing bubbles and credit crunches and whatever other hot button buzz words you want to tag it with. The same is true for all of you agents and attorneys, and financial planners, and so forth. Building your base of business on relationships and not volume and income objectives is sustainable and ends up taking care of the volume and income by default. Call me if you want to, I'm happy to help when I can.

Take care and go sell some houses!

Updated: 2:35 pm-

Congress passed the rescue bill this afternoon. Stocks pare a decent amount of their earlier gains, the Dow is up 81 points compared to the 250 it was up to earlier in the day. Nasdaq has cracked 2000 and stayed there, up 24 so far and the S&P is looking at 12 points higher since the open. Mortgage Bonds are showing zero gain on the day, but this is up anywhere from 16 bp to 34 bp from when this mornings rate sheets came out. If this rally continues by moving up a little more even showing the stamina to hang on to current levels, Lenders will be in a position to reprice for the better. I'm not putting a "float!" strategy on the table yet for loans closing in the next 10 days, but I'm very close to that. Anything 30 days out, I am floating and locking over the weekend if research shows this is not a sustained trend I'm going to wait and see what next week looks like with the FOMC meeting minutes coming out on Tuesday afternoon at 2pm. I'll try to get an update on here over the weekend if not tonight so check back if you want to see how to advise your clients and/or how to proceed yourself.

Jobs- most jobs lost in 5 1/2 years and slight revisions to the two prior months figures added a net 4,000 jobs and unemployment holds at 6.1%. In 2008, the US has lost 760,000 jobs. This is a lousy report. Normally, this is going to move bonds higher (and rates lower) but prices are bouncing on account of several other factors that are proving to have a little bit more influence. There is talk that the Fed and other Central Banks around the world are strongly considering and even positioning themselves to actually start cutting rates and as we know, rate cuts are NOT GOOD for bonds and tend to push prices down. Which of course will push UP mortgage rates. Don't let the generic term "rate" lead you to believe that a "Fed Cut = Mortgage rate cut", the two are different animals that impact each other but are not the same thing. Speculation that the passage of the rescue bill in coming this afternoon is pushing stocks higher, the Dow is up 224.68 and the NASDAQ and the S&P are up 62.38 and 32.34 respectively. This is drawing money out of bonds and has our 5.5% FNMA Mortgage bond convulsing in a 50bp range. We've been up as much as 16bp and down as low as 35bp on the day. It's just 11:30am!! Currently, the 5.5% FNMA is trading at $100.09 which is down 9 bp. I think we're in for a wild ride today in all the markets.

We manage to bounce up anytime we approach the all important 200 day moving average but we're stuck on a ceiling of resistence at the 25 day moving average. Technical factors, i.e. stock trading, is most likely not going to be enough to break through that floor or above that ceiling. In other words, all the economic reports are out and the only non technical factor left to play on our market today is that bailout bill that is being debated in the house. If that passes and if the talk of Fed rate cuts heat up, we could see our support deteriorate and short term would be higher mortgage rates so call now, either me or your clients, or your mortgage professional you are currently working with, and find out what the current rate is and lock it if you like it. They are putting a 60% chance of passage on the bill so the odds are on it passsing. The "new mortgage market" is certainly different in that decisions have to be made on the spot and what you have to spend your time doing and discussing is strategy, not the hard and fast numbers because rates have proven that this mornings rates and this afternoons rates are often so completely different as the market acts and reacts violently to every whisper. So know what you need, know where to get the info, know what the next impacting force on the market is and just make prudent and well educated decisions on how to proceed.

Playing the "what if" game isn't the smart play anymore because there are too many variables and when it's your money, your family, and your financial well being that is on the table. You need solid advice from a mortgage lender that understands what is going on (to the extent that can be accomplished) and that you trust to make a decision with you and on your behalf after a thorough interviewing/game planning/strategy session. If your client isn't working with someone that can convey knowledge and understanding of the situation at hand, then you both could be in for a rude awaking when you get backed into corner and have to lock at an inopportune time because the "what if rates go down" card was played when there was information pointing the other direction. Call or email me if you further details on this, I hope this helps and we'll hope for a good weekend of selling houses and getting back to the business of serving our customers, clients, and borrowers.

-159,000 jobs lost compared to an estimated -104,000.

Unemployment rate 6.1%, as expected.

Hourly Earnings +.3% on a +.2% estimated.

Average work week 33.6 on an estimate of 33.7.

Jobs lost was more than expected but other figures come in close to or on the number. Markets react positively to the bad news which is odd and pointing towards the fact that the wait is more on the news coming from Washington. 159,000 jobs lost is not a good thing, worst is 5 years, no reason in the world that should push up the Dow and NASDAQ but it did. Mortgage backed securities pay for the increase in equity markets and move into the red. Down 12bp as of 8:41 this morning. 10 year Treasury also down 12 bp. Bonds taking a hit for "not as a bad as we thought" report. Cooler heads will be reminded that the report is still VERY BAD.

This is not a trend in the markets, this is the initial reaction and we'll see what the equities open as they will most likely come down from the pre market sessions highs that they just hit. Dow up 60 and NASDAQ up 13 and the S&P up 10 in pre open trading.

More to come later today as we see how this all plays out with bailout package.

Dow points lower, NASDAQ as well. MBS open up 9bp ahead of the jobs number.

More to come after the jobs report is released.

We've had, to say the least, a very interesting week. The markets have gone to great length to prove how bipolar they are and just how volatile they can be. One 800 pound gorilla is the bailout plan that passed, didn't pass, was re-passed, and now on the table for the house to revisit tomorrow. This needs to be passed, if you want further dialog and dissection of this side of the issue: http://www.scmortgagenetwork.com/cln_000001_mortgage_101.html

But now to the events of the day and the look ahead to tomorrow. Today's factor orders report fell by it's largest amount in 2 years while both consumers and manufacturers struggle to find financing in this locked up credit market where financing is much more difficult to obtain. Also, weekly jobless claims were estimated to come in at 475,000 but when the report came out at 8:30 this morning, it was 497,000 claims. This lifted bonds early and although they retreated from their highs, the 5.5% FNMA bond finished 28 bp higher $100.19. It wasn't a 'queit day' but compared to earlier in the week and in light of the calendar tomorrow, it didn't have the 'punch' that it may have normally had. The equity markets didn't fare to well with Dow tumbling 348 points to finish at 10,482 while the NASDAQ Composite Index fell 92 points to close at 1,976. The broader S&P 500 Index lost 46 points to end at 1,114. Looking forward to the reports due out tomorrow, we have some serious market movers due out, all at 8:30am tomorrow morning:

Report: Est.

Unemployment 6.1%

Average Work Week 33.7

Hourly Earnings .3%

Non Farm Payrolls -105k

Remember, anything worse than expected, and those are not good expectations to begin with, should kick the flow of investment from the stock market and into bonds. We're still, STILL, waiting on the significance of the Fannie and Freddie now basically being backed by the Federal government and therefore being as safe at the 10 year with higher yield. If that happens and we see the move that I'm expecting, then we should see a significant rate drop. That plus house passage of the bailout bill and therefore "acting as the drano" that they are desperately in need of, mortgage rates should see a substantial drop. I am looking for at least two reprices for the better tomorrow on top of a lower initial rate sheet in the morning.

This is a good week to get contracts signed but have the pre-approved first so you can have your clients lock in and get closed up on solid, low, long term mortgage rates. I will be certainly happy to help so please do not hesitate to call me if I can be of service.

Come back and check out the blog tomorrow, hopefully we'll have our silver lining.