Clint Hammond

Yesterday was odd....considering that everything happened exactly opposite of how it "should've happened" assuming you used history as your guide. However, yesterday's panic led to more chaos today although things we're brought back to "a little closer to expected." That doesn't mean good, that just means predictable. With a random rally in the stock market late in the day, in spite of The Fed holding steady, and a rush out of bonds, mortgage rates took a spike late in the day. Some lenders repriced twice after 3pm. We were one of them. So when things should've by all accounts moved the other way, there was the Twilight Zone factor involved in trading after The Fed made their announcement. Of course it was 7:30pm last night and all the markets were closed when the US Government let the AIG cat out of the bail out bag. So everyone got a night to sleep on it, although I don't know how much sleep was involved. Of course that leads into today's action.......

The $85 BILLION bailout of AIG failed to restore any level of investor confidence and now all US Citizens have their own little slice of the insurance company.Reserve Primary Fund, the oldest money market fund and one that claims $62 billion in assets, broke the buck. i.e. had its net asset value fall below the $1/share level. This marks the first time that has happened to any money market fund in the last 14 years. The US dollar responded negatively by moving lower while commodities shot through the roof. Especially gold which chalked up it's largest one day gain EVER surging$90/oz in after market trading. Our bonds also recouped some of yesterday's slide by picking up 41bp to close at $101.00 for our 5.5% FNMA mortgage bond. And just as I thought, the mortgage backed securities were a much bigger beneficiary than the 10 yr t-note which only picked 6bp in the flight to safety. The yield is higher on the MBS and after the events of last week with the FNMA/FRMC take over, they are basically just as safe and a much more attractive place for investors amidst the doom and gloom of our recent ill-behaved markets.

Lost amongst all this insanity was a dismal housing report. Housing starts fell 6.2% in August to an annual rate of 895,000 which is a 17 year low. (Estimate was 950,000.) Building permits were off 8.9% to a 26 year low of 854,000 vs the consensus estimate of 925,000. The Dow got CRUSHED, losing 449 point to close at 10,609, the NASDAQ decided it needed to lose a little weight to the tune of 109 points to finish up at 2,098 while the broader S&P 500 did a lovely swan dive down to 1,156, 57 points lower than it opened.

What does all this mean? I have no clue but I do all I can to stay on top of it and be your expert if you need me. It's amazing, even bad news can be comforting for your clients. I had a couple in here today that I gave all the bad news to as we were walking through the financing of their new home. (It's amazing, people still actually buy houses....) and amid the darkness of our financial market storms, they were calm because they know that I stay on top of it. They know I make sure that regardless of where the market goes and what direction things turn, that within the constraints of that market I will work to secure them the best financing that is available. It's nice to watch them leave with a smile and talking about carpet/paint and what to do with the kids the day they move in when everyone else is stuck on ledge somewhere convinced the world has seen it's last days. Makes the job more fun when you know you have put people at ease like that.

More to come, you can be sure of it.

The effects will be clearer tomorrow but in spite of the market betting on a 100% chance of a .25 cut by the Fed today, the Fed left rates alone. This should start impacting bond prices tomorrow and anything that happens today will most likely be a knee jerk reaction. Stick around, could be some interesting days ahead of us if nothing else.

2:15 we should find out about the Fed rate. The market has a 100% chance of a .25 cut coming from the Fed. This could and most likely will make mortgage rates spike in the short run. If you've been paying attention, that's what has happened in every cut this year. The reason is that A) mortgage rates are not at all tied to the Fed Funds rate, don't fall for that. B) A cut in the Fed Funds rate pumps cash into the system, more cash in the system causes inflationary pressure and we know mortgage bonds and inflation DO NOT get along. We have been up as much as 12bp today and down as much as 44bp today so we're swinging all over the place. Currently we're back to about dead even on the day as the 2:15pm mark approaches. Check back later for more updates.

More later but I will leave you with two things, I think the forces acting on the market that have caused rates to drop lately are a stronger force than the fed cut will be. This SHOULD prove to be only a speed bump in the road and not a new trend. Keep calm and let the market do what the market does, you cannot control it you have to learn to live with in it. Panic is never a good move.

There was more blood on the table today for sure as the latest casualty from the credit crunch hit like thunder this morning. Lehman Brothers filed for Chapter 11, the largest in US history. But the other news wasn't anything to sneeze at either. Bank Of America, obviously not scared of spending money this year, picked up a little company called Merrill Lynch so Merrill would avoid going the way of Lehman Bros. AIG needed to raise a mere $40 BILLION in capital by borrowing from the Fed. Add all that up and you basically have a financial meltdown of epic proportions. Well, that's exactly what we had. The Dow closed today down 504 points, that's the biggest single day drop since September of 2001. Mortgage bonds picked up 88bp today and our 5.5% FNMA Benchmark closed at $101.47. This saw a further drop in rates today and I fully expect the same tomorrow morning. In an effort to avoid an international crisis and restore confidence, a global banking consortium comprised of Bank of America, Barclays, Citibank, Credit Suiesse, Deutsche Bank, Goldman Sachs, JP Morgan, Merrill Lynch, Morgan Stanley, and UBS agreed to provide $7billion each to create a $70billion dollar pool of emergency funds to lend to distressed financial companies. The situation is so dire that Fed Funds futures are now showing an 80% chance of the Fed stepping in with a 25bp rate cut tomorrow. As we've seen this year, that could spike mortgage rates so we're going to be paying VERY close attention to the markets from the time they open through the days first rate sheets. We'll be locking with that rate sheet unless something unexpected prompts another strategy because if we see inflation rearing it's head with the Fed announcement tomorrow afternoon, long term rates lose their luster, our prices drop on the MBS and the rates go the other way. Today's economic news was ignored in light of the Wall Street massacre. Dow closed below 11,000 to 10,917 after it's nose dive. The NASDAQ shed 81 points and closed at 2179 and the broader S&P rid itself of 59 points to close at 1192.

This is an opportunity for you so don't miss it. This means that a buyer can get into a house at a wonderful rate and you need to encourage a very long talk with between your client a true mortgage professional. Guidance by someone that knows what they are doing right now is crucial to making the right moves at the right time. Now is the time because we're making houses "cheaper" without decreasing the price right now when rates drop.

If you have a listing you can't move, let me know the sales price and what the next "price reduction mark" is and I'll get you the info to sell it at the price you've got it at now. That will benfit your client for sure and it will benefit those homes around it much more than a price drop. Let's get this market headed back the other direction and we'll use these lower rates that are now available to do so. Call me and we'll get it going.

With some bond friendly economic reports out today, I expected a break above the ceiling of resistance today and oops....we didn't get it. The market movers that were due today were PPI for August, estimated at -.5% and the actual was -.9% so that's good news right off the bat at 8:30 this morning. Bonds opened up 6bps and all was well as my Friday morning got started. Retail sales were worse than expected, -.3% compared to the expected +.3% and retail sales minus auto were -.7% compared to the estimated -.2%. This means that business is down but inflation was better/less than expected. Both VERY good for bonds. Consumer sentiment was higher than expected, 73.1 compared to the estimate of 64.0, but even still, bonds should've seen a rally. We hit that ceiling of resistance and didn't break through. Often the result of the failure to punch through that line is a significant retreat and profit taken from investors. That's exactly what we saw and by the end of the day our 5.5% FNMA benchmark bond closed at $100.59 and just above the floor of support at the $100.50 mark. So we were down 47bps on Friday's trading. This put a good many lenders in a position to reprice for the worse and that they did as many lenders acted on that pricing with a small uptick in rates this afternoon. That said, it was all technical driven as the stock markets took money from bonds late in the day. The Dow, down as much as 150 points at one time today, rallied to close only down 11pts at 11,421. The NASDAQ picked up 3pts to close at 2,261 and the broader S&P 500 picked up 2 pts to close at 1,251. So although it should've been a bond friendly day, the X factors played their hand and hurt my float theory. However, next week we have a mainly moderate market movers and a lot of them. We could see our bonds pick back up a little steam on Monday since we did close above the 200 day moving average and above the floor of support. So we're in between that range with no resistance immediately above us and therefore just a little push could send rates right back on the downward track they have been on for a little while now. We'll see, but I will be in a lock mode come Monday's first rate sheet if we get that improvement. The only big movers next week are on Tuesday. Reports due out on Tuesday are CPI, Core CPI, and the Fed meets as well. So we could get a little chatter from the Fed that may impact our late day rate sheets Tuesday and/or our Wednesday morning pricing. Stay tuned for that and I'll do my best to keep you up to speed.

Tips for the weekend. If you're showing a house, schedule a time to get on the phone with me and with your client. Get a better idea of what they can afford before you spend $4/gal driving around looking at houses that they may or may not be able to afford. (That brings up a side note.....Oil closed at $100.90/barrel which means that price went down yet again today in spite of Ike.....why? Because Ike isn't going to disrupt supply according to investors. Then why did all the gas stations reprice incredibly higher today and why were there lines at the pumps last night? Because of fear!! Unfounded fear pushed our price at the pump up because the artificial spike in demand created by the media and the willingness of the gas companies to sit silent rather than quell those fears. I didn't fill up out of principal so I may be walking to the SC/UGA game but I'll feel better about it.) The other thing I can do on the phone with your client this weekend is what those gas companies didn't do, that is quiet all the fear and anxiety that they have about buying a house in the middle of what appears to be the apocalypse if you took the bait the newspapers and tv news anchors were throwing out there. I won't throw them under the bus though, they are reading and printing what they are given. If they want accuracy, they just need to call people that live it every day they roll out of bed and get the story from the source, not from an intern pulling up other news stories. That's another rambling rant for another day.......

Bottom line is the scared customer doesn't buy. If you want to sell, eliminate the fear. Since purchasing a home comes with two "main fears"; is this a good buy and a good value for me and my family? That's your department and you can handle that. And the second is, can I properly structure and secure my financing so that it's affordable, realistic, and beneficial for my family and our financial well being? That's my department. You can't handle both by yourself so the only way you are going to efficiently and successfully continue selling is to make sure your client gets on the phone with me and you go house hunting with the "Fear" out of the picture. Then you just got to write contracts!