Ron Brown FHA & VA Home Loan Specialist

US Stocks continue their roller coaster ways as the Dow has been down by 200, and up by 300 while it is currently nearly flat for the day. Mortgage Bonds have also traded in a seesaw manner as they react to Stocks, but they look to finish positive for a third day in a row.

Stocks began the day on the down side when we received more bad news from the housing sector. The Commerce Department reported housing starts declined by 6.3% in September bringing the annual rate to its lowest since early 1991. The current construction pace of new homes is at its second lowest level in the past 50 years. This news may not be all bad since it is well recognized that what the Housing Sector needs most is a decrease of inventory if it is to stabilize. The American consumer has apparently been beaten down by the drumbeat of negativity in the headline news. Today's release of the Consumer Sentiment Index by the University of Michigan showed a record one month drop. In September the reading was 70.3, and this month's number came in at 57.5, but keep in mind that the Dow Jones Index dropped by over 20% in the first half of the month, and was definitely on the minds of those surveyed.

Mortgage Bonds started the day slightly better than yesterday's finish, but were up against pricing resistance much of the day. After Stocks initially fell, Warren Buffett made a public statement that now was the time to buy American Stocks which was the catalyst of today's surge in Stocks. While Investor's went bargain hunting, Bonds began to suffer, but eventually the focus has turned back to performance, and there are very few corporations beating earnings estimates. Combined with the poor economic reports of the day, this helped to make fixed return investments more desirable, and Mortgage Bonds are in position to finish near their 100 day average, and well over 150bp better than their lows of Tuesday, and Wednesday. The recent government moves appear to be slowly taking effect in the Bond Market, and the ultimate goal of those moves is to bring confidence back to investor's of Mortgage Backed Securities. Despite a survey by Freddie Mac showing Mortgage rates spiked higher last week by the largest margin in over 20 years, it appears we are moving back towards our recent best rates of the year.

I am recommending to follow the old adage "never lock on a Friday", and will float through the weekend, but anyone with a transaction closing in a matter of days should seriously consider locking in today's gains.

Make it a great day!

Ron Brown

FHA & VA Loan Specialist

First Mortgage Company of Washington

US Stocks are back on the seesaw today as the Dow was initially up by triple digits, then down nearly 400, and currently has rallied back to be "only" down 150. Mortgage Bonds enjoyed a strong rally yesterday, bouncing off their lows of the year, and ending the day with enough gains to push mortgage rates better by as much as .25%.

Stocks rallied to start the day on positive news regarding inflation from the Consumer Price Index, but nose dived shortly after receiving more bad news from the manufacturing sector. Today's CPI numbers showed better than expected results with overall consumer prices basically flat, as energy prices fell, offsetting increased food prices. Core prices, which exclude food & energy, rose slightly by 0.1%, but expectations were for an increase of 0.2%. Stocks reacted well to this news on the hope that it might give the Fed more room to lower interest rates again. The Philly Fed Index which measures that region's economic activity (much like yesterday's NY Empire Index), then came in much worse than expectations. This triggered a sharp selloff in stocks since the September reading was +3.8% versus this month's reported -37.5%. After yesterday's Retail Sales figures came in at their worst in 3 years, this drop in factory activity renewed concerns of a global economic slowdown. On the plus side, this gloomy outlook is continuing to pressure Oil prices lower, as the price per barrel actually fell below $70 during today's trading. Another potential positive from today's numbers is that Capacity Utilization is down, which means there is room for business expansion without a rise in pricing pressures, or further inflation.

Mortgage Bonds are benefitting from much of today's news, and are extending their gains from yesterday. After opening lower than Wednesday's finish, they have responded positively to the lower inflation, and poor economic reports. Investor's appear to have regained some confidence in Mortgage Backed Securities as they have not only continued their rally from yesterday, but they have also narrowed the spread with Treasuries as well. Initial Jobless Claims have helped their cause as the 4 week average now stands at the highest level since October 2001, and continuing claims are their highest since Summer of 2003. This goes hand in hand with the good news on inflation. The soft job market makes the probability of wage based inflation much lower, and adds to the already weak demand for goods which limits pricing increases at the retail level. All of the recent reports have been much more Bond friendly than Stock friendly, and since it will take time for the recent government infusions of capital to work their way to the Market, Stocks are currently being traded as much as a source of cash as they are a reflection of corporate value. This may trigger a positive swing in Stocks later in the day, as bargain hunters enter the Market.

For now I am recommending to float while we wait to see if Bonds can recover their losses from the last few days. However, if a transaction is closing in a matter of days, rates are still historically good, so no one should be blamed for locking today in the face of such a volatile market.

Make it a great day!

Ron Brown

VA & FHA Loan Specialist

First Mortgage Company of Washington

Us Stocks are falling once again, with the Dow testing the 9000 mark. Mortgage Bonds are also under pressure, but have made some gains after touching on their low point (= high rates) for the year.

While Stocks are down across the board, it looks like today's losses are at least partially due to actual economic, and earnings reports rather than fear. On the positive side Intel, and Coca Cola posted increased profits for the 3rd quarter, and their stock is up. In the financial sector, JP Morgan and Wells Fargo both reported significant declines in quarterly profit, but their stocks are up on the "it could be worse" philosophy of beating analyst predictions. Both banks were on the recipient list of the Treasury's cash injections yesterday. That move to inject capital into some of the nation's largest banks is being seen as a way to provide the necessary assets for their ledgers to be able to afford the inevitable mark to market losses as they unload their "toxic" real estate "assets". JP Morgan's report showed them posting losses of $642 Million from the seizure of Fannie & Freddie which wiped out the value of the bank's shares in those companies. Stocks are facing selling pressure from today's September Retail Sales report showing a 3rd consecutive drop in consumer spending, and the worst one in 3 years. Sales in August, and July were also revised lower indicating that spending was down by as much as 3.5% in the 3rd quarter which is the 1st decline in 17 years, and possibly the worst drop since 1980. Retail sales makes up about half of all consumer spending, and has been considered to be the engine of economic growth for our current global economy.

Mortgage Bonds have lost 2 full points in the last few days of trading, and are currently at their worst levels of the year. The economic news from today is mostly positive for the Bond Market, but the initial reaction was negative. As a rule of thumb, negative economic news is bad for Stocks, and good for Bonds as people look to the safety of fixed return investments. Besides the Retail Sales report, today brought the the NY Empire State index that measures New England manufacturing activity, and the Producer Price Index which measures inflation at the production level. Manufacturing numbers came in much worse than expected which is usually a Bond friendly factor. The overall PPI numbers showed a bigger drop in inflation than expected, but the Core reading was higher than forecast. Under normal circumstances this would not have had much of a negative impact because producers are less likely to pass on small inflationary increases to the consumer in tough economic times. Thursday's Consumer Price Index would typically need to show this transfer for the market to react, but in today's emotional state there was a selloff in the Bond Market. The move yesterday by the US Treasury to give over $100 Billion directly to some of the country's largest banks should also be good for Bonds. This move was meant to help raise cash levels to the point banks would be able to sell their bad mortgages at current market values (far below book value) while maintaining enough assets to satisfy FDIC requirements (the deleveraging I spoke of yesterday).

All in all, the outlook remains negative for economic growth which will continue to weigh on Stocks more than Bonds, and when the capital begins to flow effectively again, Mortgage Bonds are in good position to rebound. Because of this, I am still recommending floating transactions that have enough time to wait before closing. Make it a great day!

Ron Brown

FHA & VA Loan Specialist

First Mortgage Company of Washington

US Stocks looked to build on yesterday's historic rally, gaining 400 points in early trading, but have since cooled down and are back to the day's starting numbers. Mortgage Bonds opened down from yesterday, and despite an early rally have settled close to the opening mark.

Stocks benefitted early from investor's exuberance over further announcements by the US government to invest $ Billions directly into some of the country's largest banks. The plan is much the same as the one announced by England last week where the government will temporarily buy stakes in several major banks in order to recapitalize the Financial Markets. The hope is that this will be another step in thawing out the flow of capital to Markets, and will help to restore investor confidence in the system, thereby bringing buyer's back into the equation. Treasury officials will be monitoring the banks on the receiving end of this investment to be sure that the new capital actually makes it to the Markets, and is not hoarded by the banks themselves. These actions were deemed necessary due to the large number of banks that have found themselves "over leveraged" as a result of declining asset values. Banks have been confronted with a situation where they had to realign their balance sheets and increase their asset to liability ratios. They were reluctant to raise capital by selling assets at ultra low "fire sale" prices (made even harder by a lack of buyers in the market), and found few investors willing to help them raise cash until the government raised their hand. While the initial reaction by world markets was enthusiastic, they have cooled somewhat in afternoon trading, and economists are warning we still face a recessionary environment. If nothing else, perhaps this will buy enough time for investors to focus on fundamentals as earnings reports are brought to the Market.

Mortgage Bonds have been getting hammered just as badly as Stocks over the last week. Typically we would see Bonds benefit from the selling of Stocks as Capital shifted away from risk into the safety of fixed return investments, but in a Market void of buyers, Mortgage Bonds, and Corporate Bonds were losers as well. Even Government Bonds have been losers lately, as investors feared being repaid in inflated Dollars. The good news from this is that the spread between returns on Treasuries, and Mortgage Bonds has tightened during the recent rally by Stocks which may be indicative of growing investor confidence that the Mortgage Market will come back. However, this process will not happen overnight. It will take some time for the Market to work its way through all of this, but as more information comes out expectations are for actual data to become the focus over emotion.

I am still recommending to cautiously float while we wait for the latest measures to take effect.

Make it a great day!

Ron Brown

VA & FHA Loan Specialist

First Mortgage Company of Washington

US Stocks are responding well to the latest round of government support with the Dow trying to finish above 9000, after falling below 8500 last week. Mortgage Bonds are not trading today due to financial markets observance of the Columbus day holiday.

Stocks rallied out of the gate this morning on across the board buying, leading to the Dow's largest intraday gain in history. After a weekend that saw a flurry of government activity aimed at increasing confidence in the banking, and credit markets, all three major indexes have risen as much as 7%. General Motors has seen increases of over 30% after weekend reports of talks over a possible merger with Chrysler. Financial's are being led by Morgan Stanley who has seen their shares rise by more than 75%, as they finalized the investment of $9 Billion from Mitsubishi. Much of the credit for the broad based gains is being given to the announcement by the G7 nations that they would take whatever steps are necessary to restore the Markets to full confidence. This included a pledge by the European Central Bank, Bank of England, & Swiss National Bank that they would lend "unlimited amounts"of money to banks, while Germany, and France committed to rescue plans worth a combined $1.1 Trillion. Treasury Secretary Paulson said the US government was looking at buying equity positions in any, and all US Banks, even healthy ones.

With the Columbus Day holiday, there are no economic reports being released, and the Bond Market itself is closed, as are most banks. The end of last week saw Bond investors moving out of long term, and into short term debt which pushed Mortgage Bonds to their worst levels since Mid-August. The overall lack of faith pervading the system left investor's with an interest in cash that was being held on the "sidelines" while they waited for buying opportunities. Under normal circumstances, the resulting positive record setting day on Wall Street would be a bad indicator for Mortgage Bonds, but in times like these, we may see some of the positive forces moving Stocks do the same for Bonds. The key ingredient that has been missing of late, is enough confidence in the Market for people to be willing to buy what are essentially very good values. The world's bank rescue packages should have a positive effect on this for the next couple of days, which will hopefully lead to more buying of Long Term debt. That in turn could help Bonds, which we would see benefit us in lower interest rates to come. Also, don't forget we're in the middle of earnings season, and the economy is still in a position to disappoint. Disappointing results by Stocks, in combination with a willingness to participate by investors, could lead to capital flowing towards the Bond Market.

Hopefully we'll see these events unfold over the next few days, beginning with tomorrow's Bond Market.

Until then, make it a great day!

Ron Brown

FHA & VA Loan Specialist

First Mortgage Company of Washington