Ron Brown FHA & VA Home Loan Specialist

Today's update is more of a market wrap, as I tried on several occasions to create an update, but was unable to type fast enough! The Dow ended down by 128 points on the day, but traded in a record range of over 1000 points after falling by nearly 700 points in the first 8 minutes of trading. Mortgage Bonds did not fare any better, losing 109 bp, and falling well below what were previously considered strong levels of support.

The Dow rebounded briefly to positive territory in an afternoon rally, but by the end of the day, stocks were back in the red putting the finishing touches on a week that saw losses of 15% to 25% for the major indexes. A loss of 20% during the course of a year is the common definition of a bear market, leading some to say we are experiencing a bear market within a bear market. The Dow actually broke below the psychological support of the 8000 level twice, but was able to rally both times to positive daily territory. The chaos is being blamed on forced selling caused by the credit freeze in a market with no willing buyers. Actual economic news is being virtually ignored by investors, but there was the Labor Department report showing a September decline in the price of imports, and the Commerce department reporting a narrowing of the US Trade Deficit for August. The fear of a Global recession pushed Oil to its lowest level in over a year at $78 a barrel, down more than 16% for the week.

Mortgage Bonds not only experienced a negative pricing move of over 1 full point, they also saw the spread versus Treasury Notes increase (meaning even lower demand for Mortgages than for extremely low yielding, but ultra safe Treasuries). Much of this is due to fear about record volumes of debts being issued as the government struggles to stabilize the out of control financial system which lowers the value of already held Bonds. No amount of losses by Stocks was able to help the Bond Market, as the perception of measures being undertaken on the part of government is one of inflation, and no one wants to be paid back on fixed return investments with inflated Dollars. UBS Securities has gone on record as expecting the Federal Deficit for 2009 to come in at $1 Trillion versus the 2007 deficit of $163 Billion. Added to this was the final resolution of value for the Credit Default Swaps from Lehman Brothers Bankruptcy which came in at 8.625 cents on the Dollar meaning sellers will have to pay much more than they anticipated. This could be a major impact in the future, as the CDS market is valued at somewhere between $50 & $60 Trillion, and many more losses are anticipated as companies scramble to raise cash in an extremely tight credit market.

I apologize for the technical nature of today's blog. In a nutshell all of this adds up to fear feeding on itself as companies are forced to sell in a market that is unwilling to buy due to lack of available capital. The economic difficulties that lie ahead are typically Bond friendly, but we cannot count on fundamentals in this type of unprecedented global event. Rates are now roughly 0.75% higher than earlier this week, and although those are not great rates, the current volatility of the market could make things worse.

Make it a great day!

Ron Brown

FHA & VA Loan Specialist

First Mortgage Company of Washington

US Stocks are "enjoying" another roller coaster day on Wall Street with the Dow up as much as 200 points, but now down about 100. Mortgage Bonds have been more consistent, but in a negative manner, moving negatively toward the 200 day average.

Stocks were looking for a bounce back day, and Globally, Stocks rebounded in other markets. Yesterday's coordinated rate cut by many of the World's Central Banks (except Japan) was generally well received, but the Dow still crashed at the end of the day, posting another significant loss. The US Treasury is floating a possible plan to take an ownership position in US banks in another attempt to loosen up seized credit markets. This type of action was taken yesterday in England, and is reportedly gaining favor from both Wall Street, and Capitol Hill. After hours IBM reported quarterly earning nearly a week early, beating expectations, and reaffirming their annual target of a better than 20% increase over last year. Many analysts were quietly expecting a warning about negative quarterly results due to lower customer demand, so this was welcome news. One area experiencing decreased demand is energy, as Oil is trading lower despite expectations that OPEC at a possible upcoming emergency meeting. The Energy Department reported Crude Oil supplies increased for the second week in a row.

Mortgage Bonds are losing ground again as pricing has fallen below recent support levels, and is now back to the critical 200 day moving average. If Bonds fall below this level by much, it could indicate a change in direction, and an increased probability for higher rates ahead. Initial Jobless Claims came in basically as expected, which is better than last week by 20,000. Much of this is from people going back to work after the damage from the recent Hurricanes. While Initial Claims dropped, the 4 week average of continuing claims is now at its highest in 5 years, and is basically one third higher than a year ago. Yesterday's surprise report that pending home sales for August jumped nearly 7.5% is being somewhat dismissed as old news, pre-dating the turmoil of September. Bonds face further pressure from ever increasing supply of Treasury Notes being offered at auction with another $20 Billion in 10 year notes being made available today. While yesterday's Fed rate cut was by a unanimous vote, known inflation hawk and voting Fed President Richard Fisher is speaking today, and his comments often bring a negative response from the Bond Market.

Hopefully, any short term closing transactions have been locked, as rates have gone back to their highest in roughly a month. I still recommend floating on transactions further out as global economic reports, Treasury & Fed press releases all indicate a drop in rates to come. However, we are seeing now, that until investor's regain confidence in the market for mortgages, that drop remains uncertain.

Make it a great day!

Ron Brown

VA & FHA Loan Specialist

First Mortgage Company of Washington

US Stocks are extending yesterday's losses after a brief rally to start the day. Mortgage Bonds are trying to hold their gains as they trade in reactions to Stocks once again.

The Dow is currently down triple digits despite a positive start on news of the Fed's latest effort to kick start the Market. Just before today's trading opened, the Fed officially announced they would buy unsecured "Commercial Paper" by creating the Commercial Paper Funding Facility (CPFF). The Fed hopes this facility can help prevent further disruptions to the economy by helping companies with their day to day operations such as financing payroll, and buying inventory. Basically, the Fed becomes a source of credit, replacing the banks that have been unwilling to lend to each other for fear they won't get repaid. Bank of America jump started earnings season on Wall street yesterday by reporting quarterly profits decreased by two thirds year to year, and that they would be cutting their dividend for the first time since 1978. The largest consumer bank in the country has benefitted from the recent lack of confidence in other banks, seeing their deposits increase by 4% ($21 Billion) this past quarter as customers move their money out of smaller, "riskier" banks. The US Treasury named Neel Kashkari to head the $700 Billion rescue plan. Kashkari was one of the architects of the Bill, and is a former VP of Goldman Sachs who has been working as an Assistant Secretary at the Treasury. The Treasury is now looking to hire asset managers to oversee the purchase of these troubled assets, while establishing guidelines to deal with conflicts of interest as most of the candidates are currently working for the firms that will be selling those very securities.

Mortgage Bonds have been trading in a very narrow range close to yesterday's finish for the majority of the day. Once again, despite the negative performance by Stocks, Mortgage Bonds are not the main beneficiary as the concern centers on their marketability given the current credit crunch. Fed Chairman Bernanke gave a scheduled speech today, and European Central Bank President Trichet also spoke, but neither of their comments have had much effect on Bonds so far. It appears the World's Central Banks are indeed acting in a coordinated effort to improve US Dollar Liquidity within the financial system. The Bank's of England, Canada, Japan, Switzerland, and the European Central bank have pledged to support the Fed, and continue working together to provide liquidity to the Markets. Australia's Central Bank lowered their Prime rate by 1 full percent today, increasing speculation that the Federal Reserve may announce their own cut prior to their meeting later this month. The crisis is truly global with Iceland appealing to Russia for their own financial rescue in spite of the recent spate of Russian Market closings triggered by massive losses there. After trading ends tomorrow the SEC ban on short selling of financial stocks does as well, and with recent events, and Bonds in reaction mode to Stocks, there could be increased volatility ahead.

I am recommending to float for long term closing scenarios, but have a locking bias on transactions closing soon. Rates are near their best levels of the year, and with so much uncertainty, no one can be criticized for locking now.

Make it a great day!

Ron Brown

VA & FHA Loan Specialist

First Mortgage Company of Washington

US Stocks are plummeting on concerns over the recent government bailout with the Dow down by more than 500 points. Mortgage Bonds are one of the beneficiaries of this flight to quality as we currently trade back near the levels of two week's ago.

Declining Stocks are currently at a 30 to 1 ratio versus gaining issues on the New York Stock Exchange as the Dow has fallen below 10,000 for the first time in 4 years, despite last week's $700 Billion financial bailout. Regardless of the bailout, we will still see more bank failures to come, such as demonstrated by Wachovia last week. On that front, Wells Fargo has now won an appeal of Citigroup's move to block the merger, and is moving forward with their negotiations. The Wells Fargo offer does not require any assistance from the FDIC, and will not cost the taxpayer anything. The Market is dealing with uncertainty on a global basis with Europe experiencing their worst day for Stocks in history. European Union leaders met over the weekend in Paris to come up with their own bailout plan, but were unable to come up with an agreement. Their uncoordinated response contributed to the sell off of Stocks, and also a significant drop in the Euro's value. This global lack of confidence in financial credit markets is promoting a belief in a world wide economic downturn, and the subsequent movement of investment capital away from risky Stocks, and into the safety of Bonds, as well as a continuing drop in Oil pricing.

Mortgage Bonds began the day considerably better than last week's close, and have held fairly well at that level. While this should lead Mortgage Rates back to the lows we saw right after the bailout of Fannie, & Freddie, we have not seen this as of yet. The reason for this is that despite the "flight to quality" of investors leaving Stocks for Bonds, much of that capital is flowing into Government Bonds due to uncertainty over the market for Mortgage Backed Securities. Remember, when the government took over FNMA, and FHLMC it was with the express purpose of improving that market, but after the indecision involved in the recent financial bailout voting, there is reluctance by investors. Today the Federal Reserve took further steps to ease the strain on banks, and increase confidence by doubling the amount available from its Term Auction Facility from $450 Billion to $900 Billion while also announcing they will pay interest on Bank's required reserve accounts as allowed by the Bailout Bill. All the recent news has led to increased speculation that the Fed will reduce their Funds Rate by 50bp at their meeting on the 29th. Generally, these rate cuts are not good for Mortgage Rates due to their inflationary nature, but if it can be coordinated with a similar cut in Europe, that aspect could be minimized, and we may see some good at the consumer level.

I am recommending to float cautiously for now, but be ready to lock, as we've seen Stocks swing wildly from day to day, and our current gains are closely tied to their losses. It appears we are still in for a lot of volatility ahead, and until we see investor confidence in mortgages again, things can change in a hurry.

Make it a great day!

Ron Brown

VA & FHA Loan Specialist

First Mortgage Company of Washington

US Stocks are trending flat to slightly negative on uncertainty over the government bailout, and the predicted failure of WAMU. Mortgage Bonds are following suit as they trade in a very tight range.

The Stock Market is waiting to see what actually comes out of Washington as the news on the bailout continues to ebb and flow. While it seems imminent that there will be some form of bailout, the uncertainty over the form it will take is causing the Markets to pause. A group of economists that includes 3 Nobel Prize winners has urged Congress to not act out of desperation, and allow for a more careful, studied approach as talks on Capitol Hill continue. In the meantime, Stocks are trading sideways with a bit of a negative tilt. Thursday after hours, WAMU was shut down by the Office of Thrift Supervision, and placed in the receivership of the FDIC to facilitate their absorption by JP Morgan Chase. JP Morgan now becomes the largest Depository in the US as they pick up WAMU for $1.9 Billion, after having scooped up Bear Stearns in the beginning of this financial meltdown. While the FDIC refers to this as "simply a combination of two banks," it is unusual in that they normally only take action on Friday after business to help smooth the transition, but were forced to mover quicker for fear of media leaks. In the period since Lehman Brothers filed for bankruptcy, WAMU customer's have withdrawn $16.7 Billion (roughly 9% of the total) worth of deposits out of the bank, forcing the OTS to declare them unable to meet obligations. WAMU had over $300 Billion in loans outstanding, dwarfing the next largest bank failure (1984 Continental Illinois Bank) value of $40 Billion. CEO Alan Fishman quite possibly set a new record for shortest tenure, having only replaced Kerry Killinger 16 days ago.

Mortgage Bonds are struggling to stay even as they have over the past week. Actual Economic news was highlighted by the revision of 2nd quarter GDP lower to 2.8% from the previously reported 3.3%. Economist had expected either no revision, or a slight upward revision so this was a bit of a Bond friendly surprise. The change is being blamed on lowered consumer spending, and a lack of investment spending by business (one of the problems the bailout aims to cure). Regardless of any bailout action to come, economists are now revising their projections for the 2nd half of 2008 to be much worse. As a result of this negative outlook, Fed Futures are factoring a 96% chance of a 0.25% rate cut at the fed's next meeting, and the odds of a 0.50% cut are now better than 50/50. The Federal Reserve is also working with the European Central Bank, Bank of England, and Swiss National Bank to pump $Billions of short term debt into world markets to keep money markets that banks use amongst themselves from freezing up. The availability of these short term loans that fund bank's daily operations are the key to keeping further banks from failing. Basically bank's no longer trust each other's balance sheets so they have raised their rates to each other, halting the necessary flow of capital.

I am continuing to float rates, while we all wait to see what form the bailout plan finally takes. Economically there has been no indication of any positive news to come, which should help maintain rates, and the negative outlook is positive for rates in the future.

Make it a great day!

Ron Brown

FHA & VA Loan Specialist

First Mortgage Company of Washington