Dave Woodland - Your Bend, OR Friendly, Knowledgable Mortgage Professional

Big actions continue to impact Mortgage-Backed Securities, and first, let's talk about the Treasury and their desire to jump start housing with 4.5% mortgage rates. I know this has the media all a-twitter. It was a story that broke in Thursday's Wall Street Journal article (click here) and was picked up in most newspapers on Friday with quotes like this from the NYT News Service "At the Treasury Department, meanwhile, top officials continued to work on a plan to boost the housing market by subsidizing 30-year home mortgages with rates as low as 4.5 percent - a level that homebuyers have not seen since the early 1960s."

Perhaps you have seen some renewed interest from home buyers triggered by this news bit. The key is that hope for a program from the government is nice, BUT every other individually targeted program they have created has had income and property limitations that make them more hoopla than cash-in-the-pocket, AND rates as they stand right now are fantastic. In some cases, people will be holding out to get the 4.5% and if so, you should help them understand that if and when a program is announced, will it actually fit them and their financing goals? Remember also that Obama is pushing for his own $500B stimulus package and he won't let Treasury undermine his program, so the jury is still out on whether this really will become something broadly available.

In the meantime, the real story is that rates have improved and are at a level that should bring would-be buyers to the table, so get out and let them know. We are seeing conforming loan amount rates into the low 5% range right now. This large step forward is still based on two things that we don't see going away anytime soon. First, inflation is the arch-enemy of long-term interest rates and it has been in check with monthly numbers at 0% and full year numbers down to 2% and shrinking. This is good news and should improve. Second is the supply of MBS investors willing to buy MBS. Here is where rates really improved on Tuesday before Thanksgiving. As I described last week, the Treasury Dept. announced their intent to buy up MBS to the tune of approximately $600B. And while Treasury hasn't actually started buying, the relief has been tangible as investors are coming back in, knowing that another buyer is on its way. If we do see rates improve broadly to the 4.5% rate, it will be based on these two economic factors: inflation and supply and demand.

The news of the past week was unemployment rates of 6.7% and job loss numbers at 533,000 plus corrections to prior months. Those who buy futures in Fed Funds rates immediately moved to an 80% likelihood of a 0.75% drop in the targeted Fed Funds rate next Tuesday the 16^th down to 0.25%. This would also see the Prime Rate drop to 3.25%. In similar moves already taken in Europe, the European Central bank or ECB dropped their rate 0.75 and Sweden came down 1.75%. The Bank of England dropped their rate 1.0% to the lowest level it has been since 1951. Oil started the day at $41/bbl today (remember it was $147/bbl on July 11). We will see wholesale inflation info on Friday with the PPI announcement and retail prices that same afternoon.

What does that mean to you, your friends and clients? Rates are now better than in years. Funds are more available and the timing is right. Signet Mortgage is ready to help you put deals together.

We'll keep you posted and you keep helping people reach their dreams. Make it a great week! - Dave

We’ll have to call it Green Tuesday from now on – or Fat Tuesday comes to November. The Tuesday before Thanksgiving was the announcement by the Federal Reserve of actions that are bringing back demand to the Mortgage-Backed Securities (MBS) Market.

30 year fixed rates for conforming loans are now in the 5.5% range or better! Also be aware that the conforming loan limit for some areas is up to $625,000!

We’ve been telling you for weeks that all of the inflation and economic news would lead to better rates than we have been seeing but an imbalance of supply (hi) and demand (lo) for MBS was artificially keeping the rates above their natural position. Well that took a significant step in the right direction Tuesday with the announcement of a $600B purchase of direct obligations and MBS from Fannie, Freddie and the FHLBs. You may see an $800B number. The additional $200B is in a vehicle called TALF and is to support auto, student, credit-card and SBA loans. These are both very liberating steps and very directly impact interest rates in residential and commercial markets.

In the MBS price chart below, remember that up and green are good. Each bar or “candle” represents one day and the higher it is, the lower the interest rate. Fat Tuesday is the tall green bar 4^th from the right. Note that the very big green bar about 15 trading days further back was Election Day. In the 6 month period showing, the only thing close to where we are now is the period following the Sept 8^th takeover of Freddie and Fannie (the white gap about midway through the chart.) In fact MBS haven’t been in this range since Feb, 2005.

This is GREAT news and there are reasons for it to stay in this exceptional range. Recessions are always paralleled with low long-term interest rates because inflation subsides in a cold economy. News this past week included the all-important PCE report on spending inflation. It showed a month over month number of 0.0% and a respectable annual number of 2.1% that we can anticipate continuing to shrink as we put together consecutive extremely low inflation numbers. That and the significant and growing unemployment numbers (now at 4M on continuing claims) are keeping interest rates low. …and going lower too. The FOMC meets again on December 16^th and the futures markets have already baked in an 80% chance the Fed Funds rate will drop by that day a half a percent to 0.50%. In fact, there is a 28% chance it will drop all the way to 0.25%. Looking out a year, the futures markets have priced in a 100% chance of no Fed funds rate hikes.

What does that mean to you, your friends and clients? Rates are now better than in years. Funds are more available and the timing is right. Signet Mortgage is ready to help you put deals together.

Happy Thanksgiving and I hope your short week is productive and then filled with warm family memories. Here are some of the key actions we are watching:

• Washington activity continues to dominate the economic landscape. The Treasury, Fed and FDIC decided late last night to further back CITI with a lifeline of $306B on their debt and an injection of $20B. In exchange, US Taxpayer/investors are receiving $27B in preferred stock paying an 8% dividend. We are hopeful this one is a good investment.
• Obama selects Geithner from the NY Fed as Treasury Sec’y. This appears positive and has been well received on Wall St. If anything, he may be predisposed to swinging the re-regulation pendulum too far left. We’ll keep our eye on that. Summers and Orszag are also selected for the White House economic team now.
• Another $700B stimulus package is likely with broad market spending rather than financial institution stabilization. Watch for this by 12/6.
• Big 3 automakers are retooling their plan for using further taxpayer investment –corporate jets (4 of 1bout 10 are now for sale) and a Brazilian plant expansion have been very distracting
• The SBA changed an important guideline this week, allowing lenders to base SBA loans off of LIBOR instead of the Prime Rate. We are excited that this should really loosen that segment of lending by the end of the year.
• On Wall Street, the bears continue to rage. Though the bounce back on Friday gave some comfort, the pundits are looking for a bottom not yet seen.
• Oil started this morning below $50/bbl!
• National existing home sales reported a drop of 3% this morning, below 5M units per year, pushing the nationwide inventory to >10 mos. National median home prices are off 11.3% from a year ago. In the West, the unit sales numbers are down less compared to last month and median prices are off fully 27% from a year ago giving hope that the West is closer to the bottom.
• Mortgage rates are still very good, lower than they were at this time last year and technical indicators are positive. The investor demand for mortgage backed securities is just at a medium level right now and still we have good rates, so a return of investor confidence will mark an improvement in the rates.

We’ll keep you posted and you keep helping people reach their dreams. Make it a great week – Dave

P.S. – in these challenging times – now more than ever – friends, family and clients are looking for quality advice. Let me know how I can be of help.

Well the stock market continues to tumble and surprise with bad news. Last week I saw something I had never seen before – the targeted price of a stock (GM in this case which makes it all the more unusual) was in an analysts report projected to be $0.00. That’s right, nothing. A couple of weeks ago Mattel, the maker of Hot Wheels cars made news when it had a market cap greater than GM and now it looks like most companies might. This is a sad statement on a decades-slow response to market demands and workforce contracts. Let’s hope there isn’t a string-free, massive taxpayer funding of this and every “me too” industry that will need help. The redirection of TARP funds toward capitalizing the credit system rather than buying the tainted assets is working slowly to free up credit and I believe is a good shift for this program. Wall Street is decrying the change, wanting steadiness, but I haven’t heard anyone disagree that this is a better use of the funds.

Consumer sentiment and retail sales continue to shock. The October reported drop of 2.8% in retail was the largest ever reported in the 16+years of the report. There is a lot of speculation on holiday sales and I think we will have to wait and see. All of the bad news on the economy has a cooling effect on inflation fears and would normally create a favorable impact to mortgage rates. But at this point, bond markets have baked-in the deflation we are experiencing and are mostly responding only to supply and demand. Unfortunately the money flowing from the stock market are still not flowing into mortgage-backed securities. Today, MBS are down just slightly even though money is still pouring out of stocks. At the same time, Treasuries are up 44 bps. This is another good example of how important it is in the mortgage world to understand and watch MBS rather than Treasuries. Even on a banner day for Treasuries, banks might increase their mortgage pricing slightly.

Oil is down to $56/bbl today and CITI announced a worldwide job cut of 50,000 people. We’ll have more initial jobless info out on Thursday this week. Tuesday and Wednesday we’ll see reports on the CPI and PPI and the minutes of the last FOMC meeting where the Fed rates were cut. I am expecting to see more evidence of deflation rather than inflation in these reports. The summary for mortgage rates is that they are still very good and all of the technical indicators are positive. The investor demand for mortgage backed securities is just at a medium level right now and still we have good rates, so a return of investor confidence will mark an improvement in the rates. We’ll keep you posted and you keep helping people reach their dreams. If you didn’t see it, take a look at Sunday’s Bend Bulletin article (click here) by Andrew Moore about a Bend company, Rocketbux, enabling MLS data via text message for people driving by for sale signs. Watch this one - I think it sounds like a winner!

What a historic week this was! No matter your political leanings, it is a time to push for optimism both internally and with people around you. It is also the beginning of the holiday season and that gives us the chance to pause and be thankful for our many blessings, to come together and support a new President elected through a time-tested, constitutional process, and to build optimism and hope even in troubling economic times.

And we are seeing troubling times. As the headline indicates, jobs were the key economic report of the week, and people who are well employed are hanging onto their jobs. Unfortunately, in 2008 nearly 1.2 million jobs have been eliminated and more than half of those happened in the last 3 months. Normally, bad news like this has a favorable impact on mortgage rates and to a lesser degree on stocks. But these are not normal times. The rising unemployment and drop in jobs act as another restraint on rising prices and along with the recession in general represent a significant curb to inflation. Inflation down a long-term interest rates down. This is still true today, but an even more important factor to long-term interest rates is the supply and demand of investors in Mortgage Backed Securities (MBS). While credit continues to thaw, the appetite for MBS is still below what we would consider normal and that is keeping rates from getting as low as they might. That said, there was a huge election day rally that helped mortgage rates early in the week. We are at very good 30 year fixed rates.

For the coming week we have some keen areas of interest. First the stock market: money into and out of the stock market still impacts that supply and demand for MBS. Retail reports have been worse than expected in so many corners so far. And automobile sales are hitting 25 year lows. In 2007 there were 17 million new cars sold in the US and that looks like it will be only 11 million in 2008. Is there any good news for consumers and borrowers to be optimistic about? Yes, oil prices continue to be low opening Monday at $61/bbl and gas prices reflect this. The efforts of OPEC to reduce production to match demand seem to be stabilizing but not driving up gas prices. Inflation really is in check. China announced this morning a nearly $600 billion stimulus package which will have a favorable impact on the global economy. The US dollar continues to be stronger than early in the year, improving the price of oil and most imported products. All of these bring hope for the future and favorable reactions in the markets.

We will keep our eye on actions in the markets. This week there will be 3 significant auctions of Treasury Note refundings. Also, this Friday we will get the retail sales numbers for October and they are already expected to be low. Rates continue to be good and Signet Mortgage has relationships with dozens of quality lenders willing to provide loans. Give us a call and let's make it a great week! - Dave