John Tuggle

The latest weekly MBA mortgage applications surged 45.7% and rebounded from the previous week's 3-month low. The purchases rose 9.1% from an 8-year low set the previous week and the refinancing sub-index soared 64.3% as a drop in mortgage rates encouraged refinancing. The average rate on a 30-year fixed loan fell to 4.99% from 5.19% the prior week and is only 10 BPs above the record low of 4.89% posted in mid-January. Jan housing starts dropped 16.8% against estimates of -3.7%; a annualized total of 466K units the lowest on record. Building permits in Jan were down 4.8% to 521K annualized units, about in line with estimates. Yr/yr starts are down 56.2%. While the starts Jan import prices were down 1.1%, -12/5% yr/yr; export prices in Jan were up 0.5%. Jan industrial production, expected -1.4%,as down 1.8% after falling 2.4% in Dec. Jan capacity utilization, expected at 72.5%, was at 72%, down from 73.3% in Dec. At 9:30 the 10 yr note traded down 4/32 at 2.66% +2 BP; mortgage prices at 9:30 were unchanged from yesterday's close. (see below for 10:00 levels) At 12:15 President Obama will outline an estimated $50B plan to stem a surge in home foreclosures that will subsidize cuts in mortgage payments for millions of struggling borrowers. Obama intends to make loan modifications the centerpiece of plan that also gives bankruptcy judges more power to help borrowers keep their homes, said people familiar with the matter. 4 to 5 mil home owners will be helped. $1,000 per loan to servicers that modify mortgage terms if they reduce the payments to about 38% of the borrower’s pretax income. The administration wants banks to offer loans with easier terms to borrowers in danger of defaulting on their mortgages. The aim is to reduce monthly mortgage payments for beleaguered homeowners, rather than principal owed on the property. Funding will not use TARP money but Treasury will add cash to the plan to Fannie and Freddie to allow more purchases, doubling its preferred stock to $200B. All future recipients for TARP money will have to agree to the housing plan. More details still coming out. While we won't look a gift in the face, this plan appears to reward those that made a mess of their credit and debt management and does not allow current mortgagors with high rates to re-finance at levels that would make a real impact on consumer spending. At 2:00 the FOMC minutes from the 1/28/meeting; likely not much new in them. Treasury yields fell hard yesterday on safe haven moves against a global bashing of equity markets. Yesterday the DJIA closed 100 points above the Nov lows. Mortgage prices moved better along with treasuries but the MBS market remains essentially frozen. Investors will continue to view MBS investments as the plague; property values show no signs of bottoming and until there is a perceived bottom investors will likely remain on the side lines. Treasuries and mortgages are slightly lower in price this morning after a good day yesterday; a pattern that is becoming the norm---no follow-through from day to day in either direction. Technically the treasury and mortgage markets remain slightly bearish at these levels, but both are technically better than a few days ago. The 10 yr will likely trade in a 50 BP range from 2.50% to 3.00% for the time being with mortgage rates tied to a narrower range but essentially flat. Still safe haven activity if stocks get tagged as they did yesterday. There is nothing optimistic out there; banks are on the brink, banks gouging credit card users with extremely high interest rates, the economy is continuing to decline, unemployment will continue to increase. Washington has yet to deliver anything that markets believe will stop the slide. We will start again by holding rate locks; it will depend on the stock market today whether bond and mortgage markets find traction. Keep alert for FLASH message(s) if prices fluctuate enough to trigger re-pricing. Keep in mind wholesalers are not only looking at MBS prices but are pricing based on volume flow. -------------------------------------------------------------------------------- PRICES @ 10:00 AM 10 yr note 100.26 -1/32 2.65% unch * Mar 10 yr note contract 124.09 -5/32 5 yr note 100.08 -5/32 1.70% +5 BP 2 Yr note 99.30 -2/32 0.90% +4 BP 30 yr bond 100.24 +13/32 3.46% -2 BP * Mar 30 yr bond contract 129.20 +9/32 Libor Rates 1 mo 0.470%; 3 mo 1.251%; 6 mo 1.780%; 1 yr 2.095% 30 yr FNMA 4.5 Apr 100.28 +2/32 (+4/32 frm 10:00 yesterday) 15 yr FNMA 4.5 Apr 101.24 unch (+2/32 frm 10:00 yesterday) 30 yr GNMA 4.5 Apr 100.27 +1/32 (+6/32 frm 10:00 yesterday) 15 yr GNMA 4.5 Apr 102.20 -1/32 (+7/32 frm 10:00 yesterday) Dollar/Yen 93.24 +0.87 yen Dollar/Euro $1.2566 -$0.0021 Gold Apr $969.10 +$1.60 Crude Oil Mar $34.99 +$0.06 Goldman-Sachs Commodity Index 308.79 -4.43 DJIA 7531.82 -20.78 NASDAQ 1465.54 -5.12 S&P 500 785.91 -3.26 Wednesday, 2/18/09 10:30am

Our old friend and sometimes lover, Fannie Mae, has awakened this month from what seemed like a long nap. Or, should I say comma. In addtiona to the previous announcement in reference to relaxed criteria on credit and appraisals for some Fannie Mae refinances starting in April, Fannie is now ready to welcome some of those she shunned the hardest last year; INVESTORS. Fannie, among several other changes comiing to DU 7.1, will be rescinding the very thing that may have been the straw that caused the divorce early last year with those demanding Real Estate Investors; 4 property limits. Yes it is true. For a link to the complete announcement please go to http://www.johntuggle.edicypages.com/blog/article-15 and follow the link. I know it isn't a bright new day yet but it is good to see Fannie getting involved. After all, a lot of the blame for all of this comes from Fannie, so, any effort put forth now would definitely help with the pennance. John

Treasuries and mortgages are strong early this morning. Rotation between equities and treasuries continues. Yesterday while the US markets were closed the global equity markets were hit hard and today is the same. Over the weekend Japan's Q4 GDP was reported down 3.3%, much softer than expected. Add that Germany's GDP was down 2.1% and the entire eurozone down 1.5%. The declines were expected but all three were weaker than economists' estimates; the US Q4 GDP preliminary data was down 3.8%. At 8:30 this morning the DJIA index futures was down 140 points against fair value of +40, suggesting the DJIA could open down 180 points. By 9:00 the DJIA was trading down 200 points, the 10 yr note +39/32 at 2.71% (-19 BPs frm Friday's close). Mortgage prices were lagging, up 10/32 frm Friday. This week has mucho news and data to chew; setting up for increased volatility. Today Obama is expected to sign the stimulus bill, not much new there. A plan that last Nov totaled $300B in Obama's campaign grew to $800+B. A lot of pork added that will not have much impact on the economy as history will likely record. Also today GM and Chrysler will provide their plans to revive the auto makers' outlook. Don't expect much other than eventually both will need a lot more taxpayers' money. Wednesday Obama is scheduled to make statements on how his administration is working on a plan to save foreclosures with what is expected to be a $50B assistance plan that was talked about by Geithner and reported last week. At 8:30 this morning the NY Fed Empire State index dropped to -34.65 frm -22.20 in Jan, estimates were for a decline to -24.0. The new orders component dropped to -30.51 frm -22.81, employment component at -39.08 frm -26.14 and prices pd at -13.79 frm -18.18. The overall index is the lowest since 2001 when the series started. Yet another worse economic read than economists' forecasts. Economists continue to underestimate the severity of the US and global economic decline. This Week's Economic Calendar: Wednesday; 7:00 weekly MBA mortgage applications 8:30 Jan housing starts (-3.7% to 530K) Jan building permits (-4.0% to 525K) Jan export and import prices 9:15 Jan industrial production (-1.4%) Jan capacity utilization (72.5% frm 73.6% in Dec) 2:00 FOMC minutes (1/28 meeting) Thursday; 8:30 weekly jobless claims (-17K to 615K) Jan PPI (+0.2%, core, ex food and energy +0.1%) 10:00 Jan leading economic indicators (unch) Feb Philadelphia Fed business index (-25.0 frm -24.3) Friday; 8:30 Jan CPI (+0.3%, ex food and energy +0.1%) Our readers should not be surprised with the magnitude of the global economic decline. Yesterday global markets were shocked to learn Japan's GDP fell 3.3%, added to the declines in Germany's and eurozone's GDP sent equity markets down, this morning the US is playing catch up with the DJIA opening down over 150 points. Treasuries get the benefit as traders and investors do the usual, move into treasuries on safe haven concerns. Will the DJIA test its lows of last Nov, at 7500? It looks likely based on the drop so far this morning. Over the weekend there was a G-7 meeting in Rome; most of the talk and discussions centered around the increasing protectionism that is gaining footing here and in Europe. G-7 countries must avert increasing protectionism or the current economic collapse will be substantially worse than it will already be. Geithner was pressed on the bank bailout plans and what the administration is planning for lessening foreclosures. The Bush administration fumbled the ball in dealing with the economy and the severity of it. The Obama administration so far is not getting high marks for its fumbling of leaks and lack of detail as it dribbles out plans with no details. A lot of "this is what we are working on" but no actual details. Tomorrow Obama is going to talk on the mortgage foreclosure issue and hopefully provide a little more detail. More likely not much will come out as there hasn't been any real progress. Markets are about done with talk and proposals; time for action, if not the stock market will break the recent lows and set up another run to take the indexes to levels many don't yet believe will occur. If the DJIA holds at a re-test of the 7500 low then we expect a strong rally to ensue, if not DJIA could fall to 5K. This week may set the direction for the next month or two. At 10:00 the DJIA is just 65 points away from the Nov lows. Crude is lower on the decline in economic data; down $2.40 at $35.00; gold is up on safe haven moves and lower inflation forecasts. The dollar is stronger so far. Technically, at 10;00 the 10 yr note is trading below its 20 day MA on the yield chart, at 2.69% it has strong resistance at 2.50%. The rest of the session is totally centered on how equities perform. The DJIA has so far (only 30 minutes) has held its Nov lows, however it is likely we will see a test of the lows today. We will hold rate locks to start, but we will not give the rate markets much latitude. Any reversal in mortgage prices will move us to lock rate locks. Not only do we have to deal with the market itself but with wholesalers moving prices based on other issues, making holding rate locks even in a good market, more risky. The mortgage market, such as it is these days, is still tied to treasuries. -------------------------------------------------------------------------------- PRICES @ 10:00 AM 10 yr note 100.18 +47/32 2.68% -22 BP * Mar 10 yr note contract 124.09 +50/32 5 yr note 100.08 +27/32 1.70% -18 BP 2 Yr note 100.00 +6/32 0.87% -10 BP 30 yr bond 99.23 +88/32 3. 51% -17 BP * Mar 10 yr note contract 128.29 +84/32 Libor Rates 1 mo 0.466%; 3 mo 1.245%; 6 mo 1.765%; 1 yr 2.085% 30 yr FNMA 4.5 Apr 100.24 +14/32 (+9/32 frm 10:00 Friday) 15 yr FNMA 4.5 Apr 101.22 +7/32 (+7/32 frm 10:00 Friday) 30 yr GNMA 4.5 Apr 100.22 +14/32 (+8/32 frm 10:00 Friday) 15 yr GNMA 4.5 Apr 102.13 +5/32 (+6/32 frm 10:00 Friday) Dollar/Yen 91.93 +0.30 yen Dollar/Euro $1.2597 -$0.0132 (dollar strong) Gold Apr $971.80 +$16.70 Crude Oil Mar $35.11 -$2.40 Goldman-Sachs Commodity Index 318.25 DJIA 7603.42 -246.99 (low 7553) NASDAQ 1482.56 -51.80 S&P 500 796.57 -30.27 Tuesday, 2/17/09 10:30am

Fannie Mae is building on its current efforts to support the market and provide additional liquidity to the housing finance system through expanded refinance options. To allow more borrowers to take advantage of today's historically low interest rates and help the lending community break the logjam in mortgage refinancing, the company is extending its refinance offerings through DU Refi Plus™. DU Refi Plus™ will streamline the underwriting of refinance transactions for potentially millions of current mortgage holders. Under DU Refi Plus™, the company will be able to identify an existing Fannie Mae loan and review the performance history. This will allow lenders, regardless of the servicer, to enjoy expanded refinancing business opportunities and streamlined processing. The company will also implement underwriting flexibilities for company-owned, refinanced loans, including expanded eligibility criteria. In addition, we will expedite the refinancing process for Fannie Mae-owned loans by, under certain conditions, leveraging our automated risk assessment capabilities to validate the current market values in lieu of traditional appraisal or property inspection requirements.

This week’s data is expected to show us no surprises.We are paying much more attention to what the government’sinitiatives will be like as they unfold over the next several days and months. We are still expecting treasury prices to be hardpressed to make any significant improvements with all ourfunding needs. Mortgage rates are expected to remain withintheir recent range of about 5.0% to about 5.25%. THIS WEEK’S MARKET MOVERS Tues 2/17/09 8:30 Feb NY Empire State Index 9:00 Dec Net Foreign Purchases Wed 2/18/09 7:00 MBA Market Index 2/13 8:30 Jan Housing Starts 8:30 Jan Building Permits 8:30 Jan Import & Export Prices 9:15 Jan Capacity Utilization 9:15 Jan Industrial Production 10:35 Crude Inventories 2/13 2:00 FOMC Minutes (1/28) Thu 2/19/09 8:30 Weekly Jobless Claims 2/14 8:30 Jan PPI 10:00 Jan Leading Indicators 10:00 Feb Philly Fed Index Fri 2/20/09 8:30 Jan CPI