SHORT-TERM TREND (10 days or less). Favors higher rates.
SUGGESTED PIPELINE STRATEGY: As I mentioned in this space on Friday, from a technical perspective it appears likely the price of the Fannie Mae 4.5% 30-year fixed rate mortgage-backed security will slide lower into the 101.093 to 100.781 price range before attracting enough buyers to turn things around. I strongly recommend that you limit or preferably outright avoid initiating new “floating” loans in this category until/unless the price of the Fannie Mae 4.5% 30-year mortgage-backed security proves it has the upward momentum necessary to close above 101.468.
If Friday’s intraday price low of 101.031 for the Fannie Mae 4.5% mortgage-backed security holds through tomorrow – the chance for a short-term price rally will improve significantly. At this juncture any developing rally looks to be pretty mild. I see a strong area of resistance (a previous point where selling pressure has intensified) right around the 101.468 price level. If investors prove they can muster the momentum to push the Fannie Mae 4.5% 30-year mortgage-backed security up and through that first level of resistance — the developing rally will likely run into a brick-wall at, or very near the 101.906 price point.
From a timing perspective a number of short and intermediate term cycles will be merging on or about Tuesday, December 22nd. The potential for either an acceleration in the existing trend — or a reversal in trend direction — lasting several days or more is highest during this period of time. Use the price objectives outlined above as your directional guide.

LONG-TERM TREND (11 days or more) Favors higher rates.
SUGGESTED PIPELINE STRATEGY: Maintain a “lock ‘em if you’ve got ‘em” pipeline risk management strategy for loans in this category until/unless the price of the Fannie Mae 4.5% 30-year mortgage-backed security can muster the momentum necessary to close above 101.468.

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Commentary: Boring.
Trading activity has almost ground to a standstill in the mortgage market as investors choose to take a cautious “wait-and-see” approach in front of the last Federal Open Market Committee meeting of 2009. The text and tone of the Committee’s post-meeting statement (scheduled for release at 2:15 p.m. ET, Wednesday, December 16th) will contribute significantly to the trend trajectory of mortgage interest rates up and through the Christmas break.
Any hint that the central bank is considering backing off of its asset purchase programs, or perhaps mulling an increase in its benchmark short-term interest rates will likely send mortgage interest rates notably higher. While it is worth noting this risk exists – the probability of such an outcome is exceptionally low.
The underlying pace of inflation remains by all measures comfortably within the Fed’s stated “comfort zone.” From a historical perspective there has never been a time that the Fed has begun to tighten short-term interest rates when unemployment rates were rising and inflation pressures remained benign. As things now stand, the central bank will probably guardedly acknowledge the recent improvement in the nation’s economic backdrop — but will clearly renew its commitment to keep its benchmark short-term interest rates near zero for an “extended period.” If this assessment proves accurate, look for this event to have little, if any significant influence on the trend trajectory of mortgage interest rates.

Release Date & Time Economic Indicator Consensus Estimate Analysis
Mon. Dec. 14,
Tues. Dec. 15, 9:00 a.m. ET Federal Open Market Committee begins first day of two day meeting
Tues. Dec. 15, 8:30 a.m. ET Nov. Producer Price Index
Core Rate +0.8% vs. last +0.3%
+0.2% vs. last -0.6% The subdued trend in the core rate of the producer price index will almost certainly soothe any major concerns about inflation pressures beginning to build at the wholesale level. If this assessment proves accurate today’s report will have little, if any meaningful impact on the direction of mortgage interest rates
Tues. Dec. 15, 9:15 a.m. ET Nov. Industrial Production &
Capacity Utilization +0.5% vs. last +0.1%
71.1% vs. last 70.7% Manufacturing output likely rose for the fourth month out of the last five. The capacity utilization rate remains well below levels where inflation inducing production bottlenecks might be expected to occur. Look for mortgage investors to give this data little more than a passing glance.
Wed. Dec. 16, 8:30 a.m. ET Nov. Consumer Price Index
Core Rate +0.4% vs. last +0.3%
+0.1% vs. last +0.2% Assuming the core rate of this index posts a reading of 0.2% or less — this data will not likely influence the direction of mortgage interest rates one way or the other.
Wed. Dec. 16, 8:30 a.m. ET Nov. Housing Starts &
Building Permits +9.6%
+3.4% New home construction may be finally hitting bottom. It will likely take another month or two of improving numbers for this data series before these figures will exert any meaningful upward pressure on mortgage interest rates.
Wed. Dec. 16, 2:15 p.m. ET Fed releases post-meeting statement No change to their benchmark short-term interest rates Mortgage investors will dissect the phrasing on the Fed’s post-meeting statement word-by-word to make sure it contains no indication the Fed is in any hurry to raise their benchmark fed fund rate. If the text and tone of the statement is in general agreement with market expectations (a high probability prospect) mortgage interest will not likely be influenced by this event.
Thurs. Dec. 17, 8:30 a.m. ET Initial weekly jobless claims Down 11,000 Initial weekly jobless claims remain stubbornly high. Look for this data to have little, if any meaningful impact on the direction of mortgage interest rates today.
Thurs. Dec. 17, 10:00 a.m. ET Nov. Leading Indicators +0.7% vs. last +0.3% This forward looking indicator of growth in the economy will likely reflect revived expectations. If so, this report will tend to put some modest upward pressure on mortgage rates.
Fri. Dec. 18
Mon. Dec. 21

MARKET

Market Commentary: Mortgage investors will use a fine-tooth comb to sort through each syllable of Wednesday’s post-meeting statement from the Federal Open Market Committee. Investors will be looking for any hint the central bank is considering backing off of its asset purchase programs, or perhaps mulling an increasing in short-term interest rates.

For their part, the Fed faces the tricky task of acknowledging the recent pick-up in economic activity without spooking skittish credit market investors into thinking an increase in the Fed’s benchmark short-term interest rates are imminent.

In the run-up to the release of the Fed’s post-meeting statement on Wednesday afternoon mortgage interest rates may bounce around more than usual. Look for buyers and sellers to take turns scaring the heck out of each other with stories of sequential Fed rate hikes and surging inflation pressures or double dip recessions and attendant stock market collapses – all very much dependant on which camp the storyteller currently resides in.

When the Federal Open Market Committee releases its final post-meeting statement for 2009 it is highly probable all the hand-wringing by market participants will have been for nothing.

Under current conditions it is highly likely the Fed will choose to leave the size of its asset-purchasing programs plans unchanged and will maintain their pledge to keep their benchmark short-term interest rates at “exceptionally low levels” for an “extended period.” If this assessment proves accurate, look for this event to have little, if any influence on the trend trajectory of mortgage rates.

By Larry Baer, Market Alert

SHORT-TERM TREND (10 days or less). Favors higher rates.
SUGGESTED PIPELINE STRATEGY: I recommend you limit or preferably avoid initiating new “floating” loans in this category until/unless the price of the Fannie Mae 4.5% mortgage-backed security can muster the necessary momentum to close above a price of 101.875.

If this assessment proves accurate, the ensuing “bounce” will likely carry the price of the Fannie Mae 4.5% 30-year mortgage-backed security back to at least the 102.250 – 102.625 range.
From a timing perspective the likelihood for a noticeable short-term shift in the trend trajectory of the mortgage market will be highest between Thursday, December 10th and Friday, December 11th.

LONG-TERM TREND (11 days or more) Tilted in favor of higher rates.

SUGGESTED PIPELINE STRATEGY: I recommend you initiate a “lock ‘em if you’ve got ‘em” pipeline risk management strategy for “floating” loans in this category as long as the price of the Fannie Mae 4.5% 30-year mortgage backed security trades below a price of 102.281.

Commentary: With nothing on the economic calendar to stir trading activity – mortgage investors are generally marking time ahead of the three-part, $71 billion Treasury debt auction scheduled for Tuesday through Thursday. Believe-it-or-not last week’s heavy sell-off in the government debt market has probably limited the upward pressure this event might have otherwise exerted on mortgage interest rates over the course of the next five business days.
Mortgage investors will be intently watching the Treasury auction results for any sign that a change in market psychology occurred in conjunction with last Friday’s dramatically improved labor market story – or for an indication skepticism about the sustainability of the budding economic recovery remains high among credit market participants.

Given strong seasonal demand and the sharp price markdowns of last week, I think there is a reasonable chance overall demand for this week’s government debt offerings will be decent. Should my assessment prove accurate, the Treasury auctions will tend to be supportive of at least steady mortgage interest rates – with an outside chance rates will find the traction necessary to move to fractionally lower levels.

Release Date & Time Economic Indicator Consensus Estimate Analysis
Mon. Dec. 7, 12:45 p.m. ET Fed Chairman Bernanke speaks on “Federal Reserve Frequently Asked Questions” at luncheon in Washington The subject is broad and there will be a question and answer session that follows Bernanke’s prepared remarks. This event is a “wild card.” The probabilities are small that Bernanke will say anything that will stir mortgage investors — but they will be listening intently anyway. Just thought you should be aware.
Tues. Dec. 8, 1:00 p.m. ET Treasury auctions
$40 billion of 3-year notes The relatively short duration of these notes against a backdrop of near-term benign inflation concerns should draw strong participation levels from domestic as well as foreign investors. If so, this event will likely prove to be supportive of steady to perhaps fractionally lower mortgage interest rates.
Wed. Dec. 9, 10:00 a.m. ET Oct. Wholesale Inventories -0.5% vs. last -0.9% This old stale data will likely have little, if any direct impact on the trend trajectory of mortgage interest rates today.
Wed. Dec. 9, 1:00 p.m. ET Treasury auctions
$21 billion of 10-year notes This offering may find fewer aggressive buyers as technical indicators are flashing an increasing number of signs that an interest rate bottom may be near. If my assessment proves accurate this event will, at best, be supportive of steady mortgage interest rates.
Thurs, Dec. 10, before the close Most mortgage-backed securities “roll” to January delivery This is nothing more than a standard monthly administrative function of the mortgage backed securities market. The roughly 37.5 basis-point price reduction associated with this monthly adjustment in the mortgage-backed security market has already been factored into most of your investors’ rate sheets.
Thurs. Dec. 10, 8:30 a.m. ET Initial jobless claims for the week ended 12/5 Up 3,000 There are few who doubt the labor sector’s recuperation will be excruciatingly slow. The anticipated uptick in last week’s jobless claims will probably be largely shrugged off by mortgage investors resulting in little, if any change to the current level of mortgage interest rates.
Thurs. Dec. 10, 1:00 p.m. ET Treasury auctions
$13 billion of 30-year bonds Investors will be watching closely to see how this offering fares now that the Fed is no longer a direct buyer of this debt obligation. A poorly bid auction here will almost certainly put some upward pressure on mortgage interest rates.
Fri. Dec. 11, 8:30 a.m. ET Nov. Retail Sales
Ex. auto +0.6% vs. last +1.4%
+0.4% vs. last +0.2% Consumer spending is a major driving force behind economic growth and it will be virtually impossible for the recovery to gain traction without it. Report numbers that match or fall below the consensus estimate will tend to support steady to perhaps fractionally lower mortgage rates. The risk is that Nov. Retail Sales prove stronger than expected. If so, the upward pressure on mortgage interest rates will likely increase.
Fri. Dec. 11, 10:00 a.m. ET Oct. Business Inventories -0.3% vs. last -0.4% This old stale bit of macro-economic data will likely do little more than take up space on this week’s calendar.

Market Commentary: Last Friday the government said the economy lost 11,000 during the month of November, far fewer than the 130,000 jobs analysts had expected employers to have shed causing mortgage rates to spike.

If investors maintain their “new-and-improved” view of the economy, it could present difficulties for this week’s $74 billion round of borrowing by Uncle Sam.

Previous government debt auctions have been extremely well bid this year, in part because the Federal Reserve had $300 billion in their back pocket available for the direct purchase of Treasury debt obligations — and in part because Fed Chairman Bernanke and his fellow central bankers made it abundantly clear that they would not start to ratchet up short-term interest rates until the economy showed signs of pulling out of the deepest recessionary dive in 70-years.

The Fed has now completely spent their set aside of $300 billion for the direct purchase of government debt instruments and most recent nonfarm payroll data showed the economy came with 11,000 jobs of moving into positive job creation mode. These two conditions have many fretting that Uncle Sam will have to offer higher yields on the stacks of 10-year notes and 30-year bonds he is selling this week in order to attract the capital he is after. If so, look for mortgage interest rates to creep higher as well. Heads up.

By Larry Baer, Market Alert
_____________________________________________________
David Romero
Vice President / Loan Officer
ViewPoint Bankers Mortgage
Corporate
13101 Preston Rd. #100
Dallas, TX 75240
Phone: 972-792-4289 Ext 8303 | Fax: 972-692-8288
Email: david.romero@vpbmortgage.com
Web: http://www.dromeroloans.com

To search for your home now, go to: www.TheFastestGrowingCityinTexas.com

SHORT-TERM TREND (10 days or less). Tilted slightly in favor of higher rates.

SUGGESTED PIPELINE STRATEGY: I recommend that you limit or preferably avoid initiating new “floating” loans in this category until/unless the price of the Fannie Mae 4.5% mortgage-backed security can muster the necessary momentum to close above a price of 102.281.

LONG-TERM TREND (11 days or more) Hovering at an important support level necessary to sustain a trend assessment favoring lower rates.
SUGGESTED PIPELINE STRATEGY: I recommend you initiate a “lock ‘em if you’ve got ‘em” pipeline risk management strategy for “floating” loans in this category as long as the price of the Fannie Mae 4.5% 30-year mortgage backed security trades below a price of 102.281.

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Commentary: The swoon in the mortgage market yesterday afternoon was primarily the result of capital flowing out of the relative safety of U.S. government debt obligations and mortgage-backed securities back into higher risk asset classes as market participants became increasingly convinced the Dubai story would not morph into a another major global financial crisis. Easy come – easy go.

Trading action so far today is being driven by a relatively few players moving light volume. As I write, there is nothing much going on to inspire more dynamic action between buyers and sellers.

According to a report released earlier this morning by ADP Employer Services, U.S. private employers cut 169,000 jobs from their payrolls in November which was fewer than the 195,000 jobs lost in October but more than the 155,000 jobs loss that most analysts had been anticipating the data would indicate. It was the eighth straight month of fewer job losses reported by ADP. It may not be exactly what market participants were looking for, but at least the trend is right.

The ADP report has been weaker than the government’s much more important Nonfarm Payroll figurers in nine of the past 11 months, with an average miss of -55,000. The probabilities remain high that Friday’s November nonfarm payroll will fall within shouting distance of the consensus estimate for a national job loss number of 130,000. If so, the Labor Department’s data will likely exert little if any influence on the mortgage market.

In their standard Wednesday report, for the week ended November 27th the Mortgage Bankers of America said their mortgage application index (a value that includes request for both purchase and refinance loans) was up 2.1% over the previous week. The purchase index was up 4.1% while the refinance index gained 1.7% from the week before. Refinance applications accounted for 72.1% of all applications. It was the first time in eight weeks that both the purchase and refinance indices increase from the previous week.

To sustain the current level of mortgage interest rates will likely require softer-than-expected November employment numbers on Friday and/or a major sell-off in the stock markets. While both outcomes are certainly possible – they are each in their own right not very probable.

In my judgment, Friday’s headline nonfarm payroll report will need to show the economy lost more than 150,000 jobs and/or the national jobless rate exceeded 10.3% last month in order to induce mortgage investors to push mortgage interest rates notably lower. In terms of stock market trading activity it will likely take a convincing move below the 10,200 mark for the Dow Jones Industrial Average before a sustained flow of capital out of the stock market could be counted on to support the prospects for notably lower mortgage interest rates.

By Larry Baer, Market Alert
_____________________________________________________
David Romero
Vice President / Loan Officer
ViewPoint Bankers Mortgage
Corporate
13101 Preston Rd. #100
Dallas, TX 75240
Phone: 972-792-4289 Ext 8303 | Fax: 972-692-8288
Email: david.romero@vpbmortgage.com
Web: http://www.dromeroloans.com

SHORT-TERM TREND (10 days or less). Favors lower rates.
SUGGESTED PIPELINE STRATEGY: The mortgage market has been astoundingly strong – denying every technical indicator flashing
warning signals that a top was imminent. My earlier projection suggesting the price of the Fannie Mae 4.5% 30-year mortgage-backed security would struggle to move more than a basis point or two above 102.000 has proven to be too conservative.I underestimated what a force-to-be-reckoned-with the Federal Reserve would prove to be in these waning moments of their direct mortgage-backed security purchase program. Agency mortgage-backed security prices have climbed to levels that few investors other than Uncle Sam find attractive. The good news is that the Fed still has roughly $198 billion available to spend of their original $1.25 trillion bankroll set aside for the direct purchase of mortgage-backed securities. The bad news is the central bank’s direct mortgage purchase program is set to expire at the end of March 2010 — with an associated upward move in mortgage interest rates virtually inevitable. It is worth noting that in recent days there has been some quiet market place chatter suggesting the Fed may choose to extend their direct mortgage-backed security purchase program both in terms of dollars and time. Currently that idea is nothing but raw speculation – but even so, it has helped hold mortgage-backed securities at higher price levels than they might have otherwise been able to achieve. I will keep you posted if this gossipy chatter happens to gain any meaningful credibility.

Under current mortgage conditions I strongly recommend that we focus attention on the only part of our pipeline risk management strategy that we really can control by asking and answering only one question, “How much lower will I allow prices to fall before I convert my “floating” loans to “locked?” I respectfully suggest you immediately convert any “floating” loan in this category to “locked” should the price of the Fannie Mae 4.5% 30-year mortgage-backed security fall and close below 102.000. Should the mortgage market continue to rally, execute a technique formally known as “rolling-up-your-stop.” The idea here is to let the front runners push prices as high as they want to go. Rather than leading the pack — trail closely behind.

The minute the more aggressive front-runners come racing past you with torn shirts and bloody noses — gracefully step out of the way at your price control point – easily capturing the majority of the move while simultaneously doing a bang-up job of minimizing your risk.

LONG-TERM TREND (11 days or more) Tilted in favor of lower rates. SUGGESTED PIPELINE STRATEGY: I recommend you initiate a “lock ‘em if you’ve got ‘em” pipeline risk management strategy for “floating” loans in this category should the price of the Fannie Mae 4.5% 30-year mortgage backed security fall and close below 102.000.

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Commentary: This morning’s deluge of macro-economic data initially created a flurry of trading activity in the mortgage market – but the few investors still at their desks quickly lost interest. As I write, trading volume in the mortgage market is exceptionally thin – floating back and forth in a very, very narrow range.

The Labor Department started the parade of economic news this morning – announcing the number of workers filing first-time applications for jobless benefits fell by a very surprising 35,000 during the week ended November 21st. It was the fourth consecutive week of improvement for this measure of the health of the labor sector. The number of unemployed continuing to draw benefits fell by 190,000. Most market participants shrugged off the Labor Department data as largely distorted by outsized seasonal adjustments.
The Commerce Department chimed in with their report on Personal Income and Spending for October. According to the government, spending by consumers rebounded by 0.7% last month – solidly outdistancing the consensus estimate for a gain of 0.5%. Incomes rose by 0.2% slightly ahead of economists’ guesstimates for a gain of 0.1%. Most importantly of all, the Personal Consumption Expenditure Index component of the report, the Fed’s preferred measure of inflation pressure at the consumer level, posted a very modest gain of 0.2%. After a quick once over – mortgage investors didn’t give this data another thought.
The march of macro-economic data continued when the Census Bureau reported October new home sales rose a stronger than expected 6.2% over the prior month level. As of October, new-home sales are running at their best pace since last fall. Once again mortgage investors were quick to discount this report – noting the sales strength is only evident in the South, with sales dropping decisively in the other three regions.
Rounding out this morning’s string of economic reports was news from the Mortgage Bankers of America that their seasonally adjusted mortgage application index slipped 4.5% lower last week. The purchase index gained 9.6% while the refinance component of the index declined by 9.5%. The reason for the downward skew in the overall index is that refinance applications accounted for 71.7% of all application last week.
Uncle Sam is wrapping up this three-part borrowing spree this week with today’s auction of $32 billion worth of 7-year notes. If the strong bias of the earlier two offerings prevails again today this event will not likely exert any notable influence on the trend trajectory of mortgage interest rates. In the unlikely event this offering is poorly bid – look for government debt yields and mortgage interest rates to edge higher. I’ll provide auction results as soon as possible once the final gavel falls at 1:00 p.m. ET.

David Romero
Vice President / Loan Officer
ViewPoint Bankers Mortgage
Corporate
13101 Preston Rd. #100
Dallas, TX 75240
Phone: 972-792-4289 Ext 8303 | Fax: 972-692-8288
Email: david.romero@vpbmortgage.com
Web: http://www.dromeroloans.com

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