Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Building Strong, Lasting Relationships; One Client at a Time. Treasuries and mortgages opened weaker this morning on the German high court ruling that Germany can participate in the European Stability Mechanism. German opposition on the basis that participation was unconstitutional was defeated. The German constitutional court rejected bids to block ratification of a permanent euro-area rescue fund, while ruling the country’s 190 billion-euro ($245B) contribution can’t be increased without legislative approval. The court said a cap should be set on potential German liabilities, unless parliament backs the allocation of extra funds. “We are an important step closer to our goal of stabilizing the euro,” German Economy Minister and Vice Chancellor Philipp Roesler told reporters in Berlin after the ruling today. “It has always been the goal of this government” to establish a “clear limit and to include parliament in all important decisions.” The bailout fund would work in tandem with the European Central Bank in buying bonds to lower yields for states such as Spain and Italy. The FOMC meeting starts today, the conclusion tomorrow. Based on various surveys of economists and Wall Street firms markets are expecting some form of easing according to almost two-thirds of economists in a Bloomberg survey. CNBC survey indicates that many don’t expect a flat dollar amount if the Fed does ease as it has with the past easing moves and Operation Twist. The idea that the Fed would ease by announcing at each FOMC meeting the amounts of buying of treasuries and mortgage-backed securities from one FOMC meeting to the next instead of a lump sum over a defined time frame. A novel idea, we will know tomorrow at 12:30 when the policy statement will be released. Treasury rates continue to increase; the 10 yr note rate has now increased 18 basis points since last Tuesday. For over two years huge sums have flooded US treasury markets on safety fears over the crisis in the EU debt mess, those moves into safe havens are being closed out sending interest rates higher now that those fears have moderated. Given the outlook for another easing move by the Fed, the amounts of money that went into treasuries must have been sizeable. In the face of more QE the bond treasury market should be improving instead of rising rates. Mortgage rates also have increased but not much compared to the 10 yr note; investors moving to MBSs as housing markets stabilize and the idea the Fed, when it eases, will focus more buying of MBSs than in previous easing’s. Early this morning the MBA mortgage applications increased 11.1% from one week earlier. This week’s results include the customary upward adjustment for the Labor Day holiday. The adjusted Refinance Index increased 12% from the previous week. The seasonally adjusted Purchase Index increased 8% from one week earlier, it was 7% higher than the same week one year ago. The holiday adjusted numbers may overstate the level of refinance applications because some lenders who rely primarily on the internet/consumer direct channel for originations saw little if any decline in applications for Labor Day as compared with the drops for lenders relying on retail offices, perhaps because borrowers had additional time over the Labor Day weekend to complete online refinance applications according to the MBA. The refinance share of mortgage activity increased to 80% of total applications from 79% the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 4.5 percent of total applications. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 3.75% from 3.78%, with points increasing to 0.44 from 0.37 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) decreased to 4.00% from 4.05%, with points decreasing to 0.30 from 0.32 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 3.50% from 3.54%, with points decreasing to 0.43 from 0.44 (including the origination fee) for 80% loans. This 30-year FHA contract rate marks a new low for the survey. The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.07% from 3.10%, with points increasing to 0.38 from 0.37 (including the origination fee) for 80% loans. The average contract interest rate for 5/1 ARMs decreased to 2.63% from 2.64%, with points increasing to 0.47 from 0.35 (including the origination fee) for 80% loans. This 5/1 ARM contract rate is the lowest recorded in the survey. At 8:30 August import prices were reported up 0.7% frm July and yr/yr -2.2%. Export prices increased 0.9%. No reaction to the data. At 9:30 the DJIA opened +40, NASDAQ +12, S&P +5; the 10 yr note at 1.75% +5 bp with MBS prices down 17 bp frm yesterday’s close on 30 yr FNMA wile FHA price up 11 bp. Lenders adjusting to increased GSE fees, decreasing prices. At 10:00 July wholesale inventories were expected to be up 0.3%, inventories increased 0.7% indicating consumers still not meeting inventory builds. At 1:00 Treasury will auction $21B of 10 yr notes re-opening the 10 yr note issued in August. Yesterday’s 3 yr auction saw the strongest dollar demand in many years. Treasury technicals are increasingly more bearish, now well above the 10 yr 20 day and 40 day averages on the 10 yr note with all of our momentum oscillators increasingly more negative. MBSs also bearish but not quite as severe as treasuries as investors continue to exit those safety traded over the EU as the fear factor has lessened.