01/24/2008
Yesterday's market volatility is about all that traders could stand; hopefully today won't be so stressed. The DJIA had a 650 point range, the treasury market sold off in swift fashion when the equity markets spiked higher in the afternoon and continued to be pounded right to the end; the 10 yr note at 4:00 yesterday was down 33/32 at 3.53%----it closed at -51/32 at 3.59% right on support. It was, to say the least, one of the most volatile market days we have had in months----and in this market these days that is saying a lot.
This morning weekly jobless claims were expected to be up 18K to 320K weekly filings; as reported claims were down 1K to 301K from the revised 302K last week. The back to back levels near 300K is inconsistent with the decline in December non-government payrolls, and the 350+ levels of initial claims seen in the fourth quarter and sets up for an interesting -- and probably much improved -- employment report next Friday. The 4-week average fell to 315K -- the smallest since early October. Continued claims (more reflective of hiring than the layoffs seen in initial claims) fell -75K to 2.672 mil as the 4-week average fell off.
At 10:00, a few minutes ago, Dec existing home sales were expected to be down 1.0% to 4.95 mil units (ann); sales were reported down 2.2% to 4.89 mil units. The NAR said there was a decline in unsold inventories, from 10.6 months in Nov to 9.6 month supply in Dec. In 2007 existing home sales fell 12.6% frm 2006. Prices fell 6.0% in Dec.
Too big to fail is a well worn phrase that is once again on the table with a potential bailout of bond insurers Ambac and MBIA. In the USA it is almost a given; make a huge blunder big enough and you will be helped as the financial brethren and regulators will ride to the rescue; the list of bailouts is growing and the precedent is now well established----not good but it is what it is. NY State regulators, who met with industry executives yesterday, is trying to bolster the bond insurers' ratings with help from banks and securities firms that posted $133B of writedowns and credit losses tied to mortgage securities. NY regulators received encouragement from Federal Reserve Bank of New York President Timothy Geithner. The talk yesterday of a possible bailout was one key reason the stock market put in the rally in the afternoon. Bond insures are in this trouble for one reason----greed! Fees were large to insure mortgage sub prime bonds, and they sucked them up like starving wolves; now because the alternative to not bailing them out is worse than letting them hang, it appears they will be saved.
After the existing home sales today there is nothing on the economic calendar now until Monday. Today and tomorrow markets will continue to be influenced by talk of bailouts, rumors, a fiscal stimulus package to aid consumers, and next week's two day FOMC meeting that concludes on Wednesday with another rate cut, the amount of which is debatable---50 or 25 BPs.
Stock market in Europe rallied today on the back of the improvement in US equities yesterday afternoon. The stock market is extremely oversold when measured on a short term basis and the bond market overbought. The larger perspective however continues to be bearish for stocks and bullish to interest rates. Both markets are very fragile with emotions more a driver than intelligent thought these days. We expect market volatility to continue to be at very high levels.
Another scandal---- Societe Generale SA, France's second largest bank, said unauthorized bets on stock index futures by an unidentified employee caused a 4.9 billion-euro ($7.2B) trading loss, the largest in banking history. The trading shortfall exceeds the $6.6B Amaranth Advisors LLC lost in 2006, and is more than three times the $1.8B of losses by Nick Leeson that brought down Barings Plc in 1995.
Thursday, January 24, 2008
Conforming limit increase???
01/24/2008
Speaking of opportunity. We are hearing rumors that the conforming limit may
be raised on a somewhat temporary basis from $417,000 to $625,500, like it
already exists in Alaska, Hawaii, Guam and the Virgin Islands.. Now remember, this is still just a possibility and it may not even happen, but we have to be ready. We strongly recommend you start lining up all your Jumbo and ARM clients as this opportunity would in essence represent a 1% reduction in interest rates.
Monday, January 14, 2008
Mortgage-Rate Reset Doesn't Need to Be a Crisis: John F. Wasik
Jan. 14 (Bloomberg) -- This will be a brave new year for U.S. homeowners with adjustable-rate loans.
Terms will be tougher for the credit-challenged. Fewer bargain teaser rates will be offered. And for those facing higher resets on adjustable-rate mortgage payments, it's time to negotiate.
If your mortgage is ratcheting up to a monthly payment you can't afford, you may have some leverage in lowering the rate. Your lender may even welcome the move and allow you to do a low- cost loan modification.
To date, some $150 billion in adjustable loans have reset with $300 billion more in the pipeline, according to the Federal Deposit Insurance Corp. The greatest number of mortgage-rate increases is likely to hit borrowers this year.
In many cases, your lender may call you first to see if you want to modify your loan's terms. That's what happened to Dick Lepre, a loan officer for Residential Pacific Mortgage Corp. in San Francisco.
``I had a 5/1 adjustable at 4.25 percent and Chase Mortgage called me up to reset it at 5.625 percent for seven years,'' Lepre told me. ``Banks know you have an ability to go elsewhere for a loan. It's more costly for them to replace the loan than to keep it. They want to keep customers.''
Keep in mind that almost all adjustable-mortgage contracts can be modified -- if both parties agree to the terms. This avoids the hassle of refinancing and searching for new lenders.
Making the Call
The road to a modification may not be an easy proposition, though.
Your loan may be serviced by a company that doesn't hold the note and may not be able to change the terms. Nevertheless, your first call should be to the customer service department of the mortgage servicing company.
Is your loan held by a direct lender? If so, the bank may ask for extensive information on your credit history and earnings -- perhaps even more than when you first applied due to tighter loan rules.
Lenders mainly want to know if your financial situation has changed since you first obtained your mortgage.
``If your credit is good, the lender may want you to refinance,'' says Gerri Detweiler, credit adviser for the consumer Web site http://www.credit.com . ``They may even have a streamlined refinance program.''
Check Credit
Any change in your credit history, income stream or other variables will affect your chances of refinancing or getting a modification.
Generally the lowest rates are offered to those scoring 700 or above on the FICO scale, a universally used system of rating creditworthiness.
Once you get the green light from your lender, it's time to bargain. First, look around to see what rates are being offered for the timeframe you want.
While it's unlikely you will be able to lock in a low, introductory teaser rate you first financed at, do some math to see which monthly payment works with your budget.
An adjustable reset calculator at http://www.bankrate.com can help you find a rate and payment that you can afford. Also consider the FHA Secure program, a refinancing program available to borrowers with a steady income and payment history.
Shane Backer, a mortgage planner and broker at Robbins & Lloyd Mortgage Corp. in New York, says you may contract with a credit-repair service to improve your rating. ``Look into your credit report and work with a mortgage professional,'' he says. ``Know when your ARM expires and plan ahead.''
Negotiate
Like any negotiation, you probably won't get your ideal rate, nor will your lender. And you may encounter some roadblocks as loan officers are swamped with modification requests.
Is loan modification too good to be true? As with all things regarding credit, there are several caveats. Lenders will be happy to deal with you if your credit record is clean and your income is steady or increasing. Having more than 10 percent in home equity is also a plus.
If you obtained what the industry terms riskier ``Alt-A,'' ``B paper'' or subprime loans, it may be much more difficult to obtain a loan modification, even with a new government program called Hope Now designed to help those less creditworthy borrowers facing unaffordable resets.
Backer said he didn't know of anyone who was doing a loan modification through that program, largely because of the difficulties of getting investors to approve them.
No matter what kind of loan you have, it's best to call your mortgage service company to see if you have room to negotiate. It costs nothing to ask.
(John F. Wasik, author of ``The Merchant of Power,'' is a Bloomberg News columnist. The opinions expressed are his own.)
Terms will be tougher for the credit-challenged. Fewer bargain teaser rates will be offered. And for those facing higher resets on adjustable-rate mortgage payments, it's time to negotiate.
If your mortgage is ratcheting up to a monthly payment you can't afford, you may have some leverage in lowering the rate. Your lender may even welcome the move and allow you to do a low- cost loan modification.
To date, some $150 billion in adjustable loans have reset with $300 billion more in the pipeline, according to the Federal Deposit Insurance Corp. The greatest number of mortgage-rate increases is likely to hit borrowers this year.
In many cases, your lender may call you first to see if you want to modify your loan's terms. That's what happened to Dick Lepre, a loan officer for Residential Pacific Mortgage Corp. in San Francisco.
``I had a 5/1 adjustable at 4.25 percent and Chase Mortgage called me up to reset it at 5.625 percent for seven years,'' Lepre told me. ``Banks know you have an ability to go elsewhere for a loan. It's more costly for them to replace the loan than to keep it. They want to keep customers.''
Keep in mind that almost all adjustable-mortgage contracts can be modified -- if both parties agree to the terms. This avoids the hassle of refinancing and searching for new lenders.
Making the Call
The road to a modification may not be an easy proposition, though.
Your loan may be serviced by a company that doesn't hold the note and may not be able to change the terms. Nevertheless, your first call should be to the customer service department of the mortgage servicing company.
Is your loan held by a direct lender? If so, the bank may ask for extensive information on your credit history and earnings -- perhaps even more than when you first applied due to tighter loan rules.
Lenders mainly want to know if your financial situation has changed since you first obtained your mortgage.
``If your credit is good, the lender may want you to refinance,'' says Gerri Detweiler, credit adviser for the consumer Web site http://www.credit.com . ``They may even have a streamlined refinance program.''
Check Credit
Any change in your credit history, income stream or other variables will affect your chances of refinancing or getting a modification.
Generally the lowest rates are offered to those scoring 700 or above on the FICO scale, a universally used system of rating creditworthiness.
Once you get the green light from your lender, it's time to bargain. First, look around to see what rates are being offered for the timeframe you want.
While it's unlikely you will be able to lock in a low, introductory teaser rate you first financed at, do some math to see which monthly payment works with your budget.
An adjustable reset calculator at http://www.bankrate.com can help you find a rate and payment that you can afford. Also consider the FHA Secure program, a refinancing program available to borrowers with a steady income and payment history.
Shane Backer, a mortgage planner and broker at Robbins & Lloyd Mortgage Corp. in New York, says you may contract with a credit-repair service to improve your rating. ``Look into your credit report and work with a mortgage professional,'' he says. ``Know when your ARM expires and plan ahead.''
Negotiate
Like any negotiation, you probably won't get your ideal rate, nor will your lender. And you may encounter some roadblocks as loan officers are swamped with modification requests.
Is loan modification too good to be true? As with all things regarding credit, there are several caveats. Lenders will be happy to deal with you if your credit record is clean and your income is steady or increasing. Having more than 10 percent in home equity is also a plus.
If you obtained what the industry terms riskier ``Alt-A,'' ``B paper'' or subprime loans, it may be much more difficult to obtain a loan modification, even with a new government program called Hope Now designed to help those less creditworthy borrowers facing unaffordable resets.
Backer said he didn't know of anyone who was doing a loan modification through that program, largely because of the difficulties of getting investors to approve them.
No matter what kind of loan you have, it's best to call your mortgage service company to see if you have room to negotiate. It costs nothing to ask.
(John F. Wasik, author of ``The Merchant of Power,'' is a Bloomberg News columnist. The opinions expressed are his own.)
Wednesday, January 2, 2008
Wednesday Market Conditions
01/02/2008
Very early trade this morning had the rate markets open under a little pressure from Monday's early close. The holidays are over and its back to business, albeit with some minor football hangover. At 10:00 a huge rally.
The remainder of this week will be focusing on the Dec employment report on Friday; expectations are for the unemployment rate to increase to 4.8% from 4.7% with non-farm job growth at 70K. Tomorrow ADP will come with their estimate for jobs.
At 10:00 the ISM Dec manufacturing report; the overall index was expected at 50.5 from 52.86 (rev'd) in Nov---it hit at a weak 47.7; new orders at 45.7 from 52.6, employment at 48.0 from 47.8 and prices at 68.0 frm 67.5 The report is one of the weakest we have seen in over a year. The ISM index has now declined for six consecutive months and is certainly forcing the Fed's hand on more rate cuts in the future. Any read under 50 indicates contraction. The Initial; reaction has been as expected with this weak outlook for manufacturing, the 10 yr note has jumped 19/32 in five minutes and the 2 yr note yield has fallen to 2.92% from 3.05% on Monday. Mortgage prices are moving higher but it will take a few minutes for them to catch up.
Also at 10:00 Nov construction spending, expected to be down 0.4%, it was up just 0.1%----more evidence for those that are continuing to to talk bullish on the economic outlook.
Holiday Internet Sales Growth Slows as U.S. Consumers Hold Back Spending. Internet sales by U.S. retailers during the holiday season rose at the slowest pace on record as consumers grappled with $3-a-gallon gasoline and the worst housing slump in 16 years.
The U.S. dollar weakened against 13 of the 16 most-actively traded currencies as traders bet the Fed will reduce borrowing costs at least twice in 2008, extending last year's 10% decline of the buck. The dollar fell against the euro in 2007 as the Fed lowered its benchmark rate by 1.0% to 4.25% since September. The euro gained 10.6% last year as the European Central Bank raised its main refinancing rate twice to 4.0%, the highest in six years.
Most of the debate as the year gets rolling is on what the Fed will do as the US economy slows. The chance the Fed will cut its target rate for overnight lending between banks by a quarter-point to 4.0% at its Jan 30 meeting rose to 92% from 76% a week ago, according to futures contracts on the Chicago Board of Trade. The odds of a reduction to 3.75% at its March 18 meeting are 61%. As you know it is a moving target, and subject to huge sentiment changes on each key economic reading. That said, all recent data is pointing to an economic decline in 2008 with housing and foreclosures leading consumers to slow spending.
The first half of 2008 should see lower long term interest rates as the Fed is likely to continue lowering rates at each FOMC meeting through June. Inflation fears have increased recently as the Nov PCE (personal consumption expenditures) core rate (ex food and energy) jumped to +2.2% yr/yr---over the Fed's "comfort" level. The Fed however is likely to look more at economic weakness than the inflation increase as long as it doesn't continue to increase. That is however, a huge leap of faith at the moment with oil prices set to hit $100.00 before the end of this week. While the Fed is expected to cut rates; it isn't likely to be a smooth ride as there will be times when the outlook for more cuts gets wound up in contra economic data.
And we can't forget the sub prime mess; it hasn't gotten much ink the past few weeks but we expect a lot deeper losses as a result of the stupid attempt to paint low quality mortgages with a rose colored brush as was the case on The Street in 2005 and 2006. 2008 is also likely to ring in the next credit defaults in credit cards and auto loans. Credit card debt and auto loans were also bundled into packages and sold to investors not willing to be satisfied with low rates of returns on good debt.
Crude oil is on its way to try $100.00; this morning crude is up over $2.00 at about $98.00. Tomorrow the EIA will report last week's inventory levels and traders are expecting another drawdown.
Very early trade this morning had the rate markets open under a little pressure from Monday's early close. The holidays are over and its back to business, albeit with some minor football hangover. At 10:00 a huge rally.
The remainder of this week will be focusing on the Dec employment report on Friday; expectations are for the unemployment rate to increase to 4.8% from 4.7% with non-farm job growth at 70K. Tomorrow ADP will come with their estimate for jobs.
At 10:00 the ISM Dec manufacturing report; the overall index was expected at 50.5 from 52.86 (rev'd) in Nov---it hit at a weak 47.7; new orders at 45.7 from 52.6, employment at 48.0 from 47.8 and prices at 68.0 frm 67.5 The report is one of the weakest we have seen in over a year. The ISM index has now declined for six consecutive months and is certainly forcing the Fed's hand on more rate cuts in the future. Any read under 50 indicates contraction. The Initial; reaction has been as expected with this weak outlook for manufacturing, the 10 yr note has jumped 19/32 in five minutes and the 2 yr note yield has fallen to 2.92% from 3.05% on Monday. Mortgage prices are moving higher but it will take a few minutes for them to catch up.
Also at 10:00 Nov construction spending, expected to be down 0.4%, it was up just 0.1%----more evidence for those that are continuing to to talk bullish on the economic outlook.
Holiday Internet Sales Growth Slows as U.S. Consumers Hold Back Spending. Internet sales by U.S. retailers during the holiday season rose at the slowest pace on record as consumers grappled with $3-a-gallon gasoline and the worst housing slump in 16 years.
The U.S. dollar weakened against 13 of the 16 most-actively traded currencies as traders bet the Fed will reduce borrowing costs at least twice in 2008, extending last year's 10% decline of the buck. The dollar fell against the euro in 2007 as the Fed lowered its benchmark rate by 1.0% to 4.25% since September. The euro gained 10.6% last year as the European Central Bank raised its main refinancing rate twice to 4.0%, the highest in six years.
Most of the debate as the year gets rolling is on what the Fed will do as the US economy slows. The chance the Fed will cut its target rate for overnight lending between banks by a quarter-point to 4.0% at its Jan 30 meeting rose to 92% from 76% a week ago, according to futures contracts on the Chicago Board of Trade. The odds of a reduction to 3.75% at its March 18 meeting are 61%. As you know it is a moving target, and subject to huge sentiment changes on each key economic reading. That said, all recent data is pointing to an economic decline in 2008 with housing and foreclosures leading consumers to slow spending.
The first half of 2008 should see lower long term interest rates as the Fed is likely to continue lowering rates at each FOMC meeting through June. Inflation fears have increased recently as the Nov PCE (personal consumption expenditures) core rate (ex food and energy) jumped to +2.2% yr/yr---over the Fed's "comfort" level. The Fed however is likely to look more at economic weakness than the inflation increase as long as it doesn't continue to increase. That is however, a huge leap of faith at the moment with oil prices set to hit $100.00 before the end of this week. While the Fed is expected to cut rates; it isn't likely to be a smooth ride as there will be times when the outlook for more cuts gets wound up in contra economic data.
And we can't forget the sub prime mess; it hasn't gotten much ink the past few weeks but we expect a lot deeper losses as a result of the stupid attempt to paint low quality mortgages with a rose colored brush as was the case on The Street in 2005 and 2006. 2008 is also likely to ring in the next credit defaults in credit cards and auto loans. Credit card debt and auto loans were also bundled into packages and sold to investors not willing to be satisfied with low rates of returns on good debt.
Crude oil is on its way to try $100.00; this morning crude is up over $2.00 at about $98.00. Tomorrow the EIA will report last week's inventory levels and traders are expecting another drawdown.
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