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Market Update August 27th, 2010 5:30 PM ET

August 27, 2010
By NAMCO

Could This Be The Beginning of The End of Low Mortgage Rates?

     Bond markets hit record highs today only to be driven down hard on the heels of Federal Reserve Chairman Ben Bernanke’s speech at the Annual Fed conference in Jackson Hole Wyoming.

     I have been warning that the bond markets are overbought and that a reversal was inevitable and it happened today.  The 10 Year Note lost a staggering 141 basis point’s and the Fannie Mae 3.50% Coupon lost 59 basis points before it was all over. 
     

     Congratulations to all that heeded my warnings and locked into a mortgage rate. It feels good to walk away from the craps table a winner. Doesn’t it?
 
     We will have to wait for next week to see where we go from here. While there is no clear technical signal, it does show how Bond prices are range bound as the market hit both resistance and support today.
 
 
Big Ben Speaks at Jackson Hole
       

     Mr. Bernanke stated that it is reasonable to expect growth to pick up in 2011 and in the years that follow.  He went on to say that the Fed is supporting the economic recovery by maintaining extraordinary accommodative monetary policy.  ”The committee is prepared to provide additional monetary accommodation through unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly” Bernanke told the Fed conference, held in Jackson Hole, Wyoming.
     Also helping to push bond prices down and mortgage rates up were comments by Fed member James Bullard stating that the Fed has done all it can in the Mortgage Bond Market.
     

     For many years I have watched the Fed get it wrong time and time again and it’s usually at the behest of what ever administration is in the White House at the time. It’s no different this time either. It is very clear that the Fed is playing a very dangerous shell game to keep the markets from collapsing long enough to get through this next election cycle.        There are a multitude of economists that are ringing the bell of concern and calling for the Fed and our elected officials to reverse their course of action and stop the out of control spending, which has not accomplished what they promised. Many are now calling for the White House to fire their Economic advisors. The Fed’s actions speak louder than their words.
 
     I maintain a bias towards locking into mortgage rates.  

Fannie Mae 3.50% Coupon $100.28  -59 BP

* Maximum Loan to Value of  80% with a Maximum loan amount of $729,000.

Market Update August 20th, 2010 5:40 PM ET

August 21, 2010
By NAMCO

 The Fed Starts Buying Mortgage Bonds

     The Fed began buying Mortgage Bonds again on Tuesday.  Many fund managers followed the Feds lead as yields on Mortgage Bonds are significantly better than Treasuries. This helped Mortgage Bond prices, which helps to lower mortgage rates. 

      Also helping Mortgage Bonds was the terrible Jobless Claims Report on Thursday, as 500,000 people filed for unemployment benefits for the first time, higher than the expected 475,000. This is the highest reading since November 2009.

Wall Street Journal Op-ed piece by Jeremy Siegel

      Respected Economist Jeremy Siegel wrote a piece in the Wall Street Journal, entitled “The Great American Bond Bubble”.  He warns about the current rise in Bond Prices and cautions that investors getting in at these levels are “courting disaster”. He points out that capital losses to bond holders could be more than three times the current yield being paid, if the 10-Yr Note yield rises back to the 4% seen in April.  History has shown that interest rates can move up sharply and Jeremy’s warning should serve as an omen to those who have sat on the sidelines too long, betting on mortgage rates moving lower.

Where do we go From Here? 

      Mortgage Bonds lost 38 basis points to close at 100.31 on the 3.50% coupon as of today’s close.  This will put lenders in a position to increase mortgage rates.  More importantly, we can’t ignore the technical signals, that suggest higher rates ahead for the short term.

Chances are we will see the sell off in Mortgage Bonds continue on Monday. Will they recover in the coming days? Stay tuned.

 Our bias continues to be locking into Mortgage rates here.                

 FNAMA 3.50% Coupon – $100.31  -38 bp

Market Update Friday August 13, 2010 11:10 AM ET

August 13, 2010
By NAMCO

New Program!

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Mortgage Bonds holding on. 

      Mortgage Bonds started the week trading higher at $102.71, but lost some ground by the end of the week. As of this morning Mortgage Bonds are priced at $102.53.  This led to some lenders raising interest rates on Thursday.       

      You would think that Mortgage Bonds would have benefitted more from the sell off in Stocks, but more money was being parked into Treasuries than Mortgage Bonds. Investors are now looking for total safety and higher returns. So investors are shying away from Mortgage Backed Securities in favor of Treasuries.      Thursday mornings prices were reflective of this as the 10 Yr Note Yield was unchanged from Wednesday’s close, while Mortgage Bonds were down .12 basis points from Wednesday’s close. 

       Remember, Mortgage Rates rise when Mortgage Bond prices fall.        

      Financial Markets were looking for more direction than The Fed was willing to give in Tuesday’s Fed Statement.  With no game plan in site on how to handle deflation, or longer term inflation, this was yet another reason for investors to move from Equities and into Bonds.  

      The Treasury and the White House will be hosting a “Conference on the Future of Housing Finance” next week. Word has it that they will discuss a bailout to help millions of homeowners upside down on their mortgage. Also to be discussed is the future of Fannie Mae and Freddie Mac.  

      Our position remains locking rates, even with the additional support The Fed is offering the Bond markets, the markets are fragile and interest rates can turn and move higher without notice. 

Fannie Mae 4.0% Bond: 102.53  +16 BP 

*Requires a minimum 750 credit score.  Maximum Loan to Value of  90% with a Maximum loan amount of $800,000.

Market Update Friday August 6th, 2010 5:30 PM ET

August 7, 2010
By NAMCO

Mortgage Bonds set new record highs.  Weakness in the job market helped Mortgage Bonds move higher again this week. The benchmark 5.00% coupon moved 28 basis points higher to $102.75, 6 basis points more than last weeks high of $102.69.  Helping Bonds move higher were disappointing earnings reported from Dow component Proctor & Gamble and Dow Chemical.

Remember, Mortgage Rates fall when Mortgage Bond prices rise. Therefore some lenders reduced interest rates by .125% this week.

The Treasury announced it will be selling $74B in government debt next week.
We will be keeping a close watch on this sale as the results could move the Bond markets in either direction.

Fed Chairman Ben Bernanke stated in a speech on Monday that the Fed must avoid raising interest rates too soon and urged the government to proceed cautiously in cutting spending and raising taxes.

The Fed Chairman also told “Meet the Press” that the US could go into a double dip recession if housing prices continue to decline, and said that we are in a “quasi-recession”.
If only they would listen…
Article- Economic Recovery Depends on the Real Estate Market

Pending Home Sales- came in at -2.6% for June, slightly better than the expected -5.0%.  This makes you wonder … did the Tax Credit really offer any meaningful help to the housing market.

We maintain a bias toward locking into rates as we are in uncharted waters.

Fannie Mae 4.0% Bond: 102.75  +28 BP

Market Update Friday July 30th, 2010 5:18 PM ET

July 31, 2010
By NAMCO

John Sauro speaks with Kathleen Hays on Bloomberg.
Click below to listen to John and Kathleen discuss the new laws and the impact it will have on  the finance industry and consumer mortgage’s.  http://www.northatlanticmortgage.com/featured_news.htm

Mortgage Bonds broke through a tough ceiling of resistance yesterday and moved higher this morning due to weakness in stocks only to give back most of their gains as stocks recovered. Due to better than expected economic reports.

Second Quarter GDP reported the economy slowed to 2.4% annually, slightly lower than the expected 2.5%.  The Chicago Purchasing Managers Index came in at 62.3, better than expectations of 56.3 and consumer sentiment came in at 67.8, a bit better than expected.

Another week of massive Bond Supply. The Treasury auctioned $104B in securities. This is important to note as bond prices broke through a tough ceiling of resistance in the face of overwhelming supply. We all better hold on tight when this starts to unwind.

We continue to recommend locking into rates and not risking loosing a
historical good deal.
Remember, Higher Mortgage Bond prices mean lower mortgage rates.

Fannie Mae 4.0% Bond: 102.41  +9BP

Market Update Friday July 23rd, 2010 8:58 AM ET

July 23, 2010
By NAMCO

Technicals are showing signs of possible weakening prices for Mortgage Bonds.  The drop in Mortgage rates can be attributed to many factors, one being the weakened Euro. Europeans are putting their money in the US Bonds. However, that may change as rates in Canada are looking more attractive for Europeans since the Bank of Canada raised rates by.25% up to .75% on Tuesday.

Another concern for Mortgage Bonds and Mortgage rates is China’s Reserves which stand at $2.5T. most of these reserves are held in US Treasuries and Mortgage Backed Securities. However, last quarter was the first time in a long while that the Chinese did not increase these reserves. Could it be that China is slowing its investments in US debt? 

Mortgage Bonds began their climb on April 6th when they were at $96.18 and finished Thursday at $101.78. Its been quite a run, but as we know what goes up must come down. And, don’t forget that Mortgage Rates move in the opposite direction of Mortgage Bond prices.

Housing Starts fell 5% in June to 549,000, below expectations of 575,000. The latest survey of New Home Sales showed a drop of 33%. in the latest survey. Building Permits did show an uptick, but it was mostly multi-family homes.
Existing Home Sales for June came in at 5.37M, better than expectations of 5.09M, but below May’s number of 5.66M. However the better numbers are influenced by the Tax Credit, which had a deadline of June 30th. So, its likely more closings were scheduled for June in order to take advantage of the Tax Credit.
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President Obama signed the Financial Reform bill into law Wednesday. Unfortunately, while there are some good points in the Bill, there are also many unintended consequences. One example is that rating agencies won’t allow their ratings to be printed on offering documents. This shut down the asset-backed debt markets on Wednesday as these deals can’t happen without the printed ratings. Ford Motors pulled a financing deal Wednesday night because they couldn’t get a printed rating on their offering.
We maintain our bias towards locking into mortgage rates here.
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FNMA 4.00% Bond $101.78 -16bp