Thank-you Mr. Bernanke - your plan is working like a charm so far.

          In the past two trading sessions, the yield on the 30-year Treasury bond has jumped by more than 30 basis points, the biggest two-day rise in more than 15-years.  Expectations that inflation will soar from a coming massive spike in government borrowing has led traders the world over to dump Treasuries.  Normally, soaring Treasury yields would drag mortgage interest rates higher as well.  But not this time.

Fortunately for all of us in the mortgage industry Fed Chairman Bernanke and his fellow central bankers moved proactively in November to put a $500 billion buffer between rate sheets and the stresses in other areas of the credit market.  While the Treasury market has been crushed with sell orders - the Fed has been busy aggressively buying mortgage-backed securities to support steady to lower mortgage interest rates.  As long as the money holds out -- this will be a sweet, sweet deal for mortgage lenders and borrowers alike. 

I have no intention of raining on anybody's parade but I think it is worth at least noting that at the current pace mortgage-backed securities will soon be approaching yield levels that only a Fed Chairman could love.  Once Mr. Bernanke and his band of merry central bankers exhaust their available capital - no one else (in terms of other investors) will be at home to pick-up the slack and mortgage interest rates will rise.  That is certainly not going to happen today, this week or even this month probably - but somewhere toward the end of the year (in my opinion) mortgage interest rates will likely begin to move notably higher from current levels as they are finally allowed to seek their natural level. 

The central feature on this week's economic calendar will be Friday's December nonfarm payroll report.  The market has already priced in the expected loss of 485,000 jobs together with the likelihood the national jobless rate ratcheted up to 6.9% from last month's 6.7% level.  Chances are the actual numbers will match or fall within shouting distance of the consensus estimate values.  If so, the report's impact on the trend trajectory of mortgage interest rates will not be large, if it registers at all.  In the off-chance the headline December payroll shows a job loss of 470,000 or less and/or the national jobless rates posts a reading of 6.7% or less look for mortgage interest rates to edge fractionally higher.        

Today's conforming 30 year fixed rate is at 5.00%.

The big news of the day (so far) is that the Fed actually made their first purchase of mortgage-backed securities this morning.  The total amount of the purchase will not be known until it is announced on Thursday, January 8^th.  The Fed intends to keep a running tally of its aggregate purchases and will update its figure every Thursday until they've spent the allotted $500 billion.  It is worth noting that the money the Fed will spend to support the mortgage and housing market is not attached to any debt - the Fed just printed it up.   While this capital solves the near-term problem of providing attractive financing to stimulate home buying - it comes with a price that will be paid later - in the form of higher inflation levels.  Ah, but that is a concern for a different day.

The Fed's mortgage-backed securities purchases could not have come at a better time. 

Treasury prices have "taken-it-on-the-chin" since Friday as a growing number of investors are pacing the floor and wringing their hands over the massive $1.5 to $2.0 trillion worth of debt Uncle Sam plans to issue to support the financial markets and the economy in general this year.  As I think about it there is really no need to worry about something that is going to happen.   Fed policymakers and the incoming Obama administration have made it abundantly clear that the risk of doing too little to re-fire the country's economic engines poses a greater risk to our collective financial well being than the risk associated with doing too much.  

The central feature on this week's economic calendar will be Friday's December nonfarm payroll report.  The market has already priced in the expected loss of 485,000 jobs together with the likelihood the national jobless rate ratcheted up to 6.9% from last month's 6.7% level.  Chances are the actual numbers will match or fall within shouting distance of the consensus estimate values.  If so, the report's impact on the trend trajectory of mortgage interest rates will not be large, if it registers at all.  In the off-chance the headline December payroll shows a job loss of 470,000 or less and/or the national jobless rates posts a reading of 6.7% or less look for mortgage interest rates to edge fractionally higher.        

Today's conforming 30 year fixed is at 5.125%.

Normally, news that the manufacturing sector contracted at a pace faster than expected would tend to be supportive of steady to fractionally lower mortgage interest rates.  This time around mortgage investors did nothing more than yawn when the Institute of Supply Management reported this morning manufacturing activity in December fell to a reading of 32.4, its lowest level since 1980.   The group's gauge, which covers about 12% of the economy, was expected to drop to a reading of 35.4% by most analysts.  Today's muted market reaction to a surprisingly weak December ISM report is a solid indication of just how much "bad" economic news has already been priced into the market. 

As you probably already know, the Federal Reserve reminded market participants on Tuesday that they will begin to "make good" on their November 25, 2008 announcement regarding the direct-purchase of $500 billion worth of agency eligible mortgage-backed securities. A Federal Reserve spokesman said the central bank intends to spend all of the allotted funds by the end of the first-half of 2009. 

Data released late on Wednesday afternoon suggests the Fed's funding capability may extend a bit longer than mid-year.  According to Thompson Reuters, our industry produced a total of $187.4 billion of agency eligible mortgage-backed securities in 2008, down roughly 80% from the 2007 mark of $941.1 billion.  If we were to assume (always a dangerous proposition) that 2009 production will fall somewhere in between these two annual extremes, total agency eligible mortgage-backed issuance for 2009 will amount to slightly more than $500 billion - a number that puts the Fed in position to purchase essentially every agency eligible mortgage-backed security that hits the market in 2009.   I'm hesitant to jump to the conclusion that interest rates on agency eligible mortgages are headed for dramatically lower levels - but I think there is ample reasons to believe skyrocketing mortgage interest rates will not be a predominate feature of the mortgage market for most, if not all of '09.

Looking ahead to next week, the central feature on the economic calendar will be Friday's December nonfarm payroll report.  The market has already priced an expected national jobless loss of 485,000 and a jobless rate of 6.9%.  Chances are the actual numbers will match or fall within shouting distance of the consensus estimate values.  If so, the report's impact on the trend trajectory of mortgage interest rates will not be large, if it registers at all.  In the off-chance the headline December payroll shows a job loss of 300,000 or less and/or the national jobless rates posts a reading of 6.7% or less look for mortgage interest rates to edge fractionally higher.        

Today's conforming 30 year fixed rate is at 5.25%.

Trading activity in the mortgage market this morning is once again skimpy as many market participants are away from their office for this holiday-shortened week. 

The last week of 2008 will end with the demand for mortgage applications at its highest level in more than five year as loan rates set record lows.  The Mortgage Bankers of America announced this morning that purchase money applications were up 1.4% during the week of Christmas while refinancing applications slipped a mere 0.4% lower.  That makes sense, considering fixed 30-year home loans averaged 5.03% last week, marginally lower than 5.04% from the week earlier levels and well below the July peak of 6.59%. 30-year fixed rate mortgages rates have now fallen below the June 2003 lows which most analysts (including me) thought would represent a generational low.

Looking into the first-half of 2009 mortgage interest rates will likely remain attractive.  The Federal Reserve reminded market participants yesterday that they will begin to "make good" on their November 25, 2008 announcement regarding their intent to direct-purchase $500 billion worth of agency eligible mortgage-backed securities. A Federal Reserve spokesman said the central bank intends to spend all of the allotted funds by the end of the first-half of 2009.  By my calculations the Fed will need to buy at a little more $83 billion per month to meet their stated objective.  A buying appetite of that size may not necessarily push mortgage interest rates dramatically lower from current levels - but it darn sure will serve to keep rates from moving sharply higher through mid-year. 

I am encouraged by what I see coming our way in '09.  Best wishes for a healthy, happy, productive and prosperous New Year everybody.

Today's conforming 30 year fixed is at 5.25%.

Trading activity in the mortgage market this morning is once again skimpy as many market participants are away from their office for this holiday-shortened week. 

Mortgage investors were not particularly surprised when the Conference Board (a global, independent membership organization) announced this morning that the worst job market in 16 years drove the December consumer confidence index to a record low of 38.0.  The November mark was 44.7.   The muted market response to the news is due in large part to the fact that investors almost always put far more emphasis on what the consumer is actually doing - rather than how they say they are feeling.  

Today's conforming 30 year fixed rate is at 5.375%.

Trading activity in the mortgage market this morning is once again skimpy as many market participants are away from their office for this holiday-shortened week. 

Much of the strength in the early trading in the mortgage market today is being produced by another solid round of "flight-to-quality" buying as tensions in the Middle East escalate.  The sparse batch of data scheduled for release during this last week of 2008 will not likely be much of a factor as far as the trend trajectory of mortgage interest rates is concerned.  All this week's battery of economy reports will likely do nothing more than bear out the well-established picture of an economy in recession.

Today's conforming 30 year fixed rate is at 5.125%.

Let's ignore the existing homes sales report released today (not pretty) and embrace the positive consumer confidence report.  Falling prices in the last month have increased consumer confidence despite employment and economic turmoil.

Happy Holidays to you all. 

Today's conforming 30 year fixed rate is at 5.25%.

Trading activity in the mortgage market this morning is once again sparse as many market participants are away from the office for this holiday-shortened week. 

Those traders still at their desk are nervous about this afternoon's record setting $38 billion 2-year note auction that will be conducted by the Treasury Department (auction will conclude at 1:00 p.m. ET).  The seasonal timing of this financing effort is poor and the government may have trouble selling these securities without bumping up the return to investors.  A higher yield on today's 2-year note offering will not bode well for the prospects of strong demand at tomorrow's $28 billion 5-year note auction.  Rising yields on these two securities will make it almost impossible for mortgage interest rates to move notably lower for the Christmas break. 

Looking ahead to this week's holiday shortened release of macro-economic data - I don't see anything from Tuesday's final revision to third-quarter Gross Domestic Product figures -- through Wednesday's November Personal Income and Spending report -- that will likely pack enough "punch" to significantly influence the trend trajectory of mortgage interest rates one way or the other.   

Today's conforming 30 year fixed rate is at 5.125%.

Father Time is slowly but surely shuffling along toward the end of a year investors the world-over will not soon forget.  Next week's holiday shortened trading session will likely see mortgage investors doing little else than squaring up their positions in these few remaining days of 2008.

During the past twelve months everything from Treasury bills to bonds to mortgage interest rates have fallen to record lows. Global economic recession sent investors from every corner of the universe scrambling to park cash in our Treasury and agency eligible mortgage-backed security markets. 

I see reasons to believe there is a better than even chance that once the New Year is upon us -- these same investors will begin to cautiously creep out of their foxholes - sniffing around for higher rates of return than 0.0%.  If the macro-economic numbers in the first-quarter of 2009 prove to be less severe than currently anticipated -- the probability my assessment will be proven accurate will jump dramatically. 

My forecast here could be way-off-base if investors prove to be far more risk adverse than I believe them to be.  Equity and credit investors generally get ahead of economic cycles -- so I don't think it will take more than a couple of trading weeks into the New Year to determine whether I've got it right - or whether I'm wrong. 

Today's conforming 30 year fixed rate is at 5.125%.

The Commerce Department reported this morning that the closely monitored November Consumer Price Index plunged 1.7% from last month's level, lead by a massive 17% drop in energy prices.  It was the largest monthly decline for the headline consumer price index since the government began keeping records in 1947.  Core prices, a value that excludes the more volatile food and energy components, were flat in November.

In a separate report the Commerce Department announced housing starts and building permits plunged to record lows in November.  Starts were 18.9% lower while permits slumped by 15.6%.

The sharp drop in the rate of inflation at the consumer level leaves the door wide open for the Fed to cut their benchmark fed fund rate by 50 basis-points today - a move that has been priced into the mortgage market for weeks.  Futures traders are assigning a 66% probability to the idea that central bankers will choose to slash 75 basis-points from short-term interest rates. 

It really doesn't matter how much the Fed actually cuts - market participants are well aware that the fed fund rate (the interest rates banks charge each other for overnight loans) and the discount rate (the interest rate at which member banks may borrow short-term funds directly from the Federal Reserve Bank) can't go below zero.  While it may not happen today - the Fed is almost certain to push short-term rates to 0.0% at their January 28^th meeting.

With rates approaching zero, mortgage investors will scour this afternoon's post-meeting statement from the Federal Open Market Committee for hints on what Chairman Bernanke and his band of merry central bankers plan to do next to help pull the economy out of this steep recessionary dive. I suspect policymakers will "talk-up" plans to become a major buyer of treasury obligations and mortgage-backed securities.  Look for mortgage investors to show little reaction to this chatter -- since the Fed has done little with the $600 billion they have already been authorized to spend.

Today's conforming 30 year fixed rate is at 5.125%.

Many investors are headed into their last full trading week of the year.   Everybody is sticking around to see what, if anything happens, when the Federal Open Market Committee cuts their benchmark fed fund rate to its lowest level since 1958 tomorrow afternoon.  It is a virtual "given" that the members of the committee will vote unanimously to cut the fed fund rate (the interest rate banks charge each other for overnight loans) to .50 percent from its current level of 1.0% level.  Of even greater interest to the global investment community is what hints, if any the central bank might drop in tomorrow's post-meeting statement about its remaining policy options.

I see reasons to believe another Fed rate cut will likely amount to nothing more than an attempt to drain the ocean with a teaspoon.  We've reached a juncture in the credit markets where it really doesn't matter how low interest rates go -- banks are refusing to lend and consumers either have no desire to borrow - or they are in such troubled financial straits they can't meet the qualification criteria for a loan. 

So what's the Fed to do?  Many believe the Fed will announce in their post-meeting statement tomorrow afternoon (2:15 p.m. ET) that the answer to rekindling economy growth is actually quite simple - print money like crazy. 

In a nutshell the idea here is that by flooding the economy with money - banks will ultimately find themselves bursting at the seams with capital - and they will essentially have no other option than to start lending.  As the short-term credit market swings back into action, business confidence will rise, employment will improve and the engines of commerce will roar back to life.

On its face it all sounds like a perfect "storybook-ending" to a very difficult period in American financial history.  Unfortunately, there is a pretty big "fly-in-the-ointment" here.  The potential for very high inflation down the road if the Fed is successful with this "quantitative easing" strategy is exceptionally high - but from the Fed's perspective -- that's a story for a different day. 

I'm not so sure mortgage investors will be so lackadaisical with their forward-looking inflation concerns. Should the Fed announce big new plans to ramp up their "quantitative easing" -- look for mortgage interest rates to find it increasingly difficult to move notably lower from current record low levels.   

Today's conforming 30 year fixed rate is at 5.125%.

As you are probably aware by now, the measure to provide $14 billion in loans to avert a possible bankruptcy of one or more of the big three U.S. automakers failed to pass the Senate last night.  The reason any of this is a "big deal" to the mortgage market - beside the massive loss of jobs and related longer-term damage a major failure of the auto sector would wreak on the economy --  is the fact that an outright failure of the automakers carries the potential to send another major financial tsunami crashing through the world's credit markets. 

United Auto Workers President Ron Gettelfinger and congressional Democrats are calling on the Treasury and the Fed to "prevent the imminent collapse of the automakers" by using money from T.A.R.P. (Troubled Asset Relief Program) to keep the union/industry afloat.  Mr. Gettelfinger says the union has already made "enormous concessions" to justify the investment of billions of dollars of American taxpayer money.  As I understand it, the Senate rejected the relief package because their definition of "enormous" and the timing of these concessions differed significantly from the U.A.W's definition of "enormous" and their related implementation timelines.

The stakes are high for all of us and the issue remains unresolved.  Mortgage investors are keeping their "powder-dry" and monitoring this developing story.  The trading activity in the mortgage market so far this morning has been light and largely dominated by sellers. 

As I write, the Treasury Department has indicated it is willing to provide financing to American automakers "until Congress reconvenes and acts to address the long-term viability of the industry."  The Bush administration appears to be onboard with that idea saying, "... given the current weakened state of the U.S. economy we will consider ... including the use of the TARP program to prevent a collapse of troubled automakers."  It looks like resolution of this problem will be successfully pushed out to sometime early next year.  A massive "gut-punch" to the credit market appears to have been deflected at the last possible moment - and that's supportive of steady mortgage rates - at least for the time being.

The morning's macro-economic data was completely overshadowed by the auto industry news.  The November Producer Price Index, a measure of price pressure at the manufacturing level, fell more than expected last month on a record decline in gasoline costs.  The core rate of inflation at the producer level, a value that excludes the more volatile food and energy components, rose by a very modest 0.1%.  A separate report showed that while retail sales fell for the fifth consecutive month in November, posting an overall decline 1.8%.  Excluding the auto component, sales were down 1.6%.  The November retail sales decline was slightly less than most analysts had been anticipating.

Looking ahead to next week, the Federal Open Market Committee meeting on Monday and Tuesday will dominate an otherwise sleepy economic calendar.  The Fed is broadly expected to cut their benchmark fed fund rate by 50 basis-points on Tuesday.  That event has been fully priced into the mortgage market for weeks -- and will therefore likely be anti-climatic in terms of its impact on the trend trajectory of mortgage interest rates.  In my judgment, the Fed would need to "surprise" the credit market by pushing short-term interest rates to zero in order to produce much of a downward rate move in the mortgage market.  The probability of such an event occurring on Tuesday remains small. 

Today's conforming 30 year fixed mortgage is at 5.25%.

Wholesale inventories fell 1.1% in October - a much stronger drop that the 0.2% decline most analysts were anticipating.  Sales dropped during the month by 4.1% -- the most since records began in 1992 -- causing businesses to scale back on the level of product on hand.  This report is just one more piece of a mountain of data that indicates the economy is in the grip of one of the most severe recessions in decades.

Speaking of recessions - I think it is worth noting there have been six major recessions since the Great Depression; three of them lasted a year and three of the lasted two years, start to finish.  Recent macro-economic data indicates the current recession will likely last a couple of years.  This recession officially began in December 2007, according to the government data wonks assigned to determine such things.  If that projection is anywhere close to accurate, and assuming history will repeat itself, December 2008 should roughly approximate the darkest point of this recession.  Considering the massive amount of stimulus that will be pouring into our economy shortly after January 20^th (Inauguration Day) - not to mention the trillions of dollars the major industrialized nations will collectively be pouring into the global market place -- it is almost a "given" that our domestic economic picture will have brightened considerably by this time next year. 

Today's conforming 30 year fixed rate is at 5.125%.

There is nothing in terms of economic indicators for investors to chew-on this morning -- so trading action in the stock market will likely be the biggest determinant of interest rate trend trajectory.  Higher stock prices tend to drag mortgage interest rates higher -- while lower stock prices are generally supportive of steady to perhaps fractionally lower rates. 

The desire for cash amid a liquidity crunch has kept Treasury obligations so well bid, particularly on the shorter end of the yield curve, Treasury bill rates have fallen near zero, meaning investors are willing to lend the government cash for the mere privilege of knowing they will get paid back. 

The Treasury Department announced that it will sell $28 billion of three-year notes tomorrow and $16 billion of 10-year notes on Thursday.  That's a larger combined auction than market participants were expecting.  Most observers believe persistent year-end "flight-to-quality" bids, especially for tomorrow's three-year notes, should cause investors little heartburn as they are called upon to absorb this new supply. 

I don't argue the likelihood that the demand for the three-year notes will probably be solid, but from a technical perspective it appears Uncle Sam will likely be required to "sweeten the pot" with a little higher yield in order to attract the required capital at Thursday's 10-year note auction.  If my assessment proves accurate, a higher yield on the 10-year note will likely draw mortgage interest rates fractionally higher as well.

Today's conforming 30 year fixed rate is at 5.375%.

There is nothing in terms of economic indicators for investors to chew-on this morning -- so trading action in the stock market will likely be the biggest determinant of interest rate trend trajectory.  Higher stock prices tend to drag mortgage interest rates higher -- while lower stock prices are generally supportive of steady to perhaps fractionally lower rates. 

Stocks opened sharply higher in the day's early trading on hopes that President-elect Obama's plans for the biggest investment in the country's infrastructure (highways, schools, government buildings, alternative power facilities) since the 1950's will help avert a deeper slump in the economy.  Optimism that automakers may receive an "11^th hour" reprieve from Congress added to the positive tone in the stock market at the start of the day.  The general sense starting to develop among investors, particularly stock investors, is that the people in charge are at least trying to do the right thing.  A government with a plan in a crisis is almost always far preferable to a government in a crisis with no plan.

I think it is worth noting that James Lockhart, the director of the Federal Housing Finance Agency, the government regulator for Fannie Mae and Freddie Mac, went out of his way in a interview on CNBC this morning to point out that while the government is taking concrete steps to shore up the housing market and reduce mortgage interest rates, there is no set target for how much borrowing costs should be.  The "so what" factor here is that mortgage interest rates will move to levels market participants, those with actual "skin-in-the-game" believe appropriate - not to levels an unnamed "source" whispers into the ear of the media.  I'm not suggesting it wasn't nice to have the media talking up the mortgage business for a change - I just think those that are expecting the government will target and achieve a given note rate (say 4.5%) under fair and open market conditions (not a market influenced by a special and specific government bond program) run a high risk of being disappointed.

Today's conforming 30 year fixed rate is at 5.50%.

The labor sector is hemorrhaging job losses - 533,000 in November after revised losses of 320,000 in October and 403,000 in September.  The national jobless rate edged higher to 6.7% last month from the 6.5% level in October.  Senator Charles Schumer, a New York Democrat, chairman of the congressional Joint Economic Committee succinctly summed up mortgage investor sentiment this morning when he said, "The jobs picture today is staggering, and it should be all the evidence Washington needs to act swiftly and decisively to shore up this economy."  

Mortgage investors couldn't agree with Senator Schumer more.  Market participants will continue to be very hesitant to push mortgage interest rates notably lower until they see clear signs that Uncle Sam is finally opening his checkbook in a meaningful way.  Mortgage interest rates are currently tracing along the edge of levels our industry has ever seen.  Without significant and sustained support from the government - private investors will be hesitant to add sizable portions of historically low yielding securities to their portfolio for fear of finding themselves ultimately holding the proverbial "financial bag" when economic conditions begin to improve. 

Today's news from the labor sector did "bake-into-the-cake" a 50 basis-point drop in the Fed's benchmark fed fund rate at their upcoming two day meeting (Dec. 16 -17).  The mortgage market won't likely respond much to such a move since it has been priced into the mortgage market for weeks.  The Fed will probably have to cut the fed fund rate by at least 75 basis-points to induce much of a mortgage market friendly reaction.

Looking ahead to next week Friday's November Retail Sales figure will take center stage.  Everybody expects disastrous retail sales numbers - so when they actually appear -- much of the market-moving "thunder" from the report will have already dissipated.  With only minor data populating the balance of the calendar expect stock market trading action and news from Washington to dictate the trend trajectory of mortgage interest rates for most of the week.

Today's conforming 30 year fixed rate is at 5.375%.

I think most readers would agree there is a big difference between talking the talk - and actually walking the walk.  The Wall Street Journal and Reuters News Service really got the rumor mills buzzing yesterday when they claimed their "sources" within the U.S. Treasury Department are whispering insider knowledge that indicates the government is considering reducing residential mortgage rates to 4.5% by upping investment in mortgage-backed securities.  The plan would be for Fannie Mae and Freddie Mac to buy up more mortgage-backed securities to help drive borrowing costs roughly 1.0% lower than last week's U.S. average of 5.53% for a 30-year fixed mortgage.

          I certainly don't want to rain on anybody's parade here - but there are a couple of things I think you ought to consider in order to put this story into perspective.  The Treasury Department already has authority to buy billions of dollars of mortgage-backed securities - it has yet to use that authority to any large degree.  Does additional purchase authority suddenly create a storm of mortgage-backed security purchase activity that didn't exist before?  How much additional buying power is necessary to push 30-year fixed-rate mortgage-backed securities down to 4.5%?  The Federal Reserve announced plans to buy $500 billion of mortgage-backed securities from Fannie and Freddie on Monday - which did cause rates to spike lower - for a couple of hours - before mortgage interest rates finished flat to slightly higher through this morning.  

          As I write, 30-year fixed rate mortgages in most of the country are trading at or near levels last experienced in June 2003 - when they touched 5.25%.  It is unlikely any coordinated effort by the government to push 30-year mortgage interest rates to 4.5% or lower will occur until at least January 20^th - there's probably too much "political hay" to be made by the majority party to make this event happen any earlier.

          Last but not lest, in my 7 years of managing mortgage market risk on a daily basis I've never seen mortgage interest rates sustain a dramatic move to lower levels when Uncle Sam is dumping huge amounts of supply into the credit markets.  Current estimates indicate Uncle Sam has an immediate borrowing need that is multiples of his previous all-time record.

          So in a nutshell, we're talking about a program that doesn't even exist, that has no qualifying parameters, no timeline for implementation if it actually takes form and that will - at best - offer a note rate that is roughly 50 basis-points less than is immediately available in the market today. 

          I hate these "two in the bush versus one in the hand" dilemmas - don't you?           

Today's conforming 30 year fixed is at 5.50%.

Let's start with the really good news.  Mortgage applications surged by the largest amount on record last week (according to the Mortgage Bankers Association) on news of a new Federal Reserve program that pushed interest rates down to their lowest level in more than three years.  It is true that the MBA's data is only for submitted applications, not closed loans, but a least the ball is rolling. 

The Mortgage Bankers said their seasonally adjusted index of mortgage applications, which includes requests for both purchase and refinance loans, soared a record 112.1% higher during the week ended November 28th.  Applications for purchase loans rose 38.0% while refinance applications rocketed 203.3% higher. 

There is a ton of dismal economic data already priced into the mortgage market.  News this morning from the Institute of Supply Management that its service index, a measure of activity in the non-manufacturing sector of the economy, fell to a reading of 37.3, it lowest level since records began in 1997, would have normally sparked at least a modest rally to lower interest rates in the mortgage market.  This time around the cheerless economic data drew nothing but a "yeah, I thought so" shoulder shrug from market participants.  Most investors are booking profits and moving to the sidelines as the heavily discounted economic fundamentals make it harder to justify pushing interest rates notably lower right now.

The overall mortgage market tone has improved a bit amid the news of planned Fed purchases of up to $500 billion of mortgage-backed securities - but the Fed has yet to buy anything - so most investors will likely remain cautious until the Fed actually puts their money in play. 

Friday's employment report is expected to show the economy shed 320,000 jobs in November, accelerating the labor market decline from the 240,000 jobs lost in October.  In my judgment a dismal nonfarm payroll report is already priced into the mortgage market.  As desensitized as mortgage investors have become to miserable macro-economic data it will likely take a November job loss figure greater than 350,000 and/or a national jobless rate higher than 6.9% to support a rally in the mortgage market.  Numbers that match the consensus estimates for the November nonfarm payroll data will likely have little, if any significant impact on the near-term direction of mortgage interest rates.

Today's conforming 30 year fixed rate is at 5.625%.

With nothing of consequence remaining on this week's economic calendar until Friday's November nonfarm payroll report the trend trajectory of mortgage interest rates will likely be most influenced by trading action in the stock market.  Higher stock prices will tend to drag mortgage interest rates higher, while lower stock prices will likely be supportive of steady to slightly lower mortgage interest rates.

Friday's employment report is expected to show the economy shed 320,000 jobs in November, accelerating the labor market decline from the 240,000 jobs lost in October.  In my judgment a dismal nonfarm payroll report is already priced into the mortgage market.  As desensitized as mortgage investors have become to miserable macro-economic data it will likely take a November job loss figure greater than 350,000 and/or a national jobless rate higher than 6.9% to support a rally in the mortgage market.  Numbers that match the consensus estimates for the November nonfarm payroll data will likely have little, if any significant impact on the near-term direction of mortgage interest rates.

Today's conforming 30 year fixed rate is at 5.50%.

U.S. factory activity fell in November to its lowest level since 1982, according to a report from the Institute of Supply Management.  The Institute said its manufacturing index dropped to a reading of 36.2 in November from 38.9 in October.  The financial crisis that began in the U.S. has now spiraled into a global economic downturn that has hurt sales here and aboard, forcing manufacturers around the world to reduce production. 

          This morning's bleak news from the manufacturing sector has ignited another round of safe-haven buying that has pushed the yield on the 10-year Treasury note to 2.83% -- its lowest level in 50 years.  Mortgage interest rates were more restrained - dribbling only a fraction lower so far in today's trading.

          Federal Reserve Chairman Ben Bernanke will be speaking on the economic outlook at 12:45 p.m.  This is probably a non-event as far as the mortgage market is concerned.   

Today's conforming 30 year fixed mortgage is at 5.50%.

REMINDER!  I will be leaving on vacation this Friday the 7^th and returning Monday the 24^th.  In my absence, my friend and co-worker Becke Reid (becke@accessloans.net 897-4090 office 228-2497 cell) will be taking all new business calls and watching/overseeing existing transactions.  She is the best.  Please continue to send business while I'm away.  Thank you!

            The mortgage market was bounced around a little this morning by the Bank of England's stunning 150 basis-point cut in short-term rates, well in excess of the most aggressive forecasts calling for a cut of 50 basis-points.  .Short-term interest rates in Britain are now at their lowest level in more than 50 years. 

            The sudden swoon in mortgage prices this morning suggest that mortgage investors are beginning to believe that the massive effort by the world's central bankers will ultimately prove to be effective in jump starting the global economic engine.  Rate cuts are viewed as leading to a greater demand for capital which in-turn ultimately leads to higher interest rates. 

            Closer to home the Labor Department said initial jobless claims for the week ended November 1^st fell by 4,000 drew nothing more than a passing glance from mortgage investors.  In a separate report the Department said third-quarter Productivity grew at a very anemic 1.1% pace while unit labor costs climbed 3.6%.  While the unit labor costs increase is a bit disconcerting, most analysts see virtually no reason to fear a resurgence in wage driven inflation pressures.

            The media channels are full of text and talk regarding the recession - and some even talking about an extended recession.  As usual these "talking heads" fail to provide much perspective in terms of the time this economic condition might prevail.  I think it is worth noting that since the Great Depression, there have been six major recessions; the recession of 1953, 1957, the 1973 oil crisis recession, the 1980 recession following the Iranian Revolution, the 1990's recession and the early 2000 recession brought on by the collapse of the dot-com bubble.  Three of these recessions lasted two years - and the other three lasted one year - start to finish. 

            If, as many suggest, the current recession began in mid-2007 -- we should reach the point at which economic activity begins to show a notable and sustained improvement somewhere between March and June of 2009.   I personally find it hard to believe that $10 trillion in stimulus provided by the world's central banks -- together with massive cuts in short-term interest rates -- will fail to have its intended effect of freeing the economic pendulum from the current recessionary mire.  If may assumption is accurate, look for the economic pendulum to get a very healthy push in the direction of accelerating growth as the largest amount of cash and cash equivalents the world has ever seen that is presently sitting on the sidelines gets deployed. 

Today's conforming 30 year fixed mortgage is at 6.00%.

Congratulations to our new president elect, Barack Obama!  Yes We Can!

Lost in all the post-election buzz the morning was an announcement from the Treasury Department that it will sell a record $20 billion of 10-year notes, $10 billion in 30-year bonds, and $25 billion in three-year notes next week.  It seems market participants did not even notice that the Institute of Supply Management's Service Sector Index posted a much larger-than-expected decline, falling to a reading of 44.4 versus the consensus estimate for a figure near 48.0.  Last but not lest, the Mortgage Bankers of America's mortgage application index was all by completely overshadowed.  The aggregate index of mortgage applications fell by 20.3% last week as refis tumbled 27.8% lower and purchase applications slumped by 13.9%.   That's the bad news.

The good news is that we are getting a little follow-through from yesterday's "relief" rally in the mortgage market.  Investors are relieved the uncertainty surrounding the political environment that will influence our domestic capital markets - and to a lesser degree the global markets - for the next four-years has been resolved.  Market participants are always far more comfortable with a devil they know - rather than a devil yet to be defined.   The likelihood of an Obama victory and a Democratic Congressional majority was largely priced into the mortgage market yesterday - and the price improvement we're seeing this morning probably represents the wind-down of that election-day relief rally. 

Our new leaders will certainly have their hands full when they officially take over the reins of government on January 20^th.  Current leadership has all ready committed trillions of dollars in an effort to avert a financial system meltdown.  The ramped up borrowing need the rescue programs have generated is expected to push the national debt well above $11 trillion.  The probabilities are high that our domestic budget deficit will exceed 7% of our gross domestic product next year, more than double this year's deficit, and if projections are accurate, the budget deficit next year will be the highest in the developed world.

The "so what" factor behind all this mumbo-jumbo is that China and Japan are among the largest holders of U.S. debt - debt that they have suffered some rather significant losses on lately.  I suspect as these two countries are asked to take a major stake in financing the largest American budget deficit in history -- they may be more than just a little wary of extending significant amounts of new funds too aggressively.  If my assessment proves accurate, the probability that interest rates will rise as we finish out this year and move into next year is considerably higher than the likelihood that interest rates are poised to move notably lower.   Heads up.

Today's conforming 30 year fixed rate is at 6.00%.

Trading activity in the mortgage market this morning is light as most investors have moved to the sidelines to await the results of today's general elections.   As they wait, market participants will begin playing "what-if" games as they try to visualize what a Democratic or Republican victory might mean in terms of its impact on the direction of mortgage interest rates - and will probably discover that it really doesn't matter much.

 No matter the outcome of today's elections, Uncle Sam is staring at the prospects of needing to borrow a staggering $2.1 trillion in the current fiscal year to fund economic rescue programs.  Yesterday the Treasury Department said it would need to borrow a record $550 billion in the October - December quarter alone. 

 Since Uncle Sam has the unique power to tax and print money he is not particularly concerned about the interest rate he'll have to pay to acquire the capital he is looking for.  For the rest of us, particularly those of us in the mortgage market, who compete with Uncle Sam to attract capital from essentially the same investor base -- rising rates on government debt obligations will almost certainly put upward pressure on our mortgage interest rates - no matter which party controls the White House and/or what the Congressional party balance happens to look like.

Today's conforming 30 year fixed rate is at 6.50%.   Vote!

HEADS UP!  I will be leaving on vacation this Friday the 7^th and returning Monday the 24^th.  In my absence, my friend and co-worker Becke Reid (becke@accessloans.net 897-4090 office 228-2497 cell) will be taking all new business calls and watching/overseeing existing transactions.  She is the best, well second to myselfJ  Please continue to send business while I'm away.  Thank you!

The mortgage market is holding on to some modest upside price gains this morning.  In the convoluted world of bonds and mortgage-backed securities news of economic weakness tends to be supportive of steady to slightly lower mortgage interest rates.  The "why" behind this phenomenon is pretty straightforward.  Slumping economic activity leads to a reduction in the demand for capital -- which ultimately leads to lower short- and long-term interest rates.

Earlier today the Institute of Supply Management said its index of national factory activity fell to a reading of 38.9 in October from 43.5 in September.  No big surprise here really - since the credit squeeze in the short-term credit markets has made it virtually impossible for companies to acquire the capital necessary to cover manufacturers' costs.  Credit market conditions are improving at a snail's pace - so mortgage investors are keenly aware that it will be months yet before activity levels in the manufacturing sector begin to improve significantly.

The big events remaining on this week's calendar include Wednesday's market response to tomorrow's election results -- and Friday's October nonfarm payroll report.   Market participants have largely discounted the outcome of the Presidential race - but will likely be "bummed" (at least temporarily) if complete voting control of Congress winds up in the hands of one party.   Expectations for a really, really ugly nonfarm payroll number (-200,000+) on Friday are running high.  The consensus outlook has been completely priced-into the current mortgage market.  In the very unlikely event the headline number is stronger-than-expected (say a job loss of 150,000 or less) and/or the national jobless rate comes in at 6.1% or less - the mortgage market will be vulnerable to a sharp decline in price and an upward surge in rate.  The probabilities strongly favor a number that closely approximates the consensus estimate - which means Friday's much anticipated employment report will likely be a non-event as far as its impact on the direction of mortgage interest rates is concerned.

Today's conforming 30 year fixed rate is at 6.50%.

This morning's September personal income and spending report confirmed what most analysts had been anticipating - spending during the month fell 0.3% -- the biggest month-over-month drop in four years and a capstone to the weakest spending performance by consumers on a quarterly basis in three decades.  Also contained in the report but virtually unnoticed behind the data confirming consumers have "thrown-in-the-towel" on spending was news that personal incomes rose 0.2% after a 0.4% gain last month.  A component of the report that measures price pressure at the consumer level (the personal consumption expenditure index) posted a modest 0.2% gain -- totally dispelling, at least for the time being, investors' fears concerning the inflation outlook. 

This round of data certainly leaves the door wide open for the Fed to cut short-term interest rates further. In today's early going, futures on the Chicago Board of Trade show traders think the chance of a 50 basis-point cut at the conclusion of the Fed's December 16^th meeting is about 75% -- up from odds of 0% just last week.  I think it is worth noting any time the Fed chooses to cut short-term rates - the action is taken with the expressed intention of stimulating economic growth. The "so what" factor here is that investors in the bond and mortgage-backed securities markets are keenly aware of the fact that accelerating economic growth ultimately leads to an increased demand for capital - which in-turn ultimately pushes mortgage interest rates up.  

 As I'm sure you already know, mortgage interest rates have really been struggling to make any notable headway to lower levels of late.  Part of the problem is that investors outside of the United States have pulled back significantly on their normal purchases as they watch the government take step after step and commit billions after billions of dollars to support banks and guarantee a wide range of various debt instruments.  These market participants are astutely aware that the amount of debt the Treasury will need to pay-off within one year has jumped from $1.8 trillion at the end of July to $2.1 trillion at the end of September and is likely to reach almost $2.4 trillion by the end of November.  In total, the government will have to borrow more than $3 trillion in the markets in the next twelve months to replace maturing debt and to fund new programs.  

No matter how you choose to "slice-and-dice-it" the record amount of borrowing to come from Uncle Sam has sent many prospective buyers of mortgage-backed securities - especially 30-year fixed rate mortgages - to the sidelines.  Since early October foreign central banks have allowed investments in agency debt and mortgage-backed securities to drop more $60 billion.  These market participants will likely remain largely on the sidelines until evidence of more aggressive buying by the Treasury, Fannie Mae, Freddie Mac and domestic money-center banks emerges.   Until this gridlock is broken - the prospects for anything more than short-term rallies in the mortgage market remain limited. 

Today's conforming 30 year fixed is at 6.50%.