Mortgage Times

[Adam in CO]

Mortgage Market News for the week ending February 29, 2008

Events This Week:

Inflation Steady
Durable Orders Fell
Manufacturing Weak
Existing Sales Flat

Events Next Week:

Mon 3/3
ISM Manufacturing

Wed 3/5
Productivity
ISM Services
Factory Orders

Thurs 3/6
Pending Sales

Fri 3/7
Employment

Fannie, Freddie, and Bernanke

The biggest economic news of the week was expected to come from Fed Chief Bernanke, but a surprise announcement from OFHEO had the greatest impact on mortgage markets. Wednesday, OFHEO, the government regulator of Fannie Mae and Freddie Mac, announced that it will remove the limits placed on the portfolio sizes of the two companies as of March 1. This will enable the two companies to make or guarantee more loans. The limits had been instituted to constrain the growth of the companies while they fixed accounting errors. To make significantly more loans, the companies will have to raise additional capital, which will take some time. The regulators also announced that they are considering a reduction in the capital requirements the firms must hold for each loan, and this would accelerate the ramp up in loan volume. This measure follows the recent temporary increase in the conforming loan limits for Fannie and Freddie. The potential for Fannie and Freddie to increase their activity drove down mortgage rates. After rising Monday and Tuesday, the OFHEO news turned mortgage rates around on Wednesday. They continued to decline for the remainder of the week, finishing moderately lower than the prior week.

Also on Wednesday, Fed Chief Bernanke presented his semi-annual testimony before Congress. Overall, there were few surprises. Bernanke painted a grimmer picture of the risks to the economy than he had in the past. While he acknowledged that higher inflation is a threat, he expressed greater concern about slower economic growth. He sees housing market activity stabilizing later this year, while adding that home prices may continue to decline into next year. Bernanke also suggested that FHA modernization and Freddie Mac and Fannie Mae regulatory changes are "crucial" going forward.

In the housing sector, the news was mixed. January Existing Home Sales fell by less than expected, but inventories of unsold homes rose by more than forecasted. Median existing home prices fell by 5% from one year ago. Meanwhile, January New Home Sales fell to a 13-year low. The Mortgage Bankers Association (MBA) activity index, which is released every Wednesday, showed a decline in the level of refinancing activity due to the rise in mortgage rates. Mortgage rates have declined since the data was collected, however, meaning that increases may be more likely next week.

• Also Notable:
• The Bush Administration opposed new proposals for large scale government rescue plans for struggling homeowners
• The Chicago PMI national manufacturing index fell to the lowest level since December 2001
• The Core PCE price index, the Fed's preferred inflation indicator, rose at a 2.2% annual rate
• Oil prices climbed to record levels above $103 per barrel, up from $70 p/b in the middle of August

Average 30 yr fixed rate:
Last week:+0.05%
This week:-0.15%

Stocks (weekly):
Dow:12,368+152
NASDAQ:2,291+13

Week Ahead

Next week's main event will be Friday's Employment report. As usual, this data on the number of new jobs created, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month, since the health of the labor market is perhaps the single biggest factor in the performance of the economy. Early estimates are for 40,000 net new jobs added in February. In addition, the ISM national manufacturing index will be released on Monday. The Chicago PMI index fell to a multi-year low on Friday, and investors will be looking for confirmation from the ISM index. Wednesday will be a busy day with Productivity, Factory Orders, ISM Services, and the Fed's Beige Book. Pending Home Sales, a leading indicator of future activity in the housing sector, is scheduled for Thursday. Also that day, the European Central Bank and the Bank of England will announce their policy decisions.

admin@corefinancegroup.com.