Mortgage Commentary

[Adam in CO]

Mortgage Market News for the week ending August 10, 2007

Compliments of
CORE
PHONE: 303-770-2262
adam@corefinancegroup.com
5310 DTC Pkwy
Greenwood Village, CO 80111


Events This Week:

Worldwide liquidity issues
Yield curve steeper
Stock market down
Conventional mortgage rates lower


Events Next Week:
Mon 8/13
Retail Sales
Tues 8/14
PPI
Wed 8/15
CPI
Industrial Prod.
Thur 8/16
Housing Starts
Fri 8/17
Sentiment

Liquidity Crunch


What happens when Investors, overnight, stop investing in certain types of loans? First, Lenders stop offering them. We have seen a lot of this lately. Next, Lenders that had made these loans, now have nowhere to sell them. Their warehouse sources make margin calls, forcing the Lenders to come up with cash. But the Lenders need to sell the loans to get the cash. If the Lenders do not have other sources of liquidity they may be forced out of business. We have seen a lot of this as well. Many very fine companies could not meet their margin calls. The next thing is what we began to see this week. Investors, mutual funds, hedge funds, etc. need to mark their assets to market every day. If no one is buying a particular asset, the value of that asset is difficult to determine. Fund managers cannot distribute fund assets, if they do not know the value of the fund. So they deny withdrawals from the fund causing fund investors to hold what assets they can get their hands on in highly secure, highly accessible investments.


This is a liquidity crunch. This week, the Fed and other central banks around the world have helped as they can, by providing more money in the banking system. In the weeks to come, they may choose to make it easier for banks to borrow money by cutting discount rates. The US market now believes the Fed will cut its discount rate before the end of September.

Also Notable:

• Fed injects over $50 billion into the Banking system
• Fannie and Freddie ready to step in to provide liquidity
• Fed makes no change to discount rate
• Market considers Fed rate cut before Sept 30 likely

Average 30 yr fixed rate:
Last week:-0.05%
This week:-0.06%

Stocks (weekly):
Dow:13,171-236
NASDAQ:2535-24

Week Ahead


Before the inflation reports, Monday's Retail Sales report will provide a read on the health of the economy. Consumers account for about 70% of economic activity, and this report is a major indicator of spending levels by consumers.

Industrial Production, another important indicator of economic activity, will be released on Wednesday, and Housing Starts will come out on Thursday. Two regional manufacturing indexes and the Consumer Sentiment data will round out the full Economic Calendar.