Mortgage Times

[Adam in CO]

Mortgage Market News for the week ending February 15, 2008

Events This Week:

Retail Sales Rose
Import Prices Up
Manufacturing Weak
Trade Deficit Fell

Events Next Week:

Wed 2/20
CPI
Housing Starts
FOMC Minutes

Thurs 2/21
Philly Fed
Leading Indicators
Jobless Claims

Mortgage Rates Rise on Inflation Concerns

Fed Chief Bernanke told politicians that the Fed stands ready to cut rates as needed to stimulate the economy. The politicians approved of faster economic growth, but mortgage investors worried that the stimulus could lead to higher inflation and pushed mortgage rates to the highest levels since January 2. According to Bernanke's testimony on Thursday, the Fed's next forecast will lower the economic growth projections made in November. The Fed expects a sluggish start this year followed by a second half pickup in growth. They are concerned that housing and labor market conditions could deteriorate more than previously anticipated, which led investors to expect additional rate cuts.

Wednesday, President Bush signed into law the Economic Stimulus Plan. In addition to sending an estimated 130 million Americans a tax rebate check, this new law temporarily (through the end of 2008) increases the size of loans that Fannie Mae, Freddie Mac, and FHA can buy or insure. The new loan limits will be determined based on the median home price for each Metropolitan Statistical Area (MSA). Only MSAs with median home prices above $333,600 will see increases in the Fannie Mae and Freddie Mac loan limits. FHA loans limits will rise in most MSAs.

The Housing and Urban Development (HUD) agency has been given thirty days to publish the median home price for each MSA. It will take Fannie Mae, Freddie Mac, and FHA another thirty days or so to prepare their systems and implement the changes. In all, it is estimated to be about sixty days before the new higher loan limits will be available. The expected benefit from the new loan limits is that credit will be more widely available and that qualifying loans should have lower rates than if the limits were not increased, making homes more affordable and refinancings more attractive.

• Also Notable:
• The Bush administration and six major mortgage companies announced Project Lifeline to help troubled homeowners
• Consumer Sentiment fell to the lowest level since February 1992
• The economy still faces a "significant threat", according to the Fed's Yellen
• The first Mortgage Backed Securities offering of the year received above average levels of demand

Average 30 yr fixed rate:
Last week:+0.03%
This week:+0.24%

Stocks (weekly):
Dow:12,324+148
NASDAQ:2,318+20

Week Ahead

All of next week's economic reports will be released on Wednesday and Thursday. The biggest will be the Consumer Price Index (CPI) on Wednesday. Almost without exception, higher inflation leads to higher interest rates, and CPI is the most widely watched indicator. CPI looks at the price change for those finished goods which are sold to consumers. Housing Starts and the FOMC minutes will also be released that day. The detailed record of the discussion between Fed officials often provides additional insight into the reasoning behind the Fed statement. Thursday will feature the Philadelphia Fed regional manufacturing index, Leading Indicators, and Jobless Claims. With the recent weakness seen in the manufacturing sector, the Philly Fed report will receive extra attention. Mortgage markets will be closed on Monday in observance of Presidents Day.

adam@corefinancegroup.com

[CO Hummer]

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