Mortgage Times

[Adam in CO]

Mortgage Market News for the week ending August 31, 2007

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

Events This Week:

Inflation Steady
GDP Higher
Housing Mixed
Manufacturing Up

Events Next Week:

Tues 9/4
ISM Manufacturing
Construction Spending
Wed 9/5
Pending Home Sales
Thurs 9/6
Productivity
Fri 9/7
Employment

Bush and Bernanke Reassure Financial Markets

Following the Fed's decision to cut the discount rate on August 17, the worst of the credit crunch may have passed, but lending standards have continued to tighten and additional product offerings have been removed. Since August 17, investors have spent a couple of weeks mostly waiting and staying alert for another batch of bad news. Into this void, the midweek announcement that Fed Chief Bernanke would make a speech on Friday created a wave of excitement. Major media outlets declared it to be Bernanke's most important speech ever. What Bernanke provided on Friday was a blunt assessment of current conditions in financial markets. Essentially, he wants to maintain the stability of the financial system, while he made it clear that he won't bail out investors who made poor decisions. To this end, the Fed will act as needed. Bernanke's speech was well received by investors, and both the mortgage market and the stock market rallied modestly.

Bernanke's speech left the door open for Fed rate cuts. A Fed Funds rate cut at the next Fed meeting on September 18 is now priced in by investors, with additional cuts likely later in the year. How would mortgage rates react to the expected cuts? It will depend on the perceived reason for the move. Confirmation by the Fed that the credit crunch has slowed the economy and lowered the inflation threat would be good news for mortgage rates. On the other hand, if the Fed decides against a rate cut, because the risk of higher inflation remains significant, that could lead to higher mortgage rates.

In addition to Bernanke's speech, President Bush surprised investors with a speech of his own on Friday. Bush wants to maximize homeownership by Americans, although like Bernanke, he wants to avoid handouts for speculators or imprudent borrowers. Many of his proposals involved an FHA modernization bill, which would provide more flexibility, higher loan limits, and lower down payments for FHA borrowers. A new FHA Secure program would allow delinquent homeowners with otherwise good credit to refinance to FHA guaranteed loans. Bush also proposed changing the tax code to remove the obligation to pay taxes on forgiven mortgage debt. Other proposed steps include foreclosure counseling and revisions to disclosure requirements.

• Also Notable:
• 30-year fixed mortgage rates were little changed last week, while 1-year ARM rates jumped, according to the MBA and Freddie Mac
• July New Home Sales came in a little higher than expected, while inventories of unsold homes rose
• The Case-Schiller 20 city home price index showed a decline of -3.5% from one year ago, but it has risen 25% over the past four years
• Bush looked to expand FHA programs to assist troubled homeowners

Average 30 yr fixed rate:
Last week:-0.09%
This week:-0.02%

Stocks (weekly):
Dow:13,424+118
NASDAQ:2,597+41

Week Ahead

While any news from the Fed may trump other financial news, attention will turn to the economic data next week. Friday's always important monthly Employment report will be the highlight. 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 120,000 net new jobs added in August.

In addition, the ISM national manufacturing index will be released on Tuesday. The Pending Home Sales index, a leading indicator for the housing market, will come out on Wednesday. Thursday's Productivity data will be important for its role in lowering inflation and improving the long-term standard of living. The mortgage market will be closed on Monday in observance of the Labor Day holiday.