Mortgage Times

[Adam in CO]

Mortgage Market News for the week ending September 14, 2007

Compliments of
Colorado Real Estate Finance Group, Inc.
A Real Estate Speculation and Finance Firm
Lending in All 50 States
PHONE: 303-770-2262
admin@corefinancegroup.com
5310 DTC Pkwy, Suite I
Greenwood Village, CO 80111

Events This Week:

Employment Steady
Retail Sales Weak
Sentiment Higher
Manufacturing Mixed

Events Next Week:
Mon 9/17
Empire State
Tues 9/18
FOMC meeting
PPI
Wed 9/19
CPI
Housing Starts
Thur 9/20
Philly Fed

Quiet Week Ahead of Fed Meeting

Sandwiched between the monthly Employment report and the next FOMC meeting, expectations were for a quiet stretch last week. Although there was a lot of daily volatility, mortgage rates did in fact end just slightly higher than the prior week. Investors were focused on next Tuesday's FOMC meeting, which is surrounded by the highest level of uncertainty in years. Fed Chief Bernanke has been known for a greater degree of transparency than his predecessor, Greenspan, but the recent credit crunch and liquidity issues have dramatically confused the appropriate course for Fed policy. The range of potential Fed actions under consideration is staggering. The most common expectations are for either a 25 or a 50 basis point cut in the Fed Funds rate, but significant numbers of investors would not be surprised if the outcome were no change or a 100 basis point cut.

The challenge for the Fed is to make sure that a rate cut is justified by current economic conditions. A lower Fed Funds rate would help ease the liquidity issues and boost economic growth, but Fed officials are concerned that a rate cut would increase inflation expectations. If mortgage investors believe that inflation is well contained, then a Fed Funds rate cut would be good for mortgage rates. On the other hand, if the perception is that the Fed was forced to act to stabilize financial markets, despite the threat of higher inflation, then long-term interest rates could actually rise.

In the housing sector, the National Association of Realtors (NAR) released a revised economic outlook, which lowered slightly their 2007 forecast due to tighter credit for home mortgages and stricter lending standards, while adding that activity levels will vary significantly in different regions. Specifically, they expect the number of Existing-home sales to be about 10% lower in 2007, before returning to 2006 levels in 2008. They also believe that modest home price appreciation will resume during 2008. Finally, their forecast shows mortgage rates holding near current levels for the rest of the year.

• Also Notable:
• Banking regulators in 10 states formed a task force to work with lenders to increase the number of troubled subprime loans they restructure
• Retail Sales, excluding autos, declined in August, but the figures for the prior month were revised higher
• Former Fed Chief Greenspan told CBS that he didn't foresee the potential impact of the subprime troubles until late in 2005
• Oil prices climbed to record levels above $80 per barrel, up from $70 p/b in the middle of August

Average 30 yr fixed rate:
Last week:-0.20%
This week:+0.03%

Stocks (weekly):
Dow:13,417+262
NASDAQ:2,598+32

Week Ahead

Next week's main event will be the FOMC meeting on September 18, and the degree of uncertainty about the Fed's actions is extremely high. In addition, the monthly inflation reports, PPI and CPI, will come out on Tuesday and Wednesday respectively. Almost without exception, higher inflation leads to higher interest rates, and the Consumer Price Index (CPI) is the most widely watched indicator. The Producer Price Index (PPI) inflation report focuses on the increase in prices of "intermediate" goods used by companies to produce finished products, while CPI looks at the price change for those finished goods which are sold to consumers. Housing Starts also will be released on Wednesday, and the two regional manufacturing indexes will round out next week's schedule.