(Image courtesy of Chip Somodevilla/Chicago Tribune)

The markets are opening down as the ADP report came out a bit higher than expected. It showed a 163k increase when the consensus was 120k. For those that read this regularly know that I downplay the ADP number because it tends to have little in common with the succeeding NFP report.

However, what is does do is create expectations and now the expectation for Friday’s number is that it is higher than the 100k consensus. So even if the actual number is on the nose @ 100k the markets would probably view this as a weak number which would result in a negative reaction in stocks and positive one for bonds. Also what this higher than expected ADP number does is create a sense that the Fed could wait to roll out QE3. I will say that is a bit of a stretch because in a few hours we will find out soon enough what the Fed thinks with the release of the FOMC minutes @ 2:15. However, this is what traders grab on to in order to give themselves a chance to be one step ahead and make a few bucks.

Something worth mentioning happened yesterday which was the official release by Edward DeMarco who is the Acting Director of the Federal Housing Finance Agency(FHFA) on Obama’s proposed Home Affordable Modification Program Principal Reduction Alternative (HAMP PRA). You may recall from some older Market Updates when we reported on the Obama Administration putting pressure on DeMarco to approve some aggressive (some may say Socialist) measures to have the FHFA allow FNMA/FHLMC to implement Obama’s HAMP PRA.

The HAMP PRA plan by Obama would give FNMA/FHLMC the ability to give borrowers a principal pay-down which in the opinion of the Obama administration would help stem foreclosures. DeMarco strongly disagreed with this and in essence termed the program as a moral hazard. However he agreed to do a complete analysis on the cost/rewards of this politically driven program funded by the taxpayers. So his report came out yesterday and said, “ Given our multiple responsibilities to conserve the assets of Fannie Mae and Freddie Mac, maximize assistance to homeowners to avoid foreclosures, and minimize the expense of such assistance to taxpayers, FHFA concluded that HAMP PRA did not clearly improve foreclosure avoidance while reducing costs to taxpayers relative to the approaches in place today.”

This was not met with much acceptance from the Obama Administration as Treasury Secretary Geithner called for DeMarco to reconsider. Some interesting political theater that does affect our business. Also I am impressed with DeMarco for having the grapefruits to stick up for what he strongly believes in even if it does eventually cost him his job. If we had more people like him in Washington then maybe this country would get its financial house in order.

Finally the Weekly MBA Application Survey came out this morning. Here are the highlights:

• Mortgage applications increased .2%
• The Refinance Index increased .8%
• The Purchase Index decreased 2.0%
• The refinance share was 81% which is the highest since 1/20/12
• The average 30yr conventional rate was 3.75% w/.51pts
• The average 30yr FHA was 3.52% w/.55pts
• The average 15yr was 3.09% w/.49pts
• The average 5/1 ARM was 2.73% w/.41pts

The market is opening up pretty much unchanged from yesterday’s close. This would normally be a boring start to what is always an exhilarating Market Update but what makes this quiet morning worthy of mention is that we got the monthly NFP report @ 8:30 which as we all know is the Granddaddy of them all (think Keith Jackson here).  This is because the number was definitely a strong number but close enough to the consensus and quite frankly there is a lot more going on out there and the report, dare I say, has become less significant. You almost get the feel that the market just wants to move on and focus on the next thing.

It is all part of the attention deficit disorder that most if not all traders likely possess. This has been the trend over the last several reports where it comes out, gets quickly digested, there is a marginal market move, trading levels return to the pre-number release and we move on. However here are the highlights worth mentioning:

• NFP increased 227k in February
• There was revision to both the January and December numbers resulting in a +61k improvement
• The unemployment rate remain unchanged @ 8.3%
• Government jobs lost 6k in Feb
• The participation rate increased to 63.9% from 63.7%
• Average hourly earnings rose a mere .1%

Something things worth noting:

• The participation rate did increase but the unemployment rate remained unchanged. This shows that those who entered the workforce found jobs.
• The average hourly earnings only rose .1%. This indicates that the strong job growth is highly weighted in lower paying jobs.
• The job growth is happening in the private sector as shown by the drop in Government jobs. This is always a great sign because it shows true job growth as opposed to padding the bureaucratic and inefficient Government payroll.

Let’s move on to a very disturbing story that hit yesterday morning. For those of you who are kind enough to regularly read these Market Updates than you know how I did not understand why our lawmakers aligned the payroll tax deduction with an increase in the g-fee. It just did not make sense to me that borrowers who are taking out new mortgages should pay for payroll tax deductions. I felt this was totally against the intended use of the g-fee which is to properly allow the agencies to generate reserves for future losses on loans. My opinion is not unique as the MBA venomously opposed the move but were obviously not successful. I felt it would open up a can of worms. Well it did not take long for some insane US Senators (Mary Landrieu, D-La & Richard Shelby, R-Ala,) to push for a bill that would extend the increase another year but instead of the 10bps it would be 7.5bps.

Sounds good right?? But get this… the reason would not be for continuing the payroll tax deductions that help all US citizens but the money would be used to help pay for continued cleanup from the British Petroleum Gulf Coast oil spill. Now I was very disturbed like most people by what happened there but I am equally disturbed that lawmakers are already tapping into this newfound method of taxation. What an easy way to pay for something by generating money thru a source that most voters have no clue about and, I hate to say, most mortgage professionals do not understand either. It is like they discovered gold mines in the valleys of California. There is a zero expectation that this will get passed so there is no need to panic. However if one thinks that the Government will not use an increase in the g-fee again to fund a political nugget (sticking with the gold theme) then they are just as crazy as the Jet fan who thinks Payton Manning will lower his standards by allowing Rex Ryan to be his coach.

Have a good weekend.