The bond markets are opening slightly up to unchanged from yesterday’s close. We see the 10yr hanging firm below 2.00% at 1.98%. There is no meaningful economic indicators that have or will come out today that should have much impact on market direction so trader flow will dictate where the market moves today. Like we mentioned yesterday, I would not expect much volatility but financial markets have a way of catching you off guard. We do have a full plate of economic indicators coming out tomorrow highlighted by Initial Jobless Claims (8:30), Existing Home Sales (10:00) and Leading Indicators (10:00).
While the economic calendar might be a little light today there is some of the usual political buzz regarding the housing market coming out of Washington. The “get rid of FNMA & FHLMC” campaign is starting to re-emerge. A report came out today that “U.S. Treasury officials are leaning toward recommending that Fannie Mae and Freddie Mac be replaced with a government safety net for the mortgage finance system and continued federal backing for loans to lower-income homebuyers, according to three people briefed on the discussions.”
The report also points to statements that Treasury Secretary Geithner has said in recent public appearances that “an agency recommendation for winding down the two taxpayer-owned mortgage companies could be released in coming weeks. It hasn’t yet been determined whether the plan, likely to be a broad outline rather than a detailed prescription for legislation, will be released that soon”. So what does all this mean for the mortgage market today and in the future?
Today: I will keep this short and sweet…nothing.
Future: Well this is very debatable. The housing market which is supported by the mortgage market which is supported by investors of mortgage back securities which is reliant on the imbedded government guarantee is, as you can see, a very tangled web. Therefore it will take a lot of very smart people with a common non-political goal of working together to create a functional plan that will stand the test of time (how has that worked recently for the Euro?) and manage to not cause any disruption to what is currently a pretty efficient system aside from the fact that it is reliant on government support. Oh yeah and on top of that we need the very significant infusion of private capital which this current administration has been accused of alienating. This all seems very easy…right?? Can it be done? Anything is possible but I do not see it happening anytime soon to the point where it will impact any of us within the next 5 years which is a lifetime in this business. Personally I think any significant changes if they happen at all will be well beyond 5 years from now.
Last but not least we have the weekly release of the MBA Weekly Application Survey. There is a few interesting highlights in this week’s report giving the market rally and the changes in the FHA insurance premiums. Here are the highlights:
- Applications increased 6.9%
- The Refi Index was up 13.5%
- The Purchase index was down 11.2%
- The % of refinances increased to 75.2% from 70.5%
- There was a 23% drop in FHA purchase loans. This drop follows big increases in the demand the previous weeks in anticipation of the insurance premium increases. This was the largest weekly drop in the FHA purchase index since the expiration of the 1st time homebuyer tax credit in May 2010.
- The average conventional 30yr was 4.05% w/.45pts
- The average 30yr FHA was 3.83% w/.61pts
- The average conventional 15yr was 3.33% w/.41pts
- The average 5/1 ARM was 2.83% w/.35pts