Austin Mortgage Blog

Archive for June, 2009

Tough to tell if we are seeing stabilization or some kind of an outlier, given the changes in manufacturing (auto makers) coming down the line in that region

Mixed markets have greeted us on this last day of the month, quarter, and midyear mark.

Stocks opened unchanged but have drifted lower (down 100) on the heels of today’s consumer confidence report.  Consumer Confidence slipped 5.5 points to 49.3.  The market was looking for a slight gain to 55.0.  Both present and future expectations fell as consumers said jobs were hard to find.  Only 4.6% said they plan to buy a car within the next 6 months.  Seems as though the slight uptick in confidence one month ago has taken a second dip.

Earlier today, the Case Shiller Home Price Index printed a meager improvement from last month’s decline of 18.7% to 18.1% year on year.  Yearly price declines were seen in all 20 cities with the sun belt taking the most heat.  No pun intended.  Chicago Purchasing Managers report rounded out the trifecta, rising 5.0 points to 39.9.

Tough to tell if we are seeing stabilization or some kind of an outlier, given the changes in manufacturing (auto makers) coming down the line in that region.  After the early volatility, most markets have settled down, waiting on more important data due out tomorrow and Thursday.

Early estimates call for job losses of 370K and the unemployment rate to print 9.6%

After a roller coaster month, started by the surprise payroll figures for May (minus 345K), we have returned to the scene of the crime.  Today has been a quiet, no news day.  The balance of the week will heat up in a hurry with Consumer Confidence, Case Shiller Home Price Index, and Chicago Purchasing Managers report due tomorrow, the ADP payroll estimate on Wednesday, and then big daddy, the Employment Report for June due at 7:30 am cst on Thursday.  Early estimates call for job losses of 370K and the unemployment rate to print 9.6%.  More on this Wednesday.  For now, month end extensions (fixed income) by hedge funds and money managers continue to support the market.  Currently, the 10 year note is up 6/32’s (yield 3.48%), mortgage backs up 1/32^nd, and stocks up 76 trombones on the big board.  Technically, it’s ‘steady as she goes” until the Employment Report hits the tape.

For now, the price change alert is off but caution is still advised.

Mortgage backs seem to be the only instrument holding their own as we enter the final hour of trading.  The 10 year note (down 14/32’s to yield 3.70%) and stocks (closing down 23 points as a late day slide developed) want nothing to do with the Fed.  In our opinion, the part of their statement which referenced the purchase of 1.1 trillion in mortgage backs has caused the spread between MBS and Treasuries to tighten, evidenced by the current print of unchanged to down 2/32’s, depending on the note rate.

That’s the good news.

The not so good news is the technical set up going into tomorrow.  With an outside day down structure on the 10 year note chart, further selling to test support is a layup.  Expect to see the market test the 3.72% to 3.75% yield mark.  That level will be crucial.  If we hold, a nice rally or at least stability will develop.  If that level is violated, especially on a day end closing basis, the next stop will be 3.85% to 3.90%.  So for now, the price change alert is off but caution is still advised.

FOMC Announcement

Release Date: June 24, 2009

For immediate release

Information received since the Federal Open Market Committee met in April suggests that the pace of

economic contraction is slowing. Conditions in financial markets have generally improved in recent

months. Household spending has shown further signs of stabilizing but remains constrained by

ongoing job losses, lower housing wealth, and tight credit. Businesses are cutting back on fixed

investment and staffing but appear to be making progress in bringing inventory stocks into better

alignment with sales. Although economic activity is likely to remain weak for a time, the Committee

continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and

monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic

growth in a context of price stability.

The prices of energy and other commodities have risen of late. However, substantial resource slack is

likely to dampen cost pressures, and the Committee expects that inflation will remain subdued for

some time.

In these circumstances, the Federal Reserve will employ all available tools to promote economic

recovery and to preserve price stability. The Committee will maintain the target range for the federal

funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant

exceptionally low levels of the federal funds rate for an extended period. As previously announced, to

provide support to mortgage lending and housing markets and to improve overall conditions in private

credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-

backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal

Reserve will buy up to $300 billion of Treasury securities by autumn. The Committee will continue to

evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic

outlook and conditions in financial markets. The Federal Reserve is monitoring the size and

composition of its balance sheet and will make adjustments to its credit and liquidity programs as

warranted.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley,

Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P.

Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.

2009 Monetary Policy Releases

High probability of a worsening mortgage price change.

High probability of a worsening price change.   Technical structure is forming an outside day down which is bearish in nature as well.

The Fed also reiterated that they will purchase 1.1 trillion in mortgage backs by year end in an effort to keep mortgage rates low.

Fast market conditions exist with the 10 year note currently down 11/32’s (yield 3.69%), mortgage backs off 3/32’s, and stocks up 40 something on the Dow.  No talk of exit strategy or change in the Fed Funds rate.  For the most part, the statement was “Ham on Rye”.  Talk of continued weakness in the economy with some stabilization noticed.  The Fed also reiterated that they will purchase 1.1 trillion in mortgage backs by year end in an effort to keep mortgage rates low.  Market trading is extremely volatile so don’t fall asleep at the wheel.

We favor the market consensus which calls for no change in mortgage rates or policy statement.

Traders, both in stocks and bonds are on edge this morning as the FOMC decision looms.  Earlier today, Durable Goods Orders surprise to the upside, posting a plus 1.8% while the ex-transportation index rose 1.1%.  Economist were expecting a drop of .6%.  Although this is a volatile piece of data, the strong showing will translate into positive developments for manufacturing and industrial production.  New Home Sales however fell to a seasonally adjusted annual rate of 342K units.  Economists were looking for a rise to 360K.  In the South, sales fell 8.5% while every other region experienced gains.  The Northeast led the way with gains of 28.6%.  We will be looking for good things out of Jay’s group given this print.  Inventories of new homes still stands at 10.2 months, down slightly from April’s 10.4 mark.  Although important, today’s data will take a back burner to the FOMC release due at 1:15 pm cst.  We favor the market consensus which calls for no change in rates or policy statement.  Our feelings are that the economy is too fragile to rock the boat.  Keep in mind that the Fed’s mission is to steady the economy and fight inflation.  In times like this, fighting deflation is more in vogue.  The only change we could/should see would be a tweaking of their Quantitative Easing initiative by moving some of the money to buy MBS to additional purchases of treasuries.  In our opinion this is baloney.  Why take money away from the intended idea of keeping mortgage rates low to spur the housing industry.   Furthermore, we’ve seen how well the purchase of treasuries has worked lately.  In the event this happens, expect a fast market in MBS with sellers leaning on the market.  Extending the buyback program through the end of the year would make the most sense.  Let’s hope they get it.  Whichever way this goes, a swift pickup in volatility should occur.  Currently, the 10 year note is unchanged to yield 3.64%, mortgage backs are off 5/32’s, and stocks are up 50 or so on the big board.  More when the rubber meets the road.

Mortgage pricing translation; don’t expect reprices for the better of any great proportion.

The market has been a little tipsy this morning, primarily on the Housing news and the start of the FOMC meeting (interest rate change and policy statement 6/24 at 1:15 pm cst).  Details of today’s 2 year note auction just hit the tape.  40 billion crossed the screen with a strong bid to cover ratio of 3.19 to 1, yield at 1.151%, and 68.7% going to indirect bidders (very strong).  So far, so good as Uncle financing our debt.

Tomorrow will be a key day with the 5 year note on tap and the FOMC results due out one hour later.  We priced with MBS (4.50%) coupon down 3/32’s.  Currently we are off 4/32^’s but at one time were plus 1/32^nd.  Once again, they just won’t sit still.  Technically, the bounce from this morning’s low is encouraging for the bulls.  Bond buyers have good daily signals to lean on but weekly charts are still bearish.  This will keep buying momentum at a minimal.  Mortgage pricing translation; don’t expect reprices for the better of any great proportion.

The fundamentals, auction supply, and a guess your best FOMC support a both hands on the wheel approach.  Good support lies at 3.71% (currently 3.65%) with resistance located at 3.60%.  We expect the market to remain trapped in between the two until this time tomorrow.  For now, let’s call the market “cautiously optimistic”.

YES, $8,000 First-Time Homebuyer Tax Credit CAN be used as down-payment on an FHA loan

Effective 6/22/09 , the $8,000 first-time homebuyer tax credit can be used as down payment on an FHA loan. Below are some highlights of the program.  Please note there is only a limited amount of funds, $5 million.  It is first come first serve and when its gone its gone.  Please let me know if you have any questions or if you would like any flyers.

Program Overview

In an effort to monetize the $8,000 tax credit and to assist borrowers with down-payment and closing costs, TDHCA created the 90-Day Down Payment Assistance Program.

In accordance with FHA Mortgagee Letter 2009-15 dated May 29^th, 2009, TDHCA has the authority to offer tax credit advances with second liens.

90-Day Down Payment Program may be used with FHA 15 & 30 year fixed rate first lien mortgage loan.

Qualified and Eligible Borrowers

· Borrowers must meet the federal first time homebuyer requirements

o First time homebuyers purchasing a home – new or resale that will be used as a principal residence.  Includes single family detached homes, attached homes like townhomes and condominiums.

o First time homebuyer is a buyer who has not owned a principal residence during the 3 year period prior to the purchase.  For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse.

o Home purchase must occur on or after 01/01/09 and before 12/01/09.  The purchase date is the date when closing occurs and the title to the property transfers to the homeowner.

o Income limit for single taxpayers is $75K; the limit is $150K for married taxpayers filing a joint return.

Credit

• Min credit score of 620 is required.

Subordinate DPA Funds and Terms

• Funds Available:
  • $5 Million, First come First Served
• Amount of Assistance Available:
  • 5% of the total mortgage amount including MIP up to a maximum of $7,000
• First 90 Days
  • 0% Interest Rate (encourage borrowers to payoff 2^nd lien with tax credit refund)
  • Thereafter, 2-Year term at 10% interest rate

• Max CLTV
  • 100%.

Filing Amended IRS Returns

Borrowers wishing to amend their 2008 IRS tax return may do so utilizing the following forms:

o IRS Form 5405 – First Time Homebuyer Credit

– Provides general instructions and identifies who can or cannot claim the credit

o IRS Form 1040X – Amended U.S. Individual Income Tax Return

– Allow 8-12 weeks for processing

o Additional Resources: $8,000 Homebuyer Tax Credit At A Glance

– http://www.federalhousingtaxcredit.com/2009/glance.php

The mortgage price you see today, will probably not be there two hours from now let alone tomorrow

Trading has been brisk for a Monday morning/afternoon, adding to Friday’s rally in bonds/MBS. Stocks are taking it on the chin, down 180 points on the Dow and 54 points on the Naz. The stock slide/bond rally, got going across the pond when the World Bank revised 2009 global growth from minus 1.7% to minus 2.9%. What is looks like is equities are running out of steam after a 40% rally off the March bottom, commodities are selling off as inflation fears subside and lack of global growth hurts demand, and currencies rebound (U.S. dollar) as the saber rattling subsides. Hard to tell if money is just regrouping into quarter end or there is a serious risk event into Wednesday’s FOMC meeting. Geopolitical concerns fit in the mix as well with the Navy bird dogging a missile laden North Korean ship as well as Iran in the midst of political unrest. This will be a big week with particular focus on Wednesday’s events. FOMC and the all important policy statement, Durable Goods Orders, New Home Sales, and the middle leg (5 year note) of 104 billion dollars worth of treasury auction paper. No news today as bonds wait for stocks to make the next move. Bonds/MBS are right into good resistance, up 24/32’s on the 10 year (yield 3.70%) while mortgage backs are 12/32’s better than Friday’s close. Stocks have yet to find a bottom but seem to be holding the 8300 area. From the technical front, the strength today has forced the market above the 21 day moving average at 3.71%. This is also the 62% retracement level from the 4.0% yield blood bath we took a week or so ago. We would really like to see a close at 3.69% or lower to endorse the trend. Into supply and the FOMC, this might be a tall order. Let’s call the market neutral yet still on steroids, meaning the price you see today, will probably not be there two hours from now let alone tomorrow. Trouble is, will it be better or worse?