Ron Brown's Blog

Market Update 11-14-2008

Ron Brown FHA & VA Home Loan Specialist (First Mortgage Company of Washington) — Fri, 14 Nov 2008 14:06:38 -0600

US Stocks are struggling to get back to even for the day, after initially giving up more than half of yesterday's gain. Mortgage Bonds are better than yesterday, but not enough to see any meaningful rate improvement.

Stocks took their cue from today's Retail Sales report that showed a 2.8% decline for October, the biggest drop in 28 years. This marks the 4^th consecutive month of declining sales volume, which has not happened since 1974. While the decrease should not come as a shock to anyone, it was more than economists were expecting, and is representative of the largest month over month decline in two decades. Deflation is a major force behind these numbers as the drop in Gas prices is responsible for nearly half of the drop in total sales with the average price for a gallon of fuel down 17% since September. The other main contributor is Auto Sales with the lowest per capita sales rate since WWII. The Auto Industry is currently lobbying Washington for some of the ever-popular Bailout money courtesy of the taxpayers. There is some positive news in today's reports, as the University of Michigan Consumer Sentiment survey was positive at 57.9 versus expectations of closer to 57 (readings above 50 are considered positive).

Mortgage Bonds took a hit as the result of yesterday's late rally by Stocks. After the Dow fell briefly below the 8,000 level, investors went bargain hunting, and most of the funds came from fixed income investments (Bonds). The market for Mortgage Backed Securities is not looking any stronger as Freddie Mac reported a 3^rd quarter loss of over $25 Billion versus a loss of $1.2 Billion one year ago (a difference of more than 20 fold). As a result, the Federal Housing Finance Agency (FHFA) has requested $13.8 Billion from the US Treasury, and is expecting to receive it by the end of the month. Mortgage Bonds are slightly better off than yesterday's finish, but are continuing to trade in a narrow range, and have failed to break through a technical ceiling of resistance near our 200 day moving average. Bonds have pushed up against this level 4 times in the last 30 trading days, and been turned back each time. Each time we fail to break through this resistance, it becomes much stronger, and harder to get past. The current trend is for a narrowing trading range that indicates a somewhat stable range for mortgage rates looking ahead. The recent news from Treasury Secretary Paulson that the Troubled Asset Relief Program (TARP) funds will not be used to purchase mortgages is not helping to restore confidence in MBS, and for rates to break lower we will likely need some form of positive news on TARP.

If you have transactions closing soon (days rather than weeks), locking would be my choice, but floating cautiously is OK for longer-term closings. There is no indication that our economy is picking up for the holidays, and this is traditionally friendly news for mortgage rates, but keep in mind we are in one of the most volatile markets on record.

Make it a great day!

Ron Brown

FHA & VA Loan Specialist

First Mortgage Company of Washington

Market Update 11-10-2008

Ron Brown FHA & VA Home Loan Specialist (First Mortgage Company of Washington) — Mon, 10 Nov 2008 18:12:39 -0600

US Stocks began the day on the upside following the trend from overseas markets, but quickly fell into the red. Mortgage Bonds held early gains longer, but also turned negative before their early closing.

Stocks took their cue from overseas markets early on as the Dow jumped out to a 200 point gain before succumbing to what have become ongoing worries over the global economic outlook. The mood was enthusiastic from China's announcement of a $586 Billion internal stimulus package of their own. Beijing is planning on spending roughly 15% of their country's GDP on infrastructure upgrades in an effort to stimulate their post Olympics' economy. Closer to home, the bailout of AIG was upgraded from its initial $85 Billion price tag to more in the range of $150 Billion after the insurance giant announced quarterly losses of nearly $25 Billion. Investor's euphoria over all this government spending ground to a halt by midday as the focus shifted back to the current negative outlook, highlighted by Circuit City's filing for bankruptcy, and Deutsche Bank's downgrade of GM from Hold to Sell. GM's new target price of $0 (No that's not a misprint!) is a reflection of what has become the worst year for auto sales in the last quarter century, and is indicative of the belief that it is no longer a question of if, but when GM files for Chapter 11. Deutsche Bank does not expect them to last to the end of the year without their own government bailout, and they are said to be losing over $30 Million per day.

Mortgage Bonds struggled to maintain last week's gains as they ran into technical pricing resistance, as well as the initial flow of capital toward Stocks. After hitting a high point last Wednesday, Mortgage Bonds have fallen back below their 200 day average, which has traditionally been a key level of resistance. Thursday & Friday saw mainly mortgage friendly economic reports, but Mortgage Bonds fell lower, driving rates up slightly. Although the key lending rate between banks (LIBOR) has continued to drop, indicating a thawing in credit markets, investor's continue to shy away from MBS as they wait to learn more about how the government is going to spend the $Billions earmarked for the Troubled Asset Relief Program (TARP). Back in September, when the government took over Fannie, and Freddie, Bonds became ever so popular, but that reception has cooled despite efforts to instill confidence in the Mortgage Bond industry. The government has set new volume records with each new massive issue of Treasury Notes needed to fund this bailout, but there has been little detail of where the money is going exactly. The Bond Market has been much more dependent on headline news about TARP than economic news of late, and until further news is announced it is unlikely that Mortgage Bonds will get past the overhead technical resistance.

The bond Market is closed Tuesday for Veterans Day, so rates should not change until Wednesday. Thursday we get the latest Jobless Claims, and Friday is Consumer Sentiment, and Retail Sales data. I am floating to see if Stocks give us reason to hope we break through overhead resistance before then.

Make it a great day!

Ron Brown

FHA & VA Loan Specialist

First Mortgage Company of Washington

Market Update 11-03-2008

Ron Brown FHA & VA Home Loan Specialist (First Mortgage Company of Washington) — Mon, 03 Nov 2008 13:27:51 -0600

US Stocks are trading in a fairly narrow range, given the recent history of wild swings, and the Dow is trying to find a way to post a positive in the face of a dismal reading from the ISM Index. Mortgage Bonds are up slightly as they continue to trade sideways.

Stocks are taking the news of the nation's worst reported output in 26 years pretty well in stride as the Dow has spent the majority of the day in positive territory. The Institute of Supply Management (ISM) Index which tracks purchasing managers across most of the country's manufacturing sectors fell to 38.9% after September's 43.5%, and Augusts' 49.9%. Readings below 50% indicate a contraction of industry. The 11% drop in 2 months is the largest since May of 1980, and shows the economy is clearly in recession. The blame is being placed on final demand from consumers, as spending has declined at the fastest rate in 28 years. Later this week the Federal reserve will report on Consumer Credit for September. In August, consumer's lowered their credit card balances for the first time since 1998, and economists are expecting an even larger decrease this time around. Citibank released a report today showing they took losses of $1.4 Billion in credit card write offs for the 3rd quarter, and last week American Express announced they would be laying off 7,000 workers. Current predictions are for nearly $100 Billion in credit card write offs for the banking industry in 2009, almost double the Federal Reserve's estimate.

Mortgage Bonds are positive from Friday's finish, but still trading in a basically sideways trend over the past week after severe losses in October. Bonds were helped by the negative ISM report, and are also getting some benefit from today's announcement by JP Morgan Chase that they are taking matters into their own hands in helping 400,000 homeowners avoid foreclosure. Many have questioned when the government's bailout would find its way to main street, and help the "little guy" more directly. JP Morgan Chase inherited many Option ARM, and negative amortization loans this year through their acquisition of Bear Stearns, and WAMU. Today they announced they will introduce alternative financing options, and hire more personnel to offer loan modifications to such borrowers. This is the first major player to take actual steps showing they believe mortgage bonds are indeed attractive, and there is hope that they will soon be joined by Bank of America, and Wells Fargo. There are indications that the Credit Freeze is lessening as the London InterBank Offered Rate (LIBOR - the rate bank's charge each other for $) has declined for the 16th straight business day, and is now back under 3%.

Rates are continuing to show instability, and suffer from overall market volatility in today's chaotic environment. My recommendation is to float very cautiously, but if you can lock a rate that works, don't hesitate, it may well be gone by the end of the day.

Make it a great day!

Ron Brown

VA & FHA Loan Specialist

First Mortgage Company of Washington

Market Update 10-23-2008

Ron Brown FHA & VA Home Loan Specialist (First Mortgage Company of Washington) — Thu, 23 Oct 2008 15:59:59 -0500

US Stocks are back to the "normal" volatility roller coaster, and the Dow has been up more than 200, down more than 200, and is now mounting a late day rally back to positive. Mortgage Bonds have traded to the negative today, but are still priced above the important 200 day average.

Stocks went the first part of the day mostly positive, but the focus turned negative toward the afternoon with declining stocks outnumbering gainer's by 5 to 1. The negative view came into focus with this morning's release of the Labor Department's Jobless Claims which increased by more than expected. 478,000 people filed first time claims, pushing the 4 week average to its highest in over 5 years. Goldman Sachs is reported to be cutting roughly 10% of their workforce (approximately 3,200 employees) in the wake of the ongoing credit crunch. Estimates are that the Securities Industry alone has now lost over 125,000 jobs this year. Alan Greenspan testified before Congress today that he was "in a state of shocked disbelief" regarding the failure of financial institutions to self regulate. OPEC has changed their meeting date from Nov. 18th to this Friday in order to come up with a plan on how to deal with Oil prices having dropped more than 50% in roughly 3 months. Expectations are for a production cut, but they must be cautious not to feed into another price increase significant enough to further decrease demand.

Mortgage Bonds started the day flat from yesterday's finishing gains, and would typically gain from the poor jobless claims, but have spent most of the day in the negative. Early on, the flight to quality out of Stocks saw Treasury Notes as the main beneficiary. For most of the day, we saw Treasuries gaining with Mortgage Bonds flat to negative seeming to indicate investors were still leery of the Mortgage Market. However, that disconnect has lessened as we move into afternoon trading. The US Dollar continues to remain strong in contrast to most currencies, and both the Dollar & Yen appear to be holding up well as defensive currencies in a slowing global economy. Investors appear to prefer US Debt in the face of falling Stocks despite the Treasury continuing to issue debt at record pace. The Credit freeze is apparently continuing to thaw with the LIBOR (bank's internal lending rate) falling once again.

Hopefully, any transactions closing soon have already locked. For those that are still weeks from closing, floating is my recommendation. We may see a bit of a setback in rates from day to day, but with the negative economic outlook, the trend is for rates to improve.

Make it a great day!

Ron Brown

VA & FHA Loan Specialist

First Mortgage Company of Washington

Market Update 10-22-2008

Ron Brown FHA & VA Home Loan Specialist (First Mortgage Company of Washington) — Wed, 22 Oct 2008 16:48:36 -0500

US Stocks are down today with the Dow of by as much as 5% as investors deal with poor earnings, and fears of global recession . Mortgage Bonds are holding on to slight gains as they push against technical pricing resistance.

The Dow is back down to the 8,600 range as investors look to sell in a Market with few buyers. There are no economic reports to give the Market any direction today so investors must focus on corporate earning which have been as gloomy as predicted. Not all the news was bad, McDonald's ( a Dow component) reported an increase in profits of 11% for the 3rd quarter, but in today's negative climate even their stock price is down approximately 2%. Boeing led the poor profit reports posting a 37% decline in quarterly earnings with much of the blame going to the almost 7 week old machinist strike. Perhaps of more importance than the 3rd quarter earnings has been the prevalence of downgraded future expectations in light of the fact that most economists predicted we would see improvement by the end of the year 6 to 9 months ago. Despite signs of improvement to the Credit Markets, and private sector lending, worries that we have yet to see the worst in relation to credit losses remain.

Mortgage Bonds enjoyed an initial positive move as capital moved out of equities, and into the safety of Bonds. However, that flow of capital has focused more on Government Bonds as the day went on, and the result has been an increase in the spread between MBS, and Treasuries. The Dollar has climbed to a 5 year high versus the Euro on the belief that the Bank of England, & European Central Bank will take action, and cut rates in order to stimulate short term growth. This stronger Dollar has contributed to a lowering of the price of Oil even with increased expectation of a production cut next month by OPEC. The closest thing to a relevant economic report was today's release of Crude Oil inventories which showed demand still on the decrease.

Once again, rates have improved over the last several days to the point that locking is good advice for short term closings, but if you have several more weeks until closing, I am recommending to cautiously float.

Make it a great day!

Ron Brown

FHA & VA Loan Specialist

First Mortgage Company of Washington

Market Update 10-21-2008

Ron Brown FHA & VA Home Loan Specialist (First Mortgage Company of Washington) — Tue, 21 Oct 2008 15:51:14 -0500

After a day of only positive numbers, US Stocks are back to the roller coaster we have come to expect with the Dow down by over 200 points, as well as being in positive territory throughout the day. Mortgage Bonds have not been nearly as volatile, and have traded within a plus or minus 10bp range most of the day.

Stocks have faced heavy pressure through out the day as the focus has shifted from headline news to actual earnings reports, and corporate outlooks. The biggest loser in today's Market has been the Technology Sector. Both Sun Microsystems, and Texas Instruments, failed to live up to earnings expectations while projecting a gloomy forecast of future business. Away from the headlines, there is much concern over Lehman's final settlement of their Collateral Debt Swaps (CDS) that were given a worse than hoped for valuation earlier this month. If the total losses from the unwinding of positions in this arena are not as bad as the worst predictions, many believe the Dow will regain the 10,000 mark in short order. Until those losses are brought to light investors are continuing tread lightly.

Mortgage Bonds ended the day up sharply yesterday, and more importantly narrowed the spread against Treasuries significantly yesterday. Most of this was a change in investor confidence towards the Mortgage Backed Securities (MBS) Market which was the result of PIMCO shifting focus. PIMCO, the world's largest Bond fund, has been moving out of Treasuries, and into MBS all year, and is now approaching an 80% stake. Bonds got a bit of a two for one out of this by finishing above their 200 day average as well. If they can finish the day above that for a second consecutive day of trading, it should become a strong floor of support signaling a stabilizing of current rates looking forward.

I am recommending to float cautiously to see if Bonds stay above their 200 day average. Earnings season is well under way, and there have been no surprises leading anyone to believe the 4th quarter will be positive for Stocks, so the trend should be for better rates ahead.

Make it a great day!

Ron Brown

FHA & VA Loan Specialist

First Mortgage Company of Washington

Market Update 10-20-2008

Ron Brown FHA & VA Home Loan Specialist (First Mortgage Company of Washington) — Mon, 20 Oct 2008 15:46:42 -0500

US Stocks are on a strong rally, responding well to the prospect of another government stimulus package. Mortgage Bonds are also much better, as they push to finish above their 200 day average.

Stocks continued their winning ways to start the week, as the Dow is enjoying the first day in a long time where its Stocks never ventured into negative territory. In testimony today, Chairman Bernanke endorsed a 2nd Stimulus, stating "a fiscal package by the Congress at this juncture seems appropriate." This seems as much an admission that Central Bank monetary policy alone is not enough to fix the economy as it is an actual endorsement of a 2nd Stimulus Bill. He went on to encourage congressional support of tax credits, as well as further guarantees, and possibly even direct lending measures. Stocks were up on the spending endorsement with 29 of the 30 Dow components posting gains by the afternoon. GM continues to battle back from their lowest stock price of the past 50+ years despite a variety of differing reports on the prospect of a merger with Chrysler. Crude Oil prices were also up over 2% for the day as expectations of a production cut by OPEC gain acceptance. OPEC has made public that they would prefer a "stable" price for Oil between $70, and $90 per barrel.

Mortgage Bonds have enjoyed one of their best days in over a month as they, like Stocks, experienced an almost entirely positive gaining day. After recently falling to their worst levels of the year, Bonds gained back over a full point last week (equal to a reduction in mortgage rates of roughly 0.375%), and gained another 75bp today. There was some economic news in the form of the Index of Leading Economic Indicators which posted the first positive numbers since April, although August results were revised downward versus expectations of a possible gain. This index is designed to forecast economic activity 6 to 9 months in the future, and it is hoped that this substantiates a turning point. The US Dollar posted gains against most major currencies as the index results, along with the potential stimulus, seems to have increased investor appetite for US assets. There are still real fears over the possibility of global recession after China reported their rate of growth declined for a 5th straight quarter, but consensus at this time seems to be that the worst of the credit crisis may be in the past. Further evidence comes from another day of easing in rates for short term loans between banks as the LIBOR (London Inter Bank Offered Rate) is almost 10% lower than it was Friday.

While I am still floating for now, you should be able to lock in rates that are at, or at least near, the best we've seen in a month on any transactions closing soon.

Make it a great day!

Ron Brown

FHA & VA Loan Specialist

First Mortgage Company of Washington

Market Upate 10-17-2008

Ron Brown FHA & VA Home Loan Specialist (First Mortgage Company of Washington) — Fri, 17 Oct 2008 15:15:24 -0500

US Stocks continue their roller coaster ways as the Dow has been down by 200, and up by 300 while it is currently nearly flat for the day. Mortgage Bonds have also traded in a seesaw manner as they react to Stocks, but they look to finish positive for a third day in a row.

Stocks began the day on the down side when we received more bad news from the housing sector. The Commerce Department reported housing starts declined by 6.3% in September bringing the annual rate to its lowest since early 1991. The current construction pace of new homes is at its second lowest level in the past 50 years. This news may not be all bad since it is well recognized that what the Housing Sector needs most is a decrease of inventory if it is to stabilize. The American consumer has apparently been beaten down by the drumbeat of negativity in the headline news. Today's release of the Consumer Sentiment Index by the University of Michigan showed a record one month drop. In September the reading was 70.3, and this month's number came in at 57.5, but keep in mind that the Dow Jones Index dropped by over 20% in the first half of the month, and was definitely on the minds of those surveyed.

Mortgage Bonds started the day slightly better than yesterday's finish, but were up against pricing resistance much of the day. After Stocks initially fell, Warren Buffett made a public statement that now was the time to buy American Stocks which was the catalyst of today's surge in Stocks. While Investor's went bargain hunting, Bonds began to suffer, but eventually the focus has turned back to performance, and there are very few corporations beating earnings estimates. Combined with the poor economic reports of the day, this helped to make fixed return investments more desirable, and Mortgage Bonds are in position to finish near their 100 day average, and well over 150bp better than their lows of Tuesday, and Wednesday. The recent government moves appear to be slowly taking effect in the Bond Market, and the ultimate goal of those moves is to bring confidence back to investor's of Mortgage Backed Securities. Despite a survey by Freddie Mac showing Mortgage rates spiked higher last week by the largest margin in over 20 years, it appears we are moving back towards our recent best rates of the year.

I am recommending to follow the old adage "never lock on a Friday", and will float through the weekend, but anyone with a transaction closing in a matter of days should seriously consider locking in today's gains.

Make it a great day!

Ron Brown

FHA & VA Loan Specialist

First Mortgage Company of Washington

Market Update 10-16-2008

Ron Brown FHA & VA Home Loan Specialist (First Mortgage Company of Washington) — Thu, 16 Oct 2008 12:17:15 -0500

US Stocks are back on the seesaw today as the Dow was initially up by triple digits, then down nearly 400, and currently has rallied back to be "only" down 150. Mortgage Bonds enjoyed a strong rally yesterday, bouncing off their lows of the year, and ending the day with enough gains to push mortgage rates better by as much as .25%.

Stocks rallied to start the day on positive news regarding inflation from the Consumer Price Index, but nose dived shortly after receiving more bad news from the manufacturing sector. Today's CPI numbers showed better than expected results with overall consumer prices basically flat, as energy prices fell, offsetting increased food prices. Core prices, which exclude food & energy, rose slightly by 0.1%, but expectations were for an increase of 0.2%. Stocks reacted well to this news on the hope that it might give the Fed more room to lower interest rates again. The Philly Fed Index which measures that region's economic activity (much like yesterday's NY Empire Index), then came in much worse than expectations. This triggered a sharp selloff in stocks since the September reading was +3.8% versus this month's reported -37.5%. After yesterday's Retail Sales figures came in at their worst in 3 years, this drop in factory activity renewed concerns of a global economic slowdown. On the plus side, this gloomy outlook is continuing to pressure Oil prices lower, as the price per barrel actually fell below $70 during today's trading. Another potential positive from today's numbers is that Capacity Utilization is down, which means there is room for business expansion without a rise in pricing pressures, or further inflation.

Mortgage Bonds are benefitting from much of today's news, and are extending their gains from yesterday. After opening lower than Wednesday's finish, they have responded positively to the lower inflation, and poor economic reports. Investor's appear to have regained some confidence in Mortgage Backed Securities as they have not only continued their rally from yesterday, but they have also narrowed the spread with Treasuries as well. Initial Jobless Claims have helped their cause as the 4 week average now stands at the highest level since October 2001, and continuing claims are their highest since Summer of 2003. This goes hand in hand with the good news on inflation. The soft job market makes the probability of wage based inflation much lower, and adds to the already weak demand for goods which limits pricing increases at the retail level. All of the recent reports have been much more Bond friendly than Stock friendly, and since it will take time for the recent government infusions of capital to work their way to the Market, Stocks are currently being traded as much as a source of cash as they are a reflection of corporate value. This may trigger a positive swing in Stocks later in the day, as bargain hunters enter the Market.

For now I am recommending to float while we wait to see if Bonds can recover their losses from the last few days. However, if a transaction is closing in a matter of days, rates are still historically good, so no one should be blamed for locking today in the face of such a volatile market.

Make it a great day!

Ron Brown

VA & FHA Loan Specialist

First Mortgage Company of Washington

Market Update 10-15-2008

Ron Brown FHA & VA Home Loan Specialist (First Mortgage Company of Washington) — Wed, 15 Oct 2008 12:40:07 -0500

Us Stocks are falling once again, with the Dow testing the 9000 mark. Mortgage Bonds are also under pressure, but have made some gains after touching on their low point (= high rates) for the year.

While Stocks are down across the board, it looks like today's losses are at least partially due to actual economic, and earnings reports rather than fear. On the positive side Intel, and Coca Cola posted increased profits for the 3rd quarter, and their stock is up. In the financial sector, JP Morgan and Wells Fargo both reported significant declines in quarterly profit, but their stocks are up on the "it could be worse" philosophy of beating analyst predictions. Both banks were on the recipient list of the Treasury's cash injections yesterday. That move to inject capital into some of the nation's largest banks is being seen as a way to provide the necessary assets for their ledgers to be able to afford the inevitable mark to market losses as they unload their "toxic" real estate "assets". JP Morgan's report showed them posting losses of $642 Million from the seizure of Fannie & Freddie which wiped out the value of the bank's shares in those companies. Stocks are facing selling pressure from today's September Retail Sales report showing a 3rd consecutive drop in consumer spending, and the worst one in 3 years. Sales in August, and July were also revised lower indicating that spending was down by as much as 3.5% in the 3rd quarter which is the 1st decline in 17 years, and possibly the worst drop since 1980. Retail sales makes up about half of all consumer spending, and has been considered to be the engine of economic growth for our current global economy.

Mortgage Bonds have lost 2 full points in the last few days of trading, and are currently at their worst levels of the year. The economic news from today is mostly positive for the Bond Market, but the initial reaction was negative. As a rule of thumb, negative economic news is bad for Stocks, and good for Bonds as people look to the safety of fixed return investments. Besides the Retail Sales report, today brought the the NY Empire State index that measures New England manufacturing activity, and the Producer Price Index which measures inflation at the production level. Manufacturing numbers came in much worse than expected which is usually a Bond friendly factor. The overall PPI numbers showed a bigger drop in inflation than expected, but the Core reading was higher than forecast. Under normal circumstances this would not have had much of a negative impact because producers are less likely to pass on small inflationary increases to the consumer in tough economic times. Thursday's Consumer Price Index would typically need to show this transfer for the market to react, but in today's emotional state there was a selloff in the Bond Market. The move yesterday by the US Treasury to give over $100 Billion directly to some of the country's largest banks should also be good for Bonds. This move was meant to help raise cash levels to the point banks would be able to sell their bad mortgages at current market values (far below book value) while maintaining enough assets to satisfy FDIC requirements (the deleveraging I spoke of yesterday).

All in all, the outlook remains negative for economic growth which will continue to weigh on Stocks more than Bonds, and when the capital begins to flow effectively again, Mortgage Bonds are in good position to rebound. Because of this, I am still recommending floating transactions that have enough time to wait before closing. Make it a great day!

Ron Brown

FHA & VA Loan Specialist

First Mortgage Company of Washington

Market Update 10-14-2008

Ron Brown FHA & VA Home Loan Specialist (First Mortgage Company of Washington) — Tue, 14 Oct 2008 13:39:26 -0500

US Stocks looked to build on yesterday's historic rally, gaining 400 points in early trading, but have since cooled down and are back to the day's starting numbers. Mortgage Bonds opened down from yesterday, and despite an early rally have settled close to the opening mark.

Stocks benefitted early from investor's exuberance over further announcements by the US government to invest $ Billions directly into some of the country's largest banks. The plan is much the same as the one announced by England last week where the government will temporarily buy stakes in several major banks in order to recapitalize the Financial Markets. The hope is that this will be another step in thawing out the flow of capital to Markets, and will help to restore investor confidence in the system, thereby bringing buyer's back into the equation. Treasury officials will be monitoring the banks on the receiving end of this investment to be sure that the new capital actually makes it to the Markets, and is not hoarded by the banks themselves. These actions were deemed necessary due to the large number of banks that have found themselves "over leveraged" as a result of declining asset values. Banks have been confronted with a situation where they had to realign their balance sheets and increase their asset to liability ratios. They were reluctant to raise capital by selling assets at ultra low "fire sale" prices (made even harder by a lack of buyers in the market), and found few investors willing to help them raise cash until the government raised their hand. While the initial reaction by world markets was enthusiastic, they have cooled somewhat in afternoon trading, and economists are warning we still face a recessionary environment. If nothing else, perhaps this will buy enough time for investors to focus on fundamentals as earnings reports are brought to the Market.

Mortgage Bonds have been getting hammered just as badly as Stocks over the last week. Typically we would see Bonds benefit from the selling of Stocks as Capital shifted away from risk into the safety of fixed return investments, but in a Market void of buyers, Mortgage Bonds, and Corporate Bonds were losers as well. Even Government Bonds have been losers lately, as investors feared being repaid in inflated Dollars. The good news from this is that the spread between returns on Treasuries, and Mortgage Bonds has tightened during the recent rally by Stocks which may be indicative of growing investor confidence that the Mortgage Market will come back. However, this process will not happen overnight. It will take some time for the Market to work its way through all of this, but as more information comes out expectations are for actual data to become the focus over emotion.

I am still recommending to cautiously float while we wait for the latest measures to take effect.

Make it a great day!

Ron Brown

VA & FHA Loan Specialist

First Mortgage Company of Washington

Market Update 10-13-2008

Ron Brown FHA & VA Home Loan Specialist (First Mortgage Company of Washington) — Mon, 13 Oct 2008 14:58:11 -0500

US Stocks are responding well to the latest round of government support with the Dow trying to finish above 9000, after falling below 8500 last week. Mortgage Bonds are not trading today due to financial markets observance of the Columbus day holiday.

Stocks rallied out of the gate this morning on across the board buying, leading to the Dow's largest intraday gain in history. After a weekend that saw a flurry of government activity aimed at increasing confidence in the banking, and credit markets, all three major indexes have risen as much as 7%. General Motors has seen increases of over 30% after weekend reports of talks over a possible merger with Chrysler. Financial's are being led by Morgan Stanley who has seen their shares rise by more than 75%, as they finalized the investment of $9 Billion from Mitsubishi. Much of the credit for the broad based gains is being given to the announcement by the G7 nations that they would take whatever steps are necessary to restore the Markets to full confidence. This included a pledge by the European Central Bank, Bank of England, & Swiss National Bank that they would lend "unlimited amounts"of money to banks, while Germany, and France committed to rescue plans worth a combined $1.1 Trillion. Treasury Secretary Paulson said the US government was looking at buying equity positions in any, and all US Banks, even healthy ones.

With the Columbus Day holiday, there are no economic reports being released, and the Bond Market itself is closed, as are most banks. The end of last week saw Bond investors moving out of long term, and into short term debt which pushed Mortgage Bonds to their worst levels since Mid-August. The overall lack of faith pervading the system left investor's with an interest in cash that was being held on the "sidelines" while they waited for buying opportunities. Under normal circumstances, the resulting positive record setting day on Wall Street would be a bad indicator for Mortgage Bonds, but in times like these, we may see some of the positive forces moving Stocks do the same for Bonds. The key ingredient that has been missing of late, is enough confidence in the Market for people to be willing to buy what are essentially very good values. The world's bank rescue packages should have a positive effect on this for the next couple of days, which will hopefully lead to more buying of Long Term debt. That in turn could help Bonds, which we would see benefit us in lower interest rates to come. Also, don't forget we're in the middle of earnings season, and the economy is still in a position to disappoint. Disappointing results by Stocks, in combination with a willingness to participate by investors, could lead to capital flowing towards the Bond Market.

Hopefully we'll see these events unfold over the next few days, beginning with tomorrow's Bond Market.

Until then, make it a great day!

Ron Brown

FHA & VA Loan Specialist

First Mortgage Company of Washington

Market Update 10-10-2008

Ron Brown FHA & VA Home Loan Specialist (First Mortgage Company of Washington) — Fri, 10 Oct 2008 16:51:28 -0500

Today's update is more of a market wrap, as I tried on several occasions to create an update, but was unable to type fast enough! The Dow ended down by 128 points on the day, but traded in a record range of over 1000 points after falling by nearly 700 points in the first 8 minutes of trading. Mortgage Bonds did not fare any better, losing 109 bp, and falling well below what were previously considered strong levels of support.

The Dow rebounded briefly to positive territory in an afternoon rally, but by the end of the day, stocks were back in the red putting the finishing touches on a week that saw losses of 15% to 25% for the major indexes. A loss of 20% during the course of a year is the common definition of a bear market, leading some to say we are experiencing a bear market within a bear market. The Dow actually broke below the psychological support of the 8000 level twice, but was able to rally both times to positive daily territory. The chaos is being blamed on forced selling caused by the credit freeze in a market with no willing buyers. Actual economic news is being virtually ignored by investors, but there was the Labor Department report showing a September decline in the price of imports, and the Commerce department reporting a narrowing of the US Trade Deficit for August. The fear of a Global recession pushed Oil to its lowest level in over a year at $78 a barrel, down more than 16% for the week.

Mortgage Bonds not only experienced a negative pricing move of over 1 full point, they also saw the spread versus Treasury Notes increase (meaning even lower demand for Mortgages than for extremely low yielding, but ultra safe Treasuries). Much of this is due to fear about record volumes of debts being issued as the government struggles to stabilize the out of control financial system which lowers the value of already held Bonds. No amount of losses by Stocks was able to help the Bond Market, as the perception of measures being undertaken on the part of government is one of inflation, and no one wants to be paid back on fixed return investments with inflated Dollars. UBS Securities has gone on record as expecting the Federal Deficit for 2009 to come in at $1 Trillion versus the 2007 deficit of $163 Billion. Added to this was the final resolution of value for the Credit Default Swaps from Lehman Brothers Bankruptcy which came in at 8.625 cents on the Dollar meaning sellers will have to pay much more than they anticipated. This could be a major impact in the future, as the CDS market is valued at somewhere between $50 & $60 Trillion, and many more losses are anticipated as companies scramble to raise cash in an extremely tight credit market.

I apologize for the technical nature of today's blog. In a nutshell all of this adds up to fear feeding on itself as companies are forced to sell in a market that is unwilling to buy due to lack of available capital. The economic difficulties that lie ahead are typically Bond friendly, but we cannot count on fundamentals in this type of unprecedented global event. Rates are now roughly 0.75% higher than earlier this week, and although those are not great rates, the current volatility of the market could make things worse.

Make it a great day!

Ron Brown

FHA & VA Loan Specialist

First Mortgage Company of Washington

Market Update 10-09-2008

Ron Brown FHA & VA Home Loan Specialist (First Mortgage Company of Washington) — Thu, 09 Oct 2008 12:58:02 -0500

US Stocks are "enjoying" another roller coaster day on Wall Street with the Dow up as much as 200 points, but now down about 100. Mortgage Bonds have been more consistent, but in a negative manner, moving negatively toward the 200 day average.

Stocks were looking for a bounce back day, and Globally, Stocks rebounded in other markets. Yesterday's coordinated rate cut by many of the World's Central Banks (except Japan) was generally well received, but the Dow still crashed at the end of the day, posting another significant loss. The US Treasury is floating a possible plan to take an ownership position in US banks in another attempt to loosen up seized credit markets. This type of action was taken yesterday in England, and is reportedly gaining favor from both Wall Street, and Capitol Hill. After hours IBM reported quarterly earning nearly a week early, beating expectations, and reaffirming their annual target of a better than 20% increase over last year. Many analysts were quietly expecting a warning about negative quarterly results due to lower customer demand, so this was welcome news. One area experiencing decreased demand is energy, as Oil is trading lower despite expectations that OPEC at a possible upcoming emergency meeting. The Energy Department reported Crude Oil supplies increased for the second week in a row.

Mortgage Bonds are losing ground again as pricing has fallen below recent support levels, and is now back to the critical 200 day moving average. If Bonds fall below this level by much, it could indicate a change in direction, and an increased probability for higher rates ahead. Initial Jobless Claims came in basically as expected, which is better than last week by 20,000. Much of this is from people going back to work after the damage from the recent Hurricanes. While Initial Claims dropped, the 4 week average of continuing claims is now at its highest in 5 years, and is basically one third higher than a year ago. Yesterday's surprise report that pending home sales for August jumped nearly 7.5% is being somewhat dismissed as old news, pre-dating the turmoil of September. Bonds face further pressure from ever increasing supply of Treasury Notes being offered at auction with another $20 Billion in 10 year notes being made available today. While yesterday's Fed rate cut was by a unanimous vote, known inflation hawk and voting Fed President Richard Fisher is speaking today, and his comments often bring a negative response from the Bond Market.

Hopefully, any short term closing transactions have been locked, as rates have gone back to their highest in roughly a month. I still recommend floating on transactions further out as global economic reports, Treasury & Fed press releases all indicate a drop in rates to come. However, we are seeing now, that until investor's regain confidence in the market for mortgages, that drop remains uncertain.

Make it a great day!

Ron Brown

VA & FHA Loan Specialist

First Mortgage Company of Washington

Market Update 10-07-2008

Ron Brown FHA & VA Home Loan Specialist (First Mortgage Company of Washington) — Tue, 07 Oct 2008 13:18:35 -0500

US Stocks are extending yesterday's losses after a brief rally to start the day. Mortgage Bonds are trying to hold their gains as they trade in reactions to Stocks once again.

The Dow is currently down triple digits despite a positive start on news of the Fed's latest effort to kick start the Market. Just before today's trading opened, the Fed officially announced they would buy unsecured "Commercial Paper" by creating the Commercial Paper Funding Facility (CPFF). The Fed hopes this facility can help prevent further disruptions to the economy by helping companies with their day to day operations such as financing payroll, and buying inventory. Basically, the Fed becomes a source of credit, replacing the banks that have been unwilling to lend to each other for fear they won't get repaid. Bank of America jump started earnings season on Wall street yesterday by reporting quarterly profits decreased by two thirds year to year, and that they would be cutting their dividend for the first time since 1978. The largest consumer bank in the country has benefitted from the recent lack of confidence in other banks, seeing their deposits increase by 4% ($21 Billion) this past quarter as customers move their money out of smaller, "riskier" banks. The US Treasury named Neel Kashkari to head the $700 Billion rescue plan. Kashkari was one of the architects of the Bill, and is a former VP of Goldman Sachs who has been working as an Assistant Secretary at the Treasury. The Treasury is now looking to hire asset managers to oversee the purchase of these troubled assets, while establishing guidelines to deal with conflicts of interest as most of the candidates are currently working for the firms that will be selling those very securities.

Mortgage Bonds have been trading in a very narrow range close to yesterday's finish for the majority of the day. Once again, despite the negative performance by Stocks, Mortgage Bonds are not the main beneficiary as the concern centers on their marketability given the current credit crunch. Fed Chairman Bernanke gave a scheduled speech today, and European Central Bank President Trichet also spoke, but neither of their comments have had much effect on Bonds so far. It appears the World's Central Banks are indeed acting in a coordinated effort to improve US Dollar Liquidity within the financial system. The Bank's of England, Canada, Japan, Switzerland, and the European Central bank have pledged to support the Fed, and continue working together to provide liquidity to the Markets. Australia's Central Bank lowered their Prime rate by 1 full percent today, increasing speculation that the Federal Reserve may announce their own cut prior to their meeting later this month. The crisis is truly global with Iceland appealing to Russia for their own financial rescue in spite of the recent spate of Russian Market closings triggered by massive losses there. After trading ends tomorrow the SEC ban on short selling of financial stocks does as well, and with recent events, and Bonds in reaction mode to Stocks, there could be increased volatility ahead.

I am recommending to float for long term closing scenarios, but have a locking bias on transactions closing soon. Rates are near their best levels of the year, and with so much uncertainty, no one can be criticized for locking now.

Make it a great day!

Ron Brown

VA & FHA Loan Specialist

First Mortgage Company of Washington

Market Update 10-06-2008

Ron Brown FHA & VA Home Loan Specialist (First Mortgage Company of Washington) — Mon, 06 Oct 2008 13:24:27 -0500

US Stocks are plummeting on concerns over the recent government bailout with the Dow down by more than 500 points. Mortgage Bonds are one of the beneficiaries of this flight to quality as we currently trade back near the levels of two week's ago.

Declining Stocks are currently at a 30 to 1 ratio versus gaining issues on the New York Stock Exchange as the Dow has fallen below 10,000 for the first time in 4 years, despite last week's $700 Billion financial bailout. Regardless of the bailout, we will still see more bank failures to come, such as demonstrated by Wachovia last week. On that front, Wells Fargo has now won an appeal of Citigroup's move to block the merger, and is moving forward with their negotiations. The Wells Fargo offer does not require any assistance from the FDIC, and will not cost the taxpayer anything. The Market is dealing with uncertainty on a global basis with Europe experiencing their worst day for Stocks in history. European Union leaders met over the weekend in Paris to come up with their own bailout plan, but were unable to come up with an agreement. Their uncoordinated response contributed to the sell off of Stocks, and also a significant drop in the Euro's value. This global lack of confidence in financial credit markets is promoting a belief in a world wide economic downturn, and the subsequent movement of investment capital away from risky Stocks, and into the safety of Bonds, as well as a continuing drop in Oil pricing.

Mortgage Bonds began the day considerably better than last week's close, and have held fairly well at that level. While this should lead Mortgage Rates back to the lows we saw right after the bailout of Fannie, & Freddie, we have not seen this as of yet. The reason for this is that despite the "flight to quality" of investors leaving Stocks for Bonds, much of that capital is flowing into Government Bonds due to uncertainty over the market for Mortgage Backed Securities. Remember, when the government took over FNMA, and FHLMC it was with the express purpose of improving that market, but after the indecision involved in the recent financial bailout voting, there is reluctance by investors. Today the Federal Reserve took further steps to ease the strain on banks, and increase confidence by doubling the amount available from its Term Auction Facility from $450 Billion to $900 Billion while also announcing they will pay interest on Bank's required reserve accounts as allowed by the Bailout Bill. All the recent news has led to increased speculation that the Fed will reduce their Funds Rate by 50bp at their meeting on the 29th. Generally, these rate cuts are not good for Mortgage Rates due to their inflationary nature, but if it can be coordinated with a similar cut in Europe, that aspect could be minimized, and we may see some good at the consumer level.

I am recommending to float cautiously for now, but be ready to lock, as we've seen Stocks swing wildly from day to day, and our current gains are closely tied to their losses. It appears we are still in for a lot of volatility ahead, and until we see investor confidence in mortgages again, things can change in a hurry.

Make it a great day!

Ron Brown

VA & FHA Loan Specialist

First Mortgage Company of Washington

Market Update 09-26-2008

Ron Brown FHA & VA Home Loan Specialist (First Mortgage Company of Washington) — Fri, 26 Sep 2008 15:15:10 -0500

US Stocks are trending flat to slightly negative on uncertainty over the government bailout, and the predicted failure of WAMU. Mortgage Bonds are following suit as they trade in a very tight range.

The Stock Market is waiting to see what actually comes out of Washington as the news on the bailout continues to ebb and flow. While it seems imminent that there will be some form of bailout, the uncertainty over the form it will take is causing the Markets to pause. A group of economists that includes 3 Nobel Prize winners has urged Congress to not act out of desperation, and allow for a more careful, studied approach as talks on Capitol Hill continue. In the meantime, Stocks are trading sideways with a bit of a negative tilt. Thursday after hours, WAMU was shut down by the Office of Thrift Supervision, and placed in the receivership of the FDIC to facilitate their absorption by JP Morgan Chase. JP Morgan now becomes the largest Depository in the US as they pick up WAMU for $1.9 Billion, after having scooped up Bear Stearns in the beginning of this financial meltdown. While the FDIC refers to this as "simply a combination of two banks," it is unusual in that they normally only take action on Friday after business to help smooth the transition, but were forced to mover quicker for fear of media leaks. In the period since Lehman Brothers filed for bankruptcy, WAMU customer's have withdrawn $16.7 Billion (roughly 9% of the total) worth of deposits out of the bank, forcing the OTS to declare them unable to meet obligations. WAMU had over $300 Billion in loans outstanding, dwarfing the next largest bank failure (1984 Continental Illinois Bank) value of $40 Billion. CEO Alan Fishman quite possibly set a new record for shortest tenure, having only replaced Kerry Killinger 16 days ago.

Mortgage Bonds are struggling to stay even as they have over the past week. Actual Economic news was highlighted by the revision of 2nd quarter GDP lower to 2.8% from the previously reported 3.3%. Economist had expected either no revision, or a slight upward revision so this was a bit of a Bond friendly surprise. The change is being blamed on lowered consumer spending, and a lack of investment spending by business (one of the problems the bailout aims to cure). Regardless of any bailout action to come, economists are now revising their projections for the 2nd half of 2008 to be much worse. As a result of this negative outlook, Fed Futures are factoring a 96% chance of a 0.25% rate cut at the fed's next meeting, and the odds of a 0.50% cut are now better than 50/50. The Federal Reserve is also working with the European Central Bank, Bank of England, and Swiss National Bank to pump $Billions of short term debt into world markets to keep money markets that banks use amongst themselves from freezing up. The availability of these short term loans that fund bank's daily operations are the key to keeping further banks from failing. Basically bank's no longer trust each other's balance sheets so they have raised their rates to each other, halting the necessary flow of capital.

I am continuing to float rates, while we all wait to see what form the bailout plan finally takes. Economically there has been no indication of any positive news to come, which should help maintain rates, and the negative outlook is positive for rates in the future.

Make it a great day!

Ron Brown

FHA & VA Loan Specialist

First Mortgage Company of Washington

Market Update 09-25-2008

Ron Brown FHA & VA Home Loan Specialist (First Mortgage Company of Washington) — Thu, 25 Sep 2008 12:56:45 -0500

US Stocks are on the rise, with the Dow up over 200 points in the first hour of trading, as hope for congressional approval of a rescue plan overwhelms negative economic data. Mortgage Bonds initially posted gains as a reaction to the poor economic news, but have fallen back a bit as Stocks gain momentum.

Once again it's all eyes on Washington as Stocks spike higher in anticipation of the proposed $700,000,000,000 bailout for Wall Street. The Rally by Stocks flies in the face of today's economic news. Today's economic calendar shows three significant reports, all of which indicate negativity for Stocks. The latest Initial Jobless claims figure of 493,000 is the highest since late 2001, and marks the 9th consecutive week over 425,000 (which typically indicates recession). The jump in claims can be partially explained by the recent hurricanes which are thought to have added 50,000 lost jobs. Continuing claims were reported over 3.5 Million, the highest since 2003. New home sales for August declined by 11.5%, and the median price fell by 5.5%. The month to month drop has pushed the rate of sales to its worst since early 1991. This report is considered to be somewhat volatile, and as such the Durable Goods report is considered more significant. That report came in at minus 4.5% against expectations ranging from -1.5% to -2.0%. Durable goods are big ticket items designed to last at least 3 years, and are considered a bellwether for economic growth. Demand was weak over almost all industrial categories, and seems to confirm weakness in the economy reaching far beyond the housing industry. Despite all this, The Dow is up by over 260 points right now.

Mortgage Bonds began the day looking very positive as a result of this poor economic outlook (remember bad news for the economy tends to lead to lower mortgage rates), but the Stock rally is pulling money out of Bonds. The decline in Durable Goods orders is being blamed on the lack of availability of capital to lend, which the bailout is intended to alleviate. The same goes for the double digit decline in housing sales, and prices, in so far as people are not able to get loans. Last, but not least, the poor employment numbers can be seen as inflation friendly (both Stocks and Bonds hate inflation) since companies should be able to hire workers at a lower cost. This will help to control wage based inflation which the Fed is watching closely. When coupled with the belief that the government bailout will truly unfreeze the credit markets, investors are able to rationalize pumping money into Stocks. In this somewhat upside down logic, Mortgage Bonds are now trading "sideways" as they are merely reacting to the Stock Market and fluctuating within a price range of support, and resistance.

I am recommending to float cautiously for now, since any short term closings should have already been locked. Regardless of the outcome of the bailout, the economy is going to take some time to recover. In the meantime, the economic data should continue to be weak which is a positive for mortgage rates.

Make it a great day!

Ron Brown

VA & FHA Loan Specialist

First Mortgage Company of Washington

Thoughts on the "Bailout", leadership, & personal responsibilty

Ron Brown FHA & VA Home Loan Specialist (First Mortgage Company of Washington) — Wed, 24 Sep 2008 21:21:56 -0500

After missing the opportunity to post my usual Market Update in a timely manner, I turned my thoughts to the terribly chaotic, and uncertain atmosphere of real estate that threw my schedule off to begin with. All eyes are on Washington DC, and the debate over whether to bail out our financial system in the wake of a crisis of their own making. The emotional aspect is evident in just about every individual that voices an opinion, as well as many of those that are actually on camera. As much as I absolutely despise the situation that we currently find ourselves in, I cannot help but remember the old saying - "When you're up to your A** in alligators, it's hard to remember your initial task was to drain the swamp!"

I just finished reading countless commentaries from bloggers regarding the debate over the bailout, and the subsequent debate over having, or not having a presidential debate this Friday. McCain prefers to postpone the debate to devote attention to the problem, while Obama says the Commander in Chief needs to be able to multi task. Valid Points on both sides, but neither actually shows what I'm looking for from the next President. What this country needs right now is someone to show some conviction, and put forth a plan. It is obvious that Treasury Secretary Paulson would love to be what amounts to the most powerful man on the planet by gaining control of $700,000,000,000 to be doled out as he sees fit, and of course he (like the Presidential candidates) does not want to give a lot of details on how he would choose to spend it. The public can not be blamed for their lack of faith given the fact that just a couple of years ago, Hank was running Goldman Sachs, one of the very obvious perpetrators of the scandal we now face.

The problem starts when the public makes the decision that enough is enough, and we're not going to just keep giving silent acquiescence to our representatives spending our tax dollars without recourse, or accountability. As much as I hate to say it, we don't really have a choice this time.

I come to this conclusion for 3 reasons. The public outcry of holding the bankers feet to the fire, and the consequences be damned, comes from a belief that we can whether the storm that will ensue. After all, our country survived the Great Depression, so how can this be any worse? Here's the 3 reasons why.

First, during the Depression Era, the United States was not a debtor nation. That is to say, we did not have any significant foreign debt. I doubt there are many people reading this that are unaware of the fact that our country is barely able to keep up with the accruing interest on our National Debt, let alone make a dent in the principal. The fact that our debt is held by any number of nations that don't really believe in the American way is certainly going to have consequences if we need to renegotiate that debt.

Second, we now have what is admittedly a "service economy" which means we really don't actually produce anything (other than food, which we will need ourselves) that can be construed as a reliable export. We "built" our way out of the depression by constructing what has become our taken for granted infrastructure of highways, water, and power supplies, not to mention skyscrapers, etc. This building of America prior to WWII was made possible because we had true industrial might, and we focused it internally. America is not in a position to focus inward in that way again.

Third, we were energy independent during the depression. America was the world's leading producer of Oil, and Coal, which we used to build the dams that now supply our renewable electricity. If our Dollar collapses because of this financial crisis (and that is what they're really worried about), we not only won't be able to repay our debts, we won't be able to buy the energy necessary to keep the country running.

Because of all this, we are in a position where we really do have to do something, but we need to be sure we do the right thing. I know the tone of this blog is quite negative, but it does not have to be taken that way. If we truly believe in standing up, and taking personal responsibility (which is what frustrates us about those "leaders" in Washington looking to place blame) why can't we demand it of those who represent us. I certainly do not claim to have all the answers, and I know darn good & well that I'm not as smart as a Henry Paulson, or Ben Bernanke, but I'm also not in a mood to trust them to suddenly have my best interest at heart over their Uber Rich friends. On the other hand, I'm not against letting them orchestrate this bailout if they can be held accountable for the true taxpayer risk.

There is a simple way for them to earn my trust. All of these bankers such as Paulson, and Bernanke have been very successful, and as a result they have probably got the most to lose if everything goes bad. It seems to me if they had to put everything they own on the line, they would be much more inclined to be successful. I'm not opposed to paying them handsomely for saving our necks, I just want to know that if us ordinary John Q Taxpayers suffer, so does the guy making the decisions on our behalf.

Market Update 09-23-2008

Ron Brown FHA & VA Home Loan Specialist (First Mortgage Company of Washington) — Tue, 23 Sep 2008 17:04:31 -0500

Today is not so much an update as an explanation.

US Stocks are finishing down for the day with the Dow off by over 150 points after experiencing triple digit gains earlier. Mortgage Bonds have also seesawed up and down throughout the day, and will finish negative though not by much.

There were no economic reports to look to for guidance by Stocks, but I doubt anyone would have paid attention as all eyes are on Capitol Hill watching for progress on the government's latest bailout. Investor's seemed frozen by uncertainty of what would come from Washington as Treasury Secretary Paulson, Fed Chairman Bernanke, and SEC Chief Christopher Cox faced questions on the details of their proposal. According to early press releases the Bush Administration, and congressional Democrats had come to agreement on the basics of a plan that would give Paulson authority to purchase as much as $700,000,000,000.00 (yes I'm going to keep writing it that way as a visual aid!) in bad mortgage debts "without limitation" for a 2 year period.

The theory is that these are bad mortgages because their Mark (value on paper as written) is considerably higher than their Market (what they could actually sell for today) value, and they are clogging up Bank's ability to lend. This is because the bank's are unwilling to write down the value from Mark to Market. As long as the bank holds the debt, the value of the debt (commonly referred to as the Note) does not decrease, and the loss in value only comes into play if it needs to be sold today, as in the case of foreclosure. As long as these debts are held by the bank in good standing, they are considered assets, and banks only need to keep a small percentage of assets (Capital, or Cash) versus investments. The inability to get these "assets" off their books at the value they are being counted as is where the system becomes "clogged." If the Bank is forced to sell them at their true Market value their asset base could fall below government mandated minimums, and they would face being taken over by the FDIC (IE - go out of business). If the Treasury is allowed to purchase those assets for close to their value on paper, bank's won't have to worry about coming up with the difference between the Mark, and Market values in the form of Capital in order to stay in business.

It all boils down to price. These mortgage debts have been "bundled" together (good and bad together), and sold as a "Mortgage Backed Securities" to investors who then service them, and collect the income stream from the interest on the outstanding debt. The problem facing the financial industry now is how to accurately value them. As Chairman Bernanke pointed out, there are no active buyers for these bundles due to fear of how many bad loans are in the bundle, and the result is two different prices: the fire-sale price, and the hold to maturity with all on time payments price the bank prefers. The bailout plan would allow the Treasury to buy these bundles from the banks at closer to the hold to maturity price which would give them the available capital to lend again, and "unfreeze" the credit market. This is what Bernanke meant when he said "Purchasing impaired assets will create liquidity and promote price discovery in the markets for these assets, while reducing investor uncertainty about the current value and prospects of financial institutions."

All of this was being questioned, and explained on Capitol Hill today, and the Markets were watching (remember those "uncertain investors"?). The Dow was swinging up and down by as much as 200 points in an hour, and Mortgage Bonds were acting in a similar fashion. In the end, it looks as though Congress is not excited about being rushed into action, and would prefer to get more details, while investors want to know whether or not the plan will be implemented.

Mortgage Bonds were only slightly negative at the end of the day, so rates should be roughly the same as they were yesterday, which is still pretty good. Until there is some resolution to this situation, the market will continue to be very volatile, and therefore unpredictable. I will continue to recommend locking for near term closings as the risk brought on by this chaotic environment could push rates the wrong way quickly.

Make it a great day!

Ron Brown

VA & FHA Loan Specialist

First Mortgage Company of Washington

market Update 09-22-2008

Ron Brown FHA & VA Home Loan Specialist (First Mortgage Company of Washington) — Mon, 22 Sep 2008 15:50:26 -0500

US Stocks are in a deep decline following last week's rally with the Dow currently down over 300 Points. Mortgage Bonds have traded down from last week, breaking below support levels for the first time in 2 weeks.

Stocks are plummeting following the release of the government's hastily prepared rescue plan for the Financial Sector of the economy. After Stocks jumped higher on the news the government was taking decisive action to deal with the financial meltdown on Wall Street, most of the gains have now been given back. Most of the action for Stocks was in Commodities trading. Apparently, the Market has digested just how many zero's are involved in such a bailout. The price tag of $700,000,000,000.00 (kinda scary when you actually see it written out) has had a rather negative effect on the value of the US Dollar, and caused a tremendous spike in commodities like Gold, and Oil. Oil rose by nearly 20% at one point, experiencing one of its largest gains since it began trading on the NYMEX, and Gold is up more than 5%, now back above $900 oz. for the first time since July. Financial Stock headlines were dominated by the Fed's move to make Goldman Sachs, and Morgan Stanley, the last two private investment banks, into Bank Holding Companies. They will now be subject to the same rules as traditional banks such as Bank of America, and will be required to maintain specific Capital Reserves, and face far greater scrutiny by federal regulators.

Mortgage Bonds began the day well off last week's finish, and below what had been significant pricing support. At several points during the day Bonds fell further, even dropping below critical secondary technical support also, but were able to finish the day right at that level. The negative day for Bonds is one of inflationary reaction following a drop in the US Dollar. The Dollar index fell nearly 2% against almost all major currencies. Last week we saw a flight to quality of capital fleeing the uncertainty of Stocks for the relative safety of Bonds (mostly Treasury's) which caused an increase of spread between Mortgage Bonds, and T-notes as investor's demanded higher returns for anything associated with the mortgage industry. While today saw a decline in value for Mortgage Bonds, there was a larger loss on the part of Treasury's, so Mortgage Backed Securities actually gained favor with investor's as a result. While inflation is bad for all Markets, Bonds tend to get hit harder than Stocks, and when the government commit to spend roughly a $Trillion in a week (if you're wondering, $1,000,000,000,000.00 is what that looks like!) there is undoubtedly going to be inflation.

I am moving towards a locking bias in light of the inflationary potential now faced by the markets. The volatility that is currently in the market means all bets are off, and we are forced to "wait & see" how the world's markets react to this latest action.

Make it a great day!

Ron Brown

VA & FHA Loan Specialist

First Mortgage Company of Washington

Market Update 09-19-2008

Ron Brown FHA & VA Home Loan Specialist (First Mortgage Company of Washington) — Fri, 19 Sep 2008 13:39:15 -0500

US Stocks have extended yesterday's momentous end of the day rally with the Dow steadily up by over 350 points today. Mortgage Bonds have been up and down, and have now fallen below technical pricing support for the first time since the government bailout of FNMA/FHLMC.

This has truly been a historic week of government actions. In the last 24 hours, we've seen the US Treasury, and Federal Reserve working with, and through Congress, initiate some very bold moves. In response to what amounted to a public outcry of fear about the security of supposedly safe asset investments, Treasury Secretary Henry Paulson announced the government would be guaranteeing low risk money market funds. After seeing a run on T-Note's to the point yields actually went negative (indicating people were willing to pay money, for a guarantee they would not lose more), and the withdrawal of close to $200 Billion from the world's money market funds, the US Treasury announced a temporary guarantee of those funds that pay a fee to participate. The Securities & Exchange Commission enacted a ban on the short selling of 799 Financial Stocks yesterday that runs until October 2, and is renewable after that in 30 day increments. They took the action to "protect the integrity and quality of the securities market and strengthen investor confidence." The third government action taken to calm the global markets was the Fed's commitment to come up with a plan to move what have come to be viewed as toxic assets off the balance sheets of some major US firms. These illiquid assets (mostly bad mortgages) are clogging up the flow of credit, both between banks, and to the public. The presumed plan is to create an agency similar to the Resolution Trust Corporation set up in the 1980's to deal with the Savings & Loan crisis, where the new entity would purchase those bad assets, and hold them before eventually selling them back into the market at auction. All of these actions together have had the desired effect of boosting investor confidence, as shown by Stock gains today.

Mortgage Bonds have taken a bit of a beating as the result of the rush of capital into Stocks. The moves described above contributed to Bonds opening below yesterday's finish. However, the government actions aimed at improving public confidence were not limited to Stocks. This morning Secretary Paulson came out with steps to improve the mortgage market as well. Along with announcing the intention to create an entity to deal with illiquid mortgage assets, the Treasury has authorized Fannie Mae, and Freddie Mac to resume buying mortgage debt, and they have expanded the amounts available to the Mortgage Backed Security purchase program. The first move will "provide critical additional funding to our mortgage market," and the second will "increase the availability of capital for new home loans" which will help with "mortgage availability and affordability." While the obvious results of all these moves is showing up in the form of a Bull Market for Stocks, the latter two are helping to keep Bonds at or near their current levels, and more importantly, narrowing the spread between Treasury's and Mortgage Bonds. The narrowing of these spreads should bring foreign investors back to the mortgage market, and help to further reduce rates moving forward.

I believe the incredible rally by Stocks will be more temporary in nature than the support established for Bonds because eventually the banks will still have to deal with the deficiencies o their balance sheets, and this should result in moves towards the quality of the Bond Market. That is why I continue to recommend floating for those transactions that are weeks out from closing, and any shorter term transactions should have already locked. For those in between, we still have very good rates, and it is always better to have locked when you could have floated, than to have floated when you should have locked.

Make it a great day!

Ron Brown

FHA & VA Loan Specialist

First Mortgage Company of Washington

Market Update 09-18-2008

Ron Brown FHA & VA Home Loan Specialist (First Mortgage Company of Washington) — Thu, 18 Sep 2008 16:11:12 -0500

US Stocksare experiencing another roller coaster day as the Dow has been both up, and down by over triple digits, and is currently up over 300 points. Mortgage Bonds have also been up and down all day, but stayed within their recent range of resistance and support.

Once again Market headlines rule the day, and force economic reports to the back of the bus. In a week that has seen two investment banks go away, and one of the world's largest companies be bailed out by the US government, is it really a surprise to see the world's Central Banks work in a concerted effort to inject nearly $200 Billion into the Financial Markets? In response to a recent spike in the rate banks charge each other for funds, and prevent banks from hoarding cash, the Central Banks of the US, Europe, Switzerland, Japan, England, & Canada have moved to provide $180 Billion into short term money markets. Similar moves were implemented by China's Central bank, as well as Hong Kong, Australia, and India. Money Market funds have long been considered the safest of all investment vehicles, but the recent failure to perform by the oldest such fund - Reserve Primary - due to losses incurred by Lehman's failure, brought such uncertainty to the market that banks were freezing up. The move effectively provides unlimited liquidity to the markets, and goes to show the Central Banks will do whatever is necessary to prevent further erosion of the credit situation.

Mortgage Bonds have followed the lead of Stocks as they have been up and down in a nearly 100bp range. While they have fallen below levels of support for brief periods, they have bounced back each time, and are currently right in the middle of that support, and resistance pricing range. My recent posts have remarked how much there has been a "Flight to Quality" of capital flowing out of Stocks, and into Bonds (specifically government Bonds). There has been so much of this that the yield from Treasury Notes has literally gone to zero, and in the cases of some short term paper, even negative. This irrational fear is the equivalent of stashing your cash under your mattress. Early this week the return on a 3 month Treasury bill was 0.0304%, which meant that if you bought $1 Million worth, you would make $76 upon maturity! Remember, this is despite the explicit direction provided by the Treasury bailout of Fannie & Freddie, to increase the desirability of Mortgage Backed Securities, not T-bills! Today's injection of capital has eased the situation somewhat, and we are beginning to see yields rise for Treasury's, which tightens the spread between them, and Mortgage Bonds, which in turn is positive for interest rates.

I am again recommending to float as I expect next week to show further improvement, and hoping that anyone who is closing within days has already locked. Keep in mind though, rates are still at, or near, their best levels of the year.

Make it a great day!

Ron Brown

FHA & VA Loan Specialist

First Mortgage Company of Washington