As you are probably aware by now, the measure to provide $14 billion in loans to avert a possible bankruptcy of one or more of the big three U.S. automakers failed to pass the Senate last night.  The reason any of this is a "big deal" to the mortgage market - beside the massive loss of jobs and related longer-term damage a major failure of the auto sector would wreak on the economy --  is the fact that an outright failure of the automakers carries the potential to send another major financial tsunami crashing through the world's credit markets. 

United Auto Workers President Ron Gettelfinger and congressional Democrats are calling on the Treasury and the Fed to "prevent the imminent collapse of the automakers" by using money from T.A.R.P. (Troubled Asset Relief Program) to keep the union/industry afloat.  Mr. Gettelfinger says the union has already made "enormous concessions" to justify the investment of billions of dollars of American taxpayer money.  As I understand it, the Senate rejected the relief package because their definition of "enormous" and the timing of these concessions differed significantly from the U.A.W's definition of "enormous" and their related implementation timelines.

The stakes are high for all of us and the issue remains unresolved.  Mortgage investors are keeping their "powder-dry" and monitoring this developing story.  The trading activity in the mortgage market so far this morning has been light and largely dominated by sellers. 

As I write, the Treasury Department has indicated it is willing to provide financing to American automakers "until Congress reconvenes and acts to address the long-term viability of the industry."  The Bush administration appears to be onboard with that idea saying, "... given the current weakened state of the U.S. economy we will consider ... including the use of the TARP program to prevent a collapse of troubled automakers."  It looks like resolution of this problem will be successfully pushed out to sometime early next year.  A massive "gut-punch" to the credit market appears to have been deflected at the last possible moment - and that's supportive of steady mortgage rates - at least for the time being.

The morning's macro-economic data was completely overshadowed by the auto industry news.  The November Producer Price Index, a measure of price pressure at the manufacturing level, fell more than expected last month on a record decline in gasoline costs.  The core rate of inflation at the producer level, a value that excludes the more volatile food and energy components, rose by a very modest 0.1%.  A separate report showed that while retail sales fell for the fifth consecutive month in November, posting an overall decline 1.8%.  Excluding the auto component, sales were down 1.6%.  The November retail sales decline was slightly less than most analysts had been anticipating.

Looking ahead to next week, the Federal Open Market Committee meeting on Monday and Tuesday will dominate an otherwise sleepy economic calendar.  The Fed is broadly expected to cut their benchmark fed fund rate by 50 basis-points on Tuesday.  That event has been fully priced into the mortgage market for weeks -- and will therefore likely be anti-climatic in terms of its impact on the trend trajectory of mortgage interest rates.  In my judgment, the Fed would need to "surprise" the credit market by pushing short-term interest rates to zero in order to produce much of a downward rate move in the mortgage market.  The probability of such an event occurring on Tuesday remains small. 

Today's conforming 30 year fixed mortgage is at 5.25%.