Mortgage Apps Surge, Rates show slight decline in rate/price

The latest weekly MBA mortgage applications surged 45.7% and rebounded from the previous week's 3-month low. The purchases rose 9.1% from an 8-year low set the previous week and the refinancing sub-index soared 64.3% as a drop in mortgage rates encouraged refinancing. The average rate on a 30-year fixed loan fell to 4.99% from 5.19% the prior week and is only 10 BPs above the record low of 4.89% posted in mid-January. Jan housing starts dropped 16.8% against estimates of -3.7%; a annualized total of 466K units the lowest on record. Building permits in Jan were down 4.8% to 521K annualized units, about in line with estimates. Yr/yr starts are down 56.2%. While the starts Jan import prices were down 1.1%, -12/5% yr/yr; export prices in Jan were up 0.5%. Jan industrial production, expected -1.4%,as down 1.8% after falling 2.4% in Dec. Jan capacity utilization, expected at 72.5%, was at 72%, down from 73.3% in Dec. At 9:30 the 10 yr note traded down 4/32 at 2.66% +2 BP; mortgage prices at 9:30 were unchanged from yesterday's close. (see below for 10:00 levels) At 12:15 President Obama will outline an estimated $50B plan to stem a surge in home foreclosures that will subsidize cuts in mortgage payments for millions of struggling borrowers. Obama intends to make loan modifications the centerpiece of plan that also gives bankruptcy judges more power to help borrowers keep their homes, said people familiar with the matter. 4 to 5 mil home owners will be helped. $1,000 per loan to servicers that modify mortgage terms if they reduce the payments to about 38% of the borrower’s pretax income. The administration wants banks to offer loans with easier terms to borrowers in danger of defaulting on their mortgages. The aim is to reduce monthly mortgage payments for beleaguered homeowners, rather than principal owed on the property. Funding will not use TARP money but Treasury will add cash to the plan to Fannie and Freddie to allow more purchases, doubling its preferred stock to $200B. All future recipients for TARP money will have to agree to the housing plan. More details still coming out. While we won't look a gift in the face, this plan appears to reward those that made a mess of their credit and debt management and does not allow current mortgagors with high rates to re-finance at levels that would make a real impact on consumer spending. At 2:00 the FOMC minutes from the 1/28/meeting; likely not much new in them. Treasury yields fell hard yesterday on safe haven moves against a global bashing of equity markets. Yesterday the DJIA closed 100 points above the Nov lows. Mortgage prices moved better along with treasuries but the MBS market remains essentially frozen. Investors will continue to view MBS investments as the plague; property values show no signs of bottoming and until there is a perceived bottom investors will likely remain on the side lines. Treasuries and mortgages are slightly lower in price this morning after a good day yesterday; a pattern that is becoming the norm---no follow-through from day to day in either direction. Technically the treasury and mortgage markets remain slightly bearish at these levels, but both are technically better than a few days ago. The 10 yr will likely trade in a 50 BP range from 2.50% to 3.00% for the time being with mortgage rates tied to a narrower range but essentially flat. Still safe haven activity if stocks get tagged as they did yesterday. There is nothing optimistic out there; banks are on the brink, banks gouging credit card users with extremely high interest rates, the economy is continuing to decline, unemployment will continue to increase. Washington has yet to deliver anything that markets believe will stop the slide. We will start again by holding rate locks; it will depend on the stock market today whether bond and mortgage markets find traction. Keep alert for FLASH message(s) if prices fluctuate enough to trigger re-pricing. Keep in mind wholesalers are not only looking at MBS prices but are pricing based on volume flow. -------------------------------------------------------------------------------- PRICES @ 10:00 AM 10 yr note 100.26 -1/32 2.65% unch * Mar 10 yr note contract 124.09 -5/32 5 yr note 100.08 -5/32 1.70% +5 BP 2 Yr note 99.30 -2/32 0.90% +4 BP 30 yr bond 100.24 +13/32 3.46% -2 BP * Mar 30 yr bond contract 129.20 +9/32 Libor Rates 1 mo 0.470%; 3 mo 1.251%; 6 mo 1.780%; 1 yr 2.095% 30 yr FNMA 4.5 Apr 100.28 +2/32 (+4/32 frm 10:00 yesterday) 15 yr FNMA 4.5 Apr 101.24 unch (+2/32 frm 10:00 yesterday) 30 yr GNMA 4.5 Apr 100.27 +1/32 (+6/32 frm 10:00 yesterday) 15 yr GNMA 4.5 Apr 102.20 -1/32 (+7/32 frm 10:00 yesterday) Dollar/Yen 93.24 +0.87 yen Dollar/Euro $1.2566 -$0.0021 Gold Apr $969.10 +$1.60 Crude Oil Mar $34.99 +$0.06 Goldman-Sachs Commodity Index 308.79 -4.43 DJIA 7531.82 -20.78 NASDAQ 1465.54 -5.12 S&P 500 785.91 -3.26 Wednesday, 2/18/09 10:30am