Mortgage Market Update for the week of July 16, 2007

Here is the Mortgage Market Update for the week of July 16, 2007 brought to you by Larry Iest of Hemet Mortgage.

LAST WEEK

After a volatile week in the bond market the rates ended just about where they began the week. We had some mixed economic news with Wal-Mart reporting very strong earnings and then retail sales coming in weaker than expected. Just after they reported the weak retail sales numbers the University of Michigan's Preliminary Consumer Sentiment Index for July was reported at a blistering 92.4, far higher than expectations.

An area of great concern for mortgage bonds came Tuesday when Bond rating services from Standard & Poor's and Moody's announced that they are either considering or in the process of downgrading Mortgage-Backed Securities. They are considering this because even bundles of A-paper loans, which they are not concerned about, have a few sub-prime loans thrown in to produce a higher return for investors. The Bond rating services are concerned about sub-prime loan performance. If this downgrade does happen, then pricing for Mortgage Bonds will certainly have to worsen as the pools of loans will be deemed riskier. This means that rates will have to increase to compensate investors for the additional risk within the investment. I will continue to follow this story and keep you posted.

THIS WEEK

In contrast to last weeks limited economic calendar, this week is full. The corporate earnings will continue this week with many of the big financial institutions reporting earnings. Remember the stock and bond market compete for the same investment dollars so when the stock market is hot the dollars invested in bonds will move the the stock market and bond pricing will worsen. In addition to earnings and the guidance the bond market receives from the stock market we have an economic calendar packed with news releases. We will see reports on inflation both on the producer level and the very important consumer level with the PPI and CPI reports. Fed Chairman Bernanke will speak before the House Financial Services Committee Wednesday morning and the Senate Banking Committee Thursday morning at 10:00 am ET. His testimony is always watched very closely and traders will be looking for any insight on his view of the economy and inflation. Thursday, the minutes from the last Federal Reserve Meeting will be released that will show the details of their meeting from June.