mtg rate update, warning on "free" credit reports

From Think Big Work Small

In early trade, equity futures were indicating a higher opening on Wall Street on anticipation of not so terrible European stress test results. Treasuries were under pressure with the long end weakest and down about 50 basis points. MBS prices opened down about 16 basis points. In Europe, better economic data-UK's economy grew almost twice as fast as expected in Q2, +1.1%, the biggest rise in four years. In Germany, business sentiment was up by a record margin in July, the highest in three years. Adding to strength to the futures this morning were earnings from some notables-McDonald's, Verizon, American Express, Microsoft and Ford; they all beat analysts' estimates. The one big negative report was from Amazon who missed estimates. As the morning progressed, futures weakened as markets in the UK and France turned negative and MBS prices recovered their earlier losses and turned positive. The DJIA opened up lower and MBS prices were essentially flat.

The Committee of European Banking Supervisors (CEBS) will be releasing the stress test results of 91 banks from 20 different countries in the European Union. Banks and national regulators will be releasing the CEBS results of individual banks soon afterward or at about Noon Eastern Time. Early estimates are expected to show about only 10 banks that have failed to maintain a Tier 1 ratio of at least 6% under the most adverse scenarios used by the CEBS. (Reuters)

The economic outlook here and abroad is what the markets are focusing on. While earnings have been coming in better than expected and economic data mixed, the markets are worried about the next few quarters and are usually considered to be reflecting six months into the future. In this "new normal" all bets may be off. On the one side, the equity bulls feel that the economy will be okay and will show sustainable growth. On the other side, the fixed income bears think that the economy will be slowing down much more than we think and that sustainable growth is questionable. This is what we think that Bernanke was trying to tell us when he said that the Fed is not ready to make any more moves and that they are still evaluating the current "recovery". Humpty Dumpty sits on a wall. On which side will Humpty Dumpty fall?

Treasury announced this morning that they will sell an additional 1.5 billion Citibank common shares further reducing its 27% stake that it acquired during the financial crisis. This is a profitable sale for the government and we think that ultimately, when the government sells it MBS holdings, they too will be significantly profitable.

Last night the SEC gave a 6 month reprieve to companies trying to bring asset-backed securities to market allowing them to exclude ratings from their prospectuses. They will give companies the time to adjust to the new rules. Companies will be forced to rely on their own research and analysis which they should be doing anyway. Will this become a permanent change in the rules? As we navigate the new regulations, situations like the Ford Motor Credit problem will arise. It will come down to the ability of the regulators to act in a very timely manner. The vagueness of the new regulations was intended in that it allows for the flexibility that we need at times such as this.

There are no economic releases in the US today. The debt markets will take their cues from equities.

Crude oil is down this morning after a big run-up on threats of a storm in the Gulf which was upgraded to Tropical Storm Bonnie. The storm is expected to head toward the area in the Gulf that houses most of our oil platforms. Most personnel have been evacuated from the area already and BP has been forced to stop its work on the leaking pipeline.

From Freddie Mac

McLean, VA - Freddie Mac (OTC: FMCC) today released the results of its Primary Mortgage Market Survey® (PMMS®), with the 30-year and 15-year fixed-rate mortgages reaching record lows for this survey. (The 30-year fixed-rate survey began in 1971, and the 15-year began in 1991.)

News Facts

•·         30-year fixed-rate mortgage (FRM) averaged 4.56 percent for the week ending July 22, 2010, down from last week when it averaged 4.57 percent. Last year at this time, the 30-year FRM averaged 5.20 percent.

•·         15-year FRM this week averaged a record low of 4.03 percent down from last week when it averaged 4.06 percent. A year ago at this time, the 15-year FRM averaged 4.68 percent.

•·         5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.79 percent this week, down from last week when it averaged 3.85 percent. A year ago, the 5-year ARM averaged 4.74 percent.

•·         1-year Treasury-indexed ARM averaged 3.70 percent this week down from last week when it averaged 3.74 percent. At this time last year, the 1-year ARM averaged 4.77 percent.

Quotes

Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac.

•·         "The decline in mortgages rates over the past few weeks echoes the recent signs of weakening confidence in the strength of the economy, particularly the housing and consumer sectors. For example, homebuilder confidence declined in July to lows not seen since April 2009, as measured by the NAHB/Wells Fargo Housing Market Index, following the large drop in housing starts reported for June."

•·         "Similarly, July's consumer confidence dropped to the lowest level since August 2009, based on the Reuters/University of Michigan's Consumer Sentiment index. We see these as part of the normal pattern of ebbs and flows in recovery and believe that there is sufficient momentum to carry the U.S. economy forward, albeit moderately."

From Dick Lepre, San Francisco