Mortgage Newsletter- November 5th, 2012 Dana Bain Premiere Mortgage 978-422-2311

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Newsletter-November 5, 2012 Provided by Dana Bain Dana Bain Premiere Mortgage Services 11 Malvern Hill Road Sterling, MA 01564 Phone: (978) 422-2311 Fax: (978) 422-2313 E-Mail: dana@bainmortgage.com     <!--Begin Body Content--> Market Comment Mortgage bond prices finished the week near unchanged keeping rates in check. Rates started moving slightly lower early in the week in shortened trading tied to Hurricane Sandy. The data throughout the week generally was stronger than expected which did not help rates improve. ADP employment and factory orders data were stronger than expected while weekly jobless claims were lower than expected. The heavyweight employment report Friday showed stronger than expected payroll increases. The initial reaction was negative causing rates to spike but it appeared the Fed stepped in with their $40b monthly MBS purchasing to keep rates from spiking substantially higher. Mortgage interest rates bounced back a little lower Friday afternoon. LOOKING AHEAD Economic Indicator Release Date & Time Consensus Estimate Analysis 3-year Treasury Note Auction Tuesday, Nov. 6, 1:15 pm, et None Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates. Consumer Credit Wednesday, Nov. 7, 3:00 pm, et $12.5b Low importance. A significantly large increase may lead to lower mortgage interest rates. 10-year Treasury Note Auction Wednesday, Nov. 7, 1:15 pm, et None Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates. Weekly Jobless Claims Thursday, Nov. 8, 8:30 am, et 369k Important. An indication of employment. Higher claims may result in lower rates. Trade Data Thursday, Nov. 8, 8:30 am, et $44.5b deficit Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates. 30-year Treasury Bond Auction Thursday, Nov. 8, 1:15 pm, et None Important. Bonds will be auctioned. Strong demand may lead to lower mortgage rates. U of Michigan Consumer Sentiment Friday, Nov. 9, 10:00 am, et 79.8 Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.

GSEs

Government sponsored enterprises (GSEs) are financial services created by Congress. Two of the most important GSEs in the mortgage industry are Fannie Mae and Freddie Mac. These corporations are designed to make credit available to targeted borrowers in an efficient manner. Fannie and Freddie were privately owned until September 2008 when the lines were blurred. The credit crisis resulted in Fannie and Freddie facing huge liquidity concerns. Their insolvency under fair value accounting sparked worries about their failure. The Treasury and Congress worked to avert a catastrophe but faced many challenges. The Treasury ultimately placed the entities in “conservatorship.” This enabled the Treasury to increase lines of credit to the GSEs and bought equity in the companies. This US Government “ownership” of these companies left many unknowns and clouded the future. The stocks of these entities were delisted in June of 2010 but still trade “over the counter.”

The supply and demand characteristics of Treasury bonds and mortgage-backed securities (MBSs) issued by Fannie and Freddie differ significantly. Treasury securities represent money needed to fund the operations of the US government. MBSs, on the other hand, represent borrowing by homeowners. Because homeowners can sell or refinance their homes, investors in 30-year mortgage-backed securities usually see principal repayment in significantly shorter periods of time. In terms of demand, Treasury securities are regarded as “risk free” investments, and often benefit from a “flight to quality” in times of financial crisis. MBSs are part of many retirement accounts which citizens depend on for income. The Federal Housing Finance Agency is trying to preserve those investments while shrinking Fannie and Freddie. Some want to see them completely dissolved and a new system put in place. The ramifications of that could be widespread and the debate rages on.