Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com A trio of data points at 8:30 this morning. Weekly jobless claims were up more than expected but not much more, estimates were for 350K as reported claims were up to 368K up 38K on the week. Recent claims data has been somewhat confusing due to technical factors and how the calendar effected claims with the way the holidays fell at the end of last year. The increase followed a combined 45,000 drop in the prior two weeks. The number of people who continue to collect jobless benefits climbed by 22,000 to 3.2 million in the week. Dec personal income was expected to be up 0.7%, as reported income increased 2.6%, Nov income was revised to +1.0% frm +0.6% originally reported. Personal spending for the month was expected up 0.3%, up 0.2% as reported. Spending is a little disappointment since it is a Dec number that suggests consumers didn’t spend as much over the holidays as retailers were expecting at the beginning of Dec. Q4 employment cost index increased 0.5%, right on forecasts; the data generally doesn’t elicit much reaction. Prior to the three 8:30 reports the stock indexes were slightly weaker while the 10 yr note yield was down 2 bp and 30 yr MBSs were +15 bp frm yesterday’s close; after the data there was no initial changes in any market, stock indexes or bonds. With the Jan employment report out tomorrow investors and traders are more concerned about that than the data this morning. The only data that was substantially different than forecasts was personal income increasing quite a bit more than what was thought. At 9:30 the DJIA opened down 16 points, NASDAQ -1, and S&P -2. The 10 yr note unchanged at 1.99% while 30 yr MBS prices up 17 bp frm yesterday’s close. The final data point today, at 9:45 the Chicago purchasing managers’ index was expected at 50.5 frm 51.6 originally reported last month. The index jumped to 55.6 frm De revised to 50.0. A huge unexpected increase when compared to the recent confidence and sentient indexes. The reaction sent stock indexes higher and put some pressure on the mortgage and bond markets. The unexpected jump may cause some to revise their estimates for the employment report to a stronger level. Tomorrow the Jan employment report is out at 8:30. The rest of the day today shouldn’t see much movement ahead of the data. Present estimates are for the unemployment rate at 7.7% down 0.1% frm Dec; private payrolls up 185K, the average hourly earnings +0.1%. While employment trumps most monthly data, there is more to consider tomorrow. The U. of Michigan consumer sentiment index thought to be 71.5 frm 71.3. The Jan national ISM manufacturing index is expected at 50.7 unchanged frm Dec, however with the regional Chicago index better than estimates traders may be re-thinking the index to be higher than what was thought prior to the Chicago report this morning. Dec construction spending tomorrow is forecast up 0.8%. Jan auto and truck sales are seen at 15.3 million down frm 15.4 million in Dec.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Prior to the first data point this morning; at 8:00 am the 10 yr note yield was at 2.02%. At 8:15 ADP reported private jobs increased 192K, 20K more than the consensus estimates; ADP revised its Dec jobs from +215K to 185K. According to the release service sector jobs accounted for 177K of the increase. The better report for Jan is muted with the revision lower for Dec. There wasn’t any noticeable reaction to the data. At 8:30 the first look at Q4 GDP, the advance report, was expected to show the economy grew at 1.0% in the quarter; as reported GDP declined 0.1%. The surprising decline was largely due to reduced defense spending, the largest decline in that sector in 40 years. Another drag is attributed to the declining inventories as buying by consumers increased. Bolstered by a drop in fuel prices and the biggest gain in incomes in four years, consumer spending accelerated, the biggest part of the economy. The headline looks bad but isn’t quite as worrisome as it looks. Consumers spending more is actually a plus for the economy. The report is the first of three, this one, the advance report, doesn’t have all the actual data for the third month in the quarter, next month the data is likely to be revised higher----at least that is how the markets see it this morning. Yr/yr GDP for 2012 was +2.2%, up frm +1.8% in 2011. By 9:00 the 10 yr note already had seen volatility; after the early data the 10 yr dropped from its high at 2.02% to 1.97% after digesting the data traders pushed the yield back to 2.02%. Stock indexes at 9:00 implied a flat opening at 9:30, the indexes fell on the initial reaction to the GDP data but like the rate markets returned to levels prior to the reports. At 9:30 the DJIA opened -15, NASDAQ +2, S&P -2. 10 yr at 2.02% +2 bp; 30 yr MBSs -6 bp At 1:00 Treasury will auction $29B of 7 yr notes; the 5 and 2 yr auctions have been OK but not anything special. The FOMC meeting concludes at 2:15 with the release of the policy statement. We expect the statement will re-affirm the Fed is not about to end its easing, buying $85B of MBSs and treasuries each month. Since last Sept when the Fed announced it would buy $45B a month of MBSs interest rates have increased, maybe that is good news in that it implies the economic outlook is improving regardless of the GDP report this morning. Bernanke wants to increase employment, so far not much progress but as (if) the economy continues to improve, at least in housing, there is potential of lower unemployment. Earlier this morning (7:00 am) the mortgage applications decreased 8.1% from one week earlier, according to data from the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending January 25, 2013. The results include an adjustment to account for the Martin Luther King holiday. The Refinance Index decreased 10% from the previous week. The seasonally adjusted Purchase Index decreased 2% from one week earlier. The refinance share of mortgage activity decreased to 79% of total applications from 82% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 4% of total applications. The HARP share of refinance applications increased to 26% from 25% the prior week. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) increased to 3.67%, the highest level since September 2012, from 3.62%, with points decreasing to 0.42 from 0.43 (including the origination fee) for 80% loans. The contract interest rate for 30-year fixed mortgages has increased for six of the last seven weeks. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) increased to 3.95% from 3.85%, with points increasing to 0.39 from 0.34 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased to 3.48% from 3.40%, with points decreasing to 0.33 from 0.53 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages increased to 2.95% from 2.87%, with points decreasing to 0.38 from 0.39 (including the origination fee) for 80% loans. The average contract interest rate for 5/1 ARMs decreased to 2.60% from 2.61%, with points increasing to 0.33 from 0.32 (including the origination fee) for 80% LTV loans. Over the last 5 sessions the 10 yr yield has increased 20 bp in yield (MBSs up 10 bp) frm the low on 1/24 to this morning. While the move higher is what we expected a few weeks back, the magnitude and speed of the increases in rates wasn’t what we expected. The bond and mortgage markets are continuing their run higher in rates but are momentarily over-sold as s the stock market momentarily overbought. Both markets should be seeing some retracements but so far it isn’t occurring. A correction in both markets is still likely but when is becoming a difficult call. The bond market is a bear with very long claws, and we don’t fight the tape. That said; there will be retracements soon, however we are now uncertain from what levels we will see it.

Mortgage Rates

Mortage Rates: Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com The bond and mortgagee markets started slightly weaker this morning after the strong selling yesterday morning. Yesterday morning prices tumbled and interest rates increased on very strong Dec durable goods orders; the 10 yr climbed to 2.00% with 30 yr MBS prices off 44 bp in the morning. The afternoon saw a rebound, the 10 yield ended at 1.96% as 2.00% held; 30 yr MBSs at the end of the day ended about unchanged recovering all the morning losses. We noted last Friday that we expected increased volatility this week with all that markets would face, looks like we are seeing it. This morning at 9:00 the 10 yr at 1.97% +1 bp with MBSs -6 bp frm yesterday’s closes. Early traded in the stock index futures at 9:00 were pointing to a slightly weaker open. At 9:00 the Nov Case/Shiller 20 city home price index showed yr/yr price gain of 5.5% frm Nov 2011, right on what was widely thought. The increase is the biggest since August 2006. Prices frm Oct increased 0.6% in Nov. The price index is an average of prices over a 3 month period; in this case Sept and Oct data along with Nov data made up the yr/yr increase. Nineteen of the 20 cities in the index showed a year-over- year gain, led by a 22.8% jump in Phoenix and a 12.7% increase in San Francisco. Last week’s combined sales of new and previously owned properties last year rose 9.9%, the biggest annual gain since 1998. Just about every housing statistic released over the last few months have shown the housing market on a strong path of recovery. At 9:30 the DJIA opened +6, NASDAQ -8, S&P -1; 10 yr note unchanged at 1.97% and the MBS market unchanged from yesterday’s close. At 10:00 January consumer confidence frm the Conference Board was thought to be unchanged frm Dec at 65.1. Similar to the U. of Michigan sentiment index, the confidence index declined to 58.6 as reported. O initial reaction to the data. This afternoon Treasury will auction $35B of 5 yr notes; yesterday’s 2 yr note auction was OK, nothing outstanding. Today’s 5 yr should also see reasonable demand but not a blowout demand with the outlook for interest rates increasingly more bearish. Tomorrow Treasury will sell $29B of 7 yr notes. The FOMC meeting begins this morning, concluding tomorrow afternoon with the policy statement. Always very important to markets, this policy statement is even more so after the minutes frm the Dec meeting indicated there is an increasing discussion within the group about how the Fed will eventually withdraw from the $85B of treasuries and MBSs that it is presently buying each month. When the minutes were released earlier this month the bond and mortgage markets saw rate increases as the fear of the Fed ending those purchases pushed prices down. This meeting, the policy statement tomorrow should provide more clarity about what the Fed is thinking now. Unlikely Bernanke will end the purchases anytime soon but markets don’t wait to see the whites of eyes. That there were discussions last meeting has removed some of the remaining bullishness for fixed income investments, especially low yielding treasuries and mortgages.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com At 8:45 this morning the 10 yr note it 2.00%, up another 5 bp frm Friday; at 8:45 the 30 yr FNMA 3.0 coupon was -37 bp frm Friday’s close. The treasury and mortgage markets have been bearish for all of January, the move to higher rates had been volatile. After the 10 yr yield climbed to 1.97% on the Dec employment report on 1/3 the 10 and MBSs declined (rates) but did not change our bearish forecasts. The yield on the 10 yr fell to 1.82% and MBSs did improve, that in turn lessened the bearish talk, but not here. At the close last Thursday the 10 yr yield was 1.85%, it blew up 10 basis points on Friday on more positive news from the EU regarding the debt crisis; in an already negative market it doesn’t take much to increase selling. This morning at 9:00 the 10 yr up another 5 bp. More stronger economic data than was expected at 8:30; Dec durable goods orders much stronger than thought. The consensus estimates were an increase of 1.6%; as reported orders increased 4.60%, ex transportation orders the forecast was for unchanged, orders increased 1.3%. The reaction moved stock index futures higher and took the 10 yr to the psychological 2.00% level. This week’s economic calendar is heavy with key reports. Treasury will auction $99B of notes this week beginning this afternoon with $35B of 2 yr notes. The FOMC meeting begins tomorrow with the very significant policy statement on Wednesday afternoon. Rounding out the week is Friday’s Jan employment report with non-farm jobs early estimate at 180K and private jobs +193K. Last week the House passed a bill suspending the debt ceiling until May 19th; Senate leaders said the Senate would pass the bill this week and the President said he would sign it immediately. In the bill there is a provision that both the House and Senate have to come up with a budget by April 15th or whichever branch doesn’t have a completed budget the members’ pay will be withheld and put into an escrow account until a budget is passed or the end of the 113th Congress whichever occurs first. The DJIA opened at 9:30 up just 12 points, the NASDAQ +2 and the S&P unch. The 10 yr at 1.99% with 30 yr MBS prices down 40 bp frm Friday’s close. At 10:00 the NAR said pending home sales were . Pending sales are contracts signed but not yet closed. Sales contracted 4.3% against estimates of unch to +1.0%. NAR said the decline is due to declining supply as big banks refuse to but their foreclosures on the markets. Nice strategy , if in fact it is one; kind of doubt though that banks are that sophisticated, willing to hold on betting on higher prices. Give the Fed the credit keeping the FF rate at zero. While we remain bearish for the interest rate markets overall; the recent spike is likely a little too much in too little time. The 2.00% level is likely to hold as a near term support. The Fed is still in the markets purchasing $85B of treasuries and MBSs, that should support rates to some extent. The Wednesday policy statement and Friday’s Jan employment report should dictate whether the 10 yr will breach 2.00%. The FOMC policy statement must convince markets the Fed is not about to change its QE policy with supportive comments that the economy isn’t as strong as markets presently believe. The stock market rise has dealt a serious blow to the near term interest rate markets; it is however in very overbought territory at the current levels, a retracement isn’t far off and when it occurs the rate markets will see some improvement but not likely to change the bearish longer term outlook. Mortgage rates and treasury rates are now at the highest levels since last April.

Mortgage Rates

Mortgage Rates This Week Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com This Week; has a lot of data, the FOMC meeting, Treasury auctioning $99B of notes, and the January employment data. Also on the table, the Senate is expected to vote on the suspension of the debt ceiling that passed the House last week. Last Friday the bond and mortgage markets fell under strong selling pressure on increasing better outlooks in the EU, lessening the need of any safety concerns that drove interest rates down last summer. The stock market now at five year highs is also forcing investors to leave the fixed income markets, especially treasuries and to a lesser degree MBSs. Friday the 10 yr note yield jumped to 1.95% and is very likely to increase more; traders will test 2.00%, maybe today. The FOMC policy statement on Wednesday afternoon takes on even more significance after the minutes frm the Dec meeting indicated there are increasing discussions within the Fed about an exit strategy from the easing moves the Fed has been doing for three years. While we don’t believe the Fed is anywhere near comfortable with the unemployment level or the strength of the economy, just the hint of any discussions about an exit is additional evidence that US and global interest rates have ended the declines as we have suggested for the last two months. Not to say the markets can’t improve on weaker equity markets, weaker economic data, or supportive comments from Bernanke; however any rallies now are not likely to push rates substantially lower. The interest rate markets remain quite bearish as the week begins on Monday with Dec durable goods orders.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com In what we have been describing as a bear market in bond and mortgage markets, today there is strong selling taking the 10 yr note yield to 1.92% at one point about 8:45 this morning and MBS prices down as much as 40 basis points from yesterday’s 25 bp sell-off. As of 9:00 this morning 20 yr 3.0 FNMA’s were down 55 bp frm the close on Wednesday. The early trade in the stock market had the DJIA up 24 points at 9:00. The 10 yr note has decidedly broken from its recent trading range, and technically broke out of a coiling pattern that had developed over the past two weeks; making lower highs on selling and higher lows on buying (yield). This morning the break-out is likely to add additional pressure for bonds and mortgages. More better news from the EU today is adding to the exodus from US treasuries. The ECB said banks in the region will repay more of its emergency 3 yr loans than most were not expecting. Another indication that the EU debt crisis is declining. One of key reasons for investors to stay with US treasuries over the past three years has been fears of debt defaults by some of the countries in the EU that would have derailed the EU. Over the course of the past few months progress made on default fears has lessened investor fears. Some 278 financial institutions will return 137.2B euros ($184.4B) on Jan. 30, the first opportunity for early repayment of the initial three-year loan. The dismal scientists had estimated paybacks would total 84B euros; a huge miss that is generating a lot of bond selling this morning. Those same economists that missed estimates by a wide margin continue to caution not to make much of it; hard to admit such a huge miss. The ECB is taking some of the punch bowl away from its pledge to buy bonds from EU countries, although the bank continues to stand by its pledge. German investor confidence has also been improving, and again another miss by economists that were forecasting less optimism in Europe’s largest economy. Mario Draghi the President of the ECB saying, “we foresee a gradual recovery in the second part of the year,”…. “Governments ought to be given credit for what they did,” he said at the World Economic Forum in Davos,…. “For the first time in many years, the process of restarting European integration got momentum.” At 9:30 the DJIA opened +28, NASDAQ +9, S&P +4. The 10 yr 1.92% +7 bp; 30 yr MBSs -37 bp. At 10:00 Dec new home sales were thought to be up 2.8%; as reported sales fell 7.3% to 369K units (annualized) but November sales were revised higher, from 377K units to 398K units. The November revision higher took sales to their highest level in two years. For all of 2012 sales were up 19.9% the best increase since 1983. The median sales price continues to increase; $248,900.00 up 13.5% on the year. The current supply is just 4.9 months, about the same as supply for Dec existing home sales. No direct reaction to the report, but the bond and mortgage markets were already seeing strong selling. Next Tuesday and Wednesday the FOMC will meet; after the minutes from the Dec meeting suggested more discussion within the FOMC about an exit strategy frm the QEs, and now more encouraging signs from the EU, the meeting has even more importance. Likely the Fed will keep buying $85B a month of MBSs and treasuries that will support US interest rates. The unanswered question now is how high with the 10 yr note increase before the Fed’s QE actually will influence markets? As we have noted over the last month, technically the bond and mortgage markets were throwing off many bearish signals; regardless of the what has been driving the bond market, it has been bearish since 12/31/12. Don’t fight the tape; price action always trumps talk and opinions, recently there has been more selling than buying as evidenced by the patterns each day from investors and traders.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Generally quiet early this morning, prior to 8:30 the 10 yr note yield was down 1 bp to 1.82% and 30 yr MBSs +3 bp frm yesterday’s close. At 8:30 weekly jobless claims were better than expected, estimates were for an increase of 25K to 365K after the 37K decline last week; as reported claims dropped 5K to 330K. The four week average down 8,250 and continuing claims at 3.157 mil frm 3.228 mil. The weekly clams were the lowest since Jan 2008. ON the surface the numbers look good but claims may reflect challenges adjusting the data during the holiday period and at the start of quarters. This year’s changes are following patterns seen in prior years, a Labor Department spokesman said. In 2008, claims dropped for consecutive weeks in early January and then rebounded at the end of the month. The number of applications was estimated for California, Virginia and Hawaii because of the holiday-shortened week. Employment gains still anemic; in Dec Labor said 155K jobs were added, in line with the 2012 average of 153K monthly jobs created. Nothing in the data this morning increases the view that the Fed may be talking about exiting its easing move that buys $85B of treasuries and MBSs each month. The bond market reaction to the claims pushed the 10 yr yield a little higher but MBSs at 9:00 were still holding minor gains, up 3 bp frm yesterday’s close. The reaction in the stock market was not much, the DJIA at 9:00 +19 while the NASDAQ futures trading was down 38 points on weaker Apple earnings that were released late yesterday. At 9:30 the DJIA opened +20, NASDAQ -28, S&P -4. The 10 yr 1.84% +1 bp; 30 yr MBSs -15 bp. At 10:00 the last data today; Dec leading economic indicators were expected up 0.5%, as reported up 0.5%. The World Economic Forum is underway in Davos, Switzerland. Most big economists and financial leaders gather every year in Davos. Bob Shiller of the Case/Shiller home price index fame was less optimistic about the US housing market than most recent data on the sector have shown….. “The housing market has been declining for something like six years now, it could go on, that’s my worry.”…. “The short-term indicators are up now, it definitely looks better, but we saw that in 2009.” …. “It’s a good housing market in the sense that mortgage rates are very low and prices have come down to normal levels, so yes, it’s a good time to buy if nothing bad happens.” ….. “But it’s also a very bad housing market in that most of the mortgages are being supported by the government, and we have the Fed and this buying program. It’s a very abnormal market. There’s a lot of uncertainty going forward.”…. “We’ve been five years in a slow economy, and it could go quite a bit longer”….. “We’ve seen gross domestic product growth at sub-normal levels.” …..“I think we’re pretty far from irrational exuberance, maybe 50 years away.”…. Talk about raining on the parade! He is well respected but likely, hopefully, way off target on his outlook. Yesterday the IMF was out revising US and Global growth lower than what the organization was saying last Oct the last time it released its forecast. Recent data out of China and Europe are not showing a decline in the data reported over the past few days. In Europe ECB President Draghi suggested the worst is over on the debt crisis in the EU, Germany investor confidence rose to its highest in 2.5 years, China’s manufacturing grew at the fastest pace in two years and euro-area services and factory output shrank less than economists forecast in surveys for January, responses from purchasing managers in both industries rose to 48.2 from 47.2 in December, London-based Markit Economics said today. Economists forecast a reading of 47.5. China’s factory index at 51.9 was up frm 51.5 in Dec. The bond and mortgage markets continue to work in very narrow ranges with interday swings back and forth with not much change in rates over the last couple of weeks. The technicals still hold bearish biases, although there has been little movement. Holding bonds together; unsure outlook on the coming debates in Washington over coming spending cuts and the debt ceiling. Yesterday the House sent a bill to the Senate suspending the debt ceiling until May 19th, Senate leaders say the Senate will pass it and the President is saying he will sign it. Next Congress must deal with the sequester on automatic spending cuts due to kick in on March 1st. Also supporting the bond market; the Fed is still buying MBSs and treasuries. Next Tuesday and Wednesday the FOMC will meet, hopefully clearing the air on an exit strategy than emerged from the minutes of the Dec meeting two weeks ago.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Rate markets started slightly better this morning with the 10 yr at 1.82% down 2 bp at 8:30; 30 yr MBSs at 8:30 +6 bp frm yesterday’s flat market. US stock indexes early this morning unchanged prior to the 9:30 open. Not much data today; the day’s focus is on the House where there is expected to be a vote today to extend the debt ceiling through mid-May. Republicans trying to eliminate the potential blame for holding the US hostage on the debt that Treasury is saying will run out of money in February without an increase in the limit Treasury can borrow. The House is expected to pass legislation to temporarily suspend the government’s $16.4 trillion borrowing limit until May 19. At that point, the measure would allow the nation’s borrowing authority to automatically be increased to accommodate the amount the U.S. Treasury borrowed during those three months. Within the bill the House and the Senate each must adopt a budget resolution for the next fiscal year by April 15. If not, the pay for members of the chamber that doesn’t act will be withheld and placed in an escrow account until they adopt one -- or, at the latest, until the end of the 113th Congress. The step back from the default fear has kept treasury rates from increasing, actually falling slightly. The Obama administration is welcoming the move in the House; in the Senate Harry Reid appears to be supportive of the bill. Mortgage applications increased 7.0% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 18, 2013. The Refinance Index increased 8% from the previous week. The seasonally adjusted Purchase Index increased 3% from one week earlier and was at its highest level since May of 2010, immediately following the expiration of the homebuyer tax credit. This increase in purchase applications was primarily for conventional loans, as the seasonally adjusted Conventional Purchase Index was at its highest level since October of 2009. The refinance share of mortgage activity was unchanged from the previous week at 82% of total applications. The adjustable-rate mortgage (ARM) share of activity increased to 4% of total applications. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) increased to 3.62% from 3.61%, with points increasing to 0.43 from 0.38 (including the origination fee) for 80% loans. The contract interest rate for 30-year fixed mortgages has increased for five of the last six weeks. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) decreased to 3.85% from 3.88%, with points decreasing to 0.34 from 0.38 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased to 3.40% from 3.39%, with points decreasing to 0.53 from 0.58 (including the origination fee) for 80 percent LTV loans. The average contract interest rate for 15-year fixed-rate mortgages decreased to 2.87% from 2.88%, with points increasing to 0.39 from 0.27 (including the origination fee) for 80% loans. The average contract interest rate for 5/1 ARMs decreased to 2.61% from 2.66%, with points decreasing to 0.32 from 0.34 (including the origination fee) for 80% loans. EU update; U.K. jobless claims unexpectedly fell in December and a quarterly measure of unemployment also dropped. The Bank of Spain said that the nation’s recession deepened in the last quarter of 2012, with gross domestic product falling 0.6% from the previous three months. European Central Bank President Mario Draghi said yesterday the “darkest clouds” over the euro area have lifted due to decisive policy steps last year. UK Prime Minister David Cameron is moving to allow a referendum vote on whether the UK should stay in the EU or leave it. Describing British backing for the status quo as “wafer thin,” Cameron said today voters will have their say by the end of 2017, if he’s re-elected in two years; he is saying he wants the country to stay in the Union. At 9:00 the Nov FHFA home price index was expected to have increased 0.7%. The index is for purchases of single family homes only using data from Fannie and Freddie. The index as reported increased 0.6%; yr/yr +5.6% unchanged frm Oct. No immediate reaction to the report. Early activity in the stock market has the key indexes better after making 5 yr highs yesterday. At 9:30 the DJIA opened +49, NASDAQ +13, S&P +2. 10 yr at 9:30 1.82% -2 bp with 30 yr MBSs +11 bp frm yesterday’s close. The bond and mortgage markets continue to be well contained within narrow ranges. There has been little change in mortgage rates over the past three weeks. Technically there is still a slight bearish outlook as the economy improves; this morning testing its 20 day average again. The House vote scheduled for today to extend the debt ceiling through May 19th is helping the bond markets as investors are less concerned that the fighting in Congress is at least set aside for a few weeks.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Congress gets back to business with the House Republicans offering a bill to increase the debt ceiling for four months. The Republican-led House of Representatives announced plans to vote on a bill as soon as tomorrow to temporarily suspend the U.S. debt limit until May 19. The extension is supposed to allow more time to deal with spending cuts, whether the President will go along isn’t known, but markets are optimistic. Economic releases this week are focused on the housing market with existing and new home sales and the FHFA house price index. Weekly claims fell to 335K last week, this week the early forecast is a rebound to 360K +25K. Effects from Hurricane Sandy continue to distort the monthly comparison of the four-week average which further clouds the data's usefulness as a gauge for the monthly employment report. The four-week average is down 6,750 to 359,250 which is about 10,000 below the mid-December level. For the last 10 sessions the 10 yr note yield has been tied into a 5 basis point range on its rate; MBS markets are showing a little more technical bearishness than the 10 yr but also are trading in a 50 basis point price range for the last 12 sessions. MBSs slightly falling in favor by investors concerned about early pre-payments and the overall low level of interest rates. The is a strong undercurrent now in the interest rate world that the path going forward is up for rates; slowly as long as the Fed is still buying $85B of treasuries and mortgages each month. Next week the FOMC will meet again; after the minutes from the Dec meeting rocked markets, the Fed likely will try to soften concerns that the Fed is ready to end the easing moves. The US is continuing to improve, the best situation in the last two years according to a Bloomberg survey of international investors conducted last Thursday, with the majority describing the economy as improving. Almost three in five expect to reduce their holdings of Treasuries in the coming six months, while fewer than one in 20 plan on an increase. Two-thirds plan to boost stock holdings in the period. As we have been noting for the last couple of months, the long decline in US and global interest rates has abut run their courses. While we continue to believe rates won’t increase a lot, the outlook for lower rates has at the moment been abandoned by most investors. As long as the Fed stays in the game with $85B of treasury and mortgages purchased each month, rates are unlikely to increase much frm present levels. That said, there is a lot more risk in being long bonds now than being short. The President’s inaugural speech yesterday has been characterized as rather combative by those the research such things. He called for the nation to rise up against partisan deadlock which was in contrast to his 2009 inaugural, in which he spoke of choosing “hope over fear, unity of purpose over conflict and discord” and proclaiming “an end to petty grievances.” Obama said programs such as Medicare, Medicaid and Social Security “do not make us a nation of takers; they free us to take the risks that make this country great.” There was little in his speech about the status of the economy. At 9:30 the DJIA opened +18, NASDAQ -1, S&P +1. 10 yr note 1.87% +2 bp and 30 yr MBSs -8 bp. At 10:00 Dec existing home sales were expected up1.2%, sales were down 1.0%. Yr/yr +9.2%, median sales price $180K, up 11.0% yr/yr. Based on sales there is a 4.4 month supply, the lowest level of inventories since May 2005 before the bubble broke. 1.8 mil homes on the market, down 22% yr/yr. Not much in the way of data this week; weekly jobless claims on Thursday and new home sales on Friday. Most all of the technical indicators are still bearish, although there has not been much change in interest rate over the last couple of weeks. The Fed’s buying is a huge hurdle for interest rates increasing much and should keep rates stable this week. Next week the FOMC meets again, traders waiting to see what, if any, comments are revealed that counter the minutes frm the Dec meeting when there were more discussions frm the group on an exit strategy.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com This Week; Congress gets back to business with the House Republicans offering a bill to increase the debt ceiling for three month. The extension is supposed to allow more time to deal with spending cuts, whether the President will go along isn’t known. Economic releases this week are focused on the housing market with existing and new home sales and the FHFA house price index. Weekly claims fell to 335K last week, this week the early forecast is a rebound to 360K +25K. Effects from Hurricane Sandy continue to distort the monthly comparison of the four-week average which further clouds the data's usefulness as a gauge for the monthly employment report. The four-week average is down 6,750 to 359,250 which is about 10,000 below the mid-December level. For the last 10 sessions the 10 yr note yield has been tied into a 5 basis point range on its rate; MBS markets are showing a little more technical bearishness than the 10 yr but also are trading in a 50 basis point price range for the last 12 sessions. MBSs slightly falling in favor by investors concerned about early pre-payments and the overall low level of interest rates. The is a strong undercurrent now in the interest rate world that the path going forward is up for rates; slowly as long as the Fed is still buying $85B of treasuries and mortgages each month. Next week the FOMC will meet again; after the minutes from the Dec meeting rocked markets, the Fed likely will try to soften concerns that the Fed is ready to end the easing moves.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Yesterday interest rates increased, today starting a little better as the bond and mortgage markets remain in tight ranges. While the technicals continue to hold bearish biases there is nothing out there now that is likely to drive interest rates in either direction. The debt ceiling debates, the gridlock in Washington, and mixed signals on the status of the economy and its future are keeping markets in check. The take away now is that rates are unlikely to decline or increase much after the recent increases. This morning the stock index futures were generally unchanged after being slightly weaker very early; the DJIA at 9:00 +9, NASDAQ -6, S&P +1. The 10 yr +7/32 at 1.86% -2 bp; 30 yr MBSs at 9:00 +18 bp after declining 48 bp yesterday. At 9:30 the DJIA opened +12, NASDAQ -6, S&P +1; 10 yr note 1.86% -2 b and 30 yr MBSs +10 bp. The only economic measurement today; the U. of Michigan consumer sentiment index at 9:55 was expected to have declined to 75.0 frm 80.5 mid-month and 72.9 at the end of Dec. The index at 71.3, a big miss; the lowest since Dec 2011. The lower index due to the Cliff anxiety and tax increases. There was a minor decline in US indexes but the 10 yr note yield held at 1.86% -2 b frm yesterday with 30 yr MBSs improving 7 bp frm 9:30 levels. Scanning the news this morning, there isn’t anything that is significant. Now that the U.of Michigan consumer sentiment index is out there isn’t anything on the schedule today that could move markets much. The rest of the day will likely be quiet with traders reducing some of their positions ahead of the three day weekend. All markets will be closed on Monday to celebrate MLK’s birthday. The next scheduled data is next Tuesday with Dec existing home sales. Dec starts exploded +12.1% reported yesterday. The housing market is continuing to improve, housing one of the bright spots for the economy; low mortgage rates and values seen as good, driving housing to some of the best reads in five years. China’s economy is continuing to grow; 2012 Q4 GDP 7.9% better than Q4 2011, about in line with estimates and up frm +7.4 in yr/yr Q3. Europe’s economies still struggling except for Germany. The global economic outlook is currently seen as improving, even a little in Europe as its debt crisis has ebbed in recent months. UK retail sales were expected up 0.2%, as reported sales declined 0.1%. Stock markets in Europe have been improving along with US stocks; the US indexes at 5 yr highs. Time for a pullback in the stock markets? Although the indexes continue to improve we note there are increasing numbers of stock analysts now talking that the markets may have advanced a little too much based on economic outlooks. If US equity markets do contract the bond and mortgage markets will benefit, providing an opportunity for slightly lower interest rates. No change in the technical pictures in the bond and mortgage markets; bot markets continue to demonstrate bearish technical patterns.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Not a good start today in the bond and mortgage markets. The 10 yr note at 9:00 1.87% +4 bp, 30 yr MBSs -25 bp frm yesterday’s close. 8:30 data was quite a surprise; weekly jobless claims were thought to be down 3K, claims fell 37K to the lowest claims seen in five years (Jan 2008) to 335K. The Labor Debt did point out that there was difficulty with adjustments after the holidays when seasonal workers were let go. Nevertheless the huge decline adds evidence that businesses are increasingly more optimistic with their employment levels. Twenty-nine states and territories reported an increase in claims, while 24 reported a decrease. The increase in payroll taxes that began this month may however keep businesses frm increasing hiring until there is evidence of how the increase will impact consumer spending. Not only claims surprised; Dec housing starts were expected to be up about 3.0%, as reported starts increased a whopping 12.1% to 954K annualized units, the best the best year for housing since 2008. Construction of single-family houses climbed 8.1% in December from the prior month to a 616,000 annual rate, also the highest since June 2008. Work on multifamily homes, such as apartment buildings, climbed 20.3% to an annual rate of 338,000. For all of 2012, builders began work on 780,000 homes, up from 608,800 a year earlier. Starts jumped by 28.1% in 2012 from the prior year, the biggest annual gain since 1983. Building permits were expected to be up 0.7%, as reported up 0.3%. Most every housing data report has indicated the sector is well on the way to recovery with low mortgage rates driving builders and consumers. The two reports boosted the stock index futures prices and increased rates on treasuries and mortgages. At 9:30 the DJIA opened +25, NASDAQ +13, S&P +3; 10 yr note 1.87% +4 bp, 30 yr MBSs -20 bp. At 10:00 another key report; the Jan Philadelphia Fed business index was expected at 6.0 frm 8.1 in Dec, the report reported a decline of -5.8. After two earlier strong economic reports the decline of the index has taken some of the rally out of the market in the stock indexes and improved MBS prices since 9:30, but only slightly. Late this afternoon the Fed will report its balance sheet; based on estimates frm private sources the Fed has a balance sheet of $2.9 trillion, hard to put that in context but it is so large that it is beginning to concern financial markets that unwinding the size (selling those securities) may eventually cause disruption within the markets. That would be the case if the Fed simply began dumping MBSs and treasuries en mass but that isn’t likely; it will be a slow selling process. Given that interest rates will continue to increase over the next year or two, the Fed will likely take losses on its portfolio. Those anticipated losses, if they actually occur, is the price America will pay for the Fed’s money printing. More likely, the Fed will just hold most of the securities and earn the returns on the low yield investments. The minutes frm the Dec FOMC meeting suggest the FOMC is beginning to take seriously the implications of continuing the QE initiatives. Yesterday the bond and mortgage markets traded to their respective 20 day averages but were not able to break the technically bearish pattern. This morning rates are increasing on the 8:30 data but still are not making new high yields or low prices. The markets are continuing to hold within narrow ranges, however the increasing belief that rates have run their course and are more likely to increase than decline much have kept any rallies in check. One major support keeping rates from increasing much is the debt ceiling debate; we expect the ceiling will be increased after a month of talk and threats. A failure to increase the ceiling would cause US interest rates to increase substantially, weakening the anemic recovery, cause rating agencies to cut the US debt rating and push the economy back into recession; in the end it really isn’t an option.

Mortgage Rates

Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com A better start this morning after prices declined yesterday in the treasury market, mortgage prices yesterday ended about unchanged but were down from levels at 9:30. This morning prior to economic data the 10 yr note yield down another 2 bp after declining 2 bp yesterday, the yield at 8:30 1.81% at its 20 day average. Early trading on stock index futures had the DJIA down 60 points at 8:30. Mortgage applications increased 15.2% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) for the week ending January 11, 2013. The Refinance Index increased 15% from the previous week. The seasonally adjusted Purchase Index increased 13% from one week earlier to the highest level since April 2011. The refinance share of mortgage activity remained unchanged at 82% of total applications from the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 3% of total applications. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) remained unchanged at 3.61%, with points decreasing to 0.38 from 0.41 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) increased to 3.88% from 3.78%, with points unchanged at 0.38 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased to 3.39% from 3.35%, with points decreasing to 0.58 from 0.69 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages remained unchanged at 2.88%, with points decreasing to 0.27 from 0.39 (including the origination fee) for 80% loans. The average contract interest rate for 5/1 ARMs increased to 2.66% from 2.64%, with points decreasing to 0.34 from 0.37 (including the origination fee) for 80% loans. Dec CPI at 8:30 was expected 0.0% while the core expected +0.1%; both the overall and the core (ex food and energy) were as forecast. Costs rose 1.7% in 2012, down from a 3% increase in 2011. Inflation fears that continue to roil some in the markets are nowhere in sight based on the past couple of months, Nov CPI declined 0.3%. Slow economic growth will continue to keep inflation at bay. In Europe inflation is also not much of an issue; the annual core inflation rate, excluding volatile costs such as energy, alcohol and tobacco, rose to 1.5% in December from 1.4% a month earlier. At 9:15 Dec industrial production was expected up 0.2% to 0.3%, it increased 0.3%. Production increased on demand for business equipment even with Congress battling over the budget and fiscal Cliff. Nov production originally reported +1.1% was revised to +1.3%. Dec capacity utilization was better at 78.8% on forecasts of 78.5% and 78.4% in November. Analysts here and in Europe are beginning to forecast GDP growth rates for Q4; most are revising growth outlooks lower frm earlier estimates. Weaker earnings frm a couple of Wall Street firms and declining growth forecasts are pressuring the stock market early this morning both here and in Europe. The weaker stocks are helping the interest rate markets so far today; along with the debt ceiling talks there is still some safety moves into US and German 10 yr notes and bunds. Treasuries are up for a fourth day on speculation political wrangling over the U.S. debt ceiling will curb economic growth, fueling demand for the safety of debt. At 9:30 the DJIA opened -57, NASDAQ unchanged, S&P -3. 30 yr MBS price +9 bp; the 10 yr note 1.81% -2 bp. At 10:00 the Jan NAHB housing market index, expected at 48 frm 47 in Dec; it was reported unchanged, still the best level since last April. While it remains under 50, the pivot point sales did soften 1 point. NAHB pointed to the fiscal Cliff and debt ceiling issues along with increased payroll taxes for no improvement in Jan data. At 2:00 this afternoon the Fed’s Beige Book will be released; the Fed staff’s report from all 12 Fed districts on details within the regions. Generally not much new but there is more specifics in the districts. The Book is used by the FOMC when it meets in two weeks. Treasuries continue to improve with some safety moves on the debt ceiling discussions; mortgage rates and prices continue to drag along with minor improvements. Technically even with the recent treasury market gains the 10 yr yield is still above its 200 day and 40 day averages and presently sitting right on its 20 day average. 30 yr mortgage prices still unable to move above their 100 day averages, this morning though the 20 yr FNMA also testing its 20 day average. In both treasuries and mortgages the momentum oscillators have moved to neutral levels, neither bullish or bearish momentum.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com More improvement early this morning; yesterday 30 yr MBSs increased 13 bp, at 8:45 today up another 17 bp. Late yesterday (4:30) Bernanke spoke at the U. of Michigan; two points from the speech were interesting. First Bernanke chided Congress to increase the debt ceiling; secondly, he commented that the Fed would continue QE as long as unemployment remained weak. He said the employment sector is still sluggish, the take away somewhat softened the FOMC minutes that suggested the Fed will begin to structure an exist plan from $85B of buying treasuries and mortgage-backed securities. His comments pushed MBS prices a little higher than levels prior to his remarks. President Obama out yesterday calling on Congress to raise the debt ceiling, saying it is “absurd” that Congress would not pay its bills. Meanwhile Republicans are going to push for spending cuts. Like the Cliff it will go down to the wire before the debt ceiling is increased. It will be increased regardless of the debates and slings and arrows that whiz by in the coming weeks. While cutting spending has to be the goal long term, this isn’t the time with the economy still vulnerable. Every forecast from CBO, and other accounting forecasters agree that letting the US default would push the economy back into recession; the rating agencies have indicated failure to increase the ceiling will cause another decline in the US debt rating. According to the latest estimates on spending Treasury, presently operating on emergency funding, will run out of money by mid-February. Between now and then there will be numerous headlines, plenty of angst, but in the end the debt ceiling will be increased; the alternatives being too costly for the economy. The President is starting as he did with the Cliff; showing little interest in spending cuts or compromise. “What I will not do is to have that negotiation with a gun at the head of the American people,” Obama said at a White House news conference yesterday,…. “They will not collect a ransom in exchange for not crashing the American economy,” (referring to Republicans) At 8:30 three data points; Dec retail sales, expected to be +0.2% increased 0.5%, ex auto sales +0.3% in line with forecasts, ex autos and gasoline +0.6%. Dec PPI overall fell 0.2%, ex food and energy +0.1%. PPI in Nov fell 0.8%, the two months indicate little concern that inflation is about to pick up; yr/yr prices increased just 1.3%, yr/yr core +1.4%. January NY Empire State manufacturing index at -7.8 frm -7.3 in Nov (revised frm -8.1) was weaker than +2.0 expected; new orders -7.2 frm -3.4, prices pd increased to 22.6 frm 16.1, prices received +10.8 frm +1.1, employment increased to -4.3 frm -9.7. At 9:30 the DJIA opened -49, NASDAQ -16, S&P -5; the 10 yr note yield at 1.82% -3 bp; 30 yr MBSs +.18 bp. Nov business inventories at 10:00, expected +0.3%, was right on at +0.3%. no reaction to the report as usual. The bond market has improved lately after the spike higher on the FOMC minutes released on Jan 2nd implied there was increasing debate within the FOMC about withdrawing the QE easing later this year. Yesterday Bernanke cooled that idea somewhat, saying he is still concerned about the slow progress in employment. This morning the 10 yr note, while still technically bearish, is testing its 20 day average at 1.82%. Traders are still controlling the bond market, moving in and out on each piece of news. Concerns on the debt ceiling are making headlines, as it will for the next month but in the final analysis we expect the debt ceiling will be increased. The wider perspective for the bond market is that rates will not likely decline much as investors are turning away from low yield fixed income investments.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Last week the bond market didn’t get much news; Congress was out and little economic data to think about. This week Congress is back and the debt ceiling debates start in earnest. At 11:30 this morning the President is scheduled to hold a press conference, likely talking about immigration as well as debt ceiling comments. The White House has already thrown down the gauntlet, saying “there are only two options deal with the debt limit: Congress can pay its bills or it can fail to act and put the nation in default”. Treasury ran out of money at the end of last year and is now operating on emergency status, nothing new about that, it happens every time the debt ceiling is reached. The prospect of delaying SS payments, payments to government employees and contractors owed money for work completed. Another option to funding would be to sell MBS securities. This week there are a number of economic reports; retail sales, housing starts and permits, industrial production, the Philly Fed index among others. The data will be tempered by comments that will begin to emerge from Congress and the Administration on the debt talks. In the last two months there has been an increasing trend by investors to move out of bonds and into the equity markets. The ultra-low interest rates in the absence of safety considerations are losing luster while stocks continue to gain. The EU debt crisis has settled removing one of the major attractions of safe US treasuries. The increasing tensions in Washington should keep interest rates from increasing in any substantial way unless a miracle of cooperation unfolds. Rate markets will likely trend higher but should not increase to the extent that it will damage the recovering housing sector. The 10 yr note opened better this morning, as did the mortgage markets. At 8:30 the 10 yr note rate at 1.85% with MBS prices +15 bp. At 9:30 the DJIA opened flat; the DJIA +7, NASDAQ -1, S&P unch. The 10 yr 1.84% with mortgage prices +15 bp. There are no data points today. The President’s press conference at 11:30 should keep things stabile until then. There is a minor support for the 10 yr note at 1.85% with key longer support at 1.78%. If the 10 does break its longer support it will likely be a run to safety again caused by the inability of our politicians to effectively negotiate the debt ceiling and spending cuts necessary. Obama repeatedly has said the country doesn’t have a spending problem, while Republicans counter with there is no revenue problem. Not a very auspicious way to start discussions. As noted; we hold interest rates will likely not increase dramatically but also won’t likely fall much from current levels. The 20+ year bond market rally is over. In 1982 the 30 yr bond rate as 18%; 30 yr mortgage went for 17%. Markets have covered the entire gambit; those that hold we will have rates back to 1.40% for the 10 yr any mortgage rates under 2.00% are likely to be disappointed and may miss out by waiting while rates edge higher.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Closing in 7 days: LOCK. $0 Closing in 7-15 days: LOCK. $0 Closing in 15-30 days: LOCK. $0 Closing in 30+ days: LOCK ON ANY IMPROVEMENT. $0 $0 Treasury yields increased yesterday. MBS prices lower. This morning in early activity the 10 yr note was unchanged as were all MBS prices until about 9:30; US stock indexes at 9:00 generally unchanged, in Europe a mixed picture, France lower but Germany and England a little better. No major news overnight. At 9:00 the 10 yr traded unchanged, MBS prices unchanged. $0 $0 8:30 Nov US trade deficit was expected -$41.3B, the deficit was larger at $48.7B an increase of 15.8%. Imports increased 3.8% to $231.3B, the most since April, from $222.9B in October. Purchases of foreign-made autos and parts climbed by $1.51B and demand for cellular telephones jumped by $1.81B, the report showed. Exports increased 1% in November to $182.6B, the report showed. The gain was led by sales of automobiles and parts and telecommunications equipment. The jump may mean that trade subtracted from growth last quarter. The report pushed stock indexes down a tad, not much. $0 $0 Also at 8:30; Dec import and export prices. Import prices were expected +0.1% as reported prices were down 0.1%, yr/yr import prices declined 1.5%. Export prices in Dec were thought to be -01%, it was right on, prices did decline 0.1%; yr/yr export prices were +1.1%. Like the trade deficit, no market response to the data as expected. $0 $0 Another hawk has joined the FOMC; KC Fed President Esther George addressed the Fed’s easy money policy saying easy money policy makes her uneasy. Another hawk to replace Richmond Fed Pres. Lacker who will not be a voting FOMC member this year; he dissented about every meeting in 2012 on the Fed’s continuing QE. The arguments against continuing QEs is that the Fed may stay too long and when the time comes to withdraw the Fed could take big losses as interest rates increase along with economic growth; and the potential of creating another bubble because the low rates for such a long period will change investor behavior within asset mixes. Nevertheless the hawks on the FOMC don’t wield enough influence to change the outlook Bernanke favors. Those that are fearing the continuation of easy money have to at least admit that so far the Fed’s buying has been financially a plus. The Fed is making money on interest payments on the treasuries and MBSs it now holds. The Fed sent $88.9B to Treasury in 2012 on gains from the purchases. $0 $0 Philly Fed Pres. Plosser is speaking at the moment in NJ at its Economic Leadership forum. He is saying the central bank’s record stimulus risks a surge in inflation and may impair efforts by households to repair their finances. “Attempts to increase economic ‘stimulus’ may not help speed up the process and may actually prolong it,”…. “Efforts to drive real rates more negative or promises to keep rates low for a long time may have frustrated households’ efforts to rebuild their balance sheets without stimulating aggregate demand or consumption.” Plosser is not a voting member of the FOMC this year. He still believes unemployment will decline to 7.0% by the end of the year. $0 $0 At 9:30 the DJIA opened -15, NASDAQ and S&P -1. The 10 yr note at its highest level this morning at 1.92% +2 b and 30 yr MBSs -5 bps from yesterday’s close. $0 $0 The bond market is softening again yesterday and so far this morning with the 10 yr at 10:00 at 1.93% up 3 bp frm yesterday’s increase of 4 bp. Look for a new trading range between 1.85% and 1.97%; the EU is currently stabilized, the Fed is talking about an exit strategy and the global economic outlook has improved. Next week, and the weeks ahead, will likely increase volatility within the range when Congress returns to take up the debt ceiling, spending cuts sequester, and entitlement reform. $0

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Treasuries and mortgages opened lower (price) this morning; yesterday the 10 yr note fell back to its 1st resistance at 1.85%, early today back to 1.89% while MBS prices early down 15 bp at 9:00. Late yesterday 30 yr FNMAs saw some late buying about 4:45 pushed the price up 8 bp frm where we marked tem at 4:00. Weekly jobless claims at 8:30, the first and only key economic release this week, were expected at 362K down 10K frm last week’s claims; as reported claims were at 371K up 4K. Last week’s claims were revised from 372K to 367K, the change with revisions didn’t change the estimates that much. Claims have been about 370K for weeks, no improvement but equally no worsening. No firings or no hiring’s. No state data were estimated, according to a Labor Department official, who said there was “nothing unusual” in the figures. The four-week moving average, a less volatile measure than the weekly figures, climbed to 365,750 last week from 359,000. Continuing claims, those receiving unemployment, dropped 127,000, the most since January 2011, in the week ended Dec. 29 to 3.11 million. The figure does not include the number of Americans receiving extended benefits under federal programs. Those who’ve used up their traditional benefits and are now collecting emergency and extended payments decreased by about 75,500 to 1.99 million in the week ended Dec. 22. There was no change in the markets on the 8:30 report frm levels prior to the release. This afternoon President Obama will officially nominate Jack Lew to replace Tim Geithner as Treasury Secretary. Lew has been Obama’s chief of staff; before that Lew served as Obama’s director of the Office of Management and Budget, a position he also held in the Clinton administration. The theory now is that the Administration will be less attached to the Fed; Geithner before being Secretary was President of the NY Fed tying the Fed and the Administration a little closer than it is likely to be going forward. Lew’s fist test will be the coming debt ceiling battle that will begin next week in Congress. Obama has said a number of times that the problem with the deficit isn’t spending, Republicans see it otherwise. At 9:30 the DJIA opened +52, NASDAQ +22, S&P +8. 10 yr at 9:30 -11/32 to 1.90% +4 bp and 30 yr FNMAs -15 bp, Govvies -24 bp. At 10:00 Nov wholesale inventories was expected 0.3%; as reported inventories increased 0.6% frm Oct, Oct revised lower. Final sales up 2.3% for the month. At 1:00 Treasury will sell $13B of 30 yr bonds to complete this week’s borrowing. Yesterday the 10 yr auction was not met with strong demand. The day is starting about the way markets have acted through the week. Unlikely there will much change now through the rest of the day. Everything is somewhat on hold until the debates start again next week in Congress with the Administration over the debt ceiling, entitlement reforms and potential spending cuts. Interest rate markets remain technically bearish, any rallies should continue to be used to lock in rates. While bearish, we still hold that interest rates are not likely to increase much more, possibly 2.00% on the 10 yr over the next month or two. The risk of increased rates is much higher that the risk for lower rates at the moment. Although the Dec FOMC minutes indicated the Fed is now debating how the Fed will exit its easing moves; the Fed is still buying at the same rate as last year; $45B a month of MBSs and $40B of long dated treasuries. Fed buying will continue to support the bond market, keeping interest rates from increasing much from present levels.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Once again this morning markets started unchanged from the day before. There is simply not much to trade on with Congress out and no economic data this week (weekly jobless claims tomorrow). Scanning the news wires this morning didn’t reveal anything of consequence that might motivate traders or investors. Interest rates have moderated from the strong selling last week but still hold a bearish bias based on our technical models. If we are to expect additional price gains it will require some driving news; that doesn’t look likely this week. The weekly MBA mortgage applications report out early this morning was better than what had been the case the last two weeks with shortened weeks and holidays distorting data. The overall composite index increased 11.7% frm the prior week that saw a decline of 21.6%. Purchases increased 10.0% frm -14.8% previously; the refinance index +12.0% after being down 23.3% last week. These movements are too volatile to make assessments on underlying trends. Rates moved a bit higher in the week with 30-year mortgages for conforming loans ($417,500 or less) rising three basis points to 3.78%. Yesterday began the Q4 earnings season with Alcoa leading the way as always. The company’s report beat analysts’ estimates; sales fell to $5.9B from $5.99B, beating the $5.6B average of 11 estimates. Aluminum prices are rising as demand in China and the U.S. increases while record amounts are being shut away in warehouses as part of financing deals. The better report is causing the early trade in stock indexes to be better so far. This afternoon at 1:00 Treasury will auction $21B of 10 yr notes. The demand will be closely watched after the recent increase in the rate on 10 yr notes. Last month the 10 yr note rate was 1.70%, 1.86% this morning. If the demand is weak the potential of additional selling is possible. At 9:30 the DJIA opened +46, NASDAQ +10, S&P +6. 10 yr note at 9:30 +1/32 1.87% unch; 30 yr MBSs +3 bp. The bellwether 10 yr note at 1.87% is one basis point above its first technical resistance at 1.85%; if it closes below 1.85% the next, and more important resistance is at 1.80%. 30 yr FNMA 3.0 coupon has minor resistance at 104.49, 8 bp frm present price; the more significant resistance is 104.81. We continue to suggest locking in rates on rallies; the outlook for substantially lower rates isn’t favorable now. Net week Congress and the Administration will be back to tackle a number of very serious issues; the markets will likely experience increased volatility after the very quiet week this week.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Another quiet session so far this morning. There is no news to move markets with Congress out this week; the battles over the debt ceiling, entitlements and revenue increases have yet to get under way. Interest rate markets are slightly better in early trade; the 10 yr note rose to 1.97% last week on the FOMC minutes but unable to crack 2.00% the yield has drifted back to 1.88% at 9:00 this morning. Mortgage rates a little better this morning, but overall the bond and mortgage markets have little to think about so far this week. This afternoon Treasury will start 3 days of auctions with $32B of 3 yr notes; tomorrow’s $21B 10 yr note will be closely watched for the level of demand after its yield has increased 20 basis points since the Dec auction. Recent auctions have not seen strong demand with markets expecting interest rates will increase over time. Economic confidence in Europe is improving; an index of executive and consumer sentiment rose for a second month to 87 from 85.7 in November, the European Commission in Brussels said today. Economists had forecast an increase to 86.3. In the most recent report Germany’s business confidence also increased. However, German factory orders declined. Europe’s economy still struggles with recession; although there hasn’t been any headlines on the debt crisis, the crisis hasn’t been alleviated. Today starts the earnings season; at 4:00 this afternoon it is kicked off with Alcoa, always the first to report. 4th Q earnings may lag Q3 but should show decent earnings and guidance. The season lasts for about three weeks. In the absence of anything else this week traders will likely pay a little more attention to the reports. At 9:30 the DJIA opened -20, NASDAQ -1, S&P -2. The 10 yr note yield at 9:30 1.88% -2 bp; 30 yr MBS price +12 bp frm yesterday’s close. As expected, after the swift increase in interest rates last week, markets are bouncing back somewhat. Technically the rate markets became oversold on the reaction to the Dec FOMC minutes released last week, the reaction was magnified as rate markets had already turned negative. It was kind of the last straw for investors still holding big long positions. The 10 has resistance at 1.85% now, just two basis points lower than where we are now.

Mortgage Rates

Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com The bond and mortgage markets started a little better this morning; both markets technically overdone, bonds oversold, stocks overbought. That said, neither trend shows any evidence of reversing, just some retracements. There are no economic releases today, and not much for the week. Treasury will auction $66B of notes and bonds beginning tomorrow with $32B of 3 yr notes, Wed. $21B of 10s, Thurs. $13B of 30s. Friday’s Dec employment report was OK but not much indication that employment will increase much in the months ahead. The tepid data has taken some of the fear out of the bond market that the Fed will end its QE easing’s anytime soon. Last week’s FOMC minutes shook traders and investors, there was a lot of discussion about when the Fed should start to withdraw. Until those minutes were released there had been little concern in markets that the Fed was increasingly debating its eventual withdrawal. Last week’s sharp spike higher in interest rates took markets by surprise, sending the 10 yr note yield up 20 basis points and MBSs about 10 bps increase. This week we believe rate markets will recover a little; the 10 hit 1.97% at one point Friday before closing at 1.90%. 2.00% should hold the increase; there is still the debt ceiling, entitlements, and spending cuts that will keep markets edgy. The recent strong rally in the stock market is also a little overdone at this time. We think the key indexes will back off some but as with the bond market, we don’t expect a trend change. At 9:30 the DJIA opened -55, NASDAQ -12, S%P -4. The 10 yr note unchanged at 1.90%. 30 yr MBSs -2 bp. Most of the momentum in stocks and bonds last week came from the FOMC minutes. The next FOMC meeting isn’t until Jan 30th, in the meantime Fed officials are likely to attempt softening the Dec minutes. On Saturday Fed Vice Chairman Janet Yellen said that communication of policy aims plays a “big role” in supporting the economy now that the central bank’s benchmark interest rate is close to zero. Philadelphia Fed President Charles Plosser said the same day that the central bank should take the steps necessary to ensure inflation stays near its goal of 2%. Even after the huge increases last week we continue to believe that rates won’t increase much more in the short term. Consumers however should not be expecting interest rates will decline much, and should be encouraged to take advantage of price improvements now. Today kicks off earnings season for Q4; so far today the equity market is weaker ahead of the rash of earnings. At 4:00, as always, Alcoa starts the three week period of earnings after the markets close tomorrow.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Normally after 4:00 pm each day markets do not move much into the 5:00 close; yesterday additional selling after 4:00 pushed prices down another 16 bp frm levels we recorded on the 4:30 report. On the day yesterday 30 yr FNMA prices plunged 69 bp, GNMAs -72 bp, both 13 bp lower than at 4:00. This morning before the 8:30 Dec employment report 30 yr prices were down another 31 bp frm the close yesterday. The Dec employment report at 8:30 was about in line with estimates. Non-farm jobs increased 155K, non-farm private jobs +168K. The unemployment rate at 7.8% +0.1% frm Nov. The initial reaction in the MBS market improved the price by 20 bp but still -11 bp frm yesterday’s close. (see below for 10:00 levels). Nov non-farm jobs were revised frm +146K to +161K; Nov non-farm private jobs were revised frm +147K to +171K. Average hourly earnings climbed 2.1% from December 2011, to $23.73, the biggest gain in a year. Factory payrolls increased by 25,000, the most since March. Retailers decreased staff by 11,300. Construction companies added 30,000 workers, the most since September 2011; much of the increase due to Sandy. Government payrolls decreased by 13K in December, the third straight month of declines. Service sector jobs were up 109K. The massive selling yesterday was triggered by the FOMC minutes for the Dec 13th meeting. Investors already unwinding the long bond positions established over the past two years, were surprised that the minutes indicated a major discussion within the FOMC focused on when the Fed should back away from its QE easing’s. There were a number of members that were debating the Fed’s exit by the end of 2013. Markets were floored, the overwhelming belief has been the Fed would continue buying MBSs and treasuries well into 2014. FOMC minutes can at times be mis-leading, that may be the case this time; however as we have noted many times here, investors were already seeing the end of the long bond market rally---moving out of safety and back into risk assets (stocks). The rate markets were moving higher in rates, add the FOMC surprise and the flood gates opened. Volatility today in the bond and mortgage markets. At 9:30 the DJIA opened +13, NASDAQ -2, S&P +2. 10 yr note +1/32 at 1.92% after increasing to 1.97% earlier. 30 yr MBS p[rice /2 bp after being down 31 bp earlier. At 10:00 two data points; the Dec ISM services sector index, expected at 54.5 frm 54.7, the index increased to 56.1 the best since Feb 2012. Nov factory orders were expected +0.3%, as reported orders were unchanged. There was no initial reaction to the data. The 10 yr came close to 2.00% this morning but is slightly better now. There should be little doubt now that the long bond and mortgage markets rallies is over. Technically however, the bond market is very oversold on a near term basis and some improvement isn’t out of the question. Any price improvements now should be used to lock in mortgage rates. We believe 2.00% will hold the 10 yr increase for a while but it is not likely the 10 will fall much; best case 1.75% as we see it now. Price volatility will likely continue to be high with big swings on and news.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Very early this morning the bond and mortgage markets were slightly better after selling of treasuries yesterday and the huge rally in the stock indexes on relief Congress got around to keeping taxes from increasing(although SS taxes will increase by 2.0% after two years of lower taxes). It didn't last; at 8:15 ADP Dec private jobs were widely expected to have increased about 150K, as reported Dec private jobs increased by 215K, the biggest monthly gain since last Feb. Adding more strength to the job markets ADP revised Nov private jobs from +118K to +148K. At 8:30 weekly jobless claims were expected at about363K, claims increased to 372K according to the Labor Dept. Last week’s claims were reported at 350K, in this report last week was revised to 362K. Seasonal factors and special factors are distorting the data recently. The 4 wk average at 360K is about 50K less than last week’s average; that isn’t realistic based on the claims data. Continuing claims are also being distorted though trends here also point to improvement. Continuing claims in data for the December 22 week did rise 44,000 to 3.245 million but the four-week average of 3.224 million is roughly 90,000 below the month-ago trend. The BLS is having to make estimates of its own due to missing data from state offices, many of which have been closed for the holidays. Though trends in this report are favorable, there's too many distortions at play to make this report useful as a fore casting tool for tomorrow's employment report. The weekly MBA mortgage applications, also a distorted report, showed the composite index -21.6%, purchases index -14.8% and re-finance index -23.3%. Because of methodology issues surrounding the holidays, the latest data compare the two weeks ended December 28 against the December 14 week. This report is not meaningful for a gauge on the housing sector. Markets still digesting the Cliff legislation. After the strong rally in the stock market yesterday and more selling in the bond and mortgage markets, and after this morning’s overall better employment reports, at 9:30 the DJIA opened -13, NASDAQ -5, S&P -1. The 10 yr note at 9:30-1/32 at 1.84% unch; 30 yr MBSs Now that the preliminaries are over (the Cliff), the next few months Congress and the President will move to even more difficult decisions. Yesterday Moody’s commented that the agreement didn’t do enough to reduce the deficit. Moody’s saying if Congress doesn’t do more it may lower US credit ratings following S&P’s downgrading. The debt ceiling is coming rapidly, at the end of Feb according to the latest estimates Treasury will not have enough money to pay our debts unless the debt ceiling is increased. On March 1st the across the board spending cuts a part of the Cliff that was deferred, are going to kick. On March 27th, according the WSJ, the government will shut down unless Congress approves funding for government operations through the end of Sept (the end of the fiscal year). We are headed again to alas minute showdown and continued market volatility. The increase in taxes for the wealthy that was passed by Congress is relatively meaningless; estimates are for increased revenue of $737B over the next 10 yrs. That is about $73B a year, the recent four years of annual deficits have been about $1 trillion a year of over spending; not much help. The 10 yr note, director for all long term rates, is at its last solid resistance at 1.85%, if it doesn’t hold look for the note rate to increase to 1.90%, then 2.00%. Technically the 10 yr, 30 yr and 5 yr notes areall bearish; 30 yr MBSs also bearish, trading under the 20 and 40 day averages(prices) but so far has held its 100 day average. MBSs are not quite as weak as the 10 yr based on technical indicators; nevertheless MBSs will track along with the note. If markets hold support levels any improvements now should be used to lock in mortgage rates. We continue to believe the low interest rate markets of a few months ago will not likely to be seen again.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com A strong relief rally this morning on the half-baked deal to avoid tax increases and increase taxes on dividends and capital gains. The deal took until the last minute to get done but left all the serious issues to another day; what Congress and this Administration does best----push it down the road. Early this morning the DJIA up over 200 points in the futures markets; the 10 yr note yield at 8:45 at 1.85%, up 9 bp frm Monday’s close and on its last technical support level. The House of Representatives’ 257-167 bipartisan vote breaks a yearlong impasse over how to head off $600B in tax increases and spending cuts that would have started taking effect yesterday. President Barack Obama said he will sign into law the bill undoing tax increases for more than 99% of households as Republicans vowed to fight him for spending cuts in exchange for raising the debt ceiling. The Cliff was avoided. Next up will be serious debate over the debt ceiling that is now $16.4 trillion. Treasury is theoretically out of money now but operating on “emergency” funding until mid-February. The president is already on record saying he won’t negotiate on the debt ceiling that if not increased will automatically set up huge spending cuts. It is going to be another two months of angst for markets. Mortgage rates up this morning, not as much though as in the treasury market. At 9:00 MBS 30 yr prices down 35 bp while the 10 yr note is down 73 bp with its yield up 9 bp after increasing 5 bp on Monday. At 9:30 the DJIA opened +93, NASDAQ +74, S&P +17; the 10 yr note yield at 1.84% and 30 yr MBSs -25, 15 yr mtg price +2 bp. Two data points at 10:00 this morning; the Dec ISM manufacturing index, expected at 50.5 frm 49.5, was fractionally better at 50.7. Nov construction spending expected up 0.6%, declined 0.3%. Although most all focus this morning in the markets is on the passage of the Cliff; this is employment week with Dec employment data on Friday. Early estimates for non-farm jobs in Dec +150K, non-farm private jobs +157K with the unemployment rate at 7.8% +0.1%. ADP will be out with its estimate on private jobs out tomorrow is for an increase of 150K. Technically, the 10 yr note must hold at 1.85%, the level that has held four previous times when rates increased. An increase over 1.85% will push rates even higher, to 1.95%. The MBS markets are worse today but are doing better than treasuries as investors are getting out of treasuries and into higher rates of returns. Keep in mind the Fed is still there buying $85B a month of treasuries and MBSs. Expect increased volatility levels in the coming weeks with more serious debates coming over the debtceiling and sequesters on spending cuts due on the 1st of March, like the fiscal Cliff debates, we won’t expect any agreements until the last minute. What we have endured until now is only a preliminary to the main events.