Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com The benchmark FNMA 3.5% August coupon lost -11BPS from Friday's close. We had a fairly quiet day...perhaps the "calm before the storm" this week. Pending Home Sales were better than expected (-0.4% vs -1.0%) and this is during the period where mortgage rates where near their highest of 2013. But MBS were not materially impacted by this report. From a technical perspective, MBS traded in a very tight range that was only 24BPS wide from our highs to our lows. Once again appetite for MBS decreased at the top of our trading channel which is our ceiling of resistance. However, the rest of the week is packed with highly influential economic data and other events that can significantly impact mortgage rates movement. There are seven economic reports that may affect mortgage pricing in addition to another FOMC meeting that certainly has the potential to cause chaos in the financial and mortgage markets. There is important economic data scheduled for release each of the remaining four days, so there is a strong likelihood of seeing noticeable mortgage rate movement several days, with more than including an intra-day revision. Overall, I am expecting to see an extremely active week for the financial markets and mortgage rates. I think that the most important day is either going to be Wednesday due to the GDP release and FOMC adjournment or Friday with July’s employment numbers being posted.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Mortgage backed securities (MBS) lost -49 basis points from last Friday's close which caused 30 year fixed rates to move higher. This ended the bond rally that had lasted for the two weeks prior to last week. We had a spread of 124 basis points between our highs and lows of the week. As we have discussed, MBS sell off when there is positive economic news. We certainly could have sold off even more given last week's data with Durable Goods Orders much stronger than expected (4.2 vs 0.5) and the Consumer Sentiment Index rising from 84.1 to 85.1. Existing Home Sales missed the market expectations but was still robust. New Home Sales enjoyed some nice gains in terms of unit sales and price increases. Demand for our 7 year Treasury auction saw some decent demand but our 5 year and 2 year auctions saw decreased demand. MBS would have lost more ground (even higher rates for you) if it weren't for a WSJ article that speculated that the Fed would change their language at this week's FOMC meeting to calm the markets that they would not be increasing their rates for a long time. We agree. They will certainly leave their Fed Funds rate alone but they will eventually have to start to pull back on bond purchases and those bond purchases are what impacts your mortgage rates...not their Fed Fund rate.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Mortgage backed securities (MBS) lost -53 basis points from Tuesday's close which caused 30 year fixed rates to move higher. The benchmark FNMA coupon has now lost -88BPS from Monday's highs. MBS were under pressure right from the first trade as they tanked -34BPS right out of the gate.Traders have been selling off of their positions as they no longer believe that the benchmark FNMA 3.5% August coupon can sustain their lofty levels of Monday's intra-day high. New Home Sales hit a five year high as they rose 8.3% in June. The seasonally adjusted annualized rate of 497K units is still a very small piece of the housing picture and so this report doesn't have the impact on pricing that it once did. But still it was positive economic news and did provide a light amount of pressure on pricing. The sell off of MBS was accelerated in response to the Flash Eurozone PMI rose to 50.4 (an 18th month high). A reading above 50 shows economic expansion. U.S. based bonds such as MBS have been a huge beneficiary of European weakness - so when European data surprises to the upside, U.S. bonds sell off. Which is what happened here. We had a 5 year Treasury note auction and the results were released at 1:05EDT. Results: $35 billion at 1.41% with a bid-to-cover ratio of 2.46 which is weaker demand than the 2.57 ratio of the last 10 year note auction. This also pressured MBS and drove us to our worst pricing levels of the day at 1:46EDT which was -82BPS from yesterday's close. But there was some good news - we did find a new temporary bottom and did get a nice bounce of that support level as MBS rallied from -82 BPS to -54BPS by 3:00EDT. That is a +28BPS improvement in pricing from our worst levels of the day.

Mortgage Rates

Mortgage Rates Bounce Modestly Higher Mortgage rates bounced slightly higher today, bringing them almost perfectly back in line with Friday's levels. Trading conditions in the underlying 'mortgage-backed-securities' and US Treasuries markets were underwhelming at best. Just as there hasn't been much by way of conviction as rates have been falling, today's bounce higher was similarly incidental. The day to day movements in rate continue to be much smaller than recent averages (or perhaps it's better to say they've been more "normal" whereas recent averages have been extreme from May through early July). Whatever the case, prevailing rate quotes remain in the same situation as yesterday where the average may be 4.375, but the adjacent rates of 4.5 and 4.25 will make more sense in terms of best-execution. So far, this week has adhered to the notion that markets will be far more interested in next week's events. Today was one of the two more likely days to be slow and uneventful. Although tomorrow offers slightly more in terms of market moving potential, we could be waiting until Thursday or Friday to see what the ultimate impact will be. As I noted last week, the recent run of good luck for rates looked more like a 'leveling off' process than the creation of new momentum toward lower levels. That makes yesterday's lows like the floor marking the bottom of that process. If we remain above it tomorrow, it's that much more likely to remain solid until next week's heavier events have a chance to break it. To be perfectly clear though, those heavy events can also reinforce the floor (there's nothing to know about them ahead of time beyond the fact that they have lots of potential energy).

Mortgage Rates

Mortgage Rates Hit July Lows After Weak Housing Data Mortgage rates were lower again to begin the week as weaker-than-expected economic data helped rates improve slightly in the morning. The overall level of activity in bond markets that underpin mortgage and Treasury rates remained subdued, but the trading levels were strong enough for a few lenders to offer a mid-day rate-sheet improvement on top of the already stronger rate sheets this morning. The result is an average top-tier rate (best-execution) that's now closer to 4.375% compared to last week's 4.5%. But the reason for that is more complicated than it seems at face value. The reason has to do with the two key components of mortgage rates. The obvious component is the rate itself. This is the interest rate that would appear on a Good-Faith Estimate or on closing documents--also known as the "note rate." For most mortgage rate watchers, this is simply "the rate." It's the singular answer most people expect when they ask "where are rates" or "what's the 30yr fixed rate today?" But it's not the interest rate. The actual rate of interest paid on a mortgage will be a factor of the note rate and the upfront costs. Most upfront costs are what they are based on the state in which the transaction is taking place, the time of month you close, and the entities involved. Most of them can't be changed based on how you choose to structure your loan. The "discount" component (or "points"), however, usually can be changed, provided it's early enough in the process. The concept behind points is actually not complicated. They provide an opportunity to compensate the lender providing the money for your loan in lieu of some of the monthly interest that would also be compensating the lender. Pay more now or more later. Your choice. In an environment where rates were generally falling for the past several years, it didn't make as much sense to most borrowers to pay out of pocket costs to refinance if they'd likely have the opportunity to refinance again in the not-too-distant future. Now that rates are rising (or at least no longer assumed to be falling indefinitely), paying more closing costs up front may make sense. But some rates make more sense than others. For MOST lenders, 4.5% and 4.25% make more sense than 4.375%. 4.5% would result in no origination fees and no discount points for most top tier borrowers. 4.25%--though likely adding more upfront cost to the picture--brings the monthly payment down enough that the cost would be recouped in less than 5 years. It takes at least another year to recoup costs associated with moving to 4.375% only. In other words, for borrowers with the means to pay more upfront, 4.25% may look like the best bet, while others will be better suited by the lowest possible upfront costs and a 4.5% rate. Again, this isn't the way the numbers will tumble at every lender, and if your scenario isn't perfect, the 3 rates in the example might half a point higher. The same dynamic between the three rates closest to your current quote may or may not exist, but your lender will be able to tell you if moving up or down in rates/points is possible and how the numbers would tumble. Just divide the extra cost by the monthly payment savings to determine the time it takes to break even.

Mortgage Rates

Mortgage Rates What happened last week? Mortgage backed securities (MBS) gained +131 basis points from last Friday's close which caused 30 year fixed rates to move lower. This marks the second straight week of over +100 BPS gains in the benchmark mortgage backed security and therefor, lower mortgage rates. We started the week off with a rally as MBS climbed off of their lows after Retail Sales came in much lower than market expectations. Bonds generally rally (better rates for you) on weaker economic data. But it was another week that focused on Fed Chairman Ben Bernanke. Bernanke testified before the House and Senate last week as part of his semi-annual monetary policy report. As we have been discussing for some time, traders are very focused on the timing of when the Federal Reserve will begin to reduce the amount of monthly Treasury and MBS bond purchases. MBS rallied as traders speculated that Bernanke's most recent comments pointed to the Fed waiting longer to "taper" their monthly purchases. The prior speculation was that this tapering would begin in September. The change in trader sentiment is due to Bernanke's comments that tapering will occur once the economic data (with particular focus on the labor market) shows enough of an improvement and traders currently do not perceive that there is enough economic improvement yet and so, their projections on the timing of the tapering is shifting for later down the road. Of course, this sentiment among traders could change next week. MBS also received renewed interest from foreign investors as concerns mounted about Italy and Greece being able to meet their latest round of bailout requirements. From a technical perspective, we closed above the 25 day moving average on Friday for the first time since April. What is on the agenda for this week? Date Time (ET) Economic Release Actual Market Expects Prior 22-Jul 10:00 AM Existing Home Sales - 5.28M 5.18M 23-Jul 9:00 AM FHFA Housing Price Index - NA 0.70% 24-Jul 7:00 AM MBA Mortgage Index - NA NA 24-Jul 10:00 AM New Home Sales - 481K 476K 24-Jul 10:30 AM Crude Inventories - NA -6.902M 25-Jul 8:30 AM Initial Claims - 328K 334K 25-Jul 8:30 AM Continuing Claims - 2990K 3114K 25-Jul 8:30 AM Durable Orders - 1.50% 3.70% 25-Jul 8:30 AM Durable Goods -ex transportation - 0.40% 0.50% 25-Jul 10:30 AM Natural Gas Inventories - NA 58 bcf 26-Jul 9:55 AM Michigan Sentiment - Final - 84.2 83.9 A week without Bernanke? What will we ever do? The bond market will get a breather from all-Bernanke-all-the-time. The biggest reports of the week will be Initial Jobless Claims and Durable Goods Orders. Last month, MBS sold off sharply (worse rates for you) in direct reaction to a very strong reading in Durable Goods. So, a variance from market expectations can really move your pricing. We do have three U.S. Treasury auctions this week: 07/23 - 2 year note 07/24 - 5 year note 07/25 - 7 year note - most important of the three

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Bernanke’s prepared text was out at 8:30 this morning (way early) before his 10:00 appointment at the House Financial Services Committee. He is saying that the central bank’s asset purchases “are by no means on a preset course” and could be reduced more quickly or expanded as economic conditions warrant. “If the outlook for employment were to become relatively less favorable, if inflation did not appear to be moving back toward 2 percent, or if financial conditions -- which have tightened recently -- were judged to be insufficiently accommodative to allow us to attain our mandated objectives, the current pace of purchases could be maintained for longer.” If the economy improved faster than expected, and inflation rose “decisively” back toward the central bank’s 2% target, “the pace of asset purchases could be reduced somewhat more quickly,” he said. The Fed “will be holding its stock of Treasury and agency securities off the market and reinvesting the proceeds from maturing securities,” Bernanke said. The strategy “will continue to put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.” On the text release the 10 yr note declined to its first key chart resistance at 2.50%, the 20 day moving average. MBS prices were generally unchanged prior to 8:30 but by 9:00 up 31 bps frm yesterday’s close. He didn’t say the Fed would continue top purchases, nor did he say the Fed was about to begin tapering. As it has always been it is data dependent and after his gaffe in May he has re-trenched to the bunker with Greenspan-like statements; keeping all options open and successfully stabilized the bond and mortgage markets. The Q&A frm the Committee will be critical pending how the questions are asked and how he responds; likely starting about 10:00 this morning. The release of the prepared text was in itself a surprise being so early. At 8:30 June housing starts were quite weak compared to forecasts. Starts were expected to up about 4.0%, as reported starts fell 9.9% to just 836K units annualized. The headline looks bad but most of the decline came in multi-family starts down 26.2%; single family starts were down 0.8% to 591K. June building permits were expected to be up about 3.0%, permits fell 7.5% t 911K units. Some of the decline in starts may have been due to very wet weather in June but that isn’t the real picture; the recent increase in interest rates is more likely slowing starts. A counter data point frm yesterday’s NAHB July housing market index that increased to the best level since Jan 2006. Weaker starts and permits is adding to the early improvement this morning. The weekly MBA mortgage applications were a little better last week as interest rates stabilized and declined a little. The overall applications index down 2.6% but purchases increased 1.0% for the first time in four weeks. The re-finance index fell 4.0% as rates moved higher and closed out those that sat there waiting for lower rates. The early release of Bernanke’s prepared text bolstered the bond and mortgage markets and drove the 10 yr note down to 2.47% at 9:30. The DJIA opened +21, NASDAQ +8, S&P +3. 30 yr MBSs +43 basis points. Finally, at least at the moment, the 10 yr and MBSs have broken their respective moving averages. Looks good for now but there is still concern that the Fed will begin tapering this year. Until this morning the general consensus was that the Fed would begin tapering by Sept. , for the moment that consensus is lessening in terms of the timing. Will House Committee members drive him to a more specific time frame? Likely they will try but Bernanke will keep the guessing going. The 10 at 2.47% is right where it traded when the June employment report was released; after climbing to 2.65% then backing to 2.47% the June employment report sent the 10 to 2.73%. Now back to that key 2.47% but slightly below its 20 da average. The 10 yr and 4.0 August FNMA coupon both now at very significant levels.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Generally a quiet open this morning. Markets are likely to sit somewhat still through the day today ahead of the beginning of Bernanke’s testimony tomorrow at the House Financial Services Committee; Thursday he moves to the Senate Banking Committee. The obvious topic is what is he thinking now about beginning the end of the QEs? Generally most all market participants are expecting the Fed to start tapering soon, the question is when? Most of the talk has been centered on September for the first cut in the $85B of monthly purchases, some think a cut of $20B a month. Bernanke has been going back and forth with his comments since June 19th at his press conference that shot interest rates higher when he said the Fed was ready to start pulling back because the economy was improving and the labor market was gaining momentum. Then after the bond market spiked and likely surprised him, is next speech he back-peddled somewhat; saying the employment situation wasn’t as good as the data was implying. Low wages and part-time workers count as employed but won’t ass much to consumer spending; also the percentage of would be wage earners is the lowest on record---only 63% of working age people are actually in the labor markets. 8:30 this morning June CPI was reported up 0.5% a little higher than 0.4% expected; when food and energy are subtracted CPI up 0.2% in line with estimates. June saw a big increase in gasoline prices. Yr/yr CPI +1.8%; yr/yr core +1.6%, neither are an issue being well under the Fed’s 2.0% target. Bernanke worries that inflation isn’t strong enough, we have argued that inflation is too low and is a drag on economic growth. Of course inflation levels over 2.5% would be a worry point for fixed income investors but with most of the global economy swooning now there is little reason to worry about increasing prices except for gasoline with crude oil now at $107.00/barrel. At 9:15 June industrial production was expected +0.3%, it was right on at +0.3%. June factory usage (capacity utilization) was thought to be at 77.7% frm 77.8% in May, as reported a little better at 77.8%. There was no market reaction to the data. The final data today at 10:00, July NAHB housing market index estimates at 52 unchanged frm June, the index increased a whopping 6 points to 57 (June revised to 51 frm 52); the index is now the highest since January 2006. The components within the data were also higher than expected. The reading over 50 is considered expansion. A solid reading but no immediate response. Not much matters today ahead of Bernanke tomorrow. At 9:30 everything flat; the DJIA opened +2, NASDAQ +2, S&P unch; 10 yr note 2.54% -1 bp, 30 yr MBS price +3 bps. The day will be a waiting day ahead of Bernanke tomorrow and Thursday. After running up to 2.73% the 10 yr has come back about 20 basis points in rate and mortgage rates have eased a little. The markets are still technically bearish; the 10 yr needs to close below 2.50% and it is getting close at 2.54%, we still haven’t seen a lot of new buying just short-covering that has pushed rates down. The bond market has been led around by Bernanke and other Fed officials coming out with conflicting comments. It isn’t clear now how low the 10 yr and mortgage rates can fall but the more macro outlook remains the same, the lows in mortgage rates are unlikely to been seen again. As long as the economic outlook continues to improve demand for low yield fixed income investments will lag. One factor that helps is that inflation is not a factor in the present outlook.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Prior to 8:30 this morning the 10 yr note was down 7/32 (22 bp) at 2.61%. At 8:30 June retail sales were up 0.4% against forecasts of an increase of 0.8%; ex auto sales unchanged against estimates of +0.5%. It was all auto sales in June, nothing on the overall sales in the month. Also at 8:30 the July Empire State manufacturing index was expected to be at 5.0, as reported the index increased to 9.46 frm 7.84 in June. The 10 yr turned around and at 8:45 up 3/32 (9 bp) at 2.58% -1 bp. Already with the week only a couple of hours old there is volatility. Intraday volatility in the bond and mortgage markets continues to be high with swings back and forth through the day; uncertainty is another way of looking at volatility. This week there are a number of key economic reports but the main event this week s Bernanke’s testimony on Wednesday and Thursday; on Wed at the House Financial Services Committee and Thursday at the Senate Banking Committee. He has managed to twist interest rate markets into a tight knot with his recent comments, on June 19th saying emphatically that the Fed was preparing to begin removing the Fed’s support of the bond markets by slowing its monthly purchases, that sent interest rates spiking higher, then in a speech early this month retracting a little after he was surprised at the swift increase in mortgage rates. The housing sector being the strongest sector in the economy, mortgage rates increased 5 basis points; the reaction to his remarks early this month stabilized mortgage rates in a narrow range. His testimony this week is critical, he will be grilled hard by members of the committees on the economic outlook and the Fed’s intensions. At 9:30 the DJIA opened +12, NASDAQ +1, S&P +1; 10 yr note yield 2.57% -1 bp and 30 yr mortgage prices +5 bps. Already volatility; early this morning the 10 yr at 2.61% and 30 yr MBS price -17 bp at 8:30. (see below for 10:00 prices) A lot of focus these days on China and the slowdown that continues, but this morning their GDP expanded 7.5% in the second quarter, its economy expanded 7.7% in Q1. China is slowing but obviously still a lot better than here in the US. The GDP report pushed Europe’s stock markets better. U.K. home sellers raised asking prices for a seventh month to a record in July, according to Rightmove Plc, which said values will increase twice as much as previously forecast this year. At 10:00 May business inventories, expected to be flat frm April, were up 0.1%. Jamie Dimon told investors last week that rising interest rates could trigger a “dramatic reduction” in the bank’s mortgage profits. But according to its own analysts, the U.S. housing market will extend its recovery regardless. Refinancing, which has slumped to the lowest in two years, may drop by as much as 40% in the second half of this year according to Chase’s analysts. Now re-fis are accounting for 64% of apps according to the most recent MBA applications data last Wednesday; at one point re-finances accounted for 75% of all apps. Based on that estimate, to keep volume at the present levels purchases would have to increase 25% frm present levels with 30 mortgage rates hovering in the 4.50% to 5.00% area. We are talking to a number of people and noting a number of comments in the media that the present levels of mortgages and treasuries are seen as being supportive to interest rate markets at current levels, and that some investors are beginning to sniff around with a little buying od long dated treasuries. The rationale is very low inflation outlooks and a slow economic growth outlook. 2.60% on the 10 yr is a lot better than 1.60%, with the Fed committed to holding the FF rate at near zero it makes a decent return when an investor can borrow at close to 1.00% and buy 120 yrs at 2.60%. I am not saying we buy into that thought but it is getting some attention since the 10 yr and mortgages have been contained in the current ranges. Technically, the bond and mortgage markets remain bearish; neither the 10 yr or 4.0 FNMA coupon has been unable to crack their respective 20 day averages, the first level we deem critical. The FNMA 20 day at 103.80, the 10 yr 20 day at 2.50%. The 10 yr 14 day RSI at 61 (50 is the pivot). There is an increasing number of bullish comments that rates may decline a little more frm present levels; I am not arguing against that thought, there is some logic behind it but until the market itself demonstrates it we will hold to our bearish outlook based on price action, not comments.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Very late yesterday afternoon in the Q&A after Bernanke’s speech he responded to questions about the Fed’s intentions. Bernanke blew up the bond and mortgage markets a month ago with his comments the Fed was essentially preparing to begin reducing the monthly purchases of treasuries and mortgage-backed securities. He and the majority of FOMC members were seeing the economy improving and the Fed wouldn’t need to continue to its $85B of monthly purchases. Since his remarks on 6/19 the 10 yr note rate increased 50 basis points and 30 yr mortgage rates climbed 60 basis points in rate. Bernanke was obviously shocked at the swift and deep market response; yesterday more market manipulation. He called for maintaining monetary stimulus. Bernanke said yesterday that “highly accommodative monetary policy for the foreseeable future is what’s needed” and minutes of the Fed’s June meeting showed officials would want to see more signs of job growth before starting to scale back their $85B-a-month bond purchases. The Fed is continuing to manipulate markets with contrary comments; one month after saying the Fed was about to reduce its QEs, now he told markets, not so fast people. The 10 yr note rate at 4:45 yesterday afternoon at 2.68%, this morning 2.58%; 30 yr MBS from prices at 4:45 yesterday have increased 54 basis points. This morning at 8:30 weekly jobless claims were expected to be down 6K, claims actually increased 16K to 350K. The 4 week average increased 6K. The report falls right into Bernanke’s remarks yesterday that the economy still needs stimulus. The jump in claims however, may be due more to auto plants that close for re-tooling for the new model year. At 9:30 the DJIA opened into a new all-time high, up 124, NASDAQ +37, S&P +13. 10 yr note at 2.59% -8 bp frm yesterday and 30 yr MBS price +34 bps. At 1:00 this afternoon Treasury will auction $13B of 3 yr bonds, after Bernanke yesterday the auction is likely to see good demand. Yesterday’s 10 yr auction didn’t get strong demand but it was better than previous 10 yr auctions but still didn’t meet the last 12 10 yr auctions averages. There ought to be a “law” that the Fed chairman can’t make speeches and take questions after markets have closed. We are hearing stories that traders were angry that they were unable to get out of their shorts covered. Bernanke set up the huge short positions in the bond and mortgage markets a month ago then late yesterday twisted his remarks almost 180 degrees. What is next? Next week he has to go before Congress for the semi-annual testimony on the economy. Will be pull another rabbit out of his hat? What color might the rabbit be, black or white? It is no wonder that the current bull market in stocks has been characterized as the most hated bull market in history. In the interest rate markets he accomplished one thing, he stopped the climb in rates; it had become so volatile that there was an increasing belief within many corners that the 10 yr was headed to 3.00%. For the moment that thought has been tossed; HOWEVER the reaction in the markets has not changed the technically bearish outlook; everything is still negative. To turn the 10 yr to a bullish technical picture the 10 yr will have to close below 2.50% (2.59% now). Will it happen? We are not about to conjecture given the way the Fed can move markets anyway it wants these days. We still hold that long term rates including mortgage rates will not fall to the lows seen a few months ago. The one thing we are sure of, as we have been saying for weeks; market volatility will remain at very high levels.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Markets started quietly this morning ahead of this afternoon’s triple threat. At 1:00 $21B of 10 yr notes will be auctioned, the demand will be important after the recent increase in rates; at 2:00 the minutes from the 6/19/FOMC meeting that triggered the recent explosion in rates; at 4:10 Bernanke will speak, his remarks will be key to the next move in interest rates---but not necessarily the final word. Since last Friday’s overdone selling in the mortgage area the prices have rebounded and recovered about 60% of the declines. The 10 yr note increased 22 basis points in rate last Friday, but has only taken back 10 basis points in rate (30 basis points in price). Mortgages were hit hard as investors tried to sell the low coupons into a rather dysfunctional MBS market that is so thin prices were swinging in wide moves of 15 to 30 basis points in price every 10 minutes (at least that is how it seemed last Friday). Early this morning the MBA released its weekly mortgage applications data. Mortgage applications decreased 4.0% from one week earlier. The Market Composite Index, a measure of mortgage loan application volume, decreased 4.0% on a seasonally adjusted basis from one week earlier. The Refinance Index decreased 4 percent from the previous week. The seasonally adjusted Purchase Index decreased 3% from one week earlier. The unadjusted Purchase Index decreased 23 percent compared with the previous week and was 5 percent higher than the same week one year ago. The refinance share of mortgage activity decreased to 64% of total applications. The adjustable-rate mortgage (ARM) share of activity decreased to 7% of total applications. The HARP share of refinance applications rose from 34% the prior week to 35%. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) increased to 4.68%, the highest rate since July 2011, from 4.58%, with points increasing to 0.46 from 0.43 (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 4.86%, the highest rate since July 2011, from 4.68%, with points decreasing to 0.37 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 4.37%, the highest rate since September 2011, from 4.27%, with points decreasing to 0.39 from 0.44 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages increased to 3.76%, the highest rate since July 2011, from 3.64%, with points decreasing to 0.41 from 0.44 (including the origination fee) for 80% loans. The average contract interest rate for 5/1 ARMs increased to 3.40%, the highest rate since May 2011, from 3.33%, with points increasing to 0.54 from 0.31 (including the origination fee) for 80% loans. At 9:30 the DJIA opened +28, both NASDAQ and S&P were unchanged on the open. The 10 yr at 9:30 2.63% -1 bp and 30 yr mortgage prices up just 6 bps frm yesterday’s close. At 10:00 May wholesale inventories, expected +0.3%, declined 0.5%, sales were expected up 0.5% but increased 1.6%. Nice, inventories declining while sales increasing will encourage manufacturers to increase inventory levels. Yesterday the IMF out with reduced growth outlook, the Fund calling into question emerging market growth. The increase in US interest rates has lessened the demand for seeking yield in emerging markets including China and Russia according to the IMF. It is the ripple effect that is spreading as the Fed is seen to be ready to begin slowing the purchases of treasuries and MBSs frm the $85B that began a year ago. Since the 6/16/FOMC meeting and Bernanke’s press conference the same day markets around the globe are seeing increased volatility as investors struggle with the impact of higher rates will have on markets and economies. In the last six weeks investors have pulled $13.5B frm bond funds and $22B in emerging markets stock funds. The new IMF estimate is global growth at 3.1% frm +3.3% in April. In China news out that the central bank may be planning to cut bank reserve rates in an effort to stem the decline in exports that have slowed the growth the world’s 2nd strongest economy. It is supposition at this time though. China has direct impact on our markets; recently China said it wanted to cut its growth rate to fend off inflation but now with exports falling 3.0% and imports declining the central bank, like our Fed is trying to manipulate markets with talk of stimulus. One serious problem facing all global markets now is, where should markets be without the continual stimulus that has effectively removed much of the typical supply/demand equation that normally (in the past) were the guide posts for investors. With the three events this afternoon (see above) markets are likely to remain flat this morning, but pending the news this afternoon volatility may increase n the later part of the trading session. Still all technicals remain quite bearish, don’t make too much out the improvement the last two days.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com A nice rebound yesterday; the MBS market recovered slightly over half the price declines last Friday on the June employment report. This morning markets opened about unchanged in the bond and mortgage markets with US stock indexes up again in pre-market trading. Today there are no economic releases to think about; at 1:00 Treasury will begin this week’s borrowing with $32B of 3 yr notes. Recent Treasury auctions have seen less demand than the averages, with interest rate higher we will focus attention on the demand. Treasury three-year notes yield more than double their levels in May before the U.S. sells today. 3 yr notes generally don’t fit in our wheel house, we are more interested in tomorrow’s $21B 10 yr auction. European Union officials meet today after finance ministers in the euro area agreed on an aid package for Greece yesterday. Reports today showed Chinese inflation rose more than forecast in June while producer prices fell for a 16th straight month, the longest slump in a decade. Yesterday began the earnings season for Q2; Alcoa, always the first to report, beat estimates and in turn juiced up the idea earnings in the quarter will remain strong. Interesting, most analysts a couple of weeks ago were predicting earnings would not be a good as in Q1. Nevertheless the stock market is betting on strong earnings at the moment. Today should be rather quiet compared the last couple of sessions. There are no data points, and tomorrow the Fed will release the minutes from the 6/19 FMC meeting, always something to consider. While important, it isn’t as important as Bernanke’s speech tomorrow afternoon. After his comments about the Fed thinking about tapering led to interest rates spiking higher on 6/19 (since then the 10 yr note rate has increased from 2.17% to 2.64% at yesterday’s close and mortgage rates up 0.50%), he may try to ease the fears now dominating the bond and mortgage markets. Can he do it? At 9:30 the DJIA opened +68, NASDAQ +14, S&P +9; 10 yr note unchanged at 2.64% but MBS prices up 15 bps frm yesterday’s close. Technically the bond and mortgage markets continue bearish; a nice bounce yesterday and so far this morning but everything is still pointing to higher rates and lower prices. As long as the US equity markets continue to attract investors there is very little reason for investors to move back into treasuries. The Fed fueled the most recent rally when the FOMC provided a positive outlook for economic growth and Bernanke said the Fed was considering winding down its market support. Our advice remains the same it has been for two months now; don’t fight the tape, those that ignore price action will continue to pay the price. Use any improvements as opportunities. Forget those low rates, they are gone and not very likely to fall much frm current levels.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com The massive increases in interest rates last Friday on the better employment report may have been too much in too soon a time frame. The markets were thinly managed last Friday as many took the day off leading to increased panic selling. The bond and mortgage markets, already quite bearish, pushed those still hanging on to sell, sending rates to levels not expected this soon in the continual increases in rates. The 10 yr hit 2.73% Friday, up 22 bps in yield and 30 yr mortgage rates up 18 bps in rate to close in on 5.0%. Non-farm jobs were up 195K about 30K more than expected and April and May were revised higher adding an additional 70K jobs than originally reported. At 9:00 this morning some improvement frm the route on Friday; the 10 yr yield at 2.69% down 4 bps; 30 yr mortgage prices +32 bps from Friday’s 151 bp decline. US stock indexes better, pointing to a strong opening at 9:30. Europe’s stock markets all better this morning. Economic data this week is rather sparse. Today at 3:00 May consumer credit is about it for the day. This week Treasury will auction a total of $66B of notes and bonds; the last couple of months the demand at the auctions has not been as strong as the average of the last 12 months, will demand increase now that rates have risen? On Wednesday the minutes from the 6/19/FOMC minutes will be released; it was that meeting and Bernanke’s press conference after the meeting that sent interest rates higher when Mr. Bernanke said the Fed was ready to begin tapering its monthly buying of treasuries and mortgage-backed securities. The minutes will be released at 2:00 Wednesday then Bernanke is scheduled to speak at 4:00 pm, he will likely attempt to calm markets after the recent climb in rates that has completely surprised the Fed, especially Bernanke. How will he frame it? Oh, I really didn’t mean what I said a couple of weeks ago? Not likely, and unlikely he has the power to turn the rate markets around. At 9:30 the DJIA opened +71, NASDAQ +15, S&P +8; 10 yr note 2.68% -5 bps and MBS prices for 30 yr conventionals +47 bps. We expect the bond and mortgage markets will improve this week, but we do not believe that the bearish trend will end. Interest rates are going to continue to increase over time as long as the US economy expands and stock prices increase. That said, at present levels there is value in the fixed income world, at least to certain investors. The price declines last Friday were unreasonable but the action clearly demonstrates how bearish the underlying sentiment is currently. Use any improvements to get deals done now. To change the technical outlook for markets the 10 yr note rate must decline to under 2.50% (2.68% now). Q2 earnings’ season is about to get underway; talk around is questioning whether earnings in the quarter will match the strong earnings in Q1. As long as equity markets continue to increase the outlook for interest rates will remain bearish. How Bernanke frames his speech on Wednesday will have an impact on near term direction for the bond and mortgage markets.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Today’s June employment report did not disappoint; always a dart throwing event, the data today followed the normal path of wild deviations from estimates. One thing we can count on with the monthly employment data. The June unemployment rate unchanged at 7.6% (estimates 7.5%), non-farm jobs increased 195K (estimate 165K), non –farm private jobs +202K (estimates 179K). May jobs were revised to +195K frm 175K, April revised up an additional 50K. At 9:00 this morning the 10 yr note traded at 2.65% +14 bp frm Wednesday’s close. At 9:00 the 4.0 FNMA coupon -93 bps, 3.5 coupon -128 bps. US stock indexes higher, DJIA +78 at 9:00 but well off the initial reaction. Retailers, professional and business services, health care and leisure and hospitality businesses led the payroll gains in June. Manufacturers cut jobs for a fourth straight month and government payrolls dropped. The household survey, used to calculate the unemployment rate, showed that more people entered the labor force and most of them were able to find work. According to BLS 177K entered the labor market and 160K were hired. Factories lost 6K jobs in June while construction companies added 13K, the most in three months. Automakers boosted employment by 5,100 workers, the most in four months. Retailers added 37K jobs in June, with most of the increase coming from more hiring at motor vehicle dealerships and home-improvement outlets. Not much good news in Europe; yesterday the European Central Bank President Mario Draghi said yesterday that the risks to the euro-area economy are to the downside as he gave “unprecedented” forward guidance that interest rates will stay low for an extended period of time. The economy in the currency bloc, Germany’s biggest export market, contracted in the six quarters through March. Draghi reaffirmed his prediction for a recovery at a subdued pace later this year. German factory orders unexpectedly declined for a second month in May in a sign that the euro area’s struggle to emerge from its longest-ever recession isn’t improving much. At 9:30 the DJIA opened +111, NASDAQ +24, S&P +11. The 10 yr note at 2.68% +17 bps, 30 yr 4.0 FNMA coupon -103 bps. What will the Fed do now? The obvious is that the Fed will begin tapering soon, but that may not be the final decision. The huge increase in mortgage rates is going to slow housing markets, already a high percentage of would be qualifiers have been left on the sidelines, and possibly slowing growth. Already this morning markets are struggling with the relationship between the new level of interest rates and the impact on the economy. The initial reaction to the 8:30 employment data had the DJIA up over 180 points, at 10:00 the stock indexes were declining from those reactionary highs as traders attempt to measure the economy with increasingly higher interest rates. Could the Fed hold the line and not taper to keep the economy and the housing market frm reversing and slipping in growth because rates are increasing too rapidly? This morning a new high for the 10 yr note at 2.71% up 20 basis points frm Wednesday and more evidence that talking fundamentals won’t get the job done; for all the talk frm various experts that the bond market was a buying opportunity all of our technical models and indicators remained bearish. The take away is simple but to some a mystery; it isn’t complicated, it is just ignoring the talk and focusing on where money is going---that is all technicals are. Where is the money, not who is talking.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com US treasuries better this morning; overnight the 10 yr yield fell to 2.41% down 7 bps frm yesterday. By 8:00 the 10 yr at 2.45% -2 bps; stock indexes weaker early today. Treasuries getting some support over the roiling in Egypt where the government is about to collapse with the military saying it would negate the constitution if Mursi doesn’t step down, Mursi saying he will not. Why the concern? Because the Suez Canal may be in play disrupting the flow of oil through it; crude oil this morning now over $100.0 at $101.84. In Portugal more turmoil; bonds slumped after two ministers resigned from the government, reigniting speculation Europe’s debt crisis is worsening. Portuguese Foreign Affairs Minister Paulo Portas, leader of junior coalition party CDS, quit yesterday in protest at the government’s budget policy. Portas was the second minister to resign this week after finance chief Vitor Gaspar stepped down, saying his credibility had been compromised by the government’s failure to meet budget targets set by the European Union. Keep an eye on the EU again, the issue in Portugal suggests countries are struggling to meet the austerity goals. 8:15 the June ADP private jobs were up 188K, better than 165K generally expected; the stock indexes recovered a little and the treasury markets stood still with no movement, the yield on the 10 yr 2.45%. MBS prices at 9:00 unchanged frm yesterday’s 24 bp price decline. The ADP data was the second best of the year. Friday’s BLS June employment report is expected to show private jobs at +179K. At 8:30 weekly jobless claims were -5K to 343K; not much different than what markets were expecting. The four-week moving average, a less-volatile measure than the weekly figures, decreased to 345,500 last week from 346,250. The number of people continuing to receive jobless benefits fell to 2.93 million in the week ended June 22 from 2.99 million in the prior period. The Obama Administration surprised businesses yesterday by delaying the implementation of ObamaCare from the business sector frm 2014 to 2015. Businesses have complained that the law is so convoluted that they would have a difficult time to begin the insurance increase that ObamaCare will create. The delay takes away political fodder for Republicans in the 2014 elections. It isn’t being seen as a political move entirely; the law that impacts businesses is one of the most complex of the entire ObamaCare Bill. May US trade deficit increased to -$45.3B the second highest level on record. The US economy continues to grow while other countries struggle. The trade gap widened to 12.1% frm April, the biggest jump in 2 years. The importance of the increase is that it will subtract the GDP growth in Q1 to 1.6% frm 1.8% as previously reported according to those that focus on such things. At 9:30 the DJIA opened -26, NASDAQ -12, S&P -6; 10 yr note unchanged at 2.48% with mortgage prices general unchanged from yesterday’s closes. At 10:00 the last data before Friday’s June employment; the June ISM services sector index. Estimates were for the index at 54.5 frm 53.7; as reported 52.2 lowest reading since Feb 2010; the employment index improved from 50.1 to 54.1, new orders component at 56.0 frm 58.8. The employment index suggests to some extent a good employment report on Friday. The decline in new orders though isn’t constructive for the economic outlook. Overall not a bad report but certainly not a good one. Earlier this morning the weekly MBA mortgage applications showed re-finances crashed as rates have increased. The overall index -11.7%. Interest rates are rising substantially, choking off demand for refinancing but only limiting demand for purchase mortgages. The refinancing index dropped 16.0% in the June 28 week and is at a two-year low. The purchase index, benefiting from what the Mortgage Bankers Association calls still strong home affordability, has been up and down is down 3.0% in the latest week. The average rate for conforming loans ($417,500 or less) soared 12 basis points in the week to 4.58%. Nothing left now until Friday morning’s June BLS employment data; the current estimates are for the unemployment rate to have declined to 7.5% frm 7.6%, non-farm jobs +161K, non- farm private jobs +179K. As usual the data is not likely to match the estimates; the question for investors and traders, which way will the deviation take? It is unusual to have markets closed the day before the most important data of the month so positioning has to take place today before the early closes in stocks and bonds. The stock market will close at 1:00 this afternoon, the bond market will close at 2:00 PM. We will have a short afternoon report at 2:30 with the day’s closing prices. HAPPY BIRTHDAY AMERICA !

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com US treasuries better this morning; overnight the 10 yr yield fell to 2.41% down 7 bps frm yesterday. By 8:00 the 10 yr at 2.45% -2 bps; stock indexes weaker early today. Treasuries getting some support over the roiling in Egypt where the government is about to collapse with the military saying it would negate the constitution if Mursi doesn’t step down, Mursi saying he will not. Why the concern? Because the Suez Canal may be in play disrupting the flow of oil through it; crude oil this morning now over $100.0 at $101.84. In Portugal more turmoil; bonds slumped after two ministers resigned from the government, reigniting speculation Europe’s debt crisis is worsening. Portuguese Foreign Affairs Minister Paulo Portas, leader of junior coalition party CDS, quit yesterday in protest at the government’s budget policy. Portas was the second minister to resign this week after finance chief Vitor Gaspar stepped down, saying his credibility had been compromised by the government’s failure to meet budget targets set by the European Union. Keep an eye on the EU again, the issue in Portugal suggests countries are struggling to meet the austerity goals. 8:15 the June ADP private jobs were up 188K, better than 165K generally expected; the stock indexes recovered a little and the treasury markets stood still with no movement, the yield on the 10 yr 2.45%. MBS prices at 9:00 unchanged frm yesterday’s 24 bp price decline. The ADP data was the second best of the year. Friday’s BLS June employment report is expected to show private jobs at +179K. At 8:30 weekly jobless claims were -5K to 343K; not much different than what markets were expecting. The four-week moving average, a less-volatile measure than the weekly figures, decreased to 345,500 last week from 346,250. The number of people continuing to receive jobless benefits fell to 2.93 million in the week ended June 22 from 2.99 million in the prior period. The Obama Administration surprised businesses yesterday by delaying the implementation of ObamaCare from the business sector frm 2014 to 2015. Businesses have complained that the law is so convoluted that they would have a difficult time to begin the insurance increase that ObamaCare will create. The delay takes away political fodder for Republicans in the 2014 elections. It isn’t being seen as a political move entirely; the law that impacts businesses is one of the most complex of the entire ObamaCare Bill. May US trade deficit increased to -$45.3B the second highest level on record. The US economy continues to grow while other countries struggle. The trade gap widened to 12.1% frm April, the biggest jump in 2 years. The importance of the increase is that it will subtract the GDP growth in Q1 to 1.6% frm 1.8% as previously reported according to those that focus on such things. At 9:30 the DJIA opened -26, NASDAQ -12, S&P -6; 10 yr note unchanged at 2.48% with mortgage prices general unchanged from yesterday’s closes. At 10:00 the last data before Friday’s June employment; the June ISM services sector index. Estimates were for the index at 54.5 frm 53.7; as reported 52.2 lowest reading since Feb 2010; the employment index improved from 50.1 to 54.1, new orders component at 56.0 frm 58.8. The employment index suggests to some extent a good employment report on Friday. The decline in new orders though isn’t constructive for the economic outlook. Overall not a bad report but certainly not a good one. Earlier this morning the weekly MBA mortgage applications showed re-finances crashed as rates have increased. The overall index -11.7%. Interest rates are rising substantially, choking off demand for refinancing but only limiting demand for purchase mortgages. The refinancing index dropped 16.0% in the June 28 week and is at a two-year low. The purchase index, benefiting from what the Mortgage Bankers Association calls still strong home affordability, has been up and down is down 3.0% in the latest week. The average rate for conforming loans ($417,500 or less) soared 12 basis points in the week to 4.58%. Nothing left now until Friday morning’s June BLS employment data; the current estimates are for the unemployment rate to have declined to 7.5% frm 7.6%, non-farm jobs +161K, non- farm private jobs +179K. As usual the data is not likely to match the estimates; the question for investors and traders, which way will the deviation take? It is unusual to have markets closed the day before the most important data of the month so positioning has to take place today before the early closes in stocks and bonds. The stock market will close at 1:00 this afternoon, the bond market will close at 2:00 PM. We will have a short afternoon report at 2:30 with the day’s closing prices. HAPPY BIRTHDAY AMERICA !

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Today begins the second half of the year; time flies when we are not having fun. The bond and mortgage markets continue their bearish outlook, unable to improve to even get close to testing our technical models that remain bearish. The economic outlook among economists, analysts and investors is expected to gain momentum albeit slowly as the Fed has been saying. There is no change in sentiment from two weeks ago that the Fed is moving closer to winding down its three year QEs that have driven rates down and ‘forced’ investors into equity markets. The Fed has done a yeoman’s job saving the economy while politicians have simply ignored the reality of needed reforms. China’s manufacturing fell in June, underscoring a sustained slowdown in the nation’s economy as policy makers seek to rein in financial speculation and real-estate prices. An official Purchasing Managers’ Index dropped to 50.1, the lowest level in four months, from 50.8, the National Bureau of Statistics and China Federation of Logistics and Purchasing said today. Spain’s manufacturing index increased, Germany’s economy continuing to improve although today its manufacturing sector showed a little weakness, U.K. government bonds fell for a second day as reports showed Britain’s manufacturing output expanded while mortgage approvals rose, reducing demand for the safety of fixed-income securities. In Japan, where the central bank is rolling out unprecedented stimulus, the quarterly Tankan survey showed big manufacturers turned optimistic in June for the first time since September 2011. Just about all the recent data from around the world are beginning to improve, slowly but improving. With optimism increasing here and overall globally the outlook for interest rates is losing momentum with expectations that rates will continue to increase. This is employment week; always critical but even more so these days as investors and the Federal Reserve sweat over each data point to assess what the Fed will do and when it will do it. Consensus now ahead of this week’s key data is that the Fed will begin to reduce its monthly purchases of MBSs and treasuries. As Bernanke pointed out at his press conference on the 19th what the Fed will do is dependent on how the economy performs over the next few months. This week’s June employment data takes on additional significance in terms of the Fed’s market support. Starting the week; June non-farm jobs are expected +161K, non-farm private jobs +179K and the unemployment rate down to 7.5% frm 7.6% in May. Not bad but not gaining either; job growth is tepid at best averaging about 175K a month. At 9:30 the DJIA opened +88, NASDAQ +30, S&P +11; 10 yr at 2.51% +2 bp with mortgage prices generally unchanged. Early this morning 30 yr MBS prices were down 25 bp but did recover ahead of the 10:00 economic data. Two key reports at 10:00; May construction spending was expected to be up 0.6%, as reported up 0.5%. The June ISM manufacturing index was expected at 50.5 frm 49.0, as reported the index increased to 50.9, pretty much as forecast; the employment component though fell below the pivot 50 to 48.7 the first time under 50 since 2009, new orders component at 51.9 frm 48.8 in May. The ISM manufacturing data, a mixed but generally in line with estimates improved the stock indexes and minor improvement in MBS prices. Not much but the data didn’t encourage any increase in the economic outlook; stocks and bonds improved fractionally based on data not strong keeping the Fed’s tapering frm increasing in importance.