Mortgage Rates





Anthony Hood
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com



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Wednesday, February 09, 2011


A better start this morning in the bond and mortgage markets. As we noted in yesterday's 4:30 comments the rate markets are temporarily oversold after seven consecutive days of prices falling and yields increases. Technically both the bellwether 10 yr note, driver of MBSs and the MBSs themselves are now registering very oversold momentum oscillators and some rebound is likely. While improvement is likely, it will not change the overall bearish longer term outlook for the rate markets. We suggest using any improvements to get deals done but not adopt a bullish view. Although we have been bearish on rates since last Nov, we still hold that interest rates for mortgages will not increase over 5.5% and the 10 yr note won't move above 4.00% this year. Any improvements in longer term rates should be seen as opportunities, interest rates will not likely fall much from these current levels.

Markets were rattled yesterday on very weak demand frm foreign investors for the $32B 3 yr notes sold at the Treasury auction. After the recent spike in rates traders were more optimistic than they should have been that the 3 would see strong demand. At last month's 3 yr auction it was the same; it didn't see much demand. Today Treasury will offer $24B of new 10 yr notes, the demand should be much better, just as it was for last month's 10 yr.

Ben Bernanke is about to begin his testimony to the House Budget Committee; the first such appearance under the Republican leadership. He will be questioned on economic issues, trade issues, the dollar's worth, the Fed's quantative easing that has come under increasing fire both within the Fed and in Congress. When initiated last Nov Bernanke made the point that by buying $600B of treasuries would keep interest rate low; most bought into it, we however said it wouldn't and of course it didn't. Congress will ask today whether the Fed will do another easing move; Bernanke will dance around it but it is highly unlikely there will be more money printing-----so-called easing is over. The economy is recovering, slowly but nicely; the Fed should stop. An increasing number of Fed officials are voicing opposition. The Fed is continuing to chip away at purchases everyday; today $6 to $8B of issues maturing 2015/2016.

The weekly MBA mortgage applications out early this morning for the week ending February 4, 2011. The Market Composite Index, a measure of mortgage loan application volume, decreased 5.5% from one week earlier. The Refinance Index decreased 7.7% from the previous week. The seasonally adjusted Purchase Index decreased 1.4% from one week earlier.
The four week moving average for the seasonally adjusted Market Index is down 0.9%. The four week moving average is down 0.8% for the seasonally adjusted Purchase Index, while the average is down 1.5% for the Refinance Index. The refinance share of mortgage activity decreased to 66.6% of total applications from 69.3% the previous week. This is the lowest refinance share observed in the survey since the beginning of May 2010. The adjustable-rate mortgage (ARM) share of activity increased to 5.9% from 5.5% of total applications from the previous week. The average contract interest rate for 30-year fixed-rate mortgages increased to 5.13% from 4.81%, with points decreasing to 0.84 from 1.02 (including the origination fee) for 80%loans. This is the highest contract 30-year rate recorded in the survey since the week ending April 9, 2010. The 32 basis point jump is the largest rate increase since June 2009. The average contract interest rate for 15-year fixed-rate mortgages increased to 4.29% from 4.13%, with points increasing to 1.02 from 1.01 (including the origination fee) for 80% loans. This is the highest contract 15-year rate recorded in the survey since the week ending May 7, 2010.

The rest of the day is about Bernanke's testimony and the results of the $24B 10 yr note auction at 1:00 this afternoon.