Mortgage Rates



In early trade this morning the rate markets opened a little better while the stock indexes were generally unchanged. All global markets awaiting the EU summit meeting that begins late Thursday and into Friday. News out of Europe this morning is one of caution, Germany saying not to expect any significant decisions that would end the debt mess. While that isn't unexpected, unless there is something positive markets can hang their hats on disappointment will likely take stocks lower and add additional support in the bond and mortgage markets.



Yesterday Tim Geithner was in the mix in Frankfurt; he backed a German-French push for closer European cooperation, urging policy makers to work with central banks to erect a “stronger firewall” to end the crisis. He welcomed “progress toward a fiscal compact for the euro zone.” The ECB will likely cut base lending rates tomorrow, the only question is by how much, normally central banks move in 25 bps. The central bank is trying to encourage lending by banks in Europe; one thought being knocked around is the bank could lower collateral standards allowing banks to borrow more and for a longer period rather than purchasing more bonds. Getting banks to lend more accomplishes what? Nothing that deals with the sovereign debt problems. The ECB has indicated it will act to prevent a credit shortage as this falls within its monetary policy remit. At the end of the day and after the EU summit on Friday there won't be anything that will please markets; after two years of constant anticipation, one meeting after another, they all ended with nothing of substance and more disappointment---we bet it will be the same this go-round.

US treasuries are better this morning but in terms of direction the 10 yr note and MBSs are not moving; trading in well defined narrow ranges. The 10, 2.12% to 1.90% and MBSs in a 50 basis point price range for the last month. The equity markets also not trending, wide swings up and down on the indexes but at the end of the day, no direction. For all the talk from traders and stock market touters there is about as much confidence behind the opinions that can be put in a thimble. Europe is a political disaster; the idea for the EU back in the 90s has turned sour. The first crisis since 1999 clearly demonstrates a combination of sovereign countries doesn't work as well as most thought when the EU was formed.

Mortgage application volumes in the December 2 week bounced right back following the lull of the Thanksgiving week, up a weekly 8.3% for purchase applications and up 15.3% for refinancing applications. Purchase applications have been trending higher which is a positive signal for home sales. Low rates are lifting demand for mortgages with the average 30-year FHA loan down two basis points to 3.98%. Conforming 30-year loans ($417,500 or less) averaged 4.18%, down three basis points, with jumbo loans (over $417,500) also down three basis points to 4.52%.