Grau Perspective | 30F 5.750% 7/1A[Int Only] 5.375%

Chicago PMI | Reported 48.2 | Est 46.7 | Prior 44.5 | ELEVATED

The Chicago Purchasing Managers Index for March reported above estimates.  The survey results signal more economic restraint and concern about the health of the economy.  Mortgage Bonds have not reacted much to the news, currently we are +3bp on the day.  Henry Paulson the Treasury Secretary is currently speaking about more mortgage reform and regulation requirements for our industry.   This week is full of ELEVATED economic reports.  Hold on to your hats!

ISM Index | Reported [Tue 4.1] | Est 48.2 | Prior 48.3 | ELEVATED

ADP Employment Report | Reported [Wed 4.2] | Est -23,000 | Prior -23,000 | ELEVATED

Crude Inventories | Reported [Wed 4.2] | Prior 88,000 | MODEST

Initial Jobless Claims | Reported [Thu 4.3] | Est 360,000 | Prior 366,000 | MODEST

ISM Services Index | Reported [Thu 4.3] | Est 49.2 | Prior 49.3 | MODEST

Unemployment Rate | Reported [Fri 4.4] | Est 5.0% | Prior 4.8% | ELEVATED

Hourly Earnings | Reported [Fri 4.4] | Est 0.3% | Prior 0.3% | ELEVATED

Average Work Week | Reported [Fri 4.4] | Est 33.7 | Prior 33.7 | ELEVATED

Non-Farm Payroll | Reported [Fri 4.4] | Est -40,000 | Prior -63,000 | ELEVATED

Economic Reports March 28 | 30F 6.000%

Personal Consumption YOY | Reported 2.0% | Est 2.0% | Prior 2.2% | ELEVATED

Personal Income | Reported 0.5% | Est 0.3% | Prior 0.3% | MODEST

Personal Spending | Reported 0.1%  | Est 0.2% | Prior 0.4% | MODEST

Personal Consumption FEB | Reported 0.1%  | Est 0.3% | Prior 0.2% | ELEVATED

Consumer Sentiment | Reported 69.5  | Est 71.0 | Prior 70.5 | MODEST

Inflation seams to be within the Fed’s 1-2% range based on YOY PCE.  With inflation in check the Fed should have a green light to lower the Feds Cut Rate.  The bond market is currently only up +22bp this morning.  There is a full day of trading a head, so pending on how the stock market reacts to these reports, we may see a little better long term rates this afternoon.

Economic Reports March 27, 2008 | 30F 6.000%

GDP | Reported 0.6%  | Est 0.6% | Prior 0.6% | MODEST

GPD Chain Deflator | Reported 2.5% | Est 2.7% | Prior 2.7% | MODEST

Initial Jobless Claims | Reported 366,000 | Est 371,000 | Prior 375,000 | MODEST

The GPD had no effect on the markets since it came in confirming earlier estimates.  Initial Jobless claims were slightly lower than last week and estimates.  The stock market has just been looking for any bit of “not bad” economic news to rally.  Movement in the stock market was at the expense of mortgage bonds, currently -41bp from open.  New home buyers and clients looking to refinance have more to consider than just the lowest mortgage rates quoted in the newspaper.  With uncertainty about RISK scaring investors, locking in your rate and program while they still exist are more important.

Economic Reports March 26

Durable Goods | Reported -1.7% | Est 1.0% | Prior -5.3% | MODEST

New Home Sales | Reported 590,000 | Est 580,000 | Prior 588,000 | MODEST

Crude Inventories | Reported 88,000 | Prior 133,000 | MODEST

Consumer Confidence for March 2008 | 30F 5.875%

Consumer Confidence | Reported 64.5 | Est 75.0 | Prior 75.0 | MODEST

Consumer Confidence for March 2008 suggests that families are locking down the check books for a little while longer.  The 64.5 number is the largest decline on 5 years.  An interesting bit of information about the portion of the survey that measures consumer’s outlook on the future, it’s at a 35 year low!  This report is yet another piece of negative economic data to kindle the recession talk.  Unfortunately, with continued turmoil in the mortgage market, FNMA bond prices have not been able to hold the +40bp gains this morning.  The FNMA 30 bond is trading +18bp current.

Existing Home Sales Feb 2008

Existing Home Sales | Reported 5,030,000 | Est 4,860,000 | Prior 4,900,000 | MODEST

Existing Homes Sales for February 2008 were above the estimates of 4,860,000.  This is a good sign for the real estate market.  Houses are beginning to sell.  The inventory of unsold homes fell 3%.  Unfortunately, the median sales price for sold homes dropped -8.2% to $195,900, the largest decline since 1968 when the numbers began being tracked.

FHA | FHA Loans are the future

 

Even though ”Billions of Dollars” are being thrown to Fannie Mae and Freddie Mac, it may be a while before we can feel the impact.  The mortgage industry in the Mid-West has been getting more acquainted with the term “declining market” in recent weeks.  In order to be sure the home you are buying is not in a declining market mortgage bankers must cross reference the investors definition, the mortgage insurance company’s definition, Fannie Mae’s definition, and the appraisal to be certain.  St. Louis is a conservative market, and most investors are considering us declining.  More inventories from increased foreclosures and restricted lending will certainly continue the “declining market” trend, pretty much requiring borrowers to have at least 10% down and 720 credit scores. 

“How do I buy a home with 3% down and credit scores in the 600’s?”

The Federal Housing Administration [FHA] has continued aggressive lending requirements.  Approved FHA Mortgage Lenders can offer home buyers the ability to purchase a home with only a 3% minimum investment.  The restrictions for “declining markets” are not being felt as strongly with FHA loan programs.  There are no set credit score requirements for FHA lending, but the automated underwriting system does not usually approve under 620 credit scores without substantcial compensating risk factors.  The mortgage insurance monthly premium requirement is less than most Fannie Mae comparable loan programs.  Interest rates for FHA lending has been hovering near 6%.  The FHA loans are definitely the answer for the near future when purchaing a home with less than 20% down.

Grau Perspective | 3/20 | 30F 5.625% 15F 5.125%

 

Yesterday, Fannie and Freddie were given the OK to lend out another $200 billion in mortgages.  This is a good thing for the mortgage market.  With the Fed giving $200 billion of liquidity last week to ”upgrage” mortgage backed securities and $200 billion to the largest buyers of mortgages yesterday, hopefully some of the mortgage liquidity concerns will be eased.  Now we need investors to figure out how much risk premium really needs to be charged for average credit scores, low equity, adjustable rates, jumbo loan amounts, 2nd liens, or limited documentation.  Until home values stabilize I expect to see continued additional tightening in any “risk” category.

Today the Initial Jobless Claims, LEI, and Philadelphia Fed Index were reported.  The Jobless Claims came in at 378,000 implying that a recession may already be here.  The Philly Fed Index was -17.4.  That’s not good, but better than expectations.  The LEI met expectations at -0.3%.  LEI is an Index of Indexes and not really a market mover.  The bond market closed at 2:00pm today and is closed tomorrow for Good Friday.  It should be nice to take a breather and prepare for next week.  This market is not for the faint of heart. 

Upcoming Economic Reports for March 24 - 28th

Existing Home Sales | Reported [3.24] | Est 4,860,000 | Prior 4,900,000 | MODEST

Consumer Confidence | Reported [3.25] | Est 75.0 | Prior 75.0 | MODEST

Durable Goods | Reported [3.26] | Est 1.0% | Prior -5.3% | MODEST

New Home Sales | Reported [3.26] | Est 580,000 | Prior 588,000 | MODEST

Crude Inventories | Reported [3.26] | MODEST

GDP | Reported [3.27] | Est 0.6% | Prior 0.6% | MODEST

GPD Chain Deflator | Reported [3.27] | Est 2.7% | Prior 2.7% | MODEST

Initial Jobless Claims | Reported [3.27] | MODEST

Personal Consumption YOY | Reported [3.28] | Prior 2.2% | ELEVATED

Personal Income | Reported [3.28] | Est 0.3% | Prior 0.3% | MODEST

Personal Spending | Reported [3.28] | Est 0.2% | Prior 0.4% | MODEST

Personal Consumption FEB | Reported [3.28] | Est 0.3% | Prior 0.2% | ELEVATED

Consumer Sentiment | Reported [3.28] | Est 71.0 | Prior 70.5 | MODEST

Crude Inventories 3/15

Crude Inventories | Reported 133,000 | Prior 6,177,000 | MODEST

Philly Fed Index March

Philly Fed | Reported -17.4 | Est -18.0 | Prior -24.0 | ELEVATED

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