August 13, 2009
August 13, 2009 by admin
The stock market is trading sideways on Thursday following a strong rally on Wednesday with news that the fed would be holding rates steady. The stock market jumped with the reassuring news from the FOMC as there is a growing belief that the worst of the economic recession is in the rear view mirror. The market has been slowly continuing its climb up in the month of August and the S&P 500 is now over 1000 pts. Investors appear to be more focused on the upside potential for corporate earnings into 2010 as they are driving up the worldwide equity markets.
There were a few key reports released today that are weighing on the market. The month of July saw a seven percent increase to home foreclosures according to a report released today from RealtyTrac. The report will add to the frustration of consumer groups who have been clamoring for the government to more aggressively move into the housing market with loan modification programs that reduce principal balances of home loans, similar to the recent announcement of the FHA loan modification program from HUD recently. The current Making Home Affordable program was put into place with the goal of helping over four million home owners to refinance their mortgage or modify their existing loan terms, to help prevent these properties from heading to foreclosure. Consumer groups have been protesting to the government that lenders remain unresponsive to consumers, who are in process for months without communication from there loan servicers regarding their potential loan modification programs. The rate of home foreclosures increasing could jeopardize the terrific news out of the housing market last month (existing and new home sales reports). Home foreclosures are the housing markets Achilles heal as they drive down home values and increase the potential for home buyers to simply walk away from there homes, feeling they are falling to far underwater of their existing home mortgage.
The job market will be closely followed this month, following the better than expected July non farms payroll report. Today, a report on weekly jobless claims edged up by 4,000, not a huge number and is not likely to have much significance with equity and bond investors. Retail sales were off the mark for the month of July, despited the governments boost to the auto industry, retail sales declined .6% last month, a strong indication consumers are still in a savings mode.
The yield on the ten year bond has dropped down to 3.59%, its lowest level in the last week. The drop in yield, likely is a reaction to investors who are repositioning themselves out of equities and an ease from concerns out of the FOMC meeting this week. Long term mortgage rates continue to move lower with the news. Fixed rates for thirty year loan terms are now ranging between 5.25-5.375% with most national mortgage lenders. The recent fed news is likely to keep rates low in the near term, but indicates mortgage rates will be heading higher by years end.
Fed leaves rates unchanged, see’s market improvement
August 12, 2009 by admin
The FOMC today announced that the Fed Funds rate and Fed Discount rate would be left at their current levels (0% & .25%), keep rates at historic low levels. The FOMC news release today was in line with most experts predictions that the Fed would be leaving rates at historic low levels for the near term as they try to navigate the credit markets and stabilize the overall economy.
The Fed was forced to dramatically lower both the Fed Discount Rate and Fed Funds Rate to historic low levels in 2008 as they attempted to stabilize the global credit markets and restore lending. The FOMC has been aggressively working with the government to help to try jump start lending, which ground to a halt in the fourth quarter of 2008 as lenders reacted to the failures of Bear Stearns, Lehman Brothers and AIG.
The FOMC has also moved in supporting the secondary treasury and mortgage security market. Last December, the Fed announced they would begin to purchase mortgage backed loan securities in the secondary marketplace. This move, a direct reaction to the lack of liquidity in the secondary bond market, helped to drop mortgage rates to historic low levels. In March of 2009, the Fed reiterated its plan to purchase additional mortgage backed bonds, helping to keep mortgage rates stabilized and jump start the housing markets.
Most experts anticipated the Fed would keep rates at their current levels, but were eager to learn of the Fed’s other market plans and analysis. The key to today’s news was not the Fed’s decision to leave rates unchanged, but their broader views on the health of the economy and their statements regarding future growth, the treasury markets and inflation. The Fed does not believe that inflation will be an issue in the near term, excluding the rapid jump of oil prices from March of this year, energy prices have been relatively flat over the last sixty days. The bond markets will be closely watched as investors try to gauge the markets reaction to the Fed’s decision to begin easing from its support of this marketplace. Yields on the ten year bond have ranged between 3.3% and 3.8% for the better part of the last sixty days. The yield on the ten year bond was at 3.75% following the Fed’s decision regarding interest rates. In June, concerns over the growing amount of debt the government was accumulating led to a spike with yields in the bond market, sending the ten year bond over 4% for the first time this year. The increase in bonds, carried over to the mortgage market, where fixed rate home loans immediately jumped up to the low six percent range. Interest rates, following the easing of bond prices, have since dropped to their current levels (5.5% nationally), but could be under pressure again if the bond market begins to demand higher yields.
The Fed will be shifting out of the Treasury purchases in October, but there is little reason to expect a change to key interest rates in 2009. The overall economy faces many challenges, and the Fed will likely focus on increasing rates in the first or second quarter of 2008, only if the job market has turned the corner.
August 10, 2009
August 10, 2009 by admin
The stock market has moved lower on Monday, following a strong jobs report from last week and a solid week of gains in the stock market. The market appears to be in a position of uncertainty as investors are looking to lock in investment gains and wait for the next piece of the economic/earnings puzzle to better gauge the short term outlook. The last month the stock market has gained almost 1000pts and many experts believe this growth rate is not sustainable and that a correction is likely to occur. The current market has not sold off sharply, so it appears that, if a correction is likely to occur then it will need to be sparked by disappointing economic news or political fallout. There are only a handful of companies that still have not reported their second quarter earning, removing corporate guidance from the current marketplace could add to the expected volatility this month as their will be less information to move the markets overall.
Freddie Mac, the countries second largest agency mortgage lender, today provided some great news to their investors as well as the real estate industry. Freddie Mac, like its counterpart, Fannie Mae, has taken billions of dollars in aid from the government, simply to stay in business. Today, the company announced during its second quarter earnings release that it believes that it will not need additional capital to remain solvent. This is surprising news, as last week, Fannie Mae announced they would seek billions more in capital in order to maintain necessary capital ratios and continue lending. Freddie Macs, report comes during a time when there are a number of indicators that are pointing to a housing market bottom and the beginning of a recovery in the real estate industry. Freddie Mac, has been aggressively modifying its mortgage loans and has been aided by the low mortgage rates available this year to inject fresh earnings into its capital base.
Mortgage rates will remain in focus this week, as today CBSMarketwatch is reporting that the Fed is likely to discontinue their policy of purchasing treasuries, a move that could impact the bond market, and force long term bonds to move higher, directly impacting long term mortgage rates. Interest rates have remained well under six percent for the entire year, and most national mortgage lenders are offering fix rate thirty year home loans at or below five and a half percent. The yield on the ten year bond, has moved up above 3.7%, but has dropped below 3.8%, the current high point for the past sixty days. The news out of the Fed could push yields higher on treasuries, which would likely drive fixed rate mortgage loans to move higher (above six percent). The Fed’s decision to exit out of their treasury purchasing program comes at a time when housing numbers are improving, but could be too quick, as the long term implications of raising rates could work to slow down home sales, further dragging down the economy. This will need to be closely followed by home owners who have not refinanced to date, or potential home buyers that are presently on the fence.
August 7, 2009
August 7, 2009 by admin
The long anticipated release of the July jobs report has done little to disappoint the stock market. The stock market has jumped well over 100 points following the stronger than expected employment report. The national unemployment rate, has moved slightly lower down to 9.4%, and in the month of July there were a total of 244,000 lost in the workforce. This represents the eighteenth month in a row where the market has seen job contraction. The numbers, while still reflecting an economy that is in a recession, were much “softer†than most economists were predicting. The idea of bad news, not being terrible news has provided a jolt of confidence to equity investors who have been driving up the stock market over the last five months. The report helps to reassure these investors that the potential for brighter days in 2010 is now a distinct possibility.
The market is also digesting earnings and guidance from key financial institutions today. Earlier in the morning AIG & Fannie Mae posted quarterly results. Shares of AIG have been moving up sharply over the last week, following speculation the company could return to profitability. The company managed to beat expectations and show a profit of over one billion dollars for the quarter. The companies ability to return to profitability may help reassure tax payers that they have the potential to repay the one hundred and forty billion the government has loaned them to date. Fannie Mae, one of the nations largest mortgage servicing agencies reported another quarter of dismal financial results. The company reported a quarterly loss in excess of fourteen billion dollars. The company has continued to write down the balance of its loan portfolio as home foreclosures have escalated. To date, the company has yet to benefit from the governments push for loan modifications and streamlined refinancing to help keep homeowners from walking away from their properties. The lender, has benefitted from the historically low mortgage rates this year, but the net income received through these new loans is not making a dent in their overall financial struggles as their portfolios continue to decline in valuation. The companies poor quarter is forcing it to return to the government and request additional funding in excess of ten billion dollars in a move to ensure it can remain solvent.
The recent increase in equity positions is pushing fixed mortgage rates higher. The yield on the ten year bond is now 3.85% and rising. The market has broken above the sixty day moving average and is now approaching the 4% range. The jump in bonds is trickling through to fixed mortgage rates which are now at or above 5.5% with most national mortgage lenders for thirty year loan terms. The housing market will be closely following the rise with interest rates as a move above the six percent level could slow down the recent surge of buyers who are coming back into the market to take advantage of the great housing surplus and government tax rebates.
Agency lenders could shed toxic mortgages
August 6, 2009 by admin
The nation’s largest agency lenders, Fannie Mae and Freddie Mac, are again back in the news as the government is looking for a solution to improve the financial viability of both firms. Fannie Mae and Freddie Mac are the two largest mortgage agency lenders in the U.S. and they play a critical role in the mortgage industry. The companies are the two largest investors in securitizing mortgage backed loan securities. Mortgage lenders, who offer conventional loans, are likely to be underwriting these mortgages to guidelines set by Fannie Mae or Freddie Mac.
The severe downturn with the U.S. housing market over the last three years has forced the companies to accept billions of dollars of capital from the government. The companies, similar to how a bank lends money, utilized a leverage based model. The leverage based model allowed the companies to lend out money at ratios of 10 to 1 (ten billion in loans/to one billion in assets). These leverage ratios were expanded in the late 90’s to allow the companies to have more flexibility to increase their asset base. The company’s capital ratios became a large concern as the value of homes began to decline and home foreclosures began to rapidly increase. This rapid deterioration within their portfolios quickly left the companies short of their required capital ratios and threatened to collapse the U.S. mortgage industry. The government stepped in and provided both companies will billions of dollars in capital to help them remain solvent.
This week, the government began to float out new ideas on how to reshape the companies. Both Fannie Mae and Freddie Mac are publicly traded companies, which have seen their share prices lose significant value and now trade well under $1 per share. The government has allowed the companies to remain publicly traded despite there flirtations with going out of business. There is new speculation that the government could try to merge the companies together or potentially remove the bad asset loans from the company’s balance sheets.
The idea of removing toxic assets from the Fannie Mae and Freddie Mac’s balance sheet would be done through the creation of a bad bank. The term “bad bank†has been floated around in multiple scenarios as the government has looked for ways to best use money from the TARP program. Creating a bad bank, essentially allows the government to remove the assets from the companies balance sheets, immediately improving Fannie Mae and Freddie Mac’s capital ratios. The creation of a bad bank is a strong indication that challenges remain in the secondary lending marketplace. In years past, the secondary market was an active area for the securitization and sale of mortgage backed loans that were viewed as non conforming (sub prime, jumbo loans, second liens). This marketplace seized up during the credit collapse and has yet to return. Ensuring that Fannie Mae and Freddie Mac remain solvent and active in there current roles in the housing market is critical to the administrations plans on helping the housing markets. Historically low mortgage rates and tax rebates from the government are finally helping to bring buyers into the marketplace.
August 4, 2009
August 4, 2009 by admin
The stock market is working overtime to try and continue its winning streak on Tuesday. The market has shown no signs of slowing down from its six week rally and the S & P 500 index has broken above the 1000 point level, marking its highest point since November of last year. This is a critical week for investors and who are eagerly anticipating the July job market report. The improved numbers in the stock market will continue to increase the expectations on corporate earnings and revenue guidance. Investors are more likely to lock in their profits at current levels, so any sign of market weakness could lead to a broad market sell off.
The stock market received another shot in the arm from an unexpected source today. The housing market is continuing to provide better than anticipated news, and today’s report on pending home sales for the month of June quickly lifted the stock market. The National Association of Realtors reported that pending home sales moved up over three percent in June, led by strong sales on the west coast. Home sales are continuing to show signs of improvement as the government tax rebates, combined with historically low mortgage rates and great housing supply have finally brought buyers back into the fold. The housing market was a key contributor to the equity market rally last month as three major housing reports all beat expectations.
The government seems confident that the home loan modification programs for conventional, and now FHA mortgage loan modifications will assist over four million home owners in the next eighteen months. The most recent data released on the loan modification programs have shown that loan servicers to date have been poor to meet the demands of customers and the process of refinancing or modifying a mortgage loan for struggling home owners to be very chaotic. As a result of the poor performance to date of the loan servicing companies, the government has recently brought in the nations largest twenty mortgage service companies to revise the process of handling loan modifications and help streamline the process to improve the turnaround time and offer more help to struggling home owners. The government appears confident that the administrative changes will help push the Making Home Affordable program to achieve its goals.
The rally in the stock market is beginning to pushed fixed rates on mortgage loans higher. The yield on the ten year bond has now breached 3.7%, its highest level over the last thirty days. Home owners should consider locking in their mortgage loans at the current market rates if they believe that the July jobs market report will show signs of further economic improvement. A strong report from the jobs market could ignite a further stock market rally and push fixed rate mortgage loans toward the six percent level for thirty year loan terms. The current national rate for most thirty year loan terms is around 5.45% and moving upward according to a recent report from Freddie Mac. Mortgage rates have continued to trend between 5.25% and 5.5% over the last sixty days.
August 2, 2009
August 2, 2009 by admin
The month of July was a record setting month for the stock market. Following a downshift in June and the release of a worse than expected Jobs report for the previous month, most experts and investors would have been hard pressed to predict a month that would see both the Nasdaq and Dow finish at 2009 highs. The month of July could prove to be the turning point for the economy and mark the turn around for the housing markets.
July featured earnings reports for almost all of the S&P 500 companies, and for the most part investors were treated to better than expected performances and guidance that is indicating a light at the end of the tunnel. Key reports from JP Morgan, Caterpillar and EBAY provided a glimpse into the future earnings prospects for some of the countries most trusted brands. The market got a tremendous boost out of the housing markets as a trifecta of strong real estate reports seemed to indicate that the housing market may finally be bottoming out. The exiting home sales, new home sales and Case Schiller price report all were much better than originally predicted. The improvement in the housing market should send a vote of confidence to the government that their tax rebates and involvement in helping to keep home mortgage rates near historic low levels are finally starting to pay dividends to the housing market. The improvement in the equity and housing markets will likely carry forward to improving consumer confidence in August. These figures also could help to encourage corporate level hiring. Oil prices followed the equity markets for the most part in the month of July. Oil traded in a range of 60-70 per barrel and seemed to run into resistance at both ends of the range.
The month of August will start with heightened expectations from investors. The probability of increased volatility will increase as investors are likely to try and lock in earnings at any site of economic challenges. The market will get a great chance to solidify its direction this week when the July jobs report is released. This report could be critical in helping to determine the direction of both equities and bonds this month. The improved psyche in the market could fade quickly if the job market is not showing signs of improvement.
Mortgage rates ended the month on a downward course, despite the strong influence of the equity market rally. Rates benefitted from several strong auctions by the Fed last week, which helped to bring yields on bonds lower. The ten year bond traded between 3.35 and 3.7% for the month, Friday the ten year bond closed at 3.48%. Fixed mortgage rates touched a high point of 5.5% with most national mortgage lenders on thirty year loan terms, before dropping down to the 5.25% level to end the week. Mortgage rates have ranged between 5.125 and 5.5.% for the last sixty days, excluding a brief surge in early June as investors grew concerned over Fed debt levels. The market has been relatively steady, but the improvement in the equity market and rising oil prices could begin to pressure rates to move higher, so this will be important to watch moving forward.