Mortgage Update

Last Week in Review: There was more negative news out of Europe and some positive economic news here in the US. But how did home loan rates fare and what affect may it have on the new HARP Loan Program? Forecast for the Week: There will be plenty of news to gobble up before the Thanksgiving holiday, with reports on the housing market, the state of the economy, inflation, consumer sentiment, and more. View: Planning to do some shopping on Black Friday? Be sure to check out these tips first.           Last Week in Review           They say it takes two to tango.... And Stocks and Bonds continue to battle for investing dollars and trade in seesaw fashion. What's causing this dance in the markets? Read on for details. First, there was more pessimistic news out of Europe last week, as German leader Angela Merkel said that Europe is going through its toughest times since World War II, plagued by political unrest and a severe debt crisis. Reports showed there was a slowing in manufacturing to the point where recession fears have now gripped Europe. Here lies another enormous problem for Europe: One way--and probably the biggest way--to lower government deficits, is to grow your way out and elevate Gross Domestic Product (GDP). However, many of the Southern Europe economies are on the brink of recession, which will make lowering the deficit through economic growth impossible. So what does all of this mean for home loan rates here in the United States? The problems in Europe should continue to support the US Dollar and US Bonds (including Mortgage Bonds, on which home loan rates are based) to some degree, as investors will view our Bonds as a safe haven for their money. Yet, if we continue to see better-than-expected economic data here like we did last week, this will offset the continued uncertainty surrounding the European crisis. And this is part of the reason that the Bond markets and home loan rates saw limited gains last week. Some of the good news last week included tamer than expected wholesale inflation in the form of the Producer Price Index (PPI) and improved New York Manufacturing. Also, as you can see from the chart, the year-over-year headline Consumer Price Index (CPI) was down from the previous reading, which is good news for people concerned about inflation. However, the closely watched Core CPI rose by 0.1%, and though this was inline with estimates, it did push the year-over-year rate to 2.1% from 2%...a touch above the Fed's comfort zone. The bottom line is that home loan rates are still near historic lows, which means now remains a great time to purchase or refinance a home. Let me know if I can answer any questions at all for you or your clients.           Forecast for the Week           This Thursday, all capital markets will be closed in observance of Thanksgiving, and Friday will be a shortened session. But we'll still see a cornucopia of economic indicators reported in just three days: Existing Home Sales will be released on Monday. The report comes after last week's positive reports on Housing Starts and Building Permits, which signaled a glimmer of hope to the battered housing sector. The second read on Gross Domestic Product (GDP) for the 3rd Quarter will be delivered on Tuesday. The initial reading showed a somewhat healthy 2.5% increase. Also, look for the Durable Goods Report on Wednesday, which gives us a read on big-ticket items and a sense of how the economy is doing. The Consumer Sentiment Index will be released on Wednesday just in time for traders to square up positions ahead of the long holiday weekend. Also released on Wednesday will be the Fed's favorite gauge on inflation, the Core Personal Consumption Expenditure, as well as Personal Incomes and Spending. Finally, this week Initial Jobless Claims will be delivered on Wednesday rather than Thursday due to the Thanksgiving holiday. Claims have been below 400,000 for the previous three weeks, signaling that there may be a light at the end of the tunnel in the Labor markets. HARP Refinance activity has began to pick up as inquiries to lenders and HARP Loan Program information sites have seen a quick rise in requests for information.   In addition to those reports, the Fed's Federal Open Market Committee meeting minutes from November 2nd could have some surprises when released at 2 pm ET on Tuesday. Last week, the New York Fed leader William Dudley said that it would make sense for the Fed to begin purchasing Mortgage Backed Securities. The minutes could reveal if the members discussed the topic. Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result. As you can see in the chart below, the problems in Europe tempered the impact that strong economic news in the US had on Bonds and home loan rates. This dynamic will be something to watch closely in the weeks ahead. Chart: Fannie Mae 3.5% Mortgage Bond (Friday Nov 18, 2011)           The Mortgage Market Guide View...                   For more information on the Mortgage market and the HARP refinance loan program look for next week’s issue. Economic Calendar for the Week of November 21 - November 25 Date ET Economic Report For Estimate Actual Prior Impact Mon. November 21 10:00 Existing Home Sales Oct 4.85M   4.91M Moderate

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