Mortgage Times

[Adam in CO]

Mortgage Market News for the week ending July 11, 2008

Events This Week:

Jobless Claims Fell
Pending Sales Down
Import Prices Higher
Sentiment Rose

Events Next Week:

Tues 7/19
PPI
Retail Sales
Wed 7/20
CPI
Industrial Prod.
FOMC Minutes
Thurs 7/21
Housing Starts

Fannie and Freddie in the Spotlight

While there have been concerns for months about the size of losses at Fannie Mae and Freddie Mac due to the credit crisis, the troubles at the two firms increased significantly during the week. Monday, a report from an investment bank suggested that the two firms would have to raise enormous amounts of capital to comply with revised accounting rules. Thursday, Former Fed member Poole claimed that the two firms are insolvent under standard accounting rules and warned that a government bailout might be needed in the future. Friday morning, there was speculation that the government was considering a takeover of the two firms.

The response from government officials was swift. The director of OFHEO, Fannie and Freddie's regulator, reported that they both remained "well capitalized" based on their charters. On Thursday, Fed Chief Bernanke and Treasury Secretary Paulson attempted to reassure investors that the financial system was sound. Since Fannie and Freddie are government-sponsored enterprises, and together account for about 70% of mortgage originations and hold $5.3 trillion in home-loan debt, most investors believe that the government would step in to prevent the collapse of the firms. Friday, Treasury Secretary Paulson stated that he sees no bailout on the horizon for Fannie and Freddie and that the government is working to support them to carry out their "important mission" in their "current form".

Bottom line, despite the negative headlines, comments from OFHEO, the Fed, and the Treasury eased investor concerns. While the stock prices of Fannie and Freddie plunged during the week, investors apparently were comfortable that the firms' guarantees of the mortgage loans were not at risk, and mortgage rates ended the week moderately lower.

• Also Notable:
• Pending Home Sales, a leading indicator, fell modestly in May
• Continued Jobless Claims rose to the highest level since December 2003
• The Fed's Yellen noted that the Fed is at a "crossroads" in determining interest rate policy
• Oil prices reached record levels above $147 per barrel, up over 50% this year

Average 30 yr fixed rate:
Last week:+0.06%
This week:-0.18%

Stocks (weekly):
Dow:11,048-262
NASDAQ:2,227-31

Week Ahead

Inflation data will be the highlight of a full Economic Calendar next week. The Producer Price Index (PPI) will come out on Tuesday and the Consumer Price Index (CPI) on Wednesday. PPI focuses on the increase in prices of "intermediate" goods used by companies to produce finished products, while CPI looks at the price change for those finished goods which are sold to consumers. Retail Sales will also come out on Tuesday. Consumers account for about 70% of economic activity, and this report is a major indicator of spending levels by consumers. Industrial Production, an important indicator of economic activity will be released on Wednesday. Housing Starts are on the schedule for Thursday.

In addition, Fed Chief Bernanke will be testifying on Tuesday and Wednesday. The minutes from the June 25 Fed meeting will be released on Wednesday. News about Fannie and Freddie will also be influential next week.

admin@corefinancegroup.com.