Premier Mortgage Group

Mortgage interest rates increased slightly this past week largely driven by today’s better than expected jobs report for August.  Today’s report showed that non-farm payrolls fell by 54k on expectations that they would fall by 120k.  Private non-farm payrolls increased by 67k on expectations that they would increase by 44k.  The unemployment rate increased to 9.6%, in line with expectations.  Also, weekly jobless claims fell slightly on expectations that they would increase.  Other positive economic news of note included July Personal Spending, the Case Shiller 20 City Home Price Index, the Chicago Purchasing Managers Index, August Consumer Confidence, the August ISM Manufacturing Index, and July Pending Home Sales.  Economic data weaker than expected included July Construction Spending and the August ISM Services Sector Index.

The Dow Jones Industrial Average is currently at 10,395, up about 450 points on the week.  Crude oil futures are currently trading at $73.54 per barrel, up slightly on the week.  The Dollar weakened versus the Euro and Yen on the week.

Next week look toward Thursday’s International Trade and weekly jobless claims as potential market moving events.  All markets are closed on Monday for Labor Day.   The Treasury will auction $67 billion in 2 year notes, 10 year notes, and 30 year bonds next week.

One of these monthly payroll reports will signal a turn in the economy to self-sustaining growth, and splatter the bond and mortgage markets all over the windshield.

Not today. The payroll positive in August: non-government jobs rose by 67,000 (half of those in un-affordable health care, the only sector to gain jobs every month of the recession). Details were thin cheer: overall employment fell 54,000 in August, as cuts in one-time census-workers and other government jobs overwhelmed the private gain; and a June-July revision found that we did not lose 352,000 jobs, only 229,000.

Flat, going nowhere, but not double-dip. Therefore sell safety-bonds: 10-year T-notes jumped to 2.75% from 2.47% on Wednesday, but mortgages have held 4.50%.

In the absence of double-dip or recovery, the policy vacuum hardened.

The doves at the Fed need ugly data to push the hawks aside, and allow hatching of more quantitative easing, the direct purchase of financial instruments. Code: “QE2.”

This is an election year, but the most peculiar in modern times.

The White House finds the economy so difficult that foreign policy looks attractive.    Old joke: walking on a beach, Bernie finds an old brass lamp, rubs it, and out pops a very small Genie. “Ya get one wish. Let’s have it.” What about three wishes? “I’m a little Genie. Move it.” Hmmm… altruism, or selfishness…. Mr. Genie, my one wish… give us peace in the Middle East. “Hey! I’m a little Genie — gimme something I can handle.” Okay, to hell with mankind. Mr. Genie, I would like one more wildly romantic weekend with Mable, my wife of 52 years.

Long pause. Very long… “Hey! Ya gotta map of the Middle East on ya?”

The White House adopted Senator George Aiken’s prescription for Vietnam: declare victory, leave, and have a parade. “The end of combat” in Iraq does not quite square with the 50,000 troops still there. Cooks and bakers, maybe… mechanics… and the bands. Music is good.

This week we’ve got Hosni and Bibi in town, and we’re going to solve Palestine.

In any normal world, the Republicans would move to the middle, to take advantage of a country annoyed with Obama’s old-tired-Left performance. The center gave him a landslide, but the center has not gotten center in return.

The Republicans do have one old political law to support their grumpy silence: “Never interfere with an opponent who is committing suicide.” However, the Republicans are swilling hemlock of their own in the Calvin Coolidge clubhouse, locked from the inside, lest anyone try to join them. Everybody who likes “I’ve got mine, you’re on your own” is already in.

Amazing. This is a democracy, and our government is a mirror of the people. Today’s detachment — abandonment — of the center and Main Street by both parties is without precedent, a fun-house mirror.

Yet, maybe the mirror is accurate: the people do not know what has happened to them nor what to do about it, and thus politics are lost in empty space.

All economic-fix proposals on the table are re-runs, trying to stimulate “aggregate demand.” More stimulus spending (less money, but better-targeted), tax cuts (payroll tax holiday?), QE2 — all the same deal, old-fashioned efforts to “jump-start” the economy that failed in mass and are not likely to work in mini.

Discussion of structural issues has halted. Some big part of our unemployment problem dates to the mid-‘90s rise of predatory exports from Asia. A new do-nothing, embarrassing delegation leaves next week to beg in China. Some say that labor force skills are obsolete, yet age 55+ employment is rising, and it’s youth that’s in trouble.

Last, the elephant in the structure: the financial system cannot generate credit, and most of the economic glitterati think that’s okay. We borrowed too much, and now we have to pay it back. Suffer. It’s good for you. Made better people of your grandparents.

Void it is, until the economy declares itself. And it will.

FHA released a mortgagee letter today (mortgagee letter 2010-28) with details regarding changes to mortgage insurance.

Highlights:

• Effective with case numbers assigned on or after October 4, 2010
• Upfront mortgage insurance will change to 1.0%
• Annual mortgage insurance with loan terms > 15 years:
  <= 95% LTV = 0.85%
  > 95% LTV = 0.90%
• Annual mortgage insurance with loan terms <= 15 years:
  <= 90% LTV = No Annual MIP
  > 90% LTV = 0.25%

Please contact us with questions about these MI changes!

Mortgage interest rates were mostly flat on the week despite generally weaker than expected economic data.  Of note, July Existing Home Sales fell 27.2% to its lowest level since June of 1995 on expectations that sales would fall by 13.0%.  Year over year, sales were down 25.5% and there is now a 12.5 month supply of existing homes.  July New Home Sales were expected to increase by 3.0%.  Instead, sales fell by 12.4%.  There is now a 9.1 month supply of new homes.  July Durable Goods Orders increased by only 0.3% on expectations that orders would increase by 3.0%.  Excluding transportation orders, durable goods orders fell by 3.8% on expectations that they would increase by 0.5%.  The University of Michigan Consumer Sentiment Index was slightly weaker than expected, reported at 68.9 on expectations of 70.0.  On a positive note, weekly jobless claims fell by 31k on expectations that they would only fall by 15k.

The Dow Jones Industrial Average is currently at 10,091, up about 20 points on the week.  Crude oil futures are currently trading at $73.82 per barrel, up slightly on the week.  The Dollar weakened versus both the Yen and Euro on the week.

Next week look toward Monday’s Personal Income and Outlays, Wednesday’s ISM Manufacturing Index, Thursday’s weekly jobless claims and Pending Home Sales Index, and Friday’s employment report for August as potential market moving events.

Markets waited all week for Perfesser Bernanke’s keynote speech today at the central bankers’ conference in Jackson Hole. Fishin’ up there is good, and would have been a better use of time.

Rates are now rising sharply from their lows after the Perfesser’s murky address accurately reflected a divided and uncertain Fed, in a reactive state several miles from anticipation and pre-emption. There will be no new QE (quantitative easing, the Fed’s direct injection of invented cash) or any other substantive action until the economy declares itself, double-dip or modest recovery. The job market will be definitive, but this Fed will need to see two or more months of dipping data before moving.

Tuesday’s Wall Street Journal contained the most extraordinary official leak in decades, a revelation of the economic and policy opinion of each Governor and regional-Fed president at the Fed’s meeting two weeks ago. Seven of 17 are dug in: we’ve done too much, or the economy is okay, or there is nothing for us to do, anyway.

Analysts have struggled to quantify the housing “shadow inventory” and its effects ever since the market began to roll over in late 2005. The focus on delinquencies and future rate and amortization re-sets has missed the depth of shadows.

This inventory, in one stage of distress or disquiet or another, looks like Napoleonic infantry advancing slowly through fog, each rank harder to make out, the back invisible, one rank after another gradually coming into view.

The cannon fodder in front is in foreclosure, in the second quarter 4.5% of all mortgages (roughly 2.5 million of the fifty-million total). Right behind, scythed by canister, the 14.4% in delinquency.

The next ranks, formation ragged and intermixed with the front: the 11 million households underwater versus mortgage balances, and another 2.4 million with negligible equity (CoreLogic). Many, perhaps most of these households are not even delinquent, but can go to distressed sale or walk away at any time.

Barely visible, the unknown millions holding on but approaching the end of their resources. I think most of the people who bought homes they could not afford, and with suicidal mortgages, are already down on the field. Most owners were and are prudent, prepared for two or three or four tough years — but now many have had five since housing rollover, three since recession began, and see no end. There is no way to measure their resilience.

The rear ranks, invisible, innumerable, include all of those with equity, with jobs, with savings, and even the one-third of households without a mortgage. Some portion, perhaps one-third of the total, live in fortunate places. Values have held, and markets are liquid (the Great Plains, Colorado, Texas, greater DC and San Francisco…).

The other two-thirds, or half, tens of millions, are deeply unsure of their ability to sell their homes at a price consistent with life-plans: tuitions, retirements, and the ability to relocate to a better job. Some fraction is not uncertain about the discount necessary to sell, but fully aware and paralyzed by the thought.

These worried millions are not likely to go to fire sale, and therefore not part of the traditional definition of shadow inventory. However, their concern has caused them to withdraw from any consumption or risk-taking that would help the economy to recover, and their prudent standstill undercuts all of those at greater risk.

At this stage of non-recovery, it is amazing to find so many housing opponents so pleased, so you-got-what-you-deserved (blogger David Rosenberg in the lead). At least as amazing is the done-all-we-can from the Fed and Administration. Shrug and say “new normal.” Long, slow slog. Modest. And near the heart of the matter: cut off new credit to those who need it and qualify because too many who didn’t are defaulting.

I still have high hope that it will occur to the powers that a burst bubble is one thing, and a spiral into liquidation is another. Might do something about that.

Mortgage interest rates improved slightly again this past week on mixed economic data.  Economic data weaker than expected and supporting lower interest rates included weekly jobless claims and the Philadelphia Fed Business Index.  Weekly jobless claims were expected to fall by 9k but instead increased by 12k.  The August Philadelphia Fed Business Index was expected at +7.5 but actually came in at negative 7.7.  Any reading below zero indicates contraction.  Also of note, July Housing Starts increased but not as much as expected.  July Building Permits fell 3.1% on expectations that they would fall by 2.3%.  On a positive note July Industrial Production and Capacity Utilization were both better than expected.  The July Producer Price Index (PPI) was in line with expectations.  Core PPI, excluding the food and energy components, was up 0.3% on expectations that it would be up 0.1%.

The Dow Jones Industrial Average is currently at 10,166, down about 130 points on the week.  Crude Oil Futures are currently trading at $73.59 per barrel, down about $2 per barrel on the week.  The Dollar strengthened versus the Euro and weakened versus the Yen on the week.

Next week look toward Tuesday’s Existing Home Sales, Wednesday’s Durable Goods Orders, Thursday’s weekly jobless claims, and Friday’s second look at Q2 GDP as potential market moving events.

While the Fed and the administration insist that recovery is moving forward, the pattern of in-bound data produces the same, queasy sensation as their denial in the fall of 2007 and the summer of 2008.

New unemployment insurance claims hit a one-year high, 500,000 last week — no dramatic spike, just steady deterioration. The Philadelphia Fed index yesterday stunned the remaining optimists: expected to rise from a weak 5.1 in June, it fell to negative 7.7, weakest in new-order and employment components.

The definitive 10-year T-note broke last weekend from the 2.70s to 2.59%, still there, but mortgages are under upward pressure from refinance volume doubled since April, and the Fed no longer buying MBS, just Treasurys. Purchase apps are dead flat.

The apparent failure of all traditional recession-fighting measures has unleashed a policy free-for-all. Absent any tested theorem for what-to-do-next, the gates of every economic lunatic asylum are wide open, the rational indistinguishable from the mad.

Crazy people are often cheerful, giggling sorts, but this crowd ambling through the countryside conceals a homicidal fraction bent on settling old scores. The oldest feud in finance festers between the No Government and Interventionist mobs, and the former have out the long knives, hoping to finish off forever the hated twin Frankensteins of intervention: Fannie and Freddie.

The long knife of choice is propaganda, Big Lie leapfrog, dezinformatsiya, demanding a return to the good old days of a private-only mortgage system, 20% down, and the end of all Federal involvement, the sole source of our current trouble.

The last all-private mortgage system in the US had been in place until 1929. Down payments were 20% or more, but the loans were short-term, often callable or balloons, and only about 40% of Americans owned homes. In the greatest financial collapse of all time, from 1929-1932 the combination of mortgage default, foreclosure, and falling values collapsed half of the nation’s banks and extinguished deposits, money, and credit. Private markets were utterly unable to stop their impulse to liquidate.

That self-reinforcing downward spiral was stopped by government-guaranteed restoration of credit: the Federal Home Loan Bank system in ’32 began to provide liquidity to S&Ls, the FDIC in ’33 guaranteed deposits, the FHA in ’34 brought the first 30-year fixed-rate mortgages, and Fannie in ’38 became the “secondary” conduit.

The “20% down” fable sold by deceitful Wall Street Journal op-eds does not survive the facts. GI loans, 1944 to today, have been 0%-down; the FHA since then in a range of 3%-5% down, both with rigorous underwriting. In 1972 the private market brought the innovation of mortgage insurance, and 5%-10% conventional down payments.

The S&L disaster was a government failure in two stanzas: the clumsy deregulation of deposit costs put all loans underwater as to rate in 1979 (they were good loans, though); then the grant of commercial/development lending powers, instead of “growing-out” of trouble caused the credit disaster of the ‘80s. All bi-partisan work, by the way. As was allowing private interests to seize control of the Fannie-Freddie public-private partnership: bloated portfolios never intended, and governance by theft.

The no-government disinformation says that lefitsh Community Reinvestment and affordable housing loans wrecked Fannie and Freddie, and in turn caused the whole current disaster. Not so: the deed was done by private-motive overextension. However, the political drive to extend home ownership to the unprepared was a terrible mistake.

The Big Lie conceals the really big truth: the worst mortgage losses — subprimes, Alt-As, option ARMs, and 2nds — were all private creations. FHA and VA still stand. Lehman and Bear do not. BofA, Chase, and Wells still choke on their private trash.

There are right and wrong ways to rebuild government support for mortgages. However, just as war is too important to be left to generals, mortgages are too necessary and too dangerous to be left to nouveau Lehmans, Bears, and Countrywides.

Mortgage interest rates improved slightly this past week largely driven by the FOMC policy statement.  The statement indicated that the economic recovery has slowed and is likely to be “more modest in the near term than had been anticipated”.  As a result the Fed said that it will reinvest principal payments from the $1.25 Trillion in Mortgage Backed Securities that it holds back into longer-term Treasury securities.  This is referred to as quantitative easing, which hopefully will help keep rates low on longer term debt in the near term.  Economic data of note included weekly jobless claims, which increased on expectations that they would fall.  July Retail Sales were in line with expectations.  The July Consumer Price Index (CPI) increased slightly more than expectations.  Year over year, though, CPI is up only 1.2% indicating very little inflation.  The Treasury auctioned $74 billion in debt this past week.  Overall, the auctions were met with strong demand.

The Dow Jones Industrial Average is currently at 10,342, down about 300 points on the week.  Crude Oil Futures are currently trading at just over $75 per barrel, down about $5 per barrel on the week.  The Dollar strengthened versus both the Euro and Yen on the week.

Next week look toward Tuesday’s Housing Starts, Producer Price Index (PPI), and Industrial Production as potential market moving events.  Also, look toward Thursday’s weekly jobless claims as a potential market mover.

News of a sharply weaker economy combined with policy vacuum to produce the lowest mortgage rates ever recorded, briefly 4.25% for the highest-quality loans (at rollout in 1944, the first GI loans were pegged at 4.00%, but with a couple of discount points). The 10-year T-note crossed under 2.70%, well into the range of the panicked winter, 2008-2009.

All data were poor, notably new unemployment claims rising back toward 500,000 weekly, but the killer lay in trade statistics. Our June deficit versus the world shot up by $10 billion to $54 billion. GDP is based in part on sales, but the “P” portion depends on whether Americans bought stuff produced here or overseas; since we bought a great deal more from overseas than assumed in the first Q2 GDP estimate of 2.7% growth, April-July GDP will soon be revised to only 1.0-1.5%. Guesses for Q3, momentum lousy going in, run zero to 1%.

In a tale of overflight domestic and foreign, the sky is black with chickens coming home, dropping eggs and other things on expectant, up-turned faces.

The Fed looks weak and lost, as late as ten days ago Perfesser Bernanke insisting on the Fed’s forecast for 3%-plus GDP growth this year. It did muster the courage to buy new Treasurys as mortgages on its balance sheet are extinguished by refinance, but that’s a net-neutral effort. Tuesday, before the trade data shattered its forecast: “The pace of economic recovery is likely to be more modest in the near term than had been anticipated.” How modest is more modest? Is this the Modest Depression?

Last year two camps of observers and policy advocates argued: the V-recoverists, and the flat-bottomed-U grumps. The yolk-drenched former insist that the economy is in a mere “soft patch,” but we better get on with more stimulus, budget be damned, and “jobs programs.” The flat-Us are pleased in a depressing sort of way, but the dominant portion (business, market, and political Rights) think the solution is to get government out of the economy — this after the greatest market failure of all time.

The anti-gov-grumps claim that uncertainty about new regulation has frozen businesses. Maybe, a little. The NFIB small-business survey found that 73% of respondents thought this a bad time to expand; of those, 66% said a weak economy was the reason, and only 16% cited the “political climate.”

Employment is weak because sales are lousy, not the other way around. Sales are lousy because the nation’s households are scared, more than half unsure about their ability to sell a home, and if so for what.

However, employment is weak for another reason. The onset of “jobless recoveries” in 1992 coincided exactly with the rise of Asian export machines. We have allowed ourselves to be fleeced — skinned — by trade management, the offensive version of defensive “protectionism.” The US is the only nation on earth not to manage trade. China’s July trade surplus hit $29 billion, all of it sold to us. Along with goods, these predatory exports send to us China’s wage structure, killing jobs here.

“Managed trade” takes many forms, but currency manipulation is central (cultural/governmental resistance to imports is as important). China this week cut the yuan to its value before its promise let it rise in June. The guy most plastered with chicken by-product: helpless Timmy Geithner, our yuan negotiator. Act like a patsy, get treated like a patsy — the prior two Administrations every bit as much at fault.

It’s not just US v. China. A deepening global slowdown has set off a scramble for net-exports. Germany’s Q2 GDP soared at a 9% rate, its exports supercharged by a $1.30 euro undervalued by one-third relative to its uber-productivity. The rest of Europe, shackled to a vastly over-valued euro, was GDP-flat. Germany borrows for 10 years at 2.39%, Ireland at 5.32%, and Greece at 10.46%. Not sustainable.

In this extraordinary week, the White house has been silent. Quite the election year, neither party with platform or clue.

Mortgage interest rates improved slightly this past week on mixed economic data.  Today’s employment report for July was weaker than expected.  Non-farm payrolls were expected to fall by 70k.  As reported, payrolls fell by 131k.  Private jobs were expected to increase by 100k.  As reported, private jobs increased by 71k.  Unemployment remained unchanged at 9.5%.  Yesterday, weekly jobless claims increased by 19k on expectations that they would fall by 2k.  Labor markets continue to be weak.  Other economic reports weaker than expected included June Factory Orders and June Pending Home Sales.  Economic reports better than expected included June Construction Spending, the July ISM Manufacturing Index, and the ISM Services Sector Index.  The increase in construction spending, though, was largely driven by government spending.