San Diego Home Mortgage Blog

With mortgage prices .25 basis points better than morning pricing levels on 30s we will hold and float locks overnight.

Demand for Treasury issues is strong, very strong. Today the 10 yr note auction (9 yrs 10 mos) went well as have most auctions recently. The rate at 3.21% was slightly lower than this morning's rate of 3.22% ahead of the auction; the cover at 3.01 is one of best seen in awhile and indirect bidders (foreign investors generally) took 47.4% of it. The numbers were solid across the board and will set the stage for a solid showing at tomorrow's 30-yr offering. The previous 10 yr auction saw a 3.510% high yield with a bid-to-cover of 2.77 with an indirect bidder participation rate of 55.3%, an input which has been steadily increasing since April. The average of the 9 auctions in 2009 has been a 2.56 cover and an indirect take of 34.9% (including reopenings.

August consumer credit fell again for the seventh month in a row; expected to be down $9.5B credit declined $11.98B. July credit however, was revised to -$19B frm -$21.6B originally reported. Not since 1991 has consumer credit declined at the present pace. Not a blink from the equity markets. Consumer activities are completely ignored these days as markets bet on better corporate earnings. Third Q earnings reports start later this afternoon with Alcoa and will take three weeks to go through all of the reports.

Tomorrow at 8:30 we will get weekly jobless claims, expected to have declined from 551K last week to 540K this week. Continuing claims, those that remain on unemployment, expected a little higher to 6.105 mil from 6.09 mil last week. At 10:00 Aug wholesale inventories are expected -1.0%, more reduction in held inventories as consumers continue to pull back. The sales to inventory ratio is key ion the report (no estimate for it however). At 1:00 the last of the three Treasury auctions, $12b 30 yr bond re-opening of the issue dated in August. After that we have two weeks before another round of borrowing; back in the day Treasury borrowing would pressure rate markets higher, these days the demand remains strong and traders have recently ignored them as a negative.

Tomorrow evening at 7:00 Fed chief Bernanke will speak on the Fed's balance sheet to the Fed's conference on key developments in monetary policy in Washington.

Fannie Mae and Freddie Mac have been given the green light by their regulator to aid the warehouse lending market by issuing guaranteed purchase agreements on residential loans that are in the process of being funded, according to industry officials familiar with the plan. At deadline, the GSEs and their regulator had not returned telephone calls about the matter. It's believed that if Fannie and Freddie issue a commitment to purchase a loan (a loan that is in the process of being funded) the warehouse lender of record will have to hold little or no capital against it, said one observer. This would make warehouse lending - which is already a profitable niche - even more so. Until now, the capital banks must hold against these credits has been one of the stumbling blocks to new entrants coming into the business. Over the past few months two of the largest players in warehouse lending - Colonial Bank of Alabama and National City of Cleveland - have either exited the sector or announced plans to do so. NatCity's warehouse group may be sold by its current owner, PNC Financial Services. Colonial failed this summer. Some of its clients are still being served by it acquirer, BB&T. (Nat'l Mtg News)

Treasuries and mortgages had another good day; it is the first day in four days treasuries are going to close better, although in the past four days there has not been much selling, just consolidating. How much lower can the rate markets fall? Most old salts are confused as to why rates have fallen this much. It is highly unlikely the 10 yr note can trade with a 2 handle unless there is huge change in sentiment in the economic outlook that hammers the equity markets. The 10 yr currently at 3.18% the lowest close since mid-May. Mortgage rates are also at levels that are likely close to the lowest we will see in this run.

PRICES @ 4:00 PM

10 yr note: 103.23 +21/32 3.18% -6 BP

5 yr note: 100.31 +11/32 2.17% -7 BP

2 Yr note: 100.09 +3/32 0.86% -4 BP

30 yr bond: 108.21 +39/32 4.00% -7 BP

Libor Rates: 1 mo; 0.244%; 3 mo 0.284%; 6 mo 0.600%; 1 yr 1.216%

30 yr FNMA 4.5 Nov: 101.18 +10/32 (.31 bp) (+9/32 (.28 bp) frm 9:30)

15 yr FNMA 4.0 Nov: 101.30 +6/32 (.18 bp) (+4/32 (.12 bp) frm 9:30)

30 yr GNMA 4.5 Nov: 101.29 +9/32 (.28 bp) (+8/32 (.25 bp) frm 9:30)

15 yr GNMA 4.0 Nov: 102.20 +6/32 (.18 bp) (3/32 (.09 bp) frm 9:30)

Dollar/Yen: 88.60 -0.15 yen

Dollar/Euro: $1.4677 -$0.0044 (dollar better)

Gold Dec: $1,044.30 +$4.60

Crude Oil Nov: $69.78 -$1.10

Goldman-Sachs

Commodity Index: 459.04 -4.02

DJIA: 9725.58 -5.67

NASDAQ: 2110.33 +6.76

S&P 500: 1057.58 +2.86