Headlines

Interest rates are modestly higher this morning after equities closed nearly 3% higher Wednesday. Ninety minutes before the opening bell, S&P 500 futures are just below yesterday's high at 1081.25 and the benchmark 10-year Treasury note is -0-04 at 100-09 yielding 2.593% (+1.3%). The October delivery FNCL 4.0 is -0-02 at 102-27. ...

After weeks of stagnation, stocks finally took their turn in the spotlight today. As money moved out of the bond market and into equities, mortgage-backed security prices fell and lenders were forced to reprice for the worse. Consequently, consumer borrowing costs are higher than they were yesterday afternoon. The damage was not overly dramatic though......

Residential construction spending includes remodeling, additions, and major replacements to owner occupied properties subsequent to completion of original building. It includes construction of additional housing units in existing residential structures, finishing of basements and attics, modernization of kitchens, bathrooms, etc. Also included are improvements outside of residential structures, such as the addition of swimming pools and garages, and replacement of major equipment items such as water heaters, furnaces and central air-conditioners. Maintenance and repair work is not included....

"Refinancing activity picked up again last week, reaching new 15-month highs, as borrowers took advantage of even lower mortgage rates. The drop in mortgage rates was in line with Treasury rates as the latest data continue to show weak economic growth and an exceptionally weak housing market...The sharp decline in MBA's Purchase Application index in May had provided a clear leading indicator of the drops in new and existing home sales that were reported for June and July. Despite the slight increase in purchase activity in the past week, the continued low level of purchase applications indicates we are unlikely to see an increase in new home sales reported for August or existing home sales reported for September."...

No-appraisal loans; Pennsylvania gives compensation opinion; SS# funnies; impact of lower rates; JPM's buybacks; commercial rebound?...

Stocks are rallying and the bond market is taking a beating after a much better than expected read on the manufacturing sector. ...

MBS valuations were also given a boost when the FOMC Minutes revealed the Fed had discussed the notion of reinvesting MBS prepays back into the TBA MBS market. From the FOMC Minutes: "While reinvesting in Treasury securities was seen as preferable given current market conditions, reinvesting in MBS might become desirable if conditions were to change."...

The first day of September looks to open strongly while investors await key data on employment and manufacturing. About ninety minutes before the opening bell, S&P 500 futures are up nearly 12 points to 1,060 and Dow futures are jumping 75 points higher at 10,081. European stocks are also about 1.5% higher and Asian markets finished stronger (a notable exception being China’s Shanghai index, which fell 0.6%)....

Yesterday we heard banks were buying back MBS hedges. This means lock desks were actively reducing their pipeline coverage (forward hedges) to account for an expected increase in fallout. This was a hint of strong pricing to come....and it did! ...

If you've been floating your loan or have yet to apply for a refinance because it just didn't seem worth the hassle, congratulations, mortgage rates hit new lows today. If you've refinanced in the last 20 months, there is a darn good chance your refinance option is back in the money, again!...

Standard & Poor's Case-Shiller Indices continue to show improvement in home prices, but the rate of increase has slowed and its publisher points to other indicators as "ominous" signals....

Have you seen loan pricing today? When we took down indications and updated our model with BE offers from the majors, our first reaction was: THERE IS AN ERROR SOMEWHERE! On average, loan pricing is 30.2 basis points better vs. yesterday. Just to confirm these rebate improvements I called around to a few desks and double checked our model for errors. Nope. Loan pricing is really that much better today......

FHA to FHA Refi Apps on the Rise but New MIP Structure will Slow Streamlines; GSE MBS Issuance in July; FDIC Transparency; Appraisal Adjustments...

After experiencing a sizable sell off on Friday, the bond market spent the day yesterday in recovery mode. Prices of U.S. Treasuries rallied across the curve with the long end leading the way. The 10 year TSY note went out +1-00 at 100-26 yielding 2.53% (-11.6bps). The 7 year note was the star performer, rallying 25/32 in price to a yield of 1.969% (-12.3bps). Trading volume was below average and position squaring/short covering was noted. Trading volume in stocks was also apathetic, based on my records equity futures experienced their lowest volume day of the year on Globex. This is indicative of an indecisive market, something that should continue as we draw closer to the release of the Employment Situation Report on Friday. ...

My point: after reprices for the better, loan pricing is 13.3bps better than it was last Monday (on average). In fact, loan pricing is just about as aggressive as it's ever been! If you are a perfect borrower, 4.25% is readily available. Heck, even if you're not a perfect borrower 4.25% is available with points. We've likely seen Treasury prices hit their highs and Treasury yields hit their lows...with MBS showing no inclination to keep up or catch the Treasury rally, we've likely seen mortgage rates hit their lows as well. While you may see a few bps here and there...floating your loans right now doesn't seem logical...the risk/reward relationship is highly skewed toward all risk no reward....