Mortgage Market Week in Review…..

Happy Labor Day weekend! I hope that you take some time to enjoy a very relaxing weekend on the last long weekend of the summer.   Due to the fact that it’s the Holiday Weekend, I’m not going to make this as long as some of the others have been.    So here’s what’s been going on in the mortgage world:

1. Fannie and Freddie – while nothing has changed substantially, the immediate market fears over Fannie and Freddie have diminished somewhat.   I guess you could describe it as a situation where it’s still cloudy and rainy, but the worst of the storm has passed for now.

2. Credit Markets – there is continuing fear and questions regarding the status of the credit markets.   How big of a problem is there floating under the water yet?  I’ve heard rumblings that as Fannie and Freddie’s shares have fallen in value and as it’s rumored that when (not if) the Fed does bail out Fannie and Freddie, the shares will go to zero.   Many banks own substantial shares in those two companies and a reduction in their holdings to zero will require additional writedowns and additional belt tightening on their parts.   That doesn’t bode well for the health of the banks.   Speaking of banks, there’s some questions about a certain bank out in California (Washington Mutual) because they are currently offering CD rates that are approximately 25% higher than the going rates most banks are paying.   The thinking is that they are paying higher rates because they need cash and need it desperately.

3. Economic reports – the Gross Domestic Product report came in much stronger than expected.   Does that mean that the economy is going well?   Let’s put it this way, the aircraft industry had a very good quarter.   The vast majority of the increase came because of the aircraft industry.   Apparently some airlines are upgrading their fleets to improve fuel efficiency.    Consumer Confidence came in higher than expected as well.   The market consensus seemed to be that it was because the drop in oil prices is making people feel better because they aren’t paying as much at the pump.   Personal incomes fell in July (not good).   Inflation numbers came in higher than anticipated and that put some pressure on the bond markets.

4. Home Sales – I’m starting to see and hear some anecdotal evidence of certain parts of the housing market showing some signs of life.   What parts?   Distressed portions of certain markets, like the foreclosure and short sale markets in some areas, are starting to move faster.   Is this a sign of a bottom?  It’s too early to tell.   I really think that before we see a bottom in the housing market, we’re going to need a couple of things:  1) A stabilization in house prices (so far the house price indexes are showing that the rate of decrease is slowing, but it hasn’t stopped yet).   2) A reduction in inventory levels. So could some of the signs that we’re seeing lead us to say 6 months from now that this was the beginning of the bottom?   Very well could be, but it’s too early to tell for sure.  Oh, and will some of these things happen sooner in some areas than others?   Absolutely.

5. Oil and the guy named Gustav – there’s a lot of nervousness on what the pending Hurricane could do to the oil production in the Gulf.   I can imagine that the Weather Channel’s ratings are going to be pretty high this weekend.   How does that effect mortgages?   If oil production takes a major hit, we could be looking at higher gas prices which will be a drain on the economy.

With all of that, rates have actually drifted down a bit this week.

Until next week…..