Terri Baker

Hello,

I hope this message finds you well.  I wanted to take a moment to bring you up to date concerning the rate market for permanent mortgage loans.

Last week, we witnessed a decline in the mortgage interest rates as a result of rising bond prices and conflicting data surrounding the unemployment numbers.

Unemployment was reported at 9.7% which was off the mark from the projected 10% figure.  Nonfarm payrolls fell by 20,000 as opposed to the projected 15,000 increase.  On Thursday, the Weekly Jobless Claims data will be released and higher than expected claims will likely result in lower mortgage interest rates.

Billions in bonds and notes will be auctioned off this week and it is projected that there will be a strong foreign demand for these bonds thus providing support for the bond market which will in turn assist in keeping mortgage interest rates low.

Today, the 3 Year Note Auction took place where $40 Billion in notes were auctioned, on Wednesday the 10 Year Note Auction will take place where $2 Billion in notes will be auctioned and finally, on Thursday, the 30 Year Bond Auction will take place where $16 Billion in bonds will be auctioned.  In each of these auctions, strong demand will likely lead to lower mortgage interest rates.

Keep an eye out for Thursday’s data concerning Retail Sales as well.  Retail Sales measure consumer demand in the marketplace and lackluster data reflecting a smaller increase in demand than projected may result in lower mortgage interest rates as well.

Also noteworthy, the First Time Homebuyer Tax Credit of $8,000.00 is being reduced to $6,000.00 on April 30, 2010 and will be reduced by $2,000 each quarter until its demise at the end of the year.

The current market continues to provide us with the opportunity to capture historically low interest rates.  Subsequent to the 1^st Quarter this year, that may no longer be the case as the Government is poised to exit the market of purchasing Mortgage Backed Securities at that time.

As always, if there are any questions or concerns that I may address, please do not hesitate to advise.

I look forward to speaking with you soon.

With Warmest Personal Regards.

Sincerely,

T. Brandon

T. Brandon Woodard, JD, AMB
Vice President and Mortgage Loan Specialist
Bank of The Commonwealth Mortgage
3720 Virginia Beach Boulevard 
Virginia Beach, VA 23452
Phone: (757)729-4577
Fax: (757)446-9449
Cell Phone: (252)491-8322
E-Mail: TBranWoodard@bocmail.net
Website: http://www.bankofthecommonwealth.com

Market Comment

Mortgage bond prices rose last week pushing mortgage interest rates slightly lower. Reignited fear of a global economic meltdown sent money into the mortgage bond market in flight to quality buying. The news reports were permeated with worries about European debt payment defaults. Greece and a few other countries were noted as specific concerns. The employment report Friday morning was mixed with unemployment not as bad as expected but a larger than expected drop in payrolls. For the week interest rates fell by about 1/4 of a discount point.

The record debt issuance continues with billions of dollars worth of notes and bonds set for auction this week. Strong foreign demand will likely help the entire bond market. With the recent “revisions” to employment data the weekly jobless claims data will carry a bit more weight than usual. Retail sales figures will be the headline figure this week.

LOOKING AHEAD

Economic
Indicator

Release
Date & Time

Consensus
Estimate

Analysis

3-year Note Auction

Tuesday, Feb. 9,
1:00 pm, et

None

Important. $40 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.

Trade Data

Wednesday, Feb. 10,
8:30 am, et

$35 billion deficit

Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.

10-year Note Auction

Wednesday, Feb. 10,
1:00 pm, et

None

Important. $25 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.

Weekly Jobless Claims

Thursday, Feb. 11,
8:30 am, et

475k

Important. An indication of the employment situation. Higher claims could lead to lower rates.

Retail Sales

Thursday, Feb. 11,
8:30 am, et

Up 0.4%

Important. A measure of consumer demand. A smaller than expected increase may lead to lower mortgage rates.

Business Inventories

Thursday, Feb. 11,
10:00 am, et

Up 0.4%

Low importance. An indication of stored-up capacity. A significantly larger increase may lead to lower rates.

30-year Bond Auction

Thursday, Feb. 11,
1:00 pm, et

None

Important. $16 billion of bonds will be auctioned. Strong demand may lead to lower mortgage rates.

U of Michigan Consumer Sentiment

Friday, Feb. 12,
10:00 am, et

74.6

Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.

Employment Revision

The employment report is one of the biggest, if not the biggest, data releases each month. Last week’s employment report came with more twists than usual. Unemployment came in at 9.7%, a sharp drop from the expected 10% mark. Payrolls fell 20,000, weaker than the expected 15,000 increase. This divergence happens from time to time with the data derived from two completely different surveys. One piece of the report that caused major concern was the annual benchmark update, which showed the economy lost 930,000 more jobs than previously estimated in the 12 months ended March 2009. The revised number was very large and basically indicates 2009’s employment situation was worse than most thought.

A few things that called into question the accuracy of the data influenced the report. Some analysts argued the hiring of temporary census workers threw the figures off. The data was received with a lot of uncertainty and resulted in some wild market swings immediately after the release. The initial reaction sent bond prices lower and interest rates higher. However, the bond market rebounded a bit after digesting the data for an hour or so. This was a prime example of the volatility that often occurs with major data releases.