If you thought last week’s “roller coaster” ride was fun, you could be in for more of the same this week. Last week we started the week with a surprise .75% emergency rate cute which most likely kept the DOW from finishing down over 500 points last Tuesday after the overseas markets went into the tank on Monday.

This move by the FED temporarily sent mortgage rates to their lowest point since 2003 but as was predicted in last week’s Market Watch, this did not last very long as mortgage rates shot up close to .375% in rate within the next 48 hours only to finish the week almost unchanged from the week before.

So, the FED cuts by .74% and mortgage rates were virtually unchanged but the ride was certainly interesting. Mortgage rates recovered late in the week on the announcement that the President’s stimulus package included the possibility of raising the FNMA/FHLMC limits as well as FHA limits. FNMA/FHLMC limits could be raised up to as high as $729,150 and FHA limits could also soar close to that level. this raise in limits will most likely give a boost to the crippled mortgage industry as much needed “liquidity” will be reintroduced back into the market. The combination of rates breaching below 5% and increased lending limits will certainly boost mortgage originations.

This week’s calendar will give us another opportunity to ride the “roller coaster” starting with the FED’s decision on Wednesday afternoon. A .25% cut will most likely push rates lower and the DOW will likely take yet another hit. However, a .50% cut will actually help the DOW and push rates slightly higher before they once again move lower. After we survive Wednesday’s news, this Friday brings us another round of employment data. The market is only looking for a 70K increase in non farm payrolls and for the unemployment rate to remain unchanged…numbers below expectations will move rates marginally lower.

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In an emergency move, the Federal Reserve cut rates by .75% this morning in an attempt to keep the economy from sliding into recession.  This is the first emergency rate move by the FED since September 2001 just after the 911 event. 

Stock markets around the world took a beating yesterday on fears that the US economy and its pending recession will drag down other economy’s with it. 

The DOW open down over 450 points during the first 5 minutes of trading but has recovered some of its losses to only be down just over 300 points at the time of this report.  Continued weakness in the housing sector, slumping retail sales, and rising unemployment are continuing to point to a recession in our economy. 

It also appears that Wall Street is not to impressed with our President’s stimulus package that would put a $650 check in the hands of many Americans.  $650?  Nice gesture but considering that Americans have now lost in excess of 15% of their net worth over the past several months with the fall in housing prices, and declines in their stock portfolios and retirement funds this meager amount will do most likely nothing to stimulate the economy…maybe it will be able to buy a couple of months of gast at the pumps…but that is about all it will do.

Don’t look for mortgages to drop too quickly…while the FED did cut rates today by .75%, don’t look for mortgage rates to move sharply lower in the next couple of days.  The rise of foreclosures is placing a damper on pushing mortgage rates sharply lower. 

Mortgage rates should move lower but not notably lower over the next several weeks.  If continued weakness persist through February, look for 30 year fixed rate mortgages (conforming) to inch below the 5% mark for the first time in many years.

Maybe this will get the housing market to at least stabilize itself and eventually pick up some steam.  I still believe that this is an excellent time to buy as housing prices continue to fal along with falling rates.  Both sellers and buyers need to be more realistic in their views.  Until this happens, housing will continue to suffer.

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There are not many in the real estate or mortgage sector that would say 2007 was a good year…or even an average year. Many, myself included, could not see this year end any sooner. 2007 brought a complete collapse of the mortgage industry with over 200 major lenders nationwide “tapping out” for good. Guidelines have reverted back to the early 1990 levels and 100% financing is almost a fading memory even with full documentation. 2007 was a culmination of an industry, the mortgage market, that simply lost all rationality and is now paying the price for their mistakes.  The thoughts that real estate prices would continue to rise for eternity was simply ignorant and irresponsible. Providing mortgages to borrowers with marginal to simply bad credit with no money down and no verification of income or assets was again…irresponsible. Then you add on that you provide these loans to marginal or bad credit borrowers with no verification of income or assets and no money down on instruments that were simply “smoke and mirrors”.  Sure they can make a payment at 1.9%…but making a payment at 7% just a little more than 2 years from when they got it….that is a different story. Throw in that their mortgage balance has risen over those 24+ months and their property value has declined during the same period of time and you now have the perfect storm we are meandering through today.

This “storm” will continue through at least Q1 of 2008 and most likely will continue for the most of 2008 as more and more homes are dumped on the market due to increasing foreclosures creating the perfect buying opportunity for buyers.  When the turnaround is going to happen is anyone’s guess at this time but it will come…it always does. The silver lining to this storm is that interest rates should decline in 2008 and prices will also fall setting us up for a perfect buyers market…it could not happen soon enough.

Maybe the mortgage industry will learn from 2007 and will not repeat the same mistakes which have gotten us to this point. Home ownership is a privilege…not a “right”…the mortgage industry has seemed to have forgotten this over the past several years…Placing borrowers in homes they cannot afford serves no one any good…2007 is an example of this…

Here is to a GREAT, WONDERFUL and SAFE 2008…Happy New Year!!!

Have a great day!!!
DC AIKEN, VP

Economic releases stated in this report do not necessarily depict all economic releases for the week.  Market Watch is for informational purposes and its accuracy is not warranted.  The opinions expressed in Market Watch are not necessarily those of Countrywide Home Loans.

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Chairman Bernanke and his FED friends concluded their last “scheduled” meeting of the year at around 2:15 today and announced a .25% cut in rates. The FED stated today, “recent developments, including the deterioration in the financial market conditions, have increased the uncertainty surrounding the outlook for economic growth and inflation” and that this change “should promote moderate growth over time”.

While their last comment was some what reassuring that the economy will get back on track soon, Wall Street did not think so hammering the DOW down over 230 points.

Many Wall Street analyst believe that this cut was not enough to keep the economy from plunging into recession. The housing and financial markets continue to show weakness with the possibilities of a quick turnaround being very remote if even possible.

This small cut is being viewed as a token attempt to pull the nose up on a plane that is falling faster and faster by the day. While stocks are being hammered today, interest rates are recovering from last week’s move to higher levels.

The 10 year treasury as well as mortgages are showing healthy gains today and we have almost retraced the upward movement we saw last week with the 10 year treasury now trading under 4% for the first time since early last week. But the FED still has not figured out the real problem in the housing and financial sector and it is something that I have been preaching for months about….the lack of liquidity in the markets. If you have a loan amount that meets FNMA/FHLMC or FHA guidelines, there is plenty of liquidity.

However, loan mounts “north” of $417,000 or HUD limits, there is virtually no market to sell those loans into. The problem with this scenario is there are plenty of markets where the housing prices exceed these limits which has greatly curtailed lending at this price point as well as loans that fall into the ALT A world (stated income loans). Until the liquidity issue is resolved, housing and the financial markets will continue to suffer which will ultimately slow down the remainder of the economy which is what we are seeing now…..

Have a great day!!!
DC AIKEN, VP

Economic releases stated in this report do not necessarily depict all economic releases for the week.  Market Watch is for informational purposes and its accuracy is not warranted.  The opinions expressed in Market Watch are not necessarily those of Countrywide Home Loans.

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