Mark's Blog Report

Well, this has been an extrememly busy week for me.  Lots of borrowers like you are deciding to not roll the dice anymore and to submit your loans so that they can be ready to lock.  Rates were good last week.  This week has been a little crazy if you have followed the market.  A major bouncing ball week.

There is not much news for the next 3 days: markets closed Friday, no news Monday, and limited news on Tuesday.  So volatility will come largely from "headline risk," that is to say, not scheduled economic reports, but rather financial news headlines.

There's no doubt that Friday is a safe time and a good time to lock.  But will it be the best time for closings taking place in the near term?  Great question.  Next week we have several important reports on the consumer, we have the GDP, Durable Goods report, and several other moderately important reports.

You'll have to go with your gut instinct on this one.  MBS (Mortgage Backed Securities) specific headline risk seems to be favorable recently with the OFHEO announcement, the Bear Bail-Out, and the FHLB proposal, all of which ease liquidity concerns.  So if we continue to operate in that relative vacuum (where MBS respond to broad economic data and stocks as opposed to specific MBS related news), then the economic reports next week should have their normally expected impacts.  For instance, if any given report indicates economic weakness, rates will generally improve.

As far as consumer-related data, my money is on continued weakness.  I believe the week will be economically weak in general, but that is tempered by the suggestion that analysts are slowly becoming more realistic (and pessimistic) and thus the consensus expectations can be set so aggressively that we won't see weaker than expected data on certain reports despite it's weak reading relative to historical data.

With the 5.5% coupon still "hanging out" in that 101-00 to 101-10 range, there is certainly room for it to start what I feel is an almost inevitable trend upward (assuming MBS-Specific headline risk stays minimal).  The spreads to the 10 year UST are still very very high, which means there is room for the MBS to "close the gap" as traders become more comfortable with the actual yield estimates.  I don't think this market is going to get the wind in its sails any time soon.  Combine that with a reasonably large uptick in the DJIA, and there is room for the DJIA to fall a bit next week into a range it is more comfortable with (closer to 12 even) and MBS to improve (again, only the vacuum devoid of negative MBS specific headlines).

My read on the technicals is that we have continued on a steady trend of "bouncing ball" moving upwards along the 50 day moving average price curve.  The next bounce should take us to 102-00 this week if the trend holds, but they are not always reliable.  Still, the "trend is your friend" when it comes to recessionary slides.  We are in one certainly and the trends historically follow a similar pattern that indicates the potential for us to break through our ceiling.  Take a look at the scheduled economic reports for next week and draw your own conclusions based on your bullishness or bearishness.  Strong data - lock today.  If you think the data will be weak, then you do not need to lock right away.