FOCUS ISSUE FOR THE WEEK: The economy continues to be weak signaled most by the increase in the rate of unemployment—the most politically charged economic statistic. Housing is not lifting the economy from its doldrums despite record low interest rates. Obama’s economic policies failed to pull us out of the recession despite their very high cost. Voters are getting restive and will likely vote in a Republican dominated House in November.

MORTGAGE MARKET SUMMARY: For the week there were 11 positive trends offset by 9 negative trends. The DJIA rose to 10,447 from 10,150 last week. Mortgage lenders are having difficulty hiring enough people to meet growing demand for refis so are fattening their margins to reduce their waiting lists. The biggest single issue for the mortgage industry continues to be difficulty in managing the flood of new regulations.

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David Olson

FOCUS ISSUE FOR THE WEEK: The extremely low figures for existing and new home sales surprised most of the forecasters. The media is blaming the low figures solely on the high rate of unemployment, low level of confidence in the economy, and end of the tax credit for home buyers. They are missing two huge other trends—extremely tight underwriting due to fear of repurchases from the GSEs, potential rescissions from FHA, and the continual avalanche of new regulations on lenders. Lenders are spending
lots of money and time working to understand the ramifications of new compliance and
regulations therefore they have less time to focus on expanding their business. Fears
about rate increases are hindering lenders’ willingness to hire more staff even though
volume has risen dramatically in recent weeks. .

MORTGAGE MARKET SUMMARY: Interest rates charged for mortgages and Treasuries keep plummeting but are having little impact on mortgage originations than industry watchers would expect given that mortgage rates are at historical lows. This stems for the loss of so many originators from the market (especially mortgage brokers). The cost of hiring and training new employees has risen, so banks instead are dealing with the surprising fall in interest rates by raising their margins. They don’t want to take on the risk and cost of adding new people. For the week the DJIA fell from 10,213 to 10,150. There were 8 positive trends offset by 15 negative trends.

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Larry Pearl for David Olson

FOCUS ISSUE FOR THE WEEK: This was a week of ups and downs. The week started off on a positive note with housing starts, industrial production and capacity utilization up, and ended the week on the negative side with initial claims for unemployment hitting a nine month high. The economy remains weak with little hope for improvement in the unemployment rate for quite some time. On Thursday, economists at Chase cut their forecast for growth in the economy for the remainder of the year by 1% in each of the next two quarters. They are now predicting 1.5% growth in the 3rd quarter and 2% in the 4th quarter.

MORTGAGE MARKET SUMMARY: On Tuesday, the Obama administration held it’s Conference on the Future of Housing Finance in search of a fix for the Fannie Mae and Freddie Mac problem, which has cost taxpayers nearly $150 billion. According to Newsweek, “It is striking that more than two years after the housing crisis, which brought the American economy to its knees, there is still no clarity on the way forward.” We have some groups calling for a complete government takeover of mortgage finance, a housing agency saying that we should reduce federal involvement, and another panelist saying the whole industry should be left to private lenders. All of this is taking place as interest rates fall but have little impact on stimulating the economy.

For the week there were 7 positive trends offset by 8 negative trends. The DJIA fell from 10,303 last week to 10,213. It is now down 4.1% in the past two weeks.

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Larry Pearl and David Olson

FOCUS ISSUE FOR THE WEEK: As predicted in our last newsletter, Congress quickly passed another stimulus bill for $26 billion, and the Fed announced it will be buying Treasuries and cease lowering its holdings of government debt. Most forecasters see an economic slowdown occurring and possible deflation.

MORTGAGE MARKET SUMMARY: Economists are starting to talk about the expected slowdown in economic growth for the second quarter. This is the second estimate and the consensus is that growth might drop to 1.4% from the original first estimate of 2.4%. The economy needs to generate about 2.5% growth just to maintain unemployment at the current rate. With prospects for growth being below 2.5%, we will not see much improvement in the unemployment rate before next year.

There were 8 positive trends offset by 9 negative trends. The DJIA fell from 10,653 last week to 10,303. It lost 3.29% in the past five days. Overall, the positive trends for this week were not very strong and some people might even argue that some of the items below might be better listed as negative trends.

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David Olson

FOCUS ISSUE FOR THE WEEK: Adding the suppressed inventory of homes (5.5 to 7 million) on the market to the current 4 million for sale and you get a total of 9.5 to 11 million homes waiting to be sold. This could mean two years of inventory as opposed to a normal 4 month inventory/sales ratio. This excess will keep housing prices down for the next five years before it is cleared up and will force the Fed to keep interest rates low for at least the next two years. One forecaster (Scott Minerd of Guggenheim) sees the ten year Treasury slumping to 2.25% over this period. It has reached as low as 2.05% in late December 2008. Greenspan is concerned over another downward spiral in home prices if they fall another 5% or more which could lead to a fall in GDP. Correcting the housing market is the main economic need today.

MORTGAGE MARKET SUMMARY: The unemployment rate remained unchanged at 9.5% in July but otherwise there were more signs of weakness than strength for the week. There were 9 positive trends offset by 15 negative trends. The DJIA rose from 10,465 last week to 10,653. The major complaint of the industry was the huge and growing burden of compliance which has lengthened the process of originating loans and made it increasingly difficult for many homeowners to qualify for a mortgage.

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David Olson

FOCUS ISSUE FOR THE WEEK: The key trend for the week was the disappointing figure for second quarter GDP. This low figure of 2.4% brought down the ten year Treasury yield, lowered the dollar, increased talk of a double dip, and increased pressure on Congress to provide more federal stimulus and the Fed to buy more MBS.

MORTGAGE MARKET SUMMARY: For the week, the DJIA rose from 10,424 to 10,465. There were 10 positive trends offset by 13 negative trends.

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FOCUS ISSUE FOR THE WEEK: A double-dip is coming. Since the Democrats in Congress are raising tax rates (by ending the Bush tax cuts) and imposing very expensive regulations on many forms of business, especially financial companies, what else can we assume will occur? There is nothing on the horizon to pull us out of our current downturn. In his speech to Congress on Wednesday, Fed Chairman Bernanke didn’t give us any glimmer of hope. Most economists have brought their GDP forecasts down to 2.6% from 3.3% for the rest of this year. Europe’s growth rate is currently 1%. It seems likely to us that we will slow down to a 2% growth in GDP. The unemployment rate appears more likely to increase in the near term than decline. Note the sharp increase in this week’s initial claims for unemployment.

MORTGAGE MARKET SUMMARY: For the week there were 6 positive trends offset by 21 negative trends. The DJIA rose to 10,424 this week, up 3.2% from 10,097 last week. Corporate second quarter earnings have been stronger than expected which lifted the stock market.

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David Olson

FOCUS ISSUE FOR THE WEEK: The Financial Reform Act was passed by the Senate 60 to 39 and will soon be signed into law by President Obama. This 2,300 page financial law will be the biggest piece of legislation affecting lending since the Great Depression and comes on the heals of many other smaller pieces of legislation such as the SAFE Act, changes in GFE, appraisal reform, etc. The biggest impact on the mortgage industry will be the changes in loan officer compensation. The law limits compensation to a flat fee based on the loan amount and requires holdbacks. It prohibits yield spread premiums (YSPs), prepayment penalties, differential pay by type of loan, and payment of differentials by interest rate. At the same time the Labor Department ruled that all loan officers must be paid overtime. Most lenders have no idea how to implement all these changes since no rules have yet been written explaining these new legal requirements. However, it is our belief that we will have at least 12 months before these provisions go into effect. Even without these new rules, the number of loan officers at mortgage brokerages and mortgage banks is down since last year according to a survey we are currently taking. One can only expect more reductions and higher unemployment from this latest act. That means a great reduction in service quality for consumers and maybe fatter margins for the remaining mortgage lenders due to reduced competition.

MORTGAGE MARKET SUMMARY: For the week, the DJIA fell 1% from 10,198 to 10,097. There were 13 positive trends offset by 14 negative trends. We project little or no growth in mortgages over the near term.

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David Olson

FOCUS ISSUE FOR THE WEEK: The most dramatic economic news this week was the recovery of the stock market even though there was no big positive news released. By our count there were 13 negative trends offset by only 6 positive trends. The economy is still recovering but at a slow rate. The economy is encumbered by huge amounts of federal debt and increasing amounts of federal compliance that is very costly to business. Lending by banks is extraordinarily tight. The DJIA was 10,198 up 5.3% this week from 9,686 last week.

MORTGAGE MARKET SUMMARY: Mortgage rates hit an all time low for the third week in a row but tight underwriting is preventing originations from increasing very much.

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David Olson

FOCUS ISSUE FOR THE WEEK: The key economic statistic for the week was the decline in nonfarm payrolls of 125,000 in June. Further payroll declines are expected next month with the further layoffs of temporary census workers. There were also declines in consumer sentiment, auto sales, pending home sales, and the manufacturing index (PMI). On the positive side, mortgage rates fell to new lows for the second week in a row and caused mortgage activity to increase. Home prices continued to rise in most parts of the country. Personal incomes rose in May.

MORTGAGE MARKET SUMMARY: The economy is growing at a slow pace with no improvement occurring in total employment even though the unemployment rate declined. Mortgage originations are rising slowly due to rising refinances even though home sales are declining and mortgage rates are at historic lows.

The DJIA is now 13.5% below its prior peak and in a major correction. For the week there were 10 positive trends offset by 13 negative trends.

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