Hover over this image for caption and link ↓↓↓

Currently the Dow is up 72 and mortgage bonds are down 47 basis points, bringing rates up by about .125% following the better-than-expected Bureau of Labor Statistics jobs report showing 67,000 new private sector jobs in August, positive revisions for July, and 763,000 new private sector jobs in 2010. Commentary and charts below.

The BLS report showed that the economy lost 54,000 non-farm jobs in August which reflects the fact that 114,000 government census workers have now completed their work. Actual new private sector jobs were 67,000 for August and 763,000 for 2010. Estimates called for a loss of 120,000 non-farm payrolls, much more than the actual 54,000 loss, and this disparity is why the market reaction is good for stocks and bad for rates. BLS also reported that 14.9 million people are unemployed. This is a 9.6% unemployment rate, up 4.7% since the recession began in December 2007. See charts and more commentary on the U.S.’s 8.9m involuntary part-timer workers below. more…

Rates are down this morning on continued fears of a double dip recession and the latest inflation report confirming tame prices. Overall Personal Consumption Expenditures, the Fed’s favorite measure of consumer inflation, were 0.2% in June and 1.5% year-over-year through June. Excluding volatile oil and food costs from the readings, “Core” PCE price index was 0.1% for June and 1.4% YOY through June. The Fed looks closely at Core PCE excluding food and energy prices because of the price volatility of these two items, and the Fed’s zone for reasonable inflation is 1-2% per year. At 1.4%, Core inflation is within their comfort zone, and PCE inflation has been stable for a year. Mortgage bonds are rallying once again to record levels, which pushes rates down to new record lows.

Personal income was up 0.2% in July, which is the same range of the last 6 months. Wages rose 0.3%, which is roughly the same monthly level for all of 2010. The household savings rate was 5.9%, which is down from the May 2009 all-time record of 6.9%. Below are all key details from the Personal Income & Outlays report. You can automatically create charts and download historical PCE data by scrolling to our data section on the right side of the site, or visiting our Data page.

Jumpy Rate Market Response To GDP & Home Sales Reports
Rates dropped 0.2% early last week then rose Friday to end the week even. The $109b in Treasury auctions throughout last week caused mortgage bonds to sell off slightly, and July’s record low New Home Sales (down 32.4% year-over-year) and Existing Home Sales (down 25.5% year-over-year) helped mortgages rally— rates rise on bond selloffs and drop on rallies. But then two factors caused a huge 59 basis point selloff Friday:

(1) The second of three 2Q2010 GDP readings showed the economy grew at 1.6% versus expectations of 1.4%. This was a big drop from both the first 2Q reading of 2.4% and the final 1Q reading of 3.7%. Normally economic weakness of this magnitude would cause a mortgage bond rally, bringing rates down. But the opposite happened because traders didn’t think the 1.6% number was weak enough. more…

What If All Mortgages Were 1% Lower?
A Wall Street acquaintance of mine wrote to me about dropping trillions of dollars of mortgages by 1%. “I think that something like it may just happen. Many people I’ve talked to have said the same thing: ‘The money would go directly to the borrowers to help our economy, and totally bypass our government. There would be no claims of the government wasting the money on projects or programs at the taxpayer’s expense.’”

TARP Taxpayer Cost Continues To Drop
The government’s $700 billion bailout of the financial system (TARP) will be argued about well into the future, but the cost to the taxpayer for TARP continues to drop. The Congressional Budget Office projected that the overall deficit impact of the TARP will be about $66 billion, down from the $109 billion estimate the Congressional Budget Office made earlier in the year, and a significant drop from the initial projection of $350 billion. TARP, as we all recall (or maybe not) gave the government the authority to use $700 billion to prevent the collapse of the financial industry (and a few automakers along the way). Banks are repaying bailout money and automakers are continuing to payback their loans. more…

Guns & Mortgages
This story speaks for itself, here’s the link and the epic lead paragraph below: Prosecutors: Mortgage Worker Got Drunk, Shot Computer Server

A Salt Lake City mortgage company employee allegedly got drunk, opened fired on his firm’s computer server with a .45-caliber automatic, and then told police someone had stolen his gun and caused the damage. more…

Higher 2010 Rate Forecasts All Wrong
At the start of the year, not only were the smartest guys in the room talking about how mortgage rates would go up when the Fed ended their $1.2 trillion purchase program, but that rates would be going up in general given the expected economic rebound. Of course, neither turned out to be true and every originator can’t believe their good fortune by experiencing yet another refi boom, assuming their rolodex has borrowers with equity and decent credit.

Treasury Auctions Next Week
Yesterday’s economic news did nothing to suggest that higher rates will arise in the near future – assuming foreign investors don’t mind the US’s level of debt compared to GDP. The US Treasury said it will sell $109 billion of government debt next week, not far off analysts’ expectations for issuance of $107 billion to $108 billion. The Treasury will sell $7 billion of reopened 30-year TIPS on Monday, then $37 billion of 2-year notes on Tuesday, $36 billion of 5-year notes on Wednesday, and $29 billion of 7-year notes on Thursday. more…

Currently the Dow is down 120, S&P is down 15, and mortgage bonds are up 25 basis points, bringing rates down by about .125% following the Bureau of Labor Statistics report showing only 71k private payrolls were added to the U.S. economy in July, and June was revised down 100k. Additional commentary and charts below.

The BLS non-farm payroll report showed that the economy lost 131,000 jobs in July which reflects the fact that 143,000 government census workers have now completed their work. Actual new private sector jobs were 71,000 for July and 630,000 for 2010, most of which was in March and April. Estimates called for 87k total jobs lost (instead of 131k), and this disparity is why the market reaction is bad for stocks and good for rates. BLS also reported that 14.6 million people are unemployed. This is a 9.5% unemployment rate, up 4.6% since the recession began in December 2007. See charts and more commentary on the U.S.’s 8.5m involuntary part-timer workers below. more…

How To Leave Your Underwater Home
Fannie Mae launched a new consumer website, KnowYourOptions.com, to educate homeowners about their options to avoid foreclosure and how to get help. There’s an accompanying site for lenders who want marketing materials to promote these KnowYourOptions features.

Treasury Auctions Next Week
The Treasury will sell $34 billion of 3-yr notes next week, down from $38 billion at its last quarterly refunding, $24 billion of 10-yr notes, and $16 billion of 30-yr bonds on Aug. 12. (The U.S. Treasury again cut the size of debt offerings, citing stronger tax revenues, but warned it may not be able to keep trimming sales at the same rate due to doubts about economic recovery.) By the end of the day, 10-yr Treasuries were down almost .5 in price to 2.96%, and current coupon mortgage security prices were worse by about .125. Originators sold $2.9 billion – mostly 4% – a little more than recent volumes. more…

Below is a chart from Mortgage Market Guide showing 4% coupon Fannie Mae 30 year mortgage backed securities trading for the last 6 months. Currently, this is the most common benchmark lenders use to price consumer mortgage rate sheets daily. When these bond prices rise, rates fall, and vice versa. Note the drop in prices leading up to the March 31 expiration of the Fed’s 15 month, $1.25 trillion mortgage bond buying program. The Fed was buying mortgage bonds to drive rates down and stop the great recession from becoming a depression. When this was coming to an end, you can see here MBS sold off and rates rose. But then the European debt crisis set in, inflation has been nonexistent, GDP is ok but shaky, and consumer sentiment and jobs also shaky (scroll to data section for current stats).

The result is mortgage bonds have risen to record levels, pushing 30yr fixed rates (on single family home loans up to $417k) down to new record lows: they were around 5% late-March and around 4.5% today. It’s unsustainable, but unquestionably favorable for those who qualify for home loans in this rigid underwriting environment.

Rates continue their run down this morning on doubts about the economy and the latest inflation report confirming tame prices. Overall Personal Consumption Expenditures, the Fed’s favorite measure of consumer inflation, were 0.2% in May and 1.9% year-over-year through May. Excluding volatile oil and food costs from the readings, “Core” PCE price index was unchanged for May and 1.3% YOY through May. The Fed looks closely at Core PCE excluding food and energy prices because of the price volatility of these two items, and the Fed’s zone for reasonable inflation is 1-2% per year. At 1.2%, Core inflation is within their comfort zone, and PCE inflation has been stable since summer 2009. Mortgage bonds are rallying once again to record levels, which pushes rates down to new record lows.

Personal income was up 0.4% in May, which is the same range of the last 4 months. Wages rose 0.5%, which is roughly the same monthly level for all of 2010. The household savings rate was 4%. This is up from 3.8% last month as consumers again get more cautious about the economy, but it’s still significantly down from the May 2009 all-time record of 6.9%. Below are all key details from the Personal Income & Outlays report. You can automatically create charts and download historical PCE data by scrolling to our data section on the right side of the site, or visiting our Data page.