Holding steady

Tuesday, October 23, 2007

ECONOMIC DATA / NEWS

The proposal by Citigroup, Bank of America, and JP Morgan Chase to set up an $80 billion fund to purchase asset-backed commercial paper, much of which is backed by mortgages, now has Federal Reserve endorsement…sort of.  An unnamed Fed official expressed some confidence in the plan yesterday afternoon, but apparently decline to be identified.  Perhaps it was Fed Governor Kroszner, who supported the concept, but not the actual plan, in a speech he gave yesterday.  Kroszner also said that the Fed is going to do what it can to help “economic growth and price stability,” but claims that it is not meant to be for the benefit of the financial markets.  Of course, we all know that financial markets will be helped regardless of the Fed’s intentions.  Chicago Fed President Evans chose not to answer questions on the matter at a different event.

This morning, Countrywide announced that it plans to assist its clients who have loans adjusting over the next 14 months.  They will refinance those who they are able to get into FHA loans, and the rest may be renegotiated if the borrower has good credit history.  Because this will be done in-house, it would not directly create new refinance options for loan officers.  However, it does two things.  First, it tells us that Countrywide alone has roughly $16 billion worth of loans that might be able to be refinanced.  Other lenders obviously have similar types of loans available for renewal also.  The job of all loan officers should be to seek out these people.  The other positive aspect is that it will help stabilize the credit markets by cutting down the amount of defaults and adding confidence to investors.  Plus, it keeps people in their homes, which is good for the home values and means that there will be more potential refinance or purchase clients in the near future.

TECHNICAL ANALYSIS

MBS prices have certainly leveled off this week, but they’re not dropping.  There has been no major news to push prices higher, so once again the FNMA 30-year 6.0% is flat at 100.72.  Prices may dip by the end of the week due to overbought conditions, but we have strong support between 100.62 and 100.41.  Those are the two levels where prices gapped higher last week.  That means that any losses should be minimal and probably brief.

The 10-year Treasury yield looks like it has already turned a corner.  It has crept just a little higher this morning to 4.43%, but the stochastics have already just barely crossed upward.  The yield could easily climb to 4.50%, and maybe even higher over the next week.  It will have to be weak economic data or poor earnings reports that turn the yield lower again, because there are no technical factors to do so at the moment.

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