S&P Raises US Credit Outlook ...

Standard & Poor's announced this morning that it has raised the credit outlook for the U.S. to stable from negative based on its view of the strengths of the U.S. economy and monetary system, as well as the U.S. dollar's status as the world's key reserve currency. S&P went on to say that stronger than expected private sector contributions to economic growth, combined with the payback of bailout funds from Fannie Mae and Freddie Mac, which reflects a continued housing market, have led the Congressional Budget Office to revise down its estimates for future government deficits.

Fannie Mae reports that Americans across the nation are more optimistic when it comes to buying or selling a home in its monthly National Housing Survey. Fannie said that the those who responded that now is a good time to sell a home reached a record high of 40% in May, up from 30% in April and 16% in May of 2012. In addition, those who were surveyed who say it is a good time to buy a home increased by 5% to a survey high of 78%. The survey also revealed the percentage of people who expect their personal financial situation to get better over the next 12 months held steady at 41%.

The summer season is just underway and as vacationers head to the beaches or parks to soak up some sun, people are being advised that the sunscreen you apply to avoid from burning may have already expired. Some of the bottles have expiration dates and some don't - the date of expiration is optional for the manufacturer. The industry says that sunscreens can last for three years, but critics say that if an expiration date is not on the product, it can become confusing. A noted dermatologist said that if he doesn't see an expiration date on the bottle, he wouldn't buy it.

Tapering Fully Priced In Yet?

Tapering Fully Priced In Yet?

by Craig Dismuke

According to some news outlets, S&P has revised its U.S. credit outlook from negative to stable this morning. This is breaking news and the rationale is not yet available. However, the expiration of the payroll tax cut, higher tax rates for some citizens, and cuts in government spending are surely helping improve the U.S. outlook.

This week’s economic calendar is a bit lighter than last week’s. However, there are two important reports on the health of the U.S. consumer. Thursday’s Retail Sales report and Friday’s UM consumer confidence report will be important to watch. If they are both improved, as is expected, it will point to a consumer who continues to shake off the headwinds. This would be supportive of tapering which would hurt bond prices. However, it is also worth noting that bond yields will eventually quit rising once the taper is fully priced in. It looks like we may be nearing that point. The German 10-year Bund is currently at 1.55% while the 10-year JGB is trading at 0.84%.

Another Jon Hilsenrath article (WSJ) made the rounds last Friday when he said the Fed was still “on track to ease up on bond buying later this year.” After Friday’s labor reports, Hilsenrath immediately interpreted the reports as being not bad enough to stop the tapering talk, but not good enough to warrant tapering at the next meeting. Perhaps this interpretation came from the Fed and perhaps these are the training wheels that Bernanke thinks the markets need to transition to data-dependent policy. Either way, the article helped to push Treasury yields higher through Friday afternoon. The 10-year Treasury yield rose from 2.05% Friday morning to 2.17% by the close.

As a Bloomberg article puts it this morning, the “silver lining” to a poor recovery is that the pace of growth hasn’t been good enough to create excess slack. As a result, the expansion is lasting longer than normal. This seems like arguing that the worse a golfer plays, the more shots they will get to take before their round is over. The article is correct in pointing out that a weak expansion has left the economy with a huge hole in the labor market still after four years. Inflation is not on the rise. Income growth has turned into income contraction. And household debt continues to shrink (although this is likely in its final innings).

There has been a lot of optimism around the Corker/Warner GSE reform bill introduced and highlighted in MT last week. The reform debate is about trying to create a system in which mortgage loans are cheap and yet taxpayers do not have exposure to losses. When taxpayers have complete exposure, mortgage loans will be their cheapest (this was essentially the Fannie/Freddie scheme although the GSEs did have a small buffer of capital which marginally reduced taxpayer exposure). When taxpayers have no exposure, mortgage loans will be more expensive (because they have to then rely on the borrower’s credit rather than the government’s ability to tax). Despite everyone’s best efforts, there is no free lunch here – and someone has to take on the credit exposure. The current proposal simply finds a middle ground between those two extremes which gives the finance companies more exposure than Fannie/Freddie had and, in the process, reduces the taxpayer’s exposure. Doing so will necessarily result in higher mortgage loan rates than under the Fannie/Freddie scheme and the current scheme. As a result, lawmakers will be reticent to act too quickly given the tenuous housing recovery. 

What a day in the markets ...

The highly anticipated jobs report was released showing that employers added 175,000 new jobs in May, above the 159,000 expected signaling that the labor markets are improving, but not at a pace where the Federal Reserve will pull back on its current stimulus program. The Unemployment Rate rose to 7.6% from 7.5% and it was reported that 420,000 people entered the work force. The Bureau of Labor Statistics said that employment rose in professional and business services, food services and drinking places and retail trade.

The Great Recession took a toll on the pockets of Americans across the nation as the middle class saw their personal wealth fall by almost 50% to nearly a 40-year low. In the recent data, households have gained back 62% of what disappeared according to the figures compiled through the first quarter of this year.

Freddie Mac reported yesterday that homeowners who refinanced their mortgages in the first quarter of 2013 will save nearly $7 billion in interest payments in the next 12 months. The categories are broken down as 28% shortened their loan terms, 68% of borrowers kept the same term as the loan that they paid off, 3% chose to lengthen their term loan while more than 95% of refinancing borrowers chose a fixed-rate loan.

Less jobs should mean lower rates - where are they?

The job markets took a hit this morning after it was reported that private employers created less jobs than expected in May. The ADP Private Employment Report showed that there were 135,000 jobs created last month, below the 157,000 that was expected. Although the 135,000 was above April's number of 113,000, it was still a disappointment.

The Institute for Supply Management (ISM) reported this morning that its ISM Service Index inched up to 53.7 in May from the 53.1 registered in April and above the 53.5 expected. Within the report it showed that the employment component barely remained positive at 50.1 falling 1.9% from the previous month. Readings above 50 indicate expansion. It is said that the service sector makes up 2/3s of the U.S. economic activity.

The U.S. Treasury reported today that it will be selling 30 million shares of General Motors (GM) that is just part of the shares that it received when the government bailed out the auto maker. The Treasury currently holds 241.6 million shares and intends to unload all of the shares by March 2014. It doesn't look like there will be a profit - so far the government has recouped $30.7 billion of the nearly $50 billion in funds it gave to GM. The current share price is $34 and to turn a profit, the price would have to be at $50 just to break even.

More positive news ... (or maybe not)

The housing sector continues to see positive news as home prices rose annually and month-to-month led by tighter supplies and pent-up buyer demand. CoreLogic reported today that home prices, including distressed sales, rose by 12.1% from April of 2012 to April of 2013 and jumped 3.2% from March to April. It was the largest annual gain since February of 2006. In addition, 33 large metro areas saw double digit increases annually while all states showed annual price appreciations for non-distressed sales.

The debate of whether or not to taper the monthly Bond purchases by the Federal Reserve (the Fed) has been a hot topic since the beginning of May. The Fed is currently purchasing a total of $85 billion per month in Treasury and Mortgage Backed Securities in an effort to boost the economy, reduce long-term interest rates and promote job growth. Just yesterday, San Francisco Federal Reserve President John Williams said that an improving U.S. economy would the lead the Fed to pullback on the buying and it could happen by the time the summer ends. However, if inflation continues to run low and actually decrease from current levels, it would be a catalyst to increase the Bond buying program.

New York State Attorney General Eric Schneiderman is planning to sue HSBC Holdings Plc for not helping to protect struggling homeowners from being placed into foreclosure without the homeowner receiving a chance to renegotiate their mortgages. The move comes after Schneiderman announced plans to sue the Bank of America and Wells Fargo for violating the terms of the $25 billion state settlement over mortgage servicing abuses.

IMPORTANT MARKET UPDATE ...

Forwarded exclusively by:	Bob Rosenbaum The Rosenbaum Lending Group Office: (703) 879-5200 Email: Bob@MyTalentedLender.com website: www.MyTalentedLender.com NMLS#: 649782
Monday, June 03, 2013
The Numbers Just Don't Lie Here is a press release from Case Shiller showing just how dramatic the pricing increase is happening in the housing market. When factored in with rising interest rates, there is no reason for anyone to think that better value is coming - it's time to get in the game! Check out the press release here: http://goo.gl/ZCCFk Last Week's Mortgage Rates Recap Last week mortgage rates increased on Tuesday after a brutal day for MBS (Mortgage Backed Securities), the market that drives mortgage rate pricing. After a couple of days of recovery we watched it all fall back by Friday. Last week's performance showed the importance of being aware of market factors and using them in decisions rather than chasing after lost rates. Last week also showed the importance of working with an MLO (Mortgage Loan Officer) who is tied into real time trading data to take advantage of the best pricing and to act before lenders do when it was time to lock. If you have questions about this contact your MLO who would be happy to explain it. This Week's Mortgage Rates Forecast Mortgage Rates Currently Trending: HIGHER This week does not appear to be the week that the market will rest. Exepct volatility all week, leading up to Friday's May employment report which may bring the most volatility of all. It's another week of staying on top of the MBS market and watching the live feed. BOTTOM LINE: Do not fight the tape. Interest rates show little evidence of any improvement as the week begins. No stopping the equity markets these days; as long as the stock market continues its march higher there isn’t much to hope for in the bond and mortgage markets. We suggest keeping in contact with your MLO (Mortgage Loan Originator) who is connected to the market with a live feed to protect your mortgage interest rates this week.                          RateAlert’s Most Trusted Mortgage Loan Officers MLOs that subscribe to RateAlert’s Executive service have the training and market knowledge, along with the data at their fingertips, to expertly help consumers navigate the difficult and sometimes treacherous process of obtaining home financing and securing some of the best rates the market has to offer. If you would like to learn more about how to time the market to obtain the best interest rates, don’t hesitate to contact the MLO who sent you this commentary.
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The weekly market preview ...

Forwarded exclusively by:	Bob Rosenbaum The Rosenbaum Lending Group Office: (703) 879-5200 Email: Bob@MyTalentedLender.com website: www.MyTalentedLender.com NMLS#: 649782
Monday, June 03, 2013
This Week; has a number of key data points. The May employment report on Friday is the major release, after the strong April data last month that started the relentless increase in interest rates markets will know whether it was a one off report or the beginning of increasing hiring’s. Also this week beginning on Monday with the ISM manufacturing index and through the rest of the week each day will have data that is significant. On Wednesday the employment concerns will begin in earnest when ADP releases their number on non-farm private jobs, going into the week the estimate for ADP is an increase of 157K jobs after reporting only 119K in April. Another reminder, do not fight the tape. Interest rates show little evidence of any improvement as the week begins. The 10 yr note may move to 2.25% before there is any interest from investors to buy fixed income treasuries or MBSs. Monday at 10:00 the May ISM manufacturing index is expected at 50.9 frm 50.7 in April, not much if that is all there is. Manufacturing continues to be a drag on the economy. No stopping the equity markets these days; as long as the stock market continues its march higher there isn’t much to hope for in the bond and mortgage markets. The end has come for the rate markets although at some level we expect there will be some interest in treasuries; what level is the unanswered question.
Big enough to compete, small enough to care. To unsubscribe from TBWS Rate Alert e-mails, please click here. Please do not reply directly to this e-mail. TBWS Rate Alert will not receive any reply message. For questions or comments, visit our Forums or Contact Support via SupportTeam@ratealert.com.