Loan Biz Blog

Earlier this morning, Housing Starts fell 5.9% to 575k units while Building Permits dropped 1.6% to 612K. The data was close to economist’s expectations. Regions were mixed with the Northeast declining 9.6% and the South down 15.5%. The Midwest however jumped 10.6% and the West was up 7.9%. Multifamily units fell 76K. The big story of the day will be front and center at 1:15 pm cst. That being the FOMC one day meeting to determine short term interest rates and make any changes to the policy statement. For the most part, it looks like they could have mailed this one in with the only possible change coming in policy language regarding “low interest rates for an extended period of time”. Some analysts are looking for the word “extended” to be dropped. We see no change to rates or policy as we view the Fed to be “out of bullets” given zero percent interest rates and quantitative easing bloated balance sheet issues. In our opinion, all they can do is manage expectations until the economy starts to pick up and then shift to an exit strategy. What happens if all of the above is true? The most likely outcome will be stocks doing better as they view “cheap’ money to continue. That could put pressure on our pricing. If they remove the “extended” language, both stocks and our pricing would most likely suffer as traders attention would turn to Fed Funds rate hikes being priced in (in the near future). As you can see, our best case is for mortgage rates to hold steady so use this time to be a little defensive into the announcement. Currently, the 10 year note is up 6/32’s (yield 3.68%), mortgage backs unchanged to off 1/32nd (widening spreads), and stocks up a baker’s dozen on the big board. We’ll update you in about 37 minutes when the rubber meets the road.

FOMC left interest rates unchanged and did not remove the statement, “low interest rates for and extended period of time”. Treasuries and stocks have improved on the news yet mortgage backed securities are only 1/32nd better. Full press release below.

Release Date: March 16, 2010

For immediate release

Information received since the Federal Open Market Committee met in January suggests that economic activity has continued to strengthen and that the labor market is stabilizing. Household spending is expanding at a moderate rate but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software has risen significantly. However, investment in nonresidential structures is declining, housing starts have been flat at a depressed level, and employers remain reluctant to add to payrolls. While bank lending continues to contract, financial market conditions remain supportive of economic growth. Although the pace of economic recovery is likely to be moderate for a time, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability.

With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time.

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve has been purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt; those purchases are nearing completion, and the remaining transactions will be executed by the end of this month. The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability.

In light of improved functioning of financial markets, the Federal Reserve has been closing the special liquidity facilities that it created to support markets during the crisis. The only remaining such program, the Term Asset-Backed Securities Loan Facility, is scheduled to close on June 30 for loans backed by new-issue commercial mortgage-backed securities and on March 31 for loans backed by all other types of collateral.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Donald L. Kohn; Sandra Pianalto; Eric S. Rosengren; Daniel K. Tarullo; and Kevin M. Warsh. Voting against the policy action was Thomas M. Hoenig, who believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted because it could lead to the buildup of financial imbalances and increase risks to longer-run macroeconomic and financial stability.

Market looks OK but still is tough to trust. More in a few.

With Permission & Courtesy of Scott S. Eggen
Senior Vice President – Capital Markets

For other rate lock advisory commentary please visit:
http://www.mrloanbiz.com/DailyRateAdvisory

Sam Cowen, NMLS ID#: 176693
Branch Manager, Lending in 47 States
PrimeLending | a PlainsCapital Company
2007 N Collins Blvd Ste 403 Richardson, TX 75080
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