I suggest starting the day by floating; we normally do that. It is a bear market now however so we will not press it and move to lock mode on any weakness. If you float today keep close for our alerts. Unless mortgage markets gain a little traction through the rest of the day we will lock over the weekend.Look for interest rates to remain stable today.

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As we expected, the 10 yr and mortgages opened slightly better this morning with the benchmark 10 yr testing its technical support yesterday and holding it at the 3.50% area. No change in the bearish path however, just a bounce in what we believe will be a range for the note and mortgages of about 25 basis points (3.50%/3.25% on the 10) and 5.00% to 5.25% for 30 yr mtgs. At 9:00 this morning the 10 yr note traded +8/32 at 3.44% -2 BP; mtgs +5/32 (.15 bp). The DJIA futures traded -58 on some weaker than expected earnings reports. At 9:30 the DJIA opened -95; 10 yr +12/32 3.42% -4 BP, mtg prices +5/32.

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Prior to the equity market open at 9:30; Sept industrial production was expected to +0.2%, it jumped 0.7% and August production increased from 0.8% to +1.2%. Manufacturing output rose 0.9%, lower than +1.2% in August. Sept capacity utilization, also better than expected, 70.5% against estimates of 69.6%; August capacity use was revised slightly better to 69.9% frm 69.6% originally reported. Manufacturing use increased to 67.5% frm 66.8% in August. The reaction to the better data pushed mortgages backed to unchanged and the 10 yr note from +8/32 to unchanged.

At 9:55 the U. of Michigan consumer sentiment index, expected at 74.0 frm 73.5 at the end of Sept, was lower at 69.4. The 12 month outlook question on the survey fell to 79 frm 88.0 at the end of Sept; consumer expectations at 67.6 frm 73.5 at the end of Sept. The survey is subject to wide variations at times, but does take some wind from the sales and reminds consumers are still not in the game of recovery being so heavily bet in the equity markets. No real positive reaction to the report in the bond and mortgage markets but the DJIA fell 10 points on the report.

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The stock market is opening lower this morning on reports from BofA and GE; BofA took another $1B loss for the quarter, the second this year. Loan defaults drove the losses. GE made a profit by cost cutting but its revenues fell short of expectations.

Treasury reported August net foreign purchases of US debt. A total of $32.9B in August; $21.3B by private foreign investors, $11.6B by foreign “official” institutions (central banks) and $4.3B by US residents. No need to look any farther as to who is supporting US deficits.

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Being Friday trade will likely have a narrow range through the remainder of the day. The wider outlook is bearish for the bond and mortgage markets; the shorter view however is a little better after the 10 yr note managed to  hold its first key support at 3.50% yesterday. Still looking for a trading range on the note and mortgages of about 25 basis points; 3.25% to 3.50% on the 10 yr and 5.00% to 5.25% for mortgage rates. So far this morning mortgage markets are somewhat soft.

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I have started the day by floating.  Mortgage rates are bumping against their best since last Spring; both the mortgage driver 10 yr note and mortgages themselves are overbought in the near term; susceptible to selling. The longer outlook remains constructive, the short view slightly bearish. Note; we are changing the time we post for mortgage prices frm 10:00 to 9:30, lenders are pricing earlier these days.

The bond and mortgage markets opened a little soft in early trade this morning; the 10 yr at 8:00 -4/32, mtgs -2/32, the DJIA futures index +70. At 8:30; mtgs -1/32, 10 yr -4/32 and DJIA +65. At 9:00; mtgs -1/32, 10 yr -4/32 and DJIA +61. At 9:30 the DJIA opened +73, 10 yr note -3/32 and mortgage prices at 9:30 -2/32.

No economic data to think about today; rate markets will focus on this afternoon’s (1:00) $39B 3 yr note auction starting three days of Treasury borrowing. The equity markets had a strong day yesterday with the DJIA +112 and S&P +15, starting stronger again today.

Yesterday we reported that Obama is considering another stimulus plan to try and lower the unemployment rate. This morning we hear Obama is considering extending the first time homebuyers’ tax credit and increasing spending in the transportation sector. Won’t be labeled as another stimulus plan of which only 40% of the $787B has been used; taxpayers and consequently the Congress are not in the mood for more government spending that has gotten completely out of hand. So the slight of hand is tax cuts and increased spending; in any other language but government it is more stimulus with only the name changed to protect the guilty.  Administration officials have told allies in Congress that a broader transportation bill, and extensions of a homebuyer tax credit and unemployment benefits are all on the table.

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A few days ago, at the end of Sept the government fiscal year ended for 2009. Next we will get the 2009 fiscal deficit, the CBO is saying $1.6T with 2010 deficit at $1.4T. It wasn’t more than three years ago the deficit was just $300+B. Much of the exploded deficit was used to save the financial system; it had to be done but probably not to the massive extent the panic required. Congress led by the likes of Barney Frank have little desire to cut any spending programs, actually increasing them where it isn’t necessary other than to be re-elected. Yesterday Frank said he wants to use $2B of TARP loans that have been re-paid for more spending. The price America will pay in the future for the spending now will be high interest rates, likely approaching 8.0% for mortgages by 2011. Don’t worry, be happy; let the next Congress gag on it—-how Congress and administrations think.

Hardly a week goes by without talk of the demise of the dollar as the world’s reserve currency. Today reports of Mid-East oil producers looking to other currencies as payments for oil exports. Oil has always been settled in US dollars. The exploding deficits, the conviction the US does not have the stomach to cut spending, the Fed keeping interest rates low, and foreign investors drowning in dollars are issues that will not easily be ignored much longer. For now however, it is mostly chatter but the rumors are increasing. Every rumor so far has been vehemently denied from the sources.

Australia raised its interest rates by 25 basis points this morning; suggesting their economy is rebounding faster than the US. IN fact most of the world is coming out of their recessions more rapidly than what we are doing here.

The rest of the day will center on this afternoon’s $39B 3 yr note auction and the equity markets that have no intention of rolling over.

Get Started on Arizona Home Loan.  FHA and VA loan rates with a 720 credit score are sitting at 5.125% this morning! USDA loan rates are at 5.375%

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Many Arizona home buyers that come into my office are confused and frustrated when they find out that they are not able to get the low “teaser rates” they see advertised on TV and radio.  Why does that happen? Are these advertising practices deceptive?

Well, the answer is no, they are not deceptive.  The details are explained in very small print at the bottom of the page,  For example, if you want the lowest rate available you will need a 740 credit score putting 20% to 25% (varies by lender).  If you are applying for an Arizona FHA, VA or USDA loan, you will get the lowest rate with a 720 0r 740 credit score. (depending on the lender)

Several months ago mortgage lenders instituted changes to the minimum credit scores they would require in order to qualify for an Arizona FHA loan. Most lenders have raised their minimum scores to 620. Many have raised it to 640.  In addition, they have started to institute “tiered pricing” based on your credit score.

“Tiered Pricing” is a very simple process where you pay a higher interest rate with a lower credit score on an FHA loan.  Tiered pricing is actually a sound, fair and logical way to control loans going into foreclosure without penalizing people who have demonstrated a great history in paying their bills on time.

NOTE: Their is no minimum credit score required for an FHA loan by the Federal Government.  Lenders have the right to “overlay” FHA guidelines and create their own rules and guidelines.

So how do you get the best interest rates on an FHA, VA or USDA loan in Arizona?  Simple, raise your credit score!

Raising your credit score is not always that difficult.  I utilize a software program offered by Equifax, TransUnion and Experian to analyze my clients credit report that will tell us EXACTLY what needs to be done to each account and how many points it will raise their credit score!

So, what does that mean to a potential buyer?  The average lender would just inform a client of their score and begin the process.  I will run the analysis to determine what can be done to raise their score in order to qualify for the best interest rates on their Arizona FHA, VA or USDA loan.

The potential savings can be HUGE!  If you get an interest rate that is 1/2% lower,  your potential savings on a monthly basis can be $20 to $100.  And, $50,000 to $100,000 in payment and interest savings over the life of your loan.

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Have questions?  Call my office at (602) 291-4362

Given the huge double barrel shock to the equity bulls; the Chicago PM index and the ADP employment estimate, we suggest floating to start the day. Yesterday we locked all rate locks overnight in preparation for the employment report and the 10 yr note failing to break its resistance. Still has not done it this morning but with the stock market getting hammered we will reload and float. Keep tuned for our rate alerts through the session.

At 8:00 this morning the 10 yr note -4/32 at 3.30%, mtgs started -2/32 frm yesterday’s close. At 8:15 the Sept ADP jobs report down 254K jobs; for August ADP increased its original estimate by 20K to 277K. At 8:30 Q2 GDP final hit at -0.7%, up frm the preliminary -1.0% reported in last month’s GDP release; the reaction to the better quarter put the 10 yr -6/32 and mortgages -5/32; the DJIA index +38. At 9:00 the 10 yr -7/32, 30 yr mtgs -5/32, DJIA +35. At 9:30 the DJIA opened +14, the 10 yr -6/32 and mortgages at 9:30 -4/32. (see below for 10:00 levels).

At 9:45 the Chicago purchasing mgrs index, expected at 52.0 frm 50.0, unexpectedly fell to 46.1. The much weaker index flipped stocks over to -90 on the initial reaction for the DJIA. The new orders component fell to 46.3 frm 52.5 (any read under 50 is contraction). The 10 yr note jumped to +1/32 frm -6/32 and mortgage prices which were -4/32 at 9:30 jumped to +5/32 on the session. A major shock to the stock market running investors and traders into safety trades. A double blow for economic bulls this morning.

Earlier this morning at 7:00 the weekly MBA mortgage applications. Apps declined 2.8% from the previous week, purchase apps were down 6.2% while re-fi apps were down 0.8%. The four week moving average for the market Index is up 3.9%.  The four week moving average is down 0.6% for the purchase Index, while this average is up 6.8% for the refinance Index. The refinance share of mortgage activity increased to 65.3% of total applications from 63.8% the previous week. The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.94% from 4.97%, with points decreasing to 0.94 from 1.12 (including the origination fee) for 80% loan-to-value (LTV) ratio loans. The average contract interest rate for 15-year fixed-rate mortgages decreased to 4.34% from 4.41%, with points decreasing to 1.01 from 1.05 (including the origination fee) for 80% LTV loans. This is the lowest 15-year fixed-rate ever recorded in the survey.

Mortgage re-finances may have peaked. Credit is tight and FICO scores over 750 to get the best rate; while we can’t be certain, most of those qualified for re-finances may have already done it. Something to keep an eye on given purchases are still very sluggish.

This morning’s ADP estimate of job losses at 254K was worse than what markets were expecting, but since it isn’t the official BLS report which occurs Friday it isn’t getting the negative reaction that the BLS report will have if it shows more jobs lost than what markets are expecting (-180K to -200K). The ADP data does not include government job changes, thus if government jobs increased by say 25K the ADP would be closer to the BLS forecasts but still more lost jobs than markets are expecting now.

No additional data through the rest of the day; all about trading off stocks through the rest of the day, and monitoring the 10 yr note ability to break technical resistance at 3.28%.

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