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Continue to float but stay tuned for rate alerts. Rate markets are overbought and unless the stock market really implodes today there is no more to the rally with Treasury auctions looming next week and near term technical overbought oscillators drawing attention.

Prior to the 8:30 employment report for Sept the 10 yr and mortgages traded +4/32 after the huge rate decline yesterday once the 10 yr broke its resistance at 3.28%. The DJIA at 8:15 was off 30 points. At 8:30 Sept non-farm jobs were reported down 263K against market estimates of -180K to -200K, the unemployment rate at 9.8% was in line and +0.1% frm August. Average hourly earnings in Sept were up just 0.1%, also seen as a negative to the economic optimism. August non-farm jobs were revised a little better, from -216K to -201K. The knee jerk reaction sent the 10 yr to +16/32 at 3.11% and mortgage prices +9/32, but by 8:50 the 10 yr backed down to +10/32 and mortgages +4/32.

The DJIA futures at 9:00 -124, 10 yr +14/32 at 3.13% -5 BP and mortgage prices +6/32 frm yesterday’s close. At 9:30 the DJIA opened -70, 10 yr +10/32 at 3.14% -4 BP, mortgage prices at 9:30 +7/32. (see below for 10:10 levels)

The reversal in the equity markets is finally taking hold after a month of waiting; even the most bullish investors are now having to face the reality that the equity markets may have over-shot. That said, listening to various guests on CNBC after the employment report suggests the bulls are not going to give up easily. Lot of chatter coming from the NYSE floor that traders are excited about the turn lower in the stock market, as have noted previously traders say they want a decline in the stock market so they can buy at lower levels. As far as we are concerned, talk is a very cheap commodity; we do not take those thoughts seriously. Changes in sentiment can occur rapidly based on unfolding data. At the end of the day, the basic question in the markets now is whether or not we will have a double dip recession? The bond market is leaning that way while the equity markets are tilted toward no double dip; will likely to increase market volatility over the next few weeks.

At the low yield this morning the 10 yr this week was down 21 basis points and mortgage rates down 16 basis points. A lot of day ahead, short term technicals are now reading overbought after the rally yesterday and the action so far this morning.

Bernanke yesterday said the expansion may not be strong enough to “substantially” bring down unemployment, indicating the central bank will be slow to drain the trillions of dollars it’s pumped into the economy. With the Fed expected to not initiate any tightening moves for most of 2010 and inflation off the radar at the moment, the fixed income markets are benefiting in a major short covering move after the strong resistance at the 3.25% yield level fell yesterday (10 yr treasury) triggering huge stop loss selling. Carrying on with the rally so far this morning on the weaker than expected employment data at 8:30; mortgages are riding the wave so far this morning.

Additional bad news for the economic outlook this morning from the Labor Dept; its preliminary estimate for the annual benchmark revisions to payrolls that will be issued in February. They showed the economy may have lost an additional 824,000 jobs in the 12 months ended March 2009. The data currently show a 4.8 million drop in employment during that time.

At 10:00 August factory orders concluded the data this week; expected to be +0.5%, orders were down 0.8%; August durable goods orders revised to -2.6% frm -2.4%.

next week Treasury will auction a total of $71B in 3s, 10s and 30s on Tuesday, Wednesday and Thursday ($39B of 3 yr notes, $20B of 10 yr notes and $12B of 30 yr bonds); Monday Treasury will also auction $7B of 10 yr inflation-indexed notes. Demand for US debt has been very strong from foreign and domestic investors in the past three months. This time the auctions will face the lowest yields in six months if rates hold current levels.

By 10:00 the rally early ended; the 10 yr unchanged mortgages unchanged. Not likely to see much movement through the rest of the day. The stock market is slowing finding a little traction from the worst levels at 9:00 this morning.

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By Bob Mangold

Accelerator loans, common in Australia and the U.K. but new to the U.S., use special accounts that encourage paying off your mortgage in 1/3 the time of a traditional 30 year loan

A different type of home loan, called a mortgage accelerator, has migrated to the United States. It uses several methods of savings or a line of credit and a borrower’s paycheck to shorten the time until a mortgage is paid off, potentially saving tens of thousands of dollars in interest expense.

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For a more detailed explanation and video tutorials, visit;  www.azmortgagecalculator.com/presentation

Not to be confused with biweekly programs that shorten a mortgage through extra payments, the mortgage-accelerator program is based on an approach common in Australia and the United Kingdom, where borrowers deposit their paychecks into accounts that, every month, apply every unspent dime against the mortgage loan balances.

In Australia, more than one-third of homeowners use mortgage-accelerator programs. In the U.K., it’s about 25% of all loans originated.

The premise is that borrowers utilize a savings account or line of credit. Borrowers then directly deposit their entire paychecks into the credit accounts. Monthly expenses, other than mortgage payments, are funded by draws against the lines of credit or savings account, whether those are through automatic withdrawals, checks, cash withdrawals or credit cards. Even if borrowers end up not paying anything extra on the principal during a month, they still capture some interest savings because the average balances are less than they would have been with conventional loans.

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Here’s how it works

As an example, let’s say your mortgage payment on a conventional fixed-rate mortgage is $2,000 and your monthly net income is $5,000. With the mortgage accelerator, even if you spend the $3,000 difference, your average mortgage balance for the month is $1,500 less than it was with the conventional mortgage.

That’s because the entire $5,000 is deposited in the loan account and you made draws of $3,000 for living expenses spread over the month. At a 7.75% loan rate, that saves you about $10 in interest expense that month.

Now, $10 here and $10 there does add up over time, although both loan programs have annual fees of $30 to $60, but the accelerator part of the mortgage lies in having all your net pay going against the mortgage and an assumption that you have a positive monthly cash flow — meaning you don’t spend as much as you make.

For a more detailed explanation and video tutorials, visit;  www.azmortgagecalculator.com

For a free analysis of your mortgage, visit; www.azmortgagecalculator.com

Help for the undisciplined

Of course, all borrowers already have that money available with a conventional mortgage and without the cost of refinancing. A borrower would simply need the financial discipline to use all that money as an additional principal payment.

For the undisciplined, the mortgage-accelerator program makes the additional principal payments automatically. That’s the real hook to this program: Unless you spend the money by drawing against your savings or line of credit, your paycheck goes toward paying off the house.

Where a mortgage-accelerator loan program gives a homeowner additional flexibility, however, is in having a line of credit or savings available if there is an emergency need for cash. If you make additional payments on a conventional 30-year fixed-rate loan, you can’t borrow that money without taking out a home-equity line of credit or a home-equity loan. (which may not be available at the current time)

With the mortgage-accelerator program, you already have the line/savings in place. That gives homeowners confidence that they can be aggressive in paying their mortgages and still have money readily available if a financial emergency crops up.

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