Mortgage Rates Seek to Regain Downward Push, August 3, 2010

Mortgage Rate Trend Direction:     Down

Economic Reports/Impact:             Personal Income, 8:30 AM ET, Moderate Rate Impact

                                                             Factory Orders, 10:00 AM ET, Moderate Rate Impact

                                                             Pending Home Sales Index, 10:00 AM ET, Moderate Rate Impact

Key News:                                         US Companies Earnings, Federal Reserve Policy

After yesterday's big rally in the stock market and modest sell-off in the mortgage-backed securities market(MBS), mortgage rates are seeking to regain momentum downward.  Today markets will be guided by three economic reports and some key earnings reports.  With the early news out, it appears that mortgage rates will indeed reverse course from yesterday's closing level and drop at initial pricing from lenders this morning.

Impact of economic reports

Before the stock market openned today the Personal Income report was released and was showed that incomes were unchanged from the previous report.  This was lower than expected and provides further evidence of economic slowing.  The report also showed an increase in consumer savings further emphasizing that Americans are being extremely cautious about spending.  A significant portion of our economy dependent on consumer spending.

At 10:00 AM ET the markets will digest two additional reports: Factory Orders and Pending Home Sales.  If the reports reflect expected trends, both reports will show a decline from previous months, A surprise could move markets today.

Two declining earnings reports released today have helped to lead the markets lower this morning: Dow Chemical and Proctor and Gamble.  Dow provides a good read on the industrial sector of our economy while Proctor and Gamble is one of the best guides to the strength of the consumer sector.

Impact of international or political events

An article in the Wall Street Journal today, relying on unnamed sources, states that the Federal Reserve is considering a change in its policies related to MBS.  Four months ago the Fed ended its massive buying of MBS which it had initiated during the banking crisis to keep the residential real estate markets functioning.  The change being considered is to resume the MBS buying to support a slowing economy.  Should this change occur, mortgage rates will likely drop even further, yet the move would make the eventual exit from the MBS markets more difficult for the Fed and more risky for the markets.