U.S. Treasury Bonds
Maturity Yield Last
Week		 Last
Month
5 Year 4.36 4.43 4.54
10 Year 4.45 4.51 4.60
30 Year 4.65 4.71 4.79

Treasury Market Summary: 

 

It's a stretch to say things were back to normal this week, but there was no denying that the market tone was much improved. Negative headlines on the subprime exposure - and there were plenty of them - came and went without unraveling the market.  Meanwhile, T-bill rates pushed higher again, providing a tacit signal that fears about a liquidity crisis have eased in the wake of the Fed cutting its discount rate and its accommodative repurchase agreements. Friday's action ended the week on a high note as the market rallied in a broad-based manner, aided by better than expected economic data, better than expected earnings results from several retailers, and speculation that a buyout deal might be in the offing within the battered investment banking group. If there was one shortcoming to Friday's rally, it was that it occurred on light volume.  NYSE volume was just below 1.2 billion shares (it often does 1.0 bln by noon on heavy days).  Today's total suggests there wasn't a lot of conviction behind the buying efforts.  Nonetheless, investors who are long the market will take higher stock prices any way they can get them. On Friday they got them on the back of leadership from the energy (+2.20%), materials (+1.80%), technology (+1.50%), industrials (+1.30%) and consumer discretionary (+1.30%) sectors. The positive bias took root in the early-going as participants responded favorably to stronger than expected durable orders and new home sales data for July.  Specifically, durable orders jumped 5.9% (consensus +1.4%) while new home sales increased 2.8% to an annualized rate of 870K (consensus 825K).Although there were some initial misgivings that the data might prevent the Fed from cutting the fed funds rate, those misgivings were set aside and the good economic news was isolated today as just that - good economic news.  Still, the market was careful not to put too much weight on today's reports knowing that they covered a period that didn't really encompass the recent credit market turmoil. It would be remiss not to add, though, that some of today's strongest areas were economically-sensitive areas. With the late bid in financials, the major indices managed to close at their best levels of the day.  For the week, the Dow, NASDAQ and S&P rose 2.3%, 2.9% and 2.3%, respectively.DJ30 +142.99 NASDAQ +34.99 SP500 +16.87 NASDAQ Dec/Adv/Vol 930/2079/1.64 bln NYSE Dec/Adv/Vol 806/2499/1.18 bln
 
 

Economic Indicators for this week that could impact the mortgage or real estate markets include...

The Trouble with Alt-A Loans
Alt-A loans are a category of mortgages that offer borrowers with good credit the convenience of not having to fully document and verify their income. While these loans are considered more secure than subprime loans, they have become troublesome due to a high volume of defaults.

Mortgages that are known as "Alt-A" loans are conveniently attractive, especially for people whose income is difficult to verify through traditional paperwork such as pay stubs and tax returns. Those who are self-employed, those who earn a substantial income by receiving tips in cash, and those whose income is based on sales commissions sometimes, make more money than their documents reflect. Because this presents a challenge when applying for a mortgage, these consumers are often willing to pay a higher interest rate in exchange for a low-documentation Alt-A loan.

Liar loans

Mortgage investors are happy to offer Alt-A loans, because they're a safe bet and pay higher interest. To qualify for this type of loan, you must have good credit, which makes investors feel more secure, especially compared to other high-interest loan investments, like subprimes. But Alt-A mortgages have recently earned the nickname "liar loans," because so many borrowers exaggerated their stated income in order to qualify for bigger loans and more expensive houses. Those high-priced homes carry higher monthly payments that borrowers cannot realistically afford, and that's where the problems start.

According to Standard & Poor's, the delinquency rate on Alt-A loans has quadrupled since 2004. To add insult to injury, another $1 trillion of adjustable rate mortgages are scheduled to reset this year. As they do, the monthly payments of many homeowners will skyrocket. But homeowners who want to refinance out of expensive mortgages are finding that the value of their homes is shrinking, thanks to a crumbling housing market. With so many bad loans across the country, lenders have tightened their rules, making it harder to qualify for a new loan or a refinance. With less equity to borrow against and more hurdles to jump, many holders of Alt-A loans are in deep financial trouble with no way out of the mess.
 

To tell the truth

On the other hand, if you're a responsible borrower who's not prone to hyperbole when it comes to declaring your annual income, an Alt-A mortgage may still be a viable resource. Because of caution among lenders, If you're applying for an Alt-A, you need a high credit score. Also, be prepared to pay a substantial down payment. Keep in mind that Alt-A loans carry higher interest rates. As troubles expand across this market, fewer investors will be willing to support them. That may drive their interest rates even higher. You may prefer to apply for a conventional loan instead, even if you only qualify for a smaller amount. With the prices of homes falling, smaller loans do buy bigger houses. That's the silver lining in the cloud if you're shopping for real estate this year.

One should consult with a qualified mortgage planning professional prior to implementing any mortgage planning strategies.

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