Rate Update July 16, 2009

Mortgage rates did move higher yesterday afternoon but have dropped back to yesterday’s levels this morning.

For the last week we’ve been stressing the importance of the financial sector during this 2nd-quarter earnings season.  On Tuesday Goldman Sachs reported better than expected earnings which pushed rates higher.  This morning JP Morgan reported better than expected earnings but also warned against larger loan losses in the second half of the year.  These comments are hurting financial stocks which is part of the reason mortgage rates recovered from yesterday afternoon’s increase.  Tomorrow Citigroup and Bank of America report earnings.

In other financial news lender CIT has announced that unless it can raise $2 billion in additional capital it will be forced to file for bankruptcy in the next 24 hours.  If this were to happen it would be another blow to the economy as CIT is a major lender to thousands of small businesses across the nation.  It is unclear whether the market fully understands the impact of this announcement.

With the poor outlook given by JP Morgan and the CIT news we are going to shift into a floating position.  I believe Citi & B of A will also warn against upcoming loan losses which will dampen the outlook for stocks; helping to push mortgage rates lower.

Current Outlook: floating