Looking Back And Looking Ahead : March 31, 2008

Mortgage rates were up last week on weak housing data and a growing nervousness about mortgage bond quality.

Rates would have been up more if not for a tame inflation reading Friday.

The Personal Consumption Expenditures report fell Friday to 2.0% year-over-year, putting it back within the Federal Reserve's comfort zone of 1-2 percent.

PCE is the Fed's preferred inflation gauge and with inflation in check, Ben Bernanke & Co. can focus on other elements of the economy such as housing and employment.

Mortgage rates figure to be volatile (again) this week.

The first major event to strike markets is today's release of a 200-page, government-written plan outlining sweeping reforms for the financial industry.

If markets interpret the government's plan to be bad for bond markets, expect mortgage rates to rise as demand for bonds falls. Conversely, if the reforms are expected to benefit bonds, mortgage rates should fall.

Then, Wednesday, Fed Chairman Ben Bernanke testifies to Congress about the U.S. economy.

Expect the Fed Chief to stay on message, but mortgage rates will respond to his word choice and tone -- especially in remarks about large banks and their ability to survive the current market. Traders are already on edge and will take Bernanke's testimony very seriously.

And lastly, also moving markets this week is the March jobs report, due Friday.

Remember that job growth was negative in January and February so with a third negative month in March, the calls of recession will grow louder; the expectation is the economy shed 40,000 jobs last month. Whether a negative number will be good or bad for mortgage rates, though, will depend on the bond traders' mood come Friday morning.

Either way, though, if the actual jobs number deviates from the expected jobs number of 40,000, mortgage rates will swing wildly starting at market open Friday and continuing into the weekend.

(Image courtesy: The New York Times)

In 2008, Home Loans Are One Day Cheap And The Next Day Expensive

When mortgage rates change rapidly, it's a fiscal challenge to shop for a home and/or home loan.

Lately, mortgage rates have been especially volatile, mirroring the wild moves of the stock market.

Here's how up-and-down stock markets have been in 2008: Through last week, the S&P 500 Index changed more than 1 percent per day on 28 separate days.

This represents 52 percent of all trading days and is the most volatile measurement since 1938.

Mortgage financing is impacted by stock market changes because when money flows into stocks, it tends to come from bond markets. And, when money leaves stocks, it tends to "get parked" in bond markets.

Because mortgage bonds set mortgage rates, you can understand how stock market volatility can make it difficult to predict what home loan payments might look like.

Volatility is expected to continue for the next several quarters so if you see a mortgage rate you like today, consider locking it right away -- it probably won't last long.

Source
U.S. Stock Volatility Climbs to Highest in 70 Years, S&P Says
Jeff Kearns
Bloomberg, March 20, 2008
http://www.bloomberg.com/apps/news?pid=20601213&sid=av840GLwE4UA&refer=home

Why "Median Sales Price" Reports Aren't Helpful For Housing Markets

Each month, the Commerce Department and the National Association of REALTORS® release national housing data.

The former's release is called the New Residential Sales report and the latter's is called the Existing Home Sales report.

Both reports highlight the "median sales price", the point at which half of the homes in the U.S. sold for more, and half sold for less.

Last month, the median sales prices were as follows:

• Existing homes: Down 8.2 percent
• New homes: Down 2.7 percent

The very definition of "median", however, makes this data point useless for national housing statistics.

If a large amount of homes are sold in regions where home prices are traditionally high, the median sales price will trend higher.

If a large amount of homes are sold in regions where home prices are traditionally low, the median sales price will trend lower.

Again, all that the median sales price tells us is the price point at which half the homes in the country sold for more, and half sold for less.

Real estate is a local phenomenon and so grouping the entire country's supply of homes together makes little sense. A home in San Francisco has little to do with a home in Omaha.

To get a true gauge of your local market, talk to a real estate agent that knows the local market well. You'll not only get meaningful statistics about a neighborhood, but you'll get good insights, too.

The Small Statistic Within Consumer Confidence That Didn't Show Up On The News

Consumer Confidence fell to its lowest point in three years and anybody who watches the evening news can understand why.

Each day, news programs barrage Americans with tales of economic woe and American Opinion is largely shaped by the media.

After enough time, the reporting becomes a self-fulfilling prophecy.

But, in the Consumer Confidence report, there was a choice piece of data that isn't getting reported by the news programs and it's a rather important piece.

Although fewer consumers expect to buy automobiles and appliances over the next six months, those with plans to buy homes is actually higher by 14 percent.

In other words, despite weakening confidence in the economy, an increasing number of Americans are planning to buy homes this season and next.

Consumers may be motivated to buy this year by a number of factors:

• Lower home prices nationwide
• Affordable mortgage rates
• Fear that mortgage products will require larger downpayment

Regardless, the media is choosing to ignore this part of the story. Instead, the news programs are focusing on the negatives -- just look at the headlines.

It's no wonder that confidence is down -- bad news is all the American Public tends to hear.

How Seasonal Factors Change Homeowner Vacancy Rates

Each quarter, the Census Bureau releases the Homeowner Vacancy Rate, a housing statistic that measures the percentage of homes for sale that are vacant.

A home listed for sale may be vacant for several reasons including:

1. The home has been foreclosed and the owner has moved out
2. The home seller moved into a new home and not sold his former home
3. The home was a rental property and is being sold without a tenant

In Q4 2007, the Homeowner Vacancy Rate matched its all-time high of 2.8 percent.

The statistic can be misleading, however, because Homeowner Vacancy Rates appear to be seasonal and the fourth quarter is more prone to high figures.

As evidence: In 6 of the last 7 years, Q4 posted higher vacancy rates than for the preceding three quarters.

Vacancy rates may increase in the fall because homesellers without a "need" to sell tend to take their properties off the market during the Holiday Season. That leaves an over-weighting of empty homes for sale -- precisely what the Homeowner Vacancy Rate measures.

For an interactive version of the chart above, visit the Wall Street Journal Online.

Source
Housing Markets: A Vacant Look
The Wall Street Journal Online
March 21, 2008
http://online.wsj.com/public/resources/documents/retro-VACANCY08.html

Looking Back And Looking Ahead : March 24, 2008

Conforming mortgage rates edged slightly lower for the second week in a row.

Mortgage rates fell for two main reasons:

1. The Federal Reserve offered fiscal support for troubled mortgage-backed securities
2. A government group gave Fannie Mae and Freddie Mac permission to lend more of its money to American homeowners

These two actions combined to make mortgage-backed securities safer for mortgage bond investors and when mortgage bonds are safer, their required rate of return (i.e. interest rate) comes down.

This is the financial concept of Risk vs. Reward in action.

Expect mortgage rates to be in flux and highly volatile again this week, however.

Aside from housing and consumer confidence data, markets will respond to Friday's Personal Consumption Expenditures data. PCE is a "Cost of Living" index that the Federal Reserve watches very closely.

PCE is different from other Cost of Living indices because it accounts for "substitutes". For example, if beef is getting too expensive, PCE will substitute chicken -- much like a regular person would.

In this way, PCE better reflects the true cost of living for the average American.

PCE is expected to show 2 percent growth year-over-year. If the actual figure is higher, expect mortgage rates to rise on inflation concerns.

Re-Approve Your Pre-Approval

Since December 2007, mortgage lending guidelines have changed very quickly and often without notice.

Some of the more well-known changes include:

• Broad restrictions on stated income home loans
• Broad restrictions on 100 percent financing
• "Risk-based fees" for credit scores under 740

Some of the lesser-known restrictions relate to property type and occupancy status as well as debt-to-income levels and mortgage payment histories.

Because of the number of changes and their collective scope, home buyers should be prudent and get re-pre-approved for their home loan.

Even if you last spoke with your loan officer four weeks ago, it's important to know how market changes could ultimately impact your home loan approval.

The market really is that different. Talk to your loan officer about a re-pre-approval today.

Fannie Mae - Freddie Mac - OFHEO

In a surprise move this morning, The Office of Federal Housing Enterprise Oversight, Fannie Mae and Freddie Mac reported an initiative expected to provide up to $200 billion of immediate liquidity to the mortgage-backed securities market.

OFHEO estimates that Fannie and Freddie's existing capabilities, combined with the initiatives, will allow government sponsored enterprises (GSEs) to purchase or guarantee about $2 trillion in mortgages this year.

"This capacity will permit them to do more in the jumbo temporary conforming market, subprime refinancing and loan modifications areas," OFHEO said, referring to the easing of the capital constraints. Treasury Secretary Henry Paulson said the move will enable the companies to help more homeowners and strengthen the mortgage market.

Brought to you, courtesy of The Mortgage Market Guide

Making English Out Of Fed-Speak (March 2008 Edition)

The Fed lowered the Fed Funds Rate by 0.750% to 2.250% yesterday.

Because it is tied to the Fed Funds Rate, Prime Rate also fell by 0.750% yesterday. Prime Rate is now to 5.250%.

Holders of home equity lines of credit and credit card debt benefited from the change and will see lower interest costs in next month's statements.

Mortgage rate shoppers didn't.

In the statement above -- as explained by The Wall Street Journal -- the Fed expresses a growing concern of inflation from rising commodity prices such as oil. In part, this caused the mortgage bond market to sell off immediately following the press release.

Mortgage rates rose close to a quarter-percent yesterday.

The Federal Open Market Committee's statement leaves the possibility of future Fed Funds Rate cuts open. The FOMC's next scheduled meeting is a two-day affair April 29-30, 2008.

Source
Parsing the Fed Statement
The Wall Street Journal Online
March 18, 2008
http://online.wsj.com/internal/mdc/info-fedparse0803.html

$2 A Share?

In the wake of Sunday's bailout of Bear Stearns Cos. by JP Morgan Chase, shareholders of the battered brokerage firm may now try to hold out for a higher price. JP Morgan's offer is worth more than $2 a share because the bank's stock (the currency it's using to try to purchase Bear) climbed 10% on Monday. Bear's shares closed at $4.81, roughly double the value of the bid, and are trading higher again today at $7 at last look.

Joseph Lewis, one of Bear Stearns' largest shareholders, said that JP Morgan's offer was "derisory" or ridiculous. The currency-trading billionaire owns almost 10% of the brokerage firm, having built a stake since September when the shares were trading at more than $100.

As part of the deal, JP Morgan will guarantee all of Bear's open trades and all trades in the future until the deal closes 12 months from now. Bear shareholders may have been left with nothing if the firm wasn't acquired quickly and had to file for bankruptcy protection instead, experts said. If the firm had gone into bankruptcy the systematic risk for the economy would be huge.

U.S. stock markets soared this morning after Goldman Sachs and Lehman Brothers, the number one and number four brokerages in the country, beat earnings estimates before the markets opened. The news, coupled with a deep Fed rate cut this afternoon, has lifted the equity markets today.

This afternoon the Fed will announce their decision on interest rates. Fed Fund Futures are predicting a 100 basis point cut in the fed funds rate taking it to 2% and thus lowering the Prime Rate to 5%.

Brought to you, courtesy of The Mortgage Market Guide

Expect A Fed Funds Rate Cut This Afternoon

The Federal Open Market Committee meets today and will issue a press release in addition to cutting the Fed Funds Rate at 2:15 P.M. ET.

The verbiage of the press release will be as widely watched as the rate cut itself because markets are curious about how far the Federal Reserve will go to lessen the impact of an economic recession.

With every Fed Funds Rate cut, recession becomes less likely, but the other side of the equation is that the probability of long-term inflation grows.

Like recession, inflation can be bad for the economy, too.

The Fed Funds Rate now stands at 3.000% this morning and the FOMC is expected to lower it by 0.750% or more this afternoon.

Mortgage rates are rising today because cuts to the Fed Funds Rate weaken the U.S. dollar which, in turn, makes mortgage re-payments less valuable to investors.

A Bear Bust?

Brokerage giant Bear Stearns saw its share price plummet this morning after JPMorgan Chase and the Federal Reserve Bank of New York announced plans to provide short-term financing to the battered Wall Street firm. The price of Bear's stock topped out at $171 back in January of 2007 - this morning it hit a low of $27.

Bear Stearns has had major problems because of the subprime debacle. JPMorgan and the New York Fed said they would provide funding for an initial period of up to 28 days, with the Fed providing funding to JPMorgan through its discount window. The discount window is an instrument of monetary policy used by the Federal Reserve that allows eligible institutions to borrow money from the central bank, usually on a short-term basis, to meet temporary shortages of liquidity caused by internal or external disruptions.

Rumors have it that the Fed's actions from earlier in the week could have been directly aimed towards Bear Stearns because they could have been on the brink of insolvency. The Fed announced that the Term Securities Lending Facility (TSLF) is intended to promote liquidity in the financing markets for Treasury and other collateral and thus foster the functioning of financial markets more generally.

JPMorgan, seeking to allay fears of its own shareholders, said that it did not believe the transaction would put them at risk. The news sent stock markets plunging as the Dow Jones Industrial Average fell 300 points but has since recovered.

Brought to you, courtesy of The Mortgage Market Guide

Looking Back And Looking Ahead : March 17, 2008

Mortgage rates fell last week on growing evidence of a recession, but far fewer Americans were eligible to take advantage.

Mortgage lenders continue to reduce product menus and that is leaving homeowners with fewer mortgage financing options than before.

As an added hurdle, Fannie Mae and Freddie Mac recently added "risk-based" fees on all conforming home loans, subjecting mortgage applicants to higher mortgage rates based upon:

1. Property Type
2. Credit Score
3. Loan-to-Value

So, even though mortgage rates moved lower last week, for many homeowners, the cost of homeownership did not.

This week, the biggest scheduled news is the Federal Open Market Committee's Tuesday meeting.

It's widely expected that the Federal Reserve will lower the Fed Funds Rate by 0.75%, lowering Prime Rate to 2.250%.

This is good news for Americans carrying revolving consumer debt because those credit types are often tied to Prime Rate. Two popular types of revolving consumer debt are:

1. Home equity lines of credit
2. Credit cards

Meanwhile, a cut in the Fed Funds Rate should push mortgage rates up because Fed Funds Rate cuts can lead to inflation.

Since September 2007 -- when the Fed started to cut its benchmark rate -- the Fed Funds Rate is down 2.250% but mortgage rates are slightly higher. This is a normal occurrence and should happen again this week.

Markets will be closed for Good Friday this week.

The Difference A Zip Code Can Make

There is no such thing as a "national real estate market".

Real estate is local.

We know this is true because even cities don't have their own real estate market.

This chart shows how home prices have diverged across adjacent zip codes over the last 12 months.

Some influencing factors:

• School systems
• Infrastructure
• Proximity
• Supply of homes

Stories about "The U.S. Real Estate Market" are irrelevant. In each city in America -- and on a street by street level -- real estate markets can be vastly different.

(Image courtesy: Wall Street Journal)

Mortgage Rates Fell But You May Have A Higher Rate To Pay

When mortgages began to sour last Fall, Fannie Mae and Freddie Mac instituted "loan-level pricing adjustments".

The concept is basic: For mortgage applicants with less-than-ideal credit profiles, mortgage pricing is adjusted to compensate for the added risks.

It's still a conforming loan, but with adjustments.

Effective March 6, though, Fannie and Freddie's definition of "high-risk" changed and the adjustments got much more expensive.

Some of the more impactful changes include:

• Regardless of credit score, cash out refinances above 75% loan-to-value are subject to price adjustments
• All LTVs greater than 60% are subject to price adjustments
• All 2-units will be adjusted by 0.500%, regardless of LTV
• All 3- and 4-units will be adjusted by 1.000%, regardless of LTV

If your mortgage application is a conforming loan destined for Fannie Mae or Freddie Mac, these adjustments may already be on your loan officer's rate sheets, but be sure to ask.

If the adjustments aren't built-in yet, consider whether you should lock your mortgage rate right away.

So, even though mortgage rates fell Wednesday, new Loan-Level Pricing Adjustments pushed the underlying payment higher for a lot of Americans.

Go Beyond The Headlines: Unemployment Data

The Unemployment Rate fell to 4.8 percent in February.

This is 0.1% lower than from January and that's confusing to a lot of people; it's been highly publicized that U.S. companies shed 63,000 jobs last month.

Americans are losing jobs at the same time that the Unemployment Rate is falling. Seem strange?

Well, it's possible because the Unemployment Rate measures workers unemployed versus workers in the workforce.

The "jobs number", by contrast, measures active workers collecting actual paychecks.

So, when the government reported that Unemployment Rates fell in February, it happened because the "workforce" figure used to calculate the unemployment was 644,000 less than the workforce figure from January.

644,000 people have left the workforce entirely. This not only includes those retiring, but the government specifically excludes Americans from the workforce that:

1. Hadn't looked for a job in the last 4 weeks, or
2. Felt "discouraged" by their prospects and didn't look for a job at all

And that's why the Unemployment Rate fell in February even as companies were laying off workers -- the total workforce size was reduced by more than the total number of jobs lost.

On paper, it looks like the jobs market may be improving but after a closer look, the opposite may be true.

Similar to mortgage-related stories, there is always more to know than just the headline -- you have to dig deeper to find out what the news really means and how it applies to you.

(Image courtesy: Wall Street Journal)

The Fed Dumps Cash Into The System

In an unexpected move, the Federal Reserve plans to lend up to $200 billion of Treasury securities in exchange for debt including private mortgage-backed securities that have slumped in value as homeowners defaulted on their payments.

The new tool is called the Term Securities Lending Facility and will lend the Treasury Securities to primary dealers for 28-day periods through weekly auctions. The Fed coordinated the effort with central banks in Europe and Canada, which plan to inject up to $45 billion into their banking systems.

The Fed's efforts show that it is concerned about the dwindling sentiment in mortgage debt, which could further threaten the housing crisis and the economic slowdown. Wall Street was looking for the Fed to outright buy mortgage debt but their actions today should alleviate some of the pain.

Fed Fund Futures, which predict the next Fed action, are now calling for a 50 basis point interest rate cut. A 75 basis point cut has gone from a 100% chance down to a 60% chance after the news. The next FOMC interest rate decision meeting is March 18.

Brought to you, courtesy of The Mortgage Market Guide

How Gas Prices Are Impacting Mortgage Rates

Gasoline prices reached an all-time, inflation-adjusted high yesterday, averaging $3.23 per gallon nationwide.

According to GasBuddy.com, this represents a 25% increase in the last 12 months.

Higher gas prices are leaving Americans with fewer discretionary dollars to spend and that is playing a role in the U.S. economy's slowdown. It's one reason why mortgage rates have stayed low despite steady upside pressure from inflation.

High gas prices are also a reason why Thursday's Retail Sales data will be closely watched; markets will gain insight into whether Americans are cutting back on personal spending because of rising energy costs.

Retail Sales are expected to have risen by a slight 0.1%. If the actual number is lower, mortgage rates should fall on recession fears. If it's higher, rates should rise.

(Image courtesy: GasBuddy.com)

Looking Back And Looking Ahead : March 10, 2008

Between Tuesday and Thursday, mortgage rates rose as much as during any three-day period in recent memory before settling back a bit on Friday's jobs data.

Fourteen speeches from members of the Federal Reserve were partly to blame for the mortgage rate chaos, but several other factors played a part, too.

One of the biggest other factors last week was that multiple big-name investors were "margin-called".

Now, margin is a basic financial concept, but to do a good job explaining it requires a lot of numbers and math. So -- if you're curious -- visit Wikipedia for the complete run-down.

Or, just know that last week's margin calls forced the investors to sell their mortgage bond holdings into a falling mortgage bond market. This accelerated the mortgage bond markets freefall for home buyers and rateshoppers alike.

The extra supply from the margin calls created a stronger push downward on mortgage bond prices than markets would have seen without the margin calls.

This, of course, caused mortgage rates to rise faster than they would have without the margin calls, too.

Only after February's weak job numbers were reported Friday did mortgage rates recover. Overall, rates were higher on the week and -- at one point Thursday -- touched their highest levels in several months.

This week will be fairly light on data and lacking of Federal Reserve speakers. Therefore, watch for momentum trading to take hold.

The two data points to watch this week are:

1. Thursday's Retail Sales data
2. Friday's Consumer Price Index

Both are reasonable gauges of inflation in the U.S. economy and both are expected to show slowing from their previous readings. Strength will be interpreted as inflationary and should cause mortgage rates to rise.

(Image courtesy: The New York Times)

How Picking Up The Telephone Can Reduce The National Foreclosure Rate

"Foreclosure" is the legal process by which a bank repossesses a home from a borrower and, according to RealtyTrac, 1 out of every 100 homes were in some stage of the foreclosure process in 2007.

This figure is astounding because foreclosure is expensive to both homeowners and banks. Both parties have an interest in avoiding foreclosure, but the process has to start with the homeowner -- banks are just too big to start it themselves.

Every mortgage statement has a 1-800 phone number on it. If you're about to fall behind on your mortgage payments, make a phone call first. When you call the toll-free number, a customer service representative will talk about your repayment options, or help you design a work-out plan to get your mortgage back to current.

Banks know that more than 80 percent of all foreclosures result from one of the following:

• Job loss/reduction in salary
• Medical issues
• Divorce
• Death

These are life events that draw compassion from banks. They understand that bad things can happen to people.

However, the other 20 percent of foreclosures are the result of an inability to sell, an unwillingness to pay, and budget mismanagement. These reasons are not as acceptable to the banks.

But, when a homeowner fails to forewarn his lender of a missed payment, the lender assumes the worst. It puts the homeowner in the 20 percent category. This makes a work-out plan much less likely and can quickly lead to foreclosure and a loss of the home.

Lenders want to avoid foreclosure as much as homeowners do. If you're a homeowner and you're facing trouble with your mortgage payment, give your lender a call in advance and try to work it out.

If you never call, you can't possibly get help.

(Image courtesy: Countrywide Financial)

The Right Question: "How Much Do I Want To Spend On Housing Each Month?"

One of the most popular questions that home buyers ask real estate and mortgage professionals is "How much home can I afford?"

It's a normal question to ask, but it's not the most effective way to plan your finances.

Banks will almost always approve you for a home loan in excess of your household budget.

The more appropriate question is: "How much do I want to spend on housing each month?"

By focusing on a home's payment instead of its list price, home buyers exert more control over their short- and long-term financial goals. List price is only one piece of the monthly payment puzzle.

The cost of owning a home month-after-month is the sum of multiple expenses:

1. The mortgage payment
2. The real estate taxes on the property
3. The condo/management fees to an association (if applicable)
4. The cost of homeowner's insurance
5. The cost of mortgage insurance (if applicable)

In other words, because monthly payments are a combination of costs, buying a home based on its list price does very little to help plan a budget. A home selling for $300,000, for example, may cost a homeowner anywhere from $1,800 to $3,000 monthly.

This is why "How much do I want to spend on housing each month?" is a better starting point than "How much home can I afford?".

Home affordability comes from more than just the list price.

Recession or Inflation? Even Fed Members Don't Know For Sure.

With Friday's jobs report looming, mortgage markets are especially skittish about whether the economy is in a recession, or facing inflation.

Four Fed speakers Tuesday did little to quell the debate:

• 9:00 A.M.: Fed Chairman Bernanke stayed on message that foreclosures and falling home values are dragging down the economy.
• 10:00 A.M.: Fed Vice Chairman Kohn said that banks will "face challenges" but will not fail en masse.
• 1:00 P.M.: Federal Reserve Governor Mishkin said that deflation is more concerning to him than inflation
• 1:00 P.M.: Dallas Fed President Fisher said fighting inflation is more important than fighting recession.

Four speeches, four different perspectives.

The speakers' mixed messages confused market participants and, as a result, mortgage rates varied wildly from hour to hour.

The confusion was so great that several mortgage lenders had to shut down their rate lock desks on three separate occasions Tuesday to re-price rates to the "new" market.

That's a highly unusual occurrence and the market's volatility underscored the uneasiness existing in mortgage markets lately. Without a clear picture of where the economy is headed, investors are left to guess (and they're not very sure of themselves).

Friday's job report may add some clarity, but until Friday comes, consider locking a mortgage rate if you see one you like -- it probably won't stick around for very long.

What High Oil Prices Mean To Mortgage Rates

After briefly exceeding its all-time high, oil closed Monday at $102.45.

Rising energy costs can lead to inflation because American Business eventually passes on its higher costs to American Consumers.

When consumers have to spend more money for the same amount of product, it's called "inflation".

Another way to look at inflation is like an erosion in the value of a dollar.

The presence of inflation causes mortgage rates to rise because mortgage debts are repaid in dollars. If those dollars are losing their value, the rates tied to those debts have to increase to "cancel out" the erosion.

This is why mortgage rates spiked Monday. As oil prices rose, the fear of inflation grew larger.

Over the next few weeks, expect mortgage rates to be highly sensitive to oil prices. As oil prices rise, mortgage rates should, too. As oil prices fall, mortgage rates should follow.

(Image courtesy: New York Times)

Looking Back And Looking Ahead : March 3, 2008

Mortgage rates edged lower last week, but it was another wild ride. Market players continue to deal with competing economic forecasts.

When the economy shows signs of brightness -- like it did Monday and Tuesday -- mortgage rates tend to rise.

This is because markets are currently equating growth with inflation and inflation pressures mortgage rates higher.

But when the economy shows signs of darkness -- like it did Wednesday, Thursday and Friday -- mortgage rates tend to fall. The sudden absence of inflation reverses the upward pressure and mortgage rates adjust downward.

The major reversal last week started with Federal Reserve Chairman Ben Bernanke's testimony to Congress.

The chairman made three important points, and repeated them throughout his two-day affair.

1. Inflation is not dead
2. More economic stimulus will create more inflationary pressures long-term
3. Short-term economic weakness is more concerning than long-term inflation

Chairman Bernanke implied that the Federal Open Market Committee will stimulate the economy as needed at its next meeting, March 18.

Markets are anticipating another half-point drop in the Fed Funds Rate.

This week, there are 14 separate speeches being made by various members of the Federal Reserve.

Markets will react to any deviations in these remarks as they relate to Bernanke's testimony. Mortgage rates will move accordingly. Fewer worries of recession will prop mortgage rates up; Fewer worries of inflation will pull rates down.

Also hitting the wires this week is February's jobs report.

This is a major market mover because employment is closely tied to spending which is closely tied to economic growth.