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The Week In Review (July 23, 2007) : What To Watch For

With more ups-and-downs than an elevator, the mortgage market has not been for the faint of heart since March. 

Last week provided more good news than bad, though, and mortgages rates closed out the week slightly improved overall.

The good news for mortgage markets came in three distinct parts:

1. Federal Reserve Chairman Ben Bernanke did not cite a fear of inflation in his congressional testimony
2. The Cost of Living (as measured by CPI) and the Cost of Doing Business (as measured by PPI) increases in July were squarely within the markets expectations
3. Oil prices remain at high levels putting strain on the American Consumer

The bad news in mortgage markets is that sub-prime loans continue to lose their luster as default rates rise. 

Last week, Bear Stearns acknowledged that sub-prime losses wiped out $1.5 billion of investor capital.

This major loss could scare investors away from buying any mortgage-backed securities in the future and if the demand for MBS is lower, the price of the urderlying bonds will be lower, too. 

Because mortgage rates move in the opposite direction of mortgage bond prices, this would cause mortgage rates to rise.

There are two housing reports this week -- Existing Home Sales (Wednesday) and New Homes Sales (Thursday)-- but neither figure to move mortgage rates too much; traders have lately turned a blind eye to news from the beaten-up sector.

Expect rates to continue bouncing this week.

(Images courtesy: Wall Street Journal Online)