WeeklyBasis 5/1/10: Good Jumbo Mortgage News. Consumer Recovery & Jobs Preview.

Rates dropped last Tuesday when S&P downgraded Greece and Portugal debt, which caused bond investors to reallocate to safer mortgage (and Treasury) bonds—when bond prices rise on buying, rates drop. This positive mortgage sentiment generally held throughout the week, and zero-point rates on loans up to $729k ended the week at record lows.

Jumbo rates also improved slightly, and the latest sign of life in the Jumbo marketplace was news Thursday from Wells Fargo: they’ll be expanding their mortgage securities trading team from five to 30 on expectations that the market for mortgage bonds based on pools of Jumbo loans (above $729k) will improve by the end of 2010. This team will build and sell Jumbo mortgage bond products for all eligible lenders and also for Wells.

This announcement follows last week’s $222m jumbo mortgage bond offering by Citigroup and Marin County-based Redwood Trust. This was the first Jumbo mortgage offering since the credit crisis began.

These signs suggest jumbo mortgage momentum is building, but it’s important to note that this is happening because the jumbo loans accumulating in lender portfolios are made based on extreme borrower and property scrutiny—this scrutiny makes good loans, and good loan pools make good securities.

This trend eventually means more jumbo loan availability for consumers, and better rates resulting from the liquidity that securitization provides for lenders. But borrowers should continue to expect meticulous evaluation of their entire financial profiles as well as painstaking property appraisals while their loans are being approved.

Rate volatility is now a market norm, so borrowers and their lenders should continue to have their finger on the rate lock trigger next week.

Coming off a positive rate week last week, we start Monday with the March Personal Income & Outlays report which includes the Fed’s favorite inflation measure: the Personal Consumption Expenditures Index. Following Friday’s 1Q2010 GDP (+3.2%) that showed consumer spending at +3.6%, Monday’s report will give markets more data to evaluate whether there’s a real consumer recovery underway, and also show us whether any inflation is building.

Tuesday we have factory orders, the National Association’s March Pending Home Sales Report, and Treasury Secretary Tim Geithner will testify on The Hill about TARP—this session will essentially be a regulatory reform debate.

Wednesday is the ADP jobs report for April and Friday is the official Bureau of Labor Statistics April jobs report. March’s BLS report showed 162k jobs created, by far the largest since December 2007, and estimates for April range from +175k-190k. The number will still be skewed by temporary Census hiring which is counted on these rolls, so the unpredictability of this jobs report makes rate market reaction more volatile.

The X-factor will continue to be the Greece (and broader European) debt situation. Last week’s Greece and Portugal downgrades helped mortgage bonds, but if a Greece aid package is worked out, we could see mortgage bonds correct and rates rise.

CONFORMING RATES ($200,000 – $417,000) – 0 POINT
30 Year: 4.875% (4.99% APR)
FHA 30 Year: 4.875% (4.99% APR)
5/1 ARM: 3.25% (3.37% APR)

SUPER-CONFORMING RATES ($417,001 to $729,750 cap by county) – 0 POINT
30 Year: 5.25% (5.37% APR)
FHA 30 Year: 5.125% (5.26% APR)
5/1 ARM: 4.25% (4.37% APR)

JUMBO RATES ($729,751 – $2,00,000) – 1 POINT
30 Year: 5.5% (5.62% APR)
5/1 ARM: 4.625% (4.74% APR)