Events This Week:

GDP Fell

Existing Sales Up

Jobless Claims Rose

Manufacturing Mixed

________________________________

Events Next Week:

Mon 2/2
ISM Manuf.
Income

Tues 2/3
Pending Sales

Thur 2/5
Productivity

Fri 2/6
Employment

Rates Rise After Fed Meeting

Mortgage rates held steady during the first half of the week, until
Wednesday's Fed meeting. As expected, the target for the Fed Funds rate
remained unchanged, close to a level of zero. Heading into the
announcement, the biggest question for investors was whether the Fed
would begin to purchase Treasury securities in addition to
mortgage-backed securities (MBS) to help support the financial system.
Hoping for a decisive plan, many investors were disappointed that the
Fed merely indicated that it was ready to purchase Treasuries if
"evolving circumstances" justify the action. Yields on Treasury
securities rose significantly after the announcement, and in order to
compete for investors, mortgage rates moved higher as well.

Also applying upward pressure on mortgage rates, a large fiscal stimulus
plan moved closer to passage during the week. An $819 billion fiscal
stimulus package passed a vote in the House, and the Senate is expected
to consider its $900 billion version next week. The combined government
spending for this new package, along with the TARP program, the MBS
purchase program, and a proposed bank cleanup plan, will total trillions
of dollars. An enormous amount of new debt will be issued to pay for all
the government programs, and interest rates offered on all bonds may
need to increase to attract investors. One positive note is that foreign
investors continued to show strong demand for US bonds during the week.

In the housing sector, December Existing Home Sales rose 7% from
November. Inventories of unsold homes dropped to a 9.3 month supply from
11.2 months in November. According to the National Association of
Realtors, lower prices persuaded many buyers to step in. Existing Home
Sales cover more than 85% of total home sales, so this report was very
welcome news for the housing market. December New Home Sales didn't
perform as well, dropping 15% from November.

Lenders Further Restrict Ability to Lock in Rates

As rates have continued to climb since the low in December, lenders are
faced with the dilemma of not being able to meet their own timetables
for underwriting, reviewing conditions, and issuing final loan
documents, while not wanting to hire additional staff. Lenders do not
want to be caught again with excess staff and overhead heading into
several quarters of potential slow business. The resounding concensuss
is to leave staff at their current levels and force consumers to pay
higher fees for longer mandated lock periods. Several lenders also
announced this week that they are joining the ranks of other lenders
that will no longer accept a request to lock a loan without the fully
processed loan file submitted. Lenders have been stung by a huge amount
of lock requests not being fulfilled due to various issues but mostly
from appraisals not supporting anticipated values. These unfulfilled
commitments cost lenders huge sums. Not allowing a commitment until the
file is fully processed, removes the variables and assures the lenders
greater “pull through”.

Mortgage Insurance Companies Further Restrict Loan Products

Effective February 1st, many Mortgage Insurance Issuers will no longer
issue mortgage insurance policies for any type of 2nd home purchase, any
type of investor loan, or any type of cash-out refinance. No matter the
type of property (condo, SFR, etc.) these transactions no longer
acceptable for MI coverage. All these types of transactions are now
restricted to a maximum of 80% loan-to-value financing.

Also Notable:

* The Fed held the Fed Funds rate unchanged, close to a level of
zero
* Foreign investors purchased a stronger than average 35% of the
Treasury auctions
* Continuing Jobless Claims rose to a record high
* The Fed purchased $17 billion in agency MBS during the weekly
period ending 1/28

Daily rates from Hawaii’s Leading Lenders:

Average 30 yr fixed rate:

Last week:

+0.16%

This week:

+0.31%

Stocks (weekly):

Dow:

8,000.86

-76.70

NASDAQ:

1,476.42

-0.87

Week Ahead

The important Employment report will come out on Friday. As usual, this
data on the number of jobs, the Unemployment Rate, and wage inflation
will be the most highly anticipated economic data of the month. Early
estimates are for a loss of 500K jobs in January. Before the Employment
Data, a wide range of other economic data will be released, beginning
with Constuction Spending and Personal Income on Monday. The ISM
national manufacuring index will also come out that day. Pending Home
Sales, a leading indicator for the housing market, is on the schedule
for Tuesday. ISM Services will be released on Wednesday. Productivity
and Factory Orders are on tap for Thursday.