Archives for July 2014

S&P facing fraud charges of mortgage bond ratings

Standard and Poor’s is facing some serious charges from the SEC.   Accusations of fraud over the companies mortgage bond ratings are at the heart of the charges.  After the mortgage meltdown of 2007/2008 many people believed the rating agencies played a large roll in creating the real estate bubble.  Sub prime loans were rates AAA and thus investors bought these mortgage bonds believing they were high quality.  Once the bubble began to burst many of these loans defaulted and thus the bonds became nearly worthless.   However despite that the ratings agencies have faced little scrutiny and thus (according to the SEC) they continued with potential problematic ratings for commercial mortgage bonds in 2011.

So yesterday S&P said  that it had received a letter from the SEC that it intended to recommend pursuing civil charges against the rating agency. The potential lawsuit would be over six ratings S&P issued for commercial mortgage-backed securities in 2011, according to a CNBC report.

Inflation Data 7-22-14

Earlier this morning the Labor Department reported that the consumer price index increased 0.3% in June after a 0.4% gain in May. Essentially this was inline with expectations and no real surprises.  The market is a bit on edge and any significant increases in inflation might have caused traders to liquidate their positions.  The Gasoline index rose 3.3% in June, which accounted for most of the increase in the June prices.  During the summer months you typically see an increase in demand for gas and thus prices tend to increase.

When you exclude volatile food and energy prices, core prices were up 0.1% after three straight gains of 0.2% or more. Economists had expected a 0.3% gain and a 0.2% rise in the core rate.  Food and so-called core prices decelerated in June. Food prices rose 0.1% in June.  This is the smallest monthly increase since January, after a steep 0.5% gain in May.

June 2014 Economic Activity

June 2014- Economic activity decelerated in June, this is according to the Fed (Chicago) national activity report released today (July 21st). It dipped down to 0.12 in June from 0.16 in May. This is still the fourth month above zero. A reading of zero is equal to trend growth. It has a weighted average of 85 indicators of national economic activity. The current three-month average slowed to 0.18 in June 2014 from 0.33 in May 2014

Big drop in June housing starts

According to the Commerce Department, housing starts dropped 9.3% last month.  This is the biggest miss since 2007 and the second straight monthly decline.  The main reason for the massive decline was due to the southern region of the United States which had a 30% decline.  It will be interesting to see how the next few months go and if this is the start of a significant decline in housing starts which was a bright spot for the economy over the last 12 months.

Average 30 year fixed rate 7.17.14

According to Freddie Mac, the average 30 year fixed rate dipped to 4.13% this week (keep in mind this is based on paying points and average closing costs for underwriting, appraisal, title and escrow).  Also in the survey the 15 year fixed fell to 3.23%.  Rates overall my drop in the bond market continues to rally the next 3-5 days.  Lenders are cautious when it comes to lowering rates so any improvements from these levels will likely be small unless a major crisis develops.