Mortgage Market Commentary

Mortgage backed securities (MBS) prices near unchanged from yesterdays close (rates stable) in light trading, FNMA 4.5% coupon 101.17bps, +0bps. Favorable repricing was seen in the afternoon. U.S. Housing starts plunged in January as foreclosures swell the glut of homes on the market, undermining efforts to revive demand and lighten inventory by cutting prices. Building permits, a sign of future construction, also decreased as it would take a record 13 months to whittle down the existing supply. Positive news on inflation as import prices fell on lower commodity costs and slumping demand causing companies to cut prices to work down inventories. Lower inflation helps keep mortgage rates down. Industrial Production and Capacity Utilization also fell with broad based declines among its components. Mortgage applications surged last week, refinancing increased to 74% of total applications as interest rates dropped to near 5% showing homeowners are rate sensitive. FOMC minutes to be released at 11am pt & Fed Chief Bernanke speaks later today. Recent run up in MBS prices could lead to profit taking (rates higher) by lenders.