Mortgage backed securities and treasuries went on quite a rally yesterday following Ben Bernanke's first day of testimony on Capitol Hill.  After opening to the downside, the fixed income sector started to gain momentum during Mr. Bernanke's testimony as he gave details on the Fed's expectations for a slow economic recovery.   Mr. Bernanke suggested the economy is bottoming out but that it will take some time before stable economic growth is achieved.  All lenders did reprice for the better with some passing along multiple price improvements as the rally continued to official close. By day's end we had several lenders offering 4.875% as the par rate for the best qualified consumers.

Like yesterday, today is very light on economic data with the only relevant data set being the Mortgage Bankers Association application index, which tracks the weekly change in mortgage applications at major lenders.  An increasing trend in purchase applications is a indicator of future economic growth since the purchase of a new home leads to many other purchases.  It also indicates that consumers are more optimistic since confidence in personal finances is a prerequisite for purchasing a new home.  The release today indicated only a slight increase in both purchase and refinance activity, signaling that the housing market is still not picking up momentum.  The purchase activity posted a modest 1.3% increase while the refinance activity moved higher by 4%.  We do get another read on housing tomorrow with the release of existing home sales.

The government has taken many steps to help the housing market but it seems consumers are still holding back.  One of the steps, which is part of the American Recovery and Reinvestment Act, is a $8,000 tax credit for first time home buyers.  This credit expires on December 1st of this year, so to take advantage of this benefit potential homebuyers must close on a new home by that date.  For those planning to buy, the clock is ticking.  In order to qualify for this free money, you must be a first time home buyer.   If you have owned a home in the past, you can still qualify for this tax credit but you must not have owned a primary residence in the last 3 years.  If you are recently married, both spouses must not have owned a home in the last 3 years as well. There are also income limitations established to prevent wealthy Americans from taking advantage of the credit.  If you are single, your gross adjusted income cannot exceed $95,000; if married, your joint income cannot exceed $170,000.  Here is a link to the IRS Form 5405 which you will need to complete and submit with your 2009 tax returns.

No other economic data is released today but we did have some major companies report earnings.  Morgan Stanley reported a larger loss than expected, US Bancorp reported lower profits, and Wells Fargo beat estimates (but reported that bad loans had increased as borrowers struggle to keep up with payments.) On the news, stock market futures have moved lower which bodes well for the fixed income sector.  Matt and AQ will give more details on this topic in their MBS Commentary blog.

Lastly, Fed Chairman Ben Bernanke will testify before the Senate Banking Committee as part of his semi-annual meeting on Capitol Hill.  Today's testimony will not have the same impact as yesterday's but anytime he speaks market participants will be listening.  He will be taking questions from Senators which can always lead to an unexpected tape bomb but he is not expected to say anything different from yesterday's testimony to the House Financial Services Committee.

Early reports from fellow mortgage professionals are indicating the par 30 year conventional rate mortgage to be in the 4.875% to 5.125% range for the best qualified consumers.  In order to qualify for a par interest rate you must have a FICO credit score of 740 or higher, a loan to value of 80% or less and pay all closing costs including 1 point loan origination/discount/broker fee. As always, you can elect to pay less in fees and take a higher interest rate.  A good rule of thumb: if you plan on keeping your home for more than three years you should pay more in costs to buy a lower interest rate.

After the big rally yesterday, please evaluate your current rate offerings and consider locking. Over the last couple months when rates moved below 5%, they did not stay there very long. We have had some nice gains over the last couple days and it might make sense to take your chips off the table and lock. So far this morning, MBS are holding at yesterday's close so you do not need to lock now but at the cut off you should reevaluate. Matt and AQ will keep you posted on the intraday movements of MBS with commentary and you can check the price of MBS by clicking on the Mortgage Rates page on Mortgage News Daily.