Long-term mortgage rates rose for the first time in three weeks, with a 30-year, fixed-rate mortgage moving above 5 percent. Freddie Mac's weekly rate report says a 30-year, fixed-rate mortgage averaged 5.05 percent in the week ended Feb. 25, up from 4.93 percent last week. A one-year, adjustable-rate mortgage averaged 4.15 percent, down from 4.23 percent last week. "Interest rates for 30-year fixed mortgages followed long-term bond yields higher amid a mixed set of economic data reports," Freddie Mac (NYSE: FRE) chief economist Frank Nothaft said. "For instance, the January producer price index jumped well above market consensus, but the consumer price index remained subdued and consumer confidence declined to the lowest level since April 2009, according to The Conference Board." On Tuesday, Case-Shiller reported that home prices in Miami fell 9.9 percent between December 2008 and December 2009, but slipped just 0.3 percent between November and December. [Read the full article]

Calculated Risk today has a good post on the outlook for mortgage rates now that we are approaching the end of the Fed's MBS purchase plan, which is 96% complete. He concludes that, "mortgage rates will rise 35 to 50 bps relative to the Ten Year when the Fed stops buying agency MBS at the end of March." That's pretty much the same conclusion I've come to. I'll add some charts to the discussion which make the same point from a different approach. This chart shows the 26-year relationship between Fannie Mae (FNM) collateral and 10-yr Treasury yields, with the spread on the bottom. Note that the spread has averaged about 125 bps, and currently stands at about 70. The spread has rarely traded at less than 100 bps, which suggests that Fed purchases may have caused spreads to tighten by 30-55 bps. This next chart shows a more unconventional spread, comparing FNMA collateral to the 5-yr Treasury yield for the period that began with the Lehman collapse in 2008. [Read the full article]

Redwood Trust, Inc. (NYSE:RWT - News) today reported net income for the fourth quarter of 2009 of $40 million, or $0.51 per share. This compares to net income of $27 million, or $0.34 per share, for the third quarter of 2009, and a net loss of $116 million, or $3.46 per share, for the fourth quarter of 2008.

For 2009, Redwood reported net income of $39 million, or $0.55 per share.  This compares to a net loss of $444 million, or $13.46 per share, in 2008.  

Redwood also reported that it incurred an estimated taxable loss of $34 million, or $0.44 per share, during the fourth quarter of 2009.  This compares to an estimated taxable loss of $23 million, or $0.30 per share, for the third quarter of 2009, and a taxable loss of $13 million, or $0.39 per share, for the fourth quarter of 2008.  

For 2009, Redwood estimated that it incurred a taxable loss of $83 million, or $1.12 per share. [Read the full article]

Federal Reserve Chairman Ben Bernanke told lawmakers Thursday that the central bank is looking into the use by Goldman Sachs and other Wall Street firms of high-risk financial instruments to make bets that Greece would default on its debt.

Bernanke said the Fed is examining companies' use of credit default swaps, a form of insurance against bond defaults. He made the comments at the start of a Senate Banking Committee hearing. It marked the second day that the Fed chief has testified on Capitol Hill about the economy.

-- Said the severe snowstorms that recently affected the country will likely have a short-term effect on unemployment and layoffs. He said policymakers will "have to be careful about not overinterpreting" upcoming data. [Read the full article]