Monday - March 24, 2014, 10:50m ET

Current Trend Direction: Sideways

Float/Lock Bias: Start day carefully floating

Current Price of FNMA 4.0% Bond: $104.69, -12bp

Mortgage Bonds begin the week modestly lower as the S&P trades near unchanged. There are no economic reports set for today but tensions are escalating in the Ukraine region. Crimea has effectively conceded the region to Russia, as Crimean troops and their families evacuate the now Russian controlled region.

The rest of the week's economic calendar is packed full of key reports from housing, Gross Domestic Product, manufacturing and consumer attitudes on the economy. In addition, the Treasury will be selling a total of $96B in Notes this week, beginning tomorrow through Thursday, which could offer some volatility.

A report out today from Bank of America Merrill Lynch says that the Federal reserve needs to continue to back the mortgage market if the so-called housing recovery is to remain intact. The report went on to say that mortgage purchase application activity remains critically weak and if the Fed continues to taper and home loan rates rise, applications will continue to decline. The report concluded by saying that demand for mortgage credit remains weak and Merrill doesn't see strength heading into higher rates.

The Fed is still buying a ton of mortgage bonds each month with the runoff from their portfolio, so the Fed is still very much supporting the markets. As the Fed tries to exit QE3, it is clear to see the market disruptions and unintended consequencesthere is probably a lot more to come. At the end of the day, rates are actually better since the tapering began. But it will be interesting to see what happens over the coming months. Ideally, we want the economy to improve and job growth plentiful, as that is what will help the housing market unnaturally low rates wont get it done.

Technically, the 4% coupon has been trying to stabilize in the past few sessions after the big decline last Wednesday in response to the Fed statement.

We will continue to carefully float, but very carefully, as Bond prices have moved sideways to lower over the past two monthsnot a good long term sign.

Joe Shamie NMLS # 241432

First Choice Loan Services NMLS # 210764

First Choice Bank NMLS# 177877

866-970-3400 x-5135

jshamie@fcbmtg.com