Rates inched higher Thursday on stronger than expected economic data. Weekly Jobless Claims fell to 451,000, below the consensus forecast of 470,000. The July Trade Deficit was -42.8 billion, beating expectations. Stocks moved higher. Results from today’s 30-year Treasury auction will be released at 1:00 PM. Yesterday, FDIC Chairman Shelia Bair called for a new set of “common sense” mortgage lending rules to reduce the risk of government guaranteed loans. “Going forward, the standard as we emerge from this crisis should be very robust income documentation, ability to repay standards, and some significant down payment”, Bair said. While we agree in principle with the need for common sense lending standards, we feel the crisis resulted from risk layering. Borrowers with excellent credit histories, stable incomes, and low debt-to-income ratios are likely to make their mortgage payments, even with little or no money down. Likewise, borrowers with large down payments, good cash reserves and excellent credit histories will likely make their payments even with relatively high debt-to-income ratios. The risk level becomes unacceptable when multiple adverse factors are combined. Too much tightening of mortgage credit standards is not helpful.