Mortgage markets worsened last week with little economic news to push markets in either direction. Momentum trading and rebalancing of portfolios drove mortgage rates higher, on average.

FHA and conventional mortgage rates rose last week, marking the first time that's happened this month.

Mortgage rates have been on impressive run lately and mortgages are priced far better than what most experts predicted. Weaker-than-expected economic data is one reason why. Lack of economic data may be another.

This week, however, data returns.

• Monday : Industrial Production and Home Builder Index
• Tuesday : Housing Starts and Building Permits
• Wednesday: Consumer Confidence
• Thursday : Producer Price Index and Initial Jobless Claims
• Friday : Consumer Price Index and Continuing Jobless Claims

And, as if all that weren't enough to spook you, the Federal Open Market Committee meets for a scheduled, 1-day event Tuesday.

The Federal Reserve is expected to vote to hold the Fed Funds Rate in its current target range near 0.000%, but that doesn't mean mortgage rates won't change. Markets are responsive to the FOMC's post-meeting press release and any clear talk of economic strengthening should drive rates higher.

Wall Street is in Wait-and-See Mode and this week will give it plenty to look at.

If you're floating a mortgage rate, or waiting to lock, be prepared for wild swings in mortgage rates -- especially leading up to Tuesday afternoon's FOMC adjournment. The Fed adjourns at 2:15 PM.

Mortgage markets had a terrible, holiday-shortened week last week as Wall Street responded to worse-than-expected inflation data and action from the Federal Reserve. Mortgage bonds sold off with force, causing mortgage rates to rise for the second week in a row.

Last week was a bad week to float a mortgage, to say the least. Rates rose by the largest margin in any week since late-2009.

The two biggest stories from last week both came from the Federal Reserve. The first was the release of the FOMC January meeting minutes which showed more confidence in the U.S. economy than Wall Street expected, and the second was the Fed's surprise announcement to raise the nation's Discount Rate to 0.75%. Both sparked risk-taking on Wall Street and bonds sold-off as a result.

Now, the Fed Funds Rate won't climb anytime soon and neither will Prime Rate, but the Fed has sent a clear message to the markets -- The Era of Loose Monetary Policy is over.

This week, there's a lot of economic data set for release.

• Tuesday : Case-Shiller Home Price Index, Consumer Confidence
• Wednesday : New Home Sales
• Thursday : FHFA Home Price Index, Initial Jobless Claims
• Friday : Existing Home Sales, Personal Consumption Expenditures

With markets already on edge, any better-than-expected results should be bad for mortgage rates.

After last week's performance, conforming mortgage rates have now unwound most their January gains. If you're waiting for the right time to lock, it may have been 2 weeks ago. Consider locking in this week to protect against any further deterioration in price.

Conforming and FHA mortgage rates improved last week on the combination of weaker-than-expected economic data and new anti-banking rhetoric from the White House.

The S&P 500 shed nearly 4 percent in its worst weekly showing since October 2009 as all 10 sectors fell. As the money left stock markets, it made its way to bonds -- including the mortgage-backed variety.

As a result, mortgage rates fell for the third straight week.

Since shedding 300 basis points in December, mortgage bond pricing has recovered a bit more than half of those losses. It's helping with home affordability and opening new refinance opportunities around the country.

This week, though, mortgage rates could rise back up. There's a lot going on.

First, on Monday, the December Existing Homes Sales report will be released. The report is expected to be extremely weak as compared to November. This is because of a combination of factors including:

1. The initial tax credit expiration date of November 30, 2009
2. Sharply rising mortgage rates throughout the month of December
3. A general slowdown from the holidays and from the weather

Therefore, don't be surprised by the newspaper headlines you see Tuesday morning.

Other data this week includes the Case-Shiller Index -- a measure of home prices nationwide -- and the New Home Sales report. The Case-Shiller Index has registered mild home price improvement over the past 8 months and its latest report is expected to show the same. New Home Sales should be similarly strong.

But, the biggest news of the week is the first Federal Open Market Committee meeting of 2010.

The Fed meets Tuesday and Wednesday this week and Wall Street will be watching closely. The Fed is not expected to change the Fed Funds Rate from its current target range of 0.000-0.250 percent, so, instead, markets will watching for the Fed's post-meeting press release.

What the Fed says about the economy will be much more important that what it specifically does about the economy for now. If the Fed says the economy is growing as expected, look for mortgage rates to rise. Conversely, if the Fed says the economy is at risk, expect mortgage rates to fall.

The safest rate lock strategy this week is to lock your mortgage rate before the Fed's 2:15 PM ET adjournment Wednesday. Rates will be bouncy all week, but once the Fed's press release hits the wires, it's anyone's guess what will happen.

Mortgage markets showed little conviction last week, carving out just a narrow trading channel. There was very little data on which for markets to move, leaving mortgage rates momentum-bound.

Luckily for rate shoppers, mortgage rate momentum was favorable. Rates were slightly lower Monday through Thursday before breaking downward Friday afternoon. Home shoppers this past weekend caught a nice break.

Last week marked the second straight week in which mortgage rates fell.

This week, in holiday-shortened trading and with little economic data set for release, expect mortgage rates to again move on momentum. The biggest report of the week is Wednesday's Producer Price Index.

Producer Price Index is important to mortgage rates because of its role in inflation. PPI is akin to a Cost of Living-type measurement, but for business. As business costs rise, the thought goes, it's not long before consumer costs rise, too. Businesses eventually pass on costs, after all.

In this manner, a rising Producer Price Index can foreshadow rising consumer prices, and, therefore, inflation.

Inflation is awful for mortgage rates.

PPI expectations have revised downward this month, especially because last week's data showed a deceleration in consumer prices nationwide. If PPI isn't as weak as expected, mortgage rates will rise.

Other influential data this week includes Housing Starts, Consumer Confidence and Initial Jobless Claims.

So far, 2010 has been for mortgage rates around the country. If you're in need of a rate lock, this week may be a good time to take one.

Mortgage rates are dropping this morning on weaker-than-expected Retail Sales data from December. Lower rates means more bang for your home-buying buck.

Excluding motor vehicles and parts, December's "ex-auto" sales receipts were down roughly $500 million from November. Analysts had expected receipts to grow.

The relevance of Retail Sales to home affordability isn't obvious, but it's definitely logical.

Retail Sales is directly related to consumer spending and consumer spending accounts for the majority of the U.S. economy. When consumer spending slows, the economy often does, too. It leads investors to seek out "safe" investments.

It's the reason why stock markets often drop on weak economic data -- stocks are among the riskiest investment classes available.

Conversely, the best place to find safety is in the market of government-backed bonds. This world includes products like U.S. Treasuries and many of the mortgage-backed bonds that help set mortgage rates. Weak economic data puts mortgage bonds in demand.

For rate shopper, this is good news. More demand for mortgage bonds causes mortgage rates to fall. Mortgage rates are lower this morning because Wall Street is shedding some risk.

December's Retail Sales report closes out a year of generally-weak data. 2009 marks just the second time that Retail Sales fell year-over-year since the government started tracking it 40 years ago. The other year was 2008.

For home buyers around the country, though, today may represent an opportune time to lock a mortgage rate. Housing data is still improving and other economic indicators are showing strength. Soon, Wall Street will shift from a "safe" mentality and move toward risk.

When it does, mortgage rates will rise.