MORTGAGE RATES REPORT

June 17, 2009 Mortgage Rates Report: Approaching 5.0%

Mortgage rates have improved since last Friday.  I felt we could delay locks (float) in hopes of better rates and that's proved to be fruitful. Lock-in your mortgage rate on the strength of this improvement.

Inflation doesn't appear to be a threat.  Yesterday's Producer Price Index reflected the threat of higher oil prices but came in within reason; the mortgage bonds market liked what it saw.  The Consumer Price Index, released this morning, was well under expectations; this should be positive for mortgage bonds and could lead to lower rates.

I expect our morning rate sheets (no points, 1% origination fee) to look something like this:

Conv        5.125%
FHA          5.25% 
VA             5.25% 

Next week's Fed meeting could stifle speculation that it will hike interest rates later this year:

Federal Reserve officials are considering whether to use next week’s policy statement to suppress any speculation they’re prepared to raise interest rates as soon as this year.

While policy makers have signaled they accept an increase in longer-term Treasury yields as the economy improves, some are concerned at any premature anticipation of rate rises. Fed staff have examined the Bank of Canada’s public intention of foregoing an increase until 2010, according to a person familiar with the matter, without concluding the statement has proven effective.

I have mixed feelings about the Fed adopting a policy akin to the Bank of Canada's rate commitment.  Markets crave stability but react to reassuring news in a volatile fashion.  I wouldn't be surprised to see mortgage bonds decline on such news; traders might think the Fed has abandoned its commitment to taming inflation.  Counter-intuitive thinking?  Absolutely but reason and rational thought sometimes give way to fear.

I'll update rates later, if necessary.

Apply online now.  It's really simple and should take about 20 minutes.

 

What Wired Mortgage Brokers Are Saying About June Mortgage Rates

The first week in June inspires thoughts of lazy afternoons on the beach, stunning sunsets, camping, and family vacations.  The mercury on the thermometer is not the only thing rising; so are retail mortgage rates.  If you've been reading, you'll notice that mortgage rates jumped almost one full percentage point since Memorial Day weekend.

It spooked me to the point of changing my overall bias towards locking-in loans at application rather than cautiously floating rates to try and "snag the bottom".  Here's a look at what mortgage professionals who maintain an online presence are saying:

Dan Green from Cincinnati highlights why folks should shop for lenders, not loans:

The frenzied pace of change is making it next to impossible for mortgage applicants shop for "the lowest mortgage rate".  By the time a buyer talks to competing lenders and gather the rate quotes, it's time to start the process over again.  It's giving Skyline-style heartburn to home buyers in Cincinnati, for one.

Rhonda Porter from Seattle ponders a penniless Fed, still trying to keep rates low:

The New York Fed purchased another $25.8B in mortgage backed securites to attempt to keep rates at their artifical lows…it makes me wonder how much higher today’s rates would be if when they run out of the allocated funds or if they just decide to change plans and stop buying MBS.

Justin McHood in Phoenix reminds us that higher mortgage rates mean less buying power:

Although I don’t remember what 10%-20% interest rates felt like, I can remember well what 7% interest rates felt like – it wasn’t that long ago! If interest rates rise to 7%, the P/I payment on a $200k loan will go up by $327 per month.

Are we going to see 10% interest rates in the foreseeable future? I don’t know, I will leave that to the experts to pontificate about. What I can say for certain though is that as interest rates rise, people are going to buy “less of a house” than they are currently buying.

Orlando's Chris Brown explains why you have to shop for a loan quickly:

As markets worsened, selling begat more selling, amplifying Wall Street’s total losses. As mortgage bond prices fell, mortgage rates went up. By a lot.

Mortgage markets are notoriously fickle and yesterday’s events proved it. Days like Wednesday are precisely why insiders recommend shopping for mortgage rates in a compressed timeframe. The faster you finish, the lower the risk of losing low interest rates to new market conditions.

If you're shopping for a home loan, you can see that the loan quotes you receive are less important than the lender who issues them.  Find a lender with whom you feel comfortable.  If you choose to work with me, you can:

Apply online now.  It's really simple and should take about 20 minutes.

Don't Fight the Fed: June 2009 Rates Won't Break 5%

If you've been paying attention, you know that I have the heart of a trader.  I try to offer analysis  rather than opinion.  Last week, I felt the bond traders were overreacting to optimistic economic news and commentary by politicians.  I generally ignore those folks and focus on the Fed.  I said that one of the first rules of investing was "Don't Fight The Fed"; I won't.

This morning's par mortgage rates (with 1%origination fee):

Conventional:      5.375%
FHA/VA                    5.50%
Jumbo(>$417K)   5.875%          

Last November, The Fed released this:

The Federal Reserve announced on Tuesday that it will initiate a program to purchase the direct obligations of housing-related government-sponsored enterprises (GSEs)--Fannie Mae, Freddie Mac, and the Federal Home Loan Banks--and mortgage-backed securities (MBS) backed by Fannie Mae, Freddie Mac, and Ginnie Mae.  Spreads of rates on GSE debt and on GSE-guaranteed mortgages have widened appreciably of late.  This action is being taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally.

Yesterday, Fed Chairman Ben Bernanke said this:

We continue to expect overall economic activity to bottom out, and then to turn up later this year. Our assessments that consumer spending and housing demand will stabilize and that the pace of inventory liquidation will slow are key building blocks of that forecast.

Bernanke might just be off the "support the MBS market" bandwagon.  If he ain't opening the Fed checkbook, expect mortgage rates to naturally gravitate towards the 6% plus level by the end of the year.  This won't happen immediately so there will be periods of market overreaction, which will cause me to issue a "float" recommendation.  Generally speaking, my bias has changed from "there will be sunny days tomorrow", for mortgage rates to "there may be a storm-a-brewin'".

I've got you locked if you're closing your loan before June 21.  Today, I'm locking anyone who is closing by July 15, 2009.  The past two weeks have been a fun ride and many of you got 5% mortgage rates by being patient and nimble.  The tacit change in Fed bias has me too worried right now; lock all loans at application.

Apply online now.  It's really simple and should take about 20 minutes.

Expect June 2009 Mortgage Rates To Improve

UPDATE:  Now locking all loans closing before June 21, 2009.

The catastrophic mortgage rates meltdown is almost over.  The mortgage-backed securities market dropped significantly, driving retail par mortgage rates from 4.5% (8-9 days ago) to a high of 5.375% (Wednesday).  While many cautioned that mortgage rates were headed higher, I separated personal opinion from my analysis and suggested that bond traders overreacted.  I advised borrowers to suspend the rate lock decision until retail mortgage rates came back down to 5% or better.  I expected that to happen next week. 

I was wrong...

...it just happened.   One of our leading banks "repriced" this afternoon and the retail par rate is now 5.0%. 4.875% has a quarter-point cost.  If you have to close next week, 5.0% isn't a bad rate to grab.  I think we'll see the rest of the lenders follow this big bank's lead, early next week.

What could make this mortgage rate recovery advance to 4.5% next week?  Remember, mortgage bonds drive retail mortgage rates so we want to be looking for bond-friendly events. Investors look for safe havens when there is unrest in the world.  US Treasuries and mortgage-backed securities are a favorite safe haven.  If North Korea launches more missiles or Iran keeps taunting Israel to the point of armed conflict, investors might buy bonds which would drive down mortgage rates.  Increased Fed mortgage market intervention is likely too.

What could reverse the current recovery and send mortgage rates to 5.5%?  Inflation, or the fear of it, is the market enemy number one.  If traders think the economic recovery is nigh, we could see rates inch up again.  I think that's unlikely; the economic data we receive suggests the opposite.  If traders get back on the McClintock-Gross bandwagon and think that the US Government is about to declare bankruptcy, we'll see higher mortgage rates.

My money's on a sputtering economy, a pugnacious North Korea, an annoying Iran, and a sustained mortgage rates recovery.  I'm looking for rates to get back to to 4.75% by the end of next week.

Apply online now.  It's really simple and should take about 20 minutes.

June '09 Mortgage Rates May Not Rise, Despite Mortgage Industry Insiders' Opinions

Mortgage rates have jumped in the waning days of May, 2009.  This meteoric rise is striking fear into the hearts of home buyers, folks looking to refinance, and mortgage industry professionals.  I noted that three people triggered this collapse and suggested that locking-in a mortgage rate tomorrow, might just be a bit hasty:

What’s this mean to you? Locking in your mortgage rate is probably a hasty decision right now.  Expect Ben Bernanke to speak by Friday in his gentle, reassuring tone.  Tim Geithner should be front and center, calming down those impetuous bond traders tomorrow.  Mortgage rates should drift down by the end of next week.

The Chinese, Tom McClintock, and Bill Gross are all correct; the US government’s actions are inflationary and destructive.  They are all correct but early.  The time to panic will be this fall; hopefully you’ll do what you need to get done by then.

Why am I, a self-proclaimed “free-marketeer”,  banking on the Government to bail us out of this little mess? If you’re a regular reader of Mortgage Rates Report, you know that there are two sides to me:

1) conspiracy theory loving member of the Vast Right Wing Conspiracy (who is unhappy with our nation’’s course in fiscal policy) and …

2) buttoned-down, former Wall Street securities broker.  The latter side of my personality is more interested in the analysis of Government policy rather than the former side’s opinion. Lend your ear to the former securities broker rather than the crack-pot Libertarian.

What this means to you, the potential home buyer or mortgage shopper, is that my opinion, as far-flung as it may be at times, is subordinate to my analysis of the situation.  I tend to hold a contrarian opinion to the traditional,  mortgage industry, knee-jerk reactions to market movements.  While most originators scream “Rates are going up ! “, I want to be looking beyond the next 48 hours and trying to discover what might happen next week and next month.

I said, earlier tonight, that the Federal Reserve Bank has a boatload of money shelved to spend on the purchase of treasury bills and mortgage-backed securities, in order to provide access to cheap capital during the recession.  While I’ve never met the man, I have been reading Fed Chairman Ben Bernanke’s position papers, about the Fed’s role during The Great Depression, for years:

Despite the varied theories espoused by many establishment economists, it was none other than the Federal Reserve that caused the Great Depression and the horrific suffering, deprivation and dislocation America and the world experienced in its wake. At least, that’s the clearly stated view of current Fed Chairman Ben Bernanke.

I don’t expect him to change his posture because China waived its economic saber at one of his subordinates.

and now…

Here comes the excuse spin for MASSIVE Fed intervention over the next few days:

The Federal Reserve may step up asset purchases to prevent its balance sheet from contracting until policy makers are convinced an economic recovery has taken hold, Fed officials and analysts said.

Demand for some of the Fed’s emergency programs has waned as the grip of the credit crunch loosens, with loans to banks shrinking 38 percent since Jan. 1. The main tool to keep the central bank’s holdings from falling from the current $2.1 trillion would be more purchases of Treasuries, said analysts including former Fed Governor Laurence Meyer.

Demand for Fed loans has waned so it need more assets for its balance sheet (rather than reducing its liabilities).  What this means is that they intend to inject more liquidity into the system because they don’t see an economic recovery underway… just yet.  The unexpected jump in mortgage rates could stall the de-leveraging of the American consumer before fiscal policies could gain traction.  Make no mistake about it; the Fed wants everyone to have a shot at a 4.5% mortgage rate and will use all of the arrows in its quiver to get those mortgage rates down…

…until the close to a billion arrows left are all gone.

Don’t panic just yet. I’m sometimes early in my predictions but I think Bernanke’s going to be writing some big checks in the next 7-10 days.

Apply online now.  It's really simple and should take about 20 minutes.

Higher June '09 Mortgage Rates? Not So Fast

We’re in the “Era Of Finger Pointing” so I”ll just pile on; mortgage rates have skyrocketed in the past week and it’s all the Chinese, Tom McClintock, and Bill Gross’ fault.

Tom McClintock is a  California Congressman (and former gubernatorial candidate).  Congressman McClintock wrote an opinion piece, in the Washington Times this past weekend, that suggested that the budget crisis in California foreshadows the inevitable national crisis:

What can California do? Its credit is stretched to the breaking point, and increasing tax rates now produces decreasing tax revenues. Its deficit vastly exceeds resolution by conventional budget reductions. There is no line item labeled “waste,” and the state’s deficit vastly exceeds the truly obsolete and overlapping programs strewn throughout its budget.

McClintock’s summary and warning:

The decline and fall of the California Republic is a morality play in the form of Greek tragedy. Before dismissing California’s agony as the just price for its hubris and folly, though, heed this warning: Congress is well under way toward imposing the same policies on the rest of the nation. California is just a little further down that road.

Bill Gross is perhaps the most prescient fixed-income money manager in the world.  He’s often known for being early but correct.  Mr. Gross suggested that America’s soverign debt might lose it’s rock-solid AAA rating and that we’re headed for the junk bond heap:

Bill Gross, manager of the world’s biggest bond fund, warned on Thursday the United States will eventually lose its top AAA credit rating, a fear that had already spooked financial markets on Thursday and could keep the dollar, stocks and bonds under heavy selling pressure.

Throw in the unsolicited money management advice from our largest creditor, the Maoists, and you have a recipe for a panic run on mortgage bonds.

Mortgage rates responded appropriately; the mortgage-backed securities market sold off about 3% in the last five days.  This means that a 4.5% mortgage rate, that cost 1 point a week ago, costs 4 points today.  This is a short-term overreaction.   Moody’s rating service, mostly owned by Friend of Obama (FOO), Warren Buffett, reaffirmed the US Treasury’s Aaa (highest) rating today:

And today, Warren Buffett’s Moody’s (MCO) went ahead and decided to kick sand in Bill Gross’s face yet again. How so? Moody’s affirmed the U.S.’s Aaa rating, arguing that “the U.S. economy’s long-term resilience and key role in global affairs should bolster its ability to resume a strong performance following the current recession.”

In addition to the Gross-slap Warren Buffett administered today, the Fed still has $600-700 billion earmarked to support mortgage-backed securities.  This means that they can buy a bunch of mortgage bonds, to bid up the lost 3% and drive rates back down into the 4’s.

Is this crazy? Why are we borrowing from Mao to subsidize Joe’s mortgage?  The answer lies in the depression recession war; we gotta subsidize housing by any means available if we want to pull out of the economic nose dive- even if it means we have to bribe “Big Daddy Buffett” to git ‘er done.

What’s this mean to you? Locking in your mortgage rate is probably a hasty decision right now.  Expect Ben Bernanke to speak by Friday in his gentle, reassuring tone.  Tim Geithner should be front and center, calming down those impetuous bond traders tomorrow.  Mortgage rates should drift down by the end of next week.

The Chinese, Tom McClintock, and Bill Gross are all correct; the US government’s actions are inflationary and destructive.  They are all correct but early.  The time to panic will be this fall; hopefully you’ll do what you need to get done by then.

Apply online now.  It's really simple and should take about 20 minutes.

January 30 Fed Meeting Affect on Mortgage Rates

"Should I refinance my mortgage now that the Fed has lowered the overnight lending rate .75% or should I wait to see if they cut rates more, when they meet on January 30, 2008?"   

That question was asked of me today by one of my favorite borrowers.  I met Jim, a sales representative in Paradise Valley, Arizona, in 1994.  Jim was one of my first customers, responding to a mailer I sent about VA Interest Rate Reduction Loans (VA IRRL).  We reminisced about the 8 loans I funded for him, these past 14 years. Jim traded up, in 1995, to a home in Ahwatukee.  He traded again, in 1998, to a home in Paradise Valley. He has turned a $83,000, zero-down home loan, purchase into a seven-figure home, with a $400,000 mortgage.  He's four years into a 5.25% 5/1 ARM and wondered if it was time to pull the trigger.

Here's what I told him:

"Jim, you've always done well by seizing opportunities when they came.  You bought a home in Ahwatukee because it was affordable, not because you were greedy.  You stretched to get into the Paradise Valley home because you felt it was affordable, not because you were greedy. So, I'll ask you to be consistent here and make this decision based on affordability rather than greed.  You've had your eye on the 5.25% rate for a few weeks; today it became affordable.  I think mortgage rates could come down a smidgen more, in the next week.  Maybe I'm being greedy by suggesting that you hold out for that last little drop"

I shared this chart from Loan Toolbox, with Jim:

I don't believe this chart is omniscient BUT I have been wrong about the short-term trend for mortgage rates.  Remember readers, I worked as a securities broker so I can get caught up in the trading patterns of mortgage rates.  I'm generally biased towards locking mortgage rates when indecision prevails.  In Jim's case, he can get that 5.25%, 30 year fixed-rate mortgage, for about $6800.  While I think he could save about $2,000 in closing costs if he held out a few more days, the mortgage bonds market could reverse course and add two or three thousand dollars to his closing costs quickly.

Sometimes, a bird in the hand is worth more than two in the bush.  In Jim's case it was about balancing affordability and greed.  Affordability won out; we locked Jim's mortgage rate today.

Would you like to have this kind of conversation about your mortgage refinance?  I can be reached at (858)-699-4590.  I think we have about two days to talk.

More Fed Rate Reductions Says Bill Gross of PIMCO

Bill Gross of PIMCO is one of my monthly reads.  He is the widely known Chief Investment Officer for Pacific Investment Asset Management Company (PIMCO), one of the largest fixed-income money managers in the world.

The October, 2007 edition of his Monthly Investment Outlook is bearish about the economy.  Mr. Gross expects housing prices to decline because of a potential blow up of the credit markets.  In short, Mr. Gross and the gang at PIMCO aren't so sure that the credit meltdown is over.  From Bloomberg.com today:

Sales of new homes tumbled 8.3 percent in August to the lowest in more than seven years and house prices dropped the most in four decades, the Commerce Department in Washington said last week. Consumer confidence fell to the lowest in almost two years in September, according to the Conference Board's index of confidence.           

``The big picture is you're going to have a consumer that is going to be pulling back significantly,'' Pimco's Kiesel said. ``The rate cuts by the Fed are unlikely to save housing.''           

The Fed's Sept. 18 reduction of its target federal funds rate to 4.75 percent was ``intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets.''

Bill Gross thinks the the result will be a Fed Funds rate that is a full percentage point lower, than it is today, within 6-12 months:

PIMCO’s view is that a U.S. Fed easing cycle historically has required a destination of 1% real short rates or lower. Under a conservative assumption of 2½% inflation, that implies Fed Funds at 3¾% or so over the next 6-12 months. Actually that’s only two, 50 basis point reductions, something that could, but probably won’t, be accomplished by year-end. Don Kohn’s asymmetric elevator will likely be interrupted by false hopes of a housing bottom, fears of a dollar crisis, or misinterpreted one month’s signs of employment gains and faux economic strength. The downward path of home prices, however, will dominate Fed policy over the next several years as will the lingering unwind of related financial structures and derivatives that have yet to be discovered by the public, and marked to market by their conduit holders.

Bill Gross is NOTORIOUSLY early in his predictions BUT, he's always right.  Expect the Fed to opt for saving Jane Q. Homeowner by lowering rates rather than propping up Daddy Warbucks by protecting the dollar's value.

             

 

Watching Bernanke

Everybody is waiting for September 18.  Tuesday promises to be a pivotal day because the Federal Reserve is expected to cut the Fed Funds rate.  Optimists believe the cut will be 50 basis points while I hold on to the belief that Gentle Ben will insist on 25 basis points.

Either way, it doesn't matter.  The Fed understands the poor shape of this nation's economy.  If a 25 bp cut is too little, they can quickly adjust the next month.

Who said business school students don't have a sense of humor? Columbia dean, Glenn Hubbard, thought he'd be tapped for the role of Fed Chairman instead of Bernanke.  He's a bit more political than Gentle Ben so I'd stick by President Bush's choice. 

Hat tip to Patrick Hake who posted this video over at Jeff Brown's Bawld Guy Talking blog: