MORTGAGE RATES REPORT

Higher Mortgage Rates Could Be Tempered By Anti-Consumerism

Higher mortgage rates, in the near-term future, is the conclusion of many economists.  They cite an expansion of the money supply, the eventual end of the Fed's mortgage-backed securities purchase program, China's willful selling of US Treasury securites, and a recovering economy.  Logic dictates that all those factors would contribute to 70-s style hyperinflation.  I agreed until it hit me...

A generation of Americans may have changed their spending habits forever.  If sustainability is the new black dress, frugality is the new accessory.  Consider this parsed comment by my partner, Sean Purcell:

Religion and economics are very, very similar. They are both based on faith rather than any real, empirical evidence. For decades now economics has tried to establish itself as science in our institutions of higher learning. I remember in the 80s when I was a Psychology major we were doing much the same thing. But Religion, Economics, Psychology.. these are all Social Studies not Social Sciences.

American consumerism was driven by belief in a grander future due to an underlying model.  Our post-9/11 model was debt-driven.  At one point, a full percentage point of our GDP came from withdrawn home equity; we were robbing Peter to buy from Paul.  That strategy was hardly sustainable and not in concert with the frugalty associated with the "American Spirit".

The Fall, 2008 financial meltdown changed that flawed belief in deficit spending (for households).  As 'wealth" evaporated, a function of that "wealth", (i.e spending), evaporated as well.  Plainly put, you're less likely to spend an extra hundred bucks each month if you lost five grand in your mutual fund.  I can't scientifically tell you exactly how much that will affect future GDP but I'm speculating that it removes at least 1-2 percentage points from it.  Tightening the belt is not just removing the frothy spending; it contracts spending to the point where you try to "get back your losses".  Not only will you cut back on that former expenditure of $100/month, you'll cut back MORE to save $100/month- and you'll do that for the fifty months it takes to get back your losses.

Patagonia is cashing in on the rebirth of American frugality with it's T-shirt.  I saw at least ten people wearing these shirts on my vacation to Catalina Island.  Americans are questioning restaurant checks, asking for itemized business proposals, and spending time on hold to understand why the local utility provider is collecting "franchise fees" (HINT:  it's a tax).  We're embracing the simple life and de-cluttering our garages, homes, offices, and lives.  It is no longer fashionable to conspicuously consume because your neighbor is wondering if his tax dollars are bailing out the mortgage you used to buy your Hummer.  We're seeing inconspicuous consumption in the luxury market.  Wealthy people are not comfortable displaying signs of opulence (even though they earned it):

"Luxury shame is very real," says travel industry analyst Henry Harteveldt of Forrester Research. "When your neighbors are losing their jobs and you're doing well, you don't flaunt your success. Of course, there are still people who will continue to enjoy the fruits of their success. They may still rent the beachfront home and continue to fly in the G5 and tool around in the leased Bentley, but they're not going to go home and brag that that's what they did on vacation."

This recession is different from the last big one.  The last severe recession was in the early 80's.  The Baby Boomers led us out of that recession because they were 20-40 years old; they were still in the acquisition part of the family wealth cycle.  Today, those folks are 45-65 and facing reduced income and a longer life span; they're in the conservation part of the family life cycle.  Their political heroes have changed from Ronald Reagan (who gave them more money to spend through tax cuts) to Barack Obama (who tells them they won't have to pay for anything).  For President Obama's "Care State" to work, he'll have to raise income taxes on the people still working...that "ain't goin' over so good".

Cheap is cool now because cheap suggests future cash in the bank.  If a generational shift from conspicuous consumption is underway, economic expansion will be reached with  1-3% GDP growth rather than 4-6% GDP growth.  Slower growth rates will contract P/E ratios, leading to stagnated stock prices.  Slower growth will lead to lower price/rent ratios, leading to stagnated real estate appreciation.  

Slow and predictable growth could lead to a long period of stability in the mortgage markets.

Today's Federally-subsidized mortgage rates are a full percentage point below the real cost of mortgage capital.  Jumbo loans, with no Federal guarantees behind them, are currently 6-6.25%.  A growing economy could see those rates rise to as much as .7%.  When the Fed pulls its mortgages subsidy, we could see conforming mortgage rates rise to about .25%-.5% below the jumbo loan rates.

What this means is that we could see conforming mortgage rates (under $417,000) jump up into the 6's and fluctuate from 5.75% to 6.75% for another 5-7 years.  Admittedly, that's materially higher than the current level but a far cry from the double digit mortgage rates world of 1977-1990.

What's that mean to you?

If you have a loan that can be refinanced before the end of the year, do it.  If your loan can not be refinanced, and you have an adjustable rate mortgage, you might not have to hit the panic button. Most ARMs adjust to LIBOR plus 2.75%.  Today, that adjustment would go to about 5.0%.  Your ARM could very well remain in the 5-6.5% range, for the next five years if my newfound theory of anti-consumerism is correct.

Is Texas Now The Golden State?

Many Californians who are close to me have heard me query this; " If the last 50 years were the 'California half-century', will the next 50 years be known as the 'Texas-half century?' "  I've had this conversation with Texas-phile Jeff Brown, mortgage partner Sean Purcell, and Texas buddy and money manager Nick Ripostella.

My thoughts:

1- While I warned that Texas' property taxes were a reason not to invest there, it appears that California's "buy now, pay later" approach (Proposition 13) is broken. 

2- California's march to socialism is an experiment gone awry.  If left unchecked, it will penalize the net producers in favor of the net consumers.  That penalty will drive producers to a state like...well, Texas.  Sean Purcell's argument was that the creative genius in California (ie- the Hollywood types) are decidedly liberal and would never leave.  My counter to that argument was that those creative types are still capitalists at heart, despite what they portray to the public.

3- Texas is more business-friendly and hell bent on a constructive immigration policy that continues the American tradition of new immigrants pushing the whole economy upwards instead of the California model of vote-buying through appeasement.  Texas' focus is on assimilation while California's is on victimization. 

4- While I believe Texas is advantaged today, California leads the nation and arguably the world in intellectual capital and innovation.  We thrive in spite of the actions of our obstructionist Legislature.  This (admittedly "homer") idea maintains my belief that California will eventually prevail.

I'm not alone.  The Economist must have been reading my mind:

Plenty of American states have budget crises; but California’s illustrate two more structural worries about the state. Back in its golden age in the 1950s and 1960s, it offered middle-class people, not just techy high-fliers, a shot at the American dream—complete with superb schools and universities, and an enviable physical infrastructure. These days California’s unemployment rate is running at 11.5%, two points ahead of the national average. In such Californian cities as Fresno, Merced and El Centro, jobless rates are higher than in Detroit. Its roads and schools are crumbling. Every year, over 100,000 more Americans leave the state than enter it.

This was the overarching theme in my hypothesis.  When you create an environment that gives middle-class people an incentive to build wealth, you have a winning formula.  Think of Hollywood in the 40's and 50's.  Think of Long Beach, for the defense workers,  in the 50s and 60s.  Think of Silicon Valley, for high-tech,  in the 80s and 90s.  Think of San Diego , for life sciences, in the 90s and this decade.  Californian entrepreneurs innovate and invent and of jobs (should) follow suit.  

The second worry has to do with dysfunctional government. No state has quite so many overlapping systems of accountability or such a gerrymandered legislature. Ballot initiatives, the crack cocaine of democracy, have left only around a quarter of its budget within the power of its representative politicians. (One reason budget cuts are inevitable is that voters rejected tax increases in a package of ballot measures in May.) Not that Californian government comes cheap: it has the second-highest top level of state income tax in America (after Hawaii, of all places). Indeed, high taxes, coupled with intrusive regulation of business and greenery taken to silly extremes, have gradually strangled what was once America’s most dynamic state economy. Chief Executive magazine, to take just one example, has ranked California the very worst state to do business in for each of the past four years.

This is the real chokepoint in California; our Legislature.  They just don't understand the California with Ronald Reagan at the helm.   They have irresponsibly spent money, in pursuit of the great social experiment, to the detriment of the innovators and inventors.  The result?  Businesses, and people, are leaving California for better opportunities in...

Good Lord....TEXAS????  Even LA Jollan, Arthur Laffer is eyeing the Lone Star State:

American conservatives have seized on this reversal of fortune: Arthur Laffer, a Reaganite economist, hails the Texan model over the Gipper’s now hopelessly leftish home. Despite all this, it still seems too early to cede America’s future to the Lone Star state. To begin with, that lean Texan model has its own problems. It has not invested enough in education, and many experts rightly worry about a “lost generation” of mostly Hispanic Texans with insufficient skills for the demands of the knowledge economy. Now immigration is likely to reconvert Texas from Republican red to Democratic blue; Latinos may justly demand a bigger, more “Californian” state to educate them and provide them with decent health care. But Texas could then end up with the same over-empowered public-sector unions who have helped wreck government in California.

Alas, the Economist's conclusion is identical to mine.  I believe that the inevitable California bankruptcy will pave the way for a reversal...a rebirth if you will.  Sharp leaders like Tom Mc Clintock will lead this "rebirth" and restore the gold to California's beautiful coastlines and mountaintops. 

I gotta stay positive because I'm an optimist at heart.  After all, that's why I moved here.

June 18, 2009 Mortgage Rates Report: Ouch! 5.5%

Mortgage rates rose, yesterday afternoon and early today.  Yesterday's decline was old-fashioned profit taking, by mortgage bond traders.  Today, the renewed theme of economic recovery and Government overborrowing revived the inflation hawks from the dead:

Treasuries fell for a second day as the index of U.S. leading economic indicators rose more than forecast in May and the U.S. prepared to announce the amount of 2-, 5- and 7-year notes it will sell next week.

Ten-year yields climbed from a two-week low amid concern President Barack Obama’s record borrowing will overwhelm demand as the deepest recession in 50 years shows signs of easing. A government report showed manufacturing in the Philadelphia region contracted at the slowest pace in nine months and the Labor Department said the total number of people continuing to collecting unemployment insurance dropped for the first time since January.

This is why I'm "biased towards locking rates".  We had been floating loans since last Friday and yesterday morning, I locked on the early strength.  Amazingly, the mortgage rates market deteriorated by .375% in rate between NOON (PST) yesterday and this morning.  I'd like to say I'm prescient but I"m just risk averse.  When the mortgage bond traders sell off to the extreme, I'll float for a few days but I never want to be to greedy.  That's why I pulled the trigger yesterday morning and initiated locks.

Let's continue the bias and lock all new loans at application.  I think we'll see weakness through tomorrow and Monday in fear of the amount of money the Government borrows.

We're back to Monday's original rates:

Conv        5.3755% (no points)  5.125% (1 point)
FHA          5.5%  (no points)         5.25%  (1 point)
VA              5.5% (.25 point)           5.25%  (1.25 point)

All loan quotes assume a 740 credit score, full income documentation with acceptable debt-to-income ratios, and required down payments (20% for conventional, 3.5% for FHA, and zero-down for VA).  We will charge a 1% origination fee plus a $695 processing fee.

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

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.

 

San Diego County Houses For Sale Down. Is This a Head Fake?

Jeff Dowler reports that Oceanside supply (number of properties available) is dropping precipitously.  This phenomenon is happening all over San Diego County causing new home buyers to get into bidding wars for aggressively-priced, bank-owned properties:

At the end of May 2009 there were 726 Oceanside homes for sale (380 detached and 346 attached) a decline of 7% from the end of April (this includes the homes with Contingent status). This represents an inventory of only 1.8 months for detached homes and 3.7 months for detached homes based on the current rate of sales over the last 6 months, both of which declined again from the previous month.  These absorption rates continue to be impressive when compared to many other parts of the country, some of which have over 2 years of inventory. Indeed we are seeing more multiple offers, not only on distress sales but also on regular sales, especially below $400,000. 

In May we saw 162 homes come on the market, 31% fewer than in April (and almost half the number of new listings in March) . During May 211 homes went pending, about 20% fewer than in the previous month. So coupled with another decline in inventory (with fewer new homes for sale) we saw an increase in volume, which has resulted in the low absorption rates noted above.

Is this the bottom of the real estate market or, as Greg Swann referred to this phenomenon in Phoenix, a "Fools Gold Rush" ?

Here's what's really going on: Last fall FannieMae and FreddieMac, along with some of the bigger private mortgage banks, declared a moratorium on new foreclosures.

So for four months, homes that would have been foreclosed on sat on the sidelines of the real estate market.

And for those same four months, inventories of already-foreclosed homes declined. In March of 2009, for example, a total of 7,621 listed homes were sold in the Phoenix area, of which 5,066 -- two thirds! -- were lender-owned homes.

That sounds good doesn't it? Even better, as I write this, only 7,607 lender-owned homes are listed as being Active in the MLS database. That's just a month-and-a-half's supply. Happy days are here again!

Not quite. That Fannie/Freddie moratorium on new foreclosures ended on April 1st. In the first three weeks of April, there were 2,460 new lender-owned listings. And there are still two years of foreclosures in the pipeline.

What we're seeing is a Fool's Gold Rush. The perceived shortage of housing is an illusion, an artifact of a normal number of buyers competing for an inventory that seems to be declining rapidly. It isn't. Instead, even now the inventory of lender-owned homes is surging.

Head fake or hard numbers?  The federal foreclosure mortatorium is over but the State of California just initiated a like measure for ninety days.  Are these moratoria government's efforts to delay the inevitable or are bargains really available to the San Diego County home buyers?  Keep in mind that lenders will have been forbidden to pursue a defaulted San Diego County homeowner for seven out of twelve months this year.  This could lead to an onslaught of inventory after Halloween.  That might just be okay because we're seeing lots of pent-up demand to mop up that excess supply.

A first-time home buyer tax credit, combined with relatively low mortgage rates still might make today's property offerings a bargain.  You might analyze each property the way we do so that your downside is limited.  Certainly, property prices should be higher in 2020 than they are today.  Just be careful to do your homework.

Whichever you decide, Jeff Dowler is a pretty sharp North County real estate agent.  Use his Search tool to look at the properties offered.

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.