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San Diego Mortgage Rates Report: December 31, 2007

Pay close attention to what Bob Ashby says here:

Mortgage bonds have been rallying since Bhutto was killed yesterday, all due to uncertainty about who will take control of the nuclear power there.  As is typical with uncertainty, there is a "flight to quality" which means bonds, including mortgage backed securities, benefit even when the fundamentals are lacking.

Is it madness?  Not really, just temporary insanity.

 

Thursday, I changed my recommendation to float all loans for this reason:

Expect a flight to safety (READ: Treasuries) from riskier assets. Mortgage bonds should benefit from this flight to safety trend during the Pakistan situation.  This could very well improve mortgage rates in the near term.   Be prepared to act quickly as this volatile situation changes.

What's wrong here? Most of my readers know that Robert Ashby and I are almost always reading from the same sheet of music.  Who's right?

Both of us are.  I said to "be prepared to act quickly" which means you need to keep checking back.  As quickly as rates improves, they will reverse course and start rising again.  It could happen tomorrow (Dec. 31) or on Wednesday (Jan 2) or soon thereafter.  The anarchy in Pakistan is driving the lower mortgage rates.  When that's seems stable, it's time to lock.

Keep checking back.

San Diego Mortgage Rates Report: December 28, 2007

Mortgage rates in San Diego are closed for locking.  Hence, this report is for tomorrow.

We're changing our position from lock to float.  This may be a short-term opportunity but it is one, nonetheless.

Former Pakistani Prime Minister Benazir Bhutto was gunned down this morning.  While nobody has claimed responsibility for the assassination, Bhutto's supporters are assessing blame on the current leader of Pakistan, General Musharraf.  Last month, Bhutto was critical of Musharraf's suspension of the Pakistani constitution, suspension of the judiciary, and declaration of martial law.  Musharraf claimed that he needed to declare martial law to root out the Radical Islamic terrorists in Pakistan. 

Governments across the world, including the United States, have been critical of Musharraf's declaration of martial law.  World governments are calling for swift investigations and  prosecution of the assassins.  There will be an international witch hunt and pressure on Musharraf for a swift response.

In today's domestic economic news, the durable goods number was much lower than expected and consumer confidence was up...

FORGET ALL OF THAT.

Pakistan is a sovereign state with nuclear weapons.  General Musharraf is in a huge pickle and is operating under a microscope.  The  terrorists smell anarchy, in Pakistan, and operate best under those conditions.  If Musharraf pulls a play from the benevolent dictator's playbook, Bhutto's supporters, and the international community, will suggest he is covering up his guilt.  If he doesn't declare martial law, terrorism may very well flourish in Pakistan and the international community will be calling for his resignation.

That's a lot of pressure for a guy with his finger on the Armageddon button.

Expect a flight to safety (READ: Treasuries) from riskier assets.  Mortgage bonds should benefit from this flight to safety trend during the Pakistan situation.  This could very well improve mortgage rates in the near term.   Be prepared to act quickly as this volatile situation changes.

Recommendation Change:  Float all mortgage applications.

San Diego Mortgage Rates Report: December 21, 2007

I've been telling my readers to lock their mortgage rates, at application, since November 14, 2007.  I don't want to repeat what I've been saying; you can read all of the background here.

I'll take a little break from my usual analysis and rely on some of the great mortgage bloggers to help me out.  Consider this collection of advice:

Robert Ashby in Florida:

You see, the Fed's favorite gauge on inflation is the PCE report.  You may have already known the Fed's "comfort zone" is between 1 and 2%. The last report, although with in the "comfort zone", ticked up from 1.8% to 1.9%.  It went virtually unnoticed since it was in the acceptable range and other economic data was relatively friendly for a Fed rate cut, which they ultimately did.

This morning, the most recent PCE data was released and guess what.  My warnings came to fruition.  The numbers released this morning showed year over year inflation at 2.2% (0.3% higher than the last report) and that should be making the Fed "uncomfortable" now.

Dan Green in Cincinnati:

I am predicting that rates will increase over the next 30 days, but that doesn't mean you should necessarily follow my advice when choosing whether to lock a rate, or float it.  My advice may not be appropriate for your individual situation.

From the Bankrate.com survey:

"Mortgage rates came down last month on recession fears. They'll move up this month on inflation fears."

Markets were caught leaning the wrong way on inflation and the adjustments may be painful.

Rhonda Porter in Seattle:

And today is not over.   We could very well have other price changes.   If you're looking at refinancing your ARM into a fixed rate, it's time to get off the fence. Waiting could prove to be an expensive decision.   Especially considering we have 30 year fixed rates under 6%, underwriting guidelines are in a tightening phase, credit score pricing for prime a-paper loans are going into effect with more lenders every day and products continue to be discontinued.

I'm not alone.  There's a whole bunch of risk out there by floating mortgage rates.  Lock your loan at application.  Get a written lock confirmation from the loan originator with a specific rate lock expiration date.

San Diego Mortgage Rates Report: December 12, 2007

We still favor locking fixed-rate mortgage rates, at application for rates under 6% (while paying the standard 1% origination fee).  Today, that mortgage rate would have been 5.875% for an APR of 6.125%.

Last week, mortgage rates dropped fast and rose as quickly.  When a fixed-rate loan is at 5.5%, we think it makes sense to lock-in the rate, even if you have to pay a little discount fee, to get that rate (depending on your expected hold time).  That rate was available for one day only, last week.  Those of you who were ready to act quickly, will be closing at that rate this week.

If you call me and make an application, I'll watch the mortgage rates daily and communicate with you so you can "bottom fish" this market.

If rates creep above 6%, we favor floating.  The Fed's decisions to print more money may seem inflationary but the liquidity crisis still exists.  Wall Street may bid mortgage rates above 6% but we don't think lasts for more than a few days.

San Diego Mortgage Rates Report: December 7, 2007

We pause before our usual San Diego Mortgage Rates Report:

Today is the 66th anniversary of the attack on Pearl Harbor.  That attack was the first ever on American soil and was the trigger for American involvement in World War Two.  1,177 crew members lost their life on the USS Arizona making it the largest lost of life on an American warship.  I ask you to pause for a minute and keep those sailors and marines in your prayers.

Veterans, did you know that your VA loan could be refinanced, to a fixed rate loan, with no income verification and no appraisal?  It's called the VA Interest Rate Reduction Loan.  Watch this 13 minute video, released by the VA (just click the "Thinking of Refinancing?" link).

We are still maintaining our lock-in at application posture for mortgages.  The much awaited jobs report came out today and the data looked better than expected.  While the declining housing market may be a drag on the economy, the jobs data tells us that its reach, while far, isn't throwing us into a recession.

Fixed mortgage rates, at 6% or better, should be locked at application.  If rates creep up above the 6.0% mark, it makes sense to float.  The Fed meets next Wednesday and the expectation of both a Fed Funds and Discount Rate cut is built into today's mortgage rates.  Waiting for the Fed decision could cost you a lot of money.  If they don't cut rates, mortgage rates will skyrocket to the 6.25% level.

Mid-term ARMs aren't making sense right now.  The only value I see in the ARM market is a 3/1 ARM at 5.25%.  A fixed rate mortgage, at 5.75%, is tough to beat right now.