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San Diego Mortgage Rates Report: September 29, 2008

Remember I told you to sit tight on that mortgage rate lock until after the Bailout Bill was passed?

Well, it failed.

Mortgage rates are a little better than they were this morning. This morning a 30-year fixed par rate was at 6.0%; this afternoon, it was at 5.875%.  If you’re closing on your home loan in 30 days , there is more risk that you’ll get a rate over 6% than under 6%.  Lock your mortgage rate if you’re closing in October.

If you have time, wait it out.  The bailout bill failed but it isn’t dead.  If the bailout bill DOES ultimately fail, mortgage rates will skyrocket, housing prices will tank, and you’ll probably renegotiate or cancel that home purchase.

When the bailout goes through (and the whining on Wall Street will be so loud that it WILL go through), mortgage rates will come back down.

PS:  If you’re a baby boomer, this is your worst nightmare. Most of the people over 55 have most of their retirement assets in the stock market, through mutual funds in their 401-k plan.  If you’re a real estate investor or buyer, this might be really good news.

PPS: Did you know that Main Street already got bailed out? I’ll talk about that next time.

WaMu The Enabler: Culture of Classism

Washington Mutual prided itself on a culture of classism.  Ad campaigns depicted "regular people" railing against "The Man".  Their populist policies of free checking, waived overdraft fees, and negative amortization loans blew up when the government seized it for bad banking practices.

Look at this commercial for the overt message; bankers are greedy, old, white males...and they're out of touch.

That didn't work:

WaMu became ``unsound'' after customers withdrew $16.7 billion since Sept. 16, the Office of Thrift Supervision said yesterday. Branches are open today and depositors have full access to their accounts, Sheila Bair, chairman of the Federal Deposit Insurance Corp., said.    

I'm guessing that a lot of that $16 billion went looking for the very people whom WaMu tried so desperately to vilify.

San Diego Mortgage Rates Report: September 25, 2008

We are advising clients to delay mortgage rate locks until the Bailout hearings are over.  That could change in a New York minute so keep checking our mortgage rates report daily.  We could change if the mortgage bond markets start reacting to an expected bailout plan early.

The economic data suggest that we are in a full-blown recession. While that isn’t a good sign, it’s positive for interest rates.  Fed Chairman, Bernanke, may cut interest rates again:

Federal Reserve Chairman Ben S. Bernanke moved closer to cutting interest rates, signaling that risks to U.S. growth are greater than policy makers saw them just last week.

The “intensification” of the financial crisis in recent weeks is curbing Americans’ access to borrowing, making the outlook for consumer spending “sluggish at best,” Bernanke told lawmakers in Washington yesterday. While he noted that risks to inflation remain, the Fed chief’s testimony focused on “grave threats” to the banking system.

An expected bailout combined with the increased probability of a Fed rate cut compels us to remain positive but vigilant about lower mortgage rates.  Sit tight for now.

Originally posted on Mortgages Unzipped

Sunday Mortgage Advice: September 21, 2008

I'm adding a new category on the sidebar; Lazy Day Sunday.  A few times a year, I link to some well-written mortgage advice from folks across the country.  Here's the inaugural offering of Lazy Day Sunday:

Rhonda Porter, from Seattle, talks about why declining values are good for borrowers and bad for homeowners, looking to refinance:

If you're a home buyer in this market, you're in the drivers seat...and sitting pretty at that.  Listings are up 18.3% in King County (condos and houses) as compared to August of 2007; giving you plenty of choices.  Sellers are more likely to contribute towards your closing costs and prices are more attractive than recent years.

Dan Green, from Cincinnati, outlines why the Wall Street collapse has been great for mortgage rates:

The government's takeover of Fannie Mae and Freddie Mac rendered mortgage bonds among the safest investments in the world.  Therefore, when political or economic uncertainty exists, mortgage rates should fall in safe haven buying.

Bob Ashby, in Florida, shows that while you may not have a mortgage against your home, you might not REALLY own it:

Part of the reason you can never truly “own” your home is that the government can take your home, basically whenever they want.  That power was given to them through imminent domain laws.  Typically, the government pays you off to take your home, but that may be below market value, creating loss of home equity, not to mention the fact you have to find another place to live.

On the other side of Florida is Dave Shafer.  He shows us that ARM holders are faring better than their fixed-rate counterparts (even after the rate adjustment):

Interest rates are so low that many of those variable rate loans that are resetting this year are doing it at or below their current levels. So those that follow the strategy of using variable rate loans (they have inherently lower rates than 30 year fixed rates) have saved themselves thousands of dollars in interest!

Tom Vanderwell, our midwestern mortgage banker friend, reports that all is..well,as well as can be expected considering the virtual nuclear bomb that exploding on Wall Street this week:

So how do things look from here for the housing  and mortgage market?  A couple of observations:

1. Due to the massive amounts of money that the  government is going to have to borrow to fund all of this intervention, I don’t  see mortgage rates dropping lower.  I expect that we’ll see “relatively stable” rates in the near future but 6 to 12 months from now, I anticipate that it’s going to be more expensive to borrow money than it is now.

2. I believe that we are going to continue to  see credit requirements tightening for not only mortgages but virtually all types of credit.   I think one lesson that was learned from this week is that “we” (collectively) made credit way to easy to get and it came back and bit us in a BIG way.

3. While I think this action by the government  stabilized the credit markets, I don’t believe it put a bottom in the housing  market.    The only way that they could do that is for them to…… (I’m not even going to go there!)   I think we need to continue to work through and eventually burn off the excess inventory until we reach a bottom and then things will start building back up.

All good articles about this week in mortgages, from around the country.  My SoCal readers know that I can suffer from "tunnel-vision" here in the eye of the credit hurricane so I want to offer some other opinions..  I hope you'll enjoy this "new" feature.

San Diego Mortgage Rates Report: September 19, 2008

Hold off on that rate lock.  The government is here to help.

I initially thought this massive government purchase of defaulted mortgage proposal would lead to higher mortgage rates, but quickly reversed course.  Here's me today, on Zillow Mortgage Blog:

This action is an obvious attempt to stabilize the volatile mortgage market.  His rationale is that this plan (a massive MBS purchase) will cost the taxpayers a lot less than the alternative. Whether or not that’s true remains to be seen.  He specifically references the “spread” or yield difference between treasury notes and mortgage-backed securities.  If the US Treasury is going to buy mortgage-backed securities to narrow that spread, rates will drop in the near term.

I think we'll see conforming 30-year fixed rates work down to 5.75% or below, next week.  Stay tuned.

San Diego Mortgage Rates Report: September 17, 2008

Remember when I talked about the whipsaw effect, yesterday? Rates with no lender compensation to the broker, called "par" rates in the industry *, are 5.875% now.  That's .375% higher than the 5.5% I reported yesterday. 

Will mortgage rates come back down?

Maybe. They SHOULD since they are backed by the full faith and credit of the US Treasury.  They SHOULD start behaving like the 10-year treasury bond yield, which is down .06% in yield today.  They SHOULD be at the 5.5% mark....but they're not.

The mortgage default crisis spread to the world's largest insurance company, prompting yet another government bailout.  Mortgage bond traders are starting to think that the US Treasury is going to have to start offering classes of debt, to deal with the crisis.  Stratification of debt, like the old Resolution Trust Corporation bonds, will most likely take us back to where mortgage-backed securities trade at a wide premium to Treasury debt.  This isn't happening but mortgage bond traders are speculating that it might. If it does, then the demand for a 30 year mortgage, loaned to you, the American borrower, is not as high as a direct obligation of the US government.

What we seek to discover is how IRRATIONAL this fear, conjecture, and speculation is.  While it doesn't seem rational, it isn't quite irrational at these price levels.  If the 10-year treasury bond stays under 3.5% yield, and the mortgage bonds sell-off pushes mortgage rates up over 6.0%, then I think the fear isirrational and will change my recommendation- I'm still suggesting that you lock your mortgage rate at application.

* A par rate is where the originating mortgage broker does not receive any yield spread premium from the lender.  Borrowers can negotiate a fee for the mortgage broker to give you access to "par rates", which are typically lower than the "retail" rates banks offer. 

San Diego Mortgage Rates Report: September 16, 2008

Holy Heat Miser, Batman…it’s a meltdown!

Had you taken my advice this weekend, and immediately locked your mortgage rate yesterday, you would have lost out.  The par rate for a 30-year fixed rate conforming loan was 5.625% yesterday- today that par rate is 5.5%.  My advice would have cost you .125% in rate.  Alas, my mortgage rates report is not about “catching the bottom” as much as it is about “avoiding the top”; it’s about mitigating market risk.  From my explanation on the Zillow Mortgage Blog:

My approach is with an aversion to risk so I’m biased towards locking rather than floating a rate.  What I do try to find is overreactions in the MBS market so that you won’t lock your mortgage rate at the top nor float your mortgage rate when higher rates are imminent.  My customers RARELY catch the “bottom” but they miss out on many “tops” when locking their rate.

I look for irrational exuberance or irrational fear.  If I think markets are being too optimistic, like this week, I advise customers to lock.  The whipsaw reaction to irrational exuberance is irrational fear; a steep rise in mortgage rates.  THAT is what I want to avoid.

Long-term, I feel that the government bailouts of financial institutions will result in a hefty price tag to the taxpayer, which is inflationary in nature.  I look for markets to start reacting to this sooner rather than later.

If you have a definitive closing date for the purchase of your home, lock-in your mortgage rate today.  If you’re shopping for a new home. locking your mortgage rate at contract acceptance is advisable.  If you are one of the fortunate few with equity, good income, and good credit, and want to refinance your home loan, today looks better than next year.

I’d love to discuss your options with you.

PS:  In my last report, a Texas mortgage broker suggested that my risk mitigation strategy is inferior to a “lock and pray “approach:

Bottomline, none of us knows what is going to happen, so the smartest course is to lock with a lender that will renegotiate your rate when we experience one of these rapid drops that occur with little advance notice.

I’ll agree that prescience is a virtue best reserved for the Divine.  My faith in the predictability of mortgage lenders’ actions has been shaken over the last year.  I’ve seen lenders flip programs to make an extra buck and back off approvals.  While this gentleman’s strategy has proved superior to mine, this month, I still rely on my charts and research to execute low rates for my customers.

San Diego Mortgage Rates Report: September 12, 2008

The MBS market has improved dramatically since the new FHFA seized Fannie Mae and Freddie Mac. An implicit government backing of mortgage bonds became explicit with that single event.  The rate difference, or spread as we call it, between gov’t bonds and mortgage bonds, has narrowed from abnormally high margins.  This means that mortgage rates dropped as much as .375% since the gov’t takeover.  Alas, I think that party is a bit short-lived.  The exuberance appears to be a bit irrational and the reality of impending bank failures has worried the MBS market again.  Short-term, I’m advising clients to lock-in these low rates and be done with it.

For borrowers with a 30 day time period until closing, I’m advising that they lock as well. Rates may spike up and come back down ,to these below 6% levels, but I don’t see a great opportunity for the medium-term to improve upon today’s already low rates.

Longer-term, mortgage applicants may find mortgage rates higher than they are today.  The realization that SOMEONE has to pay for this bailout will hit everyone, after the election, and treasury bond yields should rise, pushing the MBS yields, and mortgage rates, higher as well.  Not a rosy picture.

So, lock those loans at application. While the current 30-year fixed rate loan offering, with 1% origination fee, is 5.75%, for a conforming loan (6.02% apr),  the risk of those rates popping up to the 6% level far outweighs the reward of holding out for 5.625%

Rightly Eviscerating Keith Olbermann

Keith Olbermann is an ass.  Here’s the former ESPN announcer, commenting at the Republican Convention:

I’m sorry, it’s necessary to say this and I wanted to separate myself from the others on the air about this. If at this late date any television network had of its own accord showed that much videotape and that much graphic videotape of 9/11, and I speak as somebody who lost a few friends there, it? …we…would be rightly eviscerated at all quarters perhaps by the Republican party itself for exploiting the memories of the dead and perhaps even for trying to evoke that pain again. If you have reacted to that videotape the way I did, I apologize. It’s a subject of great pain for many of us still and was probably not appropriate to be shown.

Listen for 16 minutes to Glenn Beck remember the worst day in modern American history.

And Keith?  It’s September 12, 2008.  I won’t EVER forget.

Think The Mortgage Market Is Upside-Down?

Reuters News reports about the opening of an upside-down house, in Germany:

Upon entering the construction, visitors have reported feeling dizzy and disorientated. Although the house is safe, Mikiciuk said nobody would inhabit it permanently and it was meant purely as an exhibit.

If you're searching for a home loan, and find that the mortgage market completely opposite of what you experienced in 2005, maybe you won't feel so um...disoriented now. 

Photo Credit: AP Photo:        An upside down house is seen in Trassenheide, Germany, Thursday, Sept. 4, 2008.