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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.

Is Termite Clearance Required For A VA Home Loan ?

Bay-area REALTOR, Phyllis MacArthur, asked this question on Zillow..  My answers are in bold type:

 On one of my listings, my seller just recieved an offer. It is a clean offer with no hidden agenda, purchase price is right on, however there are some loan issues I need to clarify:

Do VA loans require termite clearance?

VA requires both Section One and Section Two clearance (per Cheryl in the Construction and Valuation Dept of the Phoenix Regional VA Home Loan Center, as of May 15, 2009).  This is a requirement for all purchases and and refinances (except for VA-to-VA Interest Rate Reduction Loans).

The buyer's agent wants a 60 day close (She said VA loans take longer than traditional loans) Is that true?

VA loans are not necessarily a more lengthy process but the buyer's agent may be "hedging" for the termite work.  Many lenders, however, are backed up so the 30 day closing is becoming increasingly difficult.  A 45-day escrow should be reasonable and a 60-day escrow seems lengthy.

 If so how does the buyer lock in a rate?

Sixty day lock periods are free and available.  It costs the borrower up-front money to lock a rate beyond 60 days.

Mortgage Rates Fall Farther? Why You Shouldn't Trust The Newspaper For Mortgage Advice

The mainstream media is not a great place to get information about mortgage rates; the information they have is usually outdated.  I mentioned this when I said that the LA Times mortgage rates table was a 45 rpm record in an iPod world.  Further evidence from the Dayton Business Journal:

Mortgage rates remain low as the Federal Reserve continues to make moves to keep them that way.

Freeddie Mac's weekly rate report says 30-year fixed-rate mortgages fell to an average 4.82 percent, down from 4.86 percent last week. A year ago, 30-year mortgages were averaging about 6 percent.

That data is over ten days old.  Look at what happened to the market last week (from a mortgage industry site):

Yesterday was a tough day for mortgage backed securities (MBS) but even tougher on Treasuries.  If you would like to see a graph of the carnage, Click here.   All lenders did reprice for the worse, with some increasing borrowing costs by .50 in discount.   That means if a particular interest rate was costing 1 point in the morning, by day’s end it was costing 1.5 points.   I do hope that short termers, consumers closing in the next 2 weeks, took our advice on locking.  It  appears the reason for the selloff in treasuries is 2 fold.  First, investors are anticipating a massive supply of more treasuries which when you apply the law of supply and demand, more supply drives price lower which raises the yield.  Also, there was a report that the US might lose its AAA credit rating due to the massive amount of government spending that will have to be funded by issuing treasuries.

This is a real problem for consumers.  Consumers read the newspapers and think they should call a few mortgage companies and get some quotes; that's reactive.  Proactive mortgage shoppers have their documentation lined up and are ready to pounce when a mortgage originator calls them to suggest locking in a low interest rate.  We locked in about $2 million in loans on Tuesday (a day early) for seven customers.  Thursday, the market started inching up and Friday resulted in a full .25% rise in mortgage rate.

I'm not saying that a borrower CAN"T handle the mortgage process by himself.  I am saying it's a helluva lot cheaper for him to use an experienced mortgage broker.