My New Blog

Rates are down today!  That's great news.

But, I'm still trying to figure out what a move of a few cents in the 20 year bond, can make a difference of 1/4% on your mortgage rate!  And, people, that's what has been happening.

Today the 2 year bond is sitting at the lowest rate (yield) in many years.  The spread between the yield on the 2 year bond and the 10 year bond is enormous (by any standards.)

                        Today        Yesterday

    2 year bond    $1.467           $1.5+

    10 year bond  $3.423           $3.51

But, here's the hard part to swallow.  If mortgage rates are tied to the 10 year bond (and they are), why is a rate of $3.423 causing mortgage rates as high as 5.75%!  The last time the 10 year bond was at $3.423, mortgage rates were still in the low low 5% range.  And that was a good profit for any bank.

The answer is called "risk based pricing."  The secondary market (Fannie/Freddie) are pricing loans at a very substantial profit margin "just in case" these loans go bad.  They need the high profit margin to minimize losses.  At least that's what we're being told. 

And, today, the Feds are bailing out Bear Stearns (the mortgage portion of their business has reached the limit of its liquidity _ability to sell "A" rated mortgages to the secondary market)

Stay tuned "As the Economy Turns"   

It's not pretty.

While most of the public gets really excited when the Feds lower the Federal funds rate, which in turn lowers the Prime Rate, those of us in the Mortgage business understand that this may NOT lower mortgage rates.  Of course we LOVE when the Prime Rate is lowered.  If you have a home equity line of credit, it is probably tied to prime, so this part of your mortgage payment should go down too.

But, most mortgage rates are tied to the yield of the 10 year Treasury Bond.  Lenders have chosen this benchmark because the average home owner will stay in their house, or keep a loan 10 years.  This 10 year average varies by locality.  For instance, the average longevity of a loan, or stay in a house on the West coast is actually 3-5 years.  But, for the most part, financial institutions use nationwide averages in determining mortgage rates, and some locations get slightly more favorable rates (based on multiple factors - but including average duration of a loan.)

To get a better handle in which direction mortgage rates are moving on any given day, or in any given hour, keep your eyes on the yield of the 10 year Treasury bond.  With the exception of "special pricing" which may be offered by some lenders, mortgage rates move with the 10 year bond.

As always, if you would like to discuss this more - or check to see if any specials are being offered, please feel free to call at any time.

As a buyer, one of the important bargaining tools you still have in this buyers market, is getting concessions from your seller.

If you're buying a new house, most of us think to ask the builder for upgrades and closing costs.  But how many people think to ask for a rate buy down? 

Fannie and Freddie are still allowing up to 3% of the loan amount in seller concessions.  This 3% can be used any way you want (with the exception of pre-paid costs - which include interest to the date of closing, your house insurance and taxes).  A rate buydown can make a significant difference in your monthly mortgage payments.

For example, today, a 1% buydown could buy your rate down from 5.75% on a 30 year fixed rate mortgage to 5.5% for the same loan.   On a $350,000 loan, this amounts to a savings of $55.24 per month - or $19,886.64 over 30 years!  That is a very substantial savings.

In addition, the $55.24 could help you qualify for a slightly more expensive house than you might otherwise afford. 

Food for thought. 

Please call, or email if you would like to discuss this option and how it might help you.

Warm regards.

Shelby

How does a buy down work?

Each day our rate sheets show the best rates out there, and the fees associated with those rates. I, in turn send you out the best rates I'm seeing on any given day. Keep in mind that these rates do fluctuate between lenders, but not by much. It is rare to see a day where any given lender is offering loans at more than a .125% difference. In rare cases, a particular lender may have a special deal with some secondary market investor and is beating the competition by bigger margins, but this has become increasingly rare during this credit crunch.

Yesterday, I could have offered you a 30 year fixed rate loan (for a 1% buydown fee) of 5.375%. But would this make sense for you? Here's how it works.

On a $300,000 loan, when the buy down fee is 1% = $3,000 (added to your closing costs.)

Here are your savings:

Loan Amount   $300,000                    Payment

5.625% rate                                    $1,726.95

5.375% rate                                    $1,680.00

Monthly Savings                                 $46.95

To determine your break even point, divide the cost $3000 by the monthly savings of $46.95 = 63.897 months to break even on your cost. Of course, after the 5 + years, your savings are yours to keep.

There are times when the buydown really makes sense. In the case of a borrower who cannot qualify for a loan with a payment of $1726.95, but who can qualify for $1680 - this might be the only solution.

You should also be aware that the buydown rate and cost varies greatly. Tomorrow the cost to buy down might be as low as .5% (this is where we say rates are down slightly)or as high as 1.5%.

When there is a low cost buydown, I will definitely include this on the rate sheet, for your information.

Please call if you have further questions.

Big news this morning is that Existing home sales for Feburary were UP 2.4%!  This is the first month in a year where existing home sale numbers were UP.

This news was received with a LOT of excitement on Wall Street this morning, driving enthusiasm with investors, and a lot of speculation that the real estate market perhaps has finally hit a bottom. 

The potential bad news for those looking to purchase, is that the inventory will shrink, and sellers will be less likely to offer sales concessions than previously. 

Also, we expect rates to rise with the movement of funds OUT of bonds, and into stocks and property. 

The next significant numbers report, is due out Wednesday, regarding new home sales.  If those numbers are still down, perhaps we are celebrating the bottom too soon.  Let's wait until Wednesday to see how those numbers go. 

In the meantime, this is potentially a volatile week again regarding mortgage rates.  There is more news expected which could influence rates significantly. 

*Late Tuesday morning we will CCI (Consumer Confidence Index) which gives us an indication of consumers willingness to spend.  If confidence is increasing, this will surely be bad for mortgage rates.

*Wednesday reports on Durable goods orders.  An increase is expected, but if larger than 1%, this will also drive mortgage rates up.

*Friday, we will see numbers of February personal income and outlays.  If consumer income is rising, this signals the ability to make larger purchases (which the Feds see as a signal of potential inflation) and a potential clamp on the Feds lowering the Federal Funds rate. 

All in all, the news expected is very unlikely to impact mortgage rates hugely, but should drive rates higher for the week, overall. 

The big news today is the Federal "bailout" of Bear Stearns, the investment banking giant with huge exposure to mortgages.  On the brink of bankruptcy today, the Feds approved a bailout by JP Morgan Chase to purchase Bear Stearns stock at $2.00/share!  The Feds have guaranteed all the mortgage paper $30 billion (meaning that we, as taxpayers, are guaranteeing these funds.) 

What does this mean for the mortgage market? 

First, I know you all want to know about rates - no, so far, no rate drop this morning (unless you can apply for and close a loan in 7 days or less - which is not happening these days). 

More importantly, this could be a signal to mortgage backed securities investors that the Feds are willing to put their money to work to assist the mortgage market, which should cause an easing in liquidity, and perhaps and easing in rates.  A lot of IFs, but keep your fingers crossed.

In the meantime, OIL, prior to this morning, hit another all time high of $112.00 a barrel last night, GOLD continues to hit all time highs.  People are moving to what they consider "safe investments." 

At a meeting with several realtors this weekend, we are hearing that our market is starting to move again.  A LOT of the buying is being done with foreign money as the dollar continues to hit all time lows.  Do we want to see all our property in the hands of foreign investors?  Just a thought for you all to mull over.

Stay tuned!  IN an emergency move this morning, the Feds lowered short term "emergency money rate" 1/4% to 3.25%.  We're still uncertain whether this will affect the prime rate.  However, the Feds do meet tomorrow.  There is now speculation that the Feds could lower rates as much as 1% (100 basis points).  That would cause the dollar to fall further, which isn't good for us, but could be good for the real estate market in terms of inventory being purchased. 

Tuesday's bond market has opened well in negative territory following sharp gains in the stock markets. Stocks are doing very well this morning following an unusual move by the Fed to add liquidity to the markets. The results are stock rally and bond selling. The Dow is currently up over 200 points while the Nasdaq has gained 35 points. The bond market is currently down 28/32, but we could still see an improvement in this morning's mortgage rates as a result of strength late yesterday and optimism in the Mortgage Backed Securities (MBS) market.

The only piece of economic news released today was January's Goods and Services Trade Balance. It showed the U.S. trade deficit at $58.2 billion. This was smaller than expected, but since the data is not considered to be of high importance, it had little influence on trading and mortgage rates.

The big news of the day was an announcement from the Fed that they were pumping $200 billion in liquidity to      the markets. The short-term sale that they are doing this  was not the surprise. What is unusual about this sale is that the banks can use AAA rated mortgage securities as collateral. Usually, only securities backed directly by Fannie Mae and Freddie Mac are allowed as collateral. This will allow banks to pledge more collateral and therefore, borrow more from the Fed. This is believed to mean that banks will have more funds to loan to individuals and corporate customers. That should increase economy activity, at least in theory.

The rest of the week brings us the release of three more economic releases for the bond and mortgage markets to digest along with a 10-year Treasury Note auction. None of the important economic news is scheduled for release until Thursday. Two of them are considered to be of high importance to the markets. This means that we will likely see the most movement in rates the latter part of the week.

Thursday morning brings us the release of February's Retail Sales data. This report is extremely important to the financial markets because it measures consumer spending. Since consumer spending makes up two-thirds of the U.S. economy, data that is related usually has a big impact on the financial markets. This month's report is expected to show an increase in sales of approximately 0.2%. If we see a decline in sales, the bond market should rise and mortgage rates will likely fall. If it reveals a larger increase, I expect to see bond prices fall and mortgage rates rise Thursday morning.

We are all still watching what the Fed will do next week with the Federal Funds rate and the prime rate, and what effect, if any, this will have on mortgage rates. 

Stay tuned.

In normal times, when economic news is bad, and the stock market dives (as has been the case this week), the bright spot is that mortgage rates go down too.

We have seen the reverse this week.  Economic news has been dismal! 

Manufacturing down

Inventories up

Retail sales down

Home equity dropping dramatically as home values are on the decline

Stock market dove to lowest values in years

But, along with all this bad news, the credit crunch has also worsened, so mortgage rates have gone up at a pace almost unprecedented.  Today, we are finally seeing those rates leveling off, but the last few days have seen rates rising 3-5 times per day!

AND - to make matters worse, many Home Equity Lines of Credit have been frozen. 

Be careful out there.

We are seeing mortgage rates skyrocketing.  Up almost .75% in just 2 days!  While bad economic news is usually good for mortgage rates, this has not been the case yesterday and today.  We've seen an almost unprecedented number of rate increases - 4-5 yesterday, and 2 already this morning at 10:15am! 

This is more confirmation that when rates hit at or close to your target rate, you need to let me know, so I can lock your loan quickly.  It is best if I already have a loan package on file for you, because with this volatility, lenders are requiring full loan packages within 1 week to hold a lock.  Otherwise, the lock will be cancelled.

Thursday's bond market opened in positive territory following sizable stock losses during early trading. The Dow is currently down 124 points while the Nasdaq has lost 17 points. The bond market is currently up 15/32, which with yesterday's late losses again will push this morning's mortgage rates higher by approximately .500 - .625 of a discount point.

Yesterday's Fed Beige Book indicated that economic activity is slowing throughout the U.S. but also that inflationary pressures are rising. This led to selling in bonds late yesterday and upward revisions to mortgage rates. This morning's bond gains helped erase some of yesterday's late losses, but not enough to prevent mortgage rates from jumping higher this morning.

Today's only economic data came from the Labor Department who said that 351,000 new claims for unemployment benefits were filed last week. This was lower than expected and could be considered a minor negative for bonds. However, wi th tomorrow's monthly data being posted, today's weekly numbers are not of much importance.

The biggest news of the week comes tomorrow morning when one of the single most important monthly reports we see will be posted. The Labor Department will release February's Employment report at 8:30 AM ET tomorrow. Some of the important portions of the report will give us the unemployment rate, number of new jobs added or lost and the average hourly earnings reading. The best combination for the bond market and mortgage rates would be an increase in the unemployment rate, a large drop in payrolls and little or no increase in earnings. Current forecasts are calling for 0.1% increase in the unemployment rate to 5.0% and approximately 25,000 new jobs added.

I am expecting to see a fair amount of volatility in the markets tomorrow following the release of this data. However, I am still holding the lock recommendations as I believe that bad news is built into curren t rates. If we simply match forecasts, we probably will not see much of an improvement in rates tomorrow. But, if the numbers come in a little stronger than expected, we could see bond prices fall quickly and mortgage rates spike higher. In other words, it is my opinion that we will need to see much weaker than expected readings to see much an improvement in mortgage rates tomorrow.

If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Lock if my closing was taking place between 8 and 20 days... Lock if my closing was taking place between 21 and 60 days... Lock if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.

The old saying, If it sounds too good to be true, it probably is......

Be very wary.

Yesterday I went to my bank (which I won't name, but it's a large well known bank).  There, prominently displayed, was a sign posted

Home Equity Lines of Credit 5.25%

I had to check that out, since I can't offer those rates.  Mind you, I have very good credit, reasonably low loan to value ratios (I owe less than the house is worth), and I can document income to qualify for the loan. 

In the end, I was quoted a rate of 6.89%!!!!!  Is this a "bait and switch?"  Technically no - but the sign is very misleading.  It should read "rates as low as 5.25%" or, as I show on my rate sheets, "best rates today 5.25%" because very few people will qualify for the 5.25% (which is being offered but with LOTS of strings attached.)