09Jun
This seems to be the question of the week, but no one really appears to have an answer. Until now: the spike in interest rate has been caused by a jump in the 10-year Treasury note, which is the leading barometer for interest rates and various other loans.
There are several factors that have caused this jump in yields on the 10 year note, the largest being the ever increasing United States deficit. The recovery plan that the U.S. has put together comes with a hefty price tag. We are now starting to see stabilization in various sectors, but this progress comes with a downside. There is an increasing fear that other countries will pull out of the international debt market, moreover, a full out refusal to buy U.S. Mortgages Backed Securities (MBS). Although we are a world power in more ways than one, we still rely heavily on foreign counties to buy our debt. With the government spending money almost as fast it can print it, the fear of inflation is once again becoming the dark cloud that is lingering off in the distance waiting to roll in.
What does this mean for the recovery of the US Economy? For most families, mortgage payments make up their largest monthly expense. With increasing mortgage rates, American families will be spending more on their house payments and have less of their income to put back into the economy, thus impeding a speedy recovery. Fortunately, the Government is taking a pro-active stance to expedite an economic recovery, so we can look forward to further regulation changes to help homeowners.
What does this mean for the average home owner? Low rates are not going to be around forever! In fact, the low interest rates we are experiencing today are due to the unprecedented actions taken by our government. Don’t lose your opportunity to take advantage of this historic event.
Tags: 10 Year Note, Bonds, mortgage backed securities, Mortgage Industry, Stimulus Package, US Dollar, US Treasury
06Apr
Now that the earnings bar has been set so low, this could present an opportunity for some wild swings in the market! The unprecedented action that the government has taken is just now starting to show signs of recovery. With the 30-year fixed mortgage rate seeming to hit new lows every week, this has created a surge in the bank’s loan pipelines from people wanting to refinance their homes. It will be interesting to see if they can handle the surge with understaffed departments after massive layoffs. The longer they can sustain the lower overhead, the greater the profit will be on the bottom line, but only time will tell which banks will start hiring more people to go after mortgage market share. I believe this will be the true sign to the start of a recovery. Decreasing unemployment and the banks showing signs of a recovery will surely be a sight for sore eyes. Housing data is looking extremely promising as well, with sales up and inventories shrinking. As long as earnings hit the mark or above, maybe with a few big profit surprises, things are starting to look promising!
TT
25Mar
Market rally in the stock market pushing mortgage rates off their lows.
If and when we start to see a sustained rally in the stock market we will likely see a continued rise in interest rates. As more money moves from the safe haven of treasuries and mortgage backed securities to the high risk stock market, bond rates must rise to attract buyers. This is how it works, bonds need to have an audience , their audience cares about the returns they offer. The higher the yields the higher the return on the investment or (ROI). When the stock market is declining, bonds are able to offer lower yields to attract buyers, lower yields equals lower rates to consumers. When the stock market is gaining, yields on bonds start to rise to attract buyers away from the increasing returns of the stock market. In the mortgage industry we see this positive news as negative for low rates. Today we are still able to offer the lowest rates in recorded history. We can only guess what tomorrow’s rates will be, but we know for sure what they are today!
Tags: Bond Rates, Mortgage Rates, Rates, ROI, Stock Market, Wall Street
19Mar
Interest rates in the 4% range are here. The funny thing is that they have been here since December 18th. With all the doom and gloom in the economy, the Federal reserve board knows it must keep borrowing cost down in order to stimulate the economy. The largest monthly bill in most households is the mortgage bill. So it makes a lot of sense to effectively raise incomes and spending by lowering that mortgage payment. Now how long can they do it is the question. We don’t know, no one really knows. What we do know is that there is actually a rate available today at 4.0% 30 year fixed! Remember, the lowest rates available in the market place are not free. These low rates come with up to 4 to 5 points in some cases. Is it worth it? Yes and no, if you positively know you will be staying in the home for years (5 or more) to come then yes. If you are not sure than ask your advisor for an option with lower points, this option will lower the points on the loan but in return your rate will be higher. The current market conditions are showing most loans with points. In the past we saw low rates with low fees, but now, with rates so much lower than previous years, lenders want the customer to essentially pre pay some interest (points) in almost all loans. Starting April 4th 2009 you will also start to see LLPA on more loans. LLPA = Loan Level Price Adjusters. These adjusters are set up by Fannie Mae and Freddie Mac to offset risk in the loan. So if your loan to value is high, there is an adjusters (points to the loan) Credit score not 740, Adjusters, cash out loan yes you got it adjusters. On April 4th they are lowering the threshold on these adjusters. Though rates might remain low for some time, LLPA adjusters are looking to offset the benefit. Bottom line, if you are in the market to purchase or refinance, no better time than today!
25Feb
If we use history as a barometer, we have already hit the lowest rates ever. Over the last 40 years the lowest long term fixed rates were around 4.25% on a 15 year loan. Today we are at 4.25% on a 30 year loan in some scenarios. What is the risk with locking a loan in the 4 percent range? Nothing, the chance of 3% mortgage rates is highly unlikely. I say unlikely, but nothing is out the question in this market. Let’s look at the benefits vs. risk. If you lock in today you have the lowest rates offered in modern tracking history. If you feel like gambling, you could possibly capture an even lower rate. So why not wait? The downside is rates could go higher, you could miss the low 4% rates altogether. The difference in payment with these rates is not worth missing out this time around. We are talking about 4% rates, no buyers remorse with rates this low! Congress is reviewing the “cram down” portion of the stimulus bill this week. If passed, mortgage rates will go higher. Fannie and Freddie have also announce price adjusters to borrowers with scores less than 740! That would be most of the U.S.. Stay tuned for more updates on the “cram down”.
04Feb
According to the most recent data released by the National Association of Realtors, Home sales Rose 6.3 percent in the month of December. The forward looking indicator used in the study was housing contracts sign in the month of December 2008. This data indicates that the government is finally reaching a point where people are responding the attractive buyers market they have created. The government has made it known that they are using every weapon in their arsenal to test the elasticity of the US housing market. This is a huge success for the US Government that is working at break neck speeds to try and solve our current financial crisis.
Tags: Home Sales, Home Values, Housing Recovery, Mortgage Industry
28Jan
Is the Treasury buying today? With the fed funds rates at zero, the government still has plenty of firepower left in the form of purchasing mortgage backed securities (MBS). Although the Treasury doesn’t say when, where, or how much it is buying, the market indicates a sizable pressure forcing rates down. This could be a sign that the government has again launched an all-out assault on purchasing MBS. The most important part is that the Treasury is buying these securities at a price point where it feels they can help the most.
The government seems, for now, to have found a formula that is working, with Fannie Mae and Freddie Mac under government control, the government pumping money into the banks, lowering the fed funds rate to zero, then having the Treasury purchase MBS, and then following it up with another possible bail-out with the staggering price of $825 billion dollars.
What does this mean for Mainstreet? Well, it is too early to say, but with banks that will continue to process loans and the government driving mortgages rates down only to purchase the loans on the back through Fannie Mae and Freddie Mac, the housing industry may be able to recover sooner rather than later.
Tags: Fannie Mae, Freddie Mac, mortgage backed securities, US Treasury
15Jan
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