The Mortgage Manifesto

Mortgage Rates Repricing.....for the Better

Starting to see the repricing notices, better pricing coming this afternoon.  This is the beginning of the setup mentioned in the post from a short while ago...

When to Lock a Mortgage Rate?

BIG QUESTION.

The Treasury market is up strong today but we haven't seen this strength show up in lower mortgage rates yet.  My hunch, we just might see fantastic pricing tomorrow.  Get ready.

If we do, there will be a stampede of people rushing to lock in before they miss out on what happened 2 months ago.

Also, if lenders take in a swath of new registrations I expect them to pull those low rates quickly.  Why?  Because most mortgage lenders are running on lean staffs as they try to weather the current stormy market.  They will not add staff just to handle a short-lived blip.

This means, once they book their quota of new business expect those doors to shut.

If we've been watching a scenario the past two months please just shoot me an email on what rate is ACTIONABLE for you to lock on.  We just might not have time to connect on the phone or even by email tomorrow.

Locking every loan takes time and if we get a day that is anything like we did in January there just might not be enough time in the day to get to every possible request.

Brett

Expect Lower Rates Today

Quick update as I am watching bonds breaking higher in this morning's trading.

We will likely see better pricing coming today or tomorrow on fixed mortgage rates.  This is a dip to act upon. 

The market is VOLATILE and waiting through a long, holiday weekend is not wise.  Too many things can happen.

Moving Markets & the Fed

Big day today.

For about 2 hours I was able to find 5.5% on the 30 year fixed rate program with no points but only with one investor.

Well, my guess is they took in a lot of new loan registrations as they've repriced back up to 5.625%, where the other lenders were sitting this morning.

At 1:15 PM the Fed makes their announcement.  Whatever they do, mortgage rates can go either higher or lower on the news.  It's all in how the bond markets react.  Given the highly volatile nature of the markets these days, a roll of the dice can predict as well as anyone else.

Keep in mind, lenders are not as aggressive for new loans as they were in years past.  If you see a rate that works, DO NOT GET GREEDY.  This market changes on a moment's notice.

What's the Fed to Do?

Whoa!

What is up with financial institutions these days?  Can you really believe one word they say?

Last year it was all the "the subprime crisis is contained."  Now, an 84 year-old institution gets sold for pennies on the dollar, just a few days after they told us they were fine.  What!?!?

Now, the Fed meets tomorrow and the markets are clamoring for more rate cuts.  Doesn't it seem like each month the Fed's actions are showing more desperation than control?

This week should be alive with market moving news as everyone tries to figure out "are we at a bottom" and "where is the end of this crisis?"  Unfortunately, we haven't crested the hill yet to see that horizon.

One sidebar, here it is 10 am as I type this post and I haven't seen one ratesheet get posted from our wholesale investors yet.  Hmmm?  That is quite an unusual event.  That tells me there is extreme caution as those lenders try to price out where the market should be on the Bear Stearns collapse and the upcoming Fed meeting tomorrow.

What makes this even more interesting is that bonds are trading at their best levels since late January.  However, the spread between Treasury bonds and mortgage bonds is quite large.

I think we will see lower fixed rates appear on the table during the next 2 weeks but keep in mind the market is highly volatile so anything can truly happen. 

We live in historic times.

www.BrettGrendahl.com 

The CPI, Fed Meeting, and When to Lock a Low Mortgage Rate

Hey there,

This morning's CPI number was tame and does not show rising inflation (at least for this month).  The bond markets are trading positively off this news as I type.

Now what?

Well, we finally have pricing on the benchmark 30 year fixed-rate mortgage below 6% again.  It's been a few weeks since we've seen that occur.

Straight ahead of us is the next meeting of the Federal Reserve Open Market Committee on Tuesday, March 18th.  What will they do?  The markets are pricing in a possible 0.75 cut in their Overnight Rate.  If that happens and they make remark about inflation pressures moderating we should get a short-lived dip in fixed mortgage rates. 

Such a dip will likely only last for a few days, possibly a few weeks.

In general, insititutional investors have no appetite to purchase mortgage backed securities and by default that pushes mortgage rates you and I can find higher.  However, there is a silver lining to be found.  What is it?  Well, as Fannie Mae and Freddie Mac continue to tighten underwriting guidelines the end result is that mortgage-backed securities that are of a 2nd half 2008 vintage or later or going to be better received by institutional investors.

Why?

Because they know that these securities have been underwritten by time-tested guidelines, not the fleeting insanity of low-documentation & lax appraisal valuation procedures of recent years.

As those buyers come back we should see the economics improve for mortgage rates.  But.  And that is a big but, what was once A credit grades is now harder to obtain.

To sum it up, near future promises a dip in fixed rates while the longer term picture for mortgage finance continues to face historic challenges.

I'll be posting post-Fed announcement analysis and predictions next Tuesday.

www.BrettGrendahl.com

Fewer Jobs & Higher Mortgage Rates

If you want empirical evidence of the funk that is mortgage finance these days let's just examine the reaction of mortgage rates to this morning's weaker than expected Jobs Report.

February's Jobs Report showed a loss of 63,000 jobs during that month.  Normally, that sort of weak economic news would incite a rally in the bond markets and bring lower mortgage rates.  Not this time.

So, why?

The main driver is that banks are trying to stop their bleeding and hold onto cash so they can weather the current storm.  I'll repeat it, they are trying to keep as much cash as possible.

When keeping cash is your priority there is NO incentive to get aggressive in the rates you offer some to take your cash and repay it over three decades.  Very little incentive, in fact.

So, we find the benchmark 30-year fixed rate mortgage without points or origination fees sitting at 6.375% this morning.  That is a full-point higher than where that rate bottomed out just less than two months ago, a big movement in such a short amount of time.

I am picking up chatter about the possibility of the Fed cutting their Overnight Rate by a full point when they meet on March 18th.  As I mentioned many months ago, the Fed was WAY behind the curve on the upcoming challenges facing the financial markets.  My read on their actions and words of late, they are getting very, very worried.  They should be.

The one silver lining in the current spectrum of mortgage programs & rates is the widening of the spreads between the ARM programs and the 30 year fixed rate program.  As the Fed continues to cut their Overnight Rate it will bring the short-end (the ARM rates) lower.

This widening is changing financing strategy.  A new strategy that many should explore is this:  use a convertible ARM program now (or in the months ahead) to get the low rates driven by the Fed cuts but still give yourself a hedge of being able to convert your adjustable rate into a fixed-rate.  In the past, most people didn't select such an ARM program.  As with any loan program, you need to understand ALL of its components and the strategy behind its application.  Don't just focus on rate.  That single-mindedness of attention isn't a prudent approach.

I've been in mandatory continuing education this week (per the new Minnesota laws that went into effect last August) and will have some interesting observations to share in the coming days.

Have a nice weekend.  When the heck is it going to warm up?

www.BrettGrendahl.com

The Gravity of the Monthly Jobs Report

Here we are again, in the never-ending cycle of the monthly economic reports, with the monthly Jobs Report on deck for this Friday AM.

Don't expect much movement in mortgage rates (if anything they might edge higher) before this all-important report is released Friday morning.

If the Jobs Report comes in weaker than expectations, mortgage bonds are poised to rally and that should help add some fuel to another run lower in mortgage rates.

I'll post again on Friday with some analysis and read on the bond markets reaction to the Jobs Report.

www.BrettGrendahl.com

Update on Mortgage Rates for Today

Quick post to share rates I've been pricing out today.  Even though the stock market is falling we are not seeing much movement in the bond markets today.

Here's a snapshot of some current rates I've priced out recently:

• 30 year fixed at 6.0%
• 15 year fixed at 5.5%
• 5/1 ARM at 5.25%
• 1 year ARM at 4.25%

I anticipate a pop lower in the coming weeks that might move these rates 0.5 lower for a short window of time.

www.BrettGrendahl.com

What the Heck Happened to Those Low Mortgage Rates?

Were fixed mortgage rates reallly a full one point lower only 45 days ago?  It's hard to believe given how quickly we've seen them move back up.

Didn't the Fed cut rates 0.75 and then 0.5?  Yes.  Then why don't we see lower mortgage rates?

These are common questions that will leave you confused if you follow the incomplete information spit out from the general media.  Mortgage rates have specific economics that dictate where they are on a day-by-day basis.  These economics are sometimes simple and sometimes complex.  What's going on right now is definitely on the complex end of the spectrum!

Any company or institution involved in the realm of mortgage finance faces great change and uncertainty.  They also face a great need to raise cash.  As such, mortgage lenders have no need whatsoever to be aggressive in the rates they offer to the U.S. homeowner.  Why?  Because they'd rather keep some cash in their accounts instead of borrowing it out on a 30 year repayment term.  Cash now is better than cash spread out over three decades!  In addition, as these lenders are also witnessing rising defaults and late payments that were not modeled accurately in their portfolio there is even a lesser desire to borrow money out. 

Not until new financial models are created that seem credible and the current liquidity crisis pass will lender be extremely aggressive in pricing mortgage rates to you and I.  That won't happen anytime soon.

In addition, the markets are finally realizing what I wrote about half a year ago, the U.S. economy is in recession.  How deep & long this recession will last is yet to be determined.

In normal mortgage finance, mortgage rates move lower during an economic recession.  However, as you might easily guess, these are far from normal times in mortgage finance.

Throw in steady inflationary pressures on top of the industry turmoil and the recipe does not produce lower mortgage rates.

So, what do I think we will see happen in 2008?  Well, I still see one more dip lower in mortgage rates to come sometime in the next 4-8 weeks.  While I used to believe we'd see that dip occur sooner and reach the lows we say in January I think that looks less likely given how high we've seen fixed mortgage rates moves up during the past 30 days.

For anyone that has a desire or need to refinance into a fixed mortgage program this upcoming dip, and however low it goes, will present the lowest rates you will find for the remainder of the year.  Forget the lows we say in January.  That is the past!  If you hold out for rates to get back to exactly those lows you are making the same mistake that the homeowner selling their home today is trying to get a 2006 market value of their home.  That is the past. 

After this upcoming dip and however low it goes we will most likely face rising fixed mortgage rates for the remainder of 2008.  Why?  Stubborn inflationary pressures, increasingly conservative lending policies, and continued decline of home values make the option to funnel money into mortgage-backed securities not the great investment they were in recent years. 

The bottom line of this is there is less demand to borrow to the U.S. homeowner.  Lower demand means higher prices.  Simple economics that mean higher rates ahead.

www.BrettGrendahl.com