Dennis' Mortgage Blog

The announcement late Sunday that the Federal government was essentially taking over Fannie Mae and Freddie Mac, had a huge impact on rates Monday morning.  Every day, starting at 5:30 when the bond markets open, I get pricing alerts sent to my handheld on the mortgage backed securities market.  Usually the first couple of alerts are showing the trend up, down or flat that opens the market—usually small moves.  When there is some bad economic news, bad for bonds anyway, I have had my first alert at 5:30 show the market in the tank and know that when lenders put out rates around 8:30 to 9:00 a.m. they will be higher than the close the previous day.  This happens but somewhat infrequently.  On Monday morning my first several alerts, probably five before 6:00 a.m., indicated an opening of the mortgage markets that I cannot every recall seeing in my career—it was very evident from the alerts that the lenders were going to open pricing on Monday down 0.25% in rate from their close on Friday. An unheard of drop in rates in a single early session was occurring. 

Why?  By restructuring Fannie Mae and Freddie Mac the government was telling investors, and credit markets around the globe, that anyone willing to invest in American mortgages would be protected.  Essentially Treasury Secretary Paulson crafted a deal that took much of the risk out of conforming mortgages for investors, investors responded by buying in record sums mortgage backed securities.  High demand causes higher prices, in mortgage trading high prices mean low yields, low yields mean low interest rates. 

The euphoria continued into Tuesday and then the market drank some strong coffee, took a couple of aspirin and stopped the party.  Wednesday and Thursday the mortgage markets jumped up and down and the daily charts looked like EKG readouts.  Mortgage investors reacted to oil prices dropping close to $100 per barrel (good for rates) and then reacted again when OPEC announced cuts in production (bad for rates); economic data came out showing tame inflation numbers (good for rates) and back up again.  Throughout the week investors played cat and mouse and cashed in on profits and bought big on the dips with every piece of news.  And then Friday came and everyone turned on Fox News, or MSNBC, or CNBC or whatever news/market program they watch and saw a huge red blob moving into the Gulf of Mexico called “Ike”.  Bigger than Katrina and likely not to veer into land until fully crossing the Gulf, Ike has the potential to inflict incredible damage on the Gulf’s oil and gas delivery systems and platforms.  This possibility of a huge impact on America’s domestic petroleum and gas supply sent the market off and we saw a huge drop in prices today and rates were climbing through out the day. 

At the end of the week our pricing is still significantly better than last Friday, rates have remained near the Monday numbers.  Also the technical aspects of the market bode well for continued drops in the future and our trend since mid-August continuing down, the question is at what pace.  Based on the information available, I still advise locking when possible, floating rates is always risky when in a purchase escrow as you may run out of time.  For those I have spoken to, or am watching rates for regarding refinancing we will continue to exercise patience over the longer term for rates to hit your target numbers.

Here are the rates as we finish off the week:

NOTE PRICING BELOW IS BASED ON 20% DOWN FOR JUMBO LOANS AND 10% DOWN FOR CONFORMING, 3% FOR FHA, FULL DOC, AND FICOS OF 740 AND ABOVE (change from last Friday):

30 year conventional at 1 point 5.75%              ê  .25%

30 year conforming-jumbo at 1 point 5.875%            ê  .375%

30 year FHA at 1 point 5.75%                                    ê  .25%

30 year jumbo at         NO PRICE CALL FOR INFORMATION              

With the exception of the usual activities of ballet, soccer games, church, honey-dos and errands I am around all weekend to assist if you have questions or inquiries for rates, payments, programs or pre-qualifications---don’t hesitate to contact me if you need me!

Have a great weekend!

Dennis