Dennis' Mortgage Blog

In a rising rate environment know your options!

If you go to my Mortgage Blog on my DennisCSmith.com website you will see that this week we have the biggest jump in rates since mid-April.  Across the board 30 year fixed rates are up 0.375% in rate—that is a big jump for a month much less five days.

The fun started earlier in the week, Tuesday, when Fed Chair Bernanke spoke and said the Fed was monitoring inflation and that the was very good chance they may raise rates in the near future to battle inflation.  Not a surprise, but the markets reacted negatively for bonds and positively for stocks.  Today we have some reversal of the downtrend in bond prices (and uptrend in rates), but that could be caused by profit taking.  Going into yesterday bond prices went down (rates up) eleven of the past seventeen trading days since their recent high on May 20^th.  That is a trend.

Here is analysis you may not get from other lenders, something to consider when making your decision with whom to work:

If the Fed does increase rates we will probably see a drop in mortgage rates.  What?!?  The Fed raises rates and mortgage rates fall?  Here is why, in my opinion.  The Fed directly affects short term rates, all other markets and rates react to this.  If the Fed raises short term rates it is doing so to fight inflation.  The effect of higher short term rates is a stronger dollar.  The stronger dollar will attract investment (demand on bonds, higher demand higher prices, higher prices lower rates).  A stronger dollar will impact the cost of raw crude lowering the price of oil.  Lower oil prices will ease inflation pressure.  Easing inflation pressure causes lower interest rates. 

Remember bond investors are long term investors; they speculate as to what will happen in the future and invest accordingly.  If they suspect inflation they sell bonds, higher rates; if they suspect very low or moderate inflation they buy bonds, lower rates.  The Fed increasing short term rates should have positive impact on mortgage rates.

NOTE PRICING BELOW IS BASED ON 20% DOWN FOR JUMBO LOANS AND 10% DOWN FOR CONFORMING, 3% FOR FHA, FULL DOC, AND FICOS OF 720 AND ABOVE (change from last Friday):

30 year conventional at 1 point 6.375%   Increase 0.375%

30 year conforming-jumbo at 1 point 6.5% Increase 0.375%

30 year FHA at 1 point 6.375% Increase 0.375%

30 year jumbo at 1 point 7.75% Increase 0.5%

Happy Friday the 13^th!  I am not someone with triskaidekaphobia, however today the company with whom we contract for email servers is experiencing, let’s call them challenges.  As such my email responses today may be a bit slow so my apologies in advance.  I am not a big believer in coincidences so I am assuming someone has put a Friday the 13^th hex on us!

Please feel free to forward this email to your co-workers and clients--or send them to my Mortgage Blog where it is posted weekly.

I am available throughout the weekend to assist with scenarios, pre-qualifications and pre-approvals and other questions.

Happy Father’s Day to us Dads!

Have a great week,

Dennis

Dennis C. Smith
Stratis Financial
Direct (562) 472-1118

Mobile (562) 243-6912

Fax (562) 684-4316
 

www.DennisCSmith.com : apply on-line, check rates, check loan status and much more