Dennis' Mortgage Blog

Note: New Federal Legislation Effective 7/31/09 That Will Delay Closings For All Transactions, TIL Must Be Signed 3 Days Prior To Fundings.

Question of the week:  We are half way through the year, how about a recap of the markets?

Answer:  The official business start to 2009 was January 2^nd, a Friday so while the markets were open they only ones staffing them were those low on the totem pole or in trouble with their boss.  Speaking of bosses, when 2009 started we were weeks away  from a new President and Administration taking office.  On that Friday the Dow Jones Industrial Average was at 9035 points and the Fannie Mae 30 year fixed mortgage backed securities were trading at 101.156; the conventional 30 year fixed under the terms I quote each week (purchase transaction with 20% down for borrower with 740 FICO at 1 point cost) was at 4.875% and the “hi-balance” or jumbo conforming (over $417,000 mortgage) was at 5.00%.

After the Inauguration we experienced some choppy markets as Wall Street and investors tried to read the tea leaves of the White House and how the markets would be regulated and what steps the Treasury Department and Federal Reserve would be taking to keep more banks and investment companies from going under and bringing some confidence back to markets.  On that first Friday in January I wrote that we should expect to see continued low rates and continued activity from first time buyers slowly leading stability to local housing markets from the bottom up.  Both have been somewhat accurate. 

Rates peaked for YTD 2009 in February after the Stimulus package was announced and investors reacted to more money being thrown into an economy already loaded with government spending and borrowing.  The Fed announced they would buy significant amounts of conventional mortgages however and we saw rates begin to drop.  As the first quarter economic data came out showing none of the policies from Washington were impacting unemployment and consumer spending rates dropped even further.

During this cycle we also saw a disconnect between the Fannie/Freddie “normal” conventional mortgages, those up to the $417,000 limit, and the “hi-balance” conventional rates.  For the past several years the spread was between 0.125% and 0.375% in rate, mostly about 0.125% however.  During starting in February when the Fed announced their new purchasing program for conventional mortgages we saw the spread jump to almost 1% in rate and typically stay close to 0.5% (one half of one percent).  This is the result of the Fed creating a somewhat artificial demand for conventional mortgage backed securities and the open market having more of true reaction to economic data and sentiment.

With rates dropping through March and maintaining lows through April the mortgage industry saw tremendous volume of applications as homeowners with equity and first time buyers rushed to take advantage of the lower rates.  After touching bottom once again in mid-May mortgage rates saw five straight weeks of increases before a turning down in the cycle we are currently in.

Today we see the markets struggling to find a new range of equilibrium, with a convergence of the 25, 50, 100 and 200 day moving averages on mortgage backed securities that period of relative stable rates for a period of weeks may be approaching.  The technical aspects of the stock and bond markets are on the precipice of a fall either into declining stocks and rates or rising stocks and rates and investors are furiously reading their data and tarot cards to determine which way they should invest.

Looking ahead to the second half of the year I stand by my statement earlier in the year that the economy should see the bottom sometime in the fall, it may be late fall which gives me until December 19^th but I feel fall is the season we see economic data begin to show slower contractions and/or flat data.  September is when the cash from the almost $800 billion stimulus package passed in February is due to hit the economy, the timing could coincide with whatever health care plan and Cap and Trade bills come out of Congress, all of which are inherently inflationary.  So as the employment numbers, payroll numbers and production numbers begin to right themselves we should see inflation numbers start to rise and nervous investors fleeing bonds creating higher rates. 

While housing prices in some markets begin to flatten those looking for the bottom may not want to look much longer; especially if they miss the bottom of the price portion of the market and the bottom portion of the interest rate market.

On the other hand I could be completely wrong and we could see rates drop through December….we’ll check the crystal ball in a few months and see how my opinions are holding up.

I will keep this link on my “Question of the Week” section to assist new homeowners:

IRS Form 5405 for First Time Buyer Tax Credit for those eligible

Have a question for me?  Ask me!   

A strong couple of days in the mortgage backed security market saw a big sell off yesterday spiking rates for the day, only to see Chevron’s earnings report, consumer confidence numbers and trade numbers pull more money into the qualify bond investments.  As I mentioned above technically trading is a bit on the edge with reasons for bond prices (and therefore rates) to break either way.  Anyone in escrow and not locked will want to be in constant contact with the market and be ready to lock at a moment’s notice.

Rates take big drop this week mostly as a result of very favorable Treasury auctions and drops in the stock markets.  A correction yesterday that may have been a one day profit taking session.  We are resting below the 100 day moving average which depending if broken or not will determine rates for the near future.  FHA has seen correction to bring closer to conventional markets.  Cautiously float if you are not locked.  Follow me on Twitter (dcslb is my Tweet) if you want through the day mortgage market updates.

FIXED RATE MORTGAGES AT COST OF 1 POINT*

30 year conventional  4.875%                           DOWN 0.25%

30 year conforming-jumbo 5.375%                   DOWN 0.25%

30 year FHA    5.00%                                      DOWN 0.50%

30 year FHA jumbo 5.625%                            DOWN 0.375%

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, and period rate is locked (i.e 45 days instead of 30 days).

Please note that rates quoted are based on average of several lenders for a purchase transaction with 20% down payment and a minimum FICO score of 740; APR is not quoted as it is dependent upon specific loan amounts, lenders and services selected.  Numbers provided are for comparative purposes only.

For those in the Long Beach area tomorrow is the Annual Dragster Expo and Car Show that will have some neat Funny Cars, boss Dragsters and way keen classic autos; plus vendors and booths.  Including a both by the very bright and attractive owner of Blankie Keeper, a great product for those of you with kids, grandkids, nieces, nephews, of any age who are still attached to their blankies.

Happy Birthday Jack, I know you are having a piece of apple pie with a slice of cheddar!

Dennis

Remember this update is posted weekly on My Blog at www.DennisCSmith.com ; feel free to forward the link to family and friends who may be interested in past commentaries.