Mortgage News that Matters

Another wild day for mortgage bonds. Following worse than expected Durable Goods Orders (-5.3%) and New Home Sales (-2.8%) reports, bond prices began moving higher.

Further gains were then realized after Fed Chairman Ben Bernanke’s testimony before the House Financial Services Committee. Bernanke’s comments were biased more towards inflation and focused attention on a weakening economy. However, he gave a clear signal of further rate cuts to come and the Fed Funds futures have priced in an 88% probability the Fed’s FOMC will cut interest rates by 50bp when it meets on March 18.

Mortgage Backed Securities ended 53bp higher on the day.

Also released today, the government will let the two biggest U.S. home loan finance companies, Fannie Mae and Freddie Mac, invest more money in the weak housing market in a move that could help revive the economy.  As I was watching the news this AM, the talking heads were discussing this and one stated that "their belly is already full and now they are taking on more.."

The issue is that Fannie and Freddie have absorbed a lot of poor risk loans and financially are not in the best of shape. Who knows exactly how many of their loans will go into foreclosure.

The difference is that now, guidelines have tightened considerably. The new loans that they are taking are much less likely to suffer adverse risk. Therefore, I see this as good for the economy, and will hopefully allow for more good loans to be financed.

Mortgage rates should be slightly lower tomorrow.

What a roller coaster we've been on. The last few weeks have seen us go from a low of 5% for a 30 year fixed rate mortgage at par to a high of 6.375% 2 days ago. We are currently back down to 6% with the possibility of a slight improvement again today.

We've gone from "fear of inflation" (bad for bonds) to "fear of recession" (good for bonds).

The Philadelphia Fed Manufacturing Index for February was reported at -24.0, which is well below expectations of -10.0. The last time it was this low was on the eve of recession.

The Index of Leading Economic Indicators (LEI) for January met expectations by declining -0.1%. Weaker housing data and stock market performance led the LEI to its fourth consecutive monthly decline.

Initial Jobless Claims were reported at 349,000, which was slightly higher than expectations of 345,000. The more closely watched four week moving average climbed by 10,750 to 360,500. In each of the last two recessions, the four week moving average of Claims moved above 362,000, so this morning's report does suggest the economy is teetering on recession.

All in all, things could be better for the economy.

Rates are still at historic lows... if you can qualify for a loan. Depending on whether you feel that we have a greater risk of inflation or recession would depend on whether or not you should purchase or refinance now. If you feel that the risk of inflation is greater, then lock in at today's great rates. If you feel that we're heading for a recession, then you should hold off and wait for rates to lower.

My take? My guess is that the economy will get worse (or at least appear to) as we get closer to the election. The Fed will step in and lower the Prime again in an attempt to stimulate the econony. This could also stimulate inflation, which will then require a fast rate increase like we saw a couple of years ago.

The stock market is having a nice morning due to WalMart reporting better then expected earnings AND Cuba's President, Fidel Castro, stepping down from power. Bonds are taking a beating and we can expect to see mortgage rates worsen yet again. I haven't seen rate sheets yet, but we're probably around 6% again for a 30 year fixed rate loan at par.

So what does Cuba's power shift have to do with mortgage rates? It's widely held that when Castro resigns, Cuba will become more open to business with the US...something that hasn't happened in over 40 years... The stock market loves this as it could open up new markets, both here and there.

Tomorrow the CPI (Consumer Reports Index) report comes out and we could see more volatility if the numbers are inflationary.

We had a nice little window of opportunity to take advantages of interest rates in the low 5% range. My guess is that we will get back there again, just not sure exactly how soon. It all depends on the reports. The Recession word is good for Bonds, but the Inflation word is bad...very bad...

Yesterday's comments by the Fed has continued to have an effect on the markets. Both Stocks and Bonds are lower as Traders are still sorting through the details of the comments.
We heard both of fears of inflation (the Fed's willingness to cut rates further) and fear of recession (Fed's belief that we won't see a major economic change until later this year).

In addition, Moody's has downgraded FGIC, one of the largest bond insurers. This has also put some fear into Bond investors as the assumption is that if the Bond insurer is risky, so must be the Bond.

It being a short session with the holiday coming up, don't expect to see much happening. My belief is that they will keep their money liquid and wait until Tuesday to figure out where to invest.

We have seen a worsening of mortgage rates by about .5% over the last week. But, rates are below 6% which is still great!!

After a major sell-off yesterday, mortgage backed securities are fighting back and are currently at positive levels. Yesterday's sell-off was in part due to Dallas Fed President Fisher's statements in Mexico City regarding the monetary actions of the Fed.

He was correct in stating that the Fed policy always lags. It takes several months for a rate cut or hike to take effect. His feeling is that the Fed was too rash in the size of the cuts that taken place over the last month and that they should have waited a few months to see what effect the earlier rate cuts would have on the economy.

His comments were very inflationary in tone and the bond markets did not like it at all. Hence we saw the sell off. We actually had 2 rate changes for the worse yesterday with several of my lenders.

In other news, the odds on a national recession are now 50/50.

Today's 30 year fixed rate mortgage is around 5.5% at par. This is a whopping .5% higher then we saw 2-3 weeks ago. This just shows how volatile our market is today.

My advice if you are looking at refinancing is to get all of your ducks in a row and be ready to pull the trigger at any given moment. Again, several weeks ago, I had a 4 hour window where I was able to lock a 30 year fixed rate loan at 4.875% at par!