<5% Rates Were So Last Month

We all knew it was coming. Mortgage rates could only stay so low for so long. So why is it such a shock that they've jumped up nearly 1% in just two weeks?

Whenever rates increase 1% in such a short period of time it tends to make people scratch their heads (or bang them on the wall - take your pick). Back before the week of March 25 the 30yr fixed rate was ~4.5%. Now, at the beginning of the week of June 8, the 30yr fixed is ~5.5%.

Although there is no natural law that states, "what goes down must go up," the rate move was a sure thing.

What has caught many off guard is that they spiked so quickly and before many were expecting it. We were getting so used to sub 5% rates that we just assumed they would be around for a while (with the FED in such control and all!). But now we've learned a valuable lesson all over again - take it when you can get it.

So for now, 5.5% is the new 4.5%.

Articles that explain the situation much better than I can:

Bond-market rout lifts mortgage cost (AP, 06/06/09)

Bernanke Conundrum Threatens Housing On Mortgage Rate (Bloomberg, 06/08/09)

MBS Free Fall

FNMA 30yr 4.5 Coupon


The MBS 4.5 coupon is off nearly 160 basis points from yesterday's close, dropping 100 bps just since 1:30pm.

30yr fixed rates have jumped .25% - .375% on the price decline.

The Treasury market is suffering as well:
Bonds turn lower (CNNMoney.com, 5/27/09)

FED Announces $750 Billion More and Poof!... MBS Prices Surge, Rates Drop

'Rambo Fed' Will Buy Treasuries To Combat Crisis (Bloomberg, 03/19/2009)

"Yesterday’s decisions will add $750 billion in purchases this year of mortgage-backed securities issued by government- sponsored enterprises Fannie Mae, Freddie Mac and Ginnie Mae, for a total of $1.25 trillion. The Fed has already announced $217.1 billion in net purchases out of $500 billion planned through June, under a program unveiled in November.

The central bank will also double to as much as $200 billion this year its planned purchases of debt issued by Fannie Mae, Freddie Mac and Federal Home Loan Banks. The Fed bought $44.4 billion of the so-called agency debt as of March 11."

And here's a snapshot of what happened in the Agency MBS market:

Fannie Mae 4.5 coupon


Rates improved by .125% to .25% yesterday afternoon.

Stock Market Drops, MBS Market Pops

Agency (Fannie Mae & Freddie Mac) mortgage backed securities improved today as the stock markets saw heavy losses on the first business day in March.


FNMA 30yr 4.5 coupon

Mortgage rates improved by approximately .125 to .25% from Friday's rate sheets, ending the day up 40 basis points. The MBS market was the beneficiary of the "flight to safety" while the Dow Jones Industrial Average dropped nearly 300 points to under 6,800.

Friday Links 1/09/2009

Life around the office has been busy lately. Understandably, the lowest mortgage rates on record are making everyone want to refinance (and a few to purchase). We're in a "refi boom". And from our perspective it appears to be picking up steam.

But it's also cutting into my blogging time. So here are some links :-)

Mortgage Rates Set Another Low (Housing Wire, 1/08)

Bernanke's buzz killer: China Losing Taste for Debt From US (NYT, 1/07)

Realtors Slam New Fannie Mae Fees, Bloggers (thetruthaboutmortgage.com, 1/05)
"Realtors slam..." is a over reaching and a bit harsh. "NAR has issues with.." is more like it. NAR's "downpayment clarification" from Dec. 31, 2008.

BOE Cuts Rates To Lowest Since Bank's Creation in 1694 (Bloomberg, 1/08)
The Bank of England takes a cue from the FED.

I received an email from Fannie Mae (that doesn't make me special - you can get on their email list if your so inclined) on Thursday. The HVCC, or Home Valuation Code of Conduct, has been amended and will be implemented May 1, 2009. Here's their announcement with FAQs.
Also reported on at the Appraisal Scoop (01/08).

Local:
Some PHA clients escape foreclosure (C-ville Weekly, 1/08)

Jim Duncan on the problems with Charlottesville's housing market (cvillepodcast.com, 1/08)

Video: Today Show on UVA's Ranking (UVA Today News Blog, 1/08)
Meredith Vieira: "... and number one is the University of Virginia, a fantastic school."

"I Remember When Mortgage Rates Were So Low, That..."

That's how the conversation will begin when you're sitting in your rocking chair, grandkids at your feet, being asked what life was like in 2008/2009. You'll go on to say how you saved X amount of money because you had the foresight to lock in an historically low rate. And they'll be impressed.

Okay, so maybe that won't impress any of the kids. And the story may include recollections of how the stock market dropped 40% that year and World Market filled your inbox with "Up To 75% OFF!" emails.

But here's my point:

30 year fixed mortgage rates are currently in the 5% range, a level that hasn't been seen since 1971, the year Freddie Mac began it's weekly rate survey. It's a once-in-a-generation type of thing.



Of course this doesn't mean you should go out and get a mortgage loan at all costs. No mortgage rate is worth making yourself worse-off. But those who are in the market for a home or anyone who could significantly reduce their current monthly mortgage payment should seriously consider pulling the trigger on a new home loan or refinance. Sure, not everyone can take advantage of these rates - credit issues, no downpayment, NO INCOME. Yet there are many who can, and it's not hard to find out by calling your loan officer.

Yeah, there's a conflict of interest in me saying all this (I'm "talking my book"). After all, I make a living originating mortgage loans. But it doesn't take a rocket scientist to figure out that jumping on these low rates could save you money. And I believe I would be remiss not to inform those around me (clients, readers, etc). In fact, it was a conversation I had on Christmas Eve in St. Louis, MO while visiting family that encouraged me to do this post. While chatting about work life, a friend admitted he didn't follow economic/business news and had no idea what was going on with mortgage rates. There are many I've run into who are in the same boat.

Contact your financial advisor. Talk with one (or several) of the many reputable mortgage professionals here in town. Get quotes and crunch some numbers. Call a local Realtor if you're thinking of buying. And seriously consider making a move if it fits your situation/goals/wants/needs.

Fannie/Freddie Friday Links

Freddie Mac: 30-year fixed mortgage rate at 37-year low (MarketWatch.com, 12/18)
"The average rate fell to 5.19% with an average .7 point for the week ending Dec. 18, down from 5.475% last week and 6.124% a year ago."

"... lowest since the survey began in April 1971."

Fast Track Workouts for Delinquent Borrowers with Freddie Mac-Owned Mortgages Underway (MarketWatch.com 12/18)

Fannie Mae, Freddie Mac foreclosures slow-regulator (Reuters.com 12/16)
"Fannie Mae and Freddie Mac, the largest providers of funding for U.S. home mortgages, slowed the pace of foreclosure starts on delinquent loans for the second straight quarter, their regulator said on Tuesday."
"...but loans reinstated by the former's HomeSaver Advance loan program to borrowers jumped to 27,277 last quarter from 16,658 in the second quarter, the FHFA said."

Loan terms can now be modified before you're late (Chicago Tribune 12/19)
"Starting immediately, Fannie Mae—the mortgage giant with an estimated 18 million home loans in its portfolio or in mortgage bond pools it guarantees—will allow borrowers who face imminent financial difficulties to request "early workout" loan alterations, even if they've never been late."

Homeowners Are Rushing To Refinance As Rates Fall (CNBC, 12/18)
I concur.

Yesterday's MBS Action

A chart of yesterday's pricing action in the FNMA 5.0 coupon, from the Mortgage News Daily's MBS blog


Wednesday's movement is from the middle of the chart on (1st half is Tuesday). Traders were on a shopping spree in the morning and rates improved to the best levels we've seen since 2003 (just under 5%). But within 15 minutes the buyers remorse kicked in and prices fell precipitously for the next 2 hours and continued to trade down for the remainder of the day. Our sub-5% rates had come and gone in a blink of an eye.

Some material to chew on:

Paulson Denies Rumored 4.5% Mortgage Rate Plan (Housing Wire, 12/17)

Jim Cramer seems to think we'll see 3.5% rates - Cramer's Stop Trading (Seeking Alpha, 12/16). Then he said on Mad Money (12/17) that "Benjamin Booyah Bernanke" will "take mortgage rates down to 4%, I'm telling you, that's where they're going to go." For those who follow or know of Cramer, a statement like this is no surprise. Jim likes to entertain, he often changes his tune, and he has quite a few critics.

And even with the FED buying MBS, not all lenders are able to meet the increased demand for loans - Mortgage Rates Left In Dust By Treasury Yields, Failed Lenders (Bloomberg 12/18)

MBS Reversal

MBS took a nosedive this afternoon. We're now back to yesterday's prices, and sinking. Rate worsening.

More to follow.

MBS Market Rallies on FOMC Announcement - Mortgage Rates Going Lower

MBS saw an afternoon rally yesterday, due to the FOMC's announcement to cut the Fed funds rate to a range of 0-.25% and their statement: "... the Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant." MBS investors were overjoyed and are hopping on the (gravy) train.

MBS is also spiking higher (up 90bps so far) in early trading this morning and we should see rates improve by 1/4% or more this AM. When prices go up, rates go down.

FNMA 4.5 coupon


If you're on the fence with refinancing or purchasing, you may want to jump off.

MBS Market Rallies, Mortgage Rates Set To Improve

10:20am



I guess this is what happens when the Federal Reserve announces a plan to purchase $500b MBS from Fannie Mae and Freddie Mac. Here's today's Bloomberg article about the plan.

And here's the Treasury's announcement to purchase $200b in additional asset backed securities.

Looks like the Administration is directly targeting mortgage rates.

I expect rates to be ~.25% better this morning, and wouldn't be surprised to see the 30yr fixed in the low to mid 5% range this week.


FNMA 30yr 5.5 coupon
up 130bps at 10:15am

MBS WOW!

MBS Update 11/04/2008:

The FNMA 30yr opened up approx. -20bps from yesterday, and by 3:30pm we were up 109bps from the open. That's almost 110bps in a single day, and we're heading higher. This is the largest single day climb since the FNMA/FHLMC takeover in September. The 30yr fixed has improved ~1/4% since yesterday.



We have seen 2-3 rate improvements (depending on the lender) so far today and we might see one more by 5pm. The 30yr fixed was 6.5% last Thursday. Currently we are at 6.125%. What (or who) is moving today's market? Unsure at this point, but obviously buyers have entered the market in a big way.

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You can also contact us if you want up-to-date analysis on the MBS market and how it's affecting mortgage rates.

The rate rollercoaster

Lately, watching the action in the mortgage backed securities (MBS) markets has been like watching a car full of screaming teenagers hang on through the peaks and valleys of a world class roller coaster. In other words, it's been wild ride.

Just since September, we have seen the 30yr fixed mortgage rate fluctuate nearly 3/4 1 percent - between 5.625% and 6.375% 6.5% (stay up-to-date with our free daily rates email).

In normal markets, one can often get a general sense of the direction. Fundamentals can be followed and trends can be observed. But what we're witnessing in MBS is not the gradual inclines or declines of a functioning market. We're seeing wild swings in prices and reversals that occur in a matter of days.

Yesterday, Bloomberg reported on the difference in yields on MBS vs. US Treasuries. Fannie-Freddie Mortgage Bond Spreads Hit Widest Since March. The recent increased spreads have been driving MBS prices down and rates up.

"Agency mortgage-bond spreads have fluctuated since their record drops on Sept. 8 after the U.S. seized control of Fannie and Freddie. The spreads have widened on days when concern mounted that buyers relying on borrowed money including banks and hedge funds will have less demand for the debt -- including the past five trading sessions. Spreads have tightened when investors heeded a government pledge to support the market."

Predicting the direction of mortgage rates with accuracy in a stable market is a difficult task. But in current conditions it's nearly impossible.

So how does how does this translate for consumers? If you have a purchase contract on a home and plan on closing within the next 60 days, go ahead and lock your rate. Waiting for a particular rate that may or may not come is not worth the risk to your plans or your deposit. And the same goes for those who plan to refinance within the next 6 months - take advantage of the current historically low rates. Keep in mind that the average 30yr fixed rate since 1978 is 9.5% (Freddie Mac)

I'm not trying to "talk up my book" (giving advice or making an argument that bolsters one's position). Just pointing out what I see.

Visual evidence:

FNMA 30yr

MBS market swings back this afternoon

Looks like the Treasury may have already started implementing it's plan to double MBS purchases this month.

Around 3:30pm, someone (government?) came into the MBS market and went on a buying spree, BIG time. I can only assume that it's the Treasury or Fed, since this kind of move in prices in that short amount of time can only be achieved with serious purchase power. Of course, I could be wrong - it could be a very large institutional investor who's betting that prices will go up from here.

This morning we were down ~45bps (basis points). We are now up 112bps.

Banks have yet to issue rate changes, but we are, after all, late in the afternoon on a Friday (after an extremely volatile week). I expect we'll see better rates (1/8%) on Monday morning, if these prices hold.

Mortgage rates may return to pre-Frannie bailout levels by next week

Fannie Mae 30yr 5.5

X axis - date, Y axis - price (lower prices = higher rates)

It seems that Paulson & Co. managed to save his former employer (Goldman Sachs) and many other Wall Street firms with the most recent rescue plans. The stock markets are cheering. But the FNMA MBS market is not taking this well. The reversal we're witnessing has essentially wiped out the improvements we saw right after the announcement of the the Fannie & Freddie bailout. I expect we'll see an increase of 1/8 to 1/4% in mortgage rates today, and if this trend continues I wouldn't be surprised to see the 30yr fixed rate rise above 6.25% in the next week or two. But if there's something that the current market is teaching us, things can change in a heartbeat.

If you're still floating your mortgage rate, you may want to contact your loan officer ASAP to get some advice.