Stock and bond markets were fairly turbulent last week, however, mortgage rates were fairly docile although starting to creep into the upper limits of the tight range we have been operating in for a few months.  This morning, the 10 Year Treasury Bond Yield continued higher breaking through the 3.50% ceiling we’ve had for awhile now.  If this break through 3.50% on the 10 Year holds it may turn into a “floor” instead of a “ceiling” creating the impetus for rates to continue creeping higher.  If it doesn’t hold and the 10 year falls back it means we’re still in our tight range and rates will likely continue to hover between just below and just above 5% until something else happens to push us out of the range.

One such impetus might be the culmination of the Fed’s Treasury buying binge which looms on the near term horizon.  Agency Security purchases (Fannie/Freddie MBS) are scheduled to wind down by March as well and the markets are looking for some signal from the Fed.  The signal they are looking for is, “do your really mean what you say and the buying of agency debt and US Treasuries is ending?”, or perhaps the buying binge will continue.  A continuation of the buying binge means the Fed doesn’t feel the market can support itself on its own which is good for rates, but, shows a lack of confidence in the economic recovery.  Needless to say, the next 6 months will be interesting in the rate markets.

A Sampling of Current Mortgage Rates:

30 Year Fixed Rate Conforming – 5.000% to 5.125% with a 1% Loan Origination Fee, minimum down payments, and 740 or greater credit scores.
30 Year Fixed Rate FHA / VA – 5.000% to 5.125% with a 1% Loan Origination Fee
30 Year Fixed Rate USDA – 5.250% with a 1% Loan Origination Fee

Again, Conforming Hybrid ARM’s continue to behave at their historical norms with spreads of anywhere from .75% to 1.00% lower than Fixed Rate Products.

For instance, a 7/1 ARM can be had today at 4.250% with a 1% Loan Origination Fee.  That’s 4.250% Fixed for 7 years before adjusting annually.  Something to consider for borrowers who likely will not be in their mortgage longer than 7 years (which is most everyone these days!).

A lot of important economic data comes out this week with the 3rd Quarter Advanced GDP report headlining the data.  It will likely show that statistically the economy grew for the first time in over a year.  Case Shiller Home Price data, Consumer Confidence, Consumer Sentiment, Durable Goods Orders, New Home Sales data, Personal Income data,  and of course Jobless Claims will also be released.  Information overload so expect that markets will be volatile.

No further indications with regard to an extension of the FTHBTC (First Time Homebuyer Tax Credit) although several articles in the past week reported that the Inspector General found many thousands of cases of fraud perpetrated potentially costing upwards of a half a billion dollars in wasted taxpayer money.  This certainly is not a good thing but it doesn’t mean that the FTHBTC extension is dead by any means.  What’s a half a billion when we’re spending trillions anyway (sarcasm noted) ?

Stay tuned….

Hugh W. Page, M.B.A.
Senior Mortgage Consultant
(919) 874-7557 Direct
(919) 595-9707 FAX
hpage@fmlending.com
www.fallsofficeloans.com

A rising stock market along with an increased appetite of investors for “riskier” assets helped drag treasury bond rates higher pushing mortgage rates higher as well.  Rates have been bouncing up and down within a fairly narrow 1/2 point range for many months now.  Currently, we’re about in the middle of that range.  Here is a sample of current mortgage rates available assuming credit scores over 740, a 1% Loan Origination Fee, and minimum required down payments:

30 Year Fixed Rate Conforming ($417,000 or less)    -    4.875% to 5.000%
15 Year Fixed Rate Conforming ($417,000 or less)     -    4.375% to 4.500%
30 Year Fixed Rate FHA Loan ($295,000 or less)       -    5.000%
USDA 30 Year Fixed Rate Loan                                -    5.000%

Hybrid Adjustable Rate Mortgages continue to show a nice spread under Fixed Rate Mortgage products and should be considered for those clients with a shorter time horizon with their loans.  Check out these rates:

5/1 Adjustable Rate Mortgage – 30 Year Fixed Rate    -    3.750%
7/1 Adjustable Rate Mortgage – 30 Year Fixed Rate    -    4.250%

In the past, the 10-year Treasury Note was a good benchmark for the direction of 30-year fixed mortgage rates. Our recent financial market crisis, however, altered that relationship as Treasury yields and mortgage rates often went in different directions as investors showed a desire for one (Treasuries) at the expense of the other (mortgages). In a normal market we usually had a “gap” or “spread” of about 150 basis points for standard conforming loans – or about one and a half percentage points – and during the crisis over the past year this spread had grown to well over 300 basis points as recently as the beginning of this year.

With improving markets and massive Fed intervention in treasury and mortgage markets this spread has narrowed to about 175 basis points. This means moving forward Treasuries and mortgage pricing are more likely to move more closely together.  This past week for instance, 10 Year Treasuries widened by about 14 basis pts and 30-year conforming fixed mortgage rates were worse by about an eighth on average.

The Federal Reserve released its latest set of meeting notes from the September 22-23 meeting and much of that discussion reflected opinions about when the Fed should begin to think about removing the excess liquidity (money printing) they have generated this past year.  They want to transition at a measured pace to a more normal monetary stance as the economy improves but before inflation rears its ugly head.  That appears to be a worry for the longer term,however, as many Fed staffers noted that economic data while improved appeared to continue on the “less worse” track and excessive slack still exists which means it will likely be some time before inflation will be perceived as a problem.  This means short term interest rates are likely to stay lower for an extended period.

The other part of the slack is the unemployment level, which remains high and will for some time. However, the level of layoffs is slowly abating and we are likely to dip below the 500,000 level for weekly claims before long. During the week ending October 10, “only” 514,000 new applications were filed at state windows, the lowest level since last January (if still well above that which suggests a stabilizing labor situation). Still, the trend is gradually improving since March’s peak of 674,000 apps.

As we go forward, the Fed still has a few hundred billion of MBS purchases to make in the open market through March of next year which will keep the lid on rate increases for now.  The clock is ticking on mortgage rates and we’re likely to see higher rates this time next year and maybe significantly higher rates as Fed stimulus ends and market forces take back control.  Potential buyers beware.  You may not see better rates for awhile.  Of course, who knows, maybe the Fed will keep printing and trying to stimulate and things will be held artificially lower for awhile longer.  No one knows, we continue to operate in unprecedented times.

Stay tuned….

Hugh W. Page, M.B.A.
Senior Mortgage Consultant
(919) 874-7557 Direct
(919) 595-9707 FAX
hpage@fmlending.com
www.fallsofficeloans.com