Me Media: With Fox 9 Discussing Deliciously Low Mortgage Rates, and The Fed

Just wrapped a piece with Fox 9's Tim Blotz on Today's move by the Fed, Falling Mortgage rates, and what it all means.

Executive Summary: We are testing the all time 2003 lows. Low mortgage rates are fleeting.  Home prices are at 5 year lows. Don't get caught napping if you need to buy or refinance a home.

On at 5PM: Fox 9.

11/25/08 at 01:34 PM Permalink | Comments (0) | TrackBack (0)
Filed Under: Interest Rates, Press

The Fed Acts to Push Mortgage Rates Lower

In it's first action to directly influence mortgage rates and the housing market, the Federal Reserve has announced that they "will initiate a program to purchase the direct obligations of housing-related government-sponsored enterprises (GSEs)--Fannie Mae, Freddie Mac, and the Federal Home Loan Banks--and mortgage-backed securities (MBS) backed by Fannie Mae, Freddie Mac, and Ginnie Mae."

There's more:

This action is being taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally.

This action is aimed directly at, and intended to narrow, the interest rate "spreads" between Mortgage related securities and treasury securities, which have been leaking wider ever since the Fed stopped short of affirming a "full faith and credit guarantee" for Fannie and Freddie's obligations.

If you read our post last week on why mortgage rates are higher than they should be, you'll have some great context as to why the Fed had to do this.

Prices of mortgage backed securities are sharply higher on this news.  Expect mortgage rates to see .25 in improvement immediately, (putting them in the sub 5.5% range for 30 year fixed paper) with further gains possible as the market sorts out the impact of this action.

11/25/08 at 09:35 AM Permalink | Comments (0) | TrackBack (0)
Filed Under: Breaking News, Fannie Mae, Freddie Mac, GSE's, Interest Rates, The Fed

Monday Market Commentary: Mortgage Rates Hold Steady

Last Week:
Despite a week in which the economic news could not have been more dour - a climate which normally bodes well for lower interest rates - mortgage rates were unable to make any meaningful progress lower.

Beyond the poor economic picture that is taking shape, a decline in mortgage rates was arrested by lingering concerns over the level of Federal backing Fannie and Freddie have - government officials made clear that though they stand behind "Frannie" they do not enjoy a full faith and credit guarantee. 

That means that mortgage backed paper is less attractive than other investments, such as treasury securities and FDIC guaranteed bank deposits that carry such guarantees. Demand suffers as a result, keeping mortgage rates higher than they could be.

There were also some technical factors at play here - mortgage bond pricing is up against a couple of stout resistance points - making any improvement difficult.

This Week:
The economic calendar this week gives markets participants a full helping of data to consume and assimilate.  The data is expected to reflect a weak and recessionary economy.

Tuesday and Wednesday, we'll get a reading on inflation at both the wholesale and street level via the producer and consumer price indices.  Thursday's Philadelphia Fed index will provide a measure manufacturing activity. Weakness in manufacturing and an absence of inflation would be beneficial to the cause (lower rates.) 

Wedensday's report on housing starts and building permits is expected to show a construction industry in full retreat.

The political/financial tides will also be in full flow this week as issues such as an automaker bailout, the growing line for government largesse, and the shape of future efforts at re-ballasting the economy are earnestly debated by politicians, industry leaders, and television's yakker class.

At any rate, a poor economy generally presents the proper conditions for rates to staw low or decline, but be aware that political/finacial events in the short term can cause mortgage rates to oscillate, so a cautious approach is warranted when considering when to lock in.
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11/17/08 at 12:02 PM Permalink | Comments (1) | TrackBack (0)
Filed Under: Interest Rates

Why Mortgage Rates are not as Low as They 'Should' Be

The Wall Street Journal yesterday addressed the fact that mortgage rates have not fallen - as many expected - after Fannie and Freddie were forced into government conservatorship earlier this year. FTA:

...mortgage rates aren't declining as they should, even as interest rates fall.

Now, we all know that mortgage rates are fickle critters.  Especially this year, where we've seen rates change almost by the hour.  All you have to do is scroll through our rate-focused twitter feed to see this in action.

But the idea that rates should be lower is an odd one.  As faithful readers will know, Mortgage rates are market based. They are not "set" by anyone, so they are always, by definition, exactly where they should be.

What the article is getting at is this:  

At the time they were placed into conservatorship, many (this writer included) assumed that something equivalent to a "full faith and credit" guarantee of Fannie and Freddie by the Federal government was part of the bargian.

But once the dust had settled, investors quickly divined that the conservatorship did NOT mean a full faith and credit guarantee, and that investment in Fannie and Freddie debt was not a "risk free" endeavor.

You can see this illustrated in the graphic. The spread between Treasury and Agency paper narrowed, but is still wider than it would be if the government were fully behind Fannie and Freddie.

[Quick Aside: If you find the concept of spreads confusing, it helps to think of this spread as a "risk barometer" for Fannie/Freddie.  Treasury notes represent a "risk free" investment, since they are backed by Uncle Sam, so they form the baseline/x-axis.] 

So what gives?  Simply put, investors want a guarantee, and Treasury has given little more than a handshake-and-a-wink.  Again from the WSJ:

Mr. Paulson says they now "operate on a stable footing." He added that "investors can bank on" the government's pledge to keep Fannie and Freddie from defaulting...Yet Mr. Paulson and the Treasury have proved unwilling to take further steps to address debt investors' concerns [and offer an explicit guarantee.]

Combine the Treasury's reticence with a still-imploding housing market, and it's easy to understand why real estate related debt is being shunned by many investors, and why mortgage rates are higher than they should, or could be.

But here's the other thing. All of this handwringing over interest rate levels is mostly a waste of time. 

Lets be clear.  Even if we establish that 30 year fixed rates should be at 5%, rather than, say, 5.75%, that's only a difference of $93.00 per month on a $200,000 loan.

That sort of savings won't make any but a marginal difference in demand for real estate.

So let's not pin too much hope in the lower-rates-as-the-salvation-of-the-real-estate-market, okay?

11/14/08 at 03:51 PM Permalink | Comments (1) | TrackBack (0)
Filed Under: Fannie Mae, Freddie Mac, Interest Rates

Monday Market Commentary: Mortgage Rates Improve on Economic Woes

Last Week:
Mortgage rates improved by .25% or so last week as negative economic news weighed down stocks and bouyed the bond markets.

The biggest data point of the week was the employment report, which showed the economy shed 240K jobs in October.  With a 6.5% unemployment rate (a 14 year high) and nearly 1.2 Million jobs lost year to date, the unemployment rate will almost certainly cross 7% within the next quarter or so

This Week:
The economic calendar this week is sparse.  Friday's retail sales report will give us the latest reading on the state of the consumer, who appears to be in headlong retreat, so we could see a very weak number here.

Outside the economic calendar, markets will focus on developments in what we'll call the political/financial space. The possible selection/announcement of a Treasury Secretary, the fate of the auto industry and a possible bailout, the state of the ever evolving bailouts/rescues/stimulus plans, and the potential for further yet unknown carnage in the financial sector as writedowns continue apace all over the globe, to name just a few.

As tempting as it is to interject some sort of guidance on rate direction this week, we'll refrain.  Markets remain all too volatile and disclocated.  Not sure whether to float or lock your rate?  Flip a coin.
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11/10/08 at 11:12 AM Permalink | Comments (0) | TrackBack (0)
Filed Under: Interest Rates

Monday Market Commentary: Mortgage Rates Lose Ground, Despite Fed Cut

Last Week:
Mortgage rates moved in the wrong direction last week, and ticked up by .125% -.25% in the aftermath of the Fed rate cut.

Though the mortgage bond market (from which mortgage rates are derived) would normally benefit from a series of negative reports on the economy like we had last week, the coordinated global rate cutting and mild post-Fed rally in stocks kept a lid on any potential improvement in rate.

This Week:
The biggest event on the economic calendar is the October employment report, which prints on Friday at 8.30 AM, and will give further insight into how bad the national employment picture is.

Our economy has shed something like 750,000 jobs in 2008, and Friday's report holds the possibility that the US has crossed over the psychologically important threshold of 1 Million jobs lost.

As we write this, the ISM index, measure of manufacturing sector health, has published at 38.9 (above 50 is expanding, below 50 is contracting) which is a deeply recessionary number and the worst such reading since 1982.

Conventional wisdom tells us that what is bad for the economy is usually good for mortgage rates, though (as we have noted in this space before) that correlation has broken down of late for reasons too numerous and foggy to break down here. 

Suffice to say that as long as the financial markets remain in a state of flux, "normal" behavior in the bond markets will be hard to find, and rates may ping about unpredictably.
This Week's Economic Calendar [Barron's]

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11/03/08 at 10:39 AM Permalink | Comments (0) | TrackBack (0)
Filed Under: Interest Rates

Fed Funds Vs. Mortgage Rates

 
A great graphic from the folks over at Econompic Data that illustrates just how little correlation there is between the Federal Funds Rate and Mortgage Rates.

Sometimes, a little eye candy will make the same point it takes us a few hundred words to get across.

The Fed cut rates by .5% to 1%.  This is the lowest level for the Federal Funds Rate since 2003, and there may be more cuts to come, in case you did not catch the news.

10/29/08 at 03:24 PM Permalink | Comments (0) | TrackBack (0)
Filed Under: Interest Rates, The Fed

Fed Day: In Which We Explain Once Again that the Fed Does not Control Mortgage Rates

At 2:15 ET today the Fed will release a policy statement and rate decision, so this is your obligatory "The Fed does not set mortgage rates" post.  You'll find the policy statement itself at this url, so feel free to join us in hitting refresh every few seconds until the policy statement appears.

Most Fed watchers expect the Fed to slash the Federal Funds rate by .5%, though there is the chance that the Fed goes further and cuts by .75% or 1.0%.

Predicting the impact of a cut on markets or mortgage rates is a dicey business - nobody really knows what direction they'll move, or if they'll move much at all in the wake of a Fed cut - It is a mental coin flip, at least in the short run.

This is true even in normal times, and doubly so today with all of the chaos and volatility in the financial markets.

But whether mortgage rates rise or fall after the Fed's accouncement today, a question worth asking is this: 

What impact will a cut to the Federal Funds rate have on the economy, really? Will it turn around the housing market?  Will it prompt employers to ramp up production, add jobs, etc.?  Will worried consumers start consuming again, en masse?

We think not.  Mortgage rates are already low.  The job market is weakening.  A besieged real estate and stock market is creating a negative wealth effect.  Demand for all forms of debt is cratering.

Against that backdrop, it is hard to conceive a .50% cut to the Federal funds rate will change much of anything - the impact is just too far removed from main street.

Economists call this "pushing on a string": You can influence any point along it, but the influence diminishes the further you get from the point of action.

So if (despite the best efforts of Bernanke and the Fed) the economy does continue to slow, and inflation continues to moderate (a big IF, given all of the debt being issued) we may see mortgage rates decline.

Or, you could just flip a coin.

10/29/08 at 10:51 AM Permalink | Comments (0) | TrackBack (0)
Filed Under: Interest Rates, The Fed

Monday Market Commentary: Mortgage Rates Unchanged Last Week, Fed Meeting awaits

Last Week:
After some improvement early in the week driven be deteriorating economic prospects, mortgage bonds were unable to sustain any sort of meaningful price rally, and gave back their earlier in the week gains by the time trading ceased on Friday. All this despite a selloff in stocks, which normally helps mortgage bonds, and rates.

As a result, mortgage rates finished the week essentially right where they started.

This Week:
The biggest event on the calendar this week is the Federal Open Market Committee meeting, which concludes on Wednesday with a rate decision and policy statement.  The market seems to have priced in a .5% cut to the Federal funds rate, and we may see another round of rate cuts by central banks around the globe to buttress the still-ailing financial system.

This is a good time to remind everyone that the Fed does not control mortgage rates, and that any Fed rate decision and policy statement can push markets in ways we cannot predict - in fact, 8 times out of ten, when the Fed cuts rates, mortgage rates rise.

As for the economic calendar proper, New Homes Sales report this morning - though we are betting against, it will be interesting to see if the increase in existing home sales will carry through to new homes.

Durable goods orders print on Wedensday, Gross Domestic product on Thursday, and Personal Consumption Expenditures on Friday.  All three of these reports bear watching, and could be market movers as all eyes look for further confirmation/evidence of an economy in recession.
This Week's Economic Calendar [Barron's]
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10/27/08 at 08:57 AM Permalink | Comments (0) | TrackBack (0)
Filed Under: Interest Rates

LIBOR Update: Interbank Lending Thaw May Bring Relief to Adjustable Rate Mortgage Holders

Graphic via Econompic Data.

The worldwide shock and awe campaign against seized up interbank lending is having the desired effect, at least as it relates to LIBOR, according to the Wall Street Journal. 

"Money market tensions are easing," said Lena Komileva, head of G7 market economics at Tullett Prebon...three-month U.S. dollar Libor dropped to 3.83375%, the lowest since September 26, from Monday's fixing of 4.05875%. The rate has shed nearly 100 basis points since peaking at 4.81875% on October 10.

As we mentioned last week, this is good news for those with a LIBOR indexed Adjustable Rate Mortgage, especially those facing an adjustment in the next 45 days or so.

LIBOR still has some ground to cover before it's back to "normal." The comparable 1YR Constant Maturity Treasury Index is roughly 1.5% lower than the 1 YR LIBOR. Normal difference is .25%, give or take.

Still this qualifies as meaningful progress.  Things are coming back down to earth, which means your impending adjustment just got smaller.
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If you aren't sure what index your ARM carries, much less how to calculate the adjustment, fear not.  Follow us after the jump (as in, click on the link below, wherein we help you sort out just what you may be up against)

1. Pull out the documents entitled "Mortgage", "Note", and "Adjustable Rate Rider" from the dusty folder you probably have not cracked open since your loan closed.  Read them.  Right now.

2. If after doing that you are still lost, reach out to me and I'll walk you through it.  Assuming you can lay your hands on the documents above, it will take less than 5 minutes, or a couple of emails.

10/21/08 at 01:44 PM Permalink | Comments (0) | TrackBack (0)
Filed Under: Financing Options, Interest Rates