Archive for November, 2008

say what?!?

November 13, 2008

Imagine yourself at a used car dealership.  Some guy in a bad suit with slick hair is trying to sell you “the perfect” car.  You are 16 years old, so you don’t have a ton of money to buy a car.  This sales guy shows you a car, talks about the features and its dependability.  To top it off, the car is a convertible!!  

Your thinking to yourself, “this is great. A car I can afford, dependable, AND it is a convertible.  I’ll take it!” 

You sign the papers and the dealer brings the car around. It is the make, model, and color as promised, but it’s not a convertible. You fight, argue, but to no avail.  The papers are signed and that is that.

This must be how the market feels today.  Why?  On Wednesday, Treasury Secretary Henry Paulson said the government will no longer use the $700 billion bailout fund to buy illiquid assets from banks. 

Say what?!?  

Wasn’t that one of the main selling points of the bailout plan?  Wasn’t that to be the way we get the banks loaning to one another and businesses again?  

It seems at this point that the government has a relatively blank check to now use as it seems fit. There are rumors of using the bailout money to invest directly into banks, bailout the Big 3 in Detroit, and/or help other credit institutions become banks (see American Express).  

Those may all be great and valid ideas, but it is a bit confusing… They should have known it would take a long time to implement the bill, meaning, they probably knew before todays announcement that it would not work. So, if the $700 billion was not intended to buy illiquid assets, why the urgency to pass the bailout plan?  Was it just to get some “sweetners” (other wise knows as kickbacks) passed for all the “good old boys” in D.C.?

In the meantime, the uncertainty from the Treasury continues to hurt equities. Investors are bailing out of stocks and putting their money into bonds.  That is great for interest rates, which are now getting close to the mid 5’s for a 30 year fixed. However, at some point, don’t we need to start rooting for some good news for our economy? Today’s announcement failed to deliver some much needed good news and uncertainty will continue its reign on the markets. 

Clay Jeffreys is a Mortgage Consultant with Hillside Lending, LLC and writer for “Blog Pertaining to the Acquisition of a Mortgage to Purchase a Domicile.” Hillside Lending seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing. For more information about available programs and interest rates, please visit www.hillsidelending.com.

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Finally, some good news

November 6, 2008

Finally, mortgage rates are catching a break.  Recently, several factors weighed heavily on rates and you can read about those here.  Even so, there are now many favorable signs for mortgage rates.  Let’s run through a couple of those.

– Stocks are cooling off:  After setting records days last week, some of those gains are disappearing and investors are moving back into mortgage backed security bonds (MBS bonds).  Why the cool on stocks?  Third quarter GDP numbers showed that the economy regressed.  Some analysts argue that without the economic stimulus package in the second quarter, we may have seen GDP regression for consecutive quarters. Regardless of what the numbers show, most people feel we are already in a recession (see any article at CNN, MSNBC, FOX, etc.) and that is actually good news for MBS bonds and interest rates.

– Economic data:  All the recent economic reports have been terrible news for the economy, which (again) is great news for MBS bonds.  Bond prices increased over the past few days and interest rates are down below 6% again.

– Jobs report: While this is technically part of the “economic data” category, the Larbor Department’s Jobs Report is due out tomorrow.  It is expected to be really bad.  This would only continue the trend of poor economic data that is boosting bond prices and lowering interest rates.

– Bank of England and Eurpoean Central Bank:  These are Europe’s Federal Reserve entities, and they are finally cutting their equivialent of our Federal Funding Rate.  In fact, the rate of the Bank of England hasn’t been this low (3%) since 1955.  How does this help mortgage rates?  As Europe lowers their key rates, this hurts the value of the Sterling Pound and Euro.  As the value of European currencies declines, the value of the Dollar climbs.  A stronger Dollar reduces inflation and lowers oil prices – both are GREAT for MBS bonds.  This further enhances bond prices and helps push interest rates down.

– 200 day moving average: Previous posts on this blog discuss the importance of the 200 day movnig average.  Today, bond prices find themselves sitting above the 200 day moving average and that line is acting as a floor of support.  As long as bond prices stay north of the 200 day moving average, rates should stay below 6%.

Cheer up Eyeore, I'm sure things will get bad again soon!

Don't get too excited Eeyore, I'm sure things will be bad again soon enough!

 

So, some good news for rates.  It’s about time.  Sadly, good news for rates means bad news for the economy, but good news is good news right?  Well, if you don’t agree, don’t worry, in this market you probably won’t have to wait long for things to completely change!

That said, anyone looking to refinance should consider moving while rates are below 6% because there is no guarantee they will stay here forever.  For instance, rates for a 30 year fixed mortgage got as low as 5.25% one time this year – for only 3 hours in January.  By the end of that day, rates had climbed to 5.875%.

To ensure you never miss out on a rate drop again, sign up for myRateTrack.com.  MyRateTrack.com is an automated refinance monitoring service.  Answer a few questions about your current mortgage, put in a target refinance rate, and let it go.  When rates drop, you will receive an email from the myRateTrack notifier and you will never miss out again.  Email me to find out more infromation about myRateTrack.com and how you can sign up for FREE.

Clay Jeffreys is a Mortgage Consultant with Hillside Lending, LLC and writer for “Blog Pertaining to the Acquisition of a Mortgage to Purchase a Domicile.” Hillside Lending seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing. For more information about available programs and interest rates, please visit www.hillsidelending.com.