Archive for the ‘the Market’ Category

A round of applause

April 13, 2010

Seems people like to give the government (President, Congress, Federal Reserve, etc.) a hard time when things don’t go as planned. Rarely  does anyone give them the credit they sometimes deserve.

In regards to the Federal Reserve’s plan to lower interest rates and stabilize the mortgage back security bond market (MBS bonds), the Feds deserve a round of applause.

During the initial stages of the current financial crisis (when the markets were in total disarray), the Federal Reserve stepped in to the spotlight. The Feds announced a plan to buy MBS bonds with two goals in mind – to stabilize the value of MBS bonds and push interest rates down below 5%.  The Feds succeeded on both objectives, extended the program twice (for a total of 15 months), and spent over $1 trillion (yes, that is a “T” for trillion) buying MBS bonds.

The new concern became what would happen once the Feds program ended. Posts on this blog theorized that if MBS bond prices soared (and interest rates dropped) on the announcement of the plan in November 2008, wouldn’t the opposite occur once the Feds were finished buying MBS bonds?

Initially that theory proved to be right. In the first couple of days after the Feds stopped buying MBD bonds, those bonds dropped over 100 basis points in value and interest rates rose 0.25-0.375%. However, as the Feds bowed out of the MBS bond market, other investors have picked up the slack. For instance, since the Feds have kept the Federal Funding Rates near 0%, money managers, pension funds, etc. are moving away from playing it safe and keeping cash “on the sidelines” and are now investing in MBS bonds.

In the end, the plan seemed to work like a charm. The Feds were able to push rates below 5% (back below 5% at the time of this posting), stabilize the MBS bond market, and encourage other investors to pick up the slack as they slowly moved away from buying MBS bonds.

Even though the MBS bond market is now performing without a net, the initial “sky is falling” scare is over and interest rates have rebounded to their levels prior to the Feds leaving the MBS bond market. Who knows how this plan could affect the market a year or two down the road, or how rates will respond if they begin moving in the wrong direction (when they do rise, expect it to be sudden and without much warning), but at least for today, credit should be given to the Feds. Thus far, everything is going according to the plan they laid out. Besides, something bad could happen and we’ll think their idiots again tomorrow 🙂

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That was fast – rates on the rise

April 2, 2010

Less than 48 hours after the Feds stopped purchasing mortgage backed security bonds, interest rates have already jumped 0.25% for a 30 year fixed mortgage. For information on the Feds buying MBS bonds or how this affects interest rates, see yesterday’s post OR this one OR this one OR this one… you get the idea.

The trading today has been very limited because of the holiday. That may also be why the Feds chose this date to hop out of the bond buying market. The real reaction will begin on Monday.

Regardless, lenders are pricing interest rates on more of a worst case scenario basis, thus the quick jump in interest rates. If Monday is a flat or good day for bonds, rates may stabilize and possibly move lower. However, most investors are just looking for a reason to doubt bonds and feel it is inevitable that interest rates will continue to rise. Either way, Monday should be interesting.

Waiting to lock?… don’t. As many people have said (including posts on this blog), as low as rates have been, they have nowhere to go but up.

Through the roof

October 26, 2009

Where is the country’s debt level headed? I’ll give you a hint; see the title of the post. 

That’s right, with the $123 billion auction in Treasury bonds due out this week, the debt level of the U.S. is going to be at the brink of the self-imposed ceiling of $12.1 trillion.  This raises some interesting questions with the first one being pretty obvious.

1. What does this mean? – It means that the government will be out of money to operate.  The government will either shut down OR vote to raise the debt ceiling.  The latter is the much more likely scenario.

2. “The government shuts down.” That sounds bad so how will that affect all of us? – Day to day life will go on as it did before the shut down just like it did the last time there was a shutdown in 1995.  It sounds worse than how it will actually play out.

In theory, the debt ceiling should be a resistant level for government spending. Meaning, if it gets to that point, perhaps it is time to reevaluate some policies.  Sadly, that doesn’t happen when you have the alternative of simply raising the ceiling.

3. How would this affect interest rates and the market?  Now this is perhaps the most intriguing question of all, and the potential affect on mortgage rates would be a negative one.

If the government shuts down and/or the debt ceiling isn’t raised, then United States of America finds itself in a situation where we are maxed out on credit – we have no credit – resulting in a loss of value for U.S. bonds.  This scenario would negatively impact other country’s bond investments, individual’s bond investments, and cause interest rates to rise (as bond prices fall, interest rates rise).

That scenario will likely be avoided by a simple vote to increase the debt ceiling.  That said, the debt ceiling isn’t the only development affecting the trading and value of bonds:

  • Bond prices are not only on the wrong side of the 200 day moving average, but are also below the 10, 25, and 50 day moving averages. That means there is no support to hold bond values should the market be given a reason to turn.
  • Fascinatingly enough, a “reason” for turning may occur this week as the Feds plan to auction $123 billion in bonds this week.  If the auction buying is weak, expect bond values to drop pushing interest rates higher.

In short, the technicalities of bond trading point toward bond prices falling and interest rates rising. If there ever was a time to lock in a rate for a purchase, or talk to someone about refinancing an existing loan, now is the time. Don’t miss out on these historically low rates hoping they will improve by another 0.125%.  Get started today

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The end is near

October 19, 2009
5 Minutes to Midnight

5 Minutes to Midnight

I’ll admit that the doomsday clock at about 5 minutes to midnight (meaning the end of the world is upon us) is a little over dramatic – even for me.  The point I’m trying to make is simply this… time is running out on the $8,000 tax credit and low interest rates.

Let me explain…

$8,000 tax credit expires on November 30, 2009– As of this post, there are only 30 business days remaining before the deadline (remember we lose a couple of days because of Thanksgiving). While it may seem like there are 6 weeks to go, there are only 30 working days left. 

There is talk of extending the credit and some people are being creative in trying to define what part of the buying process needs to be completed by the 30th… Bottom line, if you want to be sure to get the tax credit, a first time home buyer’s purchase must be closed on or before November 30th.

Historically low interest rates– Last November, the Federal Reserve announced a plan to purchase up to $1.25 Trillion in mortgage back security bonds.  This would increase their value and push interest rates down (as bond prices go up, interest rates go down – and vice-versa).

Shortly after the announcement, interest rates dropped about a half of a percentage point — on just the announcement of the plan!!!  Once the Feds actually began buying bonds, rates dropped into the 4’s.

Those days are coming to an end as the Feds begin (over the past couple of weeks) to scale back the purchasing of bonds.  They plan to be out of the bond buying business at the start of the new year.

What does this mean for interest rates? Well, the past couple of weeks have seen the market trend in the wrong direction pushing mortgage rates slightly higher.  One can only expect this trend to continue as the Feds move away from buying bonds. 

All hope is not lost. At this moment, it is not too late.  If you haven’t taken advantage of these historically low rates to purchase a home or refinance your existing home (if you current rate is over 6%, we need to talk), rates are still historically low.  Also, there is enough time to still buy a home and qualify for the tax credit if you start today.  Let’s get started by calling or emailing me!

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Finally, bonds have come back…

September 2, 2009

… and passed the 200 day moving average pushing rates below 5%!

August saw bonds slowly and continually climb back toward the 200 day moving average.  This caused rates to drop down to 5%, but rates didn’t improve much beyond that point.  Why? – because we were still on the wrong side of the 200 day.

Finally, after weeks of trying, bond prices pushed through the 200 day moving average and rest above this crucial level.  The result? – mortgage rates are back in the 4’s!

Where do we go from here? We could see some sub 5% rates for the near future due to a couple of factors.  First, the continued release of poor to just plain bad economic reports shows the economy is not completely back on its feet.  Second, the poor economic reports have caused money to flow out of stocks and back into bonds.

Investors are wary and wonder if the stock recovery we’ve seen over the last several months is a real recovery OR simply inflated by all the government money poured into buying bank stocks thus artificially increasing their values.  No one knows for sure, which is why we are seeing a more cautious approach to investing.

One thing we do know for sure is rates in the 4’s won’t hang around forever. If you missed it the first time, let’s get started today so you don’t miss out on this chance to refinance with these historically low interest rates.

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Lending: the final frontier

August 18, 2009

Lending: the final frontier. These are the blog posts of a mortgage broker. My continuing mission: to explain strange new federal regulations, to seek out new loan programs and new lending sources, to boldly go where no mortgage broker has gone before.

It really does seem like science fiction with all the changes that have occurred over the past two to three years.  Think about it: in 2006, if I said that 100% financing would be nonexistent, conventional loans would require at least 10% down (3.5% for FHA), and defaults on subprime loans would lead to a crippling of our financial system that would help usher in the worst recession since the Great Depression… would anyone have believed me?

These changes have been so unexpected and unbelievable, they border on fantasy.  Sadly, it has been all to real for us!

The latest unforseen example: The federal raid and subsequent shutting down of Taylor, Bean & Whitaker shocked the mortgage world, leaving thousands of borrowers in a bind as they were in the process of buying or refinancing a home, but now facing the prospects of starting over. 

These events only reinforce the importance of working for a mortgage broker with multiple lending sources.  My clients never have to worry about being stuck without a source for their loan.  If one lender decides to only offer loans to borrowers with 20% down, or like TB&W, shuts their doors, I’m able to offer additional options to ensure my clients close on their home.

It’s a scary universe out there.  You never know when a Romulan warship will decloak, putting your life in danger (new Federal guidelines) OR when the Borg show up threatening to wipe out human civilization (TB&W’s sudden closing).  It’s best to work with a professional who is up-to-date on guideline changes and has a plan for action if disaster strikes.  I may just have a great referral for you as you look to buy or refinance a home.

Clay Jeffreys is a Mortgage Consultant with Dunwoody Mortgage Services, Inc. and writer for “Blog Pertaining to the Acquisition of a Mortgage to Purchase a Domicile.”  Dunwoody Mortgage Services 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 Dunwoody Mortgage and available programs, please visit www.dunwoodymortgage.net.

The world may never know – a stimulus plan review

August 12, 2009

After a year and a half and three stimulus plan attempts later, where are in this economic downturn? One could argue that all of these plans have failed.  Jobs continued to be lost, the economy still hasn’t recovered.  The government wasted the $1.7 trillion dollars used to fix the economy.

The counter argument would be improving a country’s economy is like a turning a ship – it takes time.

Probably the best way to judge how things have gone thus far is to look at history and compare.  I’ve previously blogged (here and here) about the similar situation that Japan and Sweden faced in the 1990s.

  • Sweden acted swiftly with government bailouts to buy up “toxic assets” and helped the economy get back on course in a few years.
  • Japan initially refused to bailout the financial sector.  After ushering in The Lost Decade, the government issued their own bailout to buy up “toxic assets” to help the economy improve.

Where is the USA in this?  I would say definitely closer to Sweden than Japan.  The government began the bailouts pretty early to stimulate consumer spending, help prop up the major banks, and keep the financial infrastructure from completely collapsing.  With this help, there are signs that the economy is recovering.

  • job losses have slowed
  • housing sales are climbing
  • the GDP barely contracted in the 2nd quarter and some economists see the recession ending in the 3rd quater this year
  • consumer confidence is higher
  • stocks improved from their early March lows of 6500 (lowest levels since mid 1990s) to almost 9500 in August
  • the series of positive economic news pushed interest rates off of their historical lows into the low 5’s, which is actually a good sign for the health of an economy (not so good when buying a home)

An intriguing difference between our current situation versus that of Japan/Sweden is our bailout money was not used to buy toxic assets (at least not yet).  Instead, the money was used to buy stocks and prop up banks, which caused the stock recovery. Is this yet another bubble? Hopefully that is not the case!

Only time will tell if the bailouts were the right thing to do.  Without them, we could have seen the complete collapse of our financial system; possibly another Great Depression.  With them, the economic outlook certainly seems much brighter with stocks recovering, home sales climbing, and slightly higher interest rates… but we’ll never really know for sure if they (or how much they) were needed.

Clay Jeffreys is a Mortgage Consultant with Dunwoody Mortgage Services, Inc. and writer for “Blog Pertaining to the Acquisition of a Mortgage to Purchase a Domicile.”  Dunwoody Mortgage Services 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 Dunwoody Mortgage and available programs, please visit www.dunwoodymortgage.net.

d’oh

August 5, 2009

In the famous words of Homer Simpson… “d’oh!

Why the reaction?  Well, interest rates are moving in the wrong direction. 

  • Lots of optimism on Wall Street and the Dow is now over 9,000.
  • Pending home sales now up for 5 straight months.
  • Ford posts big gains in the last month (primarily due to the “cash for clunkers” program).
  • Job losses at their smallest amount in 9 months, which only fuels the optimism on Wall Street.

This series of good economic news is a great sign that we may be at the bottom of the down turn.  The bad news is while stocks are surging, bonds are suffering and have dropped below the 200 day moving average – d’oh!

Twice this morning, bonds have tried to move back above the 200 day average, and have been beaten back twice.  As we all know, this is not good for interest rates and only pushes them higher.

Speaking of rates, they had moved below 5% on Friday, but are now sitting around 5.25%.  While this is still a fantastic interest rate, the trend direction in rates has taken a turn for the worse. Until the bond market can move back above the 200 day moving average, rates will not improve dramatically from their current levels.

If you are out looking for a home and are wondering whether or not to lock in your rate, not to worry, I can take the guesswork out of the decision.  Contact me and I’ll give you details on how we can lock your rate AND float it down for FREE if rates were to improve. 

It’s a win-win situation and puts you in a better position than this guy.

Clay Jeffreys is a Mortgage Consultant with Dunwoody Mortgage Services, Inc. and writer for “Blog Pertaining to the Acquisition of a Mortgage to Purchase a Domicile.”  Dunwoody Mortgage Services 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 Dunwoody Mortgage and available programs, please visit www.dunwoodymortgage.net.

Rates still near historic lows

July 23, 2009

Rates are in fact still near historic lows.  For those of you still waiting to refinance, what are you waiting for?!?

Perhaps a better question would be… which would make you more upset? 

  • We DID lock-in your interest rate, and mortgage rates went down.
  • We DIDN’T lock-in your interest rate, and mortgage rates went up.

The answer to that question should help you decide whether or not to go ahead and refinance.  There will be a few who miss out on these rates. Don’t be one of them!

Oh, also, be sure you have the help of a mortgage professional who keeps a close watch on the Mortgage Backed Security (mbs) market, undersatnd the trend lines of resistance and support in the mbs market, is aware of upcoming econmic reports, US Treasurey policy, Federal Reserve policy, and how all of this affects mortgage rates.

Don’t know of anyone like that? Don’t hesitate to contact me.  We can review your current situation and see if there is a rate and time that makes sense for you to refinance.

Get started now while rates are still at these historic lows!

Clay Jeffreys is a Mortgage Consultant with Dunwoody Mortgage Services, Inc. and writer for “Blog Pertaining to the Acquisition of a Mortgage to Purchase a Domicile.”  Dunwoody Mortgage Services 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 Dunwoody Mortgage and available programs, please visit www.dunwoodymortgage.net.

A new hope for historically low rates

June 25, 2009

Here at A Blog Pertaining to the Acquisition of a Mortgage to Purchase a Domicile, the market is constantly watched to see not only the current trend in rates, but also where rates are headed over the next several days.

If you’ve read the news lately, you know that interest rates are not what they used to be.  Rates climbed to as high as 6%, but have slowly and surely worked their way down over the past couple of weeks.  Then the big news of the day… the 200 day moving average has been broken and rates are moving lower.  Why is this good news?

– Frequent readers know that I love mortgage backed security (MBS) bonds.  Why?  Their values determine interest rates.  As MBS Bond prices rise, interest rates fall (and vice-versa).

– Frequent readers also know that I am somewhat obsessed with the 200 day moving average because it acts as a strong level of resistance OR a strong level of support – depending on which side MBS bond prices sit.

– If bond prices are below the 200 day moving average, it becomes difficult for interest rates to continue to improve.  If bond prices rest above the 200 day moving average, it becomes difficult for interest rates to worsen.

Before today’s market movements, bond prices were below the 200 day moving average and that line acted as a resistance to rates continuing to improve. Rates were resting around 5.25-5.375% and not moving lower.

Now that bond prices have passed the 200 day moving average, 5.25% becomes the new “high” end of rates.  In fact as I finish up this post, lenders are releasing improved rate sheets.  For those of you waiting for anything at or below 5%, a new hope emerged.

a new hope

insert obligatory "star wars" reference here

What does this mean for you?

– If you are looking to refinance, give me a call now so you are in a position to take advantage of low rates when they arrive.

– If you are buying a home, let’s talk about a “lock and shop” feature where you can lock your interest rate while you look for a home.  Even better, once you find a home, you would also be eligible for a one time FREE float down on the rate if the market has improved.

As I’ve said many times, planning ahead is crucial.  Let’s touch base now and be ready to act while interest rates are near historical lows.

Clay Jeffreys is a Mortgage Consultant with Dunwoody Mortgage Services, Inc. and writer for “Blog Pertaining to the Acquisition of a Mortgage to Purchase a Domicile.”  Dunwoody Mortgage Services 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 Dunwoody Mortgage and available programs, please visit www.dunwoodymortgage.net.