Over the past recent weeks, I have received some calls and emails from client's and Realtor's regarding the relationship between hybrid ARM and fixed rate mortgages here in the Raleigh market. The specific question is why is the relationship between the two seems to be changing so dramatically. The answer is very simple. In the past several weeks, some very large real estate investment trusts (REITs) - (I prefer not to name them but they were big) they received margin calls from their creditors and to meet those margin calls, assets must be $old. What sort of assets do these REITs hold that they must sell? Hybrid ARMs. Tens of BILLIONS of dollars worth of hybrid ARM either have come to market in the past week or are about to and this supply wave is crashing down on a market, hence one reason for the gap.
This is an unusual time and unusual things happen during unusual times...Folks, yes, hybrids ARMs are slightly higher as compared to 30 year fixed. So? This does not change the fact that now is a great time to re-fi, move-up or buy your first home. The 30 year fixed, historically-speaking, is at a great rate. There are some great deals in Raleigh and the 30 year is below 6%. Use these unusual times...it is a great time to buy!
LAST WEEK - Fed Chairman Ben Bernanke and his Federal Open Market Committee cut to the Fed Funds Rate 0.50%. Here's what the Fed had to say as they announced the cut: "Economic growth was moderate during the first half of the year, but the tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally. Today's action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time." It is pretty clear that they will take whatever steps are necessary in terms of rate cuts to try and prevent a possible recession, as long as the beast (a.k.a. inflation) remains in check.
At first, both Stocks and Bonds rallied on the warm words from the Fed - but as Bond Traders analyzed the potential future impact of the Fed cut over the following days, they started selling off Bonds with both hands, causing fixed home loan rates in Raleigh ans Cary to rise by .125 to .25%, actually higher than where they stood before the Fed Rate Cut. So what happened?
The reduction of the Fed Funds Rate may encourage increased spending by consumers and businesses, borrowing costs will now be cheaper for Home Equity Lines of Credit, consumer loans like car loans and credit cards, and even business loans as well. Now if there is increased spending this will translate into inflation in the long run - inflation is the enemy for Bonds. Bonds deliver a fixed rate of return, and the value of that return is eroded by inflation. So Bond Traders sold, the price of Bonds moved lower, and home loan rates moved higher as a result. This is counterintuitive to many...but its reality!
THIS WEEK - Fastener your seat belt...we have an action packed economic calendar this week. (Consumer Confidence and Sentiment, New and Existing Home Sales, GDP, Manufacturing) Simply name the report and this week will have it. On Friday we will have the Big Dog" of reports that will lmake all other look small: the highly anticipated Personal Consumption Expenditure (PCE) Index. Why is it so important? This is what the Fed watches most carefully to gauge consumer inflation.
We all know that the Fed feels inflation is presently under control, if not they would have never cut to the Fed Funds Rate. So will this important report show a tame read on inflation, and confirm the Fed's move to cut? Fed Chairman Bernanke and his fellow inflation-fighters at the Fed certainly hope so. Inflation-hating Bonds would also appreciate news of soft inflation, and home loan rates her in the Triangle could improve as well. But what if the report shows stronger than expected consumer inflation? If it does, inflation-hating Bonds will react negatively, and home loan rates Raleigh and Cary will move higher in response.
Last week - I was reminded of that Bob Seger song..."BREAKDOWN, TAKEDOWN...YOU'RE BUSTED!" That song describes the market last week, as the Stock market suffered a breakdown, analysts got a takedown, and many investors felt (including me) they were busted as Stocks sold off hard on Friday. What happened? Simply the result of a super lousy Jobs Report number on Friday morning. US job growth in August was actually negative for the first time in four years, with a loss of 4,000 jobs. And the shocker was that analysts had expected somewhere close to 110,000 new jobs to be created!
But while Stocks suffered on the news, Bonds benefited, meaning that Cary, NChome loan rates on conforming loans improved in by .125% to .25%. Additionally, the gloomy Report also means the Fed is almost guaranteed to make a cut to the Fed Funds Rate at their upcoming meeting on September 18th to help stimulate a sagging economy. And in fact, their cut now may be a .50% cut, rather than the .25% that has been speculated.
This action would help stimulate business at large, with less expensive costs to borrow - and also help consumers as well. The Fed Funds Rate impacts many other borrowing rates, such as Home Equity Lines, credit cards, car loans and the like.
This week - I wonder if all the back to school buying that happened last month will help boost this week's read on August Retail Sales? It's the biggest economic report coming this week, due to be delivered on Friday morning. It will be interesting to see if the turmoil in the financial markets during August had an impact on consumer spending. A strong Retail Sales Report would be good news for Stocks, but could pull money away from Bonds, causing home loan rates to worsen. A weak report would have the opposite effect, dragging Stocks lower, but helping Bonds and home loan rates improve.
But before we even see the biggest report next week, Retail Sales Report, Bonds will be fighting a very tough technical battle. Previous ceilings of overhead resistance can prevent the Bond from moving higher and helping home loan rates improve - and there is a tough ceiling lying in wait right now for Bonds.
In the absence of any scheduled economic releases until Friday's Retail Sales Report, Bonds may find it tough to power through the ceiling and bring improvement to home loan rates...unless Stocks continue to falter. If the Stock market continues the plunge it saw last Friday, money being pulled away from Stocks could flow over into Bonds, which would help home loan rates improve.
Last week - Bernanke and the Fed have helped to stabilize the financial markets, and calmed some of the "credit crunch blues". Just over a week ago, the Fed made a decision to lower the rate at their "Discount Window", allowing banking institutions another method of providing assurance of liquidity to their clients, and also helping many institutions continue to fund home loans. Because of the Fed's action, the past week was somewhat calm in the financial world...at least calmer than has been seen in awhile. Both the Stock market and the Bond markets moved higher, and conforming home loan rates remained stable to VERY slightly improved.
Now some good news arrived on the housing front via the New Home Sales report, showing a 2.8% increase in sales for July, and an upward revision to June's numbers as well. Now unsold new home inventory continued to decline for the fourth consecutive month, falling by 1.0% to 533,000 homes. This inventory represents a 7.5 month supply, down from the 7.7 month supply in June. The median new home sales price went up to over $239K.
This week - it appears that Bonds will have double challenge of "fundamentals" and "technical's" to overcome if home loan rates are to see much improvement in the coming week.
"Fundamentals" are the news items and reports which can influence Bonds and home loan rates. In general, hot or positive economic news tends to help Stock prices get better, but causes Bonds and home loan rates to worsen - and vice versa. This week, there will be a slew of potentially high impact reports in store, ending with a very important read on inflation by way of the Core Personal Consumption Expenditure Price Index (PCE).
Don't forget we also have the "technical" factors to contend with too. One part of technical analysis means looking at where Bonds are trading now, versus where they have in the past, and thinking about what patterns are likely to repeat themselves. Remember that when Bond prices move higher, home loan rates move lower.
Today we are at the 200-day Moving average. Historically speaking, the 200-day moving average has proven to be a very tough ceiling to break, when Bonds are beneath it and attempting to move higher. In my opinion, it has also been a strong floor of support, when Bonds are trading above this level, helping to prevent home loan rates from worsening. Today Bonds are below this level, a break out higher would mean that home loan rates would improve - but it has been a tough level to beat in the past, and this ceiling may slow down or cap any improvements or advances that come via economic news.
Please excuse the personal nature of this blog but with the recent wealth of "offline" thoughts, I wanted to share my current position. The last weeks reminds me of the song, "What A Long Strange Trip It Has Been". Two weeks ago Monday night I went to bed as a HomeBanc Associate. This week I will be going to sleep as a Countrywide Associate. It is official and I am pleased to announce I am now a Countrywide Associate.
I know there has been much speculation over the past weeks that has been circulated by the media, competitors and others. Some of it is true, some of it is exaggerated, all of it is interesting. Let this e-mail crystallize that I am not only alive and well, but excited about the opportunity to combine my mortgage expertise and professionalism with the Countrywide brand and platform to serve your present and future clients.
Trust me when I tell you...I am OPEN FOR BUSINESS...not out of business.
I have built a great business relationship over the past with my Realtor partners and look forward to continuing it. In additon, I hope that you have found my blogs informative about the economic landscape.
On a personal note, I would like to thank you all for your inquiries and concerns over the past week. It was touching to have so many of you contact me to simply say " I heard the recent news and I am here for you". The kind words were reassuring encouragement during the change from the past (HomeBanc) to the future (Countrywide).
Being recognized as the #44th Top Orginator in the country by Mortgage Orignator Magazine, I had several offers to weigh. I wanted to share with all my blog friends, why I selected Countrywide to be my new home. As you all know, the current market is is extremely volatile.
Countrywide is operating a massive business - they are the number one mortgage lending company in the nation. Let me share they dominate the business and can weather the current enviorment: Countrywide Financial Corporation remains the nation's largest mortgage lender with close to $14 billion of net worth, significant excess capital and strong investment grade credit ratings. I cannot control what people say, I can, however, focus on the facts that supported my decisionto join thier team.
FACT: Countrywide has an "A" rating and stable outlook has been reaffirmed by two of the most important credit ratings agencies, Moody's and S&P.
FACT: Countrywide has delivered over $900 million in net earnings in the first half of 2007.
FACT: Countrywide is ranked #91 on the Fortune 500 rankings, and 70th most profitable company in the United States in the same rankings.
FACT: Countrywide remains very profitable and in fact has been profitable for over 100 consecutive quarters.
FACT: Countrywide has acquired valuable assets from other companies this year, while numerous other lenders have shut their doors entirely.
Please know that I am confident that myself and Countrywide will allow us all to help individuals and families achieve and preserve the dream of home ownership.
Thank you again for all your your support, it was and still is truly appreciated!
Anyone watching or reading the financial news this weekend, over the last few days and weeks has seen a lot of anguish and dismay over the state of the mortgage industry. In fact, one of the larger lenders in the US, American Home Mortgage, was forced to shut down operations last week. But why? What is happening, and most importantly, what does all this mean to you if you are in the industry or thinking of buying or refinancing a home in the Raleigh, Cary of the Triangle? Let me try to share my opinion so that you understand the truth behind the headlines.
Over the past several years, many loans were made to homeowners with somewhat non-traditional or "non-conforming" situations, be it a poor credit history, inability to document income, or any number of factors that do not fit within the traditional "box" for home loans. These loans are often called "Sub-Prime", or "Alt-A", meaning that they were somewhat riskier in nature than A credit, prime, or traditional loans. Another type of "non-conforming" home loan is one where the credit and income might be perfectly fine, but the loan amount is higher than $417,000 (which is the current maximum loan that can be done using pools of money from mortgage giants Fannie Mae and Freddie Mac). If the loan amount is higher, it can certainly be done - it's called a "jumbo loan" - but the end money does not come from Fannie Mae or Freddie Mac...it comes from private institutions that are not government sponsored like Fannie Mae and Freddie Mac.
In Raleigh non-conforming loan product rates popped significantly higher in the last week. Here's the scoop.
The end investor for "Sub-Prime" or "Alt-A" loans will charge a premium for taking on a pool of these loans, because they know that traditionally, they might have a higher rate of default and delinquent payments within that risky pool. But lately, default and foreclosure has been on the rise - partly due to the fact that with credit tightening and a shifting national real estate market (FYI - Forbes recently cited Raleigh as the best place to sell a house), many troubled homeowners nationally are unable to refinance or sell in order to get out of trouble. So now, these end institutions are demanding a much higher "risk premium" for taking on these pools of loans, as they see the rates of default are climbing higher.
But since these institutions are purchasing these pools of loans sometimes months after the borrower has actually closed at a given rate, this increase to the risk premium means that instead of paying $101K for a $100K loan that will bear interest, they may only be willing to pay $95K for that $100K mortgage to account for the risk. Now multiply that times thousands upon thousands of loans...and you have millions upon millions of dollars in loss for the company trying to sell the pool at a much lower price than they were expecting. This is called a "liquidity crisis", and is exactly what happened to American Home Mortgage - there was no mismanagement, but they simply got caught holding too many "hot potato" loans, forced to sell them at massive losses...and eventually they had to make the decision to close the doors and stop the bleeding.
Further, even when a lender is able to take some losses, they may be subject to a "margin call". This means that as their losses and risk premiums increase, the value of their loan portfolio decreases. As the value decreases, the credit lines that are secured by those portfolios begin to issue margin calls as the value of the asset that they are secured on is now diminished. This is exactly like margin calls in the Stock market. If you have a loan against a Stock that is losing value, you will get a "margin call" and need to pay down the loan, as the underlying Stock is losing too much value to be considered adequate collateral any longer. So for the big lenders, as their portfolio is losing value due to increased risk premiums and losses...the margin calls start coming in, and they are required to pay down their balances. In turn, this means that they have less availability to fund their new loans, which then exacerbates the problem.
In response to seeing this situation play out in the demise of American Home Mortgage, lenders of other non-conforming loan products increased their interest rates dramatically almost overnight to be better prepared - and likely over-prepared - for increased risk premiums down the road. Even though loans above $417,000 are not presently suffering from increased delinquencies like the "Sub-Prime" and "Alt-A" loans are, these rates popped higher as well, because they are being purchased by smaller private entities that can't afford to take on any margin of risk.
What happens next, and what should you do now?
The present situation will likely settle out over the coming year, and the rates on products that have moved so significantly higher now should trend lower down the road as delinquency rates stabilize. But here are a few important things to do right now.
First, even if you are not presently in the market for a home loan of any type, call me or visit my site at www.FreeRaleighMortgageInfo.com to make sure that your credit standing is as solid as possible. Many people I talk to about home loans didn't expect they would have a need, and didn't plan in advance to ensure their credit would qualify them for the best possible financing. With no immediate need for a home loan, time will be on your side...why don't we take a few minutes together and just make sure you are prepared, should a need arise down the road?
Next, if you are in the market for a home loan, or know someone who is - know that now is time to be working with a real qualified professional who can keep you informed of changes in the market and get your loan funded quickly. Now is NOT the time to be playing the risky game of trying to scour the entire nation to find someone who promises to save you a measly amount on costs, or deliver a rate that seems too good to be true. Your home and your financing are just too important, and times have changed. I am here to help and advise during these volatile times - and would welcome calls from you, your friends, family, neighbors or coworkers.
GOOD, BAD OR UGLY? I truly believe all off the above, if we're looking at last week and home loan rates in Raleigh, Cary and the entire Triangle. Good news came in the form of the very friendly inflation and employment news, which helped rates on conforming home loans improve by about .125% over the course of the week. "Conforming" home loans are those under $417,000, and subject to very standard credit, income and asset qualifying, nothing exotic or designer, outside the box or fancy - and there's a reason those are being singled out here as having improved.
A little bad news came by way of the Bureau of Economic Analysis, revising previous personal savings rate estimates higher, but showing that Americans still save less than 1% of their income. If you're not sure that you are preparing effectively for your future plans, like retirement or sending your kids to college, please get in touch with me, and let's review your situation to see if I have an idea or referral that might help.
The ugly last week - well, it was REALLY ugly. The media screamed all week about issues in the mortgage industry, particularly impacting what are called "non-conforming" home loans; those that are dollar amounts higher than $417,000, or with credit, income or assets not falling under traditional guidelines. Many of those rates got excessively ugly, in many cases, overnight. Why? It's an interesting story, and not one that even the media seems to understand very well. I will share my opinion in a future post.
This week
Whew!!!!...after a busy week of expected and unexpected news last week, the economic report calendar becomes very tame this coming week, only populated with a handful of low-level reports. In fact, the week's only MAJOR event takes place on Tuesday with the release of the Fed's latest interest rate decision and monetary Policy Statement. The Fed is expected once more to keep their Fed Funds interest rate "on hold" at 5.25%.
I am most interested in the tone and wording of the Fed's Policy Statement. Are they feeling more comfortable about inflation, given the inflation friendly news of last week? If this sentiment leaks into the verbiage of the Policy Statement, Bonds may get a ride higher upon the release, and home loan rates would improve. However, if Fed Chair Ben Bernanke and his fellow inflation fighters at the Fed still sound concerned about inflation, Bonds and home loan rates could worsen.
Although the heat is on weather-wise in the Triangle, our recently overheated Stock market suddenly took an icy plunge lower this past week. Just as quickly as the Dow had cracked the record level of 14,000, Stocks reversed course and lost 586 points for the week overall. The big cool down was triggered by a few different factors, including several weak Stock earnings reports and continuing concerns about the backlash from the subprime mortgage situation and tightening mortgage credit. And when the mood in the Stock market went sour, it happened fast - Traders and investors unloaded Stocks hand over fist.
But when they sell off Stocks, that money has to get parked somewhere, right? The glad beneficiary of the selling was the Bond market. As money flowed out of Stocks and into Bonds, the Bond market overall enjoyed a move higher with the influx of money, helping home loan rates stabilize and even improve very slightly in Raleigh and Cary, NC.
This Week...
It is my opinion the heat is on - and will stay on for the week ahead! The volatile Stock earnings season continues, and as if that weren't enough, the economic calendar also holds several big potential market movers.
Lots of economic reports are due for delivery this week, including Tuesday's look at the Fed's favorite measure of inflation, the Personal Consumption Expenditure index, and wrapping up with a bang on Friday with the monthly Jobs Report. If the week's inflation numbers meet or are lower than expectations while the data for the economy is worse than expected, Bond prices should continue their recent upward trend and home loan rates will improve. However, if the reports reek of inflation or an overheated economy, Bond prices could quickly lose their recent gains, and home loan rates will worsen.
Last week: Stocks surged to cross the 14,000 mark on the Dow for the first time ever. The party was short, just as the excitement started so did a disappointing earnings report from Wall Street and my own darling Google. Suddenly, the Stock that could do no wrong was showing chinks in the armor, and led to fears that other Stocks might follow suit, which caused an across the board sell-off. But every cloud has a silver lining - the money coming out of Stocks was parked over into Bonds. This is fantastic for the interest rate market. Hence, this helped home loan rates improve from levels hit earlier in the week, and end up about .125% better for the week overall.
If Dow 14K was not enough excitement, Fed Chairman Ben Bernanke took center stage last week, speaking to Congress about inflation, housing, and the economic outlook. He stated that although the recent inflation numbers have been moderating, the Fed remains very concerned about inflation. He underscored that they are staying very alert to economic changes and indicators, but based on their continuing concerns over inflation, it is my opinion that there will not be a cut to the Fed Funds Rate in the near future.
This week: So what's coming around the bend for Bonds and home loan rates this week? The economic calendar will be slimmer than last week's, but will include a look at the housing market with Existing and New Home Sales being reported on Wednesday and Thursday. Stocks may also continue to drive the action in Bonds, as investors will again be closely watching Stock earnings reports this week, and making decisions on where their dollars are best invested - in Stocks or in Bonds.
In closing, I want to take a moment to introduce my new website located at www.FreeRaleighMortgageInfo.com. It is my goal to make this site a great resource for people interesting in buying, selling or refinancing property in the Triangle.
Last week, you couldn't watch the financial news for longer than a few minutes without hearing about the "subprime meltdown", talking about a certain type of home loan experiencing heavy rates of default and foreclosure, and what the potential consequences might be on the US economy. Please know that subprime lending only represents a very small portion of home loans overall...I truly believe the media loves to share "doom-and-gloom".
Perhaps the "subprime meltdown" while it has been overblown, there certainly will be some ramifications. Overall, the news and hype did worry investors, and both Stocks and Bonds experienced an increase in volatility...but home loan rates in Raleigh ended up very close to where they started for the week.
In other news, Retail Sales came in a bit weaker than anticipated last week - but with a freezing cold February across most of the US, it wasn't exactly the best month to go hit the malls. The Producer Price Index (which measures wholesale inflation) and the Consumer Price Index (which measures retail inflation) both came in a bit hotter than had been expected, indicating that inflation has been stubbornly persistent in the economy. What must the Fed think of all this - and what will they do at their upcoming meeting?
This week
Friends, the week ahead holds a few real headliner news items, including a new round of housing data to sift through, including Housing Starts and Building Permits on Tuesday, and Existing Home Sales next Friday. But, the financial highlight of the week will be the Fed Meeting and resulting Policy Statement.
There has been rumors of a Fed Funds Rate cut to help the housing market or to smooth out the subprime home loan problem...I truly do not believe this will happen. The Fed's main charge is to control inflation, period. And they will only consider cutting rates if the core rate of inflation, as measured by the Personal Consumption Expenditure (PCE) Index, falls below 2% for a few consecutive months. The latest Core PCE was 2.3%, so don't look for Home Equity Lines of Credit or other adjustable home loan rates that are tied to the Fed's movements to be dropping anytime soon.
Disclaimer: ActiveRain Corp. does not necessarily endorse the real estate agents, loan officers and brokers listed on this site. These real estate profiles, blogs and blog entries are provided here as a courtesy to our visitors to help them make an informed decision when buying or selling a house. ActiveRain Corp. takes no responsibility for the content in these profiles, that are written by the members of this community.
;)
;)
