Welcome to Illinois Mortgage Rates and News week in review for the week ending June 5th, 2009, my take on the week's financial news and how it affected Illinois mortgage rates.

Schools out, summer is here, and mortgage rates are jumping. Mortgage rates are now at the highest point since last November, before the Fed stepped in and started buying mortgage backed securities in an attempt to lower mortgage rates and get the economy moving. Over the last 2 weeks there has been a mind shift in the financial markets. The biggest worry before was of the economy grinding to a complete halt. The markets bigger concern now is that the economy is growing too fast, and that the government is spending too much. The situation is similar to one of those optical illusions which look one way until you shift your perception, and then a different image forms and you can't see it any other way. Like the Witch which becomes a beautiful lady, once your mind has made that shift, it's hard to see the other picture the way you did before.

Several things have happened this week which give weight to this new view of the economy. Consumer confidence has improved, the ISM index, a measure of purchasing strength, came in higher than expected though still low. But the big shift this week was in employment. The unemployment report is the biggest report released each month. When more people are employed that means they have money to spend which keeps the economy active. More unemployment means not only less money to spend, but more fear from those who are still employed wondering if they are next. Since the last quarter of last year, when the financial crisis started, employment has been cliff diving. Each month this year has shown an extra five or six hundred thousand people newly unemployed. This month was projected as slightly better but more of the same and expectations were that the number would be around 525,000 jobs lost. When the number was released at 345,000, much better than expected, the fixed income markets sold off and mortgage rates jumped again.

But the employment report is a kind of an illusion itself. The 345,000 jobs lost was much better than expected, but in an economy which needs an additional 150,000 jobs created just to keep up with population growth, this is still a miserable number. And even though this number was better than expected, the unemployment rate rose by a half percent to 9.4%, the highest it has been since 1983. Even this number is understating the real situation and including discouraged workers and the underemployed the real rate is at 16.4%. Part of this is a result of the 2 surveys using different methods for figuring their data, and it is likely that the numbers will be revised for the worse next month. Still, the question is, how can such a bleak employment situation be grounds for optimism on the economy and fears that we are growing too fast? Is the economy really moving ahead, or are we just past the panic part, and now experiencing a severe recession, but not the worst that was expected before? At the beginning of the crisis, it was described as being like we were a ball which rolled off a table, and we were in a free fall. That feeling is gone now. The news is still bad, but there isn't that what happens next panic we had before, wondering if we would ever stop falling. The ball has hit the floor now and this is a bounce. The bond market is saying that we are going to bounce back too high and too fast.

It looks like we are over the worst and this is obviously good news. But I'm skeptical that we are in any danger of overheating any time soon. Unemployment is still going to be a big problem for a while. GM and Chrysler have just announced a whole range of cutbacks in their factories, dealerships and management. We are just getting a whole new crop of college grads coming into the work place now and prospects for them are slim. Anecdotally, this doesn't feel like fast recovery. I've talked to 2 friends this week who own small businesses. One has, for the first time in the 15 years he's been in business, laid people off this week. Another is holding off on lay offs, but they haven't paid themselves a thing over the last 2 months to keep everyone employed. I went out to dinner last week at a popular restaurant, and there were empty seats at 7:30 on a Saturday night. When we left, the place was nearly empty. These are just anecdotes, not data, but this makes me think we have a ways to go before we start worrying about inflation.

Fed Chairman Ben Bernanke is in a tough situation now. Fed buying has been the engine that has kept mortgage rates low for most of this year. With the bond market in revolt, and treasury rates spiking, the Fed buying isn't enough to make a difference. Two of the Fed presidents in speeches this week hinted that we may need to hike interest rates some time to cool things down. On the other hand, Bernanke is a student of the depression, and I doubt that rate hikes will be coming any time soon. The dilemma is that we are seeing improvement, but if the economy is going to be functioning at a sustainable level consumers have to lead the way. That will be hard as long as the housing market is still in the sick ward. Home sales have picked up, but there is still too much inventory on the market, and foreclosure are going to grow as long as the unemployment rate stays high. If rates stay high, this will knock the housing market down another notch, which will then do the same to the general economy. Low mortgage rates are a key part of the recovery plan, and the Fed doesn't want to see the half a trillion dollars they've already used turn out to be wasted money. The Fed will continue to do what it can to bring mortgage rates down and keep them low. But for this to work, the market needs to have another shift in thinking. The picture looks a lot like a beautiful girl now, but one bad report and the Witch face pop out again.

For now, the refinance market is dead, but with low prices and an $8,000 first time home buyer's tax credit the purchase market is still heating up. Here is what Illinois Home mortgage rates look like today for an A+ (740 Fico or above), full doc single family home purchase or rate/term refinance on a 45 day rate lock, with 0 points, and no origination fee. The conventional and FHA rates are based on the highest conforming loan amounts, which give the best pricing. Again, there are many factors which affect mortgage rates and your ability to be approved for a loan. These rates may not fit your situation and this is just a sample of the programs that are out there. If you would like a quote for your personal situation, or to get pre-approved for a mortgage, give me a call or contact me (Illinois mortgage company) and I'll take the time to find the rate and program that is best for you:

Conventional loans up to $417,000

30 year fixed rate              5.625%     5.739% APR

15 Year fixed Rate             5.00%      4.136% APR

5-1 A.R.M.                         4.75%        4.850% APR

For Jumbo loans over $417,000

30 Year Fixed Rate*          5.875%       6.057%

*Special pricing based on 75% LTV for purchase, 680 and above FICO single family homes up to $750,000 loan amount - pre-payment penalty applies.

7-1 A.R.M.                        5.375%       5.453% APR

(For smaller Jumbo loans another option is to break your loan into 2 parts - conventional to the limit and a HELOC or second mortgage for the rest.)

FHA LOANS - 3.5% down payment - FHA Maximum varies by County

With 1 point origination fee - 45 day lock

30 year fixed rate              5.25%      5.879% APR

With no origination fee - 45 day lock

30 year fixed rate              5.50%      5.863% APR

FHA APR reflects 3.5% down payment and the effect of mortgage insurance on the loan. Call for information on no-cost FHA streamlined Refinances

VA Veterans Administration 0 Down Loans

With 1 point origination fee - 45 day lock

30 Year Fixed Rate            5.375%      5.548%  

Call for information on no-cost VA Streamlined Refinances

These are just a few of the mortgage programs and mortgage rates available. Which option is best for you depends on your own specific goals and needs. If you have any questions or want to go over your situation in depth, let me know how I can help.

Illinois Mortgage Rates                   First time home buyer loans  

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