And he could crack a few mortgage rates!
We all know what happens next: as the market rallies, safe money tends to leave the bonds stable as traders and investors leap onto the wild horse for the ride up. You can hear them yelling giddy-up around the world. You see, market traders have come to consider the market a quick in and quicker out place to do business. They don't call them 'day traders' for nothing. Buy your Citibank at 6, sell at 6.5 and dump before nightfall. Get back in the next morning at 5.75 and do it again. A few do fall off that famous Wall from dizziness.
CURRENCY CONTEXT: The general freak-out recently has been over the questionable value of our US Dollar, the race to Gold and the lack of consumers to consume. China, our biggest trading partner, is peeved and suggesting what the world needs now is an International Monetary Currency, i.e., not ours. Other countries equally concerned about trade balance have suggested moving to the Euro as the international standard, but it's just too new and unproven. To date, the US Treasury's response to tightening of credit has been to just 'print more'. Not surprisingly, this practice of value dilution has come under some scrutiny, prompting this joint Federal Reserve and US Treasury release on their commitment to Financial and Currency Stability (March 23rd, 2009). Their release backs up a commitment to protecting the availability of financial instruments (including mortgages) and access to them. So far so good. Well, if you believe the 'experts' that is.
Recent releases point out that January 09 remains the worst month for new-home sales since the government started tracking the statistic in 1963. Are we worried? That's one heckofa statistic.
RATE UPTICK: Yes, Home Loan Interest Rates, at an all time low during the last several weeks, are steadily creeping back up from .125-.25% across the board per day. Prior to the recent Wall Street rallies, we were locking best credit 80% Loan to Value transactions under 5%, and we are now closer to 5.25-5.5%. But wait! Now that the Fed Funds Rate is on the floor and Prime Rate is just 3%, just how low can banks go on interest rates and still make money? Will 3% ever come to pass? Unlikely. You see, the banks who were lending (and counting on) returns of 6-7% last year have projected their income accordingly. So when those loans pay off and refinance to a lower rate the banks holding those notes have to adjust their earnings downward. Bigtime. They have to explain to their investors why their money on deposit or invested in their mortgages is not making a bigger return in a riskier market. Investors are not that happy to have their money only returning 5% much less 3%! This creates a rush of investors and their back to the stock market which in turn makes mortgage rates go...UP! It's like a see-saw. Market up, bonds down, mortgage rates back UP. Against the backdrop of such uncertainty these changes are swift and unpredictable.
TOASTERS: One might ask how the global picture affects our domestic US banks rates. Consider this: most of the US mortgage lenders, banks and mortgage insurers have already sold the future of their mortgage loans to overseas investors, institutional and hedge funds managers who are banking on long term returns. So they, the banks, have to deliver the goods! They simply cannot afford to mark down mortgage rates much more or their heads will roll. Even the availability of zero % interest from the Fed's windows is not all that hot when your bank is underwater from losses in other arenas. Even the best, most conservative banks got caught holding builder/development loans that went under. Zero cost is not free...they have mouths to feed too.
THE PURGE: Given there are a certain number of loans that have or are failing and you see why banks have to raise the odds of at least some of their loans being profitable. And while the figures on just how many so called 'toxic assets' are hidden in the Mortgage Backed Securities is yet to be known the folks who created these gems are not even sure what unwinding them will reveal. (Seems odd to have the folks who created these devilish financial vehicles (credit derivative swaps, etc) unwinding their own handiwork but who else knows where the bad apples are hidden? ) Yet out they go. Clearing the decks for better loans.
BUY LOW: Consider your Mortgage Interest Rate a 'day trade', do your due dilligence, find a trusted banker or broker and lock a rate you like because waiters can't be choosers!
Happy Spring! Loannetter
510-MB-24707-50145 An approved Conventional, FHA/VA/USRDA and Reverse Mortgage Broker
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