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European, not Olympic Impact on the Rates

By Dave Woodland

Mortgage and Lending with Signet Mortgage

August 14, 2012 04:16 AM

• Rates have Moved But They Are Still Great 3.750% APR !
• Europe has Checked Out for the Month
• Some Good Economic Data This Week

• FOMC Meeting in September
• Woodland Grandbaby!

These have been a couple of tumultuous weeks in the fixed income markets and not because of the Olympics. Right before jumping out on vacation, ECB Pres, Mario Draghi (not Bend's own, Ashton Eaton at right) gave a glimmer of hope for Europe by promising to “do whatever is within our power to preserve the Euro as a stable currency.” He then went on boldly to say: “And believe me, it will be enough.” Since that August 2nd speech, rates in the US have edged up slightly as some investors have moved their money back into Europe. Really, on that statement?!

Draghi is throwing out promises he cannot keep without the cavalry rescuing him (a move that was once described to me in these terms: “That guy's mouth is writing checks that his butt can’t cash!”) The true test will be whether Germany gains enough concessions and control to the point that they ante up and allow the ECB to buy up Spanish and Italian bonds to save the currency. They have given some already, but now we must wait through the European August shutdown until work resumes in the late part of the month.

Rates are still fantastic! Residential - For 30 year fixed mortgages, 3.750% APR gets you a No-Cost Refinance. At 3.500%, the bank pays for all but $2,000 of costs. If you have a shorter window to keep the loan, fixing your 30-year mortgage for just 7 years (a 7/1 ARM) gets you a No-Cost Refinance at 3.375% APR and at 3.000% the bank pays for all but $2,000 of costs.

Rates are still fantastic! Commercial – For Investors looking to amortize their loan over a full 20 year term with No Call and No Refinance Ever, the 5-year fixed rate is at 3.780% or even better with choices of fees and prepayment penalties. Fixing the rate for 10 years is still under 5%. For Owner Users, the SBA programs allow up to 90 LTV and fixing the rate for up to 20 years on the debenture program. This month’s rate on the 20 year fixed portion is 4.44%. Blending the conventional and debenture portions of the 504 program loan gives a rate as low as 4.05% overall.

Rates are still fantastic! Multi-Family – 10-year fixed programs at 3.880% for large loans. Small apartment loans can be secured in the 4’s for 10-year fixed.

This coming week has some US economic data that will be interesting. It will have some impact on rates for the week and more importantly it will inform the FOMC for their September 12-13th meeting. This is an opportunity for the Fed to put up or shut up about introducing a Quantitative Easing (QE3) beyond the current Operation Twist set through the end of the year. Watch for PPI and CPI data on Tuesday and Wednesday in particular.

Other action in the week will include Retail Sales data on Tuesday, but with Europe on vacation, the anticipation is for the 10-year Treasury to hover in the 1.55% to 1.72% yield range until we see the big guns come back out.

Long term, the most important things for the impact on US interest rates will be the return of the economy and the parallel return of inflation threat (completely at bay at the moment), and supply and demand factors. The S&D factors include whether investors are moving money across oceans, whether it is going into fixed income or equity markets, how much money is the Federal Government borrowing and therefore, how big are the budget deficits. Which brings us back to the elections in the US.

Happy that the discussions in the presidential election are returning to policy and economic plans. The attacks (Golfer in chief) and fear mongering (Granny off a cliff) approach to getting elected are not informative. I look forward to hearing substantive proposals on tax and spending ideas. I also want to hear the plans for the very hardest hurdles to cross – the “entitlements”. That word is grating. I’ll leave it at that, but I look forward to hearing real proposals, real debate and real solutions.

These days, more than ever, experience counts. We at Signet have spent our careers providing the best programs and the best customer service. You, your friends and clients deserve the best. We enjoy making exceptional real estate deals happen. Please let us call your friends and clients who could use expert advice. We are grateful to work with you.

Make it a great week.