Will Rates Go to 5%? They Just Fannie Mae.

Mortgage and Lending with Guaranteed Rate NMLS# 2611 NMLS #208860

prediction OK.  Time to get out the crystal ball.  We've been hovering in the low 6% range with the 30-yr. fixed interest rates (despite what all of the pop-up ads on Internet proclaim) and a few bits of news lead me to believe we may hit 5% by the end of the year.

1.  I see, I see.  I see wheelbarrows full of money being rolled into the farmhouse of Mortgage-Back Securities (MBS).  With the FED stepping in and bailing out, I mean, backing, Fannie Mae and Freddie Mac, our mortgages have become attractive again and investors are lining up to buy.  Especially China.  More buyers means better rates for us.

2.  I see something else.  I see stocks continuing to tank with bad news in the financial sector (e.g. Lehman, Merrill, the list goes on).  This is good news for bonds and MBS.  Rates MUST go down as a result of this higher demand for a stable investment.

3.  AH!  Another vision.  I see a nailbiter of an election with one of the key issue being our economy.  Both sides have their take on how to get us out of the housing mess, but in the interim, all of the attention on lending solutions will benefit us.

4.  One more scene has appeared through the fog.  I see more legislation coming out that will favor the homebuyer and encourage the purchases of foreclosed homes.  With rates in the 5% range, more people can get into those homes, so we may see (and already do see with the FHA 5/1 ARM) some cheap money available to help us recover from this housing bust.

OK, maybe it's not as mysterious as gazing into a crystal ball, but in the words of The Little Drummer Boy, "Do you see what I see?"

Comments (6)

Richard Sweum
1st Security Bank - Everett, WA

Funny Mike!  Never underestimate Wall Streets ability to shuck and jive and WILL themselves into a rebound...they will be strong arming the Fed Board and you know what...our rally in the MBS market is likely to be sabotaged by another dumb-@$$ fed rate cut...now that inflation is subsiding the the dollar has regained some strength.

They will try to have it both ways and rat-fluk the mortgage backed securities market.

Sep 15, 2008 04:07 AM
Mike Tullio
Guaranteed Rate NMLS# 2611 - Sarasota, FL
VP of Mortgage Lending

So true RICH!  I've always heard that today's solutions create tomorrow's problems.  Rates aren't everything.  If they were, houses would be flying off the MLS right now.  Good to hear from you my friend.

Sep 15, 2008 05:06 AM
Kevin Hancock
Evergreen Home Loans - Poulsbo, WA
The Hancock Mortgage Team

Interesting to go back and read this now.  It looks like your were right on all of your predictions.  What's next?  Do you think the recent price deteriorations are permanent, or do you see them going back the other way?

Just curious...

Jun 11, 2009 10:37 AM
Mike Tullio
Guaranteed Rate NMLS# 2611 - Sarasota, FL
VP of Mortgage Lending

Hey Kevin!  So funny that I wrote this blog post in September of 08 and so much has happened since then.  We had that massive stock market correction and banking world avalanche.  Rates did go to 5% and below.  Depsite the blindfold we all wear, I may have hit the pinata on my predictions.

Now what?  The recent rate run-up concerns me.  We were skating on thin ice for months with the low rates and we've finally broken through and it doesn't feel all that good.  With the commodities market, bonds, and treasuries selling at an insane pace, the fundamentals aren't good for a return to 4.875%.  Not good at all.  The FED spending $1.25 trillion on mortgage-backed securities seemed like a good idea until the novelty wore off and everyone else stopped buying.

Here are my predictions for the rest of 2009:

1. We'll have another temporary run at 5%.  It will mainly be in response to the FED's announcement to buy EVEN MORE mortgages, probably to the tune of another $1 trillion.  This will be in tandem with some good economic news that will give foreign investors a little more confidence in our lending system.  This will last a few weeks, so blast your database your concerns and let them know this may be their last chance to get into the 5% range.

2. Rates will be in the low 6% range by the end of the year; maybe even 6.5%.  Prime will also be at 4% after some concerns about inflation emerge and the FED decides in their infinite wisdom that printing money like bonkers should be tempered with a little bit of fiscal responsibility.

3. HVCC continues to be devastating to our industry and the public outcry will eventually get this ridiculous policy overturned.  Turn times will be improved in response and we will see a normal growth pace established with 75% of our business coming from purchases vs. refi.

4. Higher rates will finally get some of the people waiting on the sidelines into the purchase game.  There will be a growing sentiment that "I'm missing out" unless I get in now.  Coupled with the $8000 FTHB tax credit and a growing FHA/USDA marketshare, we'll see the pending home sales number hit new highs.

5. Credit scoring laws will be changed to address short sales, deed in lieu, and loan mod lates.  There will be some kind of exemption if borrowers can prove they exercised every option to avoid FC, and this will create a whole new slew of buyers who had good income and assets, but crappy credit.

My next post should be "Will Rates Go to 7%"?  People may not like my answer, but professionals like you and your team (I checked out your profile; good stuff) will certainly figure out a way to not only survive, but to thrive.  Best wishes my friend.

Jun 11, 2009 12:51 PM
Kevin Hancock
Evergreen Home Loans - Poulsbo, WA
The Hancock Mortgage Team

That's an awesome response - thanks Mike!  I haven't been on AR much for the last 6 months, but whenever I log in I always like to check your Blog to see what you have to say.  Good stuff as always!

1.  I agree that rates will kick back down at least once, maybe two or three times in my opinion.  It seems that all the Fed has to do is announce they are considering doing something and the markets will react, so I think they will flex muscle a few more times before they are done.

2.  I don't think (or is it I hope?) rates will get that high by year end.  Again, the fed has shown that they want low rates to fuel the housing market.

3.  I hope you're right about HVCC.  They at least need to tweak it, if not ditch and start over.  I like the idea though.  I don't think lenders should be able to pressure appraisers, but I don't think appraisers should have all the power either.  It's complicated.

4.  I hope your right!

5.  This is a really good idea... do you know if they are really considering this, or was this straight from the crystal ball?

Good luck Mike, and keep up the good work!

Jun 19, 2009 12:44 PM

They will go, i guess you are right on the other side. I am still confused.

Jan 24, 2012 01:46 AM