No 4.5% mortgages, Consumers and potential homebuyers are being mis-lead by those that continue to talk about it as a possibility

Mortgage and Lending with John Tuggle, Senior Mortgage Loan Originator, Envoy Mortgage, Ltd. NMLS# 211187

$94B, the amount Treasury auctioned this week. Today's 7 yr note auction went better than was expected, traders fretted about it as it was the first 7 yr note issued since 1993. The large $22B 7-yrs drew 2.748%, with a 2.11 bid-to-cover and a solid indirect bidder take of 38.7%. The cover was fair while the rate was on the high end and prices are falling. Supply of increasingly more supply needed to fund the many attempts to stabilize the economic decline and prop up banks will lead to a 2009 federal deficit of $1.75T admitted by Obama this morning, we are expecting at least $2T of deficit. 

Raising taxes on "wealthy" taxpayers is a cornerstone of the Obama budget released this morning; removing incentives for health care insurance companies providing Medicare is another. It should be no secret that the government will run massive deficits for 2009 and 2010, however when it is headlines as it was today markets seem to respond as if it is new news. This is not the time to increase taxes as the voting clearly showed in the stock market today.

No 4.5% mortgages: unless the government turns on Fannie and Freddie and is willing to buy all 30 yr fixed mortgages with decent credit scores and appraisals there is little now that would suggest 4.5% mortgages. Consumers and potential homebuyers are being mis-lead by those that continue to talk about it as a possibility. Never say never in this forecasting business, but with Treasury and the Fed burning money as they are now, and with more to come, the US debt will continue to explode and keep interest rates from declining much. The more probable direction is higher interest rates if there is any even minor indication the economy has bottomed. Right now that isn't happening, so rates won't explode here. What should be considered, mortgage interest rates at the present levels remain some of the lowest in the past 50 years.

It has now been well over one year since the government has been at the center of trying to get banks sanitized and credit markets functioning; throwing massive sums to shore up the likes of Citi and BofA has not met expectations. About the best that can be said is that funds provided to banks may have kept the banking system from completely collapsing. Treasury has been working on plans for six months with nothing to show for it. The financial systems in the US and around the world are seriously damaged, no one should expect a quick turn. Europe's banking crisis is much worse than the US. Eastern Europe is for the most part bankrupt with no bank functioning, the problems there are having additional negative impacts on our banking system. The entire western world is broken financially and is quickly dragging the Asian economies down with them.

Sheila Bair, chair of FDIC said this afternoon there are 252 banks on her list of troubled banks (read teetering on failure); banks lost $26.2B in Q4 2008. Treasury is starting its stress tests on banks; a way to measure how much money they will need to survive the next two years. Arbitrary time frame and just guess work on the needed amounts. How long will it take and will more money open credit markets? I doubt it; why would a bank lend increasingly to consumers when the economy is still in swift decline? More important, why would a consumer that is more astute about the depth of economic slide than Washington or Wall Street even want to borrow more when they are having trouble dealing with present debt? Why would more capital open the short term credit markets and remove the  fear of unknown counter-party risks?

Tomorrow, the last trade day of the month, brings the second look at Q4 GDP at 8:30, in the prelim report GDP was -3.8%, now the revision is expected at -5.4%. The Feb Chicago purchasing mgrs index is out at 9:45, the index is expected  at 34.0 frm 33.3 in Jan. At 10:00 the U. of Michigan end of month consumer sentiment index is expected at 56.5 frm 56.2 in Jan.

Next week on Friday the Feb employment report; early estimates from economists is another 700K job losses. That will not support a stock market rally. 

The bellwether 10 yr note is ending at its key support at 3.00%; more selling tomorrow will decidedly break it and open the run to 3.25%, and would drive mortgage rates higher along with it. Likely choppy and volatile and dependent on how equity markets act over the next few days. No support even with the equity market decline today. 

Keep all rate locked loans locked overnight. Technicals are bearish; the 10  however did manage so far to hold at 3.00%, a major technical and psychological level that if not held will push the 10 yr rate to 3.25% and force mortgage rates up along with it.




PRICES @ 4:00 PM

10 yr note
 97.26 -20/32 3.00% +7 BP * Mar 10 yr note contract 121.20 unch
5 yr note
 99.01 2.08% +7 BP
2 Yr note
 99.18 unch 1.09% +0.5 BP
30 yr bond
 96.24 -45/32 3.68% +8 BP * Mar 30 yr bond contract 125.25 -13/32
Libor Rates
 1 mo 0.496%; 3 mo 1.261%; 6 mo 1.797%; 1 yr 2.115%
30 yr FNMA 4.5 Apr
 99.31 -2/32 (-2/32 frm 10:00)
15 yr FNMA 4.5 Apr
 101.15 +2/32 (+3/32 frm 10:00)
30 yr GNMA 4.5 Apr
 100.00 unch (-3/32 frm 10:00)
15 yr GNMA 4.5 Apr
 102.10 +3/32 (+4/32 frm 10:00)
 98.34 +0.89 yen
 $1.2743 +$0.0022
Gold Apr
 $945.10 -$21.10
Crude Oil Apr
 $44.65 +$2.15
Goldman-Sachs Commodity Index
 339.04 +11.88
 7182.08 -88.81
 1391.47 -33.96
S&P 500
 752.82 -12.07

Thursday, 2/26/09 4:30pm

Comments (5)

Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

John - I'm a mortgage gal so I love hearing and reading about all of this.  However, having said that. I did find the post to be a little hard to read because of the way that it is formatted.  I strongly suggest that you break up the "wall of words" into smaller, easier to read paragraphs.  You may find that this format will attract more readers and comments.  JMHO

Feb 26, 2009 12:20 PM
Jennie L. James


 It seems like banks are saying that if you have perfect credit you could get an interest rate around 4%. Who has perfect credit? No one I know, which is kind of smart on their part as I can't disprove that statement.

And I agree with Donne.

Feb 26, 2009 12:31 PM
John F Tuggle
John Tuggle, Senior Mortgage Loan Originator, Envoy Mortgage, Ltd. - Columbus, GA
Certified VA Expert Renovation Program Specialist

Thanks Dunne and Jennie for the constructive criticism.  I figured out how to get the post to appreas as it was written.  Never to old to learn something new!

Jennie, your comments rreference to banks are a little confusing.  Banks set rates for short term debt (under 5 years ususally). There lending rates can possible go very low for good customers. Banks do not set mortgage rates.  Dunne and I will tell you that there is usually no differnce in rate on a government (VA, FHA, USDA RH) mortgage between 600 to 850.  Conventional lending may have pricing changes for better rate but when you speak with a mortgage lender and are asking about rates in general they are usually going to quote their best case scenario.  In the post I made about the 4.5% the point I was making was that that rate (at par) has never been available and probably won't be available in the near future.  You can certainly buy your way to that rate, so yes, it may be available for a cost.

Best wishes to you both, thanks for reading my blog and always feel free to call on me for anything,

John Tuggle


Feb 26, 2009 12:46 PM
Donna Harris
Donna Homes, powered by JPAR - - Austin, TX
Realtor,Mediator,Ombudsman,Property Tax Arbitrator

I'm waiting for the rates to go lower before locking... My husband and I have credit scores over 800 and no one has offered us the 4% as Jennie mentioned above.  Over 800 would be considered "perfect".

Feb 26, 2009 12:48 PM
Russ Ravary ~ Metro Detroit Realtor call (248) 310-6239
Real Estate One - Commerce, MI
Michigan homes for sale ~

yeah I got an email about it too.  They want to know about Mr. Obama's incentives to re mortgage!!!!

Feb 26, 2009 12:50 PM