What Will Shape Mortgage Rates This Week?

MORTGAGE / ECON UPDATE: Mar 23 – Mar 27, 2009

“A lack of money is the root of all evil.” – More Maxims of Mark, Johnson 1927

Last week, Mr. Bernanke and the Fed saw their regularly scheduled meeting as a window of opportunity to make a blockbuster announcement.

On March 18th, the Fed announced that during 2009 they will purchase an additional $750BB of Mortgage Backed Securities (MBS), and an additional $300 Billion in long-term Treasuries with the main intent to help shore up the housing market and keep home loan rates low. On the announcement, Bonds exploded higher, leaving Bond prices just a few shaves short of the best levels ever. Mortgage rates bounced down that afternoon, but didn’t hold as long as the markets wished for.

However, it's important to understand that while their actions may keep rates from moving higher, at the same time they may not cause them to move dramatically lower as everyone keeps wanting. Also, I must caution that due to many understaffed lenders and investors currently working at maximum capacity, we could once again see that improvements in Bond pricing may not all be passed through to our rate sheets. What we have seen in the recent past is that our investors cannot keep up with the demand for lower rates, and often the “low rate window” closes just when our appetite wants more.

Also, please keep in mind that another item impacting whether Bonds and rates realize significant improvement going forward are concerns of future inflation - the enemy of Bonds and home loan rates - brought on by all the recent aggressive moves by the Fed. While we know we feel very little inflationary pressure right now, any inkling of future inflation could negatively impact Bonds and home loan rates, or at least stifle any improvements.

The media continues to spin it differently, but this is not a time to continue sitting on the fence as so many of our customers are at the moment, hoping and waiting for lower rates. Home mortgage rates remain are so close to all-time historic lows, but may not actually slide significantly lower based on this purchasing plan; waiting is a very risky move.

There was more good news last week, as Housing Starts for February came in better than expected and truly increased for the first time in eight months. More good news came when Fed Chairman Bernanke stated the recession should end in 2009. He also mentioned that he is confident of the long-term outlook for the US economy.

As for an update on “Mark to Market” - the accounting rule which has had a devastating impact on the financial markets - which I have mentioned on more than one occasion. The Financial Accounting Standards Board (FASB) agreed that they will propose to allow companies to use more "leeway" in applying the accounting rules they use to value their assets, and planned a final vote for April 2, 2009. If this accounting rule change is approved, it could result in better first-quarter financial statements for companies that have been negatively impacted by this rule. Stocks have been bumping up lately on the hope that the “Mark to Market” will be fixed, and a resolution could help Stocks gain further ground.


MORTGAGE / ECON UPDATE / Events / WEEK OF Mar 23rd through Mar 27, 2009
We will see a lot of financial activity this week, from start to finish, starting with an opportunity to get a handle on the housing market with today’s Existing Home Sales Report and the New Home Sales Report that will be released on Wednesday. With rates near historic lows and the tax credits available for first-time home buyers we should see some real stimulus and hopefully many buyers will soon be ready to come off the benches and home purchases will pick up in the 2nd quarter. So many people have been waiting for signs of improvement, the first quarter was one of caution for many Tulsans, and maybe these new glimmers of hope will bring them into the game.

Another report to watch will be released Wednesday as the data for consumer and business consumption and buying behavior contained in the Durable Goods Report which gives us up to date information on non-disposable items, such as cars, furniture, appliances, games, cameras, business equipment, ( basically items built to last more than 3 years). Also, pay close attention to the Gross Domestic Product (GDP) Report Thursday, which is the broadest measure of economic activity, and on Friday the Core Personal Consumption Expenditure (PCE) Index, contained in the Personal Income report. The core Personal Consumption Expenditure Index is the one of the FOMC’s most awaited gauge of inflation reports. With all the recent talk of potential inflation ahead, it will be interesting to see what this data bears out.

Keep in mind – Weak economic news normally assists Bond and mortgage rates to improve, because investments flow out of stocks and into the Bond market. As you can see in the chart below, Bonds were propped up last week by the Fed's announcement regarding its Bond purchase program. Also remember that the improvements are not necessarily all making their way through to everyone’s rate sheets.


Helpful Outlook for You Regarding the Fed’s Latest Moves and How They Impact You

The Fed announced last week they are going to buy another $750BB in Mortgage Backed Securities (MBS), thus making their total commitment to $1.25 Trillion. How does this really impact home loan rates?

The Fed's actions provide a demand for Mortgage Backed Securities, which should help keep the ceiling on home loan rates from moving much higher in the foreseeable future. That's good news for homebuyers who are looking to purchase as well as for folks in the market to refinance their present debt, as they perceive that there may be bargains out there.

All this depends on which Bond Coupons the Fed purchases. If they buy the higher rate coupons - as they have been so far this year - their continued purchasing actions will likely keep rates low and stable, but may not necessarily push them a lot lower. Rates are so close right now to historic lows. My advice to you right now is to not hesitate and miss a great opportunity to purchase your dream home, or get more money back in your budget by doing an intelligent, well thought out refinance.

Please remember that this information is only an opinion and is provided by a 3rd party for informational purposes only. Please verify any facts before you make financial decisions as the market is a constantly changing environment and you should always consult with your financial professional prior to making any decision to make sure that your decision is based on up to date information.

Sincerely,

Jeff Sargent
President
Residential Mortgage Division
ONB Bank & Trust Co
918.392.6572

Equal Housing Lender, Member FDIC

Change in FHA Mortgage loans

Appraiser, Bob Bryant, says that some expectations of appraisers have not changed such as noting peeling paint, wood rot, look into crawl space under houses, look into attic, obviious structural issues, windows must open in all bedrooms, apparent safe electrical wiring

The old days of a VC sheet (value conditions) where an appraiser also inspected the house while performing the appraisal, are gone but FHA still asks appraisers to give notice on the appriasal if serious issues exist.  The VC sheet is what developed FHA's reputation of being difficult for home sellers and home buyers often mistakenly relied on the FHA appraiser instead of hiring their own home inspector.

Credit Score Requirements Change for Home Loans

Effective March 6, 2009, a minimum FICO credit score of 620 will be required for any FHA or VA loan funding.  If anyone had received an FHA or VA pre-approval prior to this date but had not locked in an interest rate it would be too late.