March 21st Moorings

Hello and welcome to this week’s edition of moorings, your source for local and national mortgage industry news. The notion of “it’s a small world after all” was especially evident last week, with both the news in Japan and the Middle East impacting our markets. Here’s what happened, and what the impact was on home loan rates.

The first thing to understand is the concept of “safe haven trading.” At times of global unrest and uncertainty, like with last week’s nuclear ‘crisis’ in Japan and the ongoing fighting in Libya, Traders will park their money in “safe” investments like United States Treasury Bonds. Along with this they also buy Mortgage Backed Securities for a higher yield, which is how home loan are traded. Moving with one another, when Bond pricing improves, MBS pricing improves and our home loan rates improve… which is what we saw last week. But it’s also important to understand how incredibly volatile this situation is. A “safe haven trade” is just that… a trade, which is short-term. Should events around the world become more stable, this safe haven trade can unwind very quickly… with Bond prices and home loan rates worsening as a result.

Another thing to note is that Bonds and home loan rates are facing some additional headwinds that could hamper their improvement. If Japan sells some of their Treasury holdings to help finance the recovery and reconstruction, like they did in 1995 after the Kobe earthquake, this could spur a sell-off in Bonds overall, which would cause Bonds and home loan rates to worsen. In addition to this possibility, the market is also dealing with the problem of inflation both here and abroad, in developing areas like China. Inflation has always been the enemy of Bonds and home loan rates. The bottom line: if inflation is allowed to grow, it can be very difficult to rein in and control, and this will hinder improvement in home loan rates, which of course effects a great deal of other industries including home builders and real estate. Add the Fed announcement on Monday morning that they are systematically selling off their MBS (Mortgage Backed Securities) that they hold and zoom the market nosedives. I say all this to show that market volatility is with us everyday, and there is no way anyone can justify a prediction of lower rates in the longer term.

So with all the changes happening in the marketplace and the world, let’s take a look at where interest rates actually are right now (as of Monday). As of today a borrower with a 740+ credit score, adequate income, assets, and qualifying factors should expect to be able to obtain a mortgage with an interest rate of 4.75% with a one percent origination fee, or 5% with no origination fee, which is slightly better from last week. As is always the case, these short-lived improvements in mortgage rates should be pounced upon by anyone who has been considering refinancing their home or even purchasing a new home. Sitting around and waiting for bottom of the rate market rarely every benefits anyone, since the bottom will come and go before you can say the word go. Take advantage of the incredible gift of low rates that history is handing you and lock in on either a purchase or refinance.

Well that’s it for this week and once again, we extend our thoughts and prayers to not only those affects by the many difficult issues around the word, but also the men and women serving in the armed forces that help and protect us, all around the world. Until next, Be Blessed and Numbers 6:24-26 be on you.