Russell Stout's Austin Mortgage Blog

10 year treasury yields dropped to 3.12 yesterday while mortgage bonds held relatively steady.  30 year rates are now 1% over where they should be.  At some point this will have to correct itself and we will be due for a great refinance opportunity.  We will keep you posted, it will come but it probably won't last long when it does. 

Those of us in Texas will benefit much more than other parts of the country because our values have held steady. Decreasing values in most other parts of the US will keep many from being able to benefit from lower rates. If a homeowner owes more than the current property value, they will not qualify for a new loan. 

Looking at yesterday rates sheet was as fun as looking at a 4.0 report card. We saw them drop .75% when they hit their best levels.  They increased a bit towards the end of the day.  But this is the best we have seen in years.

This looks to be a excellent opportunity to get a low rate mortgage, whether for a purchase or a refinance.  High credit score, qualified borrowers will be able reduce their rate. These days, anything that makes you less then a perfect borrower will increase your rate.  But rates are so low, most everyone who qualifies will save money.   

This may be a short opportunity.  Mortgage rates have been high compared to other long term debt.  This problems seems to have been fixed.  As the Government continues to issue new treasury bonds to pay for the  all the bailout programs, it is likely yields will have to rise. Mortgage rates will follow, so don't miss a great opportunity. 

The Fed announced this morning it will purchase Mortgage backed securities from Fannie and Freddie. Mortgage backed Securities rise dramatically. We will see big mortgage rate improvements today.

The government unveiled a plan Sunday to rescue Citigroup. The Treasury department will provide $20 billion in cash and also make available as much as $306 Billion to provide stability. This is another instance where the Government will own a share of the company and potentially make money in the long run. The value of Citigroup’s stock has fallen 60% recently.

There is also talk about a $1 Trillion stimulus package from the Obama administration.

Mortgage Bonds opened flat after a very volatile day on Friday. Long term prospects for lower rates still look good, but we are expecting volatility to continue.

The Treasury department announced yesterday China increased its holding of US Government debt in September. China now owns over 10% of the outstanding US Treasury Bonds, making it the largest holder of US debt.

 They have also been a substantial holder of Fannie and Freddie’s long term debt (The debt that directly determines mortgage rates). Since the Government takeover of the two, they have sold off over $50 Billion worth of mortgage bonds. This extra supply has been a factor in keeping 30 year fixed rates high in comparison to other rates.

The policy of the Chinese Government to own large amount of US debt has kept the Yaun weak compared to the dollar. Chinese companies are able to offer goods and services at lower prices, but US companies have a very difficult time competing. Last year Chinese imports into the US exceeded our exports by 5 times.

Mortgage Bonds have been in a tight range for the last week or so.  Bond traders seem to be looking for the direction and when the next trend emerges it will probably be a dramatic move. 

Mortgage rates dropped slightly last week.

After posting a loss last week, Freddie Mac announced it will need an infusion of cash from the Treasury. That could be some good news for mortgage rates. An actual government cash infusion will give Bond traders proof that Fannie and Freddie’s debt will get the full backing of the US government. There has been uncertainty about the level of government support, causing 30 yr mortgage rates to be higher.

Let’s hope that actual cash going into GSE’s will install the confidence needed to get a more normal spread between Treasuries and conforming mortgage backed securities. We have discussed that we could see an improvement of .75%-1% in 30 year fixed rates if this were to happen.

This week CPI and PPI will come out. Expectations are for lower inflation numbers and if this hold true, it will be good for rates.

The October Treasury Statement shows the Treasury bought $21 billion of Agency MBS’s up from only $5 billion in the previous month. This helps mortgage prices long term, since it is confirmation that there is a backstop bid for agency MBS’s, which will help narrow the spreads between mortgage and Treasury yields.

The Group of 20 heads of state will begin a two day meeting on the global economic crisis begins today in Washington.  The G-20 represents 90% of the world’s economy.   Most of the industrialized and developing nations that form the G-20 are already increasing government spending on economic stimulus. Let's see if they can come up with something new to help the global recession. 

Mortgage Backed securities are up 19 bp this morning, but still lower than yesterday morning.  MBS sold off as the stock market rallied yesterday afternoon. 

Mortgage rates are fairly flat today.  

Yesterday,  Treasury Secretary Paulson announced funds from the $700 Billion bailout package will not be used to purchase troubled mortgage backed securities.  That is bad news for holders of those securities, but further clarification of the treasury's plan will be good for mortgage rates. 

Uncertainty of Fannie and Freddie's future has caused the spread between 30 year fixed rates and 10 year treasuries to reach all time highs. In the 10 years before the financial crisis began, the spread averaged 1.75%.  Over the last 3 months it has been 2.44%.  Basically, 30 year conforming fixed rates are .75 higher than they should be.

With the government backing of Fannie and Freddie's debt,  spreads should have returned to normal.   The unknown of  the government's plan has kept investors uneasy.  As further clarification is made, let's hope the spreads return back to normal or below.  It is certainly a safer investment than it ever has been. 

Mortgage Backed securities are up 16 bp, we can expect a .125 of a discount improvement from yesterday if it holds.

There is a 10 year Treasury auction later today. It could have an impact on rates. Mortgage Bonds have to compete with other long term debt. With the amount of money the Federal government needs to raise, there could be long term upward pressure on rates. It will tough to raise that much money and keep long term rates at current level.

Logic and past history seem to be poor indicators on the direction of the Bond market these days, so we’ll just watch and see.

A rally and improved rates would be a great thing for the homeowners and potential buyers. The last time the fed funds rate was at 1% (June of 2003-June of 2004) we had a short window of 30 year fixed rates in the upper 4's.

Many of my past customers feel left out because there is so much talk of write downs and interest rate adjustment for homeowners who are behind on their payments. It would be great for the all the homeowners paying on time to get a break by having an opportunity to refinance.

Today the Bond markets will be closed.  Rates closed flat yesterday so we should won't see much change in rates.

Yesterday, Fannie Mae reported a 3rd quarter loss of $29 billion ($13.00 per share) in the third quarter of 2008, driven primarily by a $21.4 billion non-cash charge to establish a valuation allowance against deferred tax assets, as well as $9.2 billion in credit-related expenses arising from the ongoing deterioration in mortgage credit conditions and declining home prices. 

In normal times this could be a viewed as a negative for rates.  Although it won't help Fannie's stock prices, the government backing of Fannie's debt should negate the impact to mortgage rates.  

Last Friday, Franklin bank was closed by the FDIC and has reopened as a part of Prosperity bank.  Developement loans in florida and Nevada were sited as the major cause of the failure.

At the national convention Orlando, the National Association of Realtors (NAR) announced plans to Lobby the Government to pay points for all borrowers purchasing homes in an attempt to spur home sales. Their goal is to have the Government pay up to 4 discount points which would normally be enough to buy a rate down by 1 full percentage point on a 30 year fixed rate. On a 400,000 loan, this would save a consumer $333.00 per month. It is believed this would increase sales and sales prices around the country. There has been talk of two new stimulus packages, we will see if this is included in one of them.

Mortgage Bonds have opened flat, rates should be close to unchanged from Friday afternoon. There are several treasury auctions this week that could impact rates this week.

Reuters is reporting that conforming limits for Fannie Mae and Freddie Mac will remain the same for 2009.  In Austin Texas, the limit will continue to be 417,000. In high cost areas of the country, the limit can go up to 150% of this amount. 

Mortgage rates have increased dramatically for fixed rate Jumbo loans (loans over the comforming limit).  We do have been able to get some Competitive Jumbo Arm Rates for exceptionally strong borrowers. It is possible to get a purchase money or rate and term refinance on an Arm in the 5-6% range.