Russell Stout's Austin Mortgage Blog

The plan for the government to purchase $500 Billion in Mortgage Backed Securities has begun.  The money is to be spent over the 1st half of 2009 in an effort to keep mortgage rates low for purchase and refinances.  The plan will allow for purchase of bonds from Fannie, Freddie, and Ginnie Mae. 

With rates at record lows, it seems the goal is to insure rates remain in the current range.  Many foreign investors had stopped purchasing MBS on fears of instability in the US housing market.  This caused mortgage rates to be higher than normal in relation to most other rates or indexes.

With rates now in the 4's for the most qualified borrowers, the plan seems to be working. 

Federal reserve surprised us yesterday by announcing they would have a target rate 0f 0-.25%,  a deeper cut than the expected .5 point.  They also said they would support the economy by buying anything they felt would support the market, including Morgage Backed Securities.

Also, yesterday Pimco announced they were buying agency MBS as well. Bonds rallied further improving interest rates.    

Looks like we are going to have record low mortgage rates.   

It would not be the first time.  In 1975 under Gerald Ford's Administration, Ginnie Mae was authorized to buy loans with rates 1 to 2% below market,.  This was done in an effort to stimulate home sales. 

Now The Homebuilders Association and the National Association of Realtors are both Lobbying for Mortgage Interest Rate buydowns funded by the government. 

Currently, the Treasury has been purchasing Fannie's MBS to bring the spread between mortgage rates and treasuries back to historic averages.

Personally, I would not delay purchasing a home.  While these plans may actually be put in place, current rates are approaching 50 year lows. As the government keeps borrowing money, rates on treasuries and mortgage rates will have to rise.   If and when a rate buydown plan is put into effect, it may only bring rates for purchases back to what you could of had today. 

Yesterday, the 3 month T-Bill actually had a negative yield.  If you gave the Government $1,000,025.56 for the 3 month T-Bill yesterday, they would give you $1,000,000 back 3 months from now.   

Investors are so concerned about the risks of the market they are willing to accept a loss to park money with the US government. 

There is a $26 Billion 3 year note auction today. We will be watching to see how it is received.  If there is demand for the additional government debt, it will be good for rates.  The concern is the amount of money the Government will have to raise to fund the economic recovery and bailout programs.  At some point, yields will have to rise.  How could they go lower?  Mortgage rates will follow when they do.  

Federal Housing Finance Agency Director James Lockhart was on CNBC this morning.  He says the government does not have a target in mind for rates. They are looking for spreads to return to normal levels.  The average spread between a 10 Year treasury and a 30 year fixed rate is 1.8%. Spreads had risen last month to over 3%, but have dropped since the announcement of government intervention. 

Currently, 10 year treasury notes are yielding 2.705, so rates could get to the mid 4's if Treasuries stay constant and the plan works. The problem is Treasuries are at a low not seen since the 1950's and yields will likely rise as the government keeps borrowing money to fund the bailout and recovery plans. 

If the stars line up, it could be possible to see rates in the mid 4's but low 5's may be closer to what the actual bottom will be. 

Federal Housing Finance Agency Director James Lockhart was on CNBC this morning.  He says the government does not have a target in mind for rates. They are looking for spreads to return to normal levels.  The average spread between a 10 Year treasury and a 30 year fixed rate is 1.8%. Spreads had risen last month to over 3%, but have dropped since the announcement of government intervention. 

Currently, 10 year treasury notes are yielding 2.705, so rates could get to the mid 4's if Treasuries stay constant and the plan works. The problem is Treasuries are at a low not seen since the 1950's and yields will likely rise as the government keeps borrowing money to fund the bailout and recovery plans. 

If the stars line up, it could be possible to see rates in the mid 4's but low 5's may be closer to what the actual bottom will be. 

The headlines have been talking about the Government driving rates down to 4.5%. No specifics have been announced on how they plan to accomplish this, but the latest reports say this will be for purchase money only, not refinances. The proposal on the table from the National Association of Realtors is for the government to offer 4 discount points on all new purchases as part of a new stimulus package.

This is great news for potential homebuyers. If you plan to purchase a home in the future, you should be looking right now.

If you are considering a refinance, now may be the best opportunity. Mortgage Rates have dropped over a point this month and we are approaching historic lows. As rates drop, so are property values. Because current home value is a key factor for a refinance, it is probably best to refinance as quickly as possible.

According to Freddie Mac’s statistics, in the last 20 years the lowest average monthly rate on a 30 year fixed was 5.23% in June of 2003. We are very close to that level, so this is the perfect time take another look at your current mortgage to see how much you can save.

Fannie and Freddie currently guarantee over 5.4 Trillion in mortgage debt.   This does not include FHA or VA.   If the government chooses to influence the price of this debt, it will be very expensive and most likely for a short period.

Mortgage Bonds are flat today, but near the best levels of 2008.    We may have more room for improvement, but there is some risk of hitting resistance as we try to improve past present levels. 

It is a great time to lock a rate.  I always find it easier to renegotiate for a better rate if the market improves than to wish you had locked. 

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.