The coming week may be a good time to consider locking into a Mortgage Rate as the Bond Market is oversold and Mortgage Rates may recover some losses.
Bonds lost ground in seven out of the last eight sessions and are now sitting on support of 101.62 held since August 30th and waiting for the next news item to determine their next move. For you new comers; Mortgage Rates move in the opposite direction of Bond prices.
Continued optimism that Europe will successfully deal with the debt crisis has been a positive for U.S. Stocks, which in turn is a negative for U.S. Bonds.
Many are unaware of the Mortgage Markets interest rate volatility and that interest rates change daily and more than once during the day. You can use this volatility to your advantage when it comes time to lock into a Mortgage Rate. If the market was not volatile, then your chances of locking into a lower rate are greatly diminished. Volatility allows for more opportunity
A Low Rate window of opportunity can be short lived. So, if you want to lock into low rates, be proactive and have your application in so that you can lock in at a moments notice.
The chart below shows the Price of Bonds.
“Know when to Hold Em, Know When to Fold Em”
I wrote this back on June 25th and feel its worth reminding you how to play the game.
“Bonds are near the bottom of their six month range. So, you may save an extra $29 in the monthly payment if you hold out for .125% better in rate, or it can cost you $149 more in the monthly payment if rates move up by .625% on a $400,000 loan.
Take a look at Feb 7th to Feb 8th on the chart below. In that one day the Bond lost 116 Basis Points. That correlates to an increase of .625% for the 30 year fixed rate mortgage, as mortgage rates move about .125% for every 22 basis point move in the Bond price.
And believe me; banks raise their rates faster than they lower them. Gamblers look at the odds. Would you gamble $149 to make $29 on a game you
don’t fully understand?
I watch this game all day, every day, I’m pretty good at it and I wouldn’t make that bet.
If you’re a gambler, know when to place your bet, but know when to walk out of the casino.”
Dodd Frank to Further Restrict Credit
As if credit isn’t tight enough, Dodd Frank rules regarding mortgages is about to further restrict credit.
According to the language in the Dodd Frank Bill, anything other than a 30 year fixed rate with less than a 20 percent down payment is not a qualified residential mortgage.
No more adjustable rate or interest only mortgages, no 40 year mortgages, no mortgages with 5 or 10 percent down.
Economic News
Retail Sales Post Robust Gain of 1.1% in September
Jobless Claims Unexpectedly Fall by 1,000 to 404,000
Trade Deficit Lower than Expected in August, at $45.61 Billion
Broker or Bank?
It’s quite astonishing how little the general public knows about what has
been happening in the lending markets. Every now and then I have a
conversation with someone seeking home financing and they believe that the
banks will give them the best terms for financing. It’s really naive when
you consider the bad publicity the big banks have had over the past three
years.
First – let’s remember that the big banks and Wall Street were responsible
for the shape the economy is in.
Second – they robbed you and I, the “Taxpayer’ of $700 Billion dollars (the
“Stimulus Package”), of which they never made loans with, as was the
governments intended use.
Third – the Banks are not required to educate, license or test their
loan originator employees as Brokers and small Lenders are.
Fourth – Banks do not disclose all their fees and revenues as Brokers &
small Lenders always have.
Fifth – Recent laws and rules make it impossible for Brokers and Small
Lenders to take advantage of the consumer. However, Banks are exempt and
are taking advantage of the consumer.
Sixth – The Banks are not Banks; rather they are Brokers, as they don’t lend
their own money. They sell the loans to Fannie Mae, Freddie Mac and FHA.
Seventh – Therefore, doesn’t it make sense that since the bank is really a
broker; why not use a broker that has many more options than those of one bank.
I strongly recommend watching the recently released HBO Movie “Too Big To
Fail”.
I was a Contributing Editor for CNBC, Bloomberg and Fox TV during the credit
meltdown and will say that the movie is pretty accurate and does a good job of
explaining who was responsible for the credit crisis and how it all unfolded,
in a way that the average person can understand.
The point is; there are better options available for home financing than
using the very banks that are responsible for the Credit Mess, Hi Unemployment,
Falling Real Estate Values, and Wiping Out a chunk of your 401k.
Copywrite John Sauro 2011 All Rights Reserved
Reproduction of this report without written permission is strictly prohibitted.