Friday December 10, 2010 7:25 PM ET
By John Sauro
Mortgage Rates Trend Higher
Mortgage Bonds made a new closing low in the move lower, confirming the downward trend for Bond prices and an upward trend for Mortgage Rates.
Our Benchmark 4% coupon fell 66 basis points to end at 98.94 down 165 basis points for the week. The Dow rose 40.26 to 11,410.32,
the S & P 500 index gained 7.40 to 1,240.40 and the Nasdaq rose 20.97 to 2,637.54.
Bonds typically loose ground when the stock market does well, as investors move from Bonds to Stocks for better returns.
Another big reason for the rise in interest rates is China. China’s year-over-year inflation rate for October was 4.4%. It is speculated that China’s November inflation number, due to be reported this weekend, will come in even higher, at 5%. That’s unbelievable considering it was under 2% just last year. There is speculation that China will raise rates over the weekend to fend off inflation and Bonds all over the world will move lower on news of inflation. This means another rough ride for Bonds on Monday and higher mortgage rates.
Are Bonds Poised For A Rebound?
Many analysts believe Bonds are oversold and are due to move higher. That may be true, but the trend lines indicate Bonds moving lower. Therefore, we may see a rebound for a very brief period of time. And when I say brief I mean for a few hours to a day or two.
So, the strategy for those financing a home purchase or refinancing is to be nimble. Make sure you have decided on a lender, put your application in process and be ready to lock at a moments notice.
Will Your Big Bank Give You A Better Deal?
Most lenders and mortgage originators don’t follow the bond markets as closely as I do. That’s too bad, because they are not providing a complete service to their clients. These are volatile times and timing is everything in this market. A few weeks ago you could have locked in as low as 4% on a conforming 30 Year Fixed Rate Loan. The ability to advise a client to lock into a rate or float the rate can save thousands to tens of thousands of dollars. And the large banks, do not offer this service. Stick with small to medium lenders and brokers as they are more professional than the big banks factory employee’s. The big banks are nothing more than the McDonalds and Burger Kings of Lending, employing unprofessional minimum wage, uneducated, untested and unlicensed individuals that are given the responsibility of handling one of the largest financial investments of a your life. Yikes, do you want to take a chance.
Take a moment to Google “mortgage complaint’s banks Name” and you will find hundreds of complaints. Don’t be fooled by their advertising. And just because your checking and savings account is with them does not mean they are going to give you a better deal. Savings and lending are not connected. They are separate entities and you still have to get approved for the loan regardless. You won’t get a lower rate because you’re a customer. Those who believe that also fell for the Free Toaster when you open a CD Gimmick. This is your mortgage we’re talking about. Don’t blow it.
These institutions are responsible for the credit crisis and economic conditions we are faced with today. It was our tax dollars that bailed them out. They didn’t lend out a dime of that money, they still offer no transparency and they made fortunes in the last year. Just because it’s a big bank doesn’t mean your going to get a better deal.
There’s a reason why mortgage brokers and small lenders accounted for 70% of all loans originated in the past. It’s because they are very good at their profession. They work with multiple lenders and search for the lowest rates and costs for your situation and provide exceptional service.
Strategy for the Coming Week
While Bonds are oversold, and are trying to find a bottom, it wouldn’t surprise me if we see another leg down on Monday. The next floor of support is Wednesday’s intra-day low of 60 basis points beneath current levels. That’s a long way down. So, I am still maintaining my bias toward locking into rates. However, if you’re a gambler, you may want to wait and see what happens on Monday and be ready to pull the trigger.