Currently zero point rates on 30 Year fixed loans are holding around 5.50%. But didn't they tell us that rates were going to be 4.50%? What gives?
You ask an interesting question Grasshopper. Unfortunately there is no easy answer. So far we haven't seen any effect on rates from the Homeowner Affordability & Stability Plan.
In that plan PBO outlined that the Treasury would be purchasing $200-400B of debt from Fannie & Freddie.
While we wait for the Treasury to step up to the plate and pump some much needed liquidity into the housing finance agencies it's worth taking a look at some of the other players in Mortgage-Backed Securities.
Over much of the past decade and up until the second half of 2008 foreign investors were a huge part of the MBS market. Asian countries were the biggest foreign holders of Fannie and Freddie debt.
In the fourth quarter of last year though foreign investors sold off $170 trillion of Agency debt. Why?
Well it seems there are two answers. The first and seemingly most important is that Fannie and Freddie debt is "effectively" backed by the U.S. Government through it's Fed and Treasury support.
Unfortunately though it is not backed by "the full faith and credit" of the U.S. Government meaning that it would be paid back no matter what. I doubt we'll see this warranty slapped onto Agency debt anytime soon as it would effectively double the National debt.
The second reason isn't due to the credit-worthiness of Agency debt. It is simply the fact that there are better yielding bonds to purchase. These are corporate bonds backed similarly by the U.S. Government.
The long and short of it is that I wouldn't expect foreign demand for Fannie and Freddie debt to strengthen anytime soon. To the average person out shopping for a mortgage there doesn't look to be any decline in rates spurred by the foreign investors coming.
- Andrew
- reference: Fannie Mae Rescue Hindered as Asians Seek Guarantee
Wednesday, February 25, 2009
Thursday, February 19, 2009
Stimulus Bill & Foreclosure Prevention
The American Recovery & Reinvestment Act was signed into law by PBO on Tuesday. On Wednesday PBO announced the foreclosure prevention program, Homeowner Affordability & Stability Plan. I am going to refer to these two separate initiatives by ARRA and HASP respectively for brevity.
What do they mean to the Everyman? (and woman) At this point it is unclear but they aim to help the economy and more specifically with HASP, the housing market. I will spare you the exact details as the actual texts are easily available for percolation at the Whitehouse website.
ARRA is essentially a spending program designed to get the economy moving again. There are many provisions but as I've already addressed the priority is job creation. As it pertains to people in need of mortgage financing this is a double-edged sword. Quite obviously, to obtain credit of any kind one needs gainful employment. (ie; a job) On the other hand, when applying for a mortgage one would like the benefit of historically low interest rates. Ceteris Paribus, job creation or at least slowed job loss should increase investor confidence spurring a movement towards stocks as the investment vehicle of choice. If money moves into stocks it has to come from somewhere. That somewhere on a very basic, macro-level is the bond market. Mortgage rates are tied to yields one can realize on Mortgage-Backed Securities, MBS. These historically have very similar yields (rates of return) to 10-Year Treasuries. As investors sell these bonds to move their money into stocks the yields rise making them more expensive to invest in. Thus mortgage rates typically rise. This is a very basic explanation of how the markets and investments work but it suits our purposes for the discussion at hand. If you'd like to get a little more detailed, take a class! (or call me)
If you're still following after that paragraph I'll summarize that the ARRA's success will drive up mortgage rates in the long-term.
On to the HASP. This plan is, WARNING: buzzword, "multi-pronged". I will spare you all the details but it's main aim is to spur mortgage servicers to modify loans to a variety of borrowers. This is a commendable effort and it remains to be seen how effective the HASP will be. Needless to say we should all be praying it helps on a meaningful level.
How will HASP affect mortgage rates though for people currently in the market? That is the pertinent question to this long-winded post. The answer isn't clear yet unfortunately. So far we've seen a selloff in the MBS market as well as a somewhat more muted negative reaction for 10-Year Treasuries.
During PBO's press conference to announce HASP, it was announced that the Treasury Department would continue its support of GSEs Fannie Mae and Freddie Mac through the purchase of $200B of MBS. Fannie and Freddie will also be able to purchase more MBS themselves with a $50B increase allowed in their portfolios. This all translates into much needed liquidity to lenders. With the increased liquidity rates should come down, ceteris paribus.
When we will see this relief in rates is a question no one can answer yet though. Hopefully it will be soon. A good indicator will be when / if the yield on 10-Year Treasuries falls to the low 2% range. Currently it is fluctuating around 2.82%. You can follow this if you look to the far right symbol ^TNX in the Market Conditions gadget.
That's all for now folks!
What do they mean to the Everyman? (and woman) At this point it is unclear but they aim to help the economy and more specifically with HASP, the housing market. I will spare you the exact details as the actual texts are easily available for percolation at the Whitehouse website.
ARRA is essentially a spending program designed to get the economy moving again. There are many provisions but as I've already addressed the priority is job creation. As it pertains to people in need of mortgage financing this is a double-edged sword. Quite obviously, to obtain credit of any kind one needs gainful employment. (ie; a job) On the other hand, when applying for a mortgage one would like the benefit of historically low interest rates. Ceteris Paribus, job creation or at least slowed job loss should increase investor confidence spurring a movement towards stocks as the investment vehicle of choice. If money moves into stocks it has to come from somewhere. That somewhere on a very basic, macro-level is the bond market. Mortgage rates are tied to yields one can realize on Mortgage-Backed Securities, MBS. These historically have very similar yields (rates of return) to 10-Year Treasuries. As investors sell these bonds to move their money into stocks the yields rise making them more expensive to invest in. Thus mortgage rates typically rise. This is a very basic explanation of how the markets and investments work but it suits our purposes for the discussion at hand. If you'd like to get a little more detailed, take a class! (or call me)
If you're still following after that paragraph I'll summarize that the ARRA's success will drive up mortgage rates in the long-term.
On to the HASP. This plan is, WARNING: buzzword, "multi-pronged". I will spare you all the details but it's main aim is to spur mortgage servicers to modify loans to a variety of borrowers. This is a commendable effort and it remains to be seen how effective the HASP will be. Needless to say we should all be praying it helps on a meaningful level.
How will HASP affect mortgage rates though for people currently in the market? That is the pertinent question to this long-winded post. The answer isn't clear yet unfortunately. So far we've seen a selloff in the MBS market as well as a somewhat more muted negative reaction for 10-Year Treasuries.
During PBO's press conference to announce HASP, it was announced that the Treasury Department would continue its support of GSEs Fannie Mae and Freddie Mac through the purchase of $200B of MBS. Fannie and Freddie will also be able to purchase more MBS themselves with a $50B increase allowed in their portfolios. This all translates into much needed liquidity to lenders. With the increased liquidity rates should come down, ceteris paribus.
When we will see this relief in rates is a question no one can answer yet though. Hopefully it will be soon. A good indicator will be when / if the yield on 10-Year Treasuries falls to the low 2% range. Currently it is fluctuating around 2.82%. You can follow this if you look to the far right symbol ^TNX in the Market Conditions gadget.
That's all for now folks!
Wednesday, February 18, 2009
Mortgage Calculator
The first nifty little gadget to the right is a mortgage calculator. There are a bunch of them out there but I chose this one because it shows you an easy to understand amortization table along with your monthly payment.
Step 1 - Enter your purchase price (or loan amount if you're refinancing)
Step 2 - Enter the down payment (or enter zero if you're refinancing)
Step 3 - Self-Explanatory
Step 4 - Enter your interest rate (you should call me first so I can tell you what to enter!)
Step 5 & 6 - Self-Explanatory
Step 7 - Hint: If you're Loan-to-Value exceeds 80% you will have PMI. It is is calculated at different rates through a variety of mortgage programs. To find out your rate you need to speak with your mortgage professional. (Me)
Presto!
Now a pop-up window will appear with your monthly payment and amortization table. If you have PMI it will also show you the monthly payment when you can drop the PMI assuming the date you will achieve 80% LTV. The amortization table is color-coded too so you can easily read the amount of principle, interest, taxes and insurance.
That's it. Contact me if you've got any questions.
Step 1 - Enter your purchase price (or loan amount if you're refinancing)
Step 2 - Enter the down payment (or enter zero if you're refinancing)
Step 3 - Self-Explanatory
Step 4 - Enter your interest rate (you should call me first so I can tell you what to enter!)
Step 5 & 6 - Self-Explanatory
Step 7 - Hint: If you're Loan-to-Value exceeds 80% you will have PMI. It is is calculated at different rates through a variety of mortgage programs. To find out your rate you need to speak with your mortgage professional. (Me)
Presto!
Now a pop-up window will appear with your monthly payment and amortization table. If you have PMI it will also show you the monthly payment when you can drop the PMI assuming the date you will achieve 80% LTV. The amortization table is color-coded too so you can easily read the amount of principle, interest, taxes and insurance.
That's it. Contact me if you've got any questions.
Tuesday, February 17, 2009
The Stimulus Bill
President Obama signed the $787 Billion American Recovery & Reinvestment Act into law today. Woohoo! 4.00% here we come! Right?
Not quite yet. Expect the specifics of the Bill to be analyzed via every conceivable news outlet known to man in the next fews days. Well maybe there will be a lack of coverage on Al Jazeera and maybe in sunny North Korea.
So far though we haven't seen any real effect on mortgage rates. The 10-Year Treasury Note opened up a bit this morning causing rates to hover in the mid-5.00% range. The Dow lost ground closing down 297.81.
I foresee any gains in bonds and thus mortgage rates to be realized in the next few days as the market reacts to this stimulus.
Mortgage rates should dip if the Treasury plans on buying up "toxic" mortgage-backed securities from Fannie and Freddie. That was what caused the big decline into the high 4.00% range a month ago. We should also see some relief from the artificially inflated rates as lenders continue to clean out their pipelines.
Keep in mind though that the number one priority of the Bill is job creation which won't necessarily be good for mortgage rates in the long-term. As job losses slow and new jobs are created the stock market will most likely rally at the expense of the bond market and thus mortgage rates.
One of the more interesting provisions in the Bill is the extension of the First Time Homebuyer Tax Credit. In a nutshell this is a $8,000 interest-free loan from the IRS for purchasing a home before December 1, 2009. More to come on this though when I see the finalized version in print.
- Andrew
Not quite yet. Expect the specifics of the Bill to be analyzed via every conceivable news outlet known to man in the next fews days. Well maybe there will be a lack of coverage on Al Jazeera and maybe in sunny North Korea.
So far though we haven't seen any real effect on mortgage rates. The 10-Year Treasury Note opened up a bit this morning causing rates to hover in the mid-5.00% range. The Dow lost ground closing down 297.81.
I foresee any gains in bonds and thus mortgage rates to be realized in the next few days as the market reacts to this stimulus.
Mortgage rates should dip if the Treasury plans on buying up "toxic" mortgage-backed securities from Fannie and Freddie. That was what caused the big decline into the high 4.00% range a month ago. We should also see some relief from the artificially inflated rates as lenders continue to clean out their pipelines.
Keep in mind though that the number one priority of the Bill is job creation which won't necessarily be good for mortgage rates in the long-term. As job losses slow and new jobs are created the stock market will most likely rally at the expense of the bond market and thus mortgage rates.
One of the more interesting provisions in the Bill is the extension of the First Time Homebuyer Tax Credit. In a nutshell this is a $8,000 interest-free loan from the IRS for purchasing a home before December 1, 2009. More to come on this though when I see the finalized version in print.
- Andrew
Inaugural First Post
Good Morning Internet,
I've decided that blogging isn't the worst thing in the world. The steroid scandal in baseball is! Right... right? It's not like there's a monumental financial meltdown on a global scale to deal with...
Anyhow, this is my first post so I imagine you all would like me to get to it. My blog is going to be a somewhat informative and hopefully amusing commentary about the mortgage industry, housing market and political arena (most of the time). The next few nuggets I'll throw will be a little tour of the gadgets on the right. Look right. Waiting. No; more righter. Still waiting. There you go!
A quick rundown; There is a nifty mortgage calculator, a little chart with current market snapshots, a link to the ever important Leading Indicators, some links to peruse, who might be following my bully-pulpit on a regular basis, a subscription thingy and a disclaimer so you don't try to sue me!
Wrapping this up so I can get to work; check back often for info on rates, new loan programs, my market analysis for the average Joe (not the plumber) and other things I may decide to write about. The blog will probably evolve with cool new functions as I learn more about how to use it as I'm new to this whole thing.
That's all for now folks!
- Andrew
I've decided that blogging isn't the worst thing in the world. The steroid scandal in baseball is! Right... right? It's not like there's a monumental financial meltdown on a global scale to deal with...
Anyhow, this is my first post so I imagine you all would like me to get to it. My blog is going to be a somewhat informative and hopefully amusing commentary about the mortgage industry, housing market and political arena (most of the time). The next few nuggets I'll throw will be a little tour of the gadgets on the right. Look right. Waiting. No; more righter. Still waiting. There you go!
A quick rundown; There is a nifty mortgage calculator, a little chart with current market snapshots, a link to the ever important Leading Indicators, some links to peruse, who might be following my bully-pulpit on a regular basis, a subscription thingy and a disclaimer so you don't try to sue me!
Wrapping this up so I can get to work; check back often for info on rates, new loan programs, my market analysis for the average Joe (not the plumber) and other things I may decide to write about. The blog will probably evolve with cool new functions as I learn more about how to use it as I'm new to this whole thing.
That's all for now folks!
- Andrew
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