Mortgage Rates on the Move

In today's rapidly changing environment, we are constantly working to keep our thumb on the pulse of the market. Our preferred lenders offer us a big hand in this by sending us frequent updates on changes in their market. The following article was provided for us by Chris Tanner & Associates, detailing last week's activity.


"Rates on the Move"
Thursday, March 19th, 2009


Current Price of FNMA 4.5% Bond: $102.47


Big news hit the wires yesterday afternoon, as the Fed made a blockbuster announcement that sent Mortgage Bonds into rally mode. The Federal Reserve announced that over the course of 2009, they will purchase an additional $750B of Mortgage Backed Securities in an effort to help short up the housing market and keep home loan rates low. On the announcement, Mortgage Bonds exploded higher, leaving prices within whiskers of the best levels ever.


However, as we stated in yesterday's Alert to Float, be sure to share with your clients that based on which coupons the Fed purchases, their actions may keep a lid on rates, but not necesarily push them dramatically lower. And due to the issue we've also discussed of lenders still not working at max capacity, they are very likely not going to pass all the gains through to our rate sheets, as we are already hearing this morning. The good news is that perhaps this will help lenders feel more comfortable staffing up a bit, as this purchase program will certainly keep rates from moving significantly higher any time soon - and this will also give time for the new 105% refinance plan to work as well. Bottom line - although the media is already spinning it differently, this is still not a time for clients to stay on the fence, hoping and waiting for lower rates. Home loans rates remain within inches of all-time historic lows, but may not necessarily move significantly lower based on this purchasing plan - waiting is a very risky move.


The Fed also said they will purchase $300B in long term Treasuries... wo why Treasuries? The Fed wants to keep the spread between Treasuries and Mortgage Bonds from widening, because as Mortgage Bond prices move higher, the yield or return on them may not be as attractice as those available in Treasuries. So, if the Fed buys Treasuries, the yield on those instruments will also be driven lower, thereby keeping a normal spread between Treasuries and Mortgage Bonds. And the Fed only has to buy $300B in Treasuries to have the desired impact, as the Treasury market is much smaller in size when compared to the enormous Mortgage Bond market. The Fed also said that the buyer of 2-year and 10-year Notes will help push down rates on business and consumer loans - good news there to help incent business and consumer purchasing. Both Stocks and Bonds sure liked what they heard from the Fed, and financial stocks have continued their recent tear higher.

Now... something else worth paying attention to - since yesterday's Fed Meeting, the US Dollar has gotten clocked, as the aggressive Fed moves appear quite inflationary. In turn, this has pushed Oil up to $51 per barrel, nearly $5 higher since yesterday afternoon. Gold, which is purchased as a hedge against inflation, is up near $950 an ounce - moving up $60 on the day! While we know there is no inflation at the present time, the chatter of future inflation could have a negative effect on Mortgage Bond prices ahead, or at least stifle their moves higher - yet another reason to get your clients lined up to take advantage of present historically low rates.

Initial Claims data took a back seat today with all of the fireworks from yesterday. 646,000 people filed for jobless benefits, lower than expectations of 655,000. The number of people collecting state unemployment benefits jumped by 185,000 to a record seasonally adjusted 5.47 million.

The all-time closing high for the FNMA 4.5% Coupon is $102.56, and a look at the Bond page shows how close we are to that level. We can continue to Float, but very carefully, especially as we watch how lenders pass on the pricing improvements. Should Bond prices start to back off further from these levels,we would like to protect the recent gains.