Alright the fed bailing out Fannie Mae and Freddie Mac is just what we need to push rates back down into the 5’s. Right now today we can offer a 5.875% rate if you are paying closing costs on loans over 250K. Not only did we stay above the 200 day moving average but today jumped over 100 BPS above which is great news for rates over the coming weeks and months. I think it is just a matter of time before we give back some of these gains but for now enjoy the ride and if you know of anyone with rates higher than 6.5% let me know so we can work on saving them some money. This is hopefully just the beginning where rates will drop – stay tuned.
Below is an excerpt from the MMG daily advisory I get which explains the bailout that happened this weekend. This will help give you an understanding of the financial markets, but if you have any questions or my team and I can help your clients, let me know.
Best regards,
Jeff
Mortgage Bonds are soaring higher on yesterday's announcement that Fannie Mae and Freddie Mac will come under control of the government. This announcement came as the government felt both these institutions will no longer be able to meet their mission statement which is to provide liquidity, stability and affordability in the housing markets.
Fannie Mae and Freddie Mac both have issued many Bonds which over time mature, and Fannie and Freddie need to pay back the principal on the maturing Bonds. The way they raise capital to pay these maturing Bonds is to issue new Bonds. This happens every month. And as long as Fannie and Freddie can sell new Bonds this system works well. But the problems in the mortgage industry have reduced investor appetite to purchase these Bonds...and that's where the trouble begins. Without the ability to sell new Bonds, Fannie and Freddie are less able to meet the capital requirements to pay off the maturing Bonds. And that's the big fear. If Fannie and Freddie were to default and become insolvent, it would throw the beleaguered mortgage and housing markets even deeper into the abyss.
Additionally, the recent lack of appetite for Fannie Mae and Freddie Mac Bonds caused the two mortgage giants to have to do something to make their Bonds more attractive...so they offered their Bonds at higher yields to gain more investor interest. However, since they couldn't go back and raise rates on loans that had already been closed, it sucked even more profits out of Fannie and Freddie, reducing capital even further, and exacerbating the problem.
That's why the Treasury has stepped in and said that they will back the payments on these Bonds. This action has given investors a lot of confidence to step in and now buy Mortgage Bonds. Think about it. For a higher rate of return, investors can now buy Mortgage Bonds with the same guarantee as lower yielding Treasury Bonds. This is causing a nice rally in pricing this morning - which combined with the break above the 200-day Moving Average - leads to attractive rates and what could be the aforementioned refinance season ahead.
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| the week of Sep 08, 2008 --- Vol. 6, Issue 37 |
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| Last Week in Review |
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| "THE BEST WAY TO APPRECIATE YOUR JOB IS TO IMAGINE YOURSELF WITHOUT ONE." Oscar Wilde. And for many Americans, job loss is not just something they are imagining - it's reality - as the Labor Department's August Jobs Report showed that the US economy has lost 605,000 jobs so far this year. Last Friday's Jobs Report revealed several important pieces of information. In terms of job losses, the report showed that 84,000 jobs were lost in August and that the numbers for June and July were heavily revised, so that an additional 58,000 jobs were erased. But the real buzz came when the report showed that the Unemployment Rate swelled to 6.1% from 5.7%, which marks the highest Unemployment Rate since September of 2003. And since jobs losses are bad for the economy...and bad news typically causes money to flow from Stocks into Bonds...on Friday morning, Bonds and home loan rates initially built on the improvements they made earlier in the week. However, Stocks were able to rally later on Friday, and while Bonds and home loan rates gave back some of the improvements they made, they were still able to remain above an important floor of support at their 200-day Moving Average (a moving average is the average closing price of a financial instrument over a given period of time). So despite the worsening trend for Bonds late day Friday, home loan rates still ended the week nearly .125 percent better than where they began. MAKING SMART SPENDING CHOICES IS A WISE THING TO DO IN ANY JOB MARKET! CHECK OUT THIS WEEK'S MORTGAGE MARKET VIEW FOR SOME GREAT GROCERY SPENDING TIPS! |
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| Forecast for the Week |
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| We will likely see another volatile day on Friday this week, with the delivery of two high impact reports with the potential to shake things up. Both set for release at 8:30am ET, we will see the wholesale inflation measuring Producer Price Index, as well as the Retail Sales Report. It will be important to see if the recent drop in oil prices has made an impact on either the cost to manufacture (PPI) or if it has invigorated retail purchases due to the savings in the cost to fuel vehicles. Inflation at any level remains a strong concern, so the Producer Price Index will be of high interest to many, including the Fed. On the Retail Sales Report, remember that a strong Report would be good for the Stock market - which stands to reason, as it would indicate continued consumer confidence and dollars being poured into the economy. But stronger economic news and higher stock prices will likely worsen Bonds and home loan rates. The aforementioned 200-day Moving Average, seen below in blue, is an important threshold in determining the direction of home loan rates in the coming weeks. A convincing move above this line would be good news for Bonds. Let's watch this closely, as it may represent some opportunities ahead. Remember when Bond prices move higher, home loan rates move lower...and vice versa. As you can see in the chart below, Bonds and home loan rates managed to stay above the 200-Day Moving Average. I will be watching closely to see if Bonds and home loan rates can remain above this important level. Chart: Fannie Mae 6.0%% Mortgage Bond (Friday Sep 05, 2008) |
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Disclaimer : The above opinion is the writer's and I would advice my clients to do their due deligence.
MANISH PATWARIExit Premier Real Estate
85 Wilmington Road Burlington MA 01803
Website : www.manishpatwari.net
E-mail : mpattu@gmail.com
Cell : 781 325 3938
Fax : 781 270 4775
