Posts Tagged ‘Bonds’

I was asked a question earlier this week, “Why are mortgage interest rates so volatile?” The answer is extremely complicated so I tried to come up with a way to explain rate volatility while not making her eyes gloss over with boredom. The easiest answer is profit and loss. Lenders only change rates when they believe they can make more of a profit (rates come down) or they are worried that their rate spread might be impacted (rates go up). This is a very simplistic way to view the mortgage market but in a pinch it will help a person who is not in the mortgage business to understand when the right time is to lock. For instance today the FNMA 30 year mortgage bond closed 25 basis points higher than when it opened this morning. This left lenders in a position to reprice conventional and FHA rates better. Why would they do this? In a word, profit. The lower interest rates are, the more deals they will close. But the lender will not allow their interest rate spread to be affected. So, by Monday if the Bond market is down, rates will go up. If you follow my twitter account @Hollander_FHA, you will see my tweets that tell you when to lock a rate or when to float with the market. When I say lock it means rates are going up and when I say float it means rates are coming down.

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After a turbulent week we closed with interest rates climbing a little. This was due to better than expected economic news and the fact that Fed Chairman Bernanke stating that the economy was close to a recovery. That sent the stock market up and the bond market down. This ultimately raised mortgage rates. I believe that this was nothing but smoke and mirrors with the national unemployment rate rising to 9.5% unemployment rate rose to 11.2% in California and over 12% in Nevada. These numbers have not been seen since the early 80’s. The reason for my disappointment is this. If mortgage rates continue to climb and we see FHA rates climb to 6% it will halt approximately half of the loans currently in process. The reason for this is they will no longer qualify. My belief is that today was just another dip on the current rollercoaster ride that has become the FNMA 30 year mortgage bond market. Til next week.

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Foreclosures have risen 7% from June to July. In fact, they are up by 32% from July 2008. This means that this is the third time this year that foreclosure activity has set an all time new record. Nevada, California, Arizona, Florida and Utah are the top 5 foreclosure states. Coupled with the fact that Fed chairman Ben Bernanke decided to leave the fed funds rate at .25% and alluded to the fact that he will recommend that the rate hold through the rest of 2009. This means that conventional and FHA Interest rates will hold steady for the rest of this year. Of course there are bound to be peak and valleys in the FNMA 30 bond market and rates will adjust accordingly. The bottom line is this: The American economy is just starting to bottom out and our recovery will be slow. BUT with rising foreclosures and low interest rates the time to purchase a home is now. This will put money back into the economy and it will help our recovery.

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The FNMA 30 year mortgage bond continued its weekly roller coaster ride this week and went from good to bad as the week progressed. Friday saw the worst prices of the week which increased rates substantially from Monday’s opening. The reason for the increase in interest rates was a surprising decrease in unemployment claims. This is just another turn in an already crazy market. I fully expect interest rates to recover and go back down in the next few weeks. In fact it will probably happen earlier if the current roller coaster ride continues. Just an FYI, FHA interest rates traditionally don’t adjust as quickly as Conventional rates. So if you are looking to lock in a FHA interest rate with your lender you may notice that your rate has not moved much this week.

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