8 Keys to the Mortgage Market in 2011

Click on the title to link.

We find it quite funny how the government seems to think that more and more regulation is the answer (see Keys #1 and #2). This has proven so far to help some, yet make doing and getting mortgages extremely difficult. At times it has prevented folks from getting a mortgage that would be very helpful to them, or has punished folks by making it more expensive for the customer or us. It's not right. Does the government honestly think that "mortgage disclosure reform" is the answer? Are you kidding me? Yeah, that was the reason for the real estate/mortage mess. If they honestly think that then we are in big trouble.

Numbers 3-8 are so "pie in the sky" right now that it is almost laughable. Basically they are saying everything needs to get back to what it was and then it will be alright. Wow, that really insightful "keys" you all came up with. Not going to happen, folks.

There is one primary key to the mortgage market this year and that is the Federal Reserve (Key #8). Their "Quantitative Easing" plan is so full of holes that it could not hold water if it wanted to. Frankly, we are relatively convinced that the Reserve does not know what exactly to do because they are running out of options. Flooding the economy with Billions of dollars is not going to lower rates. It is, in fact, going to raise rates (as it has quickly done). Then when inflation kicks in what is going to happen? Rates will go higher, faster. Why the Feds do not seem to get this is utterly beyond us. But it's simple economics.

Where Are Rates Going

The million dollar question - maybe it's the billion dollar question - a million just doesn't mean as much any more. The truth, as it always has been, is that we don't know where rates are going. However, what we do know is that when inflation goes up, so do long term interest rates, which includes mortgage rates. We also know that the Federal Reserve Board (with the infamous Mr. Bernanke at the helm), has recently begun a new round of bond buying (known as QE2), and that the intention here (at least in part) is to spur inflation. Based on what we're reading, it sure doesn't seem anything needs to be done to "spur" inflation.

Much of the recent financial news is beginning to report various inflationary concerns; not the least of which is in relation to commodities, which results in higher prices to consumers on food and other every day types of items. We've read that turkeys will cost 30% more this year; and that cotton futures are up 90% this year. Looks like jeans and t-shirts will be going up soon.

What does all this mean? There is real inflation here, and the bond markets (including mortgage backed securities) reacted with a huge sell off last week. This sell off means mortgage rates increased by about .25% last week, and this week is off to a similar start. One expert we read said, "Unless there is a huge negative economic decline, the end has come for low rates". Of course, while the indicators are pointing a certain direction, even the experts can be wrong - and in fact they are wrong often.

The good news: mortgage rates are still at ridiculously low levels. Yes, they did get down to the 4.25% range, and if you were able to take advantage of those rates, fantastic. But even with the recent uptick, they are still in the 4.5% range. These rates are still fantastic, so if you've been considering exploring your options for purchasing or refinancing, it appears now may be the time.

As always, we welcome your thoughts and questions.

Recession or Recovery?

Click on the title to link. This is an interesting article as it talks about how this "recovery" sure feels and looks like a recession. Don't kid yourself into believing that we are in "recovery" mode. We are smack-dab in the middle of a recession still. Do you feel recovered? This is one of the first articles we can remember seeing that actually admits to this.

Adding more reason to believe this...the Fed Reserve is desperate to get the economy going. So much so that they are talking about printing 6-7 trillion dollars worth of money to flood the economy with cash in the hopes that it will stimulate people to spend. The problem with that stupid idea? Inflation will sky rocket, rates will go with it, and the value of the dollar will plummet. They are in a mess and don't know what to do.

Next Up For Fannie & Freddie?

Click on the title to link. This is a great article discussing what may happen next with Fannie and Freddie. Ever since these institutions were officially taken over by the Feds they have been nothing short of a disaster. Once again, Congress may be ready to start mingling, and if they are not careful it may have much more serious implications than our already struggling economy.

Click here for a video on the same topic.

Rate Update

We have been counseling people now through this rate madness stating the following, "We expect rates to stay fairly constant for some time due to the economy. They will fluctuate up and down, but mostly average the same. Although we believe there is more pressure for rates to go down, we do not see that happening unless the government steps in and does something drastic to force them down."

Well, that is exactly what they did today. The Feds announced this afternoon that they will purchase 1.1 Trillion worth of securities to help stimulate the economy. This should, in all likelihood, drive rates down a fair amount. Although we have not seen the full effects of that yet, we will continue to monitor the overall affects constantly. If you have any questions about rates do not hesitate to call us at 830-9685.

Visit msnbc.com for Breaking News, World News, and News about the Economy

Why Aren't Rates in the 4's?

For those of you who continue to hear about these amazingly low rates, well here is a great summary of why rates have actually been going up and not back down into the 4's (and lower). This is from our friends at Assurity Financial Services.

WHY MORTGAGE RATES AREN'T IN THE 4'S: Further to the idea that congress and others in government are wasting our hard earned taxpayer dollars and not exactly being on the up-and-up with their actions, I brought to light a point a couple of market updates ago that I am told is going to be published in the Wall Street Journal soon (stay tuned). That point was that, even though the Federal Reserve said they were going to step into the markets to purchase mortgage-backed securities, they have done so in a rather surreptitious and insincere fashion. What I mean here is THEY HAVE INTENTIONALLY BOUGHT, AND CONTINUE TO BUY, THE WRONG SECURITIES!!! Go see for yourself!!! You can go to the New York Federal Reserve website, http://www.newyorkfed.org/markets/mbs/archive_2009.html, and see that the vast majority of what they bought over the past few weeks was NOT the 4.00% coupon mortgage-backed securities that contain mortgage note rates generally from 4.25% to 4.875% they all told us they were committed to American's having. Oh, no - they bought a lot of 5.5%'s 5.0%'s, and a few 4.5%'s, all of which are actually backed by - you guessed it - mortgage note rates primarily north of 5%. THAT IS A LARGE PART OF THE REASON THAT WE DO NOT HAVE MORTGAGE RATES WITH A "4" HANDLE. Want to know why they did this? Think about it - you give the market a head-fake like you are going to buy mortgage-backed securities the support mortgage rates of 4.5%. The market then rushes in ahead of you and does the work for you (i.e. EVERYONE ELSE starts to buy those securities). Rates go down as a result of these broader-based market purchases. You actually buy the higher coupon mortgage-backed securities yourself to keep up the charade of making MBS purchases, but the ones YOU are buying actually pay off when the underlying mortgagors refinance due to the lower rate environment created by the other participants you faked-out in the market and YOU get your money back. At the end of the day, you haven't committed to do anything other than try to talk the market down so you could get your money back in a few short months - hardly the long term commitment to use MBS purchases to drive interest rates to 4.5% that we were all sold back in November and December. Wall Street sniffed this one out the minute one hand of the government didn't talk to the other hand and they posted the trade tickets on the New York Federal Reserve Website in the middle of January for all of us to see. Anyone remember exactly when the dead-low in mortgage rates was?!? It wasn't an accident. It is unconscionable that the government could have tried to get away with this and to have deceived the taxpayers and tried to deceive the markets like this - no wonder the markets are in a heightened state of turmoil and mistrust these days!!!

The Devaluing of the Dollar

Take Advantage of This Market

The Feds spoke today saying it may take 2-3 years to recover from this recession. That is not really a suprise from everything else we have been reading. But we also read another article about the housing market and how 2008 was one of the worst slide in history. So now what? Well, like we have been saying, now is the "perfect storm" to buy a house, especially if you are a first time home buyer because you do not have another house you have to sell. Demand is low and supply is high, which means deals are all over. For you ABQ folks, they are out there but you just have to look a little bit harder. Our market has felt the effects, but no where even near to what most of the nation has. Here is a little blurb from the referenced article we read on MSN:

Those best positioned to enjoy the discount:

1. Buyers who have good credit, stable employment and a down payment saved, including younger, first-time buyers who have been waiting for prices to drop so they can get into the housing market.

2. Sellers who still have plenty of equity in their homes, so they can afford to drop their selling price and use their equity to trade up to a better house.

3. Homeowners who can afford to wait out the bad years and feel no pressure to turn a profit anytime soon.

Opportunity Abounds

Click the title to link. Is your glass half empty or half full? The Feds today said the economy will get worse before it gets better. They are projecting 2011 before we pull out of this mess. Plus they said our economy would shrink more and unemployment would be higher than expected. So what does all of this mean?
1. It is all predictions and they do not actually know what will happen.
2. We are telling you, this is an incredible time to buy a house or refi. Take advantage of this opportunity because we will pull out of this eventually; home prices will increase because demand will rise while supply shrinks. Now is the time.

Feds Should Keep Rates Low

Interesting stuff from the Feds today. They are making noise that they will keep rates low throughout the year. What is most interesting is the fact that they may be open to buying treasuries and mortgage back securities. If that happens, it should lower mortgage rates. This is a reason rates have been up a bit lately, because they are having a hard time finding buyers of these mortgage backed securities. Stay tuned.

Visit msnbc.com for Breaking News, World News, and News about the Economy

Fed's Drop Rate Again....alot

You're probably aware by now the Federal Reserve has voted unanimously to lower the overnight lending rate, or the federal funds rate, to .25%, it's lowest point since 1954.

The goal of the Fed's here is to stimulate the economy. How you ask? The idea is that consumers, particularly large consumers such as businesses, will begin to borrow and spend due to the cost of the borrowed funds being so cheap. Will it work - who the heck knows? Only time will tell. Our hunch is it's going to take more (such as the job loss bleeding to stop); but, we are still optimistic. Why not, right? Being pessimistic isn't going to do anyone any good.

BUT, for those of us with a home equity line of credit, this is a great thing. This means the prime rate will drop to 3.25%! Wow! And some of you may have a line of credit with terms at prime minus some %, so you could be looking at borrowing against the equity in your house at less than 3%. Truly amazing. Please though - remember that these rates could go up just as fast as they went down. So use these line's of credit wisely.

I'm sure the main question most of you have is: "will the mortgage rates go down as a result?". As of now, the answer still seems to be no. It appears the market for mortgage backed securities has hit somewhat of a bottom, putting rates in that 5.5% range. But one thing we've learned over the last few months is that the only certainty is volatility. Rest assured we are monitoring rates and will get the word out if they dropped as some have speculated.