Tuesday 3/24…Holding Ground Despite Downward Pressure

Yesterday was a pretty uneventful day for mortgage backed securities.  They traded in a pretty tight range closing about the same level they opened.  So far this morning, MBS have moved lower by about a .125 in discount.  We should see par 30 year conventional rate mortgages anywhere from 4.625% to 4.875% depending on the lender.  To get a par interest rate, you would have to have 740 credit scores, pay all closing costs and 1 point loan origination or broker fee.  Interest rates are like anything else you buy; the more you pay the better the rate.  If you want a rate without paying a point, expect your interest rate to be anywhere from .25% to .375% higher.  I recommend to my clients that if they are planning on keeping a home for more than 3 years, it is better to pay a point and get a lower rate.  The savings at the lower rate will pay back the up front investment and over time save the client thousands in interest. 

Today we get no economic data but we do have a couple significant events taking place.  First, Secretary of Treasury Tim Geithner and Fed Chief Ben Bernanke will be testifying again at the House Financial Services Committee.  Their testimony is supposed to be in regards to the AIG bonus issue where AIG executives received $165 million in bonuses.   I sure wish that Congress would more focus on the $8billion in pork in the last bill they passed as apposed to the bonuses that were paid due to contracts already in place.  Oh, but Chuck Schumer said that Americans don’t really care about these porky little amendments.  Off my soap box.  Their testimony always has the ability to move the markets so investors will be listening to every word they say.  Lastly today, we do have a treasury auction of 2 yr treasury notes.  With the added supply of debt available to investors, it could apply pressure on treasury yields to increase which will also apply pressure on mbs to move lower in price which increases mortgage rates.  Hopefully, the auction will be well received by investors with high amount of foreign participation.  So far this year we have seen very good demand for our treasuries even though we have had a record amount issues for sale.

The big news yesterday which sparked a huge stock market rally was the release of details of the Treasury’s plan to get “toxic assets” off the books of lenders.  The idea being that once these debts are sold off to private investors, banks will now have capital freed up which they can then start to lend.   Usually, when the stock market rallies, MBS and treasuries sell off.  Well, yesterday treasuries sold off but MBS held their ground.  This is probably due to the extra $750 billion that the Fed announced will be used to buy more MBS.  The government is doing all they can to encourage low rates and they are being successful.  If you are sitting on the sidelines wondering if you should refinance now or wait and hope that rates go lower, let me help you with some advice.  Get off the fence, buy or refinance now as rates are under 5%.  Yes, rates might go lower but much more room above for rates to go higher.  In addition, if you are waiting, there are many things outside of your control which might negatively affect your ability to buy or refinance.  For example, our economy is still doing rather poorly.  The company you work for is probably making less money and might need to cut back on expenses.  It is quite difficult for a company to reduce their rent payment as that is pretty much fixed, but one expense and their largest expense that can be cut very easily and quickly is labor expenses.  I have spoken to several clients who wanted to wait to refinance but then got laid off and now cannot qualify.  With no job, there is no hope for refinancing even with any of the government programs being released.  So, contact your mortgage professional, get moving on your refinance than you can forget about your mortgage as you will have a record low interest rate. 

So far this morning, the stock market has opened down about 80 points, the 10 year treasury yield is moving lower from overnight levels and MBS have regained what they lost this morning and are back to same levels as yesterday morning.  This should result in very similar rate sheets today as the ones we saw yesterday morning.  Early reports from fellow mortgage professionals do confirm very similar rate sheets this morning.