Mortgage Market Update From Tom Balk

Well, it has been an exciting few weeks. Four weeks ago the yield on the 10 year bond was 2.85% and today it ended at 3.85%. This has resulted in interest rates being a lot higher than 2 weeks ago. If you get an offer on one of your listings, make sure you have the Max interest rate at the appropriate level because there have been cases of buyers backing out of deals due to the higher rates.

In the past two weeks, rates have increased by about 1%. Where are those “experts” that told everyone to hold off for that 4% rate?

So what has happened? In simple terms there are too many mortgage backed securities and not enough buyers. Long term investors are becoming more concerned about the massive amount of debt that the US Treasury is issuing. A situation of over-supply. This year, lenders have been making a lot of loans. The loans have now been packaged into mortgage backed securities and are hitting the market. While the US Treasury has been buying many of these, they cannot buy them all. So, as in Economics 101, when there is an oversupply of inventory, what can you do? You lower your price. Lowering the price of mortgage bonds causes the yield to go up and this attracts buyers. With the higher yield come higher interest rates.

No one knows whether the market is ‘oversold’ or whether this pricing is realistic based on the fundamentals of the Government debt issuance.

These are interesting times …….

I have been asked ‘Who/What is Mortgage California?’. We are a subsidiary of PHH Corporation; the 5th largest mortgage originator in the US. We are originating $2.5 BILLION in mortgage loans every month, so we are big, stable and we are good at what we do. Unlike some other lenders we have never run out of funds to fund loans.

Remember that FHA loans are now available up to $729,750 with a down payment of only 3.5% (the lowest down payment available in the market). Keep this in mind as Open House visitors ask about possibilities.

I am firmly convinced that 3 years from now we will look back and “What a Great Opportunity 2009 was. Interest rates were low and property values were very affordable.”

Please remember that I am available if you get an offer on one of your listings that you would like me to review the ‘mortgage approval’ letter that comes with it. Some lenders have closed their doors and the letters out there are truly not worth the paper they are written on. This review is another step to protect your sellers from having the property tied up in an offer that has little chance of closing.

These quoted rates are for Full Doc Purchase transactions with either no prepay penalties or a 1 year penalty and good credit. Rate ranges are shown when LTV and/or credit scores and/or loan size affects the rates offered; I hope this makes sense because rates at 900K are different form 700K and also from 600K:

• 30 year Jumbo fixed 6.5 to 6.875% at 1. point
• 10 year (then ARM) Jumbo- 5.5 to 6.0% at 1.0 Point
• 5 year (then ARM) Interest Only Jumbo-5.5 to 6.0% at no points
• 30 year Conforming-Jumbo fixed 5.625% at 1 point (Up to $729,750)
• 30 year Conforming fixed 5.5% at 1 point (Up to $417,000)
• 30 year Conforming fixed 5.875% at No points (Up to $417,000)

As always, email tom@afirealestate.com to continue the discussion.  We look forward to hearing from you.