A MUST READ...

This is chalk full of good stuff that you'll want to be aware of... let's begin with a chart which you'll see on the right. This is our daily mortgage backed securities snapshot. In green you can see there is a clear downtrend right now in mortgage backed securities which will lead to higher interest rates. For reason I will discuss momentarily, I don't see rates getting better for at least another week, if ever.... but I'm getting ahead of myself. The yellow graph is the treasury yield, steadily climbing and fueling the sell off of mortgage backed securities. Should Europe continue to stabilize and the Euro find its feet, the treasury yield is most likely going to continue to rise bringing mortgage backed securities down further and interest rates higher. 3.500% was always our favorite resistance level for the 10 year treasury yield when rates have been at their lows. We're currently at 3.38%... well below; but climbing, and lest we forget it was not long ago that treasury yields were breaching 4.000%... but I digress.

Let's take a look at another graph... one year of mortgage backed securities...


This graph I think really puts things in perspective. As you can see recently we have returned to the highs of last year that brought the historically low interest rates. The circles I have added to represent an interesting point that many do not consider. Last year when these rates reached these lows, it was unprecedented. Consequently borrowers flocked to lenders looking to refinance. The demand forced underwriting turn times up to in some instances 30 days before case were even reviewed, but more importantly is allowed lenders to charge a larger haircut on the loans they were producing. Higher demand meant they could charge a higher premium for the product so the incredible pricing in the mortgage backed securities market was not passed wholeheartedly in their pricing. When pricing finally hit its high point demand was again incredible high so the best rates produced were stiffened by the demand for these rates. Fast forward to today, the vast majority of people that wanted to refinance did refinance. The demand is significantly down so the incentive lenders must include in their rate sheets (the haircut) is better. Consequently despite the mortgage backed securities market reaching the absolute peak in its trading history, the rates offered today are as low as they were when we were at this peak.

Moving forward however, indicators suggests these rates are rising... Below I have included a futures sheet of Mortgage Backed Securities trading. As you can see higher priced coupons are green (people are buying) while the lower notes are selling off. We must also pay attention to future months which typically trade lower than current months. In about a week we will experience roll. Roll refers to when the current month of trading turns over into the future month of trading. June will become July. As roll approaches investors have less incentive to invest in current coupons because they are about to turn over. Typically this will lead to pull back, and our July coupon is trading a full 12 ticks lower than its June counterpart. Here's a look at futures...


In addition we have to consider what is happening overseas in Europe. The LIBOR or London Inter Bank Offer Rate is currently rising. This means the interest rate banks loan money to one anther is rising. If the cost of their doing business rises you can be sure that they will pass that cost on to consumers and the easiest way for them to do this is through the interest rates they offer.

All of this information suggests rates are poised to move up in the coming months, and it there is no evidence right now that suggests they are going to come back down again should they go up.

Anyone with a adjustable rate mortgage should look at a fixed rate immediately. Those who are in contract to buy a home should look to lock their interest rate. If you are looking to buy and have not found a home, this may be a good reason to call your agent and step things up a notch.

Questions are always welcome, and if you need to contact us directly here is our website: http://www.homeloanorg.com