MBS shows resilience as equities rally

The closing of last week was an interesting one... as investors sold out of positions preparing for the long weekend. After a good day of food, eyes were on Black Friday and Europe... would retail sales produce a number that suggested a weak or strong economy? And of course with Europe operating as usual, there was always a chance for a headline that would rock our markets.

Today, our first trading day after the long weekend, and the results are in... with everyone focused on how strong sales were over the weekend. 52 billion sold... at first this number is baffling... onw that the market has had a little time to digest it, the question everyone is asking is where's the beef?

Beef of course being profit... with profit margins tighter than they every have been, one has to wonder was this Black Friday not as successful as retails would like everyone to believe? Was the real benefit of Black Friday a turnover in old inventory?

This last question has many worried, and is the explanation behind both stocks and bonds rallying.

Bulls and Bears are having it both ways today, a rare day... which suggests we're still consolidation...

Week of Consolidation in MBS

The mortgage backed securities market has been consolidating all week with low volume trading. Cues are still the same, an inverse relationship to the stock market, and tracking and 10 year treasury.

All things considered this week should have been more bullish in the bond markets considering the contagion occurring throughout the European Union. Typically one would have expected us to see a strong rally in our bond market as Europe struggles... alas, we didn't... what's the reason?

Honestly I don't know... one interesting market point is the Italian 5 and 10 year bonds are now inverted, typically a signal to sell equities... and even though we did see a sell off in equities this week, it was relatively contained especially when one looks at the low volume traded.

Consolidations usually lead to breakouts... which i ma expecting. I think we will see a breakout that leads to better pricing, when this happens is more difficult to predict. With us moving into the holiday season I don't think we will see much activity regarding trading this coming week... what we do see will be investors preparing for their long weekends which means probably moving into cash positions across the board. If I'm right we'll see the stock market and bond market finish down in comparison to current trading levels... with some degree of give and take between the two.

The first week of December will be interesting... with three strong weeks of trading before Xmas and the super committee finished with their task one way or another, markets will take their cues from their success of failure, we may even see another downgrade from a rating agency if they completely fail (as if their successfully cutting 1.2 trillion over 10 years - that's 120 billion a year is going to do anything to our out-of-control debt anyways). A success on the other hand I think will lead to an equity rally, which will be short lived due to Euro calamity and the fact that any accomplishment they do make really is like claiming you climbed conquered the local sand bluff. Nothing to write home about unless you are a complete narcissist - wait a minute, they are complete narcissists so we'll hear about for the next week as if it's the only event transpiring.

Not expecting a late rally today, just looking to hold our ground and not fall off... an even sum day would be a strong finish for us, currently down 6 ticks... Here's a graph illustrating the consolidation we currently are experiencing.


Here's to a wonderful weekend.

Slow Start This Monday...

We're off to a slow start this Monday, with investors sticking to the sidelines. Greece's PM has gone quietly into the night over the weekend, leaving the current government leaderless for the next couple of months until elections. "Leaderless" does have a negative connotation associated with it, in this situation not having a leader may actually work in Greece's favor. For now the Euro bailout will continue without the referendum vote, which has the Euro Zone feeling good today - well as good as you can feel while sick.

Italy has become the talk of the town, and Italy is by no means a small potato. This could be why investors are wary... Greece, was/is a small country. If it is forced out of the European Union, it would be tragic for the Greek people but the world would survive. Kind of like cutting of an arm to save the patient. The arm isn't going to do so well, but life will go on in the body, albeit a slightly different life.

You could argue Italy is just another appendage, unfortunately despite it being the boot of Europe, Italy is more than a mere appendage... it's the leg of a professional runner that is Europe... in other words, it is not small... it's catastrophic... will Europe survive, most likely, but she's never going to run again.

This is in my mind what has investors moving slowly this Monday morning. It's a lot to digest, and while we like to believe this type of world event would benefit our bond markets, there is a question that I have not yet asked, namely: would an event of this magnitude force European countries to sell US bonds and the MBS to raise capital?

Their first play will be to try and inflate their way out of this mess by creating more Euros out of thin air... probably digitized, but they may crank up the old printing presses as well. And what does this type of move do to inflation... bullish for the dollar yes, but for how long -and how many new dollars would we create to give to the IMF which would play a large role in the Euro bailout (yes you read that correctly right now we are bailing out Europe with US dollars produced and given to the IMF by the Fed).

It's a mess, and investors are starting to feel the pressure. It will be interesting to see this come to a head - let's hope that's all it is.

Moving forward, we're likely to continue to trade in the established range with rates better or worse than our current pricing... That's a prophetic statement considering the madness that is Europe. We'll need a major headline to force our markets... in the past that would have been the PM of Greece being ousted, but in today's market that just a typical headline... You'll know it when you hear it - the headline is coming.

MBS recoverying...

The mortgage backed securities market is rally today as stocks sell off. Currently up 8 ticks on the day we have not made back everything we lost yesterday so rates are slightly off in relation to yesterdays opening rate sheet, but interest rates are tracking back down.

An interesting day all things considered, if the employment situation coming in with some positive figures, showing the private sector posting about 100,000 new jobs, one would expect the stock market to rally with our unemployment rate dropping from 9.1 down to 9.0.

Meanwhile the G20 is going on with a Greek vote of confidence set to take place (two different events)... today is anything but quiet, and that may be what has investors skittish and nervous about equities leaving bonds...

All things considered I think today ends zero sum. We may see some movement and repositioning, but in our market I do not expect to a crazy rally... if we make back the losses we incurred yesterday I'll leave for the weekend a happy man.

MBS Selling Off... Rates Move Higher

Another day another policy out of the Euro Zone; Greece now abandoning its apparent referendum vote which has lead stocks up and bonds down - meanwhile the G20 kicks off with the apparent talk all about Greece, a country not even a part of the G20.

Down 9 ticks on the day, it's what we would expect in the wake of a 140 point DOW rally considering the 10 year treasury has tracked back up above 2.000 in yield trading around 2.04% So we continue trading in our range, waiting for new headlines relating to government intervention...

I don't expect to see us recover today, if we can hold losses to a minimum we can count today as a win.


ON A SIDE NOTE: This is not a free market and no one should consider or believe it to be a free market. Our market today completely depends on future government policy.

Sad really.

Resistance in MBS...

It was a a down day in the market, to start... slowly we dug out of a 5 tick hole and found ourselves even on the day with a half day left. With the equities market rallying, bonds were behaving very bullish holding there ground in the face of a 200 point rally in the DOW. Ultimately we finished two ticks down, but that ain't bad in the face of a 200 pound bully.

Meanwhile the ten year treasury sneaked down below 2.00 yield finishing at 1.9889. It's clear it would have been a different day had treasuries behaved differently. Alas, they didn't, and here we sit waiting for news from the the Europeans.

It's no surprise as far as I'm concerned that Greece is about to fail, question is are they able to keep it together for a little while longer. If so, we may see our markets sell off, which in my opinion are anticipating the failure of Greece. The stock market on the other hand was drinking the KoolAid, yes, the funky kind and for some reason saw reasons to be bullish, as if trying to buy the market higher (in fact this is what hedge funds and other large players may have been trying to do) only to watch it slide twice as far down.

Anyway you cut the cheese it looks like we're going to see a sell off tomorrow in equities which on a normal day would probably lead to a rally in our markets, if the sell off is strong enough; sure, perhaps we gain a couple, but honestly I think it's going to take a larger event to push interest rates down into new low territory.

Greece is something everyone is somewhat prepared for, for better or worse. In other words, it's yesterdays news. Those that think it will lead the stock market higher are (crazy - my opinion) positioned that way, those that think it will lead bonds higher are strong in bonds; therefore it is possible a Greek implosion doesn't move the markets as much as one might think it would.

It may take something more, something less expected, something bigger than little old Greece. That something is Italy, making a lot of news lately as it's 10 year bond yields have risen above 6.000 percent and held, trending upward. This is frankly something Italy cannot afford, which means bailout. This would be cataclysmic in comparison to Greece - and a failure of this magnitude would in my opinion result in a massive stock sell off as the Eurozone prepares for massive reform, leading to depression and most likely hyperinflation, which will send money into our markets, primarily bonds as large international companies adjust future earnings based on the chaos that would surely ensue.

At this point in time, rates would move to a new low point. I have heard no one else predict when this might happen, I give Italy 12 months. Don't hit me if I'm wrong.

A Strong Opening for Mortgage Backed Securities November 2011

After a terrible month of October in relation to market performance, the mortgage backed securities market opened strong this first trading day of November after a strong close on the final trading day of October.

It's too soon to be calling this a rally, but this does illustrate support and a floor beneath current trading levels. Based on the events that brought mortgage backed securities to their low price point (low price means higher yield and worse rates) in October it's clear government intervention and headlines is what is moving markets for better or worse.

All things considered we appear to be trading in a range that was previously established before the Fed came out with operation twist. This range is is producing slightly higher rates than expectations, but with the market trading up and a well timed lock could mean securing the terms you are looking for.

This market is all about timing and timing mean being prepared. If this you're looking for a lower rate, but are apprehensive about entering a market as volatile as this one, you simply need to set a point of execution that you stick to and work towards that pricing. If it does not present itself, you've spent some time reviewing your financial position, which is something everyone should do at least once a year anyways.

I remain optimistic that interest rates will remain low and possibly trade even lower although lower rates will require excellent timing.

An Up Down Trading Week Ending on the Positive Side

Okay, it's a little early to call the close today but considering the strong trend up erasing all the losses we experienced yesterday after a strong day trading Wednesday and it appears the mortgage backed securities market is going to have its first positive week trading in the entire month of October.

Amazing considering the fact that at the end of Q3 (September0 we were expecting a strong move even higher bringing rates lower... instead we witnessed a systematic sell off bleeding value day after day until we found support which we are now rallying off of. It's important to understand the losses incurred in October, was not a firesale or in response to economic data that suggests a real recovery is beginning. The losses experienced were all based on mere conjecture and the European leaders jaw wagging. Yes I will concede they have apparently come up with a deal, but the deal which they've announced is a small band aid placed over a large and bleeding wound. Moreover, it appears as though there are more wounds that do not have band aids yet. Right now the Euro plan is to hopefully squash the Greek debt issue thereby containing the spread of a debt crisis across Europe. Problem is, they don't seem to realize the patient they're treating is a hypochondriac, as while the voluntary (curious whose going to volunteer) haircuts for 50% applied to Greek debt does nothing to address the Italian and Portugal debt issues.

Point is, the all clear siren investors are listening to will soon be the "world is on fire" siren which will send them running back to the bond markets.

True this is one man's opinion... so disagree with me if you choose to. Just have a reason that doesn't include the DOW rallying, and is based on Keynesian economics which this euro experiment has proven does not work.

Rates Fall Flat to End the Week

There's no if ands or buts about it, ours markets are taking their cues from the governments and their chosen methods of intervention or lack there of. This weekend we are led to believe the Europeans will come to terms and solve the problems the Eurozone has been experiencing or at least make good progress on an agreed upon path to prosperity.

I find this somewhat amusing, as if the last 6 months have been complete experiments leading up to this solution. Haven't they been trying to solve this mess now with various government interventions already? This was never suppose to be a political website, unfortunately when you have the governments of the world completely responsible for market shifts, you can't help but discuss the policy behind their choices.

There is skepticism in the market about the Europeans actually being able to solve anything, proof of which can be seen by a strong bond day, only down one tick in relation to a strong rally in the stock market. The bulls and bears are holding their ground acting how they think they must, it will be interesting to see who gives.

Monday will be telling, and will most likely take its direction from Sunday which is when the European leaders are meeting to discuss terms. So much for free markets working it out...

Interest rates Continue to Feel Pressure

Mortgage rates have not tracked back down as we had hoped. We are starting to see signs of a bottom to this sell off, but the low rates many were hoping for are no longer available and we've moved pretty far away from them in terms of secondary market pricing.

There are a number of reasons for this shift in investor sentiment, but the primary reason is the announcement made earlier this month that the EU had/has come up with a plan and are in agreement and will be releasing details at the end of the month. This announcement has been enough fuel equities which has led to a consistent sell of in the bond market.

It's my professional opinion one heavy hand on our market right now are the bailouts being discussed. I've heard 2 trillion in new Euros, the IMF wanting 250 billion to assist in the EU bailout... these are two examples that come to mind, and something I make point to because it infers inflation and that is the antithesis to mortgage backed securities.

Moving into the weekend I do not expect rates to mount any sort of recovery, and will probably continue to sell off or trade in previously established ranges we now find ourselves in once again. We'll need an international tape bomb to pick our market up and move rates back down.

I do think this headline is coming it's just a question of when it hits the wire.

Rates Continue to Move Higher...

Interest rates for home mortgages continued to inch higher as pressure from the equities market is weighing heavily on bond traders. To put things in persepctive we've seen a 50 bip swing in the ten year treasury yield, and mortgage backed securities have followed in form, selling off to the lowest levels we've seen in over a month.

Remember lower price means higher yields, and higher yields mean higher interest rates for home loans... so here we sit at new lows... even so, I'm not completely negative on interest rates, contrary to what some may be thinking.

What I think we're experiencing is severe volatility. severe enough to push our market so low that many are prepared to declare it the end of low rates... in reality I think we're going to see the mortgage backed securities market surge forward in price bringing rates down yet again, perhaps even lower than what we recently experienced.

Why you ask?

It's become clear that we no longer live and operate in a free market. This is not a debatable statement, governments and government intervention is now the lead indicator for our markets.

The most recent example of this is the Euro officials coming out and saying they've figured it all out and there now nothing to worry about, they've got the Euro mess under control and will have the published plan that will save everyone available by the end of the month. This revelation I found fascinating... because the markets ate it up and have been buying equities ever since as if they really do have a solution, and everyone will be "okay."

Forgive me if I am not going to buy into that particular piece of propoganda, and I am under the impression the false promises are going to come full circle and kick everyone in the ass when equities figure out the real truth and a major sell off insues.

At this point in time we'll see everyone run back to bonds, and rates will fall through the floor.

My advise is get your ducks in a row so you are prepared to take advantage of the market when it returns... those that wait to hear about low rates are certain to miss the boat.

Rate Continue to Climb Higher...

Mortgage rates are again under pressure today as the mortgage backed securities market sells off, currently down 10 ticks on the day...

We seem to be caught in a catch-22, equities posts gains, we sell off, equities sells off, mortgage backed securities posts gains. This back and forth ping pong match is making lenders nervous, and we're seeing it in their rates sheets as they hedge expecting losses, regards of which way the market moves.

In fact hedging is something lenders have become very good at and is the only real factor that is controlling wide price swings on published rate sheets.

That's not necessarily a good thing for those of us in tune with the secondary market. Hedging ultimately leads to more profitability for the funding bank. This profitability comes at a cost that the consumer ends up paying through higher terms. Of course what we are discussing here is an invisible factor that is never really discussed; be that as it may it is still taking place.

Can the underlying borrower do anything about hedging? Sadly no... hedging has and will always take place to some degree, after all the price difference between secondary market delivery and what the borrower secures in terms of rate defines the fund lenders profit for that funded loan (I'm not going to get into servicing here).

The only real cure, if you can call it that, for the hedging epidemic we're experiencing is a stable, and somewhat predictable market. If one can accurately predict, with some degree of deviation of course which one would expect, market movement, one does not need to plan for the worst and can price more aggressively not having to worry about eating their shorts on a strong shift against them.

Believe it or not, historically lenders were very good at predicting market movement and trends... after all, interest rates typically do not shift in yield like we've seen recently...

So while interest rates remain low, historically speaking, they could be lower if the market would settle. Now I don't expect this to happen, the world is on fire... so we're stuck with hedging banks, trying to protect their profits. Can't really blame them... what we can do is everything in our power to position ourselves to take advantage of rates when they present themselves.

Strategic locks, similar to trading is all about market timing. Rather than lock at the time of submission, you lock when the market is trading at a high point in the established range. Doing so will mean securing the best possible terms in a volatile market.

For this reason it is crucial your lender has access to secondary and understands the momentum and trends currently operating there.

This blog of course addresses these markets and is a peek inside my mind as a professional and practicing mortgage broker.

Mortgage Rate Inch Up...

It has not been a nice opening this October for mortgage rates, investors (some at least) have apparently decided enough is enough, the volatility is too much, and sidelined their capital. This wait and see attitude at this point in time comes with one advantage; the dollar is running well against other currencies. How our dollar became a safe haven play is beyond me and I think long term this could turn sour, however the point is investors are comfortable in cash right now, and that cash along with some positive gains in the stock market has not been kind to interest rates.

Even so, this is not the end of the world, and I fully believe interest rates are going to slide back down in the weeks ahead. We have the Fed and operation twist, selling short term debt and buying long term debt. This should help keep yields low despite some selling off (there is after all a buyer), and we cannot forget about the powder kegs set up throughout Europe, and best calculations on my part suggest it is about to get very interesting across the pond. BOOM! There goes Greece, powder keg one as they default and Europe scrambles in the chaos surely to ensue... Downgrades to follow (they would have to) from the rating agencies, forcing capital into safer markets... and then and there we should see an immediate snap in price up bringing yields and interest rates back down to super low levels... I honestly think we will see the 10 year treasury yield break below 1.5% this year, and will flirt potentially with 1.25% possibly even 1.00% into 2012. After all we still have four powder kegs left: Portugal, Italy, Ireland, and Spain.

If this doesn't happen it's because Europe and the U.S. will try and inflate (Quantitative Easing, Jobs Bills, Bailouts, Grants and Loans to Private Companies, Creative Accounting, etc... ) their way out of this mess declaring "it's too dangerous to do nothing... the world is ending... and in their typical rant and fashion. If this happens we'll see a surge in gold and silver prices, while other markets waffle under inflationary pressure. So go our low rates....

Inflation will ultimately be the death of these low rates, the question is when will the beast wake up.

To digress, I think when all is said and done, worldly events like the collapse of a currency or what have you don't play out as fast as one would expect them to... those in charge of the sinking ship are doing and will do everything possible to keep the status quo afloat. So time will pass, as it does, but eventually the ballasts will fill with water, and that will be that, no more pretending... at which time the beast of inflation will awaken and the world will be very different than the one we currently enjoy.

For now the charade continues and we'll press through the volatility securing lower and lower fixed rates, the best possible saber against that evil enemy know to be inflation. After all with a low fixed rate, your payment never changes, and in an economy ripe with inflation you should be able to easily meet you payment obligations with the dollar now worth nil.

So it is a ride to the bottom, wherever that bottom may be. Since we don't know the final stop, we have to secure lower rates as the market shifts down, simply waiting for what you think will be the basement floor rate may never come and there goes your opportunity... hence the step ladder down.

With rates at all time lows, this small hike up is not something we need be concerned with... the market will swing back down, the question is will you be in a position to take advantage of it when it does?

Mortgage Rates Fall Back into Range

This last week has been anything but favorable to mortgage rates. Last Thursday we hit new record highs, busting through every ceiling history had produced, wetting the lips of every originator waiting for lower rates. This sharp upswing was almost perfectly vertical, suggesting a strong demand for new coupons.

Since this buying frenzie, we have seen a sharp sell off as investors took profit. Let's be clear a sell off at new highs is to be expected. What we saw however was not jsut a mere sell off, it was a exit from MBS leading our markets down, down, down... forcing yields back up and rates higher.

Okay okay... enough doom and gloom. Yes rates are not were they were last Thursday, but were we sit right now is on our previous resistance, which has turned into support since last Thursday.

What does all this mean... we've entered a new range, currently sitting on its floor waiting for the market to push us higher in price and lower in rate.

There are a couple of important revelations that took place that should be pointed out. First during this corrective period we saw the 10 year fall to 1.72 in yield. It is now back at 2.00 in yield. Of course the MBS follow the buy and sell trends of the 10 year this last week, however our markets have faired better than the treasury markets.

Like I said, we are now sitting on new support which use to be our resistance. This run at the bond market has essentially forced us into a better range. So when the 10 year begins to creep down again in yield, the MBS markets should also produce lower yields which means better rates.

Ultimately I think we will see lower rates in the coming Winter months. Add all this up and the name of the game is patience. While wealth favors the prepared, I suggest getting everything in order so when the low rates do return you can execute.

Execution is the name of the game, and waiting until rates are available typically means you will not be able to close in time to realize that rate. Pay attention to locks and the lock period... watch turntimes carefully.... they will increase which can force lock extensions which cost an additional premium. Manage you time productively and you'll be able to capture an incredible low rate in the months to come.

Friday Sell Off...

Okay, no one likes a sell off (unless you're the one selling and profiting), but after the gains we saw in the last two days we should expect there to be some profit taking and settling dust as investors figure out what their next move is.

The question is one we have posed quite a bit recently, that's not to take away from the serious nature of the question. The world right now, from an economic standpoint, is on fire. The rush into long term markets is a result of the fire now burning.

One would expect long term markets to do well during as the world burns... and to answer that cry, the bond markets have done well, very well. You can't go up however if you don't once in a while come down... and that is the formula today.

Monday will be telling... I doubt we will see the sell off continue. Realistically I expect us to post gains tomorrow and throughout the week as investors continue to fee equities and move into the longer markets.

There will most definitely be bellowing from those on CNBC that don't want to see the market crumble and are still convinced we're in the heat of a recovery. Trust your gut... and you experience.

The smart money is shoring up... that means cutting expenses and protecting capital. There is no better way of reducing expenses than dropping your interest rate a point... with current 4.000% 30 year fixed rates available... now more people can realize that goal than ever before.

Don't hesitate, turn times are going to get long, beat the rush and get your paperwork in for underwriting as soon as possible.

Anyone interested in a 4.000% 30 year fixed is welcome to contact me... obviously this rate and the terms are subject to market changes, so take while the taking's good.

Mortgage Rates Fall as Fed Twists

Well the Fed has come out and announced policy that has sent our rates to all time lows. Operation twist as they say is something that involves the Fed selling short term debt to buy long term debt. This move does not increase their balance sheet so it is thought of as noninflationary (good for our markets) and of course the funds allocated to the longer term term bonds has essentially created a backstop that QE once provided our equities market. This "insurance" policy as some consider it means there is little risk to investing in long term bonds and mortgage backed securities. If the price falls, the Fed has already pledged to buy, so there is little downside risk.

This has lead the MBS markets to knew historic highs. While our previous note to watch was the 4.000 coupon, we are now watching the 3.5% coupon as benchmark, which simply indicates the low rate environment is going to be here for a while.

That's not to say you should hold off and wait for things to improve even further. Peaks and troughs.... what typically comes after a peak? The correct answer is trough, and considering we are peaking, what goes up must come down... timing is everything in this market, play the upside of a trend and pricing is typically better than a downtrend that happens to be slightly higher in market price... why... the lenders are hedging up or down and following the trend with their offered rates.

Yes, this is all very complicated, and is why it pays to have a responsible and well informed loan officer in your corner.

Fed Meeting Day 1...

So it begins... the two day Fed meeting that investors have been waiting for. For the last couple of weeks we have traded in a range with the market unclear as to which direction to follow. Flee with the bears, or run with the bulls?

The Federal Reserve has been anything but quiet in this crisis and has shot every type of arrow at this beast of a depression (let's start calling a spade a spade) we're currently battling, yet nothing seems to be working.

If you ask me the Fed needs to step back and let the free market fix itself in the coming years, but that's not going to happen, those that tinker will continue to do so, and this roller coaster will continue through the peaks and troughs that give us all that weightless feeling in our stomachs.

Question is, which way the Fed will nudge us this time? There has been talk about QE3, and if you read this blog you know how I feel about it... on a scale of 1 to 10... I give it a generous 1, but I digress... then there has also been talk about operation twist which is using capital generated from mature short term debt to buy newly issued long term debt. Not really addressing the real problem but "okay." This balance sheet move isn't really going to solve anything but it will help keep interest rates low for the time being which the Fed believes will help spur the economy. Considering we have been operating in a low rate environment now for the last two years, I doubt this is going to have any real effect.

Hmmmmm.... the Fed is running out of options, perhaps they need the two days so they can brainstorm some more possible solutions.

It's a mess out there, contrary to what you hear from the mainstream media, and it appears to be getting worse. Europe is a hay bail covered in kerosine, Greece is soon to be known as the Country formerly known as Greece, and our Fed is naive enough to believe opening their window and pledging dollars will solve the Eurozone's problems. The problem is the Eurozone, and the longer we perpetuate it, the worse things are going to get.

Right now we are witness to the first economic world war... in which all major economies are racing to devalue their currency in relation to all others. This is fine for governments, but when this action plan hits main street and real inflation takes hold, we may actually see politicians tried for treason as our net worth dwindles into oblivion due to their chosen monetary policy.

An interesting reflection which has terrible consequences on every man woman and child that is not in a position of power. We should be very mindful of what the Fed decides to do moving forward.

Mark my words.

Mortgage Rates Climb due to Uncertainty

Mortgage interest rates are now on the rise after a healthy uptrend and stable range were shattered by new Fed policy that got little attention in the news but has had sweeping effects across the markets, particularly the bond market.

It was yesterday morning when the Fed announced they would be opening their window to foreign investors and pledged U.S. dollars would be available for the next three months for these investors to borrow and or swap out for other failing world currencies. Honestly I do not have much information on their play here because its on the down low... hush hush... a play made by those looking to promote a new world order and bring everyone and everything under a single regime and banking system...

Forgive me for this blog getting political but unfortunately our monetary system has been politicized and there is no way around it anymore. One would expect the IMF to step and and back the Eurozone, which they have done, the Fed moving in behind them is just another backstop to help ease concern.

Long and short, U.S. tax dollars or newly printed dollars, or electronically created currency will be given the the European Union at the expense of the United States. What effect does this have on you?

Immediately the ten year treasury yield shot up from 2.000 to 2.1000 in yield. Due to concerns about inflation most likely, this forced our markets down ten ticks yesterday. The damage however is most likely far from over. The real problem is this move shattered the confidence many investors had in the MBS markets and blew straight threw our support. Now we are down three on the day... and what was an uptrend now looks like it may be a down trend.

If our Treasury Secretary and the Fed continue spending and giving away money as they hope to, I don't expect rates to stay low despite their claims that they will.

Time will tell. Some choppy waters and questionable rates ahead of us... Keep an eye on headlines.

Range Bound Interest Rates Remain Lowest on Record

There are no if, ands, or buts about it, home loan interest rates remain at some of the lowest recorded levels ever. The range we are currently enjoying appears to be a plateau leading well into the future, a conclusion that is not off base considering investors appear to be comfortable with the current yields being paid in secondary.

The ten year treasury yield remains on or around 2.000% which is incredibly low, yet investors are moving into the 10 year at signs of the yield climbing thereby creating the equilibrium experienced in todays market. In other words, investors are comfortable with these yields considering this economy and the future outlook.

That doesn't really say much for our economy... to say the least, and one msut wonder what the current Obama administration is going to do, because the jobs bill appears to be failing at face value and accused of being more of the same. While these rates are very attractive for homeowners, the simple fact that we are not seeing a return of new home buyers despite low real estate prices and low interest rates suggests the real estate market might be in for another correction.

If I am right about this and home prices are about to fall, those that are looking to refinance should do so while their equity positions are strong. Those looking to buy, you are responsible for holding up, or bringing down the current real estate market and home prices... while this is a true statement, we must understand most people would like to participate in this low price market, however due to unemployment and uncertain future employment, caution is the smart play.

So here we are... interest rates for home loans are at the lowest point on record. If you qualify... carpe diem.

Mortgage Rates Hit Resistance

Wednesday after Labor Day... yesterday we enjoyed gains all day until the final hours of trading when the market sold off to a zero sum day. This morning we opened low and the sell off continued as equity markets rallied. Fortunately the MBS market has rallied since the low price point of 104.03 and we are now back up to a price point of 104.10... Still down 4 ticks on the day, but a nice recovery to say the least.

Rate sheets this morning, to say the least, were disappointing. This fact is probably due to the sharp initial sell off we experienced right around the time rate sheets would have been released. This recovery, assuming it holds should lead to reprices for the better as the day continues on.

Think it is clear interest rates and the mortgage backed securities market is taking its cue from equities and the treasury more than ever. It is a back and forth trading environment where traders are moving between long term and equity markets trying to find the best returns for their captial. Unfortunately the flip flopping is forcing volatility indices through the roof and leading to more uncertainty. All things considered it appears as though low rates are here to stay but we will flip flop between good and bad pricing.

For this reason it is critical to pay attention to rate sheets and be prepared to lock at the appropriate time. Kind of like cooking chicken... take it off the grill too early and you're going to be sick, leave it on the grill too long and you're eating rubber.... it's all about perfect timing. Patience is key and executing when the time is right is critical. While lower rates are a distinct possibility, we have to consider the fact that this may be as good as it gets and must be willing to settle in the range we are currently trading.

Labor Day Rate Watch...

For those loyal readers you will recall a post I published about two weeks ago referencing labor day weekend as a pivot point to pay attention to. I also mentioned that I was not going to go into details because despite markets being cyclical, we're in anything but a normal environment and watching and depending on cycles in this market could spell certain doom.

That's not to say we completely abandon them. So what does labor day typically mean for interest rates and home loans. In the past, experience has shown rates typically fall after labor day and remain low through the winter months. It's hard to believe we could fall much lower - 4.25% on a 30 year fixed currently offered at no cost for qualified borrowers - but the fact remains, mortgage backed securities are posting gains which lead to lower yields and better rates for borrowers.

Usually moving into a long weekend we will see bond markets hedge and sell off so they do not have to worry about the markets, and they can enjoy themselves over the holiday. Then come Tuesday they reassess and reinvest based on those assessments. Today (although it is still early) we have not see the sell off that is typical with long weekends, instead we've seen a strong buying trend which is very bullish for our markets.

Couple this with the unemployment report which showed non farm payrolls adding 0 jobs - that's zero - and claims that the 10 year yield may fall to 1.5%, and you've got a road paved to lower rates.

Of course, nothing is certain and assured until you've got your rate locked into a period in which you can close, and we're not the type to count our chickens. For this reason, I highly suggest those interested begin getting paperwork in place so they can take advantage of the low rate environment that is coming.

Mortgage Rates Improve with Weak Consumer Confidence

Yesterday we saw our market fall 11 ticks, which really singalled that we were in a downtrend which was likely to continue until some tape hit that stuck and affirmed our economy was not is as good of shape as the media likes to portray. Today we are currently up 10 ticks with investors returning to our market with consumer confidence way, WAY down.

Where we sit now consumer confidence was measured at 44.5, down from 59 last month. The media is already spinning this low number off as an effect of the debt debate fought last month. Perhaps there is some merit to this rationale, but in all sincerity the problem is far deeper and much more serious than they are willing to give credit.

This recovery today however does not mean we are out of the thicket. On the contrary, this upswing will definitely help rate and pricing but it alone is not enough to send us back into the low rate environment we all hope to see once again.

Unfortunately because the equities market is what most media outlets focus on, they also focus on how to get the equities market to post gains, which makes everyone feel warm and cuddly. Well, everyone but us who would like to see the long term markets rally which usually comes at the expense of equities. Why the long terriddle? Becuase as I type the media is doing everything in their power to push QE3, becuase it is their expectation that more money in the system means equities will post gains and they can feel warm and cuddly again at least for the time being.

Realistically QE3 could mean doom for our economy and markets as it forces the US dollar off a cliff and into oblivion to be remembered along with the Continental. This is the fear, and if the Fed is not careful, very soon we'll all be enjoying a 20 dollar loaf of bread along with our 10 dollar cup of coffee and 40 dollar gallon of gasoline. If this comes to pass, I assure you rates will no longer be in the 4s, or even the 5s, or 6s... Think days of Jimmy Carter - 16, 17, 18 percent.

Scary times we live in.

Which is why securing the right financing and locking in a low fixed rate now, while home loan interest rates are still in the low to mid 4s is literally one of the smartest financial decisions one can make at this point in time.

Post your questions, post your comments, call me crazy... time will sort all out.

MBS... More than a Case of the Mondays

In everyone's favorite cubical movie "Office Space" our protagonist is accused of having a case of the Mondays when he doesn't show up his chipper self when arriving at the office. For those who have seen the movie, I don't need to tell you, he doesn't have a case of the Mondays. he truly loaths his job and is simply acting how he always feels.

This may also be the case with the mortgage backed securities market which after a couple days in the green has turned around and sold off all recent gains and then some. At this point in time there is a clear down trend in the MBS markets which is forcing interest rates up. Investors are looking other places for returns, and it appears as if this trend is going to continue.

With the stock market moving forward and posting gains as if everything was as it should be, there is little reason for anyone to sit out the rally, and the fear that brought people into our long term market has wained and they're moving back into the short term markets at the expense of the long term bond markets.

The effect is immediate and interest rates through reprices have slowly but surely trickled back up. It's unfortunate because most people looking to take advantage of these low rates are going to be stuck either closing on a rate that is much higher than they had hoped, not closing at all, or waiting in hopes the market returns.

It is this third option that I find the most interesting. Considering the guidelines for approval right now, you really need to be an A-paper borrower to secure these best and lowest rates which means documenting income, assets, etc... Most A-paper borrowers refinanced last year when they had the chance to secure these low rates in 2010. This time around they are simply trying to improve their position. This means these higher rates currently available are of no interest to these clients... tehy already have a great rate... which means not closing (at the current pricing) or waiting it out to see if they drop back down.

I anticipate when loan volume drops off a cliff, which it will in the near future due to rates rising, banks will have no choice but do what they can to lower rates and entice borrowers back to the finance table.

For now, we're trading in a range that is producing rates higher than they have been in recent weeks. Hopefully after labor day, when banks recognize they are not closing the loans underwritten before labor day, they'll cut into their profit margin and do what they can to reduce rates.

Let's hope secondary cooperates and the mortgage backed securities market rallies hard on the buy side.

Small Recovery Mounting... Two Days in the Green

Mortgage interest rates are starting to turn the corner and have begun falling once again after a couple days of gains in the MBS markets. Yesterday (sorry I missed posting) we ended up 6 ticks, and today we are currently up 6 ticks... assuming today's gains hold or improve further we will finally see support to a long sell off that has cost us over one full point in secondary.

Rates today are definitely better than they were yesterday, but lenders are still reluctant to give borrowers everything due, and rate sheets remain somewhat bleak considering where we stand in secondary. It is my hope that as pipelines clear from the recent wave of refinances, and lenders have more to lend as these tradelines clear, we will see rate sheets reflect better pricing as they try and entice people into pulling the trigger.

It is an interesting day with Bernanke having spoke at Jackson Hole and having nothing really to say other than we're prepared to act if necessary. Personally I think the Fed is causing more problems than it is solving right now. For example QE3, it is thought that if we have an liquidity problem, the Fed will start QE3 which means dumping more money into the economy and eroding the value of the dollar (inflation).

In other words, if people choose to save instead of spend, we'll have to spend for them.

What the hell is that!!! Perhaps the problem is the fact that we as a society have spent too much and need to start saving. Perhaps prices are too high to begin with and a little deflation would be healthy for society... Perhaps... is not something the Fed is concerned with, in fact I would argue they are not even concerned with making sure our economy recovers. They are concerned with protecting government interests and the current power structure. Which is why it makes sense that they would spend if we choose not to. They need money to continue to inflate so the debt our country has incurred can be paid off in dollars worth less than originally borrowed. It is the only logical conclusion, and a scary one that doesn't end well for the average person.

Man did I slide down the rabbit hole on this one.

Bleeding To Death Slowly

Home loan interest rates continue to trickle back up as the mortgage backed securities market continues to sell off. It's been a troubling week and last few days, all of which have ended down forcing yields and rates higher. It all began last Friday when we lost 8 ticks, then another 8 ticks on Monday, then another 9 on Tuesday, now we're down 10 ticks... add it all up, and we've lost over a point in secondary.

This does not bode well for rates (if you haven't picked that up yet) and the sell off is starting to look like a trend as we bust through support levels without blinking and fall off the cliff's edge like lemmings (which apparently is not true). Lemmings... that's what investors feel like right now as they run from the long term markets, day after day after day.

Ultimately I do not expect this bleeding to stop until the Fed Chairman comes out of his cave rolls his eyes to the left signalling, much like the groundhog, this recession will continue, and then disappears again to enjoy the finer things in life. Okay, okay, he's not quite that cryptic, but my point has been made, the Fed holds all the cards and is in control of the show. We're essentially waiting on good old Ben to say what he's got to say on Friday, and hope it jives with our market. If it does, we'll see the money come pouring back in, if it doesn't we'll see the sell off continue in far faster form.

Terrible to think one man has that much control over literally trillions of dollars and how they are invested... honesty, if they would stop tinkering and just let the market sort itself out... we'd probably be better off. But alas, Ben is due to the microphone, and the press won't let him miss that date, so the cycle continues, which probably means more stimulus (that's all these clowns know how to do), which means more money which means higher rates due to inflation.

Friday... is do or die day... Let's hope Ben eats his Wheaties and has a Yoda moment.

Zero Sum Day... MBS Consolidates

Today has been a relatively uneventful day in the mortgage backed securities market. Currently we are even on the day, but that doesn't sum up the volatility we have experienced in the opening hours of trading. Up down, up down, has been the pattern... which leads us to believe investors are a little unsure where they should park their capital.

All in all, it is an interesting week. In the aftermath of the downgrade, we have seen our markets even out slightly. Currently sitting at 104 flat on the 4.0 coupon... we're at a tipping point. Gains would reinforce this point as support, while a sell off would signal this as a point of resistance. The danger we face in today's market is nothing new and has been the ongoing trend now for the last couple of years.

Long term, I expect rates to remain low, short term they move lower or higher at this point in time... in times of consolidation... anything is possible.

Even so, lenders have been slow to give us what is rightfully due, and there is substantial gains baked in the their rate sheets. In other words, pricing should be better than what is currently offered based on the market. Because lenders are hedging, we do have some room, but nothing that is at all comfortable.

Right now we need gains in secondary to reinforce our current position and these low rates. If we don't get it, we may see rates climb back up before coming back down for the winter months, if they come back down at all.

Right now I would say are biggest fear is inflation... and with that fear comes the possibility of the Fed starting a QE3... bad news for us if it happens... bad news for inflation which is our arch nemesis. What we hope comes out of the summit at weeks end is the Fed doing nothing but affirming their keeping rates low. The last thing we need right now is more money infused into our economy... which means inflation... In addition we could use a couple of riots in Europe, or someone in the EU asking for a bailout... Calamity in Europe coupled with austerity in the US... this would be the best recipe for us moving forward.

We shall see.

Slow Start for Mortgage Rates This Week

Whenever we see a strong sell off on the equities markets on a Friday I worry about Monday's open in the securities markets. Today is a perfect example of why. After the stock market took a nasty tumble last Friday, I thought we may see a rebound today, which as it turns out was in fact correct. This rebound however spits in the face of our mortgage backed securities market which, is losing ground in response to the rally we're seeing in the stock market.

We're still in comfortable territory considering the gains we have experienced in the last couple of weeks, and our being down only 3 ticks today after losing 10 ticks on Friday is not a sign the that the atmosphere is on fire, and we'll be out of oxygen by days end. It does suggest that we are at a point of resistance, and will need to break through if rates are going to get any lower. This means the ten year yield needs to drop below 2.10 and eventually 2.00 if we are going to see mortgage rates continue to fall.

In addition we need the Fed to make a statement that work sin our favor later this week. What we do not want to hear is any sort of talk suggesting they are gearing up for another round of quantitative easing, or QE3 as it is humbly referred to in the media outlets. QE3 is essentially the Fed inflating its way out of the trouble by injecting money into our markets. The injection, good for stocks, bad for interest rates, will encourage people to dump their mortgage backed securities holdings and return to the stock market which would force rates back up immediately. In addition it would lead to higher costs for the day to day goods we need to live.

QE3 - an evil plan that should be killed and put to rest immediately without further consideration.

Let's hope this is their position.

All in all our market is holding but bleeding slightly, pay attention to the wound and make sure it doesn't get any larger.

Rates Fighting to Stay Low

There is definitely some resistance in the mortgage backed securities markets these days. Yesterday after suffering major losses in the stock market, mortgage backed securities only added 3 ticks. Today, another down day for stocks and we are in the red, currently down 2 ticks... but have been down as many as 8 ticks.

This is mixed news for interest rates. yes we are at historic highs which means rates are as low as they have ever been. But, with the market flailing a little lenders will hedge on the side of caution and rate sheets will not be as favorable as they could be. Moreover, those that have just begun refinancing may not have enough time to lock and close in the desired rate that convinced them to move forward in the first place.

We're not there yet, but this is something that people must be vigilant about, that means paying attention to rates on a daily basis, and not simply assuming you're "good to go." Everyone looking to take advantage of this market, from originators to borrowers should be working as hard and as fast as possible to complete the work needed to be done to lock in and fund their new loan.

Remember you ain't got squat until its recorded.

A Rickety Start For MBS on What Should Be An Epic Day

Even though we are up 6 ticks on the days trading, it's been a volatile morning two and a half hours into trading. Our market, up sharply on the poor manufacturing news has been in a downtrend since. Although I don't want anyone to panic, this downtrend is very controlled, at least for the time being, and it could be investors feeling out the market and making sure there is support before re-entering and forcing the price higher and yields lower.

All things considered an up day is never anything to complain about, especially considering the fact that we're approaching historic highs. For those skeptics out there, this is why interest rates can now be secured at 4.25% with no cost... subject to credit approval of course. The point is while many wonder what they can do in this dismal economic situation. They rarely consider the benefits of securing a fixed rate that is this low. During a time when everyone is concerned about safe investments, and flights to safety, safe harbors, I can think I few better places than the home you live in and the cost associated with the property. Reducing this expense and fixing it for the duration of the term is probably one of the wisest financing decisions one can make at this particular time.

Breakout to the Upside...

I have to admit sometimes glory is found in being wrong. Yesterday I prophecized that we were moving into a breakout which I expected would be to the downside raising yields and interest rates. Well, it came sooner than I expected and brokeout to the upside.

Yesterday we saw an 11 tick gain by the end of trading, and after starting down in the early morning hours today, we have moved to the upside, now trading 5 ticks in the green. Again for any newbies, gains in the secondayr market lead to low yields paid to the investors. The yields have a direct correlation to the interest rates offered to borrowers... hence the name mortgage backed securities. In other words, gains lead to lower yields, which lead to better interest rates for homeowners in the market.

This breakout to the upside is not just good for rate sheets today, it also shows signs that our market is still in an uptrend, wihch means support fo rthe interest rates being offered. I seriously about that we are going to see a major sell off that will lead rates back into the 5.000s anytime soon. Of course we need to pay attention to the 10 year, should that yield rise back up we will see our market retreat, although I do not this this is going to happen at a sharp pace.

At this point in time, I'll confident calling the all clear on interest rates and their remaining low until at least labor day weekend. When the long weekend comes it will be interesting to se how our market reacts and if rates move. Not going to get into the "whys" on this at this point in time, just want to throw out that fact that if you're working on a refinance at this point in time, you should be safe floating for now, but as labor day approaches, prepare to lock.

A consolidating mortgage market

Yesterday, despite the indicators moving against us, the mortgage backed securities market showed incredible resilience losing only 3 ticks over the course of trading. This morning, we are up three ticks, putting as back in familiar territory. That is not a reason to sounds the all clear. With our market consolidating, it appears as though we are heading for a breakout which will lead us high into a new range or lower into a more historic range.

At this point in time, I'm leaning towards the sell off. Call me a pessimist but the reaction to the downgrade was compulsory. Investors flocked to the very investment that was downgraded... and fortunately we benefited from this yield reduction with the MBS tracking the 10 year treasury closely. We all know this downgrade will lead to higher interest rates, the question is when. This consolidation could be the beginning to the perpetual slide we all fear.

Yes the Fed has announced they will keep rates pegged low through 2013, which is an unprecedented event (their dating a future action), but this announcement may not be enough to do the trick, and when investors do decide to sell off, I do not think the Fed is going to be able to say or do anything to stop them.

Mortgage Rates Hold

With the equities markets showing signs of life, the long term bond market, one would expect, would be suffering with yields rising. This however is not that case, and our bond market is holding strong, actually up one tick on the day. Considering an up day last Friday, after a large sell off last Thursday today's resistance to a sell off is very telling, and infers support at our current levels. A couple more days of support like this and a headline that speaks to a negative economy and we would see mortgage backed securities post some serious gains, forcing yields down. Of course the opposite is also true, a headline that suggests a strong economy would most likely lead to a sell off, breaking current support levels leading us to higher rates.

At this point in time, either of these futures is possible (of course), and for this reason we are recommending those that are in the process take advantage of the market and lock now to ensure they do not lose anything trying to wait out a better rate. If we are wrong and rates do in fact improve, renegotiating into a better rate would be an option to explore - so you do have options after locking... The point is, with our market consolidating as it has, we are in a difficult position moving forward. Sitting on yearly highs and close to historic highs, there is more pressure to sell off then there is to buy in, and as long as the 10 year yield is above 2.25 we're stuck... honestly we would need to see the 10 year drop to 2.10 or even 2.00 for us to see a strong surge in mortgage backed securities. At this point in time we're happy with the market holding, and hope everyone that can benefit from a 4.25% 30 year fixed does so, because those are the going rates in CA. Contact us for more details and what it takes to qualify.

Mortgage Rates Fall Yet Again

Yesterday was a telling day for us. Yes we lost 23 ticks in secondary which led to many reprices for the worse from all lenders. This sell off was in large part to the rally that the stock market enjoyed. Couple this with the fact that we were sitting at the top of the world on this years highs, and higher than any given point in the last year, investors were inclined to do a little profit taking and our market suffered because of it.

Down 23 ticks off the high is a little discerning for even the thick skinned. Today was going to be a day of reckoning, wondering which way the market would turn. Fortunately we turned back up and the mortgage backed securities market is currently up 17 ticks on the day, nearly erasing yesterdays losses in the early trading hours.

Probably due to consumer sentiment falling in today's reports, these gains reaffirm our position in the MBS and serve as support for the following trading days to come. This point is reaffirmed by the fact that all coupons expect the 5.5 are trading higher. This is a strong sign the the mortgage backed securities market is healthy and thriving.

For this reason I expect rates to stay low despite the volatility. Right now make sure you are prepared to weather large swings and simply choose the right day to lock.

Mortgage Rates Show Support in Face of Adverse Market

It is no mystery, when the stock market does well, bond markets have a tendency to sell off, which leads to higher interest rates. With this basic understanding logic would suggest the bond markets would be selling off strongly in the wake of large gains in the stock market today. As fate would have it, currently we are seeing a small sell off, but nothing anyone could define as substantial. In fact, there appears to be support in the mortgage backed securities market at this time, with it only trading down 10 ticks on the day. Of course we have a few hours left to trade and the sell off could continue, the point is at this time we would expect to see larger losses in secondary based on the gains in the stock market.

Why the support? It would seem that European woes are leading people to our bond markets. Despite the downgrade US debt and mortgage backed securities is still the safe harbor play. With other harbors facing choppy water, we're the best play in town. At this point in time, it is clear mortgage rates will stay low moving into the future. Yes we've seen a small sell off today, but the sentiment is strong and resounding... long term markets currently offer the safety and return investors are looking for. Until the stock market settles and the VIX comes down, we're to be able to enjoy this low rate environment.

Mortgage Rates Moving Lower

There was some question as to whether or not this rally could sustain itself and as we approached historical resistance levels, it became apparent that these levels of resistance were not going to be a factor this time around.

Currently we are up 29 ticks on the day and the rally continues... Below is a long term graph of the mortgage backed securities market. As you can see we've broken through to new highs... and new highs mean lower interest rates. But before you run off and lock, or start your refinance for that matter, keep in mind it typically takes a few days before lenders are willing to give it up. Yes, some may call them prude, others conservative. Whatever adjective you choose to describe your lender, remember we need these levels to hold for a day or two at which time rate sheets will have these gains represented. Currently lenders definitely owe us something... I know something is not very helpful, but something is better than nothing and it is nice knowing that even if this market sells off slightly current rates should not be affected to badly due to lenders hedging.


All things considered this is going to force turn times to lengthen which will complicate transactions and the speed in which they are underwritten and funded. Brokers have the advantage in this regard being able to place loan with lenders that have staffed up for the demand or are running at shorter turntimes. Couple this with the wholesale rates available and brokers look pretty attractive as a financing solution right now in comparison to the cookie cutter retail banks.

Now is an excellent time to discuss your options, and we look forward to hearing from you. Click on the links to find our website and contact us immediately to determine just how much money a refinance can save you. I think you will be surprised.

Mortgage Rates Fall in Wake of US Downgrade

Mortgage interest rates appear to be falling in the wake of the S&P downgrade, leading some to wonder just what to make of all this. Honestly it is a little perplexing if you think about it... S&P downgrades, US government debt, Fannie Mae and Freddie Mac along with a slue of other entities, and what happens... the private markets sell off and the downgraded debt rallies into higher territory.

The following day (today) we watch the stock market ping pong between gains and losses while the mortgage backed securities market rallies from lows (8 ticks down) to up 33 ticks on the day... that's 1:01, or a full point for those that don't speak technical.

A strange world we live in and its clear investors are as puzzled as the rest of us. This is the markets reacting to just that, no one knows where to put their money, yet no one wants to earn nothing on their money so they're scrambling for cover and whatever exits show some return with little to no risk. A difficult position to find, a point affirmed by the Fed today by their expressing the will to keep rates low for an extended period yet again...

The low rate environment doesn't seem to be working the magic they had hoped it would, and our economy is teetering once again on a perilous slide down eroding wealth along the way. Of course those in power will stop at nothing to make sure this doesn't happen. Unfortunately that means infusing more capital, which means inflation... something no one wants to talk about but everyone knows is a real and looming problem.

There is no way out of this corner without some bruises... and it's going to be some time before this market works itself out. Right now there is a simple relief for homeowners which is taking advantage of the low rate environment. With mortgage backed securities trading at near record highs, interest rates for homeowners are near record lows. That means pleasant salvation for anyone that missed the chance to refinance last year when we hit historic lows. The carnival is back in town and the rates are as good now as they have ever been, so if you can find your way through the all the red tape and qualify now's the time to have at it.

Of course I'm here to help anyone that needs it, and my interpretation of the market will continue to be made available through this blog.

The S&P Downgrade

When Friday's tape bomb hit the wire we found ourselves faced with an expected surprise. Yes, the possibility of a downgrade had been floating around for some time, but the actuality of it happening was a reality not many were prepared to face come Monday.

Well here we are, and the question playing out in everyone's mind over the weekend: "How are the markets going to react?" is being answered.

Equities markets and gold were an obvious call. The stock market was going to fall, and gold was going to go up. The long term markets (which coincide with the long term projected downgrade) are a different story. Would treasury's sell off, what about the MBS and interest rates, were we going to see a sell off and an immediate rise in rates?

As it turns out - at least the immediate result - people are flocking to treasuries and mortgage backed securities. After Friday's sell off where we lost a full point (32 ticks) in what I have deemed typical profit taking (to be expected after a run like we had), we are now up a 16 ticks, making back have the losses we incurred on Friday.

This tell us that while the downgrade is having sweeping effects on the equities and gold, the fixed markets have actually benefited and are improving. will this trend continue? Who is to say... two and a half hours into trading this news is not nearly long enough to draw any conclusions.

What does appear to be true is if you were looking to finance a home, and were concerned about your interest rate options rising substantially, doesn't look like that's going to happen.

But get it done while you can volatility is rampant, rabid, and wild right now... Fannie Mae and Freddie Mac were downgraded this morning but with no ill effect to our trading markets thankfully. Point is, nothing is a sure thing at this point in time. Perpare for the worst and hope for the best... locking now and relocking if the market improves is not a bad strategy. You'll be patting yourself on the back if the market falls out from under us, and we all know a bird in the hand...

Turbulence in the Stratosphere

It has been an epic week in the Mortgage Backed Securities market bringing us new yearly highs and then some. Currently we are skirting historic highs (again must remember highs mean lower yields which mean better rates for borrowers).

Even so, we've finally hit some turbulence, after going up 27 ticks yesterday our market has teetered, and we are currently down 20 on the day. Here's a graph to illustrate just how far we've come and the retraction we are currently facing.

As you can see, although we don't like to see sell offs, at this point in time a sell off and some profit taking is to be expected. I do not expect our market to recover the losses we have incurred today, but the weather can't always bring sunny days... rain is necessary... so too is a little profit taking.

Next week will be telling and something to keep a close eye on. Currently the 10 year treasury yield is an important benchmark we must pay close attention to. With it's yield below 2.5% (2.4853) we have some support at these high price points int he MBS. We need this yield to stay below 2.5. Should it move down, it will only help our market, but I do expect us to find a range in the very near future which means when we do, reduced yields in treasuries will only continue to support our range, inside of it we'll see investors buying in and some selling off taking profits. For this reason I anticipate we will see these low rates moving into the future for better or worse. To break out of this range (which we are expecting but not in yet), I believe we would need the 10 year yield to drop below 2.25%...

Think that's crazy? So is 2.5% but here we stand. It could happen, would I hold out for this revelation? Not at all... take while the taking is good. There is too much risk associated with sitting on the fence at this point in time.

Let's not forget about inflation... it's looming and our arch nemesis. If these current rates will put you in a better position. Secure them while they are available and don't look back.

New Yearly Highs, Mean Rates Reach Yearly Lows

Bottom Line: This morning we broke through the yearly highs of the Mortgage Backed Securities market and are now enjoying the peak of the mountain. Difficult to say which way we go from here so we're simply going to enjoy a graph.
Isn't it beautiful? A completely subjective question. If you are in a position to lock and take advantage, than yes it is beautiful, if you're positioning yourself to take advantage it's awesome, but a little scary... a long way to fall should we slip.

One thing is certain, investors are not all that confident in our economy right now which is why we've seen such a flight to safety.

Secondary Markets Rally

It's Friday... according to the Pres. we got 4 days before we "run out of money to pay our bills..." If this were true, I think the bond markets would be reacting with disfavor towards the U.S. Government issuing and we would see yields rising on interest rates as investors sold.

Point in fact the bond market is thriving, with yields reaching new lows. The 10 year is currently paying 2.85%.... this benchmark has paved a smooth path for the mortgage backed securities market which is currently up 20 ticks in early trading. I should emphasize early, we could see a sell off this afternoon as profit takers reap the rewards of a market that has reached yearly highs once again.

How this market is holding, scratch that, improving is something that sort of makes sense, but doesn't make any sense. As the equity markets bleed (approaching 12,000 on the DOW) investors are looking for safety, so they're running in flocks to the bond market. An interesting fact which could leave many burned if we get slapped with a down grade. Then again, the idea of a downgrade may be baked in (I don't really think this to be true) already. Probably not, but you never know, and if you honestly try and find a better long term safe investment where do you go in the world right now? It's on fire. So whether investors like it or not, MBS and Treasuries may be as good as it gets, and if that's the case better rates are coming in the short term.

Don't read this incorrectly. I still strongly believe higher interest rates are on their way, and when they hit, it's going to be with a vengeance. A locust invasion comes to mind. Get while the getting is good.

Debt Ceiling a Downgrade and Mortgage Rates...

Obviously by the title of this post I am not going to be able to cover every intricate detail in regards to possible outcomes, but what I can share with you regarding this large area of concern investors have right now is half real.

Yes we are at a point where if the debt ceiling is not raised our government will run out of money because they continually spend more than they take in in revenue - namely taxes... Consequently for all the bells and whistles to continue and for the government to follow the business as usual course of action they are so comfortable with, the debt ceiling must be raised. Truth be told, there is no way we will be able to solve all of our fiscal problems without a debt ceiling increase, there simply is no time to work through and reform entitlements, and all the other social programs, along with discretionary spending before we run out of money.

With that said, our running into the debt ceiling is not the end of the world that the politicians are proclaiming, in fact our doing so should not mean an immediate default on our current obligations - a favorite talking point in both parties. What I love about financing is numbers don't lie, and the simple fact is we take in enough tax revenue each month (approximately 200 billion) to meet all our major obligations - interest on our debt 50 billion, social security 30 billion, medicare and medicaid 40 billion, military and disability pay 15 billion, let's estimate another 15 billion spent for good measure... add this up and we're left with 50 billion to spend on discretionary. This simple breakdown informs us that the major obligations will be met as long as our Treasury Secretary and the politicians he answers to make sure he pays the important bills first. Things that we will no longer be able to afford will most definitely have an impact on other areas of the government. Our troops will be paid, but their equipment might not be able to be maintained. All Michelle Obama's aids, they should disappear along with most of the staff our elected officials enjoy. Departments like the DOE, DOLR, EPA, State Department, along with others would see severe cuts in their expense accounts... in addition many private companies that depend on government contracts will suffer, so we will see carry over in the private sector should the government debt ceiling not be raised by 8/2.

With that said the debt ceiling not being raised, is not going to have the major impact on our economy that our government would like us to believe. Their power is generated by our (the people) believing that we need them if we want our lives to be better. The simple fact is we don't. True some national parks and monuments will be closed - but if they were to remain closed just because our disfunctional government told us they were, how long would it take before someone just cut the chain and started using the park as it was being used before the government put the lock on the door. Would everyone stop driving just because the DMV shut down and we didn't have the opportunity to enjoy standing in their line to take a terrible picture? Of course we are all worried about our retirement accounts, the stock markets, etc... Even with these things on our mind, it would appear as though the markets have baked in the possibility of the debt ceiling not being raised. If you look at trading over the last few weeks as the deadline looms closer and closer, it's business as usual in the stock market with gains and losses taking place daily. The bond market is still trading at near record lows (regarding yield). It is difficult to draw the conclusion (unless emotion comes into play) that the markets are truly concerned over the debt ceiling.

Of course in the background we have the ratings agencies and their poking the headlines with the fact that if the debt ceiling is not raised and the trajectory of our government's spending habits are not corrected we may face a downgrade. In fact even if the debt ceiling is raised there is a 50% chance that we see a downgrade. This is the real threat. A downgrade to our credit rating would have a substantial impact on our economy and have an immediate impact on the vast majority of Americans. Interest rates would spike and the cost of all debt (unless already locked into a fixed rate) would go up. That means everyone's credit card interest would increase, mortgage rates would go up, our Country would owe more in interest which would mean their needing additional revenue (and the only way those in DC know how to get it is by taxing), and we would find our typical cost of living costs increasing... Those that do not have the extra funds to pay would find themselves in more trouble, credit and obtaining it would tighten making lending more difficult... and the plot continues to thicken.

The threat of a downgrade is the real problem, and we need to make sure those in DC are working to resolve the real problem. Unfortunately the argument has been formed around the increasing the debt ceiling, and not about avoiding a credit downgrade. The assumption is as long as we can raise the debt ceiling we will not have a downgrade. Realistically this is not the case, and raising the debt ceiling and not making significant changes in our spending habits will most likely end in a downgrade. Dangerous water....

So what's this mean in relation to housing? Those locked into a fixed interest rate will be loving life... their payments will remain static while others are forced to make due in a shifting and more expensive market. As for the depressed real estate market and sales... I see home sales suffering and an addition dip in housing prices should future home sales deteriorate. We still have a large inventory of foreclosures, many are still underwater, and banks are not on stable ground yet... The stack of cards is teetering. The best solution is a strong foundation which begins with a fixed rate of interest.

Time will tell... I hope this can be avoided but I am concerned that we have missed the window of opportunity. Let's all hope our politicians can see the light and come to terms that appease the credit rating agencies and we can avoid a downgrade.

Back With a Passion

Okay okay... I've been hearing it from many people, what happened to the blog? With this being my official "back in action" post I think it makes sense to open with a a short explanation regarding my absence over the last few months.

As is true with most front page news, the media has done an exceptional job keeping an incredible story from breaking and becoming national cover. Namely the fundamental changes that were made to the real estate finance industry due to the passage of the Dodd Frank Bill some time ago.

Last April 1, (a cruel joke that it was implemented on April Fools but is in fact law) 2011 new compensation rules went into effect that created specific parameters in which the originating loan officer could be compensated for the work performed when securing a home loan for a client.

The new rule, designed in the favor of large institutions essentially creates two boxes from which the borrower can choose from: lender paid compensation, and borrower paid compensation.

Lender Paid Compensation requires that the originating agent determine before your transaction begins with the lender what their compensation will be for all loans that will be originated in the future. Once this fee for service is determined, it cannot change even if everyone involved with the transaction agrees/wants the fee to change. In addition the borrower is not allowed to pay any portion of the fee collected by the loan originator. the idea behind this is that everyone should have to pay the same amount as everyone else - that is after all what's "fair." Of course there is nothing fair about the real world, a cruel truth proven by the fact that the borrower and loan originator no longer have the ability to determine the fee structure between themselves - that choice has been removed in the lender paid compensation model.

Borrower Paid Compensation works differently. The borrower and and loan officer have the ability to negotiate the fee for service collected at closing know as the origination fee, however if this compensation model is chosen, the lender is prohibited from paying any portion of the origination fee with any credit generated from the agreed upon interest rate. In other words, third party charges can be paid for with the credit, but the loan originators fee for service must be paid in full by the borrower either in cash brought to the table or with equity out of the refinance. In addition if this compensation model is selected, the loan officer cannot directly collect any portion of the origination, their compensation for the work completed must come from either a salary, or an hourly wage their company is paying them. This requirement makes it mandatory for any lending institution that wants to offer the borrower paid model makes all their loan officers W2 employees, which increases the cost of overhead and operating expenses making the cost of closing more expensive (starting to see why this legislation benefits the big banks). While doing so, it removes the incentive for the loan officer to work to reduce your cost of closing because they get paid regarding of whether you choose to close the loan or not (remember they're getting paid an hourly or salary as the wage), and will be told by management what the origination fee must be if a borrower chooses that compensation model.

In addition the regulations now required to operate and the red tape that must be cut through has become a close to insurmountable task. The end result is most loan officers and even some lending institutions have determined it simply doesn't make sense operating in such an environment. With the additional costs and regulations experienced loan officers are leaving the industry, and being replaced with "order takers" trained to a bare minimum, unfamiliar with the history of our industry and real responsibility of a loan officer - namely securing the best possible terms for their clients. It has become, this is what is available and the cost, take it or leave it.

I was unwilling to accept this as my fate, and knew there had to be a better solution for my clients. The end result was my opening a new brokerage. My new brokerage, Culture Mortgage, currently offers both lender paid and borrower paid compensation models, something most brokerages do not offer because of the new requirements. In addition I have aligned myself with lenders and arranged my lender paid compensation to be in the lowest tier possible, which means you get the best possible terms.

In the coming weeks, this blog is going to be reactivated and you will again see regular posts from me regarding market direction and changes going on within our industry. What I broke down above has had and will continue to have a profound impact on the real estate market. If you would like additional details, and there are many about this post your comments or send me a personal email.

It's good to be back.

Egypt Riots Continued...

And we're up eight on the day which has led to some lender reprices for the better. We're looking at the best rate sheets for the week right now. Let's hope this rally continues and we finish on a strong note.

If we do, careful attention will have to be paid over the weekend and on Monday's open.

Egypt Riots...

Contrary to what some might expect the unrest in Egypt is helping our markets today as investors look for security. Consequently we are up on the day five ticks which will lead to better rate sheets and pricing.

Difficult to call this a trend, we are definitely trading in range right now although it is important for us to develop a recent history in which the 4.5 note remains above the 102.00 price point. Today will be day two if we don't experience a sell off (currently trading at 102.08).

A Promising Day

After a tough day in the market yesterday where we lost 14 ticks on the 4.5 note, we are up 5 ticks currently, which is not so bad. As things stand we are currently trading with a new range. For those of you that waited until the New Year in hopes rates would come down slightly, our new range is trading above the slide at the end of 2010.

With that said rates do appear to be trickling up slowly but surely. This trend could buck but not likely given the climate. Now would be a good time to think about moving forward if you have been sitting on the fence. Rates are still low, and a well timed market can produce nice surprises (long as your working with an ethical broker) if you hold out and float into a well priced day.

And don't forget the benefit of shorter lock periods.

These are tricks we have discussed in the past, but things worth remembering moving forward.

Rates Slide Down

Day after the State of the Union we are seeing mortgage rates climb higher as our market sells off. Currently down 11 ticks on day we can expect reprices for the worse this afternoon. FOMC will be reporting this afternoon. There is a slight chance they bring our market out of the gutter today, but I wouldn't count on it.

By in large the trend is rising interest rates... timing is everything in this market, take care in when you lock.