What the Markets Are Doing Today:
The bond and mortgage backed securities markets opened in negative territory again today while the stock markets opened in positive territory again today following the results of the bank stress test yesterday, and the release of a better than expected employment report today.
- The Dow opened up 81 points from yesterday's close
- NASDAQ opened up 14 points from yesterday's close
- The 10 Year Treasury Bond opened down 8/32 from yesterday's close
- FNMA 30 Year 4.0% coupon opened down 2/32 from yesterday's close
The price of the FNMA 30-Year 4.0 coupon closed down 22/32 from its opening yesterday (white line), but is currently up 8/32 (blue line). Remember, on MBSs, as the price goes down, the yield goes up - and so do mortgage interest rates. Conversely, as the price goes up, the yield goes down - and mortgage interest rates go down with it. I expect that mortgage rates will be worse by 0.375 - 0.625 in discount points today as compared to yesterday's opening. However, if the current pricing trend continues, we may see an improvement by 0.125 - 0.25 in discount points this afternoon.
Economic Reports Being Released Today:
- Employment Situation Report - The Labor Department reported that 539,000 jobs were lost in April, much less than the 630,000 job loss that was expected, and much less than the 699,000 jobs lost in March. It's also the smallest job loss since October 2008. This indicates that the worse of the recession may be over, and that we are hopefully beginning to see signs of a gradual recovery.
However, the unemployment rate rose to 8.9% in April, the highest since September 1983, and is as analysts expected. There are now 13.7 million people unemployed.
Important News of the Day:
The Feds released the results of their bank stress test yesterday. Of the nation's 19 largest banks, 10 of them - including Bank of America, Wells Fargo, GMAC, Citigroup, and Morgan Stanley - must raise a combined total of $74.6 billion in capital in order to withstand another economic slump.
Banks that are not required to raise any new capital include American Express, Bank of New York Mellon, Capital One Financial, Goldman Sachs Group, JPMorgan Chase, MetLife, and State Street. The much anticipated results were better than expected, and comes as a relief to many investors.
Fannie Mae recorded a 1st quarter loss of $23.2 billion. That compares with a loss of $2.19 billion a year earlier. Fannie Mae said its "entire guaranty book of business, including loans with lower risk characteristics," was experiencing "increases in delinquency and default rates as a result of the sharp rise in unemployment, the continued decline in home prices, the prolonged downturn in the economy, and the resulting increase in mark-to-market loan-to-value ratios."
Fannie Mae said it will need a $19 billion infusion from the Treasury. This is in addition to the $15 billion it received from the Treasury on March 31st.
Next week will be very busy next week with many economic reports scheduled for release. Monday and Tuesday will be fairly quiet next week, but there will be a couple of key inflation readings, an important measurement of consumer spending and a reading on industrial output in the later part of the week. That means the middle and latter parts of the week will probably be very active with several key reports being posted over three trading days. Look for more details on next week's economic data releases and events on my Weekly Mortgage Market Watch on Monday.
What Happening With Mortgage Rates Today:
Moderate Volatility. Look for plenty of movement in the financial markets and mortgage rates this week. As the reports released this week revealed stronger than expected economic conditions, bond prices fell and yields and mortgage rates rose.
There's still continued downward pressure on MBS prices (which means higher yields and mortgage rates). The supply of bonds and T-bills on the market continues to weigh heavily on the market. The government expects to issue between $2.7 trillion and $4.2 trillion in bonds over the next two years to pay for the massive debt obligations. That in and of itself may give rise to the concerns for inflation.
No one knows how long rates will stay down this time or if they'll go any lower. In addition, the spring and summer home buying season is upon us. Mortgage rates historically climb this time of year before peaking in July or August. If you haven't locked in a rate yet, then you may want to consider doing so. Floating is making less sense now as the ever increasing massive government debt as well as the spring and summer home buying season could soon drive mortgage rates up even more. So, if you like the rate that you are being offered today, then there's nothing wrong with locking in.
My Interest Rate Lock Advice for Today:
If I were considering financing/refinancing a home, I would...
- Lock if my closing was taking place within 7 days
- Float if my closing was taking place within 8 and 30 days
- Float if my closing was taking place between 31 and 60 days
- Float if my closing was taking place over 60 days from now
This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of any or all other borrowers. See today's mortgage rates at www.LewCorcoran.com/RateSheet.
East Bridgewater, MA 02333
Lew Corcoran, ASP®, IAHSP, IAHSP-CB