The Markets Today:
Mortgage backed securities (MBS) and the bond market opened in negative territory despite the release of weaker than expected economic news. Meanwhile the stock markets are trading in positive territory today.
- The Dow opened down 16 points from yesterday's close and is currently up 48 points
- NASDAQ opened down 3 points from yesterday's close and is currently up 12 points
- The 10 Year Treasury Bond opened up 1/32 from yesterday's close and is currently down 9/32
- FNMA 30 Year Mortgage Backed Securities February 4.5 coupon opened up 3/32 from yesterday's close and is currently down 4/32
Remember, on MBS, as the price goes up, the yield goes down - and mortgage interest rates go down with it. Conversely, as the price goes down, the yield goes up - and so do mortgage interest rates. MBS closed up 12/32 yesterday and is now down 4/32 this morning. I expect mortgage rates to be worse by 0.125% - 0.25% in discount points today.
Economic Reports for Today:
- January's Housing Starts - This report will give us an indication of housing sector strength and mortgage credit demand. New housing starts declined almost 17% in January to an annual rate of 466,000 - another record low. This indicates that the housing market has not bottomed out yet. This is considered good news for bonds because weak housing helps support a theory of a weakening economy.
New home builders are struggling as more foreclosures increase the supply of homes for sale. "The problem with the build-up in inventory is coming from the increasing number of foreclosures," said Nicolas Retsinas, director of Harvard University's Joint Center for Housing Studies in Cambridge, MA. "It's about time the government intervened so directly in the problem."
- January's Industrial Production Data - This report gives us a measure of the strength of the manufacturing sector by tracking output at U.S. factories. The report revealed a 2.0% drop in manufacturing output in January, and is more than expected. Analysts were expected a drop of 1.5%. This indicates that the manufacturing sector is still slowing, and is another positive indicator for bonds and mortgage rates.
- The Minutes from the Last FOMC Meeting - Traders will be looking for any indication of the Fed's next move concerning monetary policy. They will be released at 2:00 PM EST; therefore, any reaction will come during late afternoon trading. With little likelihood of the Fed making a change to the key short-term rates anytime soon, these minutes won't heavily influence trading or lead to a change in mortgage rates.
News for Today:
The president announced a $275 billion plan to bail out homeowners who are struggling with their mortgage payments. According to a White House fact sheet, the plan is to help as many as 5 million homeowners refinance loans that are owned or guaranteed by Fannie Mae and Freddie Mac.
"It will give millions of families resigned to financial ruin a chance to rebuild," Obama said in remarks prepared for delivery at 10:15 a.m. in Mesa, Arizona. "By bringing down the foreclosure rate, it will help to shore up housing prices for everyone."
Obama also said that he will support revamping bankruptcy rules to allow judges to reduce mortgage balances on primary owner-occupied homes to fair- market value - as long as borrowers pay their debts under a court-ordered plan. Under the plan, homeowners will be eligible for $1,000 a year for 5 years if they make their mortgage payments on time.
There are five economic reports to be released this week that could potentially affect mortgage rates. Look for more details on next week's economic data releases and events on my Weekly Mortgage Market Watch.
Rate Volatility Index for Today:
Moderate Volatility. Overall, I am expecting to see some movement in the markets, and there's some upward pressure on mortgage rates again today.
If you haven't locked in yet, then I suggest that you continue floating. While floating continues to make sense right now, the ever increasing massive government debt could have an adverse affect on mortgage rates. If you like the rate that you are currently being offered, and if at that rate you are saving a considerable amount of money on your monthly mortgage payments, then there is nothing wrong with locking in.
My 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.
Interest rates are based on numerous economic, financial and credit based factors that adjust daily. In addition, lenders can vary on the qualification requirements from mortgage program to mortgage program. If you like the rate today, then the safe bet is to lock in. Even if rates improve, most likely they won't improve enough in the short term to make you cry about it. But if you are an ardent market bear and believe that we'll keep hearing more bad economic for a while, and you have the money to risk, then you may benefit from floating. Just remember, it always seems more painful to have not locked when you should have as opposed to locking in now and watching rates get a little better.
East Bridgewater, MA 02333
Lew Corcoran, ASP®, IAHSP, IAHSP-CB