Lenders have finally begun pricing the new Jumbo Conforming Loans. So far, Fannie Mae will only be accepting delivery of the 30 year fixed on April 1, with the 5/1 ARM on May 1. Here is a comparison of the a) normal conforming 30 yr fixed, b) the new jumbo conforming 30 yr fixed, and c) the regular jumbo 30 year fixed, all from the same lender’s rate sheet today at 3pm.

a) 5.5% at 1 point / 5.875% at zero points
b) 6.5% at 1 point / 6.875% at zero points
c) 7.5% at 1 point / 8.000% at zero points

Similarly, here are the d) traditional FHA and e) new Jumbo FHA 30 yr fixed rates:

d) 5.750% at 1 point
e) 6.625% at 1 point

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A few weeks ago, the Fed made an emergency rate cut of 75 basis points followed by another 50 basis point cut at their Jan 29th meeting. Mortgage rates plunged briefly but then turned and exploded higher in a climb that lasted several weeks and carried the 30 year fixed back up into the 6.25% range. Consumers were confused, and many lost out as they waited and hoped for rates to fall even further.

The 30 year fixed stands at 5.875% once again this morning as Bernanke’s testimony yesterday and the stream of economic data point to economy with the brake pedal mashed against the floorboard. With oil brushing up against $102 a barrel and the specter of inflation dancing gleefully on the horizon, the Fed still seems more concerned on balance about the recession that “we’re not in”, which tells you something about how bad things look to them.

Mortgage Rate Forecast

Rates are improving this morning, but don’t wait for them to plunge. This is just part of the weekly cycle of volatility that consumers will have to watch carefully in order to lock in a good rate. The driver for mortgage rates isn’t the Fed action, not the recession, not even liquidity; it’s all about risk.

Forget about watching the 10 year Treasury for clues about mortgage rates. The correlation that existed was due to the fact that investors thought mortgage back securities and the U.S. Treasury 10 yr Note held about the same amount of risk. Guess what they think now.

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It was another violent tug of war for mortgage rates last week. Renewed inflation concerns tugged hard on one end of the rope and recession anchored the other. Freddie Mac checked in with their weekly survey, reporting average 30 year fixed rates at a little over 6% with .6 points.

For that same half point, note that you can now get a 5/1 arm at 5.32%. The yield curve has steepened again as the short maturities respond to the Fed cuts and the long end stubbornly refuse. This 5/1 arm is not junk, it’s a A paper loan that makes a lot of sense for those shorter expected holding periods on their homes. The difference in rate could save you $10k over 5 years. Keep it in mind.

Got a question or comment? Don’t be shy; write it below.

Need help with your loan? That how I make my living, and if you live in the Western U.S., I can help you.

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There have been many consequences of the subprime mortgage meltdown. But one which has received very little attention so far is the repricing of risk by investors who buy mortgages. That is about to change. What’s important to understand about this fuzzy term is that mortgage rates will now rise even for consumers with decent credit scores. Meet risk-based pricing.

In the 2007 mortgage meltdown, investors realized that the low interest rates previously offered didn’t adequately cover the risk of default. Past projections floated on a rising tide of appreciation that kept every one off the reef. Now that the tide has rolled out and shipwrecked many lenders, those left afloat are raising rates to compensate for the soaring level of defaults.

Are You an “A Paper” Borrower?

Long before subprime came along, there were two general categories of mortgages; “A Paper”, and everything else. Those of us involved in “A Paper” lending rarely visited the dark underworld of B, C, & D paper. But the advent of subprime brought light to that world and introduced us to risk-based pricing as the industry opened wider the gates of home ownership. So think of the current repricing of risk as a further striation of the A paper segment. This will mean that higher risk borrowers will now pay higher rates.

Pricing Adjustments

The long and short of this is that A Paper borrowers will no longer be treated equally. For instance, if Fannie Mae’s Desktop Underwriter (DU) approves your loan and your Fico score is below 620, expect to pay a rate 1/2 point higher than your friend whose score is 720, unless you’re putting 30% down. If you want an interest-only loan, a hybrid ARM, an owner occupied duplex, or a manufactured home, expect further adjustments to your rate, depending upon your loan-to-value (LTV) ratio.

Read the rest of this entry »

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It was a rough week for the mortgage market. The Fed lowered short term rates only by a quarter point rather than the half-point some expected, retail sales were strong, and inflation at the wholesale and retail levels were both higher than expected.

All of this apparent economic strength handcuffs the Fed and makes the probability of further cuts in January less likely. Rates today are moving higher. Fears of inflation could prevent rates from falling further. According to Freddie Mac’s weekly survey, 30 year fixed rates rose to an average of 6.11% with half a point.

So, if you’re planning to buy a home, don’t wait for interest rates to fall. This may be as good as it gets for awhile.

Contact me for a quote, or apply for a mortgage here. I can do loans in most of the western U.S.

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The Federal Reserve today lowered the Federal Funds rate by a quarter point to 4.25% and the Discount rate by a quarter point to 4.75%.

Now remember that the Fed is playing with overnight lending rates between banks and between banks and the Federal Reserve itself.   This does have an impact on mortgage rates, but it does so in advance.  In other words, as economists and bond traders build consensus about what they think the Fed will do, mortgage rates adjust before the actual event.  

Then, when the Fed meets, the markets move based not on what the Fed did but rather upon what the Fed did compared to what they were expected to do.  This past week, mortgage rates moved higher as hopes for a half-point cut evaporated.  The stock market was still hopeful and had been rallying, pulling money from bonds and pushing bond yields (hence mortgage rates) higher.

So today, the stock market was disappointed by the conservative Fed move and was off 175 points a little while ago.  The bond market is rallying helping push mortgage rates lower.  I started getting minor price adjustments from my lenders this afternoon.  

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The 30 year fixed rate conforming loan (up to $417k) ended the week at around 6.25% at 1/2 point, according to Freddie Mac’s weekly survey.

The 3/1 and 5/1 conforming arms are once again offering a bit of a break and can be had in the low to mid 5% range with that same half point.

Jumbo 30 year fixed rates are still around 7.25%. Only the big banks with a broad retail presence are willing to stick their necks out to offer these, since investors still haven’t found their appetite.

Jumbo 3/1, 5/1, and 7/1 arms are a good bet right now with rates in the low 6% range. For those with a shorter time horizon, a jumbo 7/1 arm at 6.25% on $550k would save $366 per month, or $33,000 over five years. That’s worth looking at!

The interest-only counterparts to these loans will carry a premium on the rate anywhere from .375 to .75%

Need a quote on your specific purchase or refinance? Contact me here.

Got a question or comment, leave it below.

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