Rates relax...to the 5.25% range this morning. We may see them relax a little more tomorrow. Perspective: the Fed has been printing BILLIONS of dollars worth of coupons that they are selling as Treasury notes. $27 billion worth were auctioned today. This in addition to ALL THE REFINANCES that are hitting the market and a few other factors are adding HUGE SUPPLY. (Perspective: see "secondary market" below.)

When Supply FAR outnumbers DEMAND: pricing deteriorates and higher "yields" need to be offered to investors. SO: rates go up.

We saw further deterioration in the bond market this morning before a late afternoon rally stabilized the market.

FNMA 4% is UP 28 bps right now with an hour of trading to go. Expect some sell-off tomorrow, but rates may be better in the morning. Interesting note: TODAY whenever the mortgage backed securities started to rally, major supply kept coming into the market for sale.

Remember that to entice investors to buy T-notes to fund MASSIVE government spending: the feds are offering higher yields right now. There are major investors in Mortgage Backed Securities who are selling their holdings to invest in Treasury notes.

APPRAISAL change. In April: we sent out a news bulletin on some appraisal changes. Industry wide on May 1st: the process for ordering appraisals has changed. No longer on conventional
loans can the loan officer have ANY contact with the appraiser...or even know who the appraiser is. If contact is made with the appraiser: it needs to be through a neutral party and accurately logged. It has been a month and we are seeing some interesting side effects. The major one: lack of
accountability. Appraisers who tended to provide good service to earn more business are no longer under any pressure to provide quick turn times etc. This is similar to the way VA appraisals have always been. It is wise to give a few extra days for the appraisal contingency. For more information: http://www.dailyherald.com/story/?id=293369

Secondary Market 101: When a mortgage company like Metlife or Wells Fargo funds a mortgage: they want to be able to fund more mortgages. SO: Up front they are using their OWN MONEY...then after about 45-60 days the loans are sold to an "investor" on the secondary Market. Conventional loans go to Fannie or Freddie (FNMA or FHLMC) and FHA/VA loans go to GNMA1 or GNMA2. The "investor" buys the mortgage which provides the bank with more money to
then fund more mortgages.

Smaller banks and brokers all find different ways to fund mortgages up front including "warehouse lending" or using other money when they are not using their own to fund mortgages up front. Generally they also sell the "servicing" of the mortgage to a larger lender.

Interestingly: the agencies like FNMA or FHLMC will chop the mortgages up into little pieces and sell them to investors. They "securitize" the mortgages.

Banks like Wells Fargo or MetLife will then service the mortgage (take the payment from the customer etc) even though the note has been "sold on the secondary market".

In recent years the trouble has come when the investor on the secondary market has been selling the mortgages BACK to the banks...and adding HUGE penalties if things were not done
properly up front. This is why we have seen intense scrutiny on some of our files. Banks do not want to "buy back" loans and pay the penalties which can amount to MILLIONS of dollars a year.

Agencies are also refusing to buy certain mortgages. That is why nobody is offering a "stated income" loan right now or other magical programs that have simply disappeared. You
may have read or heard: there is "no market" for them.

FNMA and FHLMC only buy mortgages up to 417k from our area here. (They buy mortgages up to $729k in certain areas). Mortgages with higher amounts are called JUMBOS

http://useconomy.about.com/od/glossary/g/secondary_marke.htm for some more basic info.

Happy day!