FNMA 4.5% bond actually came UP 25 bps...and is valued at $100.00 til tomorrow morning. This is UP from the value of $99.25 we had Monday morning.
I was asked a great question today by a preferred partner:
Why do we continue to watch the FNMA 4.5% bond? Right now: the 4.5% represents mortgages that have been converted to securities and have rates in the 5% range. This is really close to where the mortgages we are writing today and will be made into securities later are priced.
Maybe this is an over simplification...but the bottom line is the same: when mortgage backed securities are "valued" and desired investments: mortgage rates go down. This is why the feds are creating artificial demand with the purchase program. As mortgage interest rates go up: we watch different bonds. When rates were 6.5%-ish for example: we were watching the 6% bond.
Feds released a "5 tips for shopping for a mortgage" article...it is pretty good if you want to check it out.
http://www.federalreserve.gov/pubs/mortgagetips/
HAVE YOUR FENCE SITTERS TAKE A LOOK:
I saw an interesting grid today....it suggested that for a 30 year fixed mortgage for every "decrease" in home value: if there is an increase in interest rate a person's buying power will remain the same.
Ex: 200k loan at 6%: $1199 payment. $190k loan at 6.5%: $1201 payment. $180k loan at 7% is a payment of $1198
Check out the graphic at:
http://www.millionairesystems.com/msys/UserFiles/File/SHIFT_BuyNoworWait_Figure_47.pdf
We are burning through the Fed's commitment to buy 1.25 TRILLION in Mortgage Backed Securities and they purchased just over 20 billion worth last week. We see that they are supporting mortgage rates of the low 5's still and don't seem to be buying securities that suggest a downward trend for the rates at this time.
Today's T-note auction went well today and provided some life to bonds...no auctions next week.
WOW: the US has issued over 1 TRILLION DOLLARS worth of debt out there this year...so far. This means that they have "committed to pay" the holders of newly issued "treasury notes" when those notes are cashed in.
Happy Selling!
