Today was a fantastic day for mortgage bonds with the FNMA 4.5% bond coming in a cool 28 cents Higher to close at $100.94. We haven't seen this one valued this high since March 23rd which was just before the feds stopped buying mortgage bonds.
Remember that? 1.25 Trillion in Mortgage Backed Securities are owned by the feds right now. Rumor is that they will start putting them back into the market in the next few months. James Bullard the St. Louis Fed President made a statement today evidently that they will reverse taper the selling of the securities when they re-introduce them to the market. So: Instead of dumping HUGE offerings like they have been doing with T-notes, they will offer a small amount at first and slowly offer more and more. Be ready for this to move rates up some though.
Dow was down over 200 points and closed below 11,000 for the first time in a while.
This summer we will likely see rates spike as we always do at the end of June when 2nd quarter numbers are released and people generally get comfortable with taking on more risk in the stock market: but rates will likely spike to a number less than 6% like they have over the last few years.
Rates are not everything, but they do allow for more buying power.
Why are rates staying low? I see a few reasons that I have been sharing.
1. Investors generally understand that the mortgages being securitized today are of a BETTER quality than in the past. This is really encouraging. It was a good sign that those seeking "safe havens" for their money with the Europe financial worries of late actually were CHOOSING mortgage backed securities. This perception is everything. Remember that there is still a $200 billion "back stop" in place to prevent the agencies from defaulting on their debt. This means that if they sell LESS than the coupons coming due for payment: the feds have arranged a line of credit to pay out investors due. This pseudo guarantee by the feds adds an element of safety to the securities.
2. Thanks to the introduction of "risk based pricing" the "base rates" which are the lowest rates offered are only offered to the BEST borrowers. This makes the market indicator mortgage bond that we watch (Currently the FNMA 4.5%) EVEN MORE attractive as it represents ONLY the best mortgages. The lower credit scored borrowers obtain mortgages with higher rates and therefore are securitized and represented by different securities.
BASE rates are advertised...not the rates that lower credit score borrowers or borrowers buying investment homes or condos are getting.
Great Statistic to end on: Pending Home sales came in above expectations for last month at a 5.3% increase vs a 5% increase! Even though they were less than reported in February, they were better than expected by analysts. How many of those are purchases made by people selling their exit residence and moving into a SMALLER home? This is a great buyer profile that Renee Gaugler pointed out to me. They have similar needs as first time home buyers and are a segment that is active. Look for more of them in the future.
Cheers!
--
Chad Schauers
Montana Mortgage Lender, Bozeman, Montana
Personal Cell: 406 799 8613
Personal Email: metchad@gmail.com
Chad Schauers
Montana Mortgage Lender, Bozeman, Montana
Personal Cell: 406 799 8613
Personal Email: metchad@gmail.com
